-----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, WdsogNoHfHcvrcJav7DCzacEFI74v1VL49QLv2SlCaCIumL1CE3YQxGaKeZufibi 4uaCfNPC6xeNb55wbR0fCA== 0000950129-99-004539.txt : 19991019 0000950129-99-004539.hdr.sgml : 19991019 ACCESSION NUMBER: 0000950129-99-004539 CONFORMED SUBMISSION TYPE: SC 14D1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19991018 GROUP MEMBERS: HCC INSURANCE HOLDINGS INC/DE/ GROUP MEMBERS: MERGER SUB OF DELAWARE, INC. SUBJECT COMPANY: 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: SC 14D1 SEC ACT: SEC FILE NUMBER: 005-37241 FILM NUMBER: 99729877 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 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: HCC INSURANCE HOLDINGS INC/DE/ CENTRAL INDEX KEY: 0000888919 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 760336636 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D1 BUSINESS ADDRESS: STREET 1: 13403 NORTHWEST FRWY CITY: HOUSTON STATE: TX ZIP: 77040-6094 BUSINESS PHONE: 7136907300 SC 14D1 1 HCC INSURANCE HOLDINGS, INC. FOR CENTRIS GROUP 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ SCHEDULE 14D-1 TENDER OFFER STATEMENT PURSUANT TO SECTION 14(d)(1) OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. ) ------------------ THE CENTRIS GROUP, INC. (Name of Subject Company) ------------------ MERGER SUB OF DELAWARE, INC. HCC INSURANCE HOLDINGS, INC. (Bidder) ------------------ COMMON STOCK, PAR VALUE $.01 PER SHARE (Including the Associated Common Stock Purchase Rights) (Title of Class of Securities) ------------------ 155904105 (CUSIP Number of Class of Securities) ------------------ STEPHEN L. WAY MERGER SUB OF DELAWARE, INC. 13403 NORTHWEST FREEWAY HOUSTON, TEXAS 77040-6094 TELEPHONE: (713) 690-7300 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Bidder) ------------------ Copies to: ARTHUR S. BERNER, ESQ. WINSTEAD SECHREST & MINICK P.C. 910 TRAVIS STREET, SUITE 2400 HOUSTON, TEXAS 77002 TELEPHONE: (713) 650-2729 ------------------ CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- TRANSACTION VALUATION* AMOUNT OF FILING FEE - -------------------------------------------------------------------------------------------- $150,712,863 $30,142.57 - -------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------
* Estimated for purposes of calculating the amount of the filing fee only in accordance with Rule 0-11(d) promulgated under the Securities Exchange Act of 1934, as amended. The amount assumes the purchase at a price per share of $12.50 in cash of 10,996,576 currently outstanding shares of common stock par value $.01 per share, (including the associated Common Stock purchase rights) (the "Shares"), of The Centris Group, Inc. plus Shares which may be acquired upon the exercise of 1,060,453 outstanding common stock purchase options. [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: None. Form or Registration No.: Not applicable. Filing Party: Not applicable. Date Filed: Not applicable.
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SCHEDULE 14D-1 CUSIP NO. 155904105 1. Name of Reporting Persons: Merger Sub of Delaware, Inc. ("Merger Subsidiary") S.S. or I.R.S. Identification Nos. of Above Person: 76-0586804 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions). (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC Use Only - -------------------------------------------------------------------------------- 4. Sources of Funds (See Instructions). AF, WC - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(e) or 2(f). [ ] - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization. Delaware - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person.* 1,613,035 - -------------------------------------------------------------------------------- 8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares. [ ] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row 7. Approximately 13.22% based on the shares outstanding as of October 11, 1999, plus the Shareholder Option Shares (defined below) .* - -------------------------------------------------------------------------------- 10. Type of Reporting Person (See Instructions). CO - -------------------------------------------------------------------------------- * Merger Subsidiary, a wholly owned subsidiary of HCC Insurance Holdings, Inc. ("HCC"), and certain shareholders of The Centris Group, Inc. (the "Company") have entered into an Agreement, dated as of October 11, 1999 (the "Shareholder Option Agreement"), pursuant to which such shareholders have granted to Merger Subsidiary an option to purchase, for a price of $12.50 per share, an aggregate of up to 1,011,835 outstanding shares of the Company's common stock, par value $.01 per share (the "Common Stock"), including the associated Common Stock purchase rights (the "Rights" and collectively with the Common Stock, the "Shares"), and up to an additional 601,200 shares issuable upon exercise of such shareholders' outstanding stock options (collectively, the "Shareholder Option Shares"). This option is exercisable within five Business Days after an Acquisition Proposal or a Superior Acquisition Proposal (as such terms are defined in the Agreement and Plan of Merger dated October 11, 1999 (the "Merger Agreement"), a copy of which is attached hereto as Exhibit (c)(1)), shall have successfully received and paid for in excess of 50% of the Fully Diluted Shares (as defined in the Merger Agreement). Merger Subsidiary's interest in the Shareholder Option Shares is reflected in Rows 7 and 9 of each of the tables above. The Shareholder Option Agreement is described more fully in Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights") of the Offer to Purchase, dated October 18, 1999, and attached hereto as Exhibit (a)(1) (the "Offer to Purchase"). 3 SCHEDULE 14D-1 CUSIP NO. 155904105 1. Name of Reporting Persons: HCC Insurance Holdings, Inc. S.S. or I.R.S. Identification Nos. of Above Person: 76-0336636 - -------------------------------------------------------------------------------- 2. Check the Appropriate Box if a Member of a Group (See Instructions). (a) [ ] (b) [ ] - -------------------------------------------------------------------------------- 3. SEC Use Only. - -------------------------------------------------------------------------------- 4. Sources of Funds (See Instructions). WC, BK - -------------------------------------------------------------------------------- 5. Check if Disclosure of Legal Proceedings is Required pursuant to Items 2(e) or 2(f). [ ] - -------------------------------------------------------------------------------- 6. Citizenship or Place of Organization. Delaware - -------------------------------------------------------------------------------- 7. Aggregate Amount Beneficially Owned by Each Reporting Person.* 4,480,332 - -------------------------------------------------------------------------------- 8. Check if the Aggregate Amount in Row 7 Excludes Certain Shares. [ ] - -------------------------------------------------------------------------------- 9. Percent of Class Represented by Amount in Row 7. Approximately 30.85% based on the shares outstanding as of October 11, 1999, plus the Shareholder Option Shares and the Stock Option Shares (defined below) .* - -------------------------------------------------------------------------------- 10. Type of Reporting Person (See Instructions). CO - -------------------------------------------------------------------------------- * As of October 11, 1999, HCC beneficially owned 539,500 shares. HCC and the Company have entered into an Agreement, dated as of October 11, 1999 (the "Stock Option Agreement"), pursuant to which the Company granted to HCC an option (the "Company Option") to purchase, for a price of $12.50 per share, an aggregate of up to 19.9% of the Shares outstanding on the date of exercise. As of October 11, 1999, such option would be exercisable for 2,295,679 Shares (collectively, the "Stock Option Shares"). Such Company Option is exercisable only if the Company enters into, or publicly announces its intention to enter into, an agreement with respect to an Acquisition Proposal or a Superior Acquisition Proposal. HCC's interest in the Stock Option Shares is reflected in Rows 7 and 9 of the table above. The Stock Option Agreement is described more fully in Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights") of the Offer to Purchase. Rows 7 and 9 also reflect the beneficial ownership of Shares held by Merger Subsidiary, a wholly owned subsidiary of HCC. See previous page and note to the previous table. 4 SCHEDULE 14D-1 CUSIP NO. 155904105 ITEM 1. SECURITY AND SUBJECT COMPANY. (a) The name of the subject company is The Centris Group, Inc., a Delaware corporation (the "Company"), and the address of its principal executive offices is 650 Town Center Drive, Suite 1600, Costa Mesa, California 92626. (b) This Tender Offer Statement on Schedule 14D-1 (the "Statement") relates to the offer by Merger Subsidiary to purchase all 10,996,576 outstanding shares of common stock, par value $.01 per share (other than Shares owned by HCC or held by the Company in its treasury) (the "Common Stock"), including the associated Common Stock purchase rights issued pursuant to the Rights Agreement, dated as of May 24, 1990, as amended by and between the Company and the American Stock Transfer & Trust Company (the "Rights" and collectively with the Common Stock, the "Shares"), of the Company at $12.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase and in the related Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2) (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). This Statement also covers the possible acquisition of any Shares obtained upon exercise of any outstanding Company stock options. The information set forth in the introduction to the Offer to Purchase (the "Introduction") is incorporated herein by reference. (c) The information set forth in Section 6 ("Price Range of Shares; Dividends") of the Offer to Purchase is incorporated herein by reference. ITEM 2. IDENTITY AND BACKGROUND (a) - (d) and (g) This Statement is filed by Merger Subsidiary and HCC. Merger Subsidiary is a wholly owned subsidiary of HCC. Information concerning the principal business and the addresses of the principal offices of Merger Subsidiary and HCC is set forth in Section 8 ("Certain Information Concerning Merger Subsidiary and HCC") of the Offer to Purchase, and is incorporated herein by reference. The names, business addresses, present principal occupations or employments, material occupations, positions, offices or employment during the last five years and citizenship of the directors and executive officers of Merger Subsidiary and HCC are set forth in Schedule I to the Offer to Purchase and are incorporated herein by reference. (e) and (f) None of Merger Subsidiary, HCC or, to the best knowledge of such corporations, any of the persons listed on Schedule I to the Offer of Purchase, has during the last five years (i) been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting activities subject to, Federal or state securities laws or finding any violation of such laws. ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY. (a) and (b) The information set forth in (i) the Introduction, Section 8 ("Certain Information Concerning Merger Subsidiary and HCC"), Section 10 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company"), Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights") and Schedule I to the Offer to Purchase, (ii) the Merger Agreement, (iii) the Shareholder Option Agreement, (iv) the Stock Option Agreement, and (v) the Confidentiality Agreement, dated August 22, 1999 (the "Confidentiality Agreement"), between HCC and the Company, a copy of which is attached as Exhibit (c)(4) hereto, is incorporated herein by reference. 3 5 SCHEDULE 14D-1 CUSIP NO. 155904105 ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. (a) - (c) The information set forth in Section 9 ("Source and Amount of Funds") of the Offer to Purchase is incorporated herein by reference. ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER. (a) - (e) The information set forth in the Introduction and Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights") of the Offer to Purchase is incorporated herein by reference. (f) and (g) The information set forth in Section 12 ("Effect of the Offer on the Market for the Shares; Stock Quotations, Registration Under the Exchange Act") of the Offer to Purchase is incorporated herein by reference. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) and (b) The information set forth in (i) the Introduction, Section 8 ("Certain Information Concerning Merger Subsidiary and HCC"), Section 10 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company"), Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights"), Schedule I of the Offer to Purchase, (ii) the Merger Agreement, (iii) the Shareholder Option Agreement, and (iv) the Stock Option Agreement, respectively, is incorporated herein by reference. ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES. The information set forth in (i) the Introduction, Section 8 ("Certain Information Concerning Merger Subsidiary and HCC"), Section 10 ("Background of the Offer; Past Contacts, Transactions or Negotiations with the Company") and Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights") of the Offer to Purchase, (ii) the Merger Agreement, (iii) the Shareholder Option Agreement, (iv) Stock Option Agreement, and (v) the Confidentiality Agreement, respectively, is incorporated herein by reference. ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED. The information set forth in Section 17 ("Fees and Expenses") of the Offer to Purchase is incorporated herein by reference. ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS. The information set forth in Section 8 ("Certain Information concerning Merger Subsidiary and HCC") of the Offer to Purchase and such information and the consolidated financial statements of HCC in HCC's Annual Report on Form 10-K for the year ended December 31, 1998 and Quarterly Report on Form 10-Q for the six months ended June 30, 1999, respectively, is incorporated herein by reference. ITEM 10. ADDITIONAL INFORMATION. (a) The information set forth in Section 8 ("Certain Information Concerning Merger Subsidiary and HCC") and Section 11 ("Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights") of the Offer to Purchase is incorporated herein by reference. 4 6 SCHEDULE 14D-1 CUSIP NO. 155904105 (b) - (d) The information set forth in Section 16 ("Certain Legal Matters; Regulatory Approvals") of the Offer to Purchase is incorporated herein by reference. (e) None. (f) The information set forth in (i) the Offer to Purchase, (ii) the Letter of Transmittal, (iii) the Merger Agreement, (iv) the Shareholder Option Agreement, (v) the Stock Option Agreement, and (vi) the Confidentiality Agreement, respectively, is incorporated herein by reference. 5 7 SCHEDULE 14D-1 CUSIP NO. 155904105 ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT NUMBER EXHIBIT NAME ------- ------------ (a)(1) -- Offer to Purchase dated October 18, 1999. (a)(2) -- Form of Letter of Transmittal. (a)(3) -- Form of Notice of Guaranteed Delivery. (a)(4) -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees. (a)(5) -- Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Form of summary advertisement dated October 18, 1999. (b)(1) -- Loan Agreement ($150,000,000 Revolving Loan Facility and $100,000,000 Short Term Revolving Loan Facility) dated as of March 8, 1999 among HCC, as Borrower, Wells Fargo Bank (Texas), National Association, as Agent and Lender, Nationsbank, N.A., as Documentation Agent and as a Lender and The Other Lenders Now As Hereafter Parties Thereto (previously filed as an exhibit to HCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference). (c)(1) -- Agreement and Plan of Merger, dated as of October 11, 1999, among the Company, HCC and Merger Subsidiary. (c)(2) -- Shareholder Option Agreement, dated as of October 11, 1999, among Merger Subsidiary and the shareholders of the Company named therein. (c)(3) -- Stock Option Agreement, dated as of October 11, 1999, between HCC and the Company. (c)(4) -- Confidentiality Agreement, dated August 22, 1999, between HCC and the Company. (c)(5) -- Rights Agreement, dated as of May 24, 1990, by and between The Centris Group, Inc. (formerly US Facilities Corporation) and American Stock Transfer and Trust Company as successor by assignment to Security Pacific National Bank (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on May 24, 1990). (c)(6) -- First Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on January 16, 1992). (c)(7) -- Second Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on April 29, 1994). (c)(8) -- Third Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on September 28, 1995). (c)(9) -- Fourth Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on January 23, 1997). (c)(10) -- Fifth Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on January 28, 1998). (d) -- None.
6 8 SCHEDULE 14D-1 CUSIP NO. 155904105
EXHIBIT NUMBER EXHIBIT NAME ------- ------------ (e) -- Not applicable. (f) -- None.
7 9 SCHEDULE 14D-1 CUSIP NO. 155904105 SIGNATURE After due inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. MERGER SUB OF DELAWARE, INC. By: /s/ STEPHEN L. WAY ---------------------------------- Stephen L. Way, Chairman of the Board and Chief Executive Officer HCC INSURANCE HOLDINGS, INC. By: /s/ STEPHEN L. WAY ---------------------------------- Stephen L. Way, Chairman of the Board and Chief Executive Officer Dated: October 18, 1999 8 10 SCHEDULE 14D-1 CUSIP NO. 155904105 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT NAME ------- ------------ (a)(1) -- Offer to Purchase dated October 18, 1999. (a)(2) -- Form of Letter of Transmittal. (a)(3) -- Form of Notice of Guaranteed Delivery. (a)(4) -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees. (a)(5) -- Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and other Nominees. (a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. (a)(7) -- Form of summary advertisement dated October 18, 1999. (b)(1) -- Loan Agreement ($150,000,000 Revolving Loan Facility and $100,000,000 Short Term Revolving Loan Facility) dated as of March 8, 1999 among HCC, as Borrower, Wells Fargo Bank (Texas), National Association, as Agent and Lender, Nationsbank, N.A., as Documentation Agent and as a Lender and The Other Lenders Now As Hereafter Parties Thereto (previously filed as an exhibit to HCC's Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and incorporated herein by reference). (c)(1) -- Agreement and Plan of Merger, dated as of October 11, 1999, among the Company, HCC and Merger Subsidiary. (c)(2) -- Shareholder Option Agreement, dated as of October 11, 1999, among Merger Subsidiary and the shareholders of the Company named therein. (c)(3) -- Stock Option Agreement, dated as of October 11, 1999, between HCC and the Company. (c)(4) -- Confidentiality Agreement, dated August 22, 1999, between HCC and the Company. (c)(5) -- Rights Agreement, dated as of May 24, 1990, by and between The Centris Group, Inc. (formerly US Facilities Corporation) and American Stock Transfer and Trust Company as successor by assignment to Security Pacific National Bank (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on May 24, 1990). (c)(6) -- First Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on January 16, 1992). (c)(7) -- Second Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on April 29, 1994). (c)(8) -- Third Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on September 28, 1995). (c)(9) -- Fourth Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on January 23, 1997). (c)(10) -- Fifth Amendment to Rights Agreement (incorporated by reference to an exhibit to the Company's Current Report on Form 8-K filed on January 28, 1998).
11 SCHEDULE 14D-1 CUSIP NO. 155904105
EXHIBIT NUMBER EXHIBIT NAME ------- ------------ (d) -- None. (e) -- Not applicable. (f) -- None.
EX-99.A1 2 OFFER TO PURCHASE DATED 10/18/99 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. AT $12.50 NET PER SHARE BY MERGER SUB OF DELAWARE, INC. A WHOLLY OWNED SUBSIDIARY OF HCC INSURANCE HOLDINGS, INC. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED BY THE EXPIRATION DATE AND NOT WITHDRAWN A NUMBER OF SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS (THE "SHARES"), OF THE CENTRIS GROUP, INC. (THE "COMPANY") WHICH, TOGETHER WITH THE SHARES THEN OWNED BY MERGER SUB OF DELAWARE, INC. ("MERGER SUBSIDIARY") AND HCC INSURANCE HOLDINGS, INC. ("HCC"), WOULD REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY DILUTED BASIS. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT (DEFINED BELOW) ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, HAS UNANIMOUSLY APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. ------------------ Any shareholder desiring to tender Shares should either (i) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal (described below) and deliver it with the certificate(s) representing such tendered Shares and all other required documents to the Depositary (defined below) or follow the procedure for book-entry tender of Shares set forth in Section 3 hereof; or (ii) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. A shareholder having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such person if such shareholder desires to tender such Shares. Any shareholder who desires to tender Shares and whose certificate(s) representing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares pursuant to the guaranteed delivery procedure set forth in Section 3 hereof. Questions and requests for assistance may be directed to Salomon Smith Barney Inc. (the "Dealer Manager") or to D.F. King & Co. Inc. (the "Information Agent") at their respective addresses and telephone numbers specified on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal, and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks, or trust companies. ------------------ The Dealer Manager for the Offer is: SALOMON SMITH BARNEY October 18, 1999 2 TABLE OF CONTENTS
PAGE ---- INTRODUCTION...................................................... 1 1. Terms of the Offer.......................................... 3 2. Acceptance for Payment and Payment.......................... 4 3. Procedure for Tendering Shares.............................. 5 4. Withdrawal Rights........................................... 7 5. Certain Tax Consequences.................................... 8 6. Price Range of Shares; Dividends............................ 9 7. Certain Information Concerning the Company.................. 9 8. Certain Information Concerning Merger Subsidiary and HCC.... 11 9. Source and Amount of Funds.................................. 12 10. Background of the Offer; Past Contacts, Transactions or Negotiations with the Company............................... 13 11. Purpose of the Offer; Merger Agreement; Shareholder Option Agreement; Stock Option Agreement; Appraisal Rights......... 14 12. Effect of the Offer on the Market for the Shares; Stock Quotations; Registration under the Exchange Act............. 28 13. Dividends and Distributions................................. 29 14. Extension of Tender Period; Termination; Amendment.......... 30 15. Certain Conditions of the Offer............................. 31 16. Certain Legal Matters; Regulatory Approvals................. 33 17. Fees and Expenses........................................... 36 18. Miscellaneous............................................... 36 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF HCC AND MERGER SUBSIDIARY........................................... I-1
i 3 To the Holders of Common Stock of The Centris Group, Inc. INTRODUCTION Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary"), and a wholly owned subsidiary of HCC Insurance Holdings, Inc. ("HCC"), hereby offers to purchase all outstanding shares of common stock, par value $.01 per share (the "Common Stock"), including the associated Common Stock purchase rights issued pursuant to the Rights Plan (defined below) (the "Rights" and, together with the Common Stock, the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company"), at $12.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the related Letter of Transmittal (which, together with any amendments or supplements hereto or thereto, collectively constitute the "Offer"). Tendering shareholders of the Company (the shareholders of the Company are referred to herein as the "Shareholders") will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the sale or transfer of Shares pursuant to the Offer. HCC will pay all charges and expenses of Harris Trust Company of New York (the "Depositary") and D. F. King & Co., Inc. (the "Information Agent") in connection with the Offer. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT (DEFINED BELOW) ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES. PURSUANT TO THE MERGER AGREEMENT, THE COMPANY HAS REPRESENTED TO HCC THAT ADVEST, INC. ("FINANCIAL ADVISOR"), THE COMPANY'S FINANCIAL ADVISOR, HAS DELIVERED TO THE COMPANY'S BOARD OF DIRECTORS ITS OPINION TO THE EFFECT THAT THE $12.50 PER SHARE TO BE PAID IN THE OFFER AND THE MERGER (DEFINED BELOW) IS FAIR TO THE COMPANY AND THE SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW. THE OPINION OF THE FINANCIAL ADVISOR IS TO BE SET FORTH IN FULL IN THE COMPANY'S SOLICITATION/RECOMMENDATION STATEMENT ON SCHEDULE 14D-9 (THE "SCHEDULE 14D-9"), TO BE FILED BY THE COMPANY AND MAILED TO THE SHAREHOLDERS IF NOT MAILED HEREWITH. THE SHAREHOLDERS ARE URGED TO READ THIS OPINION IN ITS ENTIRETY. THE OFFER IS CONDITIONED UPON THERE BEING VALIDLY TENDERED BY THE EXPIRATION DATE (DEFINED BELOW) AND NOT WITHDRAWN A NUMBER OF SHARES WHICH, TOGETHER WITH THE SHARES THEN OWNED BY HCC AND MERGER SUBSIDIARY, WOULD REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES, ASSUMING THE EXERCISE OF ALL OUTSTANDING OPTIONS, RIGHTS AND CONVERTIBLE SECURITIES (IF ANY) (OTHER THAN OPTIONS TO BE CANCELLED PURSUANT TO THE TERMS OF THE MERGER AGREEMENT AND SHARES TO BE ISSUED PURSUANT TO THE STOCK OPTION AGREEMENT (DEFINED BELOW)) AND THE ISSUANCE OF ALL SHARES THAT THE COMPANY IS OBLIGATED TO ISSUE (SUCH TOTAL NUMBER OF OUTSTANDING SHARES BEING HEREINAFTER REFERRED TO AS THE "FULLY DILUTED SHARES") (THE "MINIMUM CONDITION"). THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO PURCHASE, INCLUDING, WITHOUT LIMITATION, THE CONSENT OF CERTAIN STATE INSURANCE REGULATORY AUTHORITIES AND COMPLIANCE WITH THE REQUIREMENTS OF THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976 (THE "HSR ACT"). SEE SECTIONS 15 AND 16 HEREOF WHICH SET FORTH CERTAIN CONDITIONS TO THE OFFER. The Company has represented to HCC that, as of October 11, 1999, there were (i) 11,536,076 shares issued and outstanding; (ii) 928,824 shares held by the Company in its treasury or by any of the Company's subsidiaries; and (iii) 1,060,453 shares reserved for issuance pursuant to outstanding Company Options. For purposes hereof, "Company Options" are any options granted, whether or not exercisable, and not exercised or expired, to a current or former employee, director or independent contractor of the Company or any of its subsidiaries or any predecessor thereof to purchase Shares pursuant to any stock option, stock bonus, stock award, or stock purchase plan, program, or arrangement of the Company or any of its subsidiaries or any predecessor thereof or any other contract or agreement entered into by the Company or any of its subsidiaries. The Company has further represented to HCC that there are no other options or rights held by any other person or entity to acquire Company Shares. Based upon the foregoing, as of October 11, 1999, the date the Merger Agreement was executed (the "Execution Date"), there were approximately 12,596,529 Fully Diluted 1 4 Shares. As of the Execution Date, HCC owned 539,500 Shares. Therefore, if the Company Options are not exercised and are cancelled as provided for in the Merger Agreement, the Minimum Condition will be satisfied if, in addition to the Shares currently held by HCC, 5,228,539 Shares are tendered and accepted for payment by Merger Subsidiary. In addition, Merger Subsidiary has been granted the right to purchase under certain circumstances described below an aggregate of up to 1,011,835 shares at a price of $12.50 per Share pursuant to the Shareholder Option Agreement (defined below), as more specifically described below and in Section 11. The Shareholders of the Company granting the option to Merger Subsidiary have also agreed to tender their Shares pursuant to this Offer and have given to Merger Subsidiary a proxy to vote such Shares in favor of the actions contemplated by the Merger Agreement. Thus, 1,551,335 or 13.45% of the Shares are committed to be tendered pursuant to the Offer or owned by HCC and HCC would only require a further tender of 4,216,704 or 36.55% of the Shares in order to satisfy the Minimum Condition. Further, HCC has been granted an option exercisable at a price of $12.50 per Share to purchase 19.9% of the Shares outstanding on the date of exercise. As of October 11, 1999, such option would be exercisable for 2,295,679 shares. See Section 11 hereof. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 11, 1999 (the "Merger Agreement"), among the Company, HCC and Merger Subsidiary, which has been unanimously approved by the Company's Board of Directors. The Merger Agreement provides, among other things, that, after consummation of the Offer, and after satisfaction or waiver of all conditions to the Merger, Merger Subsidiary will be merged into the Company (the "Merger"), with the Company continuing as the surviving corporation (the "Surviving Corporation"). Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each outstanding Share (other than Shares held by the Company as treasury stock or owned by HCC, Merger Subsidiary, or any subsidiary of any of them (which shall be canceled) or by the Shareholders exercising appraisal rights under Delaware Law (defined below)) will be converted into the right to receive $12.50 in cash or any higher price paid for each Share in the Offer, without interest. If the Minimum Condition is satisfied and Merger Subsidiary purchases Shares pursuant to the Offer, Merger Subsidiary will have the power to approve the Merger without the affirmative vote of any other Shareholder. In the event that Merger Subsidiary owns 90% or more of the Shares then outstanding, the "short-form" merger provisions of the Delaware General Corporation Law ("Delaware Law") would permit the Merger to occur without a meeting or a vote of the Shareholders. See Section 11 hereof. Merger Subsidiary and certain Shareholders (the "Principal Shareholders") have entered into an Agreement, dated as of the Execution Date (the "Shareholder Option Agreement"), pursuant to which such Principal Shareholders granted to Merger Subsidiary an irrevocable option (the "Stock Option") to purchase, in whole, but not in part, 1,011,835 shares and 601,200 additional Shares which are currently subject to stock options (collectively, the "Shareholder Option Shares"), for a price of $12.50 per Share, at any time after the date (i) an Acquisition Proposal or a Superior Acquisition Proposal (each defined below) has received tenders of and paid for in excess of 50% of the Fully Diluted Shares, or (ii) a third party has otherwise acquired in excess of 50% of the Fully Diluted Shares. The parties to the Shareholder Option Agreement have further agreed that, once exercisable, the Stock Option must be exercised, if at all, within five Business Days (as defined in the Exchange Act). The Principal Shareholders have also agreed to tender their shares pursuant to this Offer and have given to Merger Subsidiary a proxy to vote such Shares in favor of the actions contemplated by the Merger Agreement as defined below. The Shareholder Option Shares represent approximately 12.8% of the Fully Diluted Shares. If not previously exercised, at the time that Merger Subsidiary has accepted for payment all Shares validly transferred and not withdrawn pursuant to the Offer, each outstanding Company Option will be canceled and each option holder will receive cash from Merger Subsidiary equal to the difference between the Offer price of $12.50 per Share and the particular option's exercise price. See Section 11 hereof. Upon payment by Merger Subsidiary for such number of Shares which satisfies the Minimum Condition, HCC is entitled, pursuant to the Merger Agreement, to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to this sentence); and (ii) the percentage that the number of Shares owned by HCC or Merger 2 5 Subsidiary (including Shares accepted for payment) bears to the total number of Shares outstanding, and the Company shall take all necessary action to cause HCC's designees to be elected or appointed to the Company's Board of Directors, including, without limitation, increasing the number of directors, or seeking and accepting resignations of incumbent directors, or both; provided, however, that prior to the Effective Time, the Company's Board of Directors shall always have one member who is neither a designee nor an affiliate of HCC or Merger Subsidiary nor an employee of the Company (an "Independent Director"). No action proposed to be taken by the Company to (i) amend or terminate the Merger Agreement; or (ii) waive any action by HCC or Merger Subsidiary shall be effective without the approval of the Independent Director. The Company has distributed one Right for each outstanding share of Common Stock pursuant to the Rights Agreement, dated effective as of May 24, 1990, as amended, by and between the Company and American Stock Transfer and Trust Company (the "Rights Plan"). The description of the Rights Plan set forth herein is qualified in its entirety by reference to the text of such agreement, a copy of which is incorporated by reference as an exhibit to the Schedule 14D-1 filed by HCC and Merger Subsidiary in connection with the Offer. The Company has agreed in the Merger Agreement that it shall take necessary actions under the Rights Plan, including any required amendments to the Rights Plan, so that the commencement or consummation of the Offer, the grant or exercise of the options pursuant to the Stock Option Agreement or the Shareholders Option Agreement will not cause (i) the Rights to be exercisable; (ii) HCC, or any subsidiary of HCC, including, Merger Subsidiary to be deemed a "10% Stockholder" (as defined in the Rights Plan); or (iii) the "10% Stock Ownership Date" (as defined in the Rights Plan) to occur upon such consummation; provided, however, that the Company shall not be required to make such amendments to the Rights Plan if HCC has not performed or complied in all material respects with the Merger Agreement prior to the consummation of the Offer or the Company obtains, and there is in force from the Delaware Court of Chancery an order permanently, preliminarily or temporarily declaring that the making of such amendments to the Rights Plan would be contrary to the fiduciary duties of the Company's Board of Directors. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions set forth in the Offer, Merger Subsidiary will accept for payment and purchase, at the time and in the manner set forth in Section 2 hereof, Shares that are validly tendered by the Expiration Date (defined below) and not withdrawn as provided in Section 4 hereof. The term "Expiration Date" shall mean 12:00 Midnight, New York City time, on November 30, 1999, unless Merger Subsidiary shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Merger Subsidiary, shall expire. The period of time beginning on the date of this Offer and ending at 12:00 Midnight New York City time on the Expiration Date shall be referred to herein as the "Offer Period." The Offer is subject to certain conditions and waiting periods set forth in Sections 15 and 16, including (i) satisfaction of the Minimum Condition; (ii) the expiration or termination of all waiting periods imposed by the HSR Act; (iii) the consent of certain state insurance regulatory authorities; and (iv) other conditions set forth in Sections 15 and 16 hereof. If any such condition is not satisfied, Merger Subsidiary may, except as otherwise described below, (i) terminate the Offer and return all tendered Shares to tendering Shareholders; (ii) extend the Offer, subject to the terms set forth in the Merger Agreement and described below and in Sections 2 and 11 hereof; or (iii) waive such condition (except the Minimum Condition, the waiting periods under the HSR Act and insurance regulatory authority consents) and purchase all Shares validly tendered by the Expiration Date and not withdrawn. For a description of Merger Subsidiary's right to extend the period of time during which the Offer is open and to amend, delay or terminate the Offer, see Section 14 hereof. Merger Subsidiary acknowledges that Rule 14e-1(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires Merger Subsidiary to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer. 3 6 Pursuant to the Merger Agreement, HCC and Merger Subsidiary expressly reserve the right to waive any of the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided, however, that without the prior written consent of the Company, no change may be made which changes the form of consideration to be paid in the Offer, decreases the price per Share or the number of Shares being sought in the Offer, imposes conditions to the Offer in addition to those expressly set forth in the Merger Agreement, changes or waives the Minimum Condition, extends the Offer (except as set forth in the Merger Agreement) or makes any other change to any condition to the Offer set forth in the Merger Agreement which is materially adverse to the holders of Shares. Any extension, delay in payment, amendment or termination of the Offer will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. Without limiting the manner in which Merger Subsidiary may choose to make any public announcement, subject to applicable law (including Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act which require that material changes be promptly disseminated to Shareholders in a manner reasonably designed to inform them of such changes), Merger Subsidiary shall have no obligation (except as otherwise required by applicable law) to advertise publicly or otherwise communicate any such public announcement other than by issuing a release to the Dow Jones News Service. Subject to the Merger Agreement, if Merger Subsidiary makes any material change in the terms of the Offer or the information concerning the Offer, or waives any condition to the Offer that results in a material change to the circumstances of the Offer, Merger Subsidiary will disseminate additional tender offer materials and extend the Offer to the extent required to comply with Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The Securities and Exchange Commission (the "Commission") has interpreted such rules to prescribe that the minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in percentage of securities sought, will depend upon the facts and circumstances, including the relative materiality of the terms or information changed. With respect to a change in price or a change in the percentage of securities sought, a minimum period of ten Business Days may be required to allow for adequate dissemination to Shareholders and investor response. The Company has provided Merger Subsidiary with the Company's shareholder lists and security position listings for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees, appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT. Subject to the terms of the Offer, the satisfaction (or waiver to the extent permitted by the Merger Agreement) of all the conditions to the Offer, the receipt of all necessary consents of certain state insurance regulatory authorities and the expiration or termination of all waiting periods imposed by the HSR Act and any extension of the Offer as described in Sections 11 and 14 hereof, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the expiration of the Offer and shall pay for all such Shares promptly after acceptance. The Merger Agreement also provides that Merger Subsidiary may, without the consent of the Company, (i) extend the Offer Period until all of the conditions to Merger Subsidiary's obligation to purchase Shares shall be satisfied or waived, including, without limitation, any period required (A) by any rule, regulation, interpretation, or position of the Commission or the staff thereof applicable to the Offer; or (B) pursuant to the HSR Act; or (C) to obtain necessary approval of each state insurance regulatory agency required for consummation of the Offer; (ii) extend the Offer Period for a period of not more than ten Business Days beyond the expiration thereof, as 4 7 such may be extended pursuant to clause (i) of this sentence; (iii) extend the Offer Period for an additional period of not more than ten Business Days beyond that permitted by clauses (i) and (ii) of this sentence if on the date of such extension, less than 90% of the Fully Diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer; and (iv) extend the Offer Period for any reason for a period of not more than five Business Days beyond the latest Expiration Date that would be otherwise permitted under clauses (i), (ii), or (iii) of this sentence. See Section 11 hereof. For a description of Merger Subsidiary's right to terminate the Offer (subject to the terms of the Merger Agreement) and not accept for payment or pay for Shares or to delay acceptance for payment or payment for Shares, see Section 14 hereof. For purposes of the Offer, Merger Subsidiary shall be deemed to have accepted for payment tendered Shares when, and if, Merger Subsidiary gives notice to the Depositary of its acceptance of the tenders of such Shares. In all cases, upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price with the Depositary, which will act as agent for the tendering Shareholders for the purpose of receiving payments from Merger Subsidiary and transmitting such payments to tendering Shareholders. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or of a confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Shares into the Depositary's account at the Book-Entry Transfer Facility (defined in Section 3)); (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined below) in connection with a book-entry transfer; and (iii) any other required documents. Accordingly, payment may be made to tendering Shareholders at different times if delivery of the Shares and other required documents occur at different times. For a description of the procedure for tendering Shares pursuant to the Offer, see Section 3. Under no circumstances will interest be paid by Merger Subsidiary on the consideration paid for Shares pursuant to the Offer, regardless of any delay in making such payment. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the participant in the Book-Entry Transfer Facility tendering the Shares which are the subject of such Book-Entry Confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Merger Subsidiary may enforce such agreement against such participant. If Merger Subsidiary increases the consideration to be paid for Shares pursuant to the Offer, Merger Subsidiary will pay such increased consideration for all Shares purchased pursuant to the Offer. Merger Subsidiary reserves the right to transfer or assign, in whole or from time to time in part, to one or more of HCC or any of HCC's wholly owned subsidiaries, the right to purchase Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Merger Subsidiary of its obligations under the Offer or prejudice the rights of tendering Shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. If any tendered Shares are not purchased pursuant to the Offer for any reason, or if certificates are submitted for more Shares than are tendered, certificates for such unpurchased or untendered Shares will be returned (or, in the case of Shares tendered by book-entry transfer, such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), without expense to the tendering Shareholder, as promptly as practicable following the expiration or termination of the Offer. 3. PROCEDURE FOR TENDERING SHARES. To tender Shares pursuant to the Offer, either (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof), or an Agent's Message in connection with a book-entry transfer of such Shares, and any other documents required by the Letter of Transmittal must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (a) certificates for such Shares to be tendered must be received by the Depositary at one of such addresses or (b) such Shares must be 5 8 delivered pursuant to the procedures for book-entry transfer described below (and a Book-Entry Confirmation received by the Depositary), in each case by the Expiration Date; or (ii) the guaranteed delivery procedure described below must be complied with. The Depositary will establish an account with respect to the Shares at the Depository Trust Company (the "Book-Entry Transfer Facility") for purposes of the Offer within two Business Days after the date of this Offer to Purchase, and any financial institution that is a participant in the system of the Book-Entry Transfer Facility may make delivery of Shares by causing the Book-Entry Transfer Facility to transfer such Shares into the Depositary's account in accordance with the procedures of the Book-Entry Transfer Facility. However, although delivery of Shares may be effected through book-entry transfer, the Letter of Transmittal (or facsimile thereof), or an Agent's Message in connection with such book-entry transfer, and any other required documents must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the guaranteed delivery procedure described below must be complied with. Delivery of the Letter of Transmittal and any other required documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings association or other entity that is a member of a recognized Medallion Program approved by The Securities Transfer Association, Inc. (an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (i) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal; or (ii) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates representing Shares are registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made to, or certificates for unpurchased Shares are to be issued or returned to, a person other than the registered holder, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, signed exactly as the name or names of the registered holder or holders appear on the certificates, with the signatures on the certificates or stock powers guaranteed by an Eligible Institution as provided in the Letter of Transmittal. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates representing Shares are forwarded separately to the Depositary, a properly completed and duly executed Letter of Transmittal (or facsimile thereof) must accompany each such delivery. If a Shareholder desires to tender Shares pursuant to the Offer and cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date, or such Shareholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered if all of the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form provided by Merger Subsidiary, is received by the Depositary (as provided below) by the Expiration Date; and (iii) the certificates for all physically delivered Shares (or a Book-Entry Confirmation of all Shares delivered electronically), as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal, are received by the Depositary within three trading days on the New York Stock Exchange ("New York Stock Exchange") after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. 6 9 THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of the certificates for such Shares, or a Book-Entry Confirmation of the delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. Under the federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payments made to certain Shareholders pursuant to the Offer. In order to avoid such backup withholding, each tendering Shareholder must provide the Depositary with such Shareholder's correct taxpayer identification number and certify that such Shareholder is not subject to such backup withholding by completing the Substitute Form W-9 included in the Letter of Transmittal. By executing a Letter of Transmittal, a tendering Shareholder irrevocably appoints designees of Merger Subsidiary as such Shareholder's proxies in the manner set forth in the Letter of Transmittal to the full extent of such Shareholder's rights with respect to the Shares tendered by such Shareholder and accepted for payment by Merger Subsidiary (and any and all other Shares or other securities issued or issuable in respect of such Shares on or after October 18, 1999). All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment is effective only upon the acceptance for payment of such Shares by Merger Subsidiary. Upon such acceptance for payment, all prior proxies and consents granted by such Shareholder with respect to such Shares and other securities will, without further action, be revoked, and no subsequent proxies may be given nor subsequent written consents executed by such Shareholder (and, if given or executed, will not be deemed to be effective). Such designees of Merger Subsidiary will be empowered to exercise all voting and other rights of such Shareholder as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the Company's Shareholders, by written consent or otherwise. Merger Subsidiary reserves the right to require that, in order for Shares to be validly tendered, immediately upon Merger Subsidiary's acceptance for payment of such Shares, Merger Subsidiary is able to exercise full voting rights with respect to such Shares and other securities (including voting at any meeting of Shareholders then scheduled or acting by written consent without a meeting). All questions as to the form of documents and the validity, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Merger Subsidiary, in its sole discretion, which determination shall be final and binding on all parties. Merger Subsidiary reserves the absolute right to reject any or all tenders of Shares determined by it not to be in proper form or the acceptance for payment of or payment for which may, in the opinion of Merger Subsidiary's counsel, be unlawful. Merger Subsidiary also reserves the absolute right to waive any defect or irregularity in any tender of Shares, whether or not similar defects or irregularities are waived in the case of any other tender of Shares. None of Merger Subsidiary, HCC, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in tenders or incur any liability for failure to give any such notification. Merger Subsidiary's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. The acceptance for payment of Shares tendered pursuant to any one of the procedures described above will constitute an agreement between the tendering Shareholder and Merger Subsidiary upon the terms and subject to the conditions of the Offer. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the Expiration Date. Thereafter, such tenders are irrevocable, except that they may be withdrawn on or after December 17, 1999, unless theretofore accepted for payment as provided in this Offer to Purchase. If Merger Subsidiary 7 10 extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in this Section 4 hereof. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution) signatures guaranteed by an Eligible Institution must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering Shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in Section 3 hereof at any time prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Merger Subsidiary, in its sole discretion, which determination shall be final and binding. None of Merger Subsidiary, HCC, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defect or irregularity in any notice of withdrawal or incur any liability for failure to give any such notification. 5. CERTAIN TAX CONSEQUENCES. This summary sets forth material anticipated Federal income tax consequences to the Shareholders of their disposition of Shares pursuant to the Offer and the Merger. The summary is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury regulations promulgated thereunder, and administrative and judicial interpretations thereof, all as currently in effect. Such laws or interpretations may differ on the date of the consummation of the Offer or at the Effective Time, and relevant facts may also differ. The summary does not address any foreign, state or local tax consequences, nor does it address estate or gift tax considerations. Neither the consummation of the Offer nor the effectiveness of the Merger is conditioned upon the receipt of any ruling from the Internal Revenue Service or any opinion of counsel as to tax matters. This summary is for general information only. The tax treatment of each Shareholder will depend in part upon his particular situation. Special tax consequences not described below may be applicable to particular classes of taxpayers, including financial institutions, pension funds, mutual funds, broker-dealers, persons who are not citizens or residents of the United States or who are foreign corporations, foreign partnerships or foreign estates or trusts, Shareholders who own actually or constructively (under certain attribution rules contained in the Code) 5% or more of the Shares, Shareholders who acquired their Shares through the exercise of an employee stock option or otherwise as compensation, and persons who receive payments in respect of options to acquire Shares. ALL SHAREHOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISERS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE OFFER AND THE MERGER TO THEM, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL AND FOREIGN TAX LAWS. Sales of Shares by the Shareholders pursuant to the Offer (or the Merger) will be taxable transactions for Federal income tax purposes and may also be taxable transactions under applicable state, local, foreign and other tax laws. In general, a Shareholder will recognize gain or loss equal to the difference between the tax basis of such Shareholder's Shares and the amount of cash received in exchange for the Shares. This gain or loss will be capital gain or loss if the Shares are capital assets in the hands of the Shareholder and will be long-term capital 8 11 gain or loss if the holding period for the Shares is more than 12 months as of the date of the sale of such Shares. 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are traded on the New York Stock Exchange under the symbol "CGE." The following table sets forth, on a per share basis for the periods shown, the range of high and low sales prices of the Shares as reported by the New York Stock Exchange for the years ended 1997 and 1998 and for the period in 1999 set forth below.
HIGH LOW ------ ------ 1999: First Quarter............................................... $14.06 $ 9.06 Second Quarter.............................................. $12.81 $ 9.13 Third Quarter............................................... $11.44 $ 7.50 Fourth Quarter (Through October 11, 1999)................... $10.44 $ 8.75 1998: First Quarter............................................... $12.94 $10.88 Second Quarter.............................................. $14.81 $12.00 Third Quarter............................................... $12.50 $ 8.88 Fourth Quarter.............................................. $10.44 $ 7.94 1997: First Quarter............................................... $10.19 $ 9.44 Second Quarter.............................................. $10.63 $ 9.00 Third Quarter............................................... $11.88 $ 9.75 Fourth Quarter.............................................. $11.94 $10.00
On October 11, 1999, the last day of trading prior to the issuance by HCC of a press release announcing the execution of the Merger Agreement, the last sale price on the New York Stock Exchange was $10.31 per Share. On October 15, 1999, the last day of trading prior to the commencement of the Offer, the last sale price on the New York Stock Exchange was $10.94 per Share. THE SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHARES. As reported by the Company, the Company has paid quarterly cash dividends of $0.03 per Share in each of 1998, 1997 and 1996. As of March 19, 1999, according to the Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1998 (the "Company 10-K"), there were approximately 111 holders of record of outstanding Shares. 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Delaware corporation with its principal executive offices located at 650 Town Center Drive, Suite 1600, Costa Mesa, California 92626. According to the Company's 10-K, the Company is a Delaware holding company formed in 1982 which operates as a speciality insurance group through its subsidiaries. The Company's USBenefits Insurance Services, Inc. subsidiary is the managing general underwriter and marketing organization for medical stop-loss and provider excess coverages issued by The Continental Insurance Company ("Continental"), one of the CNA Insurance Companies, and for group term life insurance issued by an affiliate of Continental. The Company's Interra, Inc. subsidiary manages and underwrites catastrophic accident and health risks nationally and internationally. 9 12 The following selected consolidated financial data relating to the Company and its subsidiaries has been taken or derived from the audited financial statements contained in the Company 10-K. More comprehensive financial information is included in the Company 10-K and the other documents filed by the Company with the Commission, and the financial data set forth below is qualified in its entirety by reference to such reports and other documents including the financial statements (and any related notes) contained therein. Such reports and other documents may be examined and copies may be obtained from the offices of the Commission in the manner set forth below. THE CENTRIS GROUP, INC. SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------ 1998 1997 1996 -------- -------- -------- STATEMENT OF OPERATIONS DATA Total revenues.............................................. $168,316 $157,732 $122,641 Operating income............................................ 9,886 9,329 10,123 Net income (loss)........................................... (13,382) 15,212 15,020 Net income (loss) per Share -- Basic........................ (1.11) 1.27 1.28 Number of Shares outstanding................................ 12,037 1,980 11,732
AT DECEMBER 31, ------------------- 1998 1997 -------- -------- BALANCE SHEET DATA Cash and invested cash...................................... $ 15,789 $ 11,122 Total investments........................................... 292,463 223,824 Total assets................................................ 646,445 343,248 Total liabilities........................................... 555,411 225,658 Total Shareholders' equity.................................. 91,034 117,590
The information concerning the Company contained herein has been taken from or is based upon reports and other documents on file with the Commission or otherwise publicly available. Although HCC and Merger Subsidiary do not have any knowledge that would indicate that any statements contained herein based upon such reports and documents are untrue, HCC and Merger Subsidiary do not take any responsibility for the accuracy or completeness of the information contained in such reports and other documents or for any failure by the Company to disclose events that may have occurred and may affect the significance or accuracy of any such information but that are unknown to HCC or Merger Subsidiary. The Company is subject to the informational requirements of the Exchange Act and files periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. The Company is required to disclose in such proxy statements certain information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company. Such reports, proxy statements and other information may be inspected at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and should also be available for inspection and copying at the regional offices of the Commission in New York (Seven World Trade Center, New York, New York 10048) and Chicago (500 West Madison Street (Suite 1400), Chicago, Illinois 60661). Copies of such material can also be obtained from the Public Reference Section of the Commission in Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site on the Internet that contains reports, proxy statements and other information (http://www.sec.gov). 10 13 8. CERTAIN INFORMATION CONCERNING MERGER SUBSIDIARY AND HCC. Merger Subsidiary was organized on August 27, 1998 and has not conducted any unrelated activities since its organization. HCC and its consolidated subsidiaries provide specialized property and casualty insurance coverages, underwriting agency and intermediary services and other insurance related services, both to commercial customers and individuals. The principal executive offices of HCC and Merger Subsidiary are located at 13403 Northwest Freeway, Houston, Texas 77040. The name, business address, principal occupation or employment and citizenship of each director and executive officer of Merger Subsidiary and HCC are set forth in Schedule I hereto. The following selected consolidated financial data relating to HCC and its subsidiaries has been taken or derived from the audited financial statements contained in HCC's Annual Report on Form 10-K for the year ended December 31, 1998, and the unaudited financial statements contained in HCC's Quarterly Report on Form 10-Q for the six months ended June 30, 1999. More comprehensive financial information is included in such Annual Report, such Quarterly Report and the other documents filed by HCC with the Commission, and the financial data set forth below is qualified in its entirety by reference to such reports and other documents including the financial statements (and any related notes) contained therein. Such reports and other documents may be examined and copies may be obtained from the offices of the Commission in the same manner as set forth with respect to the Company in Section 7 hereof. HCC INSURANCE HOLDINGS, INC. SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, JUNE 30, ------------------------------------------ --------------------------- 1998 1997 1996 1999 1998 ------------ ------------ ------------ ------------ ------------ (UNAUDITED) INCOME STATEMENT DATA Total revenue.......... $308,034,000 $280,317,000 $270,786,000 $174,470,000 $147,328,000 Total expense.......... 200,548,000 207,253,000 222,319,000 142,469,000 95,561,000 Net earnings........... 72,278,000 49,759,000 38,582,000 20,996,000 34,721,000 Net earnings per common share -- basic....... 1.51 1.06 0.86 0.43 0.73 Net income per common share -- diluted..... 1.48 1.03 0.84 0.42 0.71
AT JUNE 30, 1999 AT DECEMBER 31, 1998 ---------------- -------------------- (UNAUDITED) BALANCE SHEET DATA Total investments.......................................... $ 586,484,000 $ 525,646,000 Total assets............................................... 2,044,638,000 1,709,069,000 Total liabilities.......................................... 1,583,499,000 1,269,206,000 Shareholders' equity....................................... 461,139,000 439,863,000
HCC is subject to the informational requirements of the Exchange Act and files periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. HCC is required to disclose in such proxy statements certain information, as of particular dates, concerning its directors and officers, their remuneration, stock options granted to them, the principal holders of its securities and any material interests of such persons in transactions with HCC. Such reports, proxy statements and other information should be available for inspection and copying at the offices of the Commission in the same manner as set forth with respect to the Company in Section 7 hereof. Except as described in this Offer to Purchase, neither HCC, Merger Subsidiary nor, to their knowledge, any of the persons listed in Schedule I hereto or any associate or majority-owned subsidiary of any of the 11 14 foregoing, beneficially owns or has the right to acquire any equity securities of the Company, nor has HCC, Merger Subsidiary or, to their knowledge, any of the persons or entities referred to above or any of the respective executive officers, directors or subsidiaries of any of the foregoing, effected any transaction in the equity securities of the Company during the past 60 days. Except as described in this Offer to Purchase, neither HCC, Merger Subsidiary nor, to their knowledge, any of the persons listed in Schedule I, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any securities of the Company, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as described in this Offer to Purchase, there have been no contacts, negotiations or transactions between HCC, Merger Subsidiary or any other subsidiary of HCC or, to their knowledge, any of the persons listed in Schedule I, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of assets. Except as described above and elsewhere in this Offer to Purchase, none of HCC, Merger Subsidiary, any other subsidiary of HCC, or, to their knowledge, any of the persons listed in Schedule I, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure pursuant to the rules and regulations of the Commission. In June of 1999, Craig J. Kelbel ("Mr. Kelbel") resigned as a Senior Vice President of the Company and President and Chief Operating Officer of the Company's wholly owned subsidiary, USBenefits Insurance Services, Inc. ("USBenefits"). After resigning from his positions with the Company and USBenefits, Mr. Kelbel was employed by HCC Benefits Corporation, a wholly owned subsidiary of HCC ("HCCB"). In August, 1999, the Company and USBenefits were granted a Temporary Restraining Order in the Superior Court of Cobb County, Georgia to prevent Mr. Kelbel from violating any duty of confidentiality that he owed to the Company or USBenefits. The parties have settled any and all controversies relating to these matters and Mr. Kelbel continues to be employed by HCCB. 9. SOURCE AND AMOUNT OF FUNDS. The total amount of funds required by Merger Subsidiary to purchase Shares pursuant to the Offer and the Merger, and pay related fees and expenses is expected to be approximately $141 million. Merger Subsidiary will obtain all funds needed for the Offer and the Merger from HCC by means of a capital contribution, loan or a combination thereof. HCC will obtain such funds (i) from its general corporate funds; (ii) by borrowing under its existing credit Facility (defined below); and (iii) from further borrowings on a short term basis from a group of banks headed by Wells Fargo Bank (Texas) National Association (the "Bridge Loan"). Merger Subsidiary has not conditioned the Offer on obtaining financing. However, to date, HCC has not entered into any definitive undertaking relating to the terms of the Bridge Loan and there can be no assurance that such Bridge Loan will be available or, if available the terms thereof. Pursuant to the Merger Agreement, HCC has represented and warranted that at the Effective Time it will have adequate financing to provide for the acquisition of tendered Shares. As of June 30, 1999, HCC reported (i) approximately $200 million in cash and cash equivalents; and (ii) the availability to borrow up to an additional $72 million under its existing Facility. In addition, HCC is planning to use certain available cash from its insurance company subsidiaries and other sources in order to consummate the acquisition of tendered Shares. On March 8, 1999, HCC, entered into a Loan Agreement (the "Facility") with a group of banks. The Facility includes a $150.0 million Revolving Loan Facility and $100.0 million Short Term Revolving Loan Facility. Borrowing under the Facility may be made from time to time by HCC for general corporate purposes 12 15 through the Short Term Revolving Loan Facility until its expiration on March 7, 2000 and through the Revolving Loan Facility until its expiration on February 28, 2002. Outstanding loans under the Facility bear interest at agreed upon rates. The Facility is collateralized in part by the pledge of the stock of Houston Casualty Company, Avemco Insurance Company, and U.S. Specialty Insurance Company and by the pledge of stock and guaranties entered into by HCC's principal underwriting agency and intermediary subsidiaries. The Facility contains certain restrictive covenants, including, without limitation, minimum net worth requirements for HCC and certain subsidiaries, restrictions on certain extraordinary corporate actions, notice requirements for certain material occurrences, and required maintenance of specified financial ratios. HCC believes that the restrictive covenants and other obligations which are contained in the Facility are typical for financing arrangements comparable to the Facility. The initial funding available under the Facility was used, among other things, to refinance existing indebtedness of HCC including all outstanding indebtedness under HCC's $120.0 million revolving credit facility entered into as of December 30, 1997, which was terminated. Although no definitive plan or arrangement for repayment of borrowings under the Facility have been made, HCC anticipates such borrowings will be repaid with internally generated funds (including, if the Merger is accomplished, those of the Company) and from other sources which may include the proceeds of future bank refinancings, or the public or private sale of debt or equity securities. In addition, a portion of such borrowings will be repaid from proceeds expected to be received by HCC from its wholly owned subsidiary, Houston Casualty Company, in connection with the sale by Merger Subsidiary of some or all of the assets of the Company to be received upon consummation of the Merger described herein. No decision has been made concerning the method HCC will use to repay the borrowings under the Facility. Such decision will be made based on HCC's review from time to time of the advisability of particular actions, as well as prevailing interest rates, financial and other economic conditions and such other factors as HCC may deem appropriate. 10. BACKGROUND OF THE OFFER; PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE COMPANY. During the early part of 1998, HCC determined that it was in its best interest to increase its position in the medical stop-loss insurance business. At that time, Stephen L. Way, the Chairman of the Board and Chief Executive Officer of HCC, contacted David L. Cargile, Chairman of the Board and Chief Executive Officer of the Company and held informal discussions about a possible business combination. The Company, through its Chief Executive Officer, advised HCC that the Company did not wish to have combination discussions and that it preferred to remain an independent company. These discussions were generally cordial, but the discussions did not result in any agreement being reached between HCC and the Company. On or about January 11, 1999, HCC informed the Company that it had acquired in excess of 5% of the outstanding Shares of the Company and that it was seeking to acquire the remaining Shares for $13.25 per share pursuant to an all cash tender offer. At that time, HCC published a press release disclosing its intentions and filed certain documents with the Commission. On January 27, 1999, the Company issued a press release announcing that its Board of Directors had rejected HCC's offer. Also on January 27, 1999, HCC announced that it had withdrawn its offer following the rejection of the offer by the Company's Board of Directors. In early February, 1999, HCC announced a determination not to pursue any new proposal at that time for a business combination in light of the rejection of its prior offer. HCC noted that it intended to review on a continuing basis various factors relating to its investment in the Company, including the Company business and prospects, the price of its shares, subsequent developments affecting the Company, other investment and business opportunities available to HCC, and general stock market and economic conditions. At the time of its February announcement, HCC had sold 711,200 shares, reducing its holdings to 200,000 shares or 1.7% of the reported outstanding Shares. Subsequent to February, 1999, the Company announced that it was in negotiations with one or more potential acquirors and, although such negotiations were preliminary, the Company was looking to the possibility of a merger or other business combination. At that time, HCC notified the Company that HCC was still interested in pursuing a possible business combination. The Company stated at that time that it was proceeding with negotiations between itself and others and was not at that time amenable to further discussions with HCC. 13 16 Since that time, HCC continued informal intermittent discussions with the Company relating to a possible business combination. While the Company, through its Chief Executive Officer, continued to advise HCC that it did not wish to have combination discussions at the price HCC previously offered to acquire 100% of the Shares of the Company, it was suggested that the Company would be willing to enter into further discussions if HCC would amend its proposal. In July 1999, HCC and the Company once again began informal discussions concerning a possible combination. HCC prepared a letter informing the Company of its continued interest. Thereafter, discussions were held by telephone and in person on a number of occasions between July 1, 1999 and August 22, 1999. HCC and the Company entered into a confidentiality agreement on August 22, 1999 and HCC conducted preliminary due diligence concerning the affairs and activities of the Company. After such preliminary due diligence, the Chairman of the Board of HCC and the Chairman of the Board of the Company met to discuss a possible transaction. At that time, HCC informed the Company that it was willing to proceed with a cash tender offer in the amount of $13.25 per share. Preliminary terms of an agreement were discussed and outlined. On September 15, 1999 representatives of the Company met with representatives of HCC and informed them that the Company was prepared to negotiate definitive agreements for the proposed transaction. During the week of September 19, 1999 through September 26, 1999, representatives of HCC, including its legal advisors, negotiated with representatives of the Company, including its legal advisors, regarding terms of a definitive merger agreement and conducted detailed due diligence. During this time, representatives of HCC also negotiated with representatives of the Shareholders which are party to the Shareholder Option Agreement, regarding the terms of the Shareholder Option Agreement. These negotiations included meetings in Irvine, California attended by representatives of HCC and the Company. During the next three weeks, negotiations continued and meetings of representatives of both companies were held in California from September 30, through October 11, 1999 to finalize the definitive agreements. During these negotiations HCC determined to reduce the cash tender offer price to $12.50 per share. At the conclusion of such negotiations, the Merger Agreement, the Stock Option Agreement, the Shareholder Option Agreement and other related agreements were executed. At approximately 7:00 a.m. New York City time on October 12, 1999, HCC and the Company issued separate press releases announcing the transaction. 11. PURPOSE OF THE OFFER; MERGER AGREEMENT; SHAREHOLDER OPTION AGREEMENT; STOCK OPTION AGREEMENT; APPRAISAL RIGHTS. The purpose of the Offer is to acquire control of, and the entire equity interest in, the Company. Following the Offer, HCC and Merger Subsidiary intend to acquire any remaining equity interest in the Company not acquired in the Offer by consummating the Merger. THE MERGER AGREEMENT. The following description of the Merger Agreement is qualified in its entirety by reference to the text of such agreement, a copy of which is attached as an exhibit to the Schedule 14D-1 and is incorporated in this Offer to Purchase by reference and may be inspected in the same manner as set forth with respect to the Company in Section 7 hereof. The Offer. The Merger Agreement provides for the making of the Offer. The obligation of Merger Subsidiary to accept for payment or pay for Shares is subject to the satisfaction of the Minimum Condition and certain other conditions that are described in Section 15 hereof. Pursuant to the Merger Agreement, HCC and Merger Subsidiary expressly reserve the right to waive the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided, however, that without the prior written consent of the Company, no change may be made which (i) except as provided in the next sentence, extends the Offer; (ii) changes the form of consideration to be paid for the Shares; (iii) decreases the price per Share or the number of Shares sought in the Offer; (iv) imposes conditions to the Offer in addition to those set forth in Annex I to the Merger Agreement; (v) changes or waives the Minimum Condition; or (vi) makes any other change to any condition to the Offer set forth in the Annex I to the Merger Agreement which is materially adverse to the holders of Shares. Notwithstanding the foregoing, the Merger Agreement also provides that Merger Subsidiary may, without the consent of the Company, (i) extend the Offer Period until all of the 14 17 conditions to Merger Subsidiary's obligation to purchase Shares shall be satisfied or waived, including, without limitation, any period required by (A) by any rule, regulation, interpretation, or position of the Commission or the staff thereof applicable to the Offer; or (B) pursuant to the HSR Act; or (C) to obtain necessary approval of each state insurance regulatory agency required for consummation of the Offer; (ii) extend the Offer Period for a period of not more than ten Business Days beyond the expiration thereof, as such may be extended pursuant to clause (i) of this sentence; (iii) extend the Offer Period for an additional period of not more than ten Business Days beyond that permitted by clauses (i) and (ii) of this sentence if on the date of such extension, less than 90% of the Fully Diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer; and (iv) extend the Offer Period for any reason for a period of not more than five Business Days beyond the latest Expiration Date that would be otherwise permitted under clauses (i), (ii), or (iii) of this sentence. Subject to the terms of the Offer in the Merger Agreement and the satisfaction (or waiver to the extent permitted by the Merger Agreement) of the conditions of the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the applicable expiration of the Offer. Consideration to be Paid in the Merger. The Merger Agreement provides that, following the purchase of Shares pursuant to the Offer and upon the terms (but subject to the conditions) set forth in the Merger Agreement, Merger Subsidiary will be merged with and into the Company with the Company continuing as the surviving corporation. In the Merger, (i) each Share held by the Company as treasury stock or owned by HCC, Merger Subsidiary or any subsidiary of either of them immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; (ii) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and (iii) each Share outstanding immediately prior to the Effective Time shall, except as otherwise provided in the Merger Agreement with respect to Shares as to which appraisal rights have been exercised under Delaware Law, be converted into the right to receive $12.50 in cash without interest (the "Merger Consideration"). The Merger Agreement provides that the Merger will be consummated as soon as practicable after satisfaction of or, to the extent permitted thereunder, waiver of the conditions to the Merger and shall become effective at such time as the certificate of merger is duly filed with the Secretary of State of the State of Delaware or, with the consent of the Independent Director referred to below, at such later time as is specified in the certificate of merger. Board Representation. The Merger Agreement provides that, effective upon acceptance for payment by Merger Subsidiary of the Shares tendered pursuant to the Offer, HCC shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to the Merger Agreement); and (ii) the percentage that the number of Shares owned by HCC or Merger Subsidiary (including Shares accepted for payment) bears to the total number of Shares outstanding. The Company has agreed that it will take all action necessary to cause HCC's designees to be elected or appointed to the Company's Board of Directors, including, without limitation, increasing the number of directors or seeking and accepting resignations of incumbent directors or both; provided, however, that prior to the Effective Time, the Company's Board of Directors shall always have one Independent Director. If the number of Independent Directors is reduced below one for any reason prior to the Effective Time, the departing Independent Director shall be entitled to designate a person to fill such vacancy. No action proposed to be taken by the Company to amend or terminate the Merger Agreement or the certificate of incorporation or by-laws of the Company or waive any action required to be taken by HCC or Merger Subsidiary shall be effective without the approval of the Independent Director. At such times, the Company will use its best efforts to cause individuals designated by HCC to constitute the same percentage as such individuals represent on the Company's Board of Directors of (i) each committee of the Board; (ii) each board of directors of each subsidiary; and (iii) each committee of each such board. The Merger Agreement provides that, from and after the Effective Time, the directors and officers of Merger Subsidiary at the Effective Time will be the initial directors and officers of the Surviving Corporation, 15 18 each to hold office until his or her respective successors are duly elected or appointed and qualified in accordance with applicable law. Pursuant to the Merger Agreement, the by-laws of Merger Subsidiary, as in effect at the Effective Time, will be the by-laws of the Surviving Corporation until amended in accordance with applicable law, and the Certificate of Incorporation of Merger Subsidiary, as in effect at the Effective Time, will be the Certificate of Incorporation of the Surviving Corporation until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be changed to the name of the Company. Shareholder Meeting. The Merger Agreement provides that, if required by applicable law, the Company will call a meeting of its Shareholders to be held as soon as reasonably practicable following Merger Subsidiary's acquisition of Shares in the Offer for the purpose of voting on the approval and adoption of the Merger Agreement and the Merger. Under the Merger Agreement, at any such meeting, HCC has agreed to make a quorum and to vote all Shares acquired in the Offer or otherwise beneficially owned by it in favor of adoption of the Merger Agreement. If the Minimum Condition is satisfied pursuant to the Offer, Merger Subsidiary will hold at least a majority of the outstanding Shares on a Fully Diluted Basis and will be able to assure that the requisite number of affirmative votes in favor of approval and adoption of the Merger Agreement will be received, even if no other Shareholder votes in favor thereof. If Merger Subsidiary obtains at least 90% of the outstanding Shares, it may effect the Merger without any notice to and without the authorization of the Shareholders of the Company pursuant to the "short-form" merger provisions of Delaware Law. Representations and Warranties. The Merger Agreement contains various representations and warranties of the parties thereto. These include representations and warranties of the Company with respect to corporate organization, standing and power, capital structure, corporate authorization, governmental authorization, non-contravention, subsidiaries, Commission filings, financial statements, absence of certain changes, disclosure documents, undisclosed liabilities, absence of certain changes in stock or benefit plans, litigation, taxes, employee benefits, state takeover statutes, compliance with laws, contracts and debt instruments, opinion of financial advisor, interests of officers and directors, change of control, title to properties, Public Utility Holding Company Act, Year 2000, insurance, investments, investment company, internal controls, assumed and ceded reinsurance agreements, accounts with financial institutions, minute books, stock books, continuing business relationships, insurance reserves, environmental, intellectual property and technology and other matters. HCC and Merger Subsidiary have also made certain representations and warranties with respect to corporate existence and power, corporate authorization, governmental authorization, non-contravention, disclosure documents, financing and other matters. Conduct of Business Pending the Merger. The Company has agreed that, during the period from the date of the Merger Agreement to the Effective Time, the Company will, and will cause its subsidiaries to, carry on their respective businesses in the ordinary course in substantially the same manner as theretofore conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing business shall be unimpaired at the Effective Time. The Company has further agreed to (i) comply in all material respects with all laws, statutes, ordinances, rules and regulations applicable to the Company; (ii) take all commercially reasonable steps to preserve the current relationships of the Company with its brokers, reinsurance intermediaries, ceding companies, reinsurers, agents, managing general agents, suppliers and other persons with which the Company has significant business relationships; and (iii) perform its obligations under all Reinsurance Agreements (as defined in the Merger Agreement), Contracts (as defined in the Merger Agreement) and commitments to which it is a party or by or to which it is bound or subject; and (iv) require the Company's Accountants (as defined in the Merger Agreement) to conduct an interim quarterly review with a written report of the Company's Form 10-Q filings for the period ended September 30, 1999, in accordance with generally accepted auditing standards. The Company has further agreed that, during the period from the date of the Merger Agreement to the Effective 16 19 Time, the Company will not, and will not permit any of its subsidiaries to, without the prior written approval of HCC, (i)(a) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent, (b) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (c) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of Company Options); (ii) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Options); (iii) amend its certificate of incorporation, by-laws or other comparable charter or organizational documents; (iv) acquire or agree to acquire (including, without limitation, by merger, consolidation, or acquisitions of stock or assets) any business including through the acquisition of any interest in any corporation, partnership, limited liability company, joint venture, association or other business organization or division thereof; (v) mortgage or otherwise encumber or subject to any lien or, except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, sell, lease, license, transfer or otherwise dispose of any of the Company intellectual property rights or any other material properties or assets; (vi) make or agree to make any new capital expenditures in excess of $100,000; (vii) make any material tax election (unless required by law) or settle or compromise any material income tax liability; (viii) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), or settle any lawsuit other than the payment, discharge, satisfaction or settlement, in the ordinary course of business consistent with past practice and in accordance with their terms and in an amount not to exceed $25,000, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (ix) commence a lawsuit other than (a) for the routine collection of bills or (b) in such cases where the Company in good faith determines that the failure to commence suit would result in a material impairment of a valuable aspect of the Company's business, provided that the Company consults with HCC prior to filing such suit; (x) (a) hire any permanent employee or any other employee whose employment cannot be terminated at will without further payment or enter into or amend any employment or severance agreement or similar arrangements, (b) make any determination as to amounts payable under any plan, arrangement or agreement, providing for discretionary incentive compensation or bonus to any officer, director, employee or independent contractor of the Company or any of its subsidiaries, (c) enter into, adopt, or amend (except as required in Sections 2.5 and 5.9 of the Merger Agreement) any agreement, arrangement, or benefit plan so as to increase the liability (whether or not contingent) of the Company or HCC or any of their subsidiaries or ERISA affiliate (as defined in the Merger Agreement) in respect of compensation or benefits except as may be required by law or (d) grant any options or increase any employee or director compensation; (xi) amend, commute, terminate or waive any of its rights under any Reinsurance Agreement pursuant to which the Company has ceded or transferred any of its obligations or liabilities; (xii) conclude any negotiations relating to outstanding issues arising from the purchase of Seaboard Life Insurance Company (USA) and VASA North America, Inc. or the sale of USF RE Insurance Company; (xiii) make any material changes in their investment portfolio or investment guidelines; (xiv) authorize any of, or commit or agree to take any of, the foregoing actions; (xv) take or agree or commit to take any action that would make representation or warranty of the Company hereunder inaccurate in any material respect at, or as of any time prior to, the Effective Time; or (xvi) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time. Access to Information. From the Execution Date until the Effective Time, the Company has agreed that it will, and has agreed to cause each of its subsidiaries to, (i) give HCC, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours and upon reasonable notice) to the offices, properties, books and records of the Company and the subsidiaries; (ii) furnish to HCC, its counsel, financial advisors, auditors and other authorized representatives all their respective properties, books, contracts, commitments, personnel and records and, during such period, the Company has agreed that 17 20 it will, and has agreed to cause each of its subsidiaries to, furnish (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws, (ii) a copy of each tax return, report and information statement filed by it during such period; and (iii) all other information concerning its business, assets, properties and personnel (including financial and operating data) as such persons may reasonably request and will instruct the Company's employees, counsel and financial advisors to cooperate with HCC in its investigation of the business of the Company and the subsidiaries; provided, however, that the parties have agreed that no investigation pursuant to this paragraph will affect any representation or warranty given by the Company in the Merger Agreement. From the Execution Date until the Effective Time, the Company has agreed to give HCC, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours at their actual location) to all accounting, revenue, marketing, producer, processing, and other books, records and data in possession of Company, except such records or data which Company is prevented by contractual obligations with third parties from disclosing; provided, however, that in the event the Company is prohibited from making files or records available because of provisions of third party agreements, then the Company has agreed to inform HCC of the existence of such records, the parties thereto and the subject matter of such records. HCC and the Company have further agreed in the Merger Agreement that, from the Execution Date, the order issued in that certain litigation entitled The Centris Group, Inc. et al. v. HCC Benefits Corporation, et al. Civil Action No. 99-1-4866-28 in the Superior Court of Cobb County, State of Georgia (the "Kelbel Litigation") will be suspended except for the running of any time limitations on Kelbel's activities which shall continue and the restriction on Kelbel shall be of no further force and effect, provided, however, that if the Merger Agreement is terminated by HCC for any reason other than the occurrence of a Trigger Event (defined herein) such restrictions shall be reinstated. The parties have further agreed to use their best efforts to cause the Order in the Kelbel Litigation to be amended to conform to the terms provided in the Merger Agreement. Rights Plan. Pursuant to the Merger Agreement, the Company has agreed that upon execution of the Merger Agreement, it shall take necessary actions under the Rights Plan, including any required amendments to the Rights Plan, so that the commencement or consummation of the Offer, the grant or exercise of any rights under the Stock Option Agreement or the Shareholder Option Agreement or any other acts pursuant to such agreements, respectively, on the terms permitted thereunder, respectively, and as contemplated therein, respectively, will not cause (A) the Rights issued pursuant to the Rights Plan to become exercisable under the Rights Plan, (B) HCC, or any subsidiary of HCC, including Merger Subsidiary to be deemed a "10% Stockholder" (as defined in the Rights Plan) or (C) the "10% Stock Ownership Date" (as defined in the Rights Plan) to occur; provided, however, that the Company shall not be required to make such amendments to the Rights Plan if, (i) HCC has not performed or complied in all material respects with the Merger Agreement prior to the consummation of the Offer; or (ii) the Company obtains, and there is in force from the Delaware Court of Chancery, an order permanently, preliminarily or temporarily declaring that the making of such amendments to the Rights Plan would be contrary to the fiduciary duties of the Board of Directors of the Company. The Merger Agreement further provides that in no event shall the Board of Directors of the Company make an amendment of the Rights Plan in favor of any other person without making such amendment in favor of HCC. Affirmative Actions. Pursuant to the Merger Agreement, the Company will retain an independent actuary (the "Actuary") which is acceptable to HCC to prepare an independent actuarial review of all aspects of the Company's business including, without limitation, the Company's property/casualty reserves, including discontinued operations, the medical lines business, recoverable value of the Company's notes receivable and indemnification obligations of the Company. Such actuarial study shall commence no later than five Business Days from the Execution Date and shall be completed no later than two Business Days after receipt of all regulatory approvals to the Merger from required state insurance regulatory agencies. The Company shall make the reserve adjustments to take such other charges, in accordance with Generally Accepted Accounting Principles ("GAAP") and Statutory Accounting Principles ("SAP"), consistent with the findings of such 18 21 actuarial review. Such adjustments and charges shall be recorded on the Company's books no later than three Business Days following the receipt from the Actuary of such review. The Company has further agreed to utilize reasonable commercial efforts and to cooperate with HCC in the establishment of underwriting standards for business commencing January 1, 2000. Termination of Benefit Plans. The Company has agreed in the Merger Agreement to terminate or cause to be terminated The Centris Group, Inc. Employees' Savings Plan and the VASA North America, Inc. 401(k) Profit Sharing Plan prior to the date on which the Company and/or its subsidiaries and ERISA affiliates become members of a "controlled group" with or under "common control" with HCC as such terms are defined in Section 414(b) and 414(c) of the Code. HSR Act Filings; Regulatory Filings; Efforts. Pursuant to the Merger Agreement, each of HCC and the Company has agreed to (i) promptly make or cause to be made the filings required of such party or any of its subsidiaries under the HSR Act with respect to the transactions contemplated by the Merger Agreement; (ii) comply at the earliest practicable date with any request under the HSR Act for additional information, documents, or other material received by such party or any of its subsidiaries from any federal, state or local government or any court, administrative or regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity") in respect of such filings or such transactions; and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other Governmental Entity under any Antitrust Laws (as defined below) with respect to any such filing or any such transaction. Each of HCC and the Company has agreed, pursuant to the Merger Agreement, to promptly inform the other of any communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Entity regarding any such filings or any such transaction. The Merger Agreement prohibits the Company from participating in any meeting (whether in person or by telephone) with any Governmental Entity in respect of any such filings, investigation, or other inquiry without HCC's consent and without giving HCC notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate. Each of HCC and the Company has agreed, pursuant to the Merger Agreement, to use all commercially reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by the Merger Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other Federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "Antitrust Laws"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by the Merger Agreement as violative of any Antitrust Law, and, if by mutual agreement, HCC and the Company decide that litigation is in their best interests, each of HCC and the Company has agreed, pursuant to the Merger Agreement, to cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent (each an "Order"), that is in effect and that prohibits, prevents, or restricts consummation of the Merger or any such other transactions. Pursuant to the Merger Agreement, each of HCC and the Company has agreed to use all commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of the Merger Agreement. 19 22 Each of the parties has agreed in the Merger Agreement to promptly make or cause to be made the filings required of each such party or any of its subsidiaries under any insurance regulatory law or act in any state where such filing is required or, at the request of HCC, deemed advisable, and to comply at the earliest practicable date with any requests made by any insurance regulatory agency or any other Governmental Entity for additional information, documents or other material received by such party or any of its subsidiaries and to cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry or hearing of any such agency or other Governmental Entity under any insurance law relating to licensing, holding company applications, change in control, etc. with respect to any such filing or any such transaction. Each party has further agreed to promptly inform the other party of any communication with, and any proposed understanding, undertaking agreement with, any Governmental Entity or insurance agency regarding any such filings or any such transaction. The Company shall not participate in any meeting (whether, in person or by telephone) with any Governmental Entity or insurance regulatory agency in respect of any such filings, investigation, or other inquiry without HCC's consent and without giving HCC notice of the meeting, and to the extent permitted by such Governmental Entity, the opportunity to attend and participate. Subject to the fiduciary duties of the Board of Directors of the Company as advised in writing by counsel to the Company, each of HCC and the Company has agreed, pursuant to the Merger Agreement, to use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other party in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger, and the other transactions contemplated by the Merger Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all other necessary registrations and filings (including other filings with Governmental Entities, if any); (ii) the obtaining of all necessary consents, approvals or waivers from third parties; (iii) the preparation of the Company Disclosure Documents (as defined in the Merger Agreement) and the Offer Documents (as defined in the Merger Agreement); and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of the Merger Agreement. Notwithstanding the foregoing, the Merger Agreement provides that (i) neither HCC nor any of its subsidiaries shall be required to divest any of their respective businesses, product lines or assets; (ii) neither HCC nor any of its subsidiaries shall be required to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect (as defined in Section 15) on the business, assets, financial condition, results of operations or prospects of HCC and its subsidiaries or the Surviving Corporation after the Effective Time; (iii) neither the Company nor its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect; (iv) no party shall be required to agree to the imposition of, or to comply with, any condition, obligation or restriction on HCC or any of its subsidiaries or on the Surviving Corporation or any of its subsidiaries of the type described in clause (a) or (b) of Section 15 of this Offer; and (v) neither HCC nor Merger Subsidiary shall be required to waive any of the conditions to the Offer described in Section 15 of this Offer or any of the conditions to the Merger described in this Section 11 hereof. The Merger Agreement provides that each party will give prompt notice to the other party of (i) any representation or warranty made by such party contained in the Merger Agreement becoming untrue or inaccurate in any respect; or (ii) the failure by such party to comply with or satisfy in any respect any covenant, condition or agreement to be complied with or satisfied by such party under the Merger Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under the Merger Agreement. The Merger Agreement provides that the Company will give prompt notice to HCC, and HCC or Merger Subsidiary will give prompt notice to the Company of (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by the Merger Agreement; (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by the Merger Agreement; and (iii) any actions, 20 23 suits, claims, investigations or proceedings commenced or, to the best of its knowledge threatened against, relating to or involving or otherwise affecting it or any of its subsidiaries which, if pending on the date of the Merger Agreement would have been required to have been disclosed pursuant to the representations and warranties of the Company or which relate to the consummation of the transactions contemplated by the Merger Agreement. Stock Options. The Merger Agreement provides that, at the time that Merger Subsidiary has accepted for payment all Shares validly transferred and not withdrawn pursuant to the Offer, each outstanding Company Option, whether vested or unvested, shall be canceled, and each holder of any such option shall be paid by Merger Subsidiary promptly for each such option an amount determined by multiplying (i) the excess, if any, of $12.50 per Share over the applicable exercise price of such option by (ii) the number of Shares such holder could have purchased had such holder exercised such option in full immediately prior to the time that Merger Subsidiary has accepted for payment all Shares validly transferred and not withdrawn pursuant to the Offer (as if such Company Option was exercisable in full). Notwithstanding any other provision of the Merger Agreement, immediately after the acceptance for payment of Shares pursuant to the Offer, no Company Options will remain outstanding. Pursuant to the Merger Agreement and as soon as practicable following the date of the Merger Agreement, the Company has agreed to use its commercially reasonable efforts to (i) obtain any consents from holders of Company Options; and (ii) make any amendments to the terms of such stock option or compensation plans or arrangements that, in the case of either clauses (i) or (ii), are necessary to give effect to the transactions contemplated by the Merger Agreement. Notwithstanding any other provision of the Merger Agreement, payment may be withheld in respect of any Company Option until necessary consents are obtained. All amounts payable pursuant to the Merger Agreement in respect of Company Options shall be subject to, and reduced by, any required withholding of taxes and shall be paid without interest. Other Offers. Pursuant to the Merger Agreement, the Company has agreed that, until the termination of the Merger Agreement, the Company and its subsidiaries will not, and will not authorize or permit the officers, directors, employees or other agents of the Company and its subsidiaries to, directly or indirectly, (i) take any action to solicit, initiate or encourage any Acquisition Proposal (as defined below); or (ii) subject to the fiduciary duties of the Board of Directors under applicable law, as advised in writing by Gibson, Dunn & Crutcher, LLP, counsel to the Company, and in response to an unsolicited request that has been submitted to the Company's Board of Directors and determined to be a Superior Acquisition Proposal (as defined below), engage in negotiations with, or disclose any nonpublic information relating to the Company or any of its subsidiaries or afford access to the properties, books or records of the Company or any of its subsidiaries to, any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal; provided, however, that the foregoing does not prohibit the Company's Board of Directors from taking and disclosing to the Company's Shareholders a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. The Company has agreed to promptly notify HCC after receipt of any Acquisition Proposal or any indication that any person is considering making an Acquisition Proposal or any request for nonpublic information relating to the Company or any of its subsidiaries or for access to the properties, books or records of the Company or any of its subsidiaries by any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal and will keep HCC fully informed of the status and details of any such Acquisition Proposal, notice or request. "Acquisition Proposal" means any offer or proposal for, or any indication of interest in, a merger or other business combination involving the Company or any of its subsidiaries or the acquisition of any significant equity interest in, or a significant portion of the assets of, the Company or any of its subsidiaries, other than the transactions contemplated by the Merger Agreement; and "Superior Acquisition Proposal" means an Acquisition Proposal which a majority of the Company's disinterested directors determines in its good faith judgment (based on the written advice of the Financial Advisor) to be more favorable to the Company's Shareholders than the Offer or the Merger, and for which financing, to the extent required, is then committed. Agreement with respect to Director and Officer Indemnification and Insurance. Pursuant to the Merger Agreement, after the Effective Time, HCC will cause the Surviving Corporation to indemnify and hold 21 24 harmless the present and former officers, directors, employees and agents of the Company and its subsidiaries (the "Indemnified Parties") in respect of acts or omissions based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that such Indemnified Party is or was a director, officer or employee of the Company, any of its subsidiaries or any of their respective predecessors or was prior to the Effective Time serving at the request of any such party as an officer, director, employee or agent of another corporation, partnership, trust or other enterprise; or (ii) the Merger Agreement, or any of the transactions contemplated thereby and all actions taken by an Indemnified Party in connection therewith. The parties also agreed to cooperate and use commercially reasonable efforts to defend against and respond to such proceedings to the extent set forth in the next sentence. After the Effective Time, HCC agreed to cause Surviving Corporation to indemnify and hold harmless, as and to the fullest extent permitted by the Company's Certificate of Incorporation and By-Laws in effect on the date of the Merger Agreement and by law, each such Indemnified Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys' fees and expenses in advance of the final disposition of any claim, suit, proceeding or investigation to each Indemnified Party to repay such advanced expenses if it is finally and unappealably determined that such Indemnified Party was not entitled to indemnification hereunder), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation, and in the event of any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time) (collectively, "Claims"), the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with the Surviving Corporation; provided, however, that (1) the Surviving Corporation has the right to assume the defense thereof and upon such assumption the Surviving Corporation will not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by an Indemnified Party in connection with the defense thereof, except that if the Surviving Corporation elects not to assume such defense, or counsel for the Indemnified Parties reasonably advises the Indemnified Parties that there are or may be (whether or not any have yet actually arisen) issues which raise conflicts of interest between the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them, and the Surviving Corporation will pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (2) the Surviving Corporation is obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties, (3) the Surviving Corporation will not be liable for any settlement effected without its prior written consent, and (4) the Surviving Corporation will have no obligation hereunder to any Indemnified Party when if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by the Certificate of Incorporation or By-Laws of the Company or its subsidiaries or applicable law. Any Indemnified Party wishing to claim indemnification under this provision, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Surviving Corporation thereof, provided, however, that the failure to so notify shall not affect the obligations of the Surviving Corporation under this provision except (and only) to the extent such failure to notify materially prejudices the Surviving Corporation. Furthermore, the Surviving Corporation agreed that all rights to indemnification and all limitations of liability existing in favor of the Indemnified Parties as provided in the Company's Certificate of Incorporation or By-Laws or in the similar governing documents of any of the Company's subsidiaries as in effect as of the date of the Merger Agreement with respect to matters occurring on or prior to the Effective Time shall survive the Merger and shall continue in full force and effect thereafter, without any amendment thereto; provided, however, that nothing contained in this provision will be deemed to preclude the liquidation; consolidation or merger of the Company or any subsidiary thereof, in which case all of such rights to indemnification and limitations on liability will be deemed to so survive and continue notwithstanding any such liquidation, consolidation or merger and shall constitute rights which may be asserted against the Surviving Corporation. Nothing contained in this provision will be deemed to preclude any rights to indemnification or limitations on liability provided in the Company's Certificate of Incorporation or By-Laws or similar governing documents of the Surviving Corporation with respect to matters occurring subsequent to the Effective Time to the extent that the provisions establishing such rights or limitations are not otherwise amended to the contrary. The Surviving Corporation agreed to use its commercially reasonable efforts to cause the persons serving as officers and directors of the Company immediately prior to the Effective Time to be covered for a period of three years from the Effective Date by the directors' and officers' liability insurance 22 25 policy maintained by the Surviving Corporation (provided that the Surviving Corporation may substitute therefor policies of at least the same coverage and amounts containing terms and conditions of such existing policy and provided further that in no event will the Surviving Corporation be required to expend in any one year an amount in excess of 200% of the annual premiums currently paid by the Company for such insurance) with respect to acts or omissions occurring prior to the Effective Time which were committed by such officers and directors in their capacity as such. Regulatory Filings. Pursuant to the terms of the Merger Agreement, the Company has agreed to commence preparation of and, consistent with past practice and on a timely basis, if required prior to the Closing Date, file with or submit to any insurance department or other Governmental Entity with which the Company is required to make such filings or submissions, and, if filed prior to the Closing Date, deliver to the HCC true and complete copies of, the quarterly statutory statement for each quarter of 1999 ended prior to the Closing Date, together with all related notes, exhibits and schedules thereto. The Company has agreed that all such quarterly statements filed with or submitted to any insurance department or Governmental Entity (i) shall be prepared from the books of account and other financial records of the Company; (ii) shall be filed with or submitted to such insurance departments and Governmental Entities, on forms prescribed or permitted thereby; (iii) shall be prepared in accordance with SAP applied on a basis consistent with the past practices of the Company (except as set forth in the notes, exhibits or schedules thereto), and shall comply on their respective dates of filing or submission with the laws of such jurisdictions; (iv) shall present fairly the statutory assets, liabilities, capital and surplus, results of operations and cash flows of the Company as of the dates thereof or for the periods covered thereby (subject to normal estimation of accruals and reserves and normal year-end audit adjustments); and (v) shall not use any accounting practices that are permitted rather than prescribed by the insurance departments and regulatory authorities. Other Agreements. HCC has agreed that it will take all action necessary to cause Merger Subsidiary to perform its obligations under the Merger Agreement and to consummate the Offer and the Merger on the terms and conditions set forth in the Merger Agreement. Employees. Except as otherwise provided in the Merger Agreement, HCC has agreed that it (or the Surviving Corporation) will be a successor employer with respect to, and assume sponsorship of (or cause the Surviving Corporation to assume sponsorship of), in accordance with their terms, all Benefit Plans previously delivered to HCC and all accrued benefits vested thereunder, other than Benefit Plans terminated prior to the Effective Time; it being understood and agreed by the parties that nothing in the Merger Agreement shall prevent HCC or the Surviving Corporation from terminating any such Benefit Plan in accordance with its terms or require HCC or the Surviving Corporation to incur any liability or assume any obligation other than liabilities and obligations under the terms of such plans as in effect on the Execution Date. The term "Benefit Plans" means any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, stock appreciation right, retirement, vacation, severance, disability, death benefit, hospitalization, medical, workers' compensation, disability, supplementary unemployment benefits, or other plan, arrangement or understanding (whether or not legally binding) or any employment agreement providing compensation or benefits to any current or former employee, officer, director or independent contractor of the Company or any of its subsidiaries or any beneficiary thereof or entered into, maintained or contributed to, as the case may be, by the Company or any of its subsidiaries. Conditions to the Merger. Pursuant to the Merger Agreement, the respective obligations of each party to consummate the Merger are subject to the satisfaction of the following conditions: (i) HCC or Merger Subsidiary shall have purchased Shares in an amount equal to at least the Minimum Condition pursuant to the Offer; (ii) if required by applicable law, the adoption of the Merger Agreement by the Shareholders of the Company in accordance with Delaware Law; (iii) no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Merger; (iv) any applicable waiting period under the HSR Act relating to the Merger shall have expired; (v) other than filing the certificate of merger in accordance with Delaware Law, all consents required to permit the consummation of the Merger shall have been filed, occurred or been obtained (other than those the failure to file, occur or obtain, in the aggregate, could not reasonably be expected to have a Material Adverse Effect or prevent or 23 26 materially delay the consummation of the Merger); (vi) each Governmental Entity having jurisdiction over the Company or any of its subsidiaries, their business, licenses or permits, shall have, where applicable, approved the transactions contemplated by the Merger Agreement and any "change of control" incidental thereto; (vii) each of the officers and employees whose names are specifically set forth on Annex II to the Merger Agreement shall have executed an agreement to remain in the employment of the Surviving Corporation for a period of up to 120 days after the Effective Time and as of the Effective Time, none of such persons listed on Annex II-A to the Merger Agreement and no more than two of those persons set forth on Annex II-B to the Merger Agreement shall have voluntarily terminated or terminated for Good Reason, as defined in the respective Severance Agreement entered into by each of such persons; and (viii) the Company shall have performed its obligations under Section 5.8 to the Merger Agreement (see "The Merger Agreement -- Affirmative Actions"). Termination. The Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of the Merger Agreement by the Shareholders of the Company) (i) by mutual written consent of the Company and HCC; (ii) by either the Company or HCC, if such party has received an opinion from its counsel that there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or if any judgement, injunction, order or decree enjoining HCC or the Company from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable; (iii) by either the Company or HCC (provided, however, that no party shall be entitled to terminate the Merger Agreement pursuant to this sub-clause (iii) as a result of its breach of this Merger Agreement), (x) if HCC or Merger Subsidiary shall have failed to commence the Offer within five Business Days following the date of the announcement of the Merger Agreement, (y) if HCC or Merger Subsidiary shall not have purchased any Shares pursuant to the Offer prior to February 29, 2000 (or, if the Offer shall have been extended by Merger Subsidiary pursuant to the Merger Agreement, on or prior to March 31, 2000) or (z) the Offer shall have been terminated without HCC or Merger Subsidiary having purchased any Shares pursuant to the Offer; (iv) by HCC upon the occurrence of any Trigger Event described in clauses (i) through (iv) under the heading "Fees and Expenses" below; (v) by the Company, upon the occurrence of any Trigger Event described in clause (i) under the heading "Fees and Expenses" below; and (vi) by either the Company or HCC, if the Merger has not been consummated by June 30, 2000 (provided, however, that the party seeking to terminate the Merger Agreement shall not have breached its obligations under the Merger Agreement in any material respect). Fees and Expenses. Each party to the Merger Agreement has agreed to pay its own fees and expenses and there are no provisions for payment by the Company of the fees and expenses of HCC or Merger Subsidiary or vice versa or at any time prior to the consummation of the Offer as if made at and as of such time, if the Merger Agreement is terminated, except as stated below. The Company has agreed to pay HCC, at HCC's demand and sole election, a fee in immediately available funds equal to $6,000,000 (the "Termination Fee") promptly, but in no event later than one Business Day, after the termination of the Merger Agreement as a result of the occurrence of any of the events set forth below (each a "Trigger Event"): (i) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle with respect to any Acquisition Proposal; (ii) any person or group (as defined in Section 13(d)(3) of the Exchange Act) (other than HCC or any of its affiliates) shall have become the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of at least 20% of the outstanding Shares or shall have acquired, directly or indirectly, at least 20% of the assets of the Company; (iii) any representation or warranty made by the Company in, or pursuant to, the Merger Agreement that is qualified as to materiality shall not have been true and correct when made or at any time prior to the consummation of the Offer as if made at and as of such time, or any representation or warranty made by the Company in, or pursuant to, the Merger Agreement that is not so qualified shall not have been true and correct in all material respects when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Company shall have failed to observe or perform in any material respect any of its obligations under the Merger Agreement; provided, however, that it shall not be a Trigger Event unless the breaches of the representations and warranties without regard to any materiality qualifier or threshold, and failure to perform or breach of any obligation, individually or in the aggregate, have had or could reasonably be expected to have a Material Adverse Effect; or (iv) the Board of Directors of the 24 27 Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to HCC or Merger Subsidiary its approval or recommendation of the Offer, the Merger into the Merger Agreement the Shareholder Option Agreement and the Stock Option Agreement, in any such case whether or not such withdrawal or modification is required by the fiduciary duties of the Company's Board of Directors (or any special committee thereof). The Merger Agreement provides that if it is terminated as a result of the occurrence of a Trigger Event, in addition to the Termination Fee paid or payable by the Company to HCC pursuant to the foregoing, the Company shall assume and pay, or reimburse HCC for, all reasonable fees payable and expenses incurred by HCC (including the fees and expenses of its counsel in connection with the Merger Agreement and the transactions contemplated hereby), up to a maximum of $1,000,000 (the "Expense Reimbursement"). HCC shall not be entitled to the Termination Fee if HCC shall have exercised the option granted to HCC in the Stock Option Agreement, but shall be entitled to the Expense Reimbursement. Appraisal Rights. Shareholders do not have dissenters' rights as a result of the Offer. However, if the Merger is consummated, Shareholders at the time of the Merger who do not vote in favor of or consent in writing to the Merger will have the right under Delaware Law to dissent and demand appraisal of their Shares in accordance with Section 262 of Delaware Law. Under Delaware Law, dissenting Shareholders who comply with the applicable statutory procedures will be entitled to receive a judicial determination of the fair value of their Shares (exclusive of any element of value arising from the accomplishment or expectation of the Merger) and to receive payment of such fair value in cash, together with a fair rate of interest, if any. Any such judicial determination of the fair value of the Shares could be based upon considerations other than or in addition to the price paid in the Offer (or the Merger) and the market value of the Shares. The Shareholders should recognize that the value so determined could be higher or lower than the price per Share paid pursuant to the Offer or the Merger. Moreover, HCC or Merger Subsidiary may argue in an appraisal proceeding that, for purposes of such a proceeding, the fair value of the Shares is less than the price paid in the Offer (or the Merger). THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING SHAREHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF PROCEDURES TO BE FOLLOWED BY SHAREHOLDERS DESIRING TO EXERCISE THEIR DISSENTERS' RIGHTS. SHAREHOLDER OPTION AGREEMENT. The following description of the Shareholder Option Agreement is qualified in its entirety by reference to the text of such agreement, a copy of which is attached as an exhibit to Merger Subsidiary's and HCC's Schedule 14D-1 with respect to the transaction contemplated hereby filed with the Commission pursuant to the Exchange Act. Grant of Stock Option. Under the Shareholder Option Agreement, each Principal Shareholder has granted Merger Subsidiary an irrevocable option to purchase, subject to the terms and conditions set forth in the Shareholder Option Agreement, for a price of $12.50 per Share in cash, such Principal Shareholder's Shares and any additional Shares acquired by such Shareholder in any capacity (whether by exercise of options, warrants or rights, the conversion or exchange of convertible or exchangeable securities or by means of a purchase, dividend, distribution or otherwise) (collectively, the "Shareholder Shares"). The Shareholder Option Agreement also provides that the number and kind of Shareholder Shares subject to the Stock Option and the purchase price therefor shall be appropriately and equitably adjusted in the event of changes in the Company's capital stock. Exercise of Option. Subject to the terms of the Shareholder Option Agreement, Merger Subsidiary has the right to exercise the Stock Option, in whole, but not in part, at any time after the date an Acquisition Proposal or a Superior Acquisition Proposal is successfully received and paid for in excess of 50% of the Fully Diluted Shares or a third party has otherwise acquired in excess of 50% of the Fully Diluted Shares. The Shareholder Option Agreement further provides that, once exercisable, the Stock Option must be exercised, if at all, within five Business Days. Agreement to Tender. Each of the Principal Shareholders has agreed to validly tender (or cause the record owner of such shares to validly tender) such Principal Shareholder's Shares in the Offer within two days of the receipt of Merger Subsidiary's offer to purchase relating to the Offer. Each Principal Shareholder 25 28 has agreed, in the Shareholder Option Agreement, upon receipt of written instructions from Merger Subsidiary, to deliver to the Depositary (i) a Letter of Transmittal with respect to such Principal Shareholder's Shares complying with the terms of the Offer together with instructions directing the Depositary to make payment for such Shares directly to the Principal Shareholder (but if such Shares are not accepted for payment or are withdrawn and are to be returned pursuant to the Offer, to return such Shares to such Principal Shareholder whereupon they shall continue to be held by such Principal Shareholder subject to the terms and conditions of the Shareholder Option Agreement); (ii) the certificates evidencing such Principal Shareholder's Shares; and (iii) all other documents or instruments required to be delivered pursuant to the terms of the Offer. Conditions. The Principal Shareholders' obligations to sell their Shares (other than by tendering pursuant to the Offer) under the Shareholder Option Agreement are subject to the satisfaction of the following conditions: (i) the representations and warranties of Merger Subsidiary set forth in the Shareholder Option Agreement shall be true and correct in all material respects on the date of sale as if made on such date; (ii) if applicable, all waiting periods under the HSR Act to the exercise of the Stock Option shall have expired or been terminated; and (iii) there shall be no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, nor any statute, rule, regulation or order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining such exercise of the Stock Option. No Shopping. Each Principal Shareholder has further agreed to be bound to the obligations and the restrictions placed on him as a director of the Company pursuant to Section 5.4 of the Merger Agreement. See, "The Merger Agreement -- Other Offers". Proxy. In entering into the Shareholder Option Agreement, each Principal Shareholder (i) revoked any and all previous proxies granted with respect to such Shareholders' Shares; and (ii) granted Merger Subsidiary a proxy to vote or consent at every annual, special or adjourned meeting, or solicitation of consents, of the Shareholders of the Company (including the right to sign its name as Shareholder to any consent, certificate or other document relating to the Company that the law of the State of Delaware may permit or require) (1) in favor of the adoption of the Merger Agreement and the Shareholder Option Agreement and approval of the Merger and the other transactions contemplated by the Merger Agreement and Shareholder Option Agreement; (2) against any proposal for any recapitalization, merger, sale of assets or other business combination between the Company and any person or entity (other than the Merger) or any other action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement not being fulfilled, and (3) in favor of any other matter relating to consummation of the transactions contemplated by the Merger Agreement and the Shareholder Option Agreement. Each Shareholder also agreed to cause such Principal Shareholder's Shares that are outstanding and owned by it beneficially to be voted in accordance with the foregoing. The proxy granted under the Shareholder Option Agreement is irrevocable, but such proxy will be revoked upon termination of the Shareholder Option Agreement in accordance with its terms. Shareholders holding an aggregate of up to 1,011,835 Shares are parties to the Shareholder Option Agreement. STOCK OPTION AGREEMENT. The following description of the Stock Option Agreement, is qualified in its entirety by reference to the text of such Agreement, a copy of which is attached as an exhibit to Merger Subsidiary's and HCC's Schedule 14D-1 with respect to the transaction contemplated hereby filed with the Commission pursuant to the Exchange Act. Grant of Stock Option. Under the Stock Option Agreement, the Company granted HCC an option to purchase, subject to the terms and conditions set forth in the Stock Option Agreement, 19.9% of the Company's issued and outstanding shares, at a price per Share equal to the Merger Consideration (the "HCC Option"). As of October 11, 1999, the HCC Option would be exercisable for 2,295,679 Shares. The HCC Option is exercisable and may be exercised in whole at any time and from time to time, until the expiration of the HCC Option as provided in the Stock Option Agreement. The HCC Option shall only be exercisable if, at any time after October 11, 1999 and prior to the expiration of the HCC Option the Company enters into, or 26 29 publicly announces its intention to enter into, an agreement or an agreement in principle with respect to any Acquisition Proposal or Superior Acquisition Proposal. The HCC Option shall expire at 11:59 P.M. California time on the earlier of the fifth Business Day after the Acquisition Proposal or Superior Acquisition Proposal is terminated or December 31, 2000. The number of shares of Common Stock of the Company exercisable pursuant to the terms of the HCC Option shall be appropriately adjusted to reflect any change in the Common Stock of the Company after the date of the Stock Option Agreement. Purchase of HCC Option by Company. The Stock Option Agreement provides that if, before the expiration of the HCC Option, there is either (i) an Acquisition Proposal which at any time becomes a Superior Acquisition Proposal (regardless of whether it is consummated); or (ii) the commencement of a tender offer or exchange offer for at least 20% of the shares of Common Stock of the Company; or (iii) the acquisition by any person or "group" (within the meaning of Rule 13d-5 under the Exchange Act) of at least 20% of the shares (or rights to acquire shares) of Common Stock of the Company, then, in either event, for a period of 100 days after (x) the date such Acquisition Proposal becomes a Superior Acquisition Proposal or (y) such event occurs, but prior to the expiration of the HCC Option, HCC shall be entitled to sell the HCC Option to the Company and the Company shall be required to purchase the HCC Option from HCC, for $6,000,000 in cash against HCC's written acknowledgment that it has surrendered all of its rights to the HCC Option. Amendment of Rights Agreement. The Stock Option Agreement provides that the Company agreed that immediately prior to execution of such Agreement, it shall take all necessary action under the Rights Plan, including any required amendment thereto, so that the grant or exercise of the HCC Option on the terms permitted under the Stock Option Agreement and as contemplated by the Stock Option Agreement will not cause (i) the Rights to become exercisable under the Rights Plan; (ii) HCC, or any subsidiary of HCC, including Merger Subsidiary to be deemed a "10% Stockholder"; or (iii) the "10% Stock Ownership Date" to occur upon such consummation; provided, however, that the Company shall not be required to make such amendments to the Rights Plan if, (x) HCC has not performed or complied in all material respects with the Stock Option Agreement prior to the exercise of the HCC Option or (y) the Company obtains, and there is in force from the Delaware Court of Chancery, an order permanently, preliminarily or temporarily declaring that the making of such amendments to the Rights Plan would be contrary to the fiduciary duties of the Board of Directors of the Company. Notwithstanding anything else contained herein, in no event shall the Board of Directors of the Company make any comparable amendment of the Rights Plan in favor of any other person without making such amendment in favor of HCC. Delaware Law. In addition, the Merger would have to comply with other applicable procedural and substantive requirements of Delaware Law, including any duties to other Shareholders imposed upon a controlling or, if applicable, majority shareholder. Several recent decisions by the Delaware courts, which may or may not apply to the Merger, have held that a controlling shareholder of a company involved in a merger has a fiduciary duty to other Shareholders which requires that the merger be "entirely fair" to such other Shareholders. In determining whether a merger is fair to minority Shareholders, Delaware courts have considered, among other things, the type and amount of the consideration to be received by the Shareholders and whether there was fair dealing among the parties. The Company is incorporated under the laws of the State of Delaware, which has adopted certain laws regarding business combinations. In general, Section 203 of Delaware Law prevents an "interested shareholder" (generally, a shareholder owning 15% or more of a corporation's outstanding voting stock or an affiliate or associate thereof) from engaging in a "business combination" (defined to include a merger and certain other transactions) with a Delaware corporation for a period of three years following the time that such shareholder became an interested shareholder unless (i) prior to such time, the corporation's board of directors approved either the business combination or the transaction which resulted in such shareholder becoming an interested shareholder; (ii) upon consummation of the transaction which resulted in such shareholder becoming an interested shareholder, the interested shareholder owned at least 85% of the corporation's voting stock outstanding at the time the transaction commenced (excluding shares owned by certain employee stock plans and persons who are directors and also officers of the corporation); or (iii) at or subsequent to such time the business combination is approved by the corporation's board of directors and 27 30 authorized at an annual or special meeting of shareholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock not owned by the interested shareholder. The Board of Directors of the Company has approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, for purposes of Section 203. Accordingly, the restrictions of Section 203 do not apply to the transactions contemplated by this Offer to Purchase. Other Matters. Any merger or other similar business combination proposed by HCC would also have to comply with any applicable Federal law. In particular, the Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions. HCC believes that Rule 13e-3 will not be applicable to the Merger unless the Merger is consummated more than one year after termination of the Offer or if an alternative merger transaction were to provide for Shareholders to receive consideration for their Shares in an amount less than the price per Share paid pursuant to the Offer. If applicable, Rule 13e-3 would require, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority Shareholders in such a transaction be filed with the Commission and distributed to such Shareholders prior to consummation of the transaction. If for any reason the Merger is not consummated, HCC and Merger Subsidiary will evaluate their alternatives. Such alternatives could include purchasing additional Shares in the open market, in privately negotiated transactions, in another tender or exchange offer or otherwise, or taking no further action to acquire additional Shares. Any additional purchases of Shares could be at a price greater or less than the price to be paid for Shares in the Offer and could be for cash or other consideration. Alternatively, Merger Subsidiary may sell or otherwise dispose of any or all Shares acquired pursuant to the Offer or otherwise. Such transactions may be effected on terms and at prices then determined by HCC or Merger Subsidiary, which may vary from the price to be paid for Shares in the Offer. HCC intends to conduct a review of the Company and its assets, corporate structure, dividend policy, capitalization, operations, properties and policies and to consider, subject to the terms of the Merger Agreement, what, if any, changes would be desirable in light of the circumstances then existing, and reserves the right to take such actions or effect such changes as it deems desirable. Such changes could include changes in the Company's business, operations, corporate structure, capitalization, Board of Directors, policies or dividend policy. 12. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK QUOTATIONS; REGISTRATION UNDER THE EXCHANGE ACT. The purchase of Shares pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and may reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by Shareholders other than HCC or Merger Subsidiary. HCC cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer price. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the standards for continued inclusion on the New York Stock Exchange. If, as a result of the purchase of Shares pursuant to the Offer, the Shares no longer meet the standards for continued inclusion on the New York Stock Exchange, the market for the Shares could be adversely affected. According to the New York Stock Exchange's published guidelines, the New York Stock Exchange may delist the Shares if, among other things: (1) the number of total shareholders falls below 400; (2) the number of total shareholders falls below 1,200 and the average monthly trading volume is less than 100,000 shares (for the most recent 12 months); (3) the number of publicly held Shares (exclusive of holdings of officers and directors of the Company and their immediate families and other concentrated holdings of 10% or more ("Excluded Holdings")) should fall below 600,000; or (4) the aggregate market value of such publicly held shares (exclusive of Excluded Holdings) should fall below $8,000,000. 28 31 The extent of the public market for the Shares and availability of quotations therefor would, however, depend upon such factors as the number of holders and/or the aggregate market value of the publicly-held Shares at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares. Depending upon factors similar to those described above regarding listing and market quotations, the Shares might no longer constitute "margin securities" for the purposes of the Federal Reserve Board's margin regulations and, therefore, could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application of the Company to the Commission if the Shares are not listed on a national securities exchange and there are less than 300 holders of record. Termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain of the provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy or information statement in connection with shareholder action and the related requirement of an annual report to Shareholders and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. Furthermore, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 or 144A promulgated under the Securities Act of 1933, as amended. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or eligible for New York Stock Exchange listing/reporting. Merger Subsidiary intends to seek to cause the Company to terminate registration of the Shares under the Exchange Act as soon after consummation of the Offer as the requirements for termination of registration of the Shares are met. 13. DIVIDENDS AND DISTRIBUTIONS. If on or after the Execution Date, the Company should (notwithstanding the fact that the following actions may be prohibited under the Merger Agreement) (i) split, combine or otherwise change the Shares or its capitalization; (ii) acquire or otherwise cause a reduction in the number of outstanding Shares; or (iii) issue or sell any additional Shares (other than Shares issued pursuant to and in accordance with the terms in effect on the Execution Date of employee stock options outstanding prior to such date and convertible securities (if any) outstanding prior to such date), shares of any other class or series of capital stock, other voting securities or any securities convertible into, or options, rights, or warrants, conditional or otherwise, to acquire, any of the foregoing, then, without prejudice to Merger Subsidiary's rights under Section 15 hereof, Merger Subsidiary may, in its sole discretion, make such adjustments in the purchase price and other terms of the Offer as it deems appropriate including the number or type of securities to be purchased. If, on or after the Execution Date, the Company should (notwithstanding the fact that the following actions are prohibited under the Merger Agreement) declare or pay any dividend on the Shares or any distribution with respect to the Shares (including the issuance of additional Shares or other securities or rights to purchase of any securities) that is payable or distributable to the Shareholders of record on a date prior to the transfer to the name of Merger Subsidiary or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, then, without prejudice to Merger Subsidiary's rights under Section 15 hereof, (i) the purchase price per Share payable by Merger Subsidiary pursuant to the Offer may be reduced to the extent of any such cash dividend or distribution; and (ii) the whole of any such non- cash dividend or distribution to be received by the tendering Shareholders will (a) be received and held by the tendering Shareholders for the account of Merger Subsidiary and will be required to be promptly remitted and transferred by each tendering Shareholder to the Depositary for the account of Merger Subsidiary, accompanied by appropriate documentation of transfer, or (b) at the direction of Merger Subsidiary, be exercised for the benefit of Merger Subsidiary, in which case the proceeds of such exercise will promptly be remitted to Merger Subsidiary. Pending such remittance and subject to applicable law, Merger Subsidiary will be entitled to all rights and privileges as owner of any such non-cash dividend or distribution or proceeds 29 32 thereof and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Merger Subsidiary in its sole discretion. 14. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT. The Merger Agreement provides that HCC and Merger Subsidiary reserve the right to waive the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided, however, that, without the written consent of the Company, no change may be made which (i) except as provided in the next sentence, extends the Offer; (ii) changes the form of consideration to be paid for the Shares, (iii) decreases the price per Share or the number of Shares sought in the Offer, (iv) imposes conditions to the Offer in addition to those set forth in Annex I to the Merger Agreement, (v) changes or waives the Minimum Condition, or (vi) makes any other change to any condition to the Offer set forth in Annex I to the Merger Agreement which is materially adverse to the holders of Shares. Notwithstanding the foregoing, the Merger Agreement provides that without the consent of the Company, Merger Subsidiary may (i) extend the Offer Period until all of the conditions to the Merger Subsidiary's obligation to purchase Shares shall be satisfied or waived, including, without limitation, any period required (A) by any rule, regulation, interpretation, or position of the Commission or the staff thereof applicable to the Offer; or (B) pursuant to the HSR Act, or (C) to obtain necessary approval of each state insurance regulatory agency required for consummation of the Offer, (ii) extend the Offer Period for a period of not more than ten Business Days beyond the expiration thereof, as such may be extended pursuant to clause (i) of this sentence, (iii) extend the Offer Period for an additional period of not more than ten Business Days beyond that permitted by clauses (i) and (ii) of this sentence if on the date of such extension, less than 90% of the Fully Diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer, and (iv) extend the Offer for any reason for a period of not more than five Business Days beyond the latest Expiration Date that would be otherwise permitted under clauses (i), (ii), or (iii) of this sentence. Subject to the terms of the Offer and the Merger Agreement and the satisfaction (or waiver to the extent permitted by this Agreement) of the conditions of the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not withdrawn pursuant to the Offer as soon as practicable after the applicable expiration of the Offer. If Merger Subsidiary shall decide, in its sole discretion, subject to the terms of the Merger Agreement, to increase the consideration to be paid for Shares pursuant to the Offer and the Offer is scheduled to expire at any time before the expiration of a period of ten Business Days from, and including, the date that notice of such increase is first published, sent or given in the manner specified below, the Offer will be extended until the expiration of such period of ten Business Days. If Merger Subsidiary makes a material change in the terms of the Offer (other than a change in price or percentage of securities sought) or in the information concerning the Offer, or waives a material condition of the Offer, Merger Subsidiary will extend the Offer, if required by applicable law, for a period sufficient to allow Shareholders to consider the amended terms of the Offer. Merger Subsidiary also reserves the right, in its sole discretion, subject to the terms of the Merger Agreement, in the event any of the conditions specified in Section 15 hereof shall not have been satisfied and so long as Shares have not theretofore been accepted for payment, to delay (except as otherwise required by applicable law and the rules of the Commission including Rule 14e-1) acceptance for payment of or payment for Shares or to terminate the Offer and not accept for payment or pay for Shares. If Merger Subsidiary extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in Section 4 hereof. The reservation by Merger Subsidiary of the right to delay acceptance for payment of or payment for Shares is subject to applicable law, which requires that Merger Subsidiary pay the consideration offered or return the Shares deposited by or on behalf of the Shareholders promptly after the termination or withdrawal of the Offer. Any extension, termination or amendment of the Offer will be followed as promptly as practicable by a public announcement thereof. In the case of an extension of the Offer, Merger Subsidiary will make a public announcement of such extension no later than 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. Without limiting the manner in which Merger Subsidiary may 30 33 choose to make any public announcement, Merger Subsidiary will have no obligation (except as otherwise required by applicable law) to publish, advertise or otherwise communicate any such public announcement other than by making a release to the Dow Jones News Service. 15. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, HCC and Merger Subsidiary shall not be required to accept for payment or (subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer)) pay for any Shares, and may terminate the Offer, if (i) by the expiration of the Offer (as permitted to be extended), the Minimum Condition shall not have been satisfied; or (ii) by the expiration of the Offer (as permitted to be extended), the applicable waiting period under the HSR Act shall not have expired or terminated; or (iii) by the expiration of the Offer (as permitted to be extended), all regulatory approvals of Governmental Entities shall not have been received; or (iv) at any time on or after October 11, 1999, and prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions exist: (a) there shall be instituted or pending any action or proceeding by any Governmental Entity or by any other person, domestic or foreign, before any Governmental Entity or arbitrator, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by HCC or Merger Subsidiary or the consummation by HCC or Merger Subsidiary of the Merger, seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated by the Shareholder Option Agreement, the Stock Option Agreement, the Merger Agreement, the Offer or the Merger; (ii) seeking to restrain or prohibit HCC's or Merger Subsidiary's ownership or operation (or that of their respective subsidiaries or affiliates) of all or any material portion of the business or assets of the Company or any of its subsidiaries or of HCC and its subsidiaries or to compel HCC or any of its subsidiaries or affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its subsidiaries or of HCC and its subsidiaries; (iii) seeking to impose material limitations on the ability of HCC or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by HCC or any of its subsidiaries or affiliates on all matters properly presented to the Company's Shareholders; (iv) seeking to require divestiture by HCC or any of its subsidiaries or affiliates of any Shares; or (v) that otherwise, in the reasonable judgment of HCC, is likely to materially adversely affect the business, assets, liabilities, operations, condition (financial or otherwise), results of operations or prospects of the Company or any of its subsidiaries, or HCC and its subsidiaries, taken as a whole; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Shareholder Option Agreement, the Stock Option Agreement, the Merger Agreement, the Offer or the Merger, by any Governmental Entity or arbitrator (other than the application of the waiting period provisions of the HSR Act to the Shareholder Option Agreement, the Stock Option Agreement, the Merger Agreement, the Offer or the Merger), that, in the reasonable judgment of HCC, is substantially likely, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; or (c) any change (other than changes requested by, or done at the discretion or with the consent of HCC) shall have occurred or been threatened (or any development shall have occurred or been threatened involving a prospective change) in the business, assets, liabilities, financial condition, capitalization, operations, results of operations or prospects of the Company and its subsidiaries that, has or is likely to have a Material Adverse Effect, as defined herein, on the Company and its subsidiaries taken as a whole; or (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange; (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States; (iii) any material limitation (whether or not mandatory) by any Governmental Entity on the extension of credit by banks or other lending 31 34 institutions; (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a Material Adverse Effect or prevent (or materially delay) the consummation of the Offer; or (v) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; or (e) a tender or exchange offer for some or all of the Shares shall have been made by another person, or it shall have been publicly disclosed or HCC shall have otherwise learned that (i) any person or "group" (defined in Section 13(d)(3) of the Exchange Act) (other than HCC or any of its affiliates) shall have acquired or made an offer to acquire beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act) of more than 20% of the outstanding Shares through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 20% of the outstanding Shares; or (f) any Consent (other than the filing of the certificate of merger or approval by the Shareholders of the Company of the Merger (if required by Delaware Law)) required to be filed, occurred or been obtained by the Company or any of its subsidiaries or HCC or any of its subsidiaries (including Merger Subsidiary) in connection with the execution and delivery of the Merger Agreement, the Offer and the consummation of the transactions contemplated by the Merger Agreement shall not have been filed, occurred or been obtained (other than any such Consents as to which the failure to file, occur or obtain in the aggregate, could not reasonably be expected to (i) have a Material Adverse Effect; or (ii) prevent or materially delay the consummation of the Offer or the Merger); or (g) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under the Merger Agreement, or any of the representations and warranties of the Company set forth in the Merger Agreement that are qualified as to materiality shall not be true when made or at any time prior to the consummation of the Offer as if made at and as of such time or any of the representations and warranties set forth in the Merger Agreement that are not so qualified shall not be true in any material respect when made or at any time prior to consummation of the Offer as if made at and as of such time; or (h) any party to the Shareholder Option Agreement (other than Merger Subsidiary or HCC) shall have breached or failed to perform in any material respect any of their agreements under the Shareholder Option Agreement or any of the representations and warranties of any such party set forth in the Shareholder Option Agreement shall not be true in any material respect, in each case, when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Shareholder Option Agreement shall have been invalidated or terminated with respect to any Shares subject thereto; or (i) the Merger Agreement or the Shareholder Option Agreement shall have been terminated in accordance with its terms; or (j) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to HCC or Merger Subsidiary its approval or recommendation of the Offer, the Merger or the Merger Agreement or its approval of the entry by HCC and Merger Subsidiary into the Shareholder Option Agreement; or (k) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or agreement in principle with respect to any Acquisition Proposal; As used herein "Material Adverse Effect" means with respect to the Company, any change in, or effect on, the Company or the business of the Company; in each case including its subsidiaries taken as a whole, which is, or which is reasonably likely to be, materially adverse to the business, operations, assets, liabilities, results of operations, condition (financial or otherwise), prospects, insurance licenses or other material permits of the Company or its subsidiaries or which will, or is reasonably likely to, prevent or materially delay, the 32 35 transactions contemplated by this Agreement, provided, however, (i) that any effect on the Company or the business of the Company which is due to, arises from, or relates to any action taken by the Company or its subsidiaries after the date of this Agreement at the request of or done at the direction or with the consent of the HCC shall not be considered to have a Material Adverse Effect for any purpose under this Agreement and (ii) provided, further, that a Material Adverse Effect on the Company shall not be deemed to have occurred as a result of (w) the Company establishing additional reserves and taking other charges at September 30, 1999 in the amount of $13.5 million; (x) the Company's independent actuarial review of the Company's reserves and all other aspects of the Company's business, as contemplated by Section 5.8 of the Merger Agreement, and the establishment of appropriate reserve adjustments and other charges (collectively the "Charges") so long as the Charges do not exceed $17 million in the aggregate (there being no presumption that the establishment of reserves or charges in excess of $17 million either will or will not have a Material Adverse Effect); (y) any change (including changes in the market value of invested assets) in general economic conditions affecting the insurance business or their holding companies generally; or (z) the termination of the Management Agreements between the Company and The Continental Insurance Company as a result of a change of control. "Material Adverse Effect" with respect to the HCC, means any change in, or effect on, the HCC which is, or which is reasonably likely to be, materially adverse to the HCC's operations, assets, liabilities, results of operations, condition (financial or otherwise) or prospects, on a consolidated basis, or which will prevent or materially delay the transactions contemplated by this Agreement. The foregoing conditions are for the sole benefit of HCC and Merger Subsidiary and may be asserted by HCC in its sole discretion regardless of the circumstances giving rise to any such condition or (other than the Minimum Condition) may be waived by HCC and Merger Subsidiary in their discretion in whole at any time or in part from time to time. The failure by HCC or Merger Subsidiary at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right which may be asserted at any time or from time to time. Notwithstanding anything to the contrary set forth in the Offer, in response to any condition to the Offer not being satisfied, Merger Subsidiary may not upon expiration of the Offer (and without extending the period of time for which the Offer is open) delay acceptance for payment or payment for Shares until such time as such condition is satisfied or waived; provided, however, that subject to the applicable regulations of the Commission, Merger Subsidiary reserves the right (subject to the terms of the Merger Agreement), at any time and from time to time, to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, pay for, any Shares in order to comply with applicable law. 16. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS. General. Except as set forth in this Section 16, based on its examination of publicly available information filed by the Company with the Commission and other publicly available information concerning the Company, Merger Subsidiary is not aware of any license or regulatory permit that appears to be material to the Company's business that might be adversely affected by Merger Subsidiary's acquisition of Shares as contemplated herein or of any approval or other action by any government or governmental authority or agency, domestic or foreign, that would be required for the acquisition or ownership of Shares by Merger Subsidiary or HCC as contemplated herein. Should any such approval or other action be required, it is currently contemplated that, except as described below under "State Takeover Statutes", such approval or other action will be sought. Except as described under "Antitrust" and "Insurance Regulatory Approvals", below, however, there is no current intent to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such matter. There can be no assurance that any such approval or other action, if needed, would be obtained or would be obtained without substantial conditions or that if such approvals were not obtained or such other actions were not taken adverse consequences might not result to the Company's business or certain parts of the Company's business might not have to be disposed of, any of which could cause Merger Subsidiary to elect to terminate the Offer without the purchase of Shares thereunder. Merger 33 36 Subsidiary's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See Section 15 hereof. State Takeover Statutes. A number of states have adopted laws which, to varying degrees, seek to regulate attempts to acquire corporations that are incorporated in, or have substantial connections with, the state. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted such laws. Based on publicly available information concerning the Company, HCC does not believe that any of these laws will, by their terms, apply to the Offer or the Merger. In addition, the constitutional validity of state statutes regulating acquisition attempts has been the subject of considerable litigation. In its 1982 decision in Edgar v. MITE Corp., the Supreme Court of the United States invalidated an Illinois law that, among other things, gave Illinois officials authority to block a tender offer for any corporation having certain defined connections with the state. In 1987, however, the Supreme Court upheld an Indiana law that prevented acquirors of a controlling stake in certain Indiana corporations from voting the acquired shares until the other Shareholders had approved the acquisition. The Court distinguished between state statutes that affect acquisitions of entities incorporated outside the state and those that address the internal governance, including the scope and exercise of shareholder voting rights, of in-state corporations. While the lower federal courts have relied on a similar distinction in subsequent cases, the precise extent to which an individual state may regulate acquisitions of out-of-state corporations remains unclear. If any government official or third party should seek to apply any state takeover law to the Offer or the Merger, HCC will take such action as then appears desirable, which action may include challenging the applicability or validity of such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover statutes is applicable to the Offer or the Merger and an appropriate court does not determine that it is inapplicable or invalid as applied to the Offer or the Merger, HCC or Merger Subsidiary might be required to file certain information with, or to receive approvals from, the relevant state authorities or holders of Shares, and Merger Subsidiary might be unable to accept for payment or pay for Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer or the Merger. In such case, Merger Subsidiary may not be obligated to accept for payment or pay for any tendered Shares. See Section 15. Antitrust. The Offer and the Merger are subject to the HSR Act, which provides that certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division of the Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC") and certain waiting period requirements have been satisfied. Pursuant to the requirements of the HSR Act, HCC and Merger Subsidiary expect to file their Notification and Report Forms with respect to the Offer and Merger with the DOJ and the FTC on or about October 18, 1999. As a result, assuming such filings are made on October 18, 1999, the waiting period under the HSR Act with respect to the Offer is scheduled to expire at 11:59 p.m., New York City time, on November 1, 1999, (fifteen calendar days after such filings are made), unless early termination of the waiting period is granted. However, the DOJ or the FTC may extend the waiting period by requesting additional information or documentary material from HCC or the Company. If such a request is made, such waiting period will expire at 11:59 p.m., New York City time, on the tenth day after substantial compliance by HCC and the Company with such request. Only one extension of the waiting period pursuant to a request for additional information is authorized by the HSR Act. Thereafter, such waiting period may be extended only by court order or with the consent of HCC. In practice, complying with a request for additional information or material can take a significant amount of time. In addition, if the DOJ or the FTC raises substantive issues in connection with a proposed transaction, the parties frequently engage in negotiations with the relevant governmental agency concerning possible means of addressing those issues and may agree to delay consummation of the transaction while such negotiations continue. Merger Subsidiary will not accept for payment Shares tendered pursuant to the Offer unless and until the waiting period requirements imposed by the HSR Act with respect to the Offer have been satisfied. See Section 15 hereof. 34 37 The FTC and DOJ frequently scrutinize the legality under the Antitrust Laws (as defined below) of transactions such as Merger Subsidiary's acquisition of Shares pursuant to the Offer and the Merger. At any time before or after Merger Subsidiary's acquisition of Shares, the DOJ or the FTC could take such action under the Antitrust Laws as it deems necessary or desirable in the public interest, including seeking to enjoin the acquisition of Shares pursuant to the Offer or otherwise seeking divestiture of Shares acquired by Merger Subsidiary or divestiture of substantial assets of Merger Subsidiary or its subsidiaries. Private parties, as well as state governments, may also bring legal action under the Antitrust Laws under certain circumstances. Based upon an examination of information provided by the Company relating to the businesses in which HCC and the Company are engaged, Merger Subsidiary and HCC believe that the acquisition of Shares by Merger Subsidiary will not violate the Antitrust Laws. Nevertheless, there can be no assurance that a challenge to the Offer or other acquisition of Shares by Merger Subsidiary on antitrust grounds will not be made or, if such a challenge is made, of the result. See Section 15 hereof for certain conditions to the Offer, including conditions with respect to litigation and certain government actions. Insurance Regulatory Approvals. The insurance holding company acts adopted in various states generally provide that no person may acquire "control" of an "insurer" domiciled in that state unless the change of control is first approved by the insurance regulatory authority in that state. "Control" means the possession, direct or indirect, of the power to direct or cause the direction of the management or policies of a person, whether by the ownership of voting securities, or through management contracts. "Control" is generally presumed to exist if, after the acquisition, the acquiring person will own, with power to vote, directly or indirectly, ten percent or more of the voting securities of an insurer. An insurance "holding company" is any person who directly or indirectly controls an insurer; a "controlled insurer" is an insurer controlled directly or indirectly by a holding company. HCC is an insurance holding company that controls insurers domiciled in Texas. The Company is an insurance holding company that controls insurers domiciled in Indiana and Pennsylvania. The Merger will constitute a change in "control" of the controlled insurers that are part of the Company's holding company system. Therefore, before the Merger may be consummated, HCC and the Company will have to obtain the approval of the change of control of the controlled insurers from the insurance regulatory authorities in Indiana, Pennsylvania and Texas. Approval is obtained by filing an information statement with the insurance regulatory authorities in each state, which includes information about the proposed transaction by which control is intended to be acquired; financial information about the acquiring person; the background, experience and reputation of the management of the acquiring person; and the plans the acquiring person has for the controlled insurers being acquired. Some state insurance holding company acts also require pre-acquisition notification of the acquisition of insurers which, while not domiciled in such states, are authorized to do business in such states. The acquisition cannot be completed until the expiration of a 30-day waiting period, unless terminated earlier by the insurance regulatory authority in such state. The pre-acquisition notification is required to contain market share information demonstrating the competitive impact of the acquisition of control on the insurance markets in such state. There are a number of exemptions from the pre-acquisition notification requirement if the acquisition would not result in an increase in market share in any lines of business. Because the insurers controlled by the Company and those controlled by HCC do not directly compete in any lines of business in the United States, it would not appear that the filing of pre-acquisition notifications will be required. Merger Subsidiary will not accept for payment Shares tendered pursuant to the Offer unless and until all required approvals deemed material to the Merger have been obtained. Margin Credit Regulations. Federal Reserve Board Regulations T, U and X (the "Margin Credit Regulations") restrict the extension or maintenance of credit for the purpose of buying or maintaining margin stock, if the credit is secured directly or indirectly thereby. The borrowings under the Facility will not be directly secured by a pledge of the Shares. In addition, HCC and Merger Subsidiary believe that such borrowings will not be "indirectly secured" within the meaning of the Margin Credit Regulations, as interpreted. Accordingly, HCC and Merger Subsidiary believe that the Margin Credit Regulations are not applicable to the borrowings under the Facility. 35 38 17. FEES AND EXPENSES. Salomon Smith Barney Inc. ("Salomon Smith Barney") is acting as Dealer Manager for the Offer and as financial advisor to HCC in connection with HCC's proposed acquisition of the Company, for which services Salomon Smith Barney will receive customary compensation. HCC also has agreed to reimburse Salomon Smith Barney for reasonable travel and other reasonable out-of-pocket expenses, including reasonable fees and expenses of its legal counsel, and to indemnify Salomon Smith Barney and certain related parties against certain liabilities, including liabilities under the federal securities laws, arising out of its engagement. In the ordinary course of business, Salomon Smith Barney and its affiliates may actively trade or hold the securities of HCC and the Company for their own account or for the account of customers and, accordingly, may at any time hold a long or short position in such securities. Merger Subsidiary has retained D.F. King & Co., Inc., to act as the Information Agent and Harris Trust Company of New York to act as the Depositary in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee Shareholders to forward materials relating to the Offer to beneficial owners. The Information Agent and the Depositary each will receive reasonable and customary compensation for their respective services, will be reimbursed for certain reasonable out-of-pocket expenses and will be indemnified against certain liabilities in connection therewith, including certain liabilities under the federal securities laws. Merger Subsidiary will not pay any fees or commissions to any broker or dealer or any other person (other than the Information Agent and the Depositary) for soliciting tenders of Shares pursuant to the Offer. Brokers, dealers, commercial banks and trust companies will, upon request, be reimbursed by Merger Subsidiary for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. 18. MISCELLANEOUS. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. However, Merger Subsidiary may, in its discretion, take such action as it may deem necessary to make the Offer in any such jurisdiction and extend the Offer to holders of Shares in such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF MERGER SUBSIDIARY NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Merger Subsidiary has filed with the Commission a Tender Offer Statement on Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, furnishing certain additional information with respect to the Offer. The Schedule 14D-1 and any amendments thereto, including exhibits, may be examined and copies may be obtained from the offices of the Commission in the manner set forth with respect to the Company in Section 7 of this Offer to Purchase (except that such information will not be available at the regional offices of the Commission). MERGER SUB OF DELAWARE, INC. 36 39 SCHEDULE I INFORMATION CONCERNING THE DIRECTORS AND EXECUTIVE OFFICERS OF HCC AND MERGER SUBSIDIARY 1. DIRECTORS AND EXECUTIVE OFFICERS OF HCC. The following table sets forth the name, age, business address and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of HCC. Each such person is a citizen of the United States of America. Unless otherwise indicated below, the business address of each person is c/o HCC Insurance Holdings, Inc., 13403 Northwest Freeway, Houston, Texas 77040-6094. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with HCC.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND BUSINESS ADDRESS AGE MATERIAL POSITIONS HELD DURING PAST FIVE YEARS - ------------------------- --- ---------------------------------------------- Stephen L. Way....................... 50 Chairman of the Board and Chief Executive Officer of HCC since its organization in 1974. Mr. Way was President from HCC's founding until May, 1996. Mr. Way is a director of Fresh Del Monte Produce, Inc. and a director of Bradstock Group plc. James M. Berry....................... 69 Director of HCC since March, 1992. Mr. Berry is the retired Vice Chairman of NationsBank of Texas, N.A., a subsidiary of NationsBank, N.A. (now BankAmerica Corp.). Mr. Berry has been the Executive Vice-President, Finance of Belk, Inc. since May, 1995. Mr. Berry also serves as a director of Williams- Sonoma, Inc. Frank J. Bramanti.................... 43 Director and Executive Vice President of HCC since 1982. Mr. Bramanti served as interim President from June, 1997 to November, 1997. Marvin P. Bush....................... 42 Director of HCC since May, 1999. Mr. Bush is the President of Winston Capital Management, LLC and serves on the Board of Directors of Fresh Del Monte Produce, Inc. Mr. Bush is also a member of the Board of Trustees for the George Bush Presidential Library and recently served on the Board of Managers at the University of Virginia. Patrick B. Collins................... 70 Director of HCC since December, 1993. Mr. Collins is a retired partner of the international accounting firm of PricewaterhouseCoopers LLP, where he held that position from 1967 through 1991. Mr. Collins also serves as a director of Transcoastal Marine Services, Inc. James R. Crane....................... 45 Director of HCC since May, 1999. Mr. Crane is the Chief Executive Officer, President and Chairman of the Board of Directors of Eagle, USA AirFreight, Inc., the company he founded in 1984. J. Robert Dickerson.................. 57 Mr. Dickerson is an attorney and has served as a Director of HCC since 1981. Edwin H. Frank, III.................. 50 Director of HCC since May, 1993. Mr. Frank is Chairman of File Control.Com. He was formerly the President of Underwriters Indemnity Holdings, Inc., a subsidiary of RLI Corporation, having served in such capacity from 1985 until 1999.
I-1 40
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; NAME AND BUSINESS ADDRESS AGE MATERIAL POSITIONS HELD DURING PAST FIVE YEARS - ------------------------- --- ---------------------------------------------- Allan W. Fulkerson................... 66 Director of HCC since May, 1997. Mr. Fulkerson is the President and director of Century Capital Management, Inc. and the President and a director of Massachusetts Fiduciary Advisors, Inc. and serves as Chairman and Trustee of Century Shares Trust. Mr. Fulkerson is also a director of Mutual Risk Management, Ltd., Terra Nova (Bermuda) Holdings, Ltd. and Wellington Underwriting plc. Walter J. Lack....................... 51 Director of HCC since 1981. Mr. Lack is an attorney and a shareholder in the law firm of Engstrom, Lipscomb & Lack, A Professional Corporation, in Los Angeles, California. Mr. Lack also serves as a director of Microvision, Inc. Stephen J. Lockwood.................. 52 Director of HCC since 1981. Vice Chairman of the Board of Directors and Chief Executive Officer of the HCC's subsidiary LDG Reinsurance Corporation since 1988. Mr. Lockwood also serves as a director of four mutual funds managed by The Dreyfus Corporation, a subsidiary of Mellon Bank Corporation. John N. Molbeck, Jr. ................ 52 President and Director of HCC since November, 1997. Prior to joining HCC, Mr. Molbeck was the Managing Director of Aon Natural Resources Group, a subsidiary of Aon Corporation and served as the President and Chief Operating Officer of Energy Insurance International, Inc. Edward H. Ellis, Jr. ................ 56 Senior Vice President and Chief Financial Officer of HCC since October, 1997. Prior to joining HCC, Mr. Ellis served as a partner with the international accounting firm of PricewaterhouseCoopers LLP from November, 1988 to September, 1997. Benjamin D. Wilcox................... 55 Mr. Wilcox joined HCC in December, 1998 and currently serves as the President and Chief Executive Officer of HCC's subsidiary, Houston Casualty Company, and its subsidiary, U.S. Specialty Insurance Company. Mr. Wilcox is also the Chairman of the Board of Directors of HCC's subsidiary, Avemco Insurance Company. Prior to joining HCC, Mr. Wilcox served as a Senior Vice President of Aon Risk Services, Inc., a subsidiary of Aon Corporation.
I-2 41 2. DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUBSIDIARY. The following table sets forth the name, age, business address and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Merger Subsidiary. Each such person is a citizen of the United States of America. Unless otherwise indicated below, the business address of each person is c/o Merger Subsidiary 13403 Northwest Freeway, Houston, Texas 77040-6094. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with HCC. For information concerning the occupations of the persons listed below, see "-- Directors and Executive Officers of HCC" above.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT; MATERIAL NAME AND BUSINESS ADDRESS AGE POSITIONS HELD DURING PAST FIVE YEARS - ------------------------- --- ---------------------------------------------------- Stephen L. Way............................ 50 Chairman of the Board of Directors and Chief Executive Officer of Merger Subsidiary since October 1999. John N. Molbeck, Jr. ..................... 52 Director and President of Merger Subsidiary since August, 1998. Frank J. Bramanti......................... 43 Executive Vice President of Merger Subsidiary since August, 1998 and Director of Merger Subsidiary since September, 1999. Edward H. Ellis, Jr. ..................... 56 Director and Senior Vice President of Merger Subsidiary since August, 1998. Christopher L. Martin..................... 32 Vice President and Corporate Secretary of Merger Subsidiary since August, 1998. Mr. Martin joined HCC as a Vice President, Secretary and General Counsel in July, 1997. Prior to joining HCC, Mr. Martin was associated with the law firm of Winstead Sechrest & Minick P.C. in Houston, Texas from August, 1992 to June, 1997. Mr. Martin also serves as an officer of various of the HCC subsidiaries.
None of the executive officers and directors of HCC or Merger Subsidiary currently is a director of, or holds any position with, the Company or any of its subsidiaries. To the knowledge of HCC and Merger Subsidiary, none of HCC's or Merger Subsidiary's directors, executive officers, affiliates or associates beneficially owns any equity securities, or rights to acquire any equity securities, of the Company and none has been involved in any transactions with the Company or any of its directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission. I-3 42 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for Shares and any other required documents should be sent to the Depositary at one of the addresses set forth below: The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand: By Facsimile By Overnight Courier: Wall Street Station Wall Street Plaza Transmission: Wall Street Plaza P.O. Box 1010 88 Pine Street, (Eligible Institutions 88 Pine Street, New York, New York 19th Floor Only) 19th Floor 10268-1010 New York, New York (212) 701-7636 New York, New York 10005 or 7637 10005
For Information Call: (212) 701-7624 Questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers set forth below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. Shareholders may also contact their broker, dealer, commercial bank or trust company for assistance concerning the Offer. ------------------------ The Information Agent for the Offer is: D. F. KING & CO., INC. 77 Water Street New York, NY 10005 Bank and Borrowers Call: (212) 269-5550 All Others Call Toll-Free: (800) 848-3094 ------------------------ The Dealer Manager for the Offer is: SALOMON SMITH BARNEY 388 Greenwich Street New York, New York 10013 (212) 816-9807 EX-99.A2 3 FORM OF LETTER OF TRANSMITTAL 1 LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. PURSUANT TO THE OFFER TO PURCHASE DATED OCTOBER 18, 1999 BY MERGER SUB OF DELAWARE, INC. A WHOLLY OWNED SUBSIDIARY OF HCC INSURANCE HOLDINGS, INC. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED. The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand/Overnight Delivery: By Facsimile Transmission: Wall Street Station Receive Window (Eligible Institutions Only) P.O. Box 1010 Wall Street Plaza (212) 701-7636 New York, New York 88 Pine Street, 19th Floor 10268-1010 New York, New York 10005
For Information Call Collect: (212) 701-7624 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9 PROVIDED BELOW. THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be used either if certificates representing Shares (defined below) are to be forwarded with this Letter of Transmittal or, unless an Agent's Message (defined in Section 2 of the Offer to Purchase) is utilized, if delivery of Shares is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedure set forth in Section 3 of the Offer to Purchase. Shareholders who cannot deliver certificates for their Shares or who cannot deliver confirmation of the book-entry transfer of their Shares into the Depositary's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter of Transmittal to the Depositary by the Expiration Date (defined in Section 1 of the Offer to Purchase) must 2 tender their Shares pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. See Instruction 2. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Depositary. - ------------------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SHARES TENDERED - ------------------------------------------------------------------------------------------------------------------------ NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARES TENDERED ON CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY) - ------------------------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES REPRESENTED TOTAL NUMBER CERTIFICATE BY OF SHARES NUMBER(S)(1) CERTIFICATE(S)(1) TENDERED(2) ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- TOTAL SHARES - ------------------------------------------------------------------------------------------------------------------------ (1) Need not be completed by shareholders tendering by book-entry transfer. (2) Unless otherwise indicated, it will be assumed that all Shares described above are being tendered. See Instruction 4. - ------------------------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ ACCOMPANYING INSTRUCTIONS CAREFULLY [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER): Name of Tendering Institution------------------------------------------------ Account Number -------------------------------------------------------------- Transaction Code Number ----------------------------------------------------- [ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Tendering Owner(s): ----------------------------------------------- Date of Execution of Notice of Guaranteed Delivery: -------------------------- Name of Institution that Guaranteed Delivery: -------------------------------- If delivery is by book-entry transfer, give the following: Account Number ----------------------------------------------------------- Transaction Code Number -------------------------------------------------- 3 Ladies and Gentlemen: The undersigned hereby tenders to Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary"), and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware corporation ("HCC"), the above described shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares") of The Centris Group, Inc., a Delaware corporation (the "Company"), pursuant to Merger Subsidiary's offer to purchase all outstanding Shares at a price of $12.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase dated October 18, 1999 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, together with any amendments or supplements thereto or hereto, collectively constitute the "Offer"). Merger Subsidiary reserves the right to transfer or assign, in whole or from time to time in part, to one or more of HCC or any of its wholly owned subsidiaries the right to purchase Shares tendered pursuant to the Offer. Subject to and effective upon acceptance for payment of the Shares tendered herewith in accordance with the terms and subject to the conditions of the Offer, the undersigned hereby sells, assigns, and transfers to, or upon the order of, Merger Subsidiary all right, title and interest in and to all the Shares that are being tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after October 18, 1999) and irrevocably constitutes and appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all such other Shares or securities), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and all such other Shares or securities), or transfer ownership of such Shares (and all such other Shares or securities) on the account books maintained by the Book-Entry Transfer Facility, together, in either such case with all accompanying evidences of transfer and authenticity, to or upon the order of Merger Subsidiary, (b) present such Shares (and all such other Shares or securities) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all such other Shares or securities), all in accordance with the terms of the Offer. If, on or after October 18, 1999, the Company should declare or pay any cash or stock dividend or other distribution on or issue any rights with respect to the Shares, payable or distributable to shareholders of record on a date before the transfer to the name of Merger Subsidiary or its nominee or transferee on the Company's stock transfer records of the Shares accepted for payment pursuant to the Offer, then, subject to the provisions of the Offer to Purchase, (i) the purchase price per Share payable by Merger Subsidiary pursuant to the Offer will be reduced by the amount of any such cash dividend or cash distribution and (ii) the whole of any such non-cash dividend, distribution or right will be received and held by the tendering shareholder for the account of Merger Subsidiary and shall be required to be promptly remitted and transferred by each tendering shareholder to the Depositary for the account of Merger Subsidiary, accompanied by appropriate documentation of transfer. Pending such remittance, Merger Subsidiary will be entitled to all rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount of value thereof, as determined by Merger Subsidiary in its sole discretion. The undersigned hereby irrevocably appoints STEPHEN L. WAY and FRANK J. BRAMANTI, and each of them, and any other designees of Merger Subsidiary as the attorneys and proxies of the undersigned, each with full power of substitution, to exercise all voting and other rights of the undersigned in such manner, to execute any written consent concerning any matter, and to otherwise act, as each such attorney and proxy or its substitute shall in its sole discretion deem proper with respect to, all of the Shares tendered hereby which have been accepted for payment by Merger Subsidiary prior to the time of any vote or other action (and any and all other Shares or other securities issued or issuable in respect thereof on or after October 18, 1999), at any meeting of shareholders of the Company (whether annual or special and whether or not an adjourned meeting), by written consent or otherwise. This proxy is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Merger Subsidiary in accordance with the terms of the Offer. Such acceptance for payment shall revoke any other proxy or written consent granted by the undersigned at any time with respect to such Shares (and all such other Shares or securities), and no subsequent proxies will be given or written consents will be executed by the undersigned (and if given or executed, will not be deemed to be effective). The undersigned acknowledges that in order for Shares to be deemed validly tendered, immediately upon the acceptance for payment of such Shares, Merger Subsidiary or Merger Subsidiary's designee must be able to exercise full voting and other rights of a record and beneficial holder with respect to such Shares. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby (and any and all other Shares or other securities issued or issuable in respect thereof on or after October 18, 1999), that the undersigned own(s) the Shares tendered hereby within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that such tender of Shares complies with Rule 14e-4 under the Exchange Act, and that when the same are accepted for payment by Merger Subsidiary, Merger Subsidiary will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or Merger Subsidiary to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby (and all such other Shares or securities). All authority herein conferred or agreed to be conferred in this Letter of Transmittal shall not be affected by, and shall survive, the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors, assigns, administrators, trustees in bankruptcy, personal and legal representatives of the undersigned. Except as stated in the Offer, this tender is irrevocable, provided that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date or at any time on or after December 17, 1999, unless theretofore accepted for payment. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 of the Offer to Purchase and in the instructions hereto will constitute a binding agreement between the undersigned and Merger Subsidiary upon the terms and subject to the conditions of the Offer. The undersigned recognizes that under certain circumstances set forth in the Offer to Purchase, Merger Subsidiary may not be required to accept for payment any Shares tendered hereby. Unless otherwise indicated under "Special Payment Instructions", please issue the check for the purchase price of any Shares purchased, and/or return any certificates for Shares not tendered or not accepted for payment, in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered" (and, in the case of Shares tendered by book-entry transfer, by credit to the account at the Book-Entry Transfer Facility). Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the purchase price of any Shares purchased and any certificates for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered" shown below the undersigned's signature(s). In the event that both "Special Payment Instructions" and "Special Delivery Instructions" are completed, please issue the check for the purchase price of any Shares purchased and return any certificates for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) in the name(s) of, and mail said check and any certificates (and accompanying documents, as appropriate) to, the person(s) so indicated. The undersigned recognizes that Merger Subsidiary has no obligation, pursuant to the "Special Payment Instructions", to transfer any Shares from the name of the registered holder(s) thereof if Merger Subsidiary does not accept for payment any of the Shares so tendered. 4 SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or certificates for Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue check and/or certificates to: Name---------------------------------------------------------------------------- (Please Print) Address------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) [ ] Credit Shares delivered by book-entry transfer and not purchased to the account set forth above. SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 7) To be completed ONLY if the check for the purchase price of Shares purchased or certificates for Shares not tendered or not purchased are to be mailed to someone other than the undersigned or to the undersigned at an address other than that shown above. Mail check and/or certificates to: Name --------------------------------------------------------------------------- (Please Print) Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (Include Zip Code) - -------------------------------------------------------------------------------- (Tax Identification or Social Security No.) 5 IMPORTANT SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW) - -------------------------------------------------------------------------------- Signature(s) of Holder(s) - -------------------------------------------------------------------------------- Dated: -------------------, 1999 (Must be signed by registered holder(s) exactly as name(s) appear(s) on stock certificate(s) or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, agent, officer of a corporation or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 5.) Name(s) ------------------------------------------------------------------------ (Please Print) - -------------------------------------------------------------------------------- Capacity (full title) (See Instruction 5) -------------------------------------- Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No. ---------------------------------------------------- Tax Identification or Social Security No.: ------------------------------------- GUARANTEE OF SIGNATURE(S) (IF REQUIRED -- SEE INSTRUCTIONS 1 AND 5) Authorized Signature ----------------------------------------------------------- Name --------------------------------------------------------------------------- Name of Firm ------------------------------------------------------------------- Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone No. ---------------------------------------------------- - -------------------, 1999 6 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. Guarantee of Signatures. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a bank, broker, dealer, credit union, savings association or other entity that is a member of a recognized Medallion Program approved by The Securities Transfer Association, Inc. (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the instruction entitled "Special Payment Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. In all other cases, all signatures on this Letter of Transmittal must be guaranteed by an Eligible Institution. See Instruction 5. 2. Delivery of Letter of Transmittal and Shares. This Letter of Transmittal is to be used either if certificates are to be forwarded herewith or, unless an Agent's Message is utilized, if delivery of Shares is to be made by book-entry transfer pursuant to the procedure set forth in Section 3 of the Offer to Purchase. Certificates for all physically delivered Shares, or a Book-Entry Confirmation of all Shares delivered electronically, as the case may be, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in connection with a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the front page of this Letter of Transmittal by the Expiration Date. If a shareholder's certificate for Shares is not immediately available or time will not permit all required documents to reach the Depositary by the Expiration Date or the procedure for book-entry transfer cannot be completed on a timely basis, such shareholder's Shares may nevertheless be tendered pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by or through an Eligible Institution, (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by Merger Subsidiary must be received by the Depositary by the Expiration Date and (c) the certificates for all physically delivered Shares, or a Book-Entry Confirmation, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) (or, in the case of a book-entry delivery, an Agent's Message) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange trading days after the date of execution of such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to Purchase. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted, and no fractional Shares will be purchased. By executing this Letter of Transmittal (or facsimile thereof), the tendering shareholder waives any right to receive any notice of the acceptance for payment of the Shares. 3. Inadequate Space. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. Partial Tenders (not applicable to shareholders who tender by book-entry transfer). If fewer than all the Shares represented by any certificate delivered to the Depositary are to be tendered, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such case, a new certificate for the remainder of the Shares represented by the old certificate will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the appropriate box on this Letter of Transmittal, as promptly as practicable following the expiration or termination of the Offer. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. Signatures on Letter of Transmittal; Stock Powers and Endorsements. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the certificates without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby is held of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in different names on different certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of certificates or separate stock powers are required unless payment of the purchase price is to be made, or Shares not tendered or not purchased are to be returned, in the name of any person other than the registered holder(s). Signatures on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, certificates must be endorsed or accompanied by appropriate stock powers, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on the certificates for such Shares. Signature(s) on any such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any certificate or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Merger Subsidiary of the authority of such person so to act must be submitted. 7 6. Stock Transfer Taxes. Except as set forth in this Instruction 6, Merger Subsidiary will pay any stock transfer taxes with respect to the sale and transfer of purchased Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or Shares not tendered or not purchased are to be registered in the name of, any person other than the registered holder(s), or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such person will be deducted from the purchase price unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. Special Payment and Delivery Instructions. If the check for the purchase price of any Shares purchased is to be issued, or any Shares not tendered or not purchased are to be returned, in the name of a person other than the person(s) signing this Letter of Transmittal or if the check or any certificates for Shares not tendered or not purchased are to be mailed to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal at an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. Waiver of Conditions. Subject to the terms of the Offer, Merger Subsidiary reserves the absolute right in its sole discretion to waive any of the specified conditions of the Offer (other than the Minimum Condition), in whole or in part, in the case of any Shares tendered. 9. 31% Backup Withholding; Substitute Form W-9. Under U.S. Federal income tax law, a shareholder whose tendered Shares are accepted for payment is required to provide the Depositary with such shareholder's correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If the Depositary is not provided with the correct TIN, the Internal Revenue Service may subject the shareholder or other payee to a $50 penalty. In addition, payments that are made to such shareholder or other payee with respect to Shares purchased pursuant to the Offer may be subject to 31% backup withholding. Certain shareholders (including among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, the shareholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for more instructions. If backup withholding applies, the Depositary is required to withhold 31% of any such payments made to the shareholder or other payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service, provided that the required information is given to the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering shareholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the shareholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% on all payments made prior to the time a properly certified Taxpayer Identification Number is provided to the Depositary. However, such amounts will be refunded to such Shareholder if a Taxpayer Identification Number is provided to the Depositary within 60 days. The shareholder is required to give the Depositary the TIN (e.g., social security number or employer identification number) of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. 10. Requests for Assistance or Additional Copies. Requests for assistance or additional copies of the Offer to Purchase and this Letter of Transmittal may be obtained from the Information Agent at its address or telephone number set forth below. Questions may be directed to the Information Agent. 11. Lost, Destroyed or Stolen Certificates. If any certificate representing Shares has been lost, destroyed or stolen, the shareholder should promptly notify the Depositary. The shareholder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. 12. Acceptance of Tendered Shares. Upon the terms and subject to the conditions of the Offer, Merger Subsidiary will have accepted for payment (and thereby purchased) Shares validly tendered and not withdrawn when, as and if Merger Subsidiary gives oral or written notice to the Depositary of its acceptance of the tenders of such Shares pursuant to the Offer. 13. Withdrawal Rights. Tendered Shares may be withdrawn only pursuant to the procedure set forth in Section 4 of the Offer to Purchase. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF OR, IN THE CASE OF A BOOK-ENTRY DELIVERY, AN AGENT'S MESSAGE (TOGETHER WITH CERTIFICATES FOR, OR A BOOK-ENTRY CONFIRMATION WITH RESPECT TO, TENDERED SHARES WITH ANY REQUIRED SIGNATURE GUARANTEES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, BY THE EXPIRATION DATE. 8 - -------------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: HARRIS TRUST COMPANY OF NEW YORK - -------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE Social Security Number or BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification Number FORM W-9 DATING BELOW. ---------------------------------------- ------------------------------------------------------------------------------------- PART 2 -- Certification -- Under penalties of perjury, I certify that: DEPARTMENT OF THE TREASURY INTERNAL (1) The number shown on this form is my correct Taxpayer Identification Number REVENUE SERVICE (or I am waiting for a number to be issued to me) and PAYER'S REQUEST FOR (2) I am not subject to backup withholding because: (a) I am exempt from backup TAXPAYER IDENTIFICATION withholding, or (b) I have not been notified by the Internal Revenue Service (the NUMBER ("TIN") "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions -- You must cross out Item (2) above if you have been notified by the IRS that you are currently subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out such Item (2). - --------------------------------------------------------------------------------------------------------------------------- PART 3 SIGNATURE ------------------------------------------------- DATE---------------------- , 1999 Awaiting TIN - ---------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (1) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office, or (2) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of payment, 31% of all reportable payments made to me will be withheld, but that such amounts will be refunded to me if I then provide a Taxpayer Identification Number within sixty (60) days. Signature ----------------------------------- Date -------------------- , 1999 9 The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand/Overnight Courier: By Facsimile Transmission: Wall Street Station Receive Window (Eligible Institutions Only) P.O. Box 1010 Wall Street Plaza (212) 701-7636 New York, New York 88 Pine Street, 19th Floor 10268-1010 New York, New York 10005 For Information Call Collect: (212) 701-7624
------------------------ The Information Agent for the Offer is: D. F. KING & CO., INC. 77 Water Street New York, New York 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll-Free: (800) 848-3094 ------------------------ The Dealer Manager for the Offer is: SALOMON SMITH BARNEY 388 Greenwich Street New York, New York 10003 (212) 816-9807 EX-99.A3 4 FORM OF NOTICE OF GUARANTEED DELIVERY 1 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (defined below) if (i) certificates representing shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company") are not immediately available, (ii) the procedure for book-entry transfer cannot be completed on a timely basis or (iii) time will not permit all required documents to reach Harris Trust Company of New York (the "Depositary") prior to the expiration of the Offer. This Notice of Guaranteed Delivery may be delivered by hand, facsimile transmission or mail to the Depositary. See Section 3 of the Offer to Purchase. The Depositary for the Offer is: HARRIS TRUST COMPANY OF NEW YORK By Mail: By Hand/Overnight Delivery: By Facsimile Transmission: Wall Street Station Receive Window (Eligible Institutions Only) P.O. Box 1023 Wall Street Plaza (212) 701-7636 New York, New York 88 Pine Street, 19th Floor 10268-1023 New York, New York 10005
For Information Telephone (Call Collect): (212) 701-7624 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE APPROPRIATE LETTER OF TRANSMITTAL. THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED 2 Ladies and Gentlemen: The undersigned hereby tenders to Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 18, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"), receipt of which is hereby acknowledged, the number of shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company") specified below, pursuant to the guaranteed delivery procedure set forth in Section 3 of the Offer to Purchase. Number of Shares and Certificate No(s) if available): Name(s) of Record Holder(s): - ----------------------------------------------------- ----------------------------------------------------- (Please type or print) Address(es): ---------------------------------------- ----------------------------------------------------- [ ] Check Here if Shares will be tendered by book (Zip Code) entry transfer. Area Code and Tel. No.: ----------------------------- (Daytime Telephone number) Account Number: ------------------------------------ Signature(s): --------------------------------------- Dated: -------------------------------------- , 1999 -----------------------------------------------------
3 GUARANTEE (Not to be used for signature guarantee) The undersigned, an Eligible Institution (defined in Section 3 of the Offer to Purchase), hereby (i) represents that the tender of shares effected hereby complies with Rule 14e-4 under the Securities Exchange Act of 1934, as amended and (ii) guarantees delivery to the Depositary, at one of its addresses set forth above, of certificates representing the Shares tendered hereby, in proper form for transfer, or a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (defined in Section 3 of the Offer to Purchase), in either case together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message (defined in Section 2 of the Offer to Purchase), together with any other documents required by the Letter of Transmittal, all within three New York Stock Exchange trading days after the date hereof. Name of Firm:---------------------------------- ------------------------------------------- (Authorized Signature) Address:--------------------------------------- Name: ------------------------------------- (Please type or print) - ----------------------------------------------- Title: ------------------------------------ (Zip Code) Area Code and Tel. No.:------------------------ Date: ------------------------------ , 1999
NOTE: DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. EX-99.A4 5 FORM OF LETTER TO BROKERS, DEALERS, COMM. BANKS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. AT $12.50 NET PER SHARE BY MERGER SUB OF DELAWARE, INC. A WHOLLY OWNED SUBSIDIARY OF HCC INSURANCE HOLDINGS, INC. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED. October 18, 1999 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware corporation ("HCC"), to act as dealer manager in connection with Merger Subsidiary's offer to purchase all outstanding shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company") at $12.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Merger Subsidiary's Offer to Purchase, dated October 18, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any supplements or amendments thereto, collectively constitute the "Offer"). For your information and for forwarding to your clients for whom you hold Shares registered in your name or in the name of your nominee, we are enclosing the following documents: 1. Offer to Purchase dated October 18, 1999; 2. Letter of Transmittal for your use and for the information of your clients. Facsimile copies of the Letter of Transmittal may be used to tender Shares; 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents cannot be delivered to the Depositary by the Expiration Date (defined in Section 1 of the Offer to Purchase) or if the procedure for book-entry transfer cannot be completed by the Expiration Date; 4. A form of letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 2 5. Letter to Shareholders from David L. Cargile, Chairman of the Board, President and Chief Executive Officer of the Company, together with a Solicitation/Recommendation Statement on Schedule 14D-9 filed with the Securities and Exchange Commission by the Company and mailed to the Shareholders of the Company; 6. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 providing information relating to backup federal income tax withholding; and 7. Return envelope addressed to Harris Trust Company of New York, the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED. In order to take advantage of the Offer, (i) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined in Section 2 of the Offer to Purchase) in connection with a book-entry delivery of Shares, and all other required documents should be sent to the Depositary, and (ii) either certificates representing the tendered Shares should be delivered to the Depositary, or such Shares should be tendered by book-entry transfer into the Depositary's account maintained at the Book-Entry Transfer Facility (described in Section 3 of the Offer to Purchase), all in accordance with the instructions set forth in the Letter of Transmittal and the Offer to Purchase. Merger Subsidiary will not pay any fees or commissions to any broker or dealer or other person (other than the Information Agent as described in the Offer to Purchase) for soliciting tenders of Shares pursuant to the Offer. Merger Subsidiary will, however, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding materials to their customers. Merger Subsidiary will pay all stock transfer taxes applicable to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to the Information Agent or the undersigned at the respective addresses and telephone numbers set forth on the back cover of the Offer to Purchase. Additional copies of the enclosed materials may be obtained from the Information Agent. Very truly yours, SALOMON SMITH BARNEY, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON THE AGENT OF MERGER SUBSIDIARY, HCC, THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THEM OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. EX-99.A5 6 FORM OF LETTER TO CLIENTS FOR USE BY BROKERS 1 OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. at $12.50 NET PER SHARE BY MERGER SUB OF DELAWARE, INC. A WHOLLY OWNED SUBSIDIARY OF HCC INSURANCE HOLDINGS, INC. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED. October 18, 1999 To Our Clients: Enclosed for your consideration are the Offer to Purchase, dated October 18, 1999 (the "Offer to Purchase"), and the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer") relating to an offer by Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary") and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware corporation ("HCC"), to purchase all outstanding shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company") at a purchase price of $12.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer. Holders of Shares whose certificates for such Shares are not immediately available or who cannot deliver their certificates and all other required documents to the Depositary, or complete the procedure for book-entry transfer set forth in Section 3 of the Offer to Purchase, prior to the Expiration Date (defined in Section 1 of the Offer to Purchase) must tender their Shares according to the guaranteed delivery procedures set forth in Section 3 of the Offer to Purchase. WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish us to tender any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is directed to the following: 1. The tender price is $12.50 per Share, net to you in cash without interest thereon, upon the terms and subject to the conditions set forth in the Offer. 2. The Board of Directors of the Company has unanimously determined that the Offer and the transactions contemplated by the Merger Agreement (defined in the Introduction to the Offer to Purchase) are fair to, and in the best interests of, the shareholders of the Company, has unanimously 2 approved the Offer and the transactions contemplated by the Merger Agreement, and unanimously recommends that the shareholders of the Company accept the Offer and tender their Shares. 3. The Offer and withdrawal rights expire at 12:00 Midnight, New York City time, on Tuesday, November 30, 1999, unless the Offer is extended. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or a confirmation of a book-entry transfer of such Shares as described in Section 2 of the Offer to Purchase), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined in Section 2 of the Offer to Purchase) in connection with a book-entry transfer and (iii) any other documents required by the Letter of Transmittal. 4. The Offer is conditioned upon, among other things, there being validly tendered by the Expiration Date and not withdrawn a number of Shares which, together with the Shares then owned by Merger Subsidiary and HCC, would represent at least a majority of the Fully Diluted Shares (defined in the Introduction to the Offer to Purchase). 5. Merger Subsidiary will pay any stock transfer taxes applicable to the sale of Shares to Merger Subsidiary pursuant to the Offer, except as otherwise provided in Instruction 6 of the Letter of Transmittal. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing, detaching and returning to us the instruction form on the detachable part hereof. An envelope to return your instructions to us is enclosed. If you authorize tender of your Shares, all such Shares will be tendered unless otherwise specified on the detachable part hereof. Your instructions should be forwarded promptly to permit us to submit a tender on your behalf by the expiration of the Offer. If you do not instruct us to tender your Shares, they will not be tendered. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or acceptance thereof would not be in compliance with the laws of such jurisdiction. 3 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. BY MERGER SUB OF DELAWARE, INC. The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated October 18, 1999, and the related Letter of Transmittal, relating to the offer by Merger Sub of Delaware, Inc., a Delaware corporation and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware corporation, to purchase all outstanding shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company"). The undersigned instructs you to tender the number of Shares indicated below held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in such Offer to Purchase and the related Letter of Transmittal. Dated: , 1999 ------------------------------------------------------ (Signature) ----------------- ------------------------------------------------------ Number of Shares Please Print Name(s) to be Tendered: shares* ------------------------------------------------------ ----------------- Address: --------------------------------------------- ------------------------------------------------------ Include Zip Code Area Code and Telephone No.--------------- ------------------------- Taxpayer Identification or Social Security No. ------------------------------- ------------------------------------------------------
* Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. EX-99.A6 7 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENT. 1 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. - -- Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------------------------------------------------------------------------------------------- GIVE THE GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- NUMBER OF -- - --------------------------------------------------------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner of the account) account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the minor account) is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for incompetent person(3) a designed ward, minor, or incompetent person 7. a The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b So-called trust account The actual owner(1) that is not a legal or valid trust under State law 8. Sole proprietorship The Owner(4) account 9. A valid trust, estate, Legal entity (Do not furnish or pension trust the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The Corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- -------------------------------------------------------------------- - -------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 2 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: - A corporation. - A financial institution. - An organization exempt from tax under section 501(a), or an individual retirement plan. - The United States or any agency or instrumentality thereof. - A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. - A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. - An international organization or any agency or instrumentality thereof. - A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. - A real estate investment trust. - A common trust fund operated by a bank under section 584(a). - An exempt charitable remainder trust, or a non-exempt trust described in section 4947(a)(1). - An entity registered at all times under the Investment Company Act of 1940. - A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. - Payments of patronage dividends where the amount received in not paid in money. - Payments made by certain foreign organizations. - Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. - Payments of tax-exempt interest (including exempt interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Payments made to a nominee. Exempt payees described above should file the Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER, IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. Certain payments other than interest, dividends, and patronage dividends that are not subject to information reporting are also not subject to backup withholding. For details, see the regulations under sections 6041, 6041A(a), 6045, and 6050A. PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 3 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. - -- Social Security numbers have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the payer.
- --------------------------------------------------------------------------------------------------------------------------------- GIVE THE GIVE THE EMPLOYER FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: IDENTIFICATION NUMBER OF -- NUMBER OF -- - --------------------------------------------------------------------------------------------------------------------------------- 1. An individual's account The individual 2. Two or more individuals The actual owner of the (joint account) account or, if combined funds, any one of the individuals(1) 3. Husband and wife (joint The actual owner of the account) account or, if joint funds, either person(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the minor account) is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee for incompetent person(3) a designated ward, minor, or incompetent person 7. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under State law 8. Sole proprietorship The owner(4) account 9. A valid trust, estate, The legal entity (Do not or pension trust furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious, charitable, The organization or educational organization account 12. Partnership account held The partnership in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program payments
- -------------------------------------------------------------------- - -------------------------------------------------------------------- (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name, and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name, and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 4 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 The Tax Identification Number ("TIN") provided in the Substitute Form W-9 should be that of the tendering Stockholder even when such Stockholder has indicated in Special Issuance Instructions in the Letter of Transmittal that a certificate representing COGC Common Stock is to be issued in a name other than that in which the certificate surrendered in exchange therefor is registered. For a joint account, only the person whose TIN is furnished should sign the Substitute Form W-9. OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13), and a person registered under the Investment Advisors Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an individual retirement plan (IRA), or a custodial account under 403(b)(7). (3) The United States or any of its agencies or instrumentalities. (4) A State, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the U.S. or a possession of the U.S. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends generally not subject to backup withholding also include the following: - Payments to nonresident aliens subject to withholding under section 1441. - Payments to partnerships not engaged in a trade or business in the U.S. and that have at least one nonresident partner. - Payments of patronage dividends not paid in money. - Payments made by certain foreign organizations. Payments of interest generally not subject to backup withholding include the following: - Payments of interest on obligations issued by individuals. NOTE: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct TIN to the payer. - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - Payments described in section 6049(b)(5) to nonresident aliens. - Payments on tax-free covenant bonds under section 1451. - Payments made by certain foreign organizations. - Mortgage interest paid by you. Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under such sections. If you are a nonresident alien or a foreign entity not subject to backup withholding, give the payer a completed Form W-8 Certificate of Foreign Status. PRIVACY ACT NOTICE Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must be given the numbers whether or not recipients are required to file tax returns. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS. -- If you fail to include any portion of an includible payment for interest, dividends, or patronage dividends in gross income, such failure will be treated as being due to negligence and will be subject to a penalty of 5% on any portion of an under-payment attributable to that failure unless there is clear and convincing evidence to the contrary. (3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.A7 8 FORM OF SUMMARY ADVERTISEMENT DATED 10/18/99 1 This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (defined below). The Offer (defined below) is made solely by the Offer to Purchase dated October 18, 1999, and the related Letter of Transmittal and any amendments or supplements thereto, and is being made to all holders of Shares. The Offer is not being made to, nor will tenders be accepted from or on behalf of, holders of Shares in any jurisdiction in which the making of the Offer or the acceptance thereof would not be in compliance with the laws of such jurisdiction. In any jurisdiction where the securities, blue sky or other laws require that the Offer be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Merger Subsidiary (defined below) by Salomon Smith Barney Inc., the Dealer Manager, or by one or more registered brokers or dealers that are licensed under the laws of such jurisdiction. NOTICE OF OFFER TO PURCHASE FOR CASH ALL OUTSTANDING SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS) OF THE CENTRIS GROUP, INC. AT $12.50 NET PER SHARE BY MERGER SUB OF DELAWARE, INC. A WHOLLY OWNED SUBSIDIARY OF HCC INSURANCE HOLDINGS, INC. Merger Sub of Delaware, Inc., a Delaware corporation ("Merger Subsidiary"), and a wholly owned subsidiary of HCC Insurance Holdings, Inc., a Delaware corporation ("HCC"), is offering to purchase all outstanding shares of Common Stock, par value $.01 per share (including the associated Common Stock Purchase Rights) (the "Shares"), of The Centris Group, Inc., a Delaware corporation (the "Company"), at $12.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated October 18, 1999 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). Tendering shareholders of the Company will not be obligated to pay brokerage fees or commissions or, except as set forth in the Letter of Transmittal, transfer taxes on the purchase of Shares pursuant to the Offer. THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON TUESDAY, NOVEMBER 30, 1999, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED BY THE EXPIRATION OF THE OFFER AND NOT WITHDRAWN A NUMBER OF SHARES WHICH, TOGETHER WITH THE SHARES THEN OWNED BY HCC AND MERGER SUBSIDIARY, WOULD REPRESENT AT LEAST A MAJORITY OF THE TOTAL NUMBER OF OUTSTANDING SHARES ON A FULLY DILUTED BASIS. THE OFFER ALSO IS SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THE OFFER TO PURCHASE, INCLUDING THE CONSENT OF CERTAIN STATE INSURANCE REGULATORY AUTHORITIES. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of October 11, 1999 (the "Merger Agreement"), among the Company, HCC and Merger Subsidiary, which has been unanimously approved by the Company's Board of Directors. The Merger Agreement provides, among other things, that, after consummation of the Offer, and after satisfaction or waiver of all conditions to the Merger (defined below) set forth in the Merger Agreement, Merger Subsidiary will be merged into the Company (the 2 "Merger"), with the Company continuing as the surviving corporation. Pursuant to the Merger Agreement, at the effective time of the Merger (the "Effective Time"), each outstanding Share (other than Shares owned by HCC, Merger Subsidiary or any subsidiary of either of them or held by the Company as treasury stock (which shall be canceled) or by shareholders exercising appraisal rights under the General Corporation Law of Delaware) will be converted into the right to receive $12.50 in cash or any higher price paid for each Share in the Offer, without interest. THE BOARD OF DIRECTORS OF THE COMPANY HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF THE COMPANY, HAS UNANIMOUSLY APPROVED THE OFFER AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT, AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES. The term "Expiration Date" means 12:00 midnight, New York City time on Tuesday, November 30, 1999, unless Merger Subsidiary shall have extended the period of time for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Merger Subsidiary, will expire. Merger Subsidiary may, without the consent of the Company; (i) extend the Offer until all of the conditions to Merger Subsidiary's obligation to purchase Shares shall be satisfied or waived; (ii) extend the Offer for a period of not more than ten Business Days beyond the expiration thereof, as such period may be extended pursuant to clause (i) hereof; (iii) extend the Offer for an additional period of not more than ten Business Days beyond that permitted by clauses (i) and (ii) hereof if on the date of such extension, less than ninety percent (90%) of the fully diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer; and (iv) extend the Offer for any reason for a period of not more than five Business Days beyond the latest expiration date that would be otherwise permitted under clauses (i), (ii), or (iii) of this sentence. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement to be made no later than 9:00 a.m. New York City time, on the next Business Day after the previously scheduled Expiration Date. For purposes of the Offer, Merger Subsidiary shall be deemed to have accepted for payment tendered Shares when, and if, Merger Subsidiary gives notice to Harris Trust Company of New York (the "Depositary") of its acceptance of the tenders of such Shares. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or of a confirmation of a book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (defined in the Offer to Purchase)), (ii) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or an Agent's Message (defined in the Offer to Purchase) in connection with a book-entry transfer and (iii) any other required documents. UNDER NO CIRCUMSTANCE WILL INTEREST BE PAID ON THE PURCHASE PRICE TO BE PAID BY MERGER SUBSIDIARY FOR SUCH SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN MAKING SUCH PAYMENT. Tenders of Shares made pursuant to the Offer may be withdrawn at any time prior to the expiration of the Offer. Thereafter, such tenders are irrevocable, except that they may be withdrawn on or after December 17, 1999, unless theretofore accepted for payment as provided in the Offer to Purchase. If Merger Subsidiary extends the period of time during which the Offer is open, is delayed in accepting for payment or paying for Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to Merger Subsidiary's rights under the Offer, the Depositary may, on behalf of Merger Subsidiary, retain all Shares tendered, and such Shares may not be withdrawn except as otherwise provided in the Offer to Purchase. For a withdrawal to be effective, a written or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth in the Offer to Purchase and must specify the name of the person who tendered the Shares to be withdrawn and the number of Shares to be withdrawn. If the Shares to be withdrawn have been delivered to the Depositary, a signed notice of withdrawal with (except in the case of Shares tendered by an Eligible Institution (defined in the Offer to Purchase)) signatures guaranteed by an Eligible Institution must be submitted prior to the release of such Shares. In addition, such notice must specify, in the case of Shares tendered by delivery of certificates, the name of the registered holder (if different from that of the tendering shareholder) and the serial numbers shown on the particular certificates evidencing the Shares to be withdrawn or, in the case of Shares tendered by book-entry 3 transfer, the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. Withdrawals may not be rescinded, and Shares withdrawn will thereafter be deemed not validly tendered for purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described in the Offer to Purchase at any time prior to the expiration of the Offer. The information required to be disclosed by paragraph (e)(1)(vii) of Rule 14d-6 of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. The Company has provided Merger Subsidiary with the Company's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. The Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares and will be furnished to brokers, banks and similar persons whose names, or the names of whose nominees appear on the shareholder list or, if applicable, who are listed as participants in a clearing agency's security position listing for subsequent transmittal to beneficial owners of Shares. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager, as set forth below. Requests for copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent or brokers, dealers, commercial banks and trust companies, and copies will be furnished promptly at Merger Subsidiary's expense. No fees or commissions will be payable by Merger Subsidiary to brokers, dealers or other persons (other than the Information Agent) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: D. F. KING & CO., INC. 77 Water Street New York, NY 10005 Banks and Brokers Call Collect: (212) 269-5550 All Others Call Toll-Free: (800) 848-3094 ------------------------ The Dealer Manager for the Offer is: SALOMON SMITH BARNEY 388 Greenwich Street New York, New York 10013 (212) 816-9807 October 18, 1999 EX-99.C1 9 AGREEMENT AND PLAN OF MERGER 1 =============================================================================== AGREEMENT AND PLAN OF MERGER DATED AS OF OCTOBER 11, 1999 AMONG HCC INSURANCE HOLDINGS, INC., MERGER SUB OF DELAWARE, INC. AND THE CENTRIS GROUP, INC. =============================================================================== 2 TABLE OF CONTENTS
PAGE ---- ARTICLE 1 THE OFFER............................................................................1 Section 1.1 The Offer............................................................................1 Section 1.2 Company Action.......................................................................3 Section 1.3 Directors............................................................................4 ARTICLE 2 THE MERGER...........................................................................5 Section 2.1 The Merger...........................................................................5 Section 2.2 Conversion of Shares.................................................................5 Section 2.3 Surrender and Payment................................................................6 Section 2.4 Dissenting Shares....................................................................7 Section 2.5 Stock Options........................................................................7 ARTICLE 3 THE SURVIVING CORPORATION............................................................8 Section 3.1 Certificate of Incorporation.........................................................8 Section 3.2 Bylaws...............................................................................8 Section 3.3 Directors and Officers...............................................................8 ARTICLE 4 REPRESENTATIONS AND WARRANTIES.......................................................8 Section 4.1 Representations and Warranties of the Company........................................8 (a) Organization, Standing and Corporate Power...........................................8 (b) Subsidiaries.........................................................................9 (c) Capital Structure...................................................................10 (d) Authority; Noncontravention.........................................................11 (e) SEC Documents; Financial Statements; No Undisclosed Liabilities.....................12 (f) Disclosure Documents................................................................13 (g) Absence of Certain Changes or Events................................................14 (h) Litigation..........................................................................15 (i) Absence of Changes in Stock or Benefit Plans........................................16 (j) Participation and Coverage in Benefit Plans.........................................16 (k) ERISA Compliance....................................................................16 (l) Taxes...............................................................................18 (m) State Takeover Statutes.............................................................20 (n) Brokers; Schedule of Fees and Expenses..............................................20 (o) Licenses and Permits; Agents........................................................20 (p) Contracts; Debt Instruments; Leases.................................................22 (q) Opinion of Financial Advisor........................................................24 (r) Interests of Officers and Directors.................................................24 (s) Technology..........................................................................24 (t) Change of Control...................................................................25 (u) Environmental.......................................................................25 (v) Title to Properties.................................................................27
3 (w) Other Obligations...................................................................27 (x) Public Utility Holding Company Act; Non-Utility Status..............................28 (y) Year 2000...........................................................................28 (z) Insurance...........................................................................29 (aa) Investments.........................................................................29 (bb) Investment Company..................................................................30 (cc) Internal Controls...................................................................30 (dd) Assumed and Ceded Reinsurance Agreements............................................30 (ee) Accounts with Financial Institutions................................................32 (ff) Minute Books; Stock Books; Officers and Directors...................................32 (gg) Continuing Business Relationships...................................................32 (hh) Insurance Reserves..................................................................32 (ii) Disclosure..........................................................................33 Section 4.2 Representations and Warranties of Parent and Merger Subsidiary......................33 (a) Organization, Standing and Corporate Power..........................................33 (b) Authority; Noncontravention.........................................................33 (c) Disclosure Documents................................................................34 (d) Financing...........................................................................35 ARTICLE 5 COVENANTS OF THE COMPANY............................................................35 Section 5.1 Conduct of Business.................................................................35 Section 5.2 Shareholder Meeting; Proxy Material.................................................37 Section 5.3 Access to Information...............................................................38 Section 5.4 Other Offers........................................................................39 Section 5.5 Rights Agreement....................................................................39 Section 5.6 State Takeover Statutes.............................................................40 Section 5.7 Regulatory Filings..................................................................40 Section 5.8 Affirmative Actions.................................................................40 Section 5.9 Termination of Benefit Plans........................................................41 ARTICLE 6 COVENANTS OF PARENT.................................................................41 Section 6.1 Obligations of Merger Subsidiary....................................................41 Section 6.2 Voting of Shares....................................................................41 Section 6.3 Director and Officer Liability......................................................41 Section 6.4 Employees...........................................................................43 ARTICLE 7 COVENANTS OF PARENT AND THE COMPANY.................................................43 Section 7.1 HSR Act Filings; Other Filings Reasonable Efforts; Notification.....................43 Section 7.2 Public Announcements................................................................46 Section 7.3 Confidentiality.....................................................................46 Section 7.4 Interim Financial Statements........................................................46 ARTICLE 8 CONDITIONS TO THE MERGER............................................................47 Section 8.1 Conditions to the Obligations of Each Party.........................................47
ii 4 ARTICLE 9 TERMINATION.........................................................................48 Section 9.1 Termination.........................................................................48 Section 9.2 Effect of Termination...............................................................48 ARTICLE 10 MISCELLANEOUS.......................................................................49 Section 10.1 Notices.............................................................................49 Section 10.2 Survival of Representations and Warranties..........................................49 Section 10.3 Amendments; No Waivers..............................................................50 Section 10.4 Fees and Expenses...................................................................50 Section 10.5 Successors and Assigns..............................................................51 Section 10.6 Governing Law.......................................................................51 Section 10.7 Counterparts; Effectiveness; Interpretation.........................................51 Section 10.8 Enforcement.........................................................................52 Section 10.9 Severability........................................................................52 Section 10.10 Entire Agreement; No Third Party Beneficiaries......................................52
iii 5 AGREEMENT AND PLAN OF MERGER This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of October 11, 1999, is entered into among The Centris Group, Inc., a Delaware corporation (the "Company"), HCC Insurance Holdings, Inc., a Delaware corporation ("Parent"), and Merger Sub of Delaware, Inc., a Delaware corporation and a wholly owned subsidiary of Parent ("Merger Subsidiary"). WHEREAS, the respective Boards of Directors of the Company, the Parent and the Merger Subsidiary have determined that it is advisable and in the best interests of their respective shareholders for the Parent and Merger Subsidiary to acquire the Company upon the terms and subject to the conditions set forth herein; and WHEREAS, the Company, the Parent and the Merger Subsidiary desire to make certain representations, warranties, covenants and agreements in connection with this Agreement; and WHEREAS, and furtherance of such acquisition, Parent proposes to cause Merger Subsidiary to make the Offer (as defined in Section 1.1(a)) to purchase all of the issued and outstanding shares of common stock, par value $.01 per share of the Company together with attached right to purchase shares (the "Common Stock") upon the terms and subject to the conditions of this Agreement and the Board of Directors of the Company (the "Board" or the "Board of Directors") has unanimously approved the Offer and recommended that the shareholders of the Company accept the Offer; and WHEREAS, the respective Boards of Directors of the Company, the Parent and Merger Subsidiary have deemed advisable and have approved the Offer and the Merger (as defined in Section 2.1) of the Merger Subsidiary with and into the Company upon the terms and subject to the conditions set forth in this Agreement; and WHEREAS, the Company and the Parent have determined it is advisable and in the best interests of the shareholders of the Company, for the Company to grant an option to Parent to acquire shares of Common Stock and have entered into a Stock Option Agreement dated the date hereof providing therefor. NOW, THEREFORE, in consideration of the representations, warranties and agreements herein contained, and subject to the terms and conditions herein set forth, the parties hereto do hereby agree as follows: ARTICLE 1 THE OFFER Section 1.1 The Offer. (a) Provided that nothing shall have occurred that would result in a failure to satisfy any of the conditions set forth in Annex I hereto, Merger Subsidiary shall, as promptly as practicable after the date hereof, but in no event later than the first Business 6 Day (as defined in Rule 14b-1(c)(6) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act")), following the execution of this Agreement, issue a public announcement of the execution of this Agreement and as promptly as practicable, but in any event within five Business Days following the public announcement of the terms of this Agreement, commence an offer (the "Offer") to purchase all of the outstanding shares of common stock, par value $.01 per share together with attached rights to purchase shares (the "Shares"), of the Company at a price of $12.50 per Share, net to the seller in cash. Such Offer shall remain open for a period not to exceed 30 Business Days (the "Offer Period") subject to extension as provided below. The Offer shall be subject to the condition that there shall be validly tendered in accordance with the terms of the Offer prior to the expiration date of the Offer and not withdrawn a number of Shares which, together with the Shares then owned by Parent and Merger Subsidiary, represents at least a majority (the "Minimum Condition") of the total number of outstanding Shares, assuming the exercise of all outstanding options, rights and convertible securities (if any) (other than options to be canceled pursuant to Section 2.5 hereof, and Shares to be issued pursuant to the Stock Option Agreement defined herein) and the issuance of all Shares that the Company is obligated to issue (such total number of outstanding Shares being hereinafter referred to as the "Fully Diluted Shares") and to the other conditions set forth in Annex I hereto. Parent and Merger Subsidiary expressly reserve the right to waive the conditions to the Offer and to make any change in the terms or conditions of the Offer; provided however, that, without the written consent of the Company, no change may be made which (i) except as provided in the next sentence, extends the Offer; (ii) changes the form of consideration to be paid for the Shares, (iii) decreases the price per Share or the number of Shares sought in the Offer, (iv) imposes conditions to the Offer in addition to those set forth in Annex I, (v) changes or waives the Minimum Condition, or (vi) makes any other change to any condition to the Offer set forth in Annex I which is materially adverse to the holders of Shares. Notwithstanding the foregoing, without the consent of the Company, Merger Subsidiary may (i) extend the Offer Period until all of the conditions to the Merger Subsidiary's obligation to purchase Shares shall be satisfied or waived, including, without limitation, any period required (A) by any rule, regulation, interpretation, or position of the Securities and Exchange Commission (the "SEC") or the staff thereof applicable to the Offer; or (B) pursuant to the HSR Act, defined below, shall have terminated, or (C) to obtain necessary approval of each state insurance regulatory agency required for consummation of the Offer, (ii) extend the Offer Period for a period of not more than 10 Business Days beyond the expiration thereof, as such may be extended pursuant to subparagraph (i) hereof, (iii) extend the Offer Period for an additional period of not more than 10 Business Days beyond that permitted by subparagraphs (i) and (ii) hereof if on the date of such extension, less than ninety percent (90%) of the Fully Diluted Shares have been validly tendered and not properly withdrawn pursuant to the Offer, and (iv) extend the Offer for any reason for a period of not more than five Business Days beyond the latest Expiration Date that would be otherwise permitted under clauses (i), (ii), or (iii) of this sentence. Subject to the terms of the Offer and this Agreement and the satisfaction (or waiver to the extent permitted by this Agreement) of the conditions of the Offer, Merger Subsidiary shall accept for payment all Shares validly tendered and not 2 7 withdrawn pursuant to the Offer as soon as practicable after the applicable expiration of the Offer. (b) A soon as practicable on the date of commencement of the Offer, Parent and Merger Subsidiary shall (i) file with the SEC a Tender Offer Statement on Schedule 14D-1 with respect to the Offer which will contain the offer to purchase and form of the related letter of transmittal (together with any supplements or amendments thereto, collectively the "Offer Documents") and (ii) cause the Offer Documents to be disseminated to holders of Shares. Parent, Merger Subsidiary and the Company each agrees promptly to correct any information provided by it for use in the Offer Documents if and to the extent that it shall have become false or misleading in any material respect. Parent and Merger Subsidiary agree to take all steps necessary to cause the Offer Documents as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and Merger Subsidiary agree to provide the Company and its counsel in writing with any comments Parent, Merger Subsidiary or their counsel may receive from the SEC or its staff, including, but not limited to, comments with respect to the Offer Documents, promptly after receipt of such comments. The Company and its counsel shall be given a reasonable opportunity to review and comment upon the Offer Documents and all amendments and supplements thereto prior to their filing with the SEC. Section 1.2 Company Action. (a) The Company hereby consents to the Offer and represents that its Board of Directors, at a meeting duly called and held, has (i) unanimously determined that this Agreement and the transactions contemplated hereby, including the Offer and the Merger (defined below in Section 2.1), the Stock Option Agreement dated as of the date hereof (the "Stock Option Agreement") and the Shareholder Option Agreement, dated as of the date hereof (the "Shareholder Option Agreement"), among the shareholders of the Company that are named therein and Merger Subsidiary, and the transactions contemplated thereby, are fair to and in the best interest of the Company's shareholders, (ii) unanimously approved this Agreement and the transactions contemplated hereby, including the Offer, the Merger, the Stock Option Agreement and the Shareholder Option Agreement and the transactions contemplated thereby, which approval satisfies in full the requirements of Section 203 of the General Corporation Law of the State of Delaware (the "Delaware Law"), (iii) unanimously resolved to recommend acceptance of the Offer and approval and adoption of this Agreement and the Merger by its shareholders, and (iv) determined that the consummation of the transactions contemplated hereby including the Offering, the Merger, the Stock Option Agreement and the Shareholder Option Agreement and thereby have not, and will not, cause the Rights, as defined herein, to become exercisable. The Company further represents that Advest Investment Banking, Inc. ("Advest") has delivered to the Company's Board of Directors its opinion that the consideration to be paid in the Offer and the Merger is fair to the holders of Shares from a financial point of view. The Company has been advised that each of its directors and executive officers presently intend either to tender their Shares pursuant to the Offer or to vote in favor of the Merger. The Company will promptly furnish Parent and Merger 3 8 Subsidiary with a list of its shareholders, mailing labels and any available listing or computer file containing the names and addresses of all record holders of Shares and lists of securities positions of Shares held in stock depositories, in each case as of the most recent practicable date, and will provide to Parent and Merger Subsidiary such additional information (including, without limitation, updated lists of shareholders, mailing labels and lists of securities positions) and such other assistance as Parent or Merger Subsidiary may reasonably request in connection with the Offer. (b) As soon as practicable on the day that the Offer is commenced the Company will file with the SEC and disseminate to holders of Shares a Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9") which shall reflect the recommendations of the Company's Board of Directors referred to above, subject to the fiduciary duties of the Board of Directors of the Company as advised in writing by Gibson, Dunn & Crutcher LLP, counsel to the Company. The Company, Parent and Merger Subsidiary each agrees promptly to correct any information provided by it for use in the Schedule 14D-9 if and to the extent that it shall have become false or misleading in any material respect. The Company agrees to take all steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the SEC and to be disseminated to holders of Shares, in each case as and to the extent required by applicable federal securities laws. Parent and its counsel shall be given an opportunity to review and comment on the Schedule 14D-9 prior to its being filed with the SEC. Section 1.3 Directors. (a) Effective upon the payment by Merger Subsidiary for a majority of the Shares pursuant to the Offer, Parent shall be entitled to designate the number of directors, rounded up to the next whole number, on the Company's Board of Directors that equals the product of (i) the total number of directors on the Company's Board of Directors (giving effect to the election of any additional directors pursuant to this Section) and (ii) the percentage that the number of Shares owned by Parent or Merger Subsidiary (including Shares accepted for payment) bears to the total number of Shares outstanding, and the Company shall take all action necessary to cause Parent's designees to be elected or appointed to the Company's Board of Directors, including, without limitation, increasing the number of directors, or seeking and accepting resignations of incumbent directors, or both; provided however, that, prior to the Effective Time (defined below), the Company's Board of Directors shall always have one member who is neither a designee nor an affiliate of Parent or Merger Subsidiary nor an employee of the Company (an "Independent Director"). If the number of Independent Directors is reduced below one for any reason prior to the Effective Time the departing Independent Director shall be entitled to designate a person to fill such vacancy. No action proposed to be taken by the Company to amend or terminate this Agreement or waive any action by Parent or Merger Subsidiary shall be effective without the approval of the Independent Director. At such times, the Company will use its best efforts to cause individuals designated by Parent to constitute the same percentage as such individuals represent on the Company's Board of Directors of (x) each committee of the Board, (y) each board of directors of each Subsidiary (defined below) and (z) each committee of each such board. 4 9 (b) The Company's obligations to appoint designees to the Board of Directors shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions required pursuant to Section 14(f) and Rule 14f-l in order to fulfill its obligations under this Section 1.3 and shall include in the Schedule 14D-9 such information with respect to the Company and its officers and directors as is required under Section 14(f) and Rule 14f-1 to fulfill its obligations under this Section 1.3. Parent will supply to the Company in writing and be solely responsible for any information with respect to itself and its nominees, officers, directors and affiliates required by Section 14(f) and Rule 14f-1. ARTICLE 2 THE MERGER Section 2.1 The Merger. (a) At the Effective Time, Merger Subsidiary shall be merged (the "Merger") with and into the Company in accordance with Delaware Law, whereupon the separate existence of Merger Subsidiary shall cease, and the Company shall be the surviving corporation (the "Surviving Corporation"). (b) As soon as practicable after satisfaction of or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Company and Merger Subsidiary will file a certificate of merger with the Secretary of State of the State of Delaware and make all other filings or recordings required by Delaware Law in connection with the Merger. The Merger shall become effective at such time as the certificate of merger is duly filed with the Secretary of State of the State of Delaware or, with the consent of the Independent Director, at such later time as is specified in the certificate of merger (the "Effective Time"). (c) From and after the Effective Time, the Surviving Corporation shall possess all the rights, privileges, powers and franchises and be subject to all of the restrictions, disabilities and duties of the Company and Merger Subsidiary, all as provided under Delaware Law. Section 2.2 Conversion of Shares. At the Effective Time: (a) each Share held by the Company as treasury stock or owned by Parent, Merger Subsidiary or any subsidiary of either of them immediately prior to the Effective Time shall be canceled, and no payment shall be made with respect thereto; (b) each share of common stock of Merger Subsidiary outstanding immediately prior to the Effective Time shall be converted into and become one share of common stock of the Surviving Corporation with the same rights, powers and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation; and 5 10 (c) each Share outstanding immediately prior to the Effective Time shall, except as otherwise provided in Section 2.2(a) or as provided in Section 2.4 with respect to Shares as to which appraisal rights have been exercised, be converted into the right to receive $12.50 in cash without interest (the "Merger Consideration"). Section 2.3 Surrender and Payment. (a) Prior to the Effective Time, Parent shall appoint an exchange agent (the "Exchange Agent") for the purpose of exchanging certificates representing Shares for the Merger Consideration. Parent will make available to the Exchange Agent, as needed, the Merger Consideration to be paid in respect of the Shares (the "Exchange Fund"). For purposes of determining the Merger Consideration to be made available, Parent shall assume that no holder of Shares will perfect the right to appraisal of Shares. Promptly after the Effective Time, Parent will send, or will cause the Exchange Agent to send, to each holder of Shares at the Effective Time a letter of transmittal for use in such exchange (which shall specify that the delivery shall be effected, and risk of loss and title shall pass, only upon proper delivery of the certificates representing Shares to the Exchange Agent). The Exchange Agent shall, pursuant to irrevocable instructions, make the payments provided for in this Section 2.3. The Exchange Fund shall not be used for any other purpose, except as provided in this Agreement. (b) Each holder of Shares that have been converted into a right to receive the Merger Consideration, upon surrender to the Exchange Agent of a certificate or certificates representing such Shares, together with a properly completed letter of transmittal covering such Shares, and such other documents as shall be reasonably requested, will be entitled to receive the Merger Consideration payable in respect of such Shares. Until so surrendered, each such certificate shall, after the Effective Time, represent for all purposes, only the right to receive such Merger Consideration. (c) If any portion of the Merger Consideration is to be paid to a person other than the registered holder of the Shares represented by the certificate or certificates surrendered in exchange therefor, it shall be a condition to such payment that the certificate or certificates so surrendered shall be properly endorsed or otherwise be in proper form for transfer and that the person requesting such payment shall pay to the Exchange Agent any transfer or other taxes required as a result of such payment to a person other than the registered holder of such Shares or establish to the satisfaction of the Exchange Agent that such tax has been paid or is not payable. For purposes of this Agreement, "person" or "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a trust or any other entity or organization, including a government or political subdivision or any agency or instrumentality thereof. (d) After the Effective Time, there shall be no further registration of transfers of Shares. If, after the Effective Time, certificates representing Shares are presented to the Surviving Corporation, they shall be canceled and exchanged for the consideration provided for, and in accordance with the procedures set forth, in this Article 2. 6 11 (e) Any portion of the Exchange Fund made available to the Exchange Agent pursuant to Section 2.3(a) that remains unclaimed by the holders of Shares six months after the Effective Time shall be returned to Parent, upon demand, and any such holder who has not exchanged his Shares for the Merger Consideration in accordance with this Section 2.3 prior to that time shall thereafter look only to Parent for payment of the Merger Consideration in respect of his Shares. Notwithstanding the foregoing, Parent shall not be liable to any holder of Shares for any amount paid to a public official pursuant to applicable abandoned property laws. Any amounts remaining unclaimed by holders of Shares immediately prior to such time as such amounts would otherwise escheat to or become property of any governmental entity shall, to the extent permitted by applicable law, become the property of Parent, free and clear of any claims or interest of any person previously entitled thereto. (f) Any portion of the Merger Consideration made available to the Exchange Agent pursuant to Section 2.3(a) to pay for Shares for which appraisal rights have been perfected shall be returned to Parent, upon demand. Section 2.4 Dissenting Shares. Notwithstanding Section 2.2, Shares outstanding immediately prior to the Effective Time and held by a holder who has not voted in favor of the Merger or consented thereto in writing and who has demanded appraisal for such Shares in accordance with Delaware Law shall not be converted into a right to receive the Merger Consideration, unless such holder fails to perfect or withdraws or otherwise loses the right to appraisal. If after the Effective Time such holder fails to perfect or withdraws or loses the right to appraisal, such Shares shall be treated as if they had been converted as of the Effective Time into a right to receive the Merger Consideration. The Company shall give Parent prompt notice of any demands received by the Company for appraisal of Shares, and Parent shall have the right to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent, make any payment with respect to, or settle or offer to settle, any such demands. Section 2.5 Stock Options. (a) At the time that Merger Subsidiary has accepted for payment all Shares validly transferred and not withdrawn pursuant to the Offer, each outstanding Company Option (defined below) shall be canceled, and each holder of any such option shall be paid by Merger Subsidiary promptly for each such option an amount determined by multiplying (i) the excess, if any, of $12.50 per Share over the applicable exercise price of such option by (ii) the number of Shares such holder could have purchased had such holder exercised such option in full immediately prior to the time that Merger Subsidiary has accepted for payment all Shares validly transferred and not withdrawn pursuant to the Offer (as if such Company Option was exercisable in full). "Company Option" means any option granted, whether or not exercisable, and not exercised or expired, to a current or former employee, director or independent contractor of the Company or any of its subsidiaries or any predecessor thereof to purchase Shares pursuant to any stock option, stock bonus, stock award, or stock purchase plan, program, or arrangement of the Company or any of its subsidiaries or any predecessor thereof (collectively, the "Stock 7 12 Plans") or any other contract or agreement (other than the Stock Option Agreement) entered into by the Company or any of its subsidiaries. (b) As soon as practicable following the date of this Agreement, the Company shall use its best efforts to (i) obtain any consents from holders of Company Options and (ii) make any amendments to the terms of such Stock Plans or arrangements that, in the case of either clauses (i) or (ii), are necessary to give effect to the transactions contemplated by Section 2.5(a). Notwithstanding any other provision of this Section 2.5, payment may be withheld in respect of any Company Option until necessary consents are obtained. All amounts payable pursuant to this Section 2.5 shall be subject to, and reduced by, any required withholding of taxes and shall be paid without interest. ARTICLE 3 THE SURVIVING CORPORATION Section 3.1 Certificate of Incorporation. The certificate of incorporation of Merger Subsidiary in effect at the Effective Time shall be the certificate of incorporation of the Surviving Corporation until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be changed to the name of the Company. Section 3.2 Bylaws. The bylaws of Merger Subsidiary in effect at the Effective Time shall be the bylaws of the Surviving Corporation until amended in accordance with applicable law. Section 3.3 Directors and Officers. From and after the Effective Time, until successors are duly elected or appointed and qualified in accordance with applicable law, (i) the directors of Merger Subsidiary at the Effective Time shall be the directors of the Surviving Corporation, and (ii) the officers of the Merger Subsidiary at the Effective Time shall be the officers of the Surviving Corporation. ARTICLE 4 REPRESENTATIONS AND WARRANTIES Section 4.1 Representations and Warranties of the Company. The Company represents and warrants to Parent and Merger Subsidiary as follows: (a) Organization, Standing and Corporate Power. Each of the Company and each of its subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of the Company and each of its subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) could not reasonably be expected to have a Material 8 13 Adverse Effect, as defined below, on the Company and its subsidiaries taken as a whole. The Company has delivered to Parent complete and correct copies of its Certificate of Incorporation and By-Laws and the certificates of incorporation or other charter or organizational documents and by-laws of its subsidiaries, in each case as amended to the date of this Agreement. For purposes of this Agreement, a "subsidiary" of any person means another person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests) of which is owned directly or indirectly by such first person. As used herein "Material Adverse Effect" means with respect to the Company, any change in, or effect on, the Company or the business of the Company; in each case including its subsidiaries taken as a whole, which is, or which is reasonably likely to be, materially adverse to the business, operations, assets, liabilities, results of operations, condition (financial or otherwise), prospects, insurance licenses or other material permits of the Company or its subsidiaries or which will, or is reasonably likely to, prevent or materially delay, the transactions contemplated by this Agreement, provided, however, (i) that any effect on the Company or the business of the Company which is due to, arises from, or relates to any action taken by the Company or its subsidiaries after the date of this Agreement at the request of or done at the direction or with the consent of the Parent shall not be considered to have a Material Adverse Effect for any purpose under this Agreement and (ii) provided, further, that a Material Adverse Effect on the Company shall not be deemed to have occurred as a result of (w) the Company establishing additional reserves and taking other charges at September 30, 1999 in the amount of $13.5 million; (x) the Company's independent actuarial review of the Company's reserves and all other aspects of the Company's business, as contemplated by Section 5.8 hereof, and the establishment of appropriate reserve adjustments and other charges (collectively the "Charges") so long as the Charges do not exceed $17 million in the aggregate (there being no presumption that the establishment of reserves or charges in excess of $17 million either will or will not have a Material Adverse Effect); (y) any change (including changes in the market value of invested assets) in general economic conditions affecting the insurance business or their holding companies generally; or (z) the termination of the Management Agreements between the Company and The Continental Insurance Company as a result of a change of control. "Material Adverse Effect" with respect to the Parent, means any change in, or effect on, the Parent which is, or which is reasonably likely to be, materially adverse to the Parent's operations, assets, liabilities, results of operations, condition (financial or otherwise) or prospects, on a consolidated basis, or which will prevent or materially delay the transactions contemplated by this Agreement. (b) Subsidiaries. (i) Section 4.1(b) of the disclosure schedule delivered by the Company to Parent and Merger Subsidiary prior to the execution of this Agreement (the "Disclosure Schedule") lists each subsidiary of the Company and its respective jurisdiction of incorporation and each state in which the Company 9 14 and each of its subsidiaries is licensed or qualified to carry out its businesses. Except as disclosed in Section 4.1(b) of the Disclosure Schedule, all of the outstanding shares of capital stock of each such subsidiary have been validly issued and are fully paid and nonassessable and are owned by the Company, by another subsidiary of the Company or by the Company and another such subsidiary, free and clear of all pledges, claims, liens, charges, encumbrances and security interests of any kind or nature whatsoever (collectively, "Liens") and free of any other limitation or restriction (including any restriction on the right to vote, sell or otherwise dispose of such capital stock). Except for the capital stock of its subsidiaries, the Company does not own, directly or indirectly, any capital stock or other ownership interest in any person except as disclosed in Section 4.1(b)(i) of the Disclosure Schedule. (ii) Except as set forth in Section 4.1(b)(ii) of the Disclosure Schedule there are no corporations, partnerships, limited liability companies, joint ventures, associations or other entities (A) in which the Company owns, of record or beneficially, any direct or indirect equity, membership or other interest or any right (contingent or otherwise) to acquire the same, or (B) which the Company controls, directly or indirectly, by contract or proxy or otherwise, alone or in combination with any other Person. As used herein, unless the context otherwise requires, the term "Company" includes the Company and each of its subsidiaries. (c) Capital Structure. The authorized capital stock of the Company (and not its subsidiaries) consists of 40,000,000 Shares and 5,000,000 shares of Preferred Stock of the Company. As of the date of this Agreement, (i) 11,536,076 Shares were issued and outstanding, (ii) 928,824 Shares were held by the Company in its treasury or by any of the Company's subsidiaries, and (iii) 1,060,453 Shares were reserved for issuance pursuant to the outstanding Company Options. No Shares of Preferred Stock were outstanding. All outstanding Shares of the Company are, and all Shares which may be issued pursuant to the Stock Plans will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth in Section 4.1(c) of the Disclosure Schedule, there are no bonds, debentures, notes, warrants or other indebtedness or securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which shareholders of the Company may vote. Except as set forth above and in Section 4.1(c) of the Disclosure Schedule, there are no securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company or any of its subsidiaries is a party or by which any of them is bound obligating the Company or any of its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or 10 15 other voting securities of the Company or of any of its subsidiaries or obligating the Company or any of its subsidiaries to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. Except as set forth in Section 4.1(c) of the Disclosure Schedule, there are no outstanding rights, commitments, agreements, arrangements or undertakings of any kind obligating the Company or any of its subsidiaries to repurchase, redeem or otherwise acquire any shares of capital stock or other voting securities of the Company or any of its subsidiaries or any securities of the type described in the two immediately preceding sentences. The Company has delivered to Parent complete and correct copies of the Stock Plans and all forms of Company Options. Section 4.1(c) of the Disclosure Schedule sets forth a complete and accurate list of all Company Options outstanding as of the date of this Agreement and the exercise price of each outstanding Company Option. The authorized and outstanding capital stock of each of the Company's subsidiaries is set forth in Section 4.1(c) of the Disclosure Schedule. (d) Authority; Noncontravention. The Company has the requisite corporate power and authority to enter into this Agreement and, except for any required approval by the Company's shareholders in connection with the consummation of the Merger, to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Company, except for any required approval by the Company's shareholders in connection with the consummation of the Merger. This Agreement has been duly executed and delivered by the Company and, assuming this Agreement constitutes a valid and binding agreement of Parent and Merger Subsidiary, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. Except as set forth in Section 4.1(d) of the Disclosure Schedule, the execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its subsidiaries under, (i) the Certificate of Incorporation or By-Laws of the Company or the comparable charter or organizational documents of any of its subsidiaries, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its subsidiaries or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any of its subsidiaries or their respective properties or assets other than, in the case of clause (ii) or (iii) above, any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate could not reasonably be expected to (A) have a Material Adverse Effect, (B) impair the ability of the Company to perform its obligations under this Agreement or (C) prevent or materially delay consummation of any of the transactions contemplated by this Agreement. No consent, approval, order or authorization of, or registration, declaration or filing with or exemption by (collectively, "Consents") any federal, state or local government or any court, administrative or 11 16 regulatory agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated by this Agreement, except for (i) the filing of a certificate of merger in accordance with Delaware Law and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) the filing of a premerger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act"), (iii) compliance with any applicable requirements of the Exchange Act, (iv) such notices, filings and consents as may be required under relevant state property transfer or environmental laws, (v) filing with the insurance regulatory agencies set forth in Section 4.1(d) of the Disclosure Schedule, and (vi) such other consents, approvals, orders, authorizations, registrations, declarations and filings as to which the failure to obtain or make could not reasonably be expected to (x) have a Material Adverse Effect or (y) prevent or materially delay the consummation of any of the transactions contemplated by this Agreement. (e) SEC Documents; Financial Statements; No Undisclosed Liabilities. (i) The Company has filed all required reports, schedules, forms, statements and other documents with the SEC since January 1, 1996 (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act of 1933, as amended, and the rules and regulations thereunder (the "Securities Act"), or the Exchange Act, as the case may be, applicable to such SEC Documents, and none of the SEC Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Documents (the "Financial Statements") comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject to the items set forth in Section 4.1(e) of the Disclosure Schedule, and in the case of unaudited statements, to normal, recurring year-end audit adjustments). Except as set forth in the Company Filed SEC Documents (defined below) or on Section 4.1(e) of the Disclosure Schedule, neither the Company nor any of its subsidiaries has any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) and there is no existing condition, situation or set of circumstances which are required by generally accepted accounting 12 17 principles to be set forth on a consolidated balance sheet of the Company and its consolidated subsidiaries or in the notes thereto, except for liabilities which, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (ii) The Company has heretofore delivered to the Parent true and complete copies of the Annual Statutory Statements and the Quarterly Statutory Statements filed with each Governmental Entity. Each of the Annual Statutory Statements and Quarterly Statutory Statements was prepared in accordance with Statutory Accounting Practices ("SAP") consistently applied throughout the periods involved, was prepared in accordance with the books and records of the Company, has been audited by the Company's independent public accountants (the "Company's Accountants"), and presents fairly the statutory financial position of the Company at the respective dates thereof and the statutory results of operations and cash flows of the Company for the respective periods then ended, subject to the items set forth in Section 4.1(e) of the Disclosure Schedule, except that the Quarterly Statutory Statements have not been audited and are subject to normal recurring year-end audit adjustments. Except as set forth in Section 4.1(e) of the Disclosure Schedule, each of the Annual Statutory Statements and Quarterly Statutory Statements (i) complies in all material respects with the Insurance Codes, rules and regulations of any jurisdiction in which such statements are required to be filed, (ii) was complete and correct in all material respects when filed, (iii) was filed with or submitted to each jurisdiction in which such statements are required to be filed in a timely manner on forms prescribed or permitted by each such jurisdiction, and (iv) was not prepared utilizing any material accounting practices that are permitted rather than prescribed by each such jurisdiction. Except as set forth in Section 4.1(e) of the Disclosure Schedules, no material deficiency has been asserted with respect to any of the Annual Statutory Statements or Quarterly Statutory Statements by any Governmental Entity. (f) Disclosure Documents. (i) Each document required to be filed by the Company with the SEC in connection with the transactions contemplated by this Agreement (the "Company Disclosure Documents"), including, without limitation, the Schedule 14D-9, the proxy or information statement of the Company (the "Company Proxy Statement"), if any, to be filed with the SEC in connection with the Merger, and any amendments or supplements thereto will, when filed, comply as to form in all material respects with the applicable requirements of the Exchange Act. (ii) At the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to shareholders of the Company, and at the time such shareholders vote on adoption of this Agreement, the Company Proxy Statement, as supplemented or amended, if applicable, will not contain any untrue 13 18 statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. At the time of the filing of any Company Disclosure Document other than the Company Proxy Statement and at the time of any distribution thereof, such Company Disclosure Document will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. The representations and warranties contained in this Section 4.1(f)(ii) will not apply to statements or omissions included in the Company Disclosure Documents based upon information furnished to the Company in writing by Parent or Merger Subsidiary specifically for use therein. (iii) The information with respect to the Company or any subsidiary that the Company furnishes to Parent or Merger Subsidiary in writing specifically for use in the Offer Documents will not, at the time of the filing thereof, at the time of any distribution thereof and at the time of the consummation of the Offer, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. (g) Absence of Certain Changes or Events. Except as disclosed in the SEC Documents filed and publicly available prior to the date of this Agreement (the "Company Filed SEC Documents") or in Section 4.1(g) of the Disclosure Schedule, since December 31, 1998, the Company has conducted its business only in the ordinary course consistent with past practice, and there has not been (i) any event, occurrence or development of a state of circumstances which has had or could reasonably be expected to have a Material Adverse Effect, (ii) any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Company's capital stock or any repurchase, redemption or other acquisition by the Company or any of its subsidiaries of any outstanding shares of capital stock or other securities of the Company or any of its subsidiaries, (iii) any split, combination or reclassification of any of its capital stock or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, (iv) (A) any granting by the Company or any of its subsidiaries to any current or former director, officer or employee of the Company or any of its subsidiaries of any increase in compensation or benefits, except in the ordinary course of business consistent with past practice, (B) any granting by the Company or any of its subsidiaries to any such director, officer or employee of any increase in severance or termination pay (including the acceleration in the exercisability of Company Options or in the vesting of Shares (or other property) or the provision of any tax gross-up), except as was required under employment, severance or termination agreements or plans in effect as of December 31, 1998 which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect, or (C) any entry by the Company or any of its subsidiaries into any employment, deferred compensation, severance or termination 14 19 agreement with any such current or former director, officer or employee, except in the ordinary course of business consistent with past practice, (v) any damage, destruction or loss, whether or not covered by insurance, that has had or could have a Material Adverse Effect, (vi) any change in accounting methods, principles or practices by the Company or any of its subsidiaries, except insofar as may have been required by a change in generally accepted accounting principles, (vii) any amendment of any material term of any outstanding security of the Company or any of its subsidiaries, (viii) any incurrence, assumption or guarantee by the Company or any of its subsidiaries of any material indebtedness for borrowed money other than in the ordinary course of business consistent with past practice, but in no event in the amount of more than $250,000 in the aggregate, (ix) any creation or assumption by the Company or any of its subsidiaries of any Lien on any asset other than in the ordinary course of business consistent with past practice, but in no event in the amount of more than $250,000 for any one transaction or $500,000 in the aggregate, (x) any making of any loan, advance or capital contributions to or investment in any person other than (A) made in the ordinary course of business consistent with past practice, but in no event in the amount of more than $100,000 for any one transaction or $150,000 in the aggregate and (B) investments in cash equivalents made in the ordinary course of business consistent with past practice, (xi) any transaction or commitment made, or any contract or agreement entered into, by the Company or any of its subsidiaries relating to its assets or business (including the acquisition or disposition of any assets or the merger or consolidation with any person) or any relinquishment by the Company or any of its subsidiaries of any contract or other right, in either case, material to the Company or any of its subsidiaries, other than transactions and commitments in the ordinary course of business consistent with past practice and those contemplated by this Agreement, but in no event representing commitments on behalf of the Company or any of its subsidiaries of more than $250,000 for any transaction or $500,000 for any series of transactions, (xii) any material labor dispute, other than routine individual grievances, or any activity or proceeding by a labor union or representative thereof to organize any employees of the Company or any of its subsidiaries, which employees were not subject to a collective bargaining agreement at December 31, 1998, or any material lockouts, strikes, slowdowns, work stoppages or threats thereof by or with respect to such employees or (xiii) any agreement, commitment, arrangement or undertaking by the Company or any of its subsidiaries to perform any action described in clauses (i) through (xii). (h) Litigation. Except as disclosed in Section 4.1(h) of the Disclosure Schedule, there is no suit, action or proceeding pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its subsidiaries that, individually or in the aggregate, could reasonably be expected to (i) have a Material Adverse Effect, (ii) impair the ability of the Company to perform its obligations under this Agreement or (iii) prevent or materially delay the consummation of the Offer, the Merger or any of the other transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company or any of its subsidiaries having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect. Section 4.1(h) of the Disclosure Schedule sets forth, with respect to any pending suit, action or proceeding 15 20 to which the Company or any of its subsidiaries is a party, the forum, the parties thereto, the subject matter thereof and the amount of damages claimed. Any representation or warranty in this Agreement which is expressed as made to the Company's knowledge or to the knowledge of the Company means the knowledge, after reasonable investigation and due inquiry, of the officers of the Company listed on Schedule 4.1(h) of the Disclosure Schedule. (i) Absence of Changes in Stock or Benefit Plans. Except as disclosed in Section 4.1(i) of the Disclosure Schedule, since December 31, 1998, and through the date hereof, there has not been (i) any acceleration, amendment or change of the period of exercisability or vesting of any Company Options or restricted stock, stock bonus or other awards under the Stock Plans or any other options to purchase Shares or stock of any subsidiary of the Company (including any discretionary acceleration of the exercise periods or vesting by the Company's Board of Directors or any committee thereof or any other persons administering a Stock Plan) or authorization of cash payments in exchange for any Company Options, restricted stock, stock bonus or other awards granted under any of such Stock Plans or any other options to purchase Shares as stock of any subsidiary of the Company or (ii) any adoption or amendment by the Company or any of its subsidiaries of any collective bargaining agreement or any bonus, pension, profit sharing, deferred compensation, incentive compensation, stock ownership, stock purchase, stock option, phantom stock, stock appreciation right, retirement, vacation, severance, disability, death benefit, hospitalization, medical, workers' compensation, disability, supplementary unemployment benefits, or other plan, arrangement or understanding (whether or not legally binding) or any employment agreement providing compensation or benefits to any current or former employee, officer, director or independent contractor of the Company or any of its subsidiaries or any beneficiary thereof or entered into, maintained or contributed to, as the case may be, by the Company or any of its subsidiaries or ERISA affiliates (as hereafter defined) (collectively, "Benefit Plans") other than immaterial amendments to any such Benefit Plan. Section 4.1(i) of the Disclosure Schedule sets forth for each of the fifteen most highly compensated employees of the Company, the aggregate maximum amount of all termination, severance or other similar benefits to which such employee is entitled in connection with the Merger and the other transactions contemplated by this Agreement. (j) Participation and Coverage in Benefit Plans. Except as set forth in Section 4.1(j) of the Disclosure Schedule, there has been no adoption of, or amendment to, or change in employee participation or coverage under, or written interpretation or announcement (whether or not written) by the Company or any of its subsidiaries relating to, any Benefit Plans which would increase materially the expense of maintaining such Benefit Plans above the level of the expense incurred in respect thereof for the fiscal year ended on December 31, 1998. (k) ERISA Compliance. (i) Except as otherwise indicated therein, Section 4.1(k) of the Disclosure Schedule lists all Benefit Plans and "employee benefit plans" (defined 16 21 in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), currently maintained, or contributed to, by the Company or any of its subsidiaries or ERISA affiliates (defined below) for the benefit of any current or former employees, officers or directors of the Company or any of its subsidiaries or ERISA affiliates or under which the Company or any of its subsidiaries or ERISA affiliates has any liability. The Company has delivered to Parent a complete copy of (A) the current plan document for each Benefit Plan (or, in the case of any unwritten Benefit Plans, descriptions thereof), (B) a copy of the most recent Form 5500 filed with the Internal Revenue Service with respect to each Benefit Plan (if any such report was required), (C) the most recent summary plan description for each Benefit Plan for which a summary plan description is required, (D) each trust agreement and group annuity or insurance contract relating to any Benefit Plan, and (E) to the extent still in the Company's possession, all material correspondence to or from the Internal Revenue Service or the Department of Labor from January 1, 1996 through the date hereof to or from the Internal Revenue Service or the Department of Labor relating to any Benefit Plan. For purposes of this Agreement, "ERISA affiliate" of the Company means any person which, together with the Company or any of its subsidiaries, would be treated as a single employer under Section 414 of the Internal Revenue Code of 1986, as amended (the "Code"). (ii) Except as set forth in Section 4.1(k) of the Disclosure Schedule, to the knowledge of the Company, each Benefit Plan has been maintained and administered in compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations except as would not have a Material Adverse Effect and is, to the extent required by applicable law or contract, fully funded on a termination basis without having any deficit or unfunded actuarial liability. Any Benefit Plan intended to be qualified under Section 401(a) of the Code has obtained from the Internal Revenue Service a favorable determination letter as to its qualified status under the Tax Reform Act of 1986 and, to Company's knowledge, nothing has occurred since the issuance of each such letter which could reasonably be expected to cause the loss of the tax qualified status of any Benefit Plan intended to be qualified under Code Section 401(a). (iii) Except as set forth in Section 4.1(k) of the Disclosure Schedule, no Benefit Plan is or ever has been covered by Title IV of ERISA or Section 412 of the Code and none of the Company, any of its subsidiaries, or any ERISA affiliate has ever participated in, maintained, or contributed to any such plan. To the knowledge of the Company, neither the Company nor any of its subsidiaries or ERISA affiliates has incurred or expects to incur any liability under Title IV of ERISA or any liability or penalty under Section 4975 or 4980B of the Code or Section 502(i) of ERISA. To the knowledge of the Company, none of the Company, any of its subsidiaries, or any ERISA affiliate has ever engaged in, or is a successor or affiliate of any entity that has engaged in, a transaction which is described in Section 4069 of ERISA. 17 22 (iv) Except as set forth in Section 4.1(k) of the Disclosure Schedule, to the Company's knowledge, there are no pending or anticipated material claims against or otherwise involving any of the Benefit Plans and no suit, action or other litigation (excluding claims for benefits incurred in the ordinary course of Benefit Plan activities) has been brought against or with respect to any Benefit Plan. (v) Except as set forth in Section 4.1(k) of the Disclosure Schedule, to the Company's knowledge, all material contributions, reserves or premium payments, required to be made as of the date hereof to or with respect to the Benefit Plans have been made or provided for except as would not have a Material Adverse Effect. (vi) Except as set forth in Section 4.1(k) of the Disclosure Schedule, or as otherwise required by law, neither the Company nor any of its subsidiaries or ERISA affiliates has any obligations for post-retirement or post-termination health (including medical, dental and vision), life (including accidental death and dismemberment), and/or long term disability benefits under any Benefit Plan. Except as set forth in Section 4.1(k) of the Disclosure Schedule, each Benefit Plan, including each plan providing coverage or benefits for retired employees and/or their beneficiaries, may be amended or terminated at any time by the Company or any of its subsidiaries or ERISA affiliates. None of the Benefit Plans are self-insured "multiple employer welfare arrangements" as such term is defined in Section 3(40) of ERISA. (l) Taxes. As used in this Agreement, "tax" or "taxes" shall include all Federal, state, local and foreign income, property, sales, excise and other taxes, tariffs or similar governmental charges or assessments as well as any interest, penalties and additions thereto. (i) The Company and each of its subsidiaries have timely filed all tax returns, statements, reports and forms required to be filed with any tax authority and in accordance with all applicable laws. All such tax returns are correct and complete in all material respects. All taxes owed by the Company and any of its subsidiaries (whether or not shown on any tax return) have been paid (excluding any taxes owed but not yet due). There are no Liens on any of the assets of the Company or any of its subsidiaries that arose in connection with any failure (or alleged failure) to pay any tax. (ii) The Company and each of its subsidiaries has withheld and timely paid all taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party. (iii) To the knowledge of the Company, there is no potential assessment by a taxing authority of any additional taxes against the Company or any of its subsidiaries for any period for which tax returns have been filed. Except as set 18 23 forth in Section 4.1 (l) (iii) of the Disclosure Schedule no dispute or claim concerning any tax liability of the Company or any of its subsidiaries has been proposed or claimed in writing by any authority. The Company has provided Parent with a list of all Federal, state, local, and foreign income tax returns filed with respect to the Company and any of its subsidiaries for taxable periods ended on or after December 31, 1994, indicating those tax returns that have been audited, and indicating those tax returns that currently are the subject of audit. The Company has provided Parent with correct and complete copies of all its Federal income tax returns, and examination reports, and statements of deficiencies assessed against or agreed to by the Company and any of its subsidiaries since December 31, 1994. (iv) Neither the Company nor any of its subsidiaries has waived any statute of limitations in respect of taxes or agreed to any extension of time with respect to a tax assessment or deficiency. (v) Neither the Company nor any of its subsidiaries has filed a consent pursuant to Section 341(f) of the Code concerning collapsible corporations. Except as set forth on Section 4.1(l)(v) of the Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to any tax allocation or sharing agreement. Neither the Company nor any of its subsidiaries has any liability for the taxes of any person (other than the Company and any of its subsidiaries that is currently a member of the Company's affiliated group filing a consolidated federal income tax return) under Treas. Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. (vi) As of the date of the most recent financial statements included in the Company Filed SEC Documents, the unpaid taxes of the Company and its subsidiaries did not exceed the reserve for taxes (rather than any reserve for deferred taxes established to reflect timing differences between book and tax income) established in such financial statements. (vii) Neither the Company nor any of its subsidiaries is required to include in income any adjustment pursuant to Section 481(a) of the Code (or similar provisions of other law or regulations) in its current or in any future taxable period by reason of a change in accounting method; nor does the Company or any of its subsidiaries have any knowledge that the Internal Revenue Service (or other taxing authority) has proposed or is considering proposing, any such change in accounting method. Except as set forth on Section 4.1(l)(vii) of the Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to any agreement, contract, or arrangement that, individually or collectively, could give rise to the payment of any amount (whether in cash or property, including Company Stock) that would not be deductible pursuant to the terms of Sections 162(a)(1), 162(m), 162(n) or 280G of the Code. 19 24 (viii) The Company qualifies as an insurance company under the Code and the Company has received no notice or other communication relating to or affecting such qualification of the Company as an insurance company. (ix) Section 4.1(l)(ix) of the Disclosure Schedule contains a list of all states, territories and jurisdictions (foreign or domestic) to which any tax is properly payable by the Company. No claim has ever been made by any taxing authority in a jurisdiction in which the Company does not file tax returns that it is or may be subject to tax in that jurisdiction. (m) State Takeover Statutes. The Board of Directors of the Company has approved the Offer, the Merger, this Agreement, and the transactions contemplated hereby and thereby, and such approval is sufficient to render inapplicable to the Offer, the Merger, this Agreement, and the transactions contemplated hereby or thereby, the provisions of Section 203 of Delaware Law. To the best of the Company's knowledge, no other "fair price", "moratorium", "control share acquisition", or other anti-takeover statute or similar statute or regulation, applies or purports to apply to the Offer, the Merger, the Shareholder Option Agreement, this Agreement, the Stock Option Agreement or any of the transactions contemplated hereby or thereby. (n) Brokers; Schedule of Fees and Expenses. No broker, investment banker, financial advisor or other person, other than Advest, the fees and expenses of which will be paid by the Company (and a copy of whose engagement letter and a calculation of the fees that would be due thereunder has been provided to Parent), is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or any of its subsidiaries. No such engagement letter obligates the Company to continue to use the services or pay fees or expenses in connection with any future transaction. (o) Licenses and Permits; Agents. (i) Except as set forth in Section 4.1(o)(i) of the Disclosure Schedule, the Company and its subsidiaries have all governmental licenses, permits and authorizations (other than those relating to the writing of insurance which are covered by the next sentence) necessary to carry on the Business now being conducted by the Company and its subsidiaries (collectively, the "Permits"), all of which are valid and in full force and effect, except for such Permits the absence of which, individually or in the aggregate, would not have a Material Adverse Effect. The Company and its subsidiaries have been, and are, in compliance in all material respects with all applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or orders of any Governmental Entity, except for such non-compliance which, individually or in the aggregate would not have a Material Adverse Effect, and neither the Company nor any of its subsidiaries has received any notice from any Governmental Entity or any other person that either the Company or any of its subsidiaries is in violation of, or has violated, any 20 25 applicable statutes, laws, ordinances, regulations, rules, judgments, decrees or orders. Section 4.1(o)(i) of the Disclosure Schedule lists all jurisdictions in which the Company is licensed, authorized or permitted to write insurance or reinsurance. The Company has been duly authorized by the relevant state, foreign and other insurance regulatory authorities to write the lines of insurance or reinsurance that it is currently writing in the respective jurisdictions in which it does business. Except as set forth in Section 4.1(o)(i) of the Disclosure Schedule, the Company does not conduct any business or underwrite reinsurance in any foreign jurisdiction which requires any license or approval for the Company to conduct its business as currently conducted. No insurance regulator in any state has notified the Company, orally or in writing, that the Company is commercially domiciled in any jurisdiction, and the Company is not aware of any facts that would result in the Company being commercially domiciled in any state. The insurance licenses listed in Section 4.1(o)(i) of the Disclosure Schedule are the licenses necessary for the Company to conduct the business in the manner and in the areas in which such business is currently being conducted except where the failure to be so licensed would not, individually or in the aggregate, have a Material Adverse Effect, and all of the insurance licenses are valid and in full force and effect. The Company has not received any notice, oral or written, that it has, and to its knowledge it has not, engaged in any activity which would cause modification, limitation, non-renewal, revocation or suspension of any insurance license or permit, and no action, inquiry, investigation or proceeding looking to or contemplating the revocation, modification, limitation, non-renewal or suspension of any thereof is pending or threatened. Except as set forth in Section 4.1(o)(i) of the Disclosure Schedule, (i) all reports, statements, documents, registrations, filings and submissions to state insurance regulatory authorities complied in all respects with applicable law in effect when filed and (ii) no deficiencies have been asserted by any such regulatory authority with respect to such reports, statements, documents, registrations, filings or submissions that have not been satisfied except to the extent that any failure to file such items or such deficiencies would not, individually or in the aggregate, result in a Material Adverse Effect. (ii) To the best of the Company's knowledge, all Persons through whom the Company has placed or sold reinsurance and insurance are duly licensed (to the extent such licensing is required) to sell or place insurance and reinsurance in the jurisdiction where they do so on behalf of the Company. Except as set forth in Section 4.1(o)(ii) of the Disclosure Schedule, no single agent, broker, intermediary or producer generated more than $500,000 of the aggregate gross written premium of the Company during the years ended December 31, 1997 or December 31, 1998 or the period ending August 31, 1999. Except as otherwise set forth in Section 4.1(o)(ii) of the Disclosure Schedule, no Person listed on Section 4.1(o)(ii) of the Disclosure Schedule has given or been given written notice of termination or, to the knowledge of the Company, threatened or been threatened with termination, or threatened or been threatened with a substantial reduction in the amount of premiums to be written by such Person on behalf of the Company. Except as set forth in Section 4.1(o)(ii) of the 21 26 Disclosure Schedule, the Company is not a party to any managing general agency contracts or other similar arrangements. Except as set forth in Section 4.1(o)(ii) of the Disclosure Schedule, the Company is not a party to any fronting or similar agreement to place or sell reinsurance or insurance for any other Person. (p) Contracts; Debt Instruments; Leases. (i) Except as otherwise disclosed in Section 4.1(p)(i)(A)-4.1(p)(i)(F) of the Disclosure Schedule, neither the Company nor any of its subsidiaries is a party to or subject to: (A) any union contract, or any employment, consulting, severance, termination, or indemnification agreement, contract or arrangement providing for future payments, written or oral, with any current or former officer, consultant, director or employee which (1) exceeds $25,000 per annum or (2) requires aggregate annual payments or total payments over the life of such agreement, contract or arrangement to such current or former officer, consultant, director or employee in excess of $25,000 or $50,000, respectively, and is not terminable by it or its subsidiary on 30 days' notice or less without penalty or obligation to make payments related to such termination; (B) any joint venture contract or arrangement or any other agreement which has involved or is expected to involve a sharing of revenues of $50,000 per annum or more with other persons; (C) any lease for real or personal property; (D) any material agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment which has not been terminated or performed in its entirety and not renewed which may be, by its terms, terminated, impaired or adversely affected by reason of the execution of this Agreement, the closing of the Offer or the Merger, or the consummation of the transactions contemplated hereby; (E) any agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment that materially limits the freedom of the Company or any subsidiary of the Company to compete in any line of business or with any person or in any geographic area or which would so materially limit the freedom of the Company or any subsidiary of the Company after the Effective Time; or (F) any other agreement, contract, policy, license, Permit, document, instrument, arrangement or commitment not made in the ordinary course of business which is material to the Company or any of its subsidiaries. 22 27 (ii) All contracts, policies, agreements, leases, licenses, Permits, documents, instruments, arrangements and other commitments listed in Section 4.1(p)(i)(A)-4.1(p)(i)(F) and Section 4.1(p)(iv) of the Disclosure Schedule or otherwise disclosed in the Company Filed SEC Documents are valid and binding agreements of the Company or a subsidiary of the Company and are in full force and effect, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law and neither the Company, any of its subsidiaries nor, to the knowledge of the Company, any other party thereto, is in default in any material respect under the terms of any such contract, plan, arrangement, agreement, lease, license, Permit, instrument or other commitment. (iii) Neither the Company nor any subsidiary of the Company is in default in any material respect under the terms of any exclusive license or distribution agreement or arrangement, true and complete copies or descriptions of all of which have been delivered to Parent. To the knowledge of the Company, none of the parties to any of the contracts identified pursuant to the immediately proceeding sentence, in Section 4.1(p)(i)(A)-4.1(p)(i)(F) of the Disclosure Schedule or otherwise disclosed in the Company Filed SEC Documents has terminated, or in any way expressed an intent to materially reduce or terminate the amount of, its business with the Company or any of its subsidiaries in the future. (iv) Set forth in Section 4.1(p)(iv) of the Disclosure Schedule is (A) a list of all loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments pursuant to which any indebtedness of the Company or any of its subsidiaries in an aggregate principal amount in excess of $100,000 is outstanding or may be incurred and (B) the respective principal amounts currently outstanding thereunder. For purposes of this Section 4.1(p)(iv), "indebtedness" shall mean, with respect to any person, without duplication, (A) all obligations of such person for borrowed money, or with respect to deposits or advances of any kind to such person, (B) all obligations of such person evidenced by bonds, debentures, notes or similar instruments, (C) all obligations of such person upon which interest charges are customarily paid, (D) all obligations of such person under conditional sale or other title retention agreements relating to property purchased by such person, (E) all obligations of such person issued or assumed as the deferred purchase price of property or services (excluding obligations of such person to creditors for raw materials, inventory, services and supplies incurred in the ordinary course of such person's business), (F) all capitalized lease obligations of such person, (G) all obligations of others secured by any Lien on property or assets owned or acquired by such person, whether or not the obligations secured thereby have been assumed, (H) all obligations of such person under interest rate or currency swap transactions (valued at the termination value thereof), (I) all letters of credit issued for the account of such person (excluding letters of credit issued for the benefit of suppliers to support accounts payable 23 28 to suppliers incurred in the ordinary course of business), (J) all obligations of such person to purchase securities (or other property) which arises out of or in connection with the sale of the same or substantially similar securities or property, and (K) all guarantees and arrangements having the economic effect of a guarantee of such person of any indebtedness of any other person. (v) All equipment, fixtures and other Properties owned or leased by the Company (including those listed in the Company's Depreciation Ledger in Section 4.1(p)(v) of the Disclosure Schedule) are (i) in good operating condition and repair, reasonable wear and tear excepted, and (ii) adequate for the Business currently conducted by the Company and suitable in all respects for the purposes for which they are being used, except for such failures to be in such good operating condition or adequacy or suitability which, individually and in the aggregate, do not have a Material Adverse Effect. (q) Opinion of Financial Advisor. The Company has received the opinion of Advest, dated the date hereof, a copy of which has been or, within two business days of the date hereof, will be provided to Parent, to the effect that, as of such date, the consideration to be paid in the Offer and the Merger is fair to the Company's shareholders from a financial point of view. (r) Interests of Officers and Directors. None of the Company's or any of its subsidiaries' officers or directors has any interest in any property, real or personal, tangible or intangible, including inventions, patents, copyrights, trademarks, trade names, trade secrets or know-how, used in or pertaining to the business of the Company or that of its subsidiaries, or any supplier, distributor or customer of the Company or any of its subsidiaries, except for the normal rights of a shareholder and rights under existing employee Benefit Plans and Stock Plans. (s) Technology. (i) Except as set forth in Section 4.1(s) of the Disclosure Schedule, the Company exclusively owns, or is licensed to use, the rights to all patents, trademarks, trade names, service marks, copyrights and any applications therefor, technology, trade secrets, know-how, computer software programs or applications and tangible or intangible proprietary information or material that in any material respect are used or proposed to be used in the business of the Company and any of its subsidiaries as currently conducted or proposed to be conducted (the "Company Intellectual Property Rights"). Section 4.1(s) of the Disclosure Schedule lists: (A) all patents, registered trademarks, trade names, registered service marks, registered copyrights, and any applications therefor included in the Company Intellectual Property Rights; and (B) all material licenses and other agreements to which the Company or any of its subsidiaries is a party and pursuant to which the Company or any of its subsidiaries is authorized to use any Company Intellectual Property Right, and includes the identities of the parties thereto, a description of the nature and subject matter thereof, the applicable 24 29 royalty and the term thereof. Neither the Company nor any of its subsidiaries is, or as a result of the execution, delivery or performance of the Company's obligations hereunder will be, in violation of, or lose any rights pursuant to, any material license or agreement described in Section 4.1(s) of the Disclosure Schedule. (ii) No claims with respect to the Company Intellectual Property Rights have been asserted in writing or, to the knowledge of the Company, are threatened by any person nor does the Company or any subsidiary of the Company know of any valid grounds for any bona fide claims (A) to the effect that the manufacture, sale or use of any product or process as now used or offered or proposed for use or sale by the Company or any subsidiary of the Company infringes on any United States copyright, trade secret, United States patent or other United States intellectual property right of any person, (B) against the use by the Company or any subsidiary of the Company of any Company Intellectual Property Rights, or (C) challenging the ownership, validity or effectiveness of any of the Company Intellectual Property Rights. All granted and issued patents and all registered trademarks and service marks listed in Section 4.1(s) of the Disclosure Schedule and all registered copyrights held by the Company or any of its subsidiaries are valid, enforceable and subsisting. To the Company's knowledge, there has not been and there is not any material unauthorized use, infringement or misappropriation of any of the Company Intellectual Property Rights by any third party, employee or former employee. (t) Change of Control. Except as disclosed in Section 4.1(t) of the Disclosure Schedule, the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby and thereby will not (i) result in any payment (including severance, unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any current or former director, employee or independent contractor of the Company or any of its subsidiaries, from the Company or any of its subsidiaries under any Stock Plan, Benefit Plan, agreement or otherwise, (ii) materially increase any benefits otherwise payable under any Stock Plan, Benefit Plan, agreement or otherwise or (iii) result in the acceleration of the time of payment, exercise or vesting of any such benefits, in each case, that could reasonably be expected to have a Material Adverse Effect. (u) Environmental. Except as set forth in Section 4.1(u) of the Disclosure Schedule, (i) the businesses as presently or formerly engaged in by the Company and its subsidiaries are and have been conducted in compliance in all material respects with all applicable Environmental Laws (defined below), including having all permits, licenses and other approvals and authorizations, during the time the Company (or such subsidiary) engaged in such businesses, (ii) to the knowledge of the Company, the properties presently owned or operated by the Company or any subsidiary of the Company (including soil, groundwater or surface water on, under or adjacent to the properties, and buildings thereon) ("Company Properties") do not contain any Hazardous Substance (defined below) other than as permitted under applicable Environmental Laws, 25 30 (iii) neither the Company nor any subsidiary of the Company has received any notices, demand letters or requests for information from any federal, state, local or foreign governmental entity or any third party indicating that the Company or any subsidiary of the Company may be in violation of, or liable under, any Environmental Law in connection with the ownership or operation of the Company's or any of its subsidiaries' businesses, (iv) there are no civil, criminal or administrative actions, suits, demands, claims, hearings, investigations or proceedings pending or to the knowledge of the Company, threatened against the Company or any subsidiary of the Company with respect to the Company or any subsidiary of the Company or the Company Properties relating to any violation, or alleged violation, of any Environmental Law, (v) to the knowledge of the Company, no reports have been filed, or are required to be filed, by the Company or any subsidiary of the Company concerning the release of any Hazardous Substance or the threatened or actual violation of any Environmental Law on or at Company Properties, (vi) to the knowledge of the Company, no Hazardous Substance has been disposed of, transferred, released or transported from any Company Property during the time such Company Property was owned or operated by the Company or any subsidiary of the Company, other than as permitted under applicable Environmental Law, (vii) to the knowledge of the Company, there have been no environmental investigations, studies, audits, tests, reviews or other analyses conducted by or which are in the possession of the Company or any subsidiary of the Company relating to the Company or any subsidiary of the Company or the Company Properties which have not been delivered to Parent prior to the date hereof, (viii) to the knowledge of the Company, there are no underground storage tanks on, in or under any of the Company Properties and no underground storage tanks have been closed or removed from any Company Properties while such Company Property was in the ownership of the Company or any subsidiary of the Company, (ix) to the knowledge of the Company, there is no asbestos present in any Company Property presently owned or operated by the Company or any subsidiary of the Company in violation of any Environmental Law, and no asbestos has been removed from any Company Property while such Company Property was owned or operated by the Company or any subsidiary of the Company, (x) none of the Company Properties has been used at any time by the Company or any subsidiary of the Company as a sanitary landfill or hazardous waste disposal site, and (xi) neither the Company nor any subsidiary of the Company has incurred, and to the knowledge of the Company, none of the Company Properties are presently subject to, any liabilities (fixed or contingent) relating to any suit, settlement, court order, administrative order, judgment or claim asserted or arising under any Environmental Law. "Environmental Law" means (i) any federal, state, foreign and local law, statute, ordinance, rule, regulation, code, license, permit, authorization, approval, order, judgment, decree, injunction, requirement or agreement with any governmental entity, (A) relating to the protection, preservation or restoration of the environment (including air, water vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource), or to human health or safety or (B) relating to the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of, Hazardous Substances, in each case as amended and as now or hereafter in effect and 26 31 (ii) any common law or equitable doctrine (including injunctive relief) that may impose liability or obligations for injuries or damages due to, or threatened as a result of, the presence of or exposure to any Hazardous Substance. "Hazardous Substance" means any substance presently listed, defined, designated or classified as hazardous, toxic, radioactive or dangerous, or otherwise regulated, under any Environmental Law, whether by type or by quantity, including any substance containing any such substance as a component. The term "Hazardous Substance" includes any toxic waste, pollutant, contaminant, hazardous substance, toxic substance, hazardous waste, special waste, or petroleum or any derivative or by-product thereof, radon, radioactive material, asbestos, asbestos containing material, urea formaldehyde foam insulation, lead and polychlorinated biphenyl. (v) Title to Properties. Except as set forth in Section 4.1(v) of the Disclosure Schedule, (i) each of the Company and its subsidiaries has good and marketable or indefeasible title to, or valid leasehold interests in, all its properties and assets, free and clear of all Liens, except for defects in title, easements, restrictive covenants and similar encumbrances or impediments that, in the aggregate, do not and will not materially interfere with the use of the properties or assets subject thereto or affected thereby or otherwise materially impair business operations at such properties; (ii) each of the Company and each of its subsidiaries has complied in all material respects with the terms of all leases to which it is a party and under which it is in occupancy, and all such leases are in full force and effect and each of the Company and each of its subsidiaries enjoys peaceful and undisturbed possession under all such leases; (iii) all royalties, rentals, and other payments due with respect to the Company's its subsidiaries' leasehold or other property interests have been properly and timely paid, except (A) for payments which will not result in grounds for cancellation of the Company's or its subsidiaries' rights and (B) such failures as would not have a Material Adverse Effect; and (iv) neither the Company nor any of its subsidiaries is in default (and there exists no event or circumstance which with notice or the passage of time or both could constitute a default by the Company or its subsidiaries) under the terms of any leases, or other contracts or agreements respecting the Company's or its subsidiaries' which could (A) interfere in any material respect with the operation or use thereof, (B) prevent the Company or its subsidiaries from receiving the proceeds attributable to their interest therein, (C) result in cancellation of the Company's interest therein, or (D) impair the value of the Company's or its subsidiaries' interest therein. (w) Other Obligations. 27 32 (i) except as disclosed in Section 4.1(w) of the Disclosure Schedule, none of the Company and its subsidiaries engages in any futures or options trading or is a party to any related price swaps, hedges, futures or similar instruments. Section 4.1(w) of the Disclosure Schedule discloses a true and correct statement of the position, as of the date hereof, of the Company and its subsidiaries with respect to obligations under Fixed Price Contracts (including, with respect to each Fixed Price Contract, location of delivery and variations in the obligation to take or deliver) and price swaps, hedges, futures or similar instruments to which the Company or any of its subsidiaries is a party and that are material to the Company. "Fixed Price Contracts" shall mean any contracts, commitments or agreements (x) having a remaining term of more than sixty (60) days, wherein the purchase or sale price thereunder throughout part of the remaining life of such contract, commitment or agreement is a fixed amount or an amount that is otherwise reasonably determinable as of the date hereof pursuant to the terms of such contract, commitment or agreement, or (y) which has been hedged with futures contracts or otherwise. (ii) neither the Company nor any of its subsidiaries has entered into, or is a party to, or has any obligations under, any contract for property or services that require payment to be made by the Company or its subsidiaries regardless of whether or not delivery is ever made of such property or services. (x) Public Utility Holding Company Act; Non-Utility Status. Except as set forth in Section 4.1(x) of the Disclosure Schedule, (i) neither the Company nor any of its subsidiaries is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" as such terms are defined in the Public Utility Holding Company Act of 1935, as amended; (ii) neither the Company nor any of its subsidiaries is a regulated utility under the laws of any state; (iii) no claim or complaint to the effect that the Company or any of its subsidiaries is a regulated utility under the laws of any state has been made to the Company or any of its subsidiaries or by or, to the knowledge of the Company, to any public utilities commission of any state; and (iv) neither the Company nor any of its subsidiaries has offered pipeline service or gas transportation services to the general public or to any significant segment thereof or has dedicated its pipelines or related facilities in any manner to public use. (y) Year 2000. To the knowledge of the Company after due inquiry except as disclosed in Section 4.1(y) of the Disclosure Schedule, all of the MIS Systems (other than immaterial systems) and the Facilities (other than immaterial Facilities) are, or prior to November 1, 1999 will be, Year 2000 Compliant. The Company has made inquiries of all material vendors of products or services to the Company and its subsidiaries as to whether those vendors will continue to furnish their products or services to the Company and its subsidiaries without interruption or material delay, on and after January 1, 2000, and as to whether such products and services are Year 2000 compliant. Section 4.1(y) of the Disclosure Schedule sets forth a list of all vendor and supplier Year 2000 inquiry responses received by the Company. "Year 2000 Compliant" means that (i) the MIS Systems accurately process, provide and/or receive all date/time data (including 28 33 calculating, comparing, sequencing, processing and outputting) within, from, into, and between centuries (including the twentieth and twenty-first centuries and the years 1999 and 2000), including leap year calculations, and (ii) neither the Company's or any of its subsidiaries' provision of their products and services nor the performance on functionality of those products and services will be materially adversely impacted by the transition from the twentieth to the twenty-first century. "Facilities" means any facilities or equipment used by the Company or any of its subsidiaries in any location, including HVAC systems, mechanical systems, elevators, security systems, fire suppression systems, telecommunications systems, fax machines, copy machines, and equipment, whether or not owned by the Company or any of its subsidiaries. "MIS Systems" means any computer software and systems (including hardware, firmware, operating system software, utilities software and applications software) used in the ordinary course of business by or on behalf of the Company or any of its subsidiaries, including in conjunction with the Company's or any of its subsidiaries' payroll, accounting, billing/receivables, inventory, asset tracking, customer service, human resources, and e-mail systems. (z) Insurance. Schedule 4.1(z) of the Disclosure Schedule contains a true and complete list of all insurance policies held by either the Company or any of its subsidiaries. All such policies held by the Company or its subsidiaries, are in full force and effect and all related premiums have been paid to date. There are no pending or to the knowledge of the Company, threatened disputes or communications with or from any insurance carrier denying or disputing any claim or regarding cancellation or nonrenewal of any such policy. Since January 1, 1996, the Company has not failed to give any material notice or to present any material claim under any insurance policy or surety bond in due and timely fashion. The Company has given the Parent the most recently available reports for the Company on: (i) accidents, casualties or damages occurring on or to the properties or assets of the Company; and (ii) claims by the Company for damages, reimbursement of losses, contribution or indemnification under any insurance policy and settlements or negotiations of settlements relating thereto, except with respect to claims pursuant to Reinsurance Agreements or Retrocession Arrangements, each as defined herein. (aa) Investments. (i) The Disclosure Schedule sets forth a true and complete list of all bonds, stocks, mortgages and other investments of any type owned by the Company as of the date hereof (collectively, the "Scheduled Investments"). The Company has good and marketable title to each of the Scheduled Investments. (ii) Except as set forth on the Disclosure Schedule, none of the Scheduled Investments is currently in default in the payment of principal or interest, and, to the knowledge of the Company, no event has occurred which reasonably would be expected to result in a diminution of the value of any nonpublicly traded security owned by the Company. 29 34 (iii) There are no Liens on any of the Scheduled Investments, except for (i) those Scheduled Investments deposited with governmental authorities, as indicated on the Disclosure Schedule, (ii) Liens which do not materially detract from the value of the Scheduled Investments subject thereto, and (iii) assets pledged to secure assumed reinsurance contract obligations which assets are listed on the Disclosure Schedule. (iv) The Company has not taken or omitted to take, any action which would result in the Company being unable to enforce the terms of any Scheduled Investment or which would cause any Scheduled Investment to be subject to any valid offset, defense or counterclaim against the right of the Company to enforce the terms of such Scheduled Investment. (v) Except as disclosed on Section 4.1(aa)(v) of the Disclosure Schedule, since December 31, 1998, the Company has not (i) purchased or otherwise invested in, or committed to purchase or otherwise invest in, any interest in real property (including without limitation any extension of credit secured by a mortgage or deed of trust), (ii) purchased or otherwise invested in, or committed to purchase or otherwise invest in, bonds, notes, debentures or other evidences of indebtedness rated lower than "Baa" by Moody's Investors Service Inc. or "BBB" by Standard & Poor's Corporation at the time of purchase, (iii) entered into any contract, agreement or arrangement with any affiliate with respect to the purchase or other acquisition, sale or other disposition or allocation of any Scheduled Investment or (iv) entered into any contract, agreement or arrangement with respect to any foreign investments. (bb) Investment Company. The Company is not an "investment company" within the meaning of the Investment Company Act of 1940. (cc) Internal Controls. The Company maintains a system of internal accounting controls, which it reasonably believes is sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate actions are taken with respect to any differences. (dd) Assumed and Ceded Reinsurance Agreements. (i) As used in this Agreement, the term "Reinsurance Agreements" shall mean all assumed and ceded reinsurance and retrocession agreements, contracts, treaties, or other reinsurance or retrocession commitments, arrangements or undertakings of any kind to which the Company is a party or by which the Company or any of its respective Properties may be bound or affected. 30 35 (ii) Set forth in Section 4.1(dd)(ii) of the Disclosure Schedule is a complete and accurate list of each Reinsurance Agreement pursuant to which the Company has assumed business and which was in force at any time after December 31, 1996 and prior to August 31, 1999, including a description of certain of the terms thereof (including the name of the ceding company, the name of the broker, type of contract, inception date, estimated premium and limit). The Company will deliver to the Parent at the Closing a complete and accurate list of each assumed Reinsurance Agreement in force five Business Days prior to the Closing Date, including information similar to Section 4.1(dd)(ii) of the Disclosure Schedule. (iii) Set forth in Section 4.1(dd)(iii) of the Disclosure Schedule is a complete and accurate list of each Reinsurance Agreement pursuant to which the Company has ceded or transferred any portion of its obligations or liabilities under any reinsurance or insurance agreement (a "Retrocession Arrangement") and which was in force at August 31, 1999, including a description of certain of the terms thereof (including the name of the retrocessionaire, type of contract, inception date, estimated premium and limit). Except as set forth in Section 4.1(dd)(iii) of the Disclosure Schedule, (i) to the knowledge of the Company, none of such retrocessionaires is insolvent or the subject of a rehabilitation, liquidation, conservatorship, receivership, bankruptcy or similar proceeding; (ii) the financial condition of any such retrocessionaires is not impaired to the extent that a default thereunder is reasonably anticipated, (iii) no notice of intended cancellation has been received by the Company from of such retrocessionaires; and (iv) the Company is entitled to take full credit in its Annual Statutory Statements for all amounts recoverable by it pursuant to any Retrocession Arrangement, and all such amounts recoverable have been properly recorded in the books and records of account of the Company and are properly reflected in the Annual Statutory Statements. The Company will deliver to the Parent at the Closing a complete and accurate list of each Retrocession Arrangement in force five Business Days prior to the Closing Date including information similar to Section 4.1(dd)(iii) of the Disclosure Schedule. Except as set forth in Section 4.1 (dd) (iii) of the Disclosure Schedule no such Retrocession Arrangement contains any provision providing that any such party thereto may terminate, cancel, or commute the same by reason of the transactions contemplated by this Agreement. (iv) All of the Reinsurance Agreements and Retrocession Arrangements are valid, binding and enforceable against the Company and, to the best of the knowledge of the Company, against the other parties thereto in accordance with their terms and are in full force and effect. Except as set forth in Section 4.1 (dd) (iv) of the Disclosure Schedule the Company is not, and to the best of the knowledge of the Company, no other party thereto is in, or claimed to be in, material breach or material default under any Reinsurance Agreement and Retrocession Arrangements, and no event has occurred which (after notice or lapse of time or both) would become a material breach or material default under, 31 36 or would permit modification, cancellation, acceleration or termination of, any Reinsurance Agreement and Retrocession Arrangements or result in the creation of any material encumbrance upon, or result in any Person obtaining any right to acquire, any Properties, assets or rights of the Company. Except as set forth in Section 4.1 (dd) (iv) of the Disclosure Schedule there are no unresolved disputes under any Reinsurance Agreement or Retrocession Arrangements. (ee) Accounts with Financial Institutions. Section 4.1(ee) of the Disclosure Schedule sets forth a list of all safe deposit boxes, active bank accounts and other time or demand deposits of the Company, together with names and addresses of the applicable financial institution or other depository, the account number and the names of all persons authorized to draw thereon or who have access thereto. (ff) Minute Books; Stock Books; Officers and Directors. The minute books of the Company which have been made available to the Parent for its inspection contain true and complete records of all meetings and consents in lieu of meetings of the Board of Directors (and any committee hereof) of the Company and its shareholders since incorporation and accurately reflect all transactions referred to in such minutes and consents in lieu of meetings. Attached as Section 4.1(ff) of the Disclosure Schedule is a true and correct list of the officers and directors of the Company and each of its subsidiaries as of the date of this Agreement. (gg) Continuing Business Relationships. Except as set forth in Section 4.1(gg) of the Disclosure Schedule as of the date of this Agreement, to the knowledge of the Company, no insured, reinsured, retrocedent or retrocessionaire of the Company or the Parent has informed the Company and the Company has no knowledge that any such party may cease to do business or materially adversely change its volume of business with the Company after the consummation of the transactions contemplated hereby. (hh) Insurance Reserves. (i) The Company's reserves as of December 31, 1998 and each subsequent date on which such reserves may have been redetermined (a) were determined in accordance with SAP; (b) were computed in accordance with generally accepted loss reserve standards and principles; (c) met the requirements of all Governmental Authorities, including all insurance regulatory agencies having authority over the Company; and (d) made reasonable provision, in the aggregate, for all unpaid loss and loss expense obligations, including obligations for incurred but not reported loss and loss adjustment expenses and unearned premiums as of the dates referenced therein. The Company owns assets that qualify as admitted assets under the insurance regulatory requirements of each jurisdiction in which the Company is subject in an amount at least equal to the reserves plus the minimum statutory capital and surplus as required under such insurance regulatory authorities. 32 37 (ii) The Company has delivered or made available to the Parent true and complete copies of all actuarial reports, actuarial certificates on loss and loss adjustment expense reserve reports prepared by or on behalf of the Company and any other report prepared by any third party actuarial consultant on behalf of or made available to the Company or any of its affiliates, in each case relating to the adequacy of the reserves for any period ending on or after December 31, 1995. (ii) Disclosure. No representation or warranty of the Company contained in this Agreement, and no statement contained in the Disclosure Schedule or in any certificate, schedule, annex, list or other writing furnished to the Parent, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statement contained herein or therein, in light of the circumstances under which they were made, not misleading. Section 4.2 Representations and Warranties of Parent and Merger Subsidiary. Parent and Merger Subsidiary represent and warrant to the Company as follows: (a) Organization, Standing and Corporate Power. Each of Parent and Merger Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as now being conducted. (b) Authority; Noncontravention. Parent and Merger Subsidiary have all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement and the consummation of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of Parent and Merger Subsidiary. This Agreement has been duly executed and delivered by Parent and Merger Subsidiary and, assuming this Agreement constitutes a valid and binding agreement of the Company, constitutes a valid and binding obligation of such party, enforceable against such party in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting the enforcement of creditors' rights generally and by general principles of equity, regardless of whether such enforceability is considered in a proceeding in equity or at law. The execution and delivery of this Agreement does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of Parent or any of its subsidiaries under, (i) the certificate of incorporation or By-Laws of Parent or Merger Subsidiary or the comparable charter or organizational documents of any other subsidiary of Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to Parent or Merger Subsidiary or their respective properties or assets or (iii) subject to the governmental filings and other matters referred to in the 33 38 following sentence, any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Parent, Merger Subsidiary or any other subsidiary of Parent or their respective properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (A) have a Material Adverse Effect on Parent or any of its subsidiaries, (B) impair the ability of Parent and Merger Subsidiary to perform their respective obligations under this Agreement or (C) prevent the consummation of any of the transactions contemplated by this Agreement. No Consent is required by or with respect to Parent, Merger Subsidiary or any other subsidiary of Parent in connection with the execution and delivery of this Agreement or the consummation by Parent or Merger Subsidiary, as the case may be, of any of the transactions contemplated by this Agreement, except for (i) the filing of a certificate of merger in accordance with Delaware Law and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, (ii) the filing of a premerger notification and report form under the HSR Act, (iii) compliance with any applicable requirements of the Exchange Act, (iv) such notices, filings and consents as may be required under relevant state property transfer or environmental laws, (v) filing with the insurance regulatory agencies set forth in Section 4.1(d) of the Disclosure Schedule, and (vi) such other consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under the laws of any foreign country in which the Company or any of its subsidiaries conducts any business or owns any property or assets. (c) Disclosure Documents. (i) The information with respect to Parent and its subsidiaries that Parent furnishes to the Company in writing specifically for use in any Company Disclosure Document will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading (A) in the case of the Company Proxy Statement at the time the Company Proxy Statement or any amendment or supplement thereto is first mailed to shareholders of the Company, at the time the shareholders vote on adoption of this Agreement and at the Effective Time, and (B) in the case of any Company Disclosure Document other than the Company Proxy Statement, at the time of the filing thereof and at the time of any distribution thereof. (ii) The Offer Documents, when filed, will comply as to form in all material respects with the applicable requirements of the Exchange Act and will not at the time of the filing thereof, at the time of any distribution thereof or at the time of consummation of the Offer, contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, provided, however, that this representation and warranty will not apply to statements or omissions in the Offer Documents based upon information furnished to Parent or Merger Subsidiary in writing by the Company specifically for use therein. 34 39 (d) Financing. At the Effective Time, Parent and Merger Subsidiary will have available all funds necessary (i) to satisfy their respective obligations under this Agreement, and (ii) to pay all the related fees and expenses in connection with the foregoing. ARTICLE 5 COVENANTS OF THE COMPANY The Company agrees that: Section 5.1 Conduct of Business. During the period from the date of this Agreement to the Effective Time, the Company shall, and shall cause its subsidiaries to, carry on their respective businesses in the ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use all commercially reasonable efforts to preserve intact their current business organizations, keep available the services of their current officers and employees and preserve their relationships with customers, suppliers, licensors, licensees, distributors and others having business dealings with them to the end that their goodwill and ongoing business shall be unimpaired at the Effective Time. The Company will (i) comply in all material respects with all laws, statutes, ordinances, rules and regulations applicable to the Company, (ii) take all commercially reasonable steps to preserve the current relationships of the Company with its brokers, reinsurance intermediaries, ceding companies, reinsurers, agents, managing general agents, suppliers and other persons with which the Company has significant business relationships, and (iii) perform its obligations under all Reinsurance Agreements, Contracts and commitments to which it is a party or by or to which it is bound or subject; and (iv) require the Company's Accountants to conduct an interim quarterly review with a written report of the Company's Form 10-Q filing for the period ended September 30, 1999, in accordance with generally accepted auditing standards. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Effective Time, the Company shall not, and shall not permit any of its subsidiaries to, without the prior written approval of Parent: (a) (i) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, other than dividends and distributions by any direct or indirect wholly owned subsidiary of the Company to its parent, (ii) split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any of its subsidiaries or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities (other than in connection with the exercise of Company Options); (b) issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities (other than the issuance of Shares upon the exercise of Company Options); 35 40 (c) amend its certificate of incorporation, by-laws or other comparable charter or organizational documents; (d) acquire or agree to acquire (including, without limitation, by merger, consolidation or acquisitions of stock or assets) any business, including through the acquisition of any interest in any corporation, partnership, limited liability company, joint venture, association or other business organization or division thereof; (e) mortgage or otherwise encumber or subject to any Lien or, except in the ordinary course of business consistent with past practice and pursuant to existing contracts or commitments, sell, lease, license, transfer or otherwise dispose of any of the Company Intellectual Property Rights or any other material properties or assets; (f) make or agree to make any new capital expenditures in excess of $100,000; (g) make any material tax election (unless required by law) or settle or compromise any material income tax liability; (h) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), or settle any lawsuit other than the payment, discharge, satisfaction or settlement, in the ordinary course of business consistent with past practice and in accordance with their terms and in an amount not to exceed $25,000, or waive the benefits of, or agree to modify in any manner, any confidentiality, standstill or similar agreement to which the Company or any of its subsidiaries is a party; (i) commence a lawsuit other than (i) for the routine collection of bills or (ii) in such cases where the Company in good faith determines that the failure to commence suit would result in a material impairment of a valuable aspect of the Company's business, provided that the Company consults with Parent prior to filing such suit; (j) (i) hire any permanent employee or any other employee whose employment cannot be terminated at will without further payment or enter into or amend any employment or severance agreement or similar arrangements, (ii) make any determination as to amounts payable under any plan, arrangement, or agreement, providing for discretionary incentive compensation or bonus to any officer, director, employee or independent contractor of the Company or any of its subsidiaries, (iii) enter into, adopt, or amend (except as required by Sections 2.5 and 5.9) any agreement, arrangement, or Benefit Plan so as to increase the liability (whether or not contingent) of the Company or the Parent or any of their subsidiaries or ERISA affiliates in respect of compensation or benefits except as may be required by law, or (iv) grant any options or increase any employee or director compensation; 36 41 (k) amend, commute, terminate or waive any of its rights under any Reinsurance Agreement pursuant to which the Company has ceded or transferred any of its obligations or liabilities. (l) conclude any negotiations relating to outstanding issues arising from the Eureko/VASA purchase or the Folksamerica/USF RE sale. (m) make any material changes in their investment portfolio or investment guidelines. (n) authorize any of, or commit or agree to take any of, the foregoing actions; or (o) (i) take or agree or commit to take any action that would make any representation or warranty of the Company hereunder inaccurate in any material respect at, or as of any time prior to, the Effective Time or (ii) omit or agree or commit to omit to take any action necessary to prevent any such representation or warranty from being inaccurate in any material respect at any such time. Section 5.2 Shareholder Meeting; Proxy Material. The Company shall cause a meeting of its shareholders (the "Company Shareholder Meeting") to be duly called and held as soon as reasonably practicable following Merger Subsidiary's acquisition of Shares in the Offer for the purpose of voting on the approval and adoption of this Agreement and the Merger unless a vote of shareholders of the Company is not required by Delaware Law. The Directors of the Company shall, subject to their fiduciary duties as advised in writing by Gibson, Dunn & Crutcher LLP, counsel to the Company, recommend approval and adoption of this Agreement and the Merger by the Company's shareholders. In connection with such meeting, the Company (i) will promptly prepare and file with the SEC, will use its best efforts to have cleared by the SEC and will thereafter mail to its shareholders as promptly as practicable the Company Proxy Statement and all other proxy materials for such meeting, (ii) subject to the fiduciary duties of the Board of Directors of the Company as advised in writing by Gibson, Dunn & Crutcher LLP, counsel to the Company, will use its best efforts to obtain the necessary approvals by its shareholders of this Agreement and the transactions contemplated hereby and (iii) will otherwise comply with all legal requirements applicable to such meeting. The Company, Parent and Merger Subsidiary, as the case may be, shall promptly prepare and file any other filings required under the Exchange Act or any other federal or state securities or corporate laws relating to the Merger and the transactions contemplated herein (the "Other Filings"). Each of the parties hereto shall notify the other parties hereto promptly of the receipt by it of any comments from the SEC or its Staff and of any request of the SEC for amendments or supplements to the Company Proxy Statement or by the SEC or any other governmental officials with respect to any Other Filings or for additional information and will supply the other parties hereto with copies of all correspondence between it and its representatives, on the one hand, and the SEC or the members of its Staff or any other governmental officials, on the other hand, with respect to the Company Proxy Statement, any Other Filings or the Merger. The Company, Parent and Merger Subsidiary each shall use all reasonable efforts to obtain and furnish the information required to be included in the Company Proxy Statement or any Other Filings. If at any time prior to the time of 37 42 approval of this Agreement and the Merger by the Company's shareholders there shall occur any event that should be set forth in an amendment or supplement to the Company Proxy Statement, the Company shall promptly prepare and mail to its shareholders such amendment or supplement. The Company shall not mail the Company Proxy Statement or, except as required by the Exchange Act or the rules and regulations promulgated thereunder, any amendment or supplement thereto to its shareholders to which Parent reasonably objects. At the Company Shareholder Meeting, Parent, the Merger Subsidiary and their respective affiliates will vote all Shares owned by them in favor of approval and adoption of this Agreement, the Merger and the transactions contemplated hereby and thereby. Notwithstanding the foregoing, in the event that Parent and Merger Subsidiary shall acquire at least 90% of the outstanding Shares pursuant to the Offer or otherwise, the parties hereto agree, at the request of Parent and Merger Subsidiary, to take all necessary and appropriate action to cause the Merger to become effective in accordance with Section 253 of the DGCL, as soon as reasonably practicable after such acquisition and the satisfaction or waiver of the conditions of this Agreement, without a meeting of the shareholders of the Company. Section 5.3 Access to Information. (a) From the date hereof until the Effective Time, the Company shall, and shall cause each of its subsidiaries to, give Parent, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours and upon reasonable notice) to the offices, properties, books and records of the Company and the subsidiaries, will furnish to Parent, its counsel, financial advisors, auditors and other authorized representatives all their respective properties, books, contracts, commitments, personnel and records and, during such period, the Company shall, and shall cause each of its subsidiaries to, furnish (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of Federal or state securities laws, (ii) a copy of each tax return, report and information statement filed by it during such period, and (iii) all other information concerning its business, assets, properties and personnel (including financial and operating data) as such persons may reasonably request and will instruct the Company's employees, counsel and financial advisors to cooperate with Parent in its investigation of the business of the Company and the subsidiaries; provided that no investigation pursuant to this Section 5.3 shall affect any representation or warranty given by the Company hereunder. (b) From the date hereof until the Effective Time, the Company will give Parent, its counsel, financial advisors, auditors and other authorized representatives full access (during normal business hours at their actual location) to all accounting, revenue, marketing, producer, processing, and other books, records and data in possession of Company, except such records or data which Company is prevented by contractual obligations with third parties from disclosing; provided that in the event the Company is prohibited from making files or records available because of provisions of third party agreements, then the Company shall inform Parent of the existence of such records, the parties thereto and the subject matter of such records. 38 43 (c) From the date hereof, the order issued in that certain litigation entitled The Centris Group, Inc. et al. v. HCC Benefits Corporation, et al. Civil Action No. 99-1-4866-28 in the Superior Court of Cobb County, State of Georgia (the "Kelbel Litigation") shall be suspended except for the running of any time limitations on Mr. Craig Kelbel's ("Kelbel") activities which shall continue and the restriction on Kelbel shall be of no further force and effect, provided, however, that if this Agreement is terminated by Parent for any reason other than the occurrence of a Trigger Event, as defined herein, such restrictions shall be reinstated. The parties agree to use their best efforts to cause the Order in the Kelbel Litigation to be amended to conform to the terms hereof. Section 5.4 Other Offers. Until the termination of this Agreement, the Company and its subsidiaries will not, and will not authorize or permit the officers, directors, employees or other agents of the Company and its subsidiaries to, directly or indirectly, (i) take any action to solicit, initiate or encourage any Acquisition Proposal (defined below) or (ii) subject to the fiduciary duties of the Board of Directors under applicable law, as advised in writing by Gibson, Dunn & Crutcher LLP, counsel to the Company, and in response to an unsolicited request that has been submitted to the Company's Board of Directors and determined to be a Superior Acquisition Proposal (defined below), engage in negotiations with, or disclose any nonpublic information relating to the Company or any of its subsidiaries or afford access to the properties, books or records of the Company or any of its subsidiaries to, any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal, provided, however, nothing herein shall prohibit the Company's Board of Directors from taking and disclosing to the Company's shareholders a position with respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act. The Company will promptly notify Parent after receipt of any Acquisition Proposal or any indication that any person is considering making an Acquisition Proposal or any request for nonpublic information relating to the Company or any of its subsidiaries or for access to the properties, books or records of the Company or any of its subsidiaries by any person that has advised the Company that it may be considering making, or that has made, an Acquisition Proposal and will keep Parent fully informed of the status and details of any such Acquisition Proposal, notice or request. For purposes of this Agreement, "Acquisition Proposal" means any offer or proposal for, or any indication of interest in, a merger or other business combination involving the Company or any of its subsidiaries or the acquisition of any significant equity interest in, or a significant portion of the assets of, the Company or any of its subsidiaries, other than the transactions contemplated by this Agreement. "Superior Acquisition Proposal" means an Acquisition Proposal which a majority of the disinterested directors determines in its good faith judgment (based on the written advice of Advest) to be more favorable to the Company's shareholders than the Offer or the Merger, and for which financing, to the extent required, is then committed. Section 5.5 Rights Agreement. The Company hereby agrees that upon execution of this Agreement, it shall take all necessary action under the Rights Agreement dated as of May 24, 1990, as amended, by and between the Company and American Stock Transfer & Trust Company (the "Rights Agreement"), including any required amendment thereto, so that commencement of the Offer, the consummation of the Offer, the grant or exercise of any rights under the Stock Option Agreement or the Shareholder Option Agreement or any other acts 39 44 pursuant hereto or thereto on the terms permitted hereunder and thereunder and as contemplated herein and therein will not cause (A) the rights (the "Rights") issued pursuant to the Rights Agreement to become exercisable under the Rights Agreement, (B) the Parent, or any subsidiary of the Parent, including Merger Subsidiary to be deemed a "10% Stockholder" (as defined in the Rights Agreement) or (C) the "10% Stock Ownership Date" (as defined in the Rights Agreement) to occur, provided, however, that the Company shall not be required to make such amendments to the Rights Agreement if, (i) the Parent has not performed or complied in all material respects with this Agreement prior to the consummation of the Offer or (ii) the Company obtains, and there is in force from the Delaware Court of Chancery, an order permanently, preliminarily or temporarily declaring that the making of such amendments to the Rights Agreement would be contrary to the fiduciary duties of the Board of Directors of the Company. Notwithstanding anything else contained herein, in no event shall the Board of Directors of the Company make an amendment of the Rights Agreement in favor of any other person without making such amendment in favor of the Parent. Section 5.6 State Takeover Statutes. If any "fair price", "control share acquisition", "moratorium" or other anti-takeover statute, or similar statute or regulation shall become applicable to this Agreement, the Shareholder Option Agreement, the Stock Option Agreement or any of the transactions contemplated hereby or thereby, including, without limitation, the Offer or the Merger, the Company and its Board of Directors shall take all action necessary to ensure that the Offer, the Merger and the other transactions contemplated hereby and thereby, may be consummated as promptly as practicable on the terms contemplated hereby and otherwise to minimize the effect of such statute or regulation on the Offer, the Merger and the other transactions contemplated hereby or thereby. Section 5.7 Regulatory Filings. The Company covenants and agrees to commence preparation of and, consistent with past practice and on a timely basis, if required prior to the Closing Date, file with or submit to any insurance department or other Governmental Entity with which the Company is required to make such filings or submissions, and, if filed prior to the Closing Date, deliver to the Parent true and complete copies of, the quarterly statutory statement for each quarter of 1999 ended prior to the Closing Date, together with all related notes, exhibits and schedules thereto. All such quarterly statements filed with or submitted to any insurance department or Governmental Entity (i) shall be prepared from the books of account and other financial records of the Company, (ii) shall be filed with or submitted to such insurance departments and Governmental Entities, on forms prescribed or permitted thereby, (iii) shall be prepared in accordance with SAP applied on a basis consistent with the past practices of the Company (except as set forth in the notes, exhibits or schedules thereto), and shall comply on their respective dates of filing or submission with the laws of such jurisdictions, (iv) shall present fairly the statutory assets, liabilities, capital and surplus, results of operations and cash flows of the Company as of the dates thereof or for the periods covered thereby (subject to normal estimation of accruals and reserves and normal year-end audit adjustments), and (v) shall not use any accounting practices that are permitted rather than prescribed by the insurance departments and regulatory authorities. Section 5.8 Affirmative Actions. The Company shall retain an independent actuary (the "Actuary") which is acceptable to Parent to prepare an independent actuarial review of all 40 45 aspects of the Company's business, including, without limitation, the Company's property/casualty reserves, including discontinued operations, the medical lines business, recoverable value of the Company's notes receivable and indemnification obligations of the Company. Such actuarial study shall commence no later than five Business Days from the date this Agreement is executed and shall be completed no later than two Business Days after receipt of all regulatory approvals to the Merger from required state insurance regulatory agencies. The Company shall make the reserve adjustments and take such other charges, in accordance with GAAP and SAP, consistent with the findings of such actuarial review. Such adjustments and charges shall be recorded on the Company's books no later than three Business Days following the receipt from the Actuary of such review. The Company further agrees to utilize reasonable commercial efforts and to cooperate with Parent in the establishment of underwriting standards for business commencing January 1, 2000. Section 5.9 Termination of Benefit Plans. The Company shall terminate or cause to be terminated The Centris Group, Inc. Employees' Savings Plan and the VASA North America, Inc. 401(k) Profit Sharing Plan prior to the date on which the Company and/or its subsidiaries and ERISA affiliates become members of a "controlled group" with or under "common control" with Parent as such terms are defined in Section 414(b) and 414(c) of the Code. ARTICLE 6 COVENANTS OF PARENT Parent agrees that: Section 6.1 Obligations of Merger Subsidiary. Parent will take all action necessary to cause Merger Subsidiary to perform its obligations under this Agreement and to consummate the Offer and the Merger on the terms and conditions set forth in this Agreement. Section 6.2 Voting of Shares. Parent agrees to be present and vote all Shares acquired in the Offer or otherwise beneficially owned by it in favor of adoption of this Agreement at the Company Shareholder Meeting. Section 6.3 Director and Officer Liability. (a) After the Effective Time, Parent will cause the Surviving Corporation to indemnify and hold harmless the present and former officers, directors, employees and agents of the Company and its subsidiaries (the "Indemnified Parties") in respect of acts or omissions based in whole or in part on, or arising in whole or in part out of, or pertaining to (i) the fact that such Indemnified Party is or was a director, officer or employee of the Company, any of its subsidiaries or any of their respective predecessors or was prior to the Effective Time serving at the request of any such party as an officer, director, employee or agent of another corporation, partnership, trust or other enterprise or (ii) this Agreement, or any of the transactions contemplated hereby and all actions taken by an Indemnified Party in connection herewith. The parties hereto agree to cooperate and use commercially reasonable efforts to defend against and respond to such proceedings to the extent set forth in the next sentence. It is understood and agreed that after the Effective Time, Parent shall cause Surviving Corporation to indemnify and hold harmless, as and to the fullest extent permitted by the Company's Certificate of Incorporation and By-Laws in effect on the date hereof and by law, each such Indemnified 41 46 Party against any losses, claims, damages, liabilities, costs, expenses (including reasonable attorneys' fees and expenses payable as incurred and in advance of the final disposition of any claim, suit, proceeding or investigation subject to the obligation of each Indemnified Party to repay such advanced expenses if it is finally and unappealably determined that such Indemnified Party was not entitled to indemnification hereunder), judgments, fines and amounts paid in settlement in connection with any such threatened or actual claim, action, suit, proceeding or investigation, and in the event of any such threatened or actual claim, action, suit, proceeding or investigation (whether asserted or arising before or after the Effective Time) (collectively, "Claims"), the Indemnified Parties may retain counsel reasonably satisfactory to them after consultation with the Surviving Corporation, provided, however, that (1) the Surviving Corporation shall have the right to assume the defense thereof and upon such assumption the Surviving Corporation shall not be liable to any Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by an Indemnified Party in connection with the defense thereof, except that if the Surviving Corporation elects not to assume such defense, or counsel for the Indemnified Parties reasonably advises the Indemnified Parties that there are or may be (whether or not any have yet actually arisen) issues which raise conflicts of interest between the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel reasonably satisfactory to them, and the Surviving Corporation shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties, (2) the Surviving Corporation shall be obligated pursuant to this paragraph to pay for only one firm of counsel for all Indemnified Parties, (3) the Surviving Corporation shall not be liable for any settlement effected without its prior written consent, and (4) the Surviving Corporation shall have no obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and nonappealable, that indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by the Certificate of Incorporation or By-Laws of the Company or its subsidiaries or applicable law. Any Indemnified Party wishing to claim indemnification under this Section 6.3, upon learning of any such claim, action, suit, proceeding or investigation, shall notify the Surviving Corporation thereof, provided that the failure to so notify shall not affect the obligations of the Surviving Corporation under this Section 6.3 except (and only) to the extent such failure to notify materially prejudices the Surviving Corporation. (b) Without limiting any of the obligations under paragraph (a) of this Section 6.3, the Surviving Corporation agrees that all rights to indemnification and all limitations of liability existing in favor of the Indemnified Parties as provided in the Company's Certificate of Incorporation or By-Laws or in the similar governing documents of any of the Company's subsidiaries as in effect as of the date of this Agreement with respect to matters occurring on or prior to the Effective Time shall survive the Merger and shall continue in full force and effect thereafter, without any amendment thereto; provided, however, that nothing contained in this Section 6.3(b) shall be deemed to preclude the liquidation, consolidation or merger of the Company or any subsidiary thereof, in which case all of such rights to indemnification and limitations on liability shall be deemed to so survive and continue notwithstanding any such liquidation, consolidation or merger and shall constitute rights which may be asserted against the Surviving Corporation. Nothing contained in this Section 6.3(b) shall be deemed to preclude any rights to indemnification or limitations on liability provided in the Company's Certificate of Incorporation or By-Laws or similar governing documents of the Surviving Corporation with 42 47 respect to matters occurring subsequent to the Effective Time to the extent that the provisions establishing such rights or limitations are not otherwise amended to the contrary. (c) The Surviving Corporation shall use its commercially reasonable effects to cause the persons serving as officers and directors of the Company and its subsidiaries immediately prior to the Effective Time to be covered for a period of three years from the Effective Date by the directors' and officers' liability insurance policy maintained by the Surviving Corporation (provided that the Surviving Corporation may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are not less advantageous to such directors and officers than the terms and conditions of such existing policy and provided further that in no event will the Surviving Corporation be required to expend in any one year an amount in excess of 200% of the annual premiums currently paid by the Company for such insurance) with respect to acts or omissions occurring prior to the Effective Time which were committed by such officers and directors in their capacity as such. (d) The provisions of this Section 6.3 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives. Section 6.4 Employees. Parent agrees at the Effective Time that it (or the Surviving Corporation) shall be a successor employer with respect to, and shall assume sponsorship of (or cause the Surviving Corporation to assume sponsorship of), in accordance with their terms all Benefit Plans and "employee benefit plans" (as defined in Section 3(3) of ERISA) previously delivered to Parent and all accrued benefits vested thereunder, other than Benefit Plans terminated prior to the Effective Time; it being understood and agreed that nothing in this Section 6.4 shall prevent Parent from terminating any such Benefit Plan in accordance with its terms or shall require Parent or the Surviving Corporation to incur any liability or assume any obligation other than liabilities and obligations existing under the terms of such plans as in effect as of the date hereof. ARTICLE 7 COVENANTS OF PARENT AND THE COMPANY The parties hereto agree that: Section 7.1 HSR Act Filings; Other Filings Reasonable Efforts; Notification. (a) Each of Parent and the Company shall (i) promptly make or cause to be made the filings required of such party or any of its subsidiaries under the HSR Act with respect to the transactions contemplated by this Agreement, (ii) comply at the earliest practicable date with any request under the HSR Act for additional information, documents, or other material received by such party or any of its subsidiaries from the Federal Trade Commission or the Department of Justice or any other Governmental Entity in respect of such filings or such transactions, and (iii) cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry of any such agency or other Governmental Entity under any Antitrust Laws (defined below) with respect to any such filing or any such transaction. 43 48 Each party shall promptly inform the other party of any communication with, and any proposed understanding, undertaking, or agreement with, any Governmental Entity regarding any such filings or any such transaction. The Company shall not participate in any meeting (whether in person or by telephone) with any Governmental Entity in respect of any such filings, investigation, or other inquiry without Parent's consent and without giving Parent notice of the meeting and, to the extent permitted by such Governmental Entity, the opportunity to attend and participate. (b) Each of Parent and the Company shall use all commercially reasonable efforts to resolve such objections, if any, as may be asserted by any Governmental Entity with respect to the transactions contemplated by this Agreement under the HSR Act, the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and any other Federal, state or foreign statutes, rules, regulations, orders or decrees that are designed to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade (collectively, "Antitrust Laws"). In connection therewith, if any administrative or judicial action or proceeding is instituted (or threatened to be instituted) challenging any transaction contemplated by this Agreement as violative of any Antitrust Law, and, if by mutual agreement, Parent and the Company decide that litigation is in their best interests, each of Parent and the Company shall cooperate and use all reasonable efforts vigorously to contest and resist any such action or proceeding and to have vacated, lifted, reversed, or overturned any decree, judgment, injunction or other order, whether temporary, preliminary or permanent (each an "Order"), that is in effect and that prohibits, prevents, or restricts consummation of any such transaction. Each of Parent and the Company shall use all commercially reasonable efforts to take such action as may be required to cause the expiration of the notice periods under the HSR Act or other Antitrust Laws with respect to such transactions as promptly as possible after the execution of this Agreement. (c) Each of the parties agrees to promptly make or cause to be made the filings required of each such party or any of its subsidiaries under any insurance regulatory law or act in any state where such filing is required or, at the request of Parent, deemed advisable, and to comply at the earliest practicable date with any requests made by any insurance regulatory agency or any other Governmental Entity for additional information, documents or other material received by such party or any of its subsidiaries and to cooperate with the other party in connection with any such filing and in connection with resolving any investigation or other inquiry or hearing of any such agency or other Governmental Entity under any insurance law relating to licensing, holding company applications, change in control, etc. with respect to any such filing or any such transaction. Each party shall promptly inform the other party of any communication with, and any proposed understanding, undertaking agreement with, any Governmental Entity or insurance agency regarding any such filings or any such transaction. The Company shall not participate in any meeting (whether in person or by telephone) with any Governmental Entity or insurance regulatory agency in respect of any such filings, investigation, or other inquiry without Parent's consent and without giving Parent notice of the meeting, and to the extent permitted by such Governmental Entity, the opportunity to attend and participate. 44 49 (d) Each of the parties agrees to use all commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the Offer, the Merger, and the other transactions contemplated by this Agreement, including (i) the obtaining of all other necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all other necessary registrations and filings (including other filings with Governmental Entities, if any), (ii) the obtaining of all necessary consents, approvals or waivers from third parties, (iii) the preparation of the Company Disclosure Documents and the Offer Documents, and (iv) the execution and delivery of any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement. (e) Notwithstanding anything to the contrary in Section 7.1(a), 7.1(b), 7.1(c), or 7.1(d), (i) neither Parent nor any of its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a material adverse effect on the business, assets, financial condition, results of operations or prospects of Parent or any of its subsidiaries or the Surviving Corporation after the Effective Time, (ii) neither the Company nor its subsidiaries shall be required to divest any of their respective businesses, product lines or assets, or to take or agree to take any other action or agree to any limitation that could reasonably be expected to have a Material Adverse Effect, (iii) no party shall be required to agree to the imposition of, or to comply with, any condition, obligation or restriction on Parent or any of its subsidiaries or on the Surviving Corporation or any of its subsidiaries of the type referred to in clause (a) or (b) of Annex I and (iv) neither Parent nor Merger Subsidiary shall be required to waive any of the conditions to the Offer set forth in Annex I or any of the conditions to the Merger set forth in Article 8. (f) Each of the Company and Parent agree to give prompt notice to the other of (i) any representation or warranty made by such party contained in this Agreement becoming untrue or inaccurate in any respect or (ii) the failure by such party to comply with or satisfy in any respect any covenant, condition or agreement to be complied with or satisfied by such party under this Agreement; provided, however, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement. (g) The Company shall give prompt notice to Parent, and Parent or Merger Subsidiary shall give prompt notice to the Company, of: (i) any notice or other communication from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (ii) any notice or other communication from any Governmental Entity in connection with the transactions contemplated by this Agreement; and 45 50 (iii) any actions, suits, claims, investigations or proceedings commenced or, to the best of its knowledge threatened against, relating to or involving or otherwise affecting it or any of its subsidiaries which, if pending on the date of this Agreement would have been required to have been disclosed pursuant to this Agreement or which relate to the consummation of the transactions contemplated by this Agreement. Section 7.2 Public Announcements. Each party will consult with the others before issuing, and provide the others the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by this Agreement, the Shareholder Option Agreement and the Stock Option Agreement, including the Offer and the Merger, and each party shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange or with the NASD. Section 7.3 Confidentiality. The terms of the letter agreement, agreed and consented to by the Parent on August 22, 1999, between the Company and the Parent (the "Confidentiality Agreement") are hereby incorporated by reference and shall continue in full force and effect except the last sentence of Section (5) on page 4, which is hereby deleted in its entirety until the Closing, at which time such Confidentiality Agreement and the obligations of the Parent under this Section 7.3 shall terminate; provided, however, that the Confidentiality Agreement shall not terminate in respect of that portion of such confidential information relating exclusively to matters not related to the transactions contemplated by this Agreement. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall continue in full force and effect in respect of such confidential information. After the Closing Date, each of the persons who were the Company's officers, directors and affiliates as of the date hereof shall keep all non-public information relating to the Company and the Parent confidential on the same terms as set forth in the Confidentiality Agreement. Section 7.4 Interim Financial Statements. The Company shall, as soon as available, but no later than 60 days after the end of the relevant month or quarter, as the case may be, deliver promptly to the Parent any and all final monthly and quarterly financial statements for the Company, audited or unaudited, prepared for the management of the Company after the date of this Agreement and prior to the Closing Date. 46 51 ARTICLE 8 CONDITIONS TO THE MERGER Section 8.1 Conditions to the Obligations of Each Party. The obligations of the Company, Parent and Merger Subsidiary to consummate the Merger are subject to the satisfaction of the following conditions: (a) if required by Delaware law, this Agreement shall have been adopted by the shareholders of the Company in accordance with such law; (b) any applicable waiting period under the HSR Act relating to the Merger shall have expired; (c) no provision of any applicable law or regulation and no judgment, injunction, order or decree shall prohibit the consummation of the Merger; (d) Parent or Merger Subsidiary shall have purchased Shares in an amount equal to at least the Minimum Condition pursuant to the Offer; and (e) other than the filing of the certificate of merger in accordance with Delaware Law, all Consents required to permit the consummation of the Merger including those set forth in Sections 4.1(d) and 4.2(b) and those of any insurance regulatory agency or body shall have been filed, occurred or been obtained (other than any such Consents the failure to file, occur or obtain, in the aggregate, could not reasonably be expected to (i) have a Material Adverse Effect or (ii) prevent or materially delay the consummation of the Merger). (f) each Governmental Entity having jurisdiction over the Company or any of its subsidiaries, their business, licenses or permits, shall have, where applicable, approved the transactions contemplated by this Agreement and any "change of control" incidental thereto. (g) each of the Officers and employees whose names are set forth on Annex II shall have executed an agreement to remain in the employment of the Surviving Corporation for a period of 120 days after the Effective Time and as of the Effective Time, none of such persons listed on Annex II-A, and no more than two of those persons set forth on Annex II-B shall have voluntarily terminated or terminated for Good Reason, as defined in the respective Severance Agreements entered into by each of such persons. (h) The Company shall have performed its obligations under Section 5.8 hereof. 47 52 ARTICLE 9 TERMINATION Section 9.1 Termination. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time (notwithstanding any approval of this Agreement by the shareholders of the Company): (a) by mutual written consent of the Company and Parent; (b) by either the Company or Parent, if the Merger has not been consummated by June 30, 2000 (provided that the party seeking to terminate the Agreement shall not have breached its obligations under this Agreement in any material respect); (c) by either the Company or Parent, if such party has received an opinion from its counsel that there shall be any law or regulation that makes consummation of the Merger illegal or otherwise prohibited or if any judgment, injunction, order or decree enjoining Parent or the Company from consummating the Merger is entered and such judgment, injunction, order or decree shall become final and nonappealable; (d) by either the Company or Parent (provided that no party shall be entitled to terminate this Agreement pursuant to this clause (d) as a result of its breach of this Agreement), (x) if Parent or Merger Subsidiary shall have failed to commence the Offer within five business days following the date of this Agreement, (y) if Parent or Merger Subsidiary shall not have purchased any Shares pursuant to the Offer prior to February 29, 2000 (or, if the Offer shall have been extended by Merger Subsidiary pursuant to this Agreement, on or prior to March 31, 2000) or (z) the Offer shall have been terminated without Parent or Merger Subsidiary having purchased any Shares pursuant to the Offer; (e) by Parent, upon the occurrence of any Trigger Event described in clauses (i) through (iii) of Section 10.4(b); or (f) by the Company, upon the occurrence of any Trigger Event described in clause (i) of Section 10.4(b). Section 9.2 Effect of Termination. If this Agreement is terminated pursuant to Section 9.1, this Agreement shall become void and of no effect with no liability on the part of any party hereto or their respective officers and directors, except that the agreements contained in Sections 10.4 and 10.6 shall survive the termination hereof and except to the extent that such termination results from the material breach by a party of any representations, warranties, covenants or agreements set forth in this Agreement. 48 53 ARTICLE 10 MISCELLANEOUS Section 10.1 Notices. All notices, requests and other communications to any party hereunder shall be in writing (including telecopy or similar writing) and shall be given, if to Parent or Merger Subsidiary, to: HCC Insurance Holdings, Inc. 13403 Northwest Freeway Houston, Texas 77040-6094 Telecopy: (713) 462-2401 Attention: Frank J. Bramanti with a copy (which shall not constitute notice) to: Winstead Sechrest & Minick P.C. 910 Travis, Suite 2400 Houston, Texas 77002 Telecopy: (713) 650-2400 Attention: Arthur S. Berner if to the Company, to: The Centris Group, Inc. 650 Town Center Drive Suite 1600 Costa Mesa, California 92626 Telecopy: (714) 434-0750 Attention: Jose A. Velasco with a copy (which shall not constitute notice) to: Gibson, Dunn & Crutcher LLP 4 Park Plaza Irvine, California 92614 Telecopy: (949) 451-4220 Attention: Robert E. Dean or such other address or telecopy number as such party may hereafter specify for the purpose by notice to the other parties hereto. Each such notice, request or other communication shall be effective when delivered at the address specified in this Section. Section 10.2 Survival of Representations and Warranties. The representations, warranties and agreements contained herein and in any certificate or other writing delivered pursuant hereto shall not survive the Effective Time or the termination of this Agreement except for the agreements set forth in Sections 10.4 and 10.6. 49 54 Section 10.3 Amendments; No Waivers. (a) Any provision of this Agreement may be amended or waived prior to the Effective Time if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by the Company, Parent and Merger Subsidiary or in the case of a waiver, by the party against whom the waiver is to be effective; provided, however, that after the adoption of this Agreement by the shareholders of the Company, no such amendment or waiver shall, without the further approval of such shareholders, alter or change (i) the amount or kind of consideration to be received in exchange for any shares of capital stock of the Company, (ii) any term of the certificate of incorporation of the Surviving Corporation or (iii) any of the terms or conditions of this Agreement if such alteration or change would adversely affect the holders of any shares of capital stock of the Company. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 10.4 Fees and Expenses. (a) Except as otherwise provided in this Section, all costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. (b) The Company agrees to pay to Parent, at Parent's demand and sole election, a fee (the "Termination Fee") in immediately available funds, promptly, but in no event later than one business day, after the termination of this Agreement as a result of the occurrence of any of the events set forth below (a "Trigger Event") in an amount equal to $6,000,000 in the case of the occurrence of a Trigger Event described below: (i) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle with respect to any Acquisition Proposal; (ii) any person or group (as defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of its affiliates) shall have become the beneficial owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of at least 20% of the outstanding Shares or shall have acquired, directly or indirectly, at least 20% of the assets of the Company; (iii) any representation or warranty made by the Company in, or pursuant to, this Agreement that is qualified as to materiality shall not have been true and correct when made or at any time prior to the consummation of the Offer as if made at and as of such time, or any representation or warranty made by the Company in, or pursuant to, this Agreement that is not so qualified shall not have 50 55 been true and correct in all material respects when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Company shall have failed to observe or perform in any material respect any of its obligations under this Agreement; provided that it shall not be a Trigger Event unless the breaches of the representations and warranties without regard to any materiality qualifier or threshold, and failure to perform or breach of any obligation, individually or in the aggregate, could reasonably be expected to have or result in a Material Adverse Effect; or (iv) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to Parent or Merger Subsidiary its approval or recommendation of the Offer, the Merger, this Agreement, the Shareholder Option Agreement, the Stock Option Agreement in any such case whether or not such withdrawal or modification is required by the fiduciary duties of the Board of Directors (or any special committee thereof). (c) If this Agreement is terminated as a result of the occurrence of a Trigger Event, in addition to the Termination Fee paid or payable by the Company to Parent pursuant to Section 10.4(b), Company shall assume and pay, or reimburse Parent for, all reasonable fees payable and expenses incurred by Parent (including the fees and expenses of its counsel) in connection with this Agreement and the transactions contemplated hereby, up to a maximum of $1,000,000. (d) Parent shall not be entitled to the Termination Fee if Parent shall have exercised all or any part of the option granted to Parent in the Stock Option Agreement. Section 10.5 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto except that Merger Subsidiary may transfer or assign, in whole or from time to time in part, to one or more of Parent or any of its wholly-owned subsidiaries, the right to purchase Shares pursuant to the Offer, but any such transfer or assignment will not relieve Merger Subsidiary of its obligations under the Offer or prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. Section 10.6 Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware (without reference to the Delaware conflicts of law provisions). Section 10.7 Counterparts; Effectiveness; Interpretation. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. When a reference is made in this Agreement to a Section, such reference 51 56 shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation". Section 10.8 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States or any state having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. Section 10.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible. Section 10.10 Entire Agreement; No Third Party Beneficiaries. This Agreement (including the Disclosure Schedule) and the Confidentiality Agreement dated as of August 22, 1999 between Parent and the Company (a) constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among the parties hereto with respect to the subject matter hereof, and (b) are not intended to confer upon any person other than the parties hereto any rights or remedies hereunder other than rights to indemnity under Section 6.3. 52 57 The parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. THE CENTRIS GROUP, INC. By: /s/ DAVID L. CARGILE ----------------------------------- Name: David L. Cargile --------------------------------- Title: Chairman of the Board and Chief Executive Officer -------------------------------- HCC INSURANCE HOLDINGS, INC. By: /s/ STEPHEN L. WAY ----------------------------------- Name: Stephen L. Way --------------------------------- Title: Chairman of the Board and Chief Executive Officer -------------------------------- MERGER SUB OF DELAWARE, INC. By: /s/ STEPHEN L. WAY ----------------------------------- Name: Stephen L. Way --------------------------------- Title: Chairman of the Board and Chief Executive Officer -------------------------------- 53 58 ANNEX I Notwithstanding any other provision of the Offer, Parent and Merger Subsidiary shall not be required to accept for payment or (subject to any applicable rules and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating to Merger Subsidiary's obligation to pay for or return tendered Shares after the termination or withdrawal of the Offer)) to pay for any Shares, and may terminate the Offer, if (i) by the expiration of the Offer (as permitted to be extended), the Minimum Condition shall not have been satisfied, (ii) by the expiration of the Offer (as permitted to be extended), the applicable waiting period under the HSR Act shall not have expired or been terminated, (iii) by the expiration of the Offer (as permitted to be extended), all regulatory approvals of Governmental Entities shall not have been received, or (iv) at any time on or after October 3, 1999, and prior to the acceptance for payment of Shares pursuant to the Offer, any of the following conditions exist: (a) there shall be instituted or pending any action or proceeding by any Governmental Entity or by any other person, domestic or foreign, before any Governmental Entity or arbitrator, (i) challenging or seeking to make illegal, to delay materially or otherwise directly or indirectly to restrain or prohibit the making of the Offer, the acceptance for payment of or payment for some of or all the Shares by Parent or Merger Subsidiary or the consummation by Parent or Merger Subsidiary of the Merger, seeking to obtain material damages or otherwise directly or indirectly relating to the transactions contemplated by the Shareholder Option Agreement, this Agreement, the Offer or the Merger, (ii) seeking to restrain or prohibit Parent's or Merger Subsidiary's ownership or operation (or that of their respective subsidiaries or affiliates) of all or any material portion of the business or assets of the Company or any of its subsidiaries or of Parent and its subsidiaries or to compel Parent or any of its subsidiaries or affiliates to dispose of or hold separate all or any material portion of the business or assets of the Company or any of its subsidiaries or of Parent and its subsidiaries (iii) seeking to impose material limitations on the ability of Parent or any of its subsidiaries or affiliates effectively to exercise full rights of ownership of the Shares, including, without limitation, the right to vote any Shares acquired or owned by Parent or any of its subsidiaries or affiliates on all matters properly presented to the Company's shareholders, (iv) seeking to require divestiture by Parent or any of its subsidiaries or affiliates of any Shares, or (v) that otherwise, in the reasonable judgment of Parent, is likely to materially adversely affect the business, assets, liabilities, operations, condition (financial or otherwise), results of operations or prospects of the Company or any of its subsidiaries, or Parent and its subsidiaries, taken as a whole; or (b) there shall be any action taken, or any statute, rule, regulation, injunction, order or decree proposed, enacted, enforced, promulgated, issued or deemed applicable to the Shareholder Option Agreement, the Stock Option Agreement, this Agreement, the Offer or the Merger, by any Governmental Entity or arbitrator (other than the application of the waiting period provisions of the HSR Act to the Shareholder Option Agreement, the Stock Option Agreement, this Agreement, the Offer or the Merger), that, in the reasonable judgment of Parent, is substantially likely, directly or indirectly, to result in any of the consequences referred to in clauses (i) through (v) of paragraph (a) above; or 54 59 (c) any change (other than changes requested by, or done at the direction or with the consent of Parent) shall have occurred or been threatened (or any development shall have occurred or been threatened involving a prospective change) in the business, assets, liabilities, financial condition, capitalization, operations, results of operations or prospects of the Company or any of its subsidiaries that, has, or is likely to have, a Material Adverse Effect (as defined in the Agreement) on the Company and its subsidiaries taken as a whole; or (d) there shall have occurred (i) any general suspension of trading in, or limitation on prices for, securities on the New York Stock Exchange or in the NASDAQ over-the-counter market in the United States, (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (iii) any material limitation (whether or not mandatory) by any Governmental Entity on the extension of credit by banks or other lending institutions, (iv) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States which would reasonably be expected to have a Material Adverse Effect or prevent (or materially delay) the consummation of the Offer or (v) in the case of any of the foregoing existing at the time of commencement of the Offer, a material acceleration or worsening thereof; or (e) a tender or exchange offer for some or all of the Shares shall have been publicly made by another person, or it shall have been publicly disclosed or Parent shall have otherwise learned that any person or "group" (as defined in Section 13(d)(3) of the Exchange Act) (other than Parent or any of its affiliates) shall have acquired or made an offer to acquire beneficial ownership (as defined in Rule 13d-3 promulgated under the Exchange Act) of more than 20% of the outstanding Shares through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any option, right or warrant, conditional or otherwise, to acquire beneficial ownership of more than 20% of the outstanding Shares; or (f) any Consent (other than the filing of the certificate of merger or approval by the shareholders of the Company of the Merger (if required by Delaware law)) required to be filed, occurred or been obtained by the Company or any of its subsidiaries or Parent of any of its subsidiaries (including Merger Subsidiary) in connection with the execution and delivery of this Agreement, the Offer and the consummation of the transactions contemplated by this Agreement shall not have been filed, occurred or been obtained (other than any such Consents as to which the failure to file, occur or obtain in the aggregate, could not reasonably be expected to (i) have a Material Adverse Effect or (ii) prevent or materially delay the consummation of the Offer or the Merger); or (g) the Company shall have breached or failed to perform in any material respect any of its covenants or agreements under this Agreement, or any of the representations and warranties of the Company set forth in this Agreement that are qualified as to materiality shall not be true when made or at any time prior to consummation of the Offer as if made at and as of such time, or any of the representations and warranties set forth in this Agreement that are not so qualified shall not be true in any material respect when made or at any time prior to the consummation of the Offer as if made at and as of such time; or 55 60 (h) any party to the Shareholder Option Agreement (other than Merger Subsidiary or Parent) shall have breached or failed to perform in any material respect any of their agreements under the Shareholder Option Agreement or any of the representations and warranties of any such party set forth in the Shareholder Option Agreement shall not be true in any material respect, in each case, when made or at any time prior to the consummation of the Offer as if made at and as of such time, or the Shareholder Option Agreement shall have been invalidated or terminated with respect to any Shares subject thereto; or (i) this Agreement or the Shareholder Option Agreement shall have been terminated in accordance with its terms; or (j) the Board of Directors of the Company (or any special committee thereof) shall have withdrawn or materially modified in a manner adverse to Parent or Merger Subsidiary its approval or recommendation of the Offer, the Merger or this Agreement or its approval of the entry by Parent and Merger Subsidiary into the Stock Option Agreement; or (k) the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or agreement in principle with respect to any Acquisition Proposal; The foregoing conditions are for the sole benefit of Parent and Merger Subsidiary and may be asserted by Parent in its sole discretion regardless of the circumstances giving rise to any such condition or (other than the Minimum Condition) may be waived by Parent and Merger Subsidiary in their discretion in whole at any time or in part from time to time. The failure by Parent or Merger Subsidiary at any time to exercise its rights under any of the foregoing conditions shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances, and each such right shall be deemed an ongoing right which may be asserted at any time or from time to time. 56 61 ANNEX II ANNEX II-A Charles M. Caporale Mark A. Carney Edward D. Jones, III Jose A. Velasco ANNEX II-B In addition to those persons set forth in II-A above whose names are hereby incorporated by reference, the following additional persons: Patricia S. Boisseranc Linton R. Groke David L. Hubert Barbara F. Stoner 1 62 Contact: Stephen L. Way, Chairman & Chief Executive Officer HCC Insurance Holdings, Inc. (713) 690-7300 For Immediate Release [HCC LOGO APPEARS HERE] HCC TO ACQUIRE CENTRIS HOUSTON (October 12, 1999) . . . HCC Insurance Holdings, Inc. (NYSE: HCC) an international specialty insurance holding company announced today that it had entered into a Definitive Agreement with The Centris Group, Inc. (NYSE: CGE), to acquire all of their outstanding shares in a transaction valued at approximately $171 million. Pursuant to this Agreement, a wholly owned subsidiary of HCC will, through a cash tender, offer to purchase each Centris share for $12.50 per share and will assume approximately $25 million of outstanding bank debt. The cash tender offer will commence within five business days and, subject to customary conditions as well as certain regulatory approvals, should be completed by year end 1999. At June 30, 1999, the stated book value of Centris was $92.4 million or $7.94 per share. Centris has announced, concurrently with their press 63 release for this transaction, a third quarter charge of $13.5 million which includes reserve strengthening for their medical stop loss business and an addition to reserves for discontinued operations. Also, Centris may take an additional charge prior to closing this transaction which would include any further reserve strengthening necessary on existing or discontinued lines of business and customary expenses in connection with this transaction. This transaction has been unanimously approved by the Boards of Directors of HCC and Centris, and all Centris Directors, which include two of its largest individual shareholders, and key employees have agreed to tender their shares. Also, Mr. David L. Cargile, Chairman and Chief Executive Officer and other large Centris Director/shareholders have agreed, under certain situations, to provide HCC with an option to purchase their approximately 13 percent of Centris' outstanding shares. In addition, Centris has granted HCC an option to acquire 19.9 percent of its common stock under certain circumstances or has agreed to pay a termination fee of $6,000,000 plus expenses of up to $1,000,000. Centris is a specialty insurance holding company providing medical stop loss insurance coverage to companies that self insure their group medical benefits, provider excess insurance coverage for hospitals and doctors who offer fixed fee services to their patients, and excess and 2 64 surplus lines insurance. Operations are principally managed through their insurance underwriting agency subsidiary, US Benefits Insurance Services, Inc. and their insurance companies Centris Life Insurance Company, Centris Insurance Company and USF Insurance Company. HCC currently operates its own medical stop loss insurance business through its insurance underwriting agency subsidiary, HCC Benefits Corporation and one of its insurance company subsidiaries, Avemco Insurance Company. The combination of these two insurance underwriting agency operations will create the preeminent provider of medical stop loss insurance in the industry with over $350 million of estimated written premiums in the year 2000. During 1999, both HCC Benefits and US Benefits have implemented an in-depth re-underwriting of their medical stop loss business, incorporating both rate increases and higher deductibles. Further progress in this regard is necessary during 2000 to ensure the return of underwriting integrity. Stephen L. Way, Chairman and Chief Executive Officer of HCC said, "After more than one year of intermittent but patient negotiations and recent considerable due diligence efforts, we are extremely pleased to have reached an amicable agreement with Centris that will benefit both groups of shareholders." Mr. Way added, "I sincerely appreciate the efforts of Centris" management in reaching this agreement, and particularly their Chairman and Chief Executive Officer, David L. 3 65 Cargile. We plan to rapidly integrate both stop loss underwriting operations, which are of similar size and structure, using the strengths of both companies to maximize the synergies created and hasten the return to underwriting profitability." In addition to the expenses incurred in connection with this transaction, HCC will be taking a restructuring/reorganization charge and associated expenses of up to $5 million by the end of 1999. Since its initial public offering in 1992, HCC has completed more than 15 acquisitions for a total value exceeding $500 million. During that time, total employees have grown from less than 100 to more than 1,000. John N. Molbeck, Jr., President and Chief Operating Officer said, "Executive management believes it is time to reorganize and strengthen our corporate and management structure, which will enhance our future earnings performance." He added, "We are confident that the savings in 2000 and beyond from this restructuring will far exceed the charge and we will have created a much more efficient and profitable company." More details will follow in the next few weeks. HCC is an international insurance holding company with assets exceeding $2.0 billion and whose shares are traded on the NYSE (symbol: HCC). 4 66 This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements necessarily involve risks and uncertainty, including, without limitation, the risk of a significant natural disaster, the inability of the Company to reinsure certain risks, the adequacy of its loss reserves, the financial viability of reinsurers, the expansion or contraction in its various lines of business, the impact of inflation, the impact of Year 2000 issues, changing licensing requirements and regulations in the United States and in foreign countries, the ability of the Company to integrate its recently acquired businesses, the effect of pending or future acquisitions as well as acquisitions which have recently been consummated, general market conditions, competition, licensing and pricing. All statements, other than statements of historical facts, included or incorporated by reference in this release that address activities, events or developments that the Company expects or anticipates will or may occur in the future, including, without limitation, such things as future capital expenditures (including the amount and nature thereof), business strategy and measures to implement such strategy, competitive strengths, goals, expansion and growth of the Company's businesses and operations, plans, references to future success, as well as other statements which includes words such as "anticipate," "believe," "plan," "probably," "estimate," "expect," and "intend" and other similar expressions, constitute forward-looking statements. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could over time prove to be inaccurate and therefore, there can be no assurance that the forward-looking statements included in this press release will themselves prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. * * * * 5 EX-99.C2 10 SHAREHOLDER OPTION AGREEMENT DATED 10/11/99 1 SHAREHOLDER OPTION AGREEMENT This SHAREHOLDER OPTION AGREEMENT, dated as of October 11, 1999 (the "Agreement"), among Merger Sub of Delaware, Inc., a Delaware corporation ("Buyer"), and the holders (the "Shareholders") of the shares of common stock, $.01 par value together with attached rights issued pursuant to the Rights Agreement (as defined in the Merger Agreement, hereafter defined) to purchase shares (the "Shares") of The Centris Group, Inc. a Delaware corporation (the "Company"), listed on Exhibit A hereof. WHEREAS, HCC Insurance Holdings, Inc., a Delaware corporation and parent of Buyer ("Parent"), Buyer and the Company have entered into an Agreement and Plan of Merger of even date herewith (the "Merger Agreement") which provides for, upon the terms and subject to the conditions set forth thereunder, (i) the commencement of a tender offer (the "Offer") for all of the outstanding Shares at a price of $12.50 per share in cash, and (ii) the subsequent merger of the Buyer with and into the Company (the "Merger"); and WHEREAS, Buyer and Shareholders wish to enter into this Shareholder Option Agreement whereby Buyer will be granted stock options pursuant to the terms hereof to acquire from the Shareholders their Shares of the Company. NOW, THEREFORE, in consideration of the mutual covenants, agreements and promises set forth herein and other good and valuable consideration the sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: ARTICLE 1 STOCK OPTION Section 1.1 Grant of Stock Option. Each of the Shareholders hereby grants to Buyer an irrevocable option (the "Option") to purchase pursuant to the terms hereof all, but not in any part less than all, of the Shares set forth opposite such Shareholder's name on Exhibit A hereto and any additional Shares acquired by such Shareholder in any capacity (whether by exercise of options, warrants or rights, the conversion or exchange of convertible or exchangeable securities or by means of a purchase, dividend, distribution or otherwise) (such "Shareholder's Shares" and, collectively, the "Shareholder Shares") at a purchase price of $12.50 per Shareholder Share (as may be adjusted pursuant to Sections 1.2(c), (d) or (e), the "Purchase Price"). Section 1.2 Exercise of Option. (a) Subject to the conditions set forth in Section 1.5 hereof, the Option may be exercised by Buyer, in whole, but not in part, at any time after the date (i) an Acquisition Proposal or a Superior Acquisition Proposal (as defined in the Merger Agreement) shall have received tenders of and paid for in excess of 50% of the Fully Diluted Shares (as defined in the Merger Agreement) (a "Successful Third-Party Offer") or (ii) a third party has otherwise acquired in excess of 50% of the Fully Diluted Shares. Once Buyer has received notice as set forth herein from any Shareholder that the Option is exercisable, the Option must then be 2 exercised, if at all, within five Business Days. In the event Buyer wishes to exercise the Option for the Shareholder Shares, Buyer shall send a written notice (the "Exercise Notice") to the Shareholder specifying the place, the date (not less than one nor more than five Business Days from the date of the Exercise Notice (if such date is reasonably practicable for Shareholder performance) and the time for the closing of such purchase; provided that such date and time may be earlier than one Business Day after the Exercise Notice if reasonably practicable. The closing of a purchase of Shareholder Shares pursuant to this Section 1.2(a) (the "Closing") shall take place at the place, on the date and at the time designated by Buyer in its Exercise Notice, provided that if, at the date of the Closing herein provided for, the conditions set forth in Section 1.5 shall not have been satisfied (or waived), Buyer may postpone the Closing until a date within five Business Days after such conditions are satisfied and the term of the Option will be correspondingly extended. (b) Buyer shall not be under any obligation to deliver any Exercise Notice and may allow the Option to terminate without purchasing any Shareholder Shares hereunder; provided however that once Buyer has delivered to the Shareholders an Exercise Notice, subject to the terms and conditions of this Agreement, Buyer shall be bound to effect the purchase as described in such Exercise Notice. (c) In the event the Option is exercised and Buyer or any of its affiliates sells, including by direct disposition, merger or otherwise, the Shares so acquired within two years of the date of such exercise, Buyer shall pay the Shareholders, in respect of each Share acquired thereby, an amount equal to the proceeds received by Buyer or any of its affiliates in respect of such disposition less the Purchase Price. The provisions of this Section 1.2(c) shall be void and of no further force or effect if Buyer acquires 100% of the Company Shares pursuant to the Merger Agreement or otherwise. (d) In the event the Option is exercised and within two years of the date of exercise of the Option, Buyer or any of its affiliates acquires (directly or through a series of transactions) Shares which together with any Shares then owned by Buyer or any of its affiliates is in excess of 50% of the Fully Diluted Shares, Buyer shall pay each Shareholder an additional sum in respect of each Share acquired by Buyer from the Shareholder equal to the highest tender offer price per share actually paid in the Successful Third-Party Offer less the initial Purchase Price paid to Shareholder at the time the Option was exercised. (e) In the event the Option has been exercised and the consideration per Share to be paid by Buyer pursuant to the Offer is increased (the "New Purchase Price"), Buyer shall promptly pay to each Shareholder the product of the New Purchase Price multiplied by the number of such Shareholder's Shares as to which the Option has been exercised less the initial Purchase Price paid to Shareholder at the time the Option was exercised. Section 1.3 Closing. At the Closing, (a) each Shareholder shall deliver to Buyer (in accordance with Buyer's instructions) a certificate or certificates (the "Certificates") representing all of such Shareholder's Shares, duly endorsed or accompanied by stock powers duly executed 2 3 in blank and (b) Buyer shall pay to such Shareholder, by wire transfer in immediately available funds to the account such Shareholder specifies in writing prior to the Closing, an amount equal to (i) the number of such Shareholder's Shares being purchased at the Closing multiplied by (ii) the Purchase Price (the "Purchase Amount"). Section 1.4 Agreement to Tender. (a) Each of the Shareholders hereby agrees to validly tender (or cause the record owner of such shares to validly tender) such Shareholder's Shares pursuant to and in accordance with the Offer (as defined in the Merger Agreement) within two days of the receipt of Buyer's offer to purchase relating to the Offer. Upon receipt of written instructions from the Buyer, each Shareholder shall promptly deliver to the depositary (the "Depositary") designated in the Offer (i) a letter of transmittal with respect to such Shareholder's Shares complying with the terms of the Offer together with instructions directing the Depositary to make payment for such Shares directly to the Shareholder (but if such Shares are not accepted for payment or are withdrawn and are to be returned pursuant to the Offer, to return such Shares to such Shareholder whereupon they shall continue to be held by such Shareholder subject to the terms and conditions of this Agreement), (ii) the Certificates representing such Shareholder's Shares and (iii) all other documents or instruments required to be delivered pursuant to the terms of the Offer (such documents in clauses (i) through (iii) collectively being hereinafter referred to as the "Tender Documents"). Tender by a Shareholder pursuant to this Section 1.4(a) shall suspend such Shareholder's further obligations under this Agreement unless and until such tendered Shareholder's Shares are not accepted for payment or are withdrawn and are to be returned to such Shareholder pursuant to the Offer, in which event, the Shareholder's further obligations under this Agreement shall be reinstated in full force and effect. For all its Shares validly tendered in the Offer and not withdrawn, each Shareholder will be entitled to receive the highest price paid by Buyer pursuant to the Offer, as such Offer may be amended from time to time. Notwithstanding the foregoing, tender of any Shares subject to pledge shall be subject to Buyer's agreement to enter into an escrow or other arrangement satisfactory to the pledgee-lender to facilitate the satisfaction of debt obligations with respect to any such pledged Shares. Each Shareholder agrees to execute any documentation to effectuate such escrow or other arrangement provided that such documentation preserves the rights of such tendering Shareholder hereunder. (b) Buyer agrees that if an Acquisition Proposal or a Superior Acquisition Proposal is made for the Shares, Buyer shall give each Shareholder written notice at least two Business Days prior to the tender of any Shares beneficially owned by Buyer or its affiliates in such Acquisition Proposal or Superior Acquisition Proposal. Notwithstanding anything to the contrary herein, if Buyer or any of its affiliates tender (or retender, if previously withdrawn) Shares in such Acquisition Proposal or Superior Acquisition Proposal, Buyer shall consent to the Shareholders tendering (or retendering, if previously withdrawn) their Shares pursuant to such Acquisition Proposal or Superior Acquisition Proposal and such Shares may be released from the terms of this Option and sold in such Acquisition Proposal or Superior Acquisition Proposal. If Buyer or its affiliates subsequently withdraw all Shares tendered pursuant to such Acquisition Proposal or Superior Acquisition Proposal and gives Shareholders sufficient notice to take 3 4 action, Shareholders shall withdraw their tender of shares to such Acquisition Proposal or Superior Acquisition Proposal. No tender, withdrawal or retender by Buyer or Shareholder to an Acquisition Proposal permitted pursuant to this Section 1.4(b) shall extend the period for exercise of the Option pursuant to Section 1.2(a). Section 1.5 Conditions. The obligation of each Shareholder to sell such Shareholder's Shares at any Closing is subject to the following conditions: (a) The representations and warranties of Buyer contained in Article 4 shall be true and correct in all material respects on the date thereof as if made on such date; (b) All waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act") applicable to such exercise of the Option shall have expired or been terminated; and (c) There shall be no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, nor any statute, rule, regulation or order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining such exercise of the Option. Section 1.6 Adjustment Upon Changes in Capitalization or Merger. In the event of any change in the Company's capital stock by reason of stock dividends, stock splits, mergers, consolidations, recapitalizations, combinations, conversions, exchanges of shares, extraordinary or liquidating dividends, or other changes in the corporate or capital structure of the Company which would have the effect of diluting or changing the Buyer's rights hereunder, each Shareholder shall take such steps in connection with such consolidation, merger, liquidation or other such action within such Shareholders' powers as shareholders of the Company as may be necessary to assure that the provisions of this Agreement shall thereafter apply as nearly as possible to any securities or property thereafter deliverable upon exercise of the Option. ARTICLE 2 GRANT OF PROXY Section 2.1 Proxy. Each Shareholder hereby revokes any and all previous proxies granted with respect to such Shareholder's Shares. Each Shareholder, by this Agreement, with respect to such Shareholder's Shares, does hereby constitute and appoint Buyer, or any nominee of Buyer, with full power of substitution, as its true and lawful attorney and proxy, for and in its name, place and stead, to vote each of such Shareholder's Shares as its proxy, at every annual, special or adjourned meeting, or solicitation of consents, of the Company (including the right to sign its name (as Shareholder) to any consent, certificate or other document relating to the Company that the law of the State of Delaware may permit or require) (i) in favor of the adoption of the Merger Agreement and this Agreement and approval of the Merger and the other transactions contemplated hereby and thereby, (ii) against any Acquisition Proposal or Superior Acquisition Proposal (as defined in the Merger Agreement) and any other action or agreement 4 5 that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under the Merger Agreement not being fulfilled, and (iii) in favor of any other matter relating to consummation of the transactions contemplated by the Merger Agreement and this Agreement. Each Shareholder further agrees to cause such Shareholder's Shares that are outstanding and owned by it beneficially to be voted in accordance with the foregoing. The proxy granted by each Shareholder pursuant to this Article 2 is irrevocable and is granted in consideration of Buyer's entering into this Agreement and the Merger Agreement; provided, however, that such proxy shall be revoked upon termination of this Agreement in accordance with its terms. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS Each of the Shareholders severally represents and warrants to the Buyer that: Section 3.1 Valid Title. Except as noted on Exhibit A, each such Shareholder is the sole, true, lawful and beneficial owner of such Shareholder's Shares with no restrictions on such Shareholder's voting rights or rights of disposition pertaining thereto which will survive the Closing. At any Closing, such Shareholder will convey good and valid title to such Shareholder's Shares being purchased free and clear of any and all claims, liens, charges, encumbrances and security interests. None of such Shareholder's Shares is subject to any voting trust or other agreement or arrangement with respect to the voting of such Shares. Section 3.2 Non-Contravention. The execution, delivery and performance by such Shareholder of this Agreement and the consummation of the transactions contemplated hereby (i) are within such Shareholder's powers, have been duly authorized by all necessary action (including any consultation, approval or other action by or with any other person), (ii) require no action by or in respect of, or filing with, any governmental body, agency, official or authority (except as may be required under the HSR Act or by any insurance regulatory agency or body), and (iii) do not and will not contravene or constitute a default under, or give rise to a right of termination, cancellation or acceleration of any right or obligation of such Shareholder or to a loss of any benefit of such Shareholder under, any provision of applicable law or regulation or of any agreement, judgment, injunction, order, decree, or other instrument binding on such Shareholder or result in the imposition of any lien on any asset of such Shareholder. Section 3.3 Binding Effect. This Agreement has been duly executed and delivered by such Shareholder and is the valid and binding agreement of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally. If this Agreement is being executed in a representative or fiduciary capacity, the person signing this Agreement has full power and authority to enter into and perform such Agreement. Section 3.4 Total Shares. Such Shareholder is the record and/or Beneficial Owner of the number of Shares, as such ownership is set forth next to such Shareholder's name on 5 6 Exhibit A hereto. Except as set forth on Exhibit A, such Shares, constitute all of the Shares, owned of record or Beneficially Owned by such Shareholder. Except as set forth on Exhibit A, neither such Shareholder nor any beneficial owner or owners of such Shareholder's Shares own any options to purchase or rights to subscribe for or otherwise acquire any securities of the Company. Except as set forth on Exhibit A, each Shareholder has sole voting power and sole power to issue instructions with respect to the matters set forth in Article 2 of this Agreement, sole power of disposition, sole power of conversion, sole power to demand appraisal rights and sole power to agree to all of the matters set forth in this Agreement, in each case with respect to all of the Shares, beneficially owned by such Shareholder with no limitations, qualifications or restrictions on such rights, subject to applicable securities laws and the terms of this Agreement. The terms "Beneficially Owned" or "Beneficial Ownership" with respect to any securities shall mean having "beneficial ownership" of such securities as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended. Section 3.5 Finder's Fees. No investment banker, broker or finder, other than Advest, Inc., is entitled to a commission or fee from Shareholder or the Company in respect of this Agreement based upon any arrangement or agreement made by or on behalf of such Shareholder. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer represents and warrants to each of the Shareholders: Section 4.1 Corporate Power and Authority. Buyer is duly organized, validly existing and in good standing under the laws of Delaware. Buyer has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby have been duly authorized by the board of directors of Buyer and no other corporate action on the part of Buyer is necessary to authorize the execution, delivery or performance by Buyer of this Agreement and the consummation by Buyer of the transactions contemplated hereby. This Agreement has been duly executed and delivered by Buyer and is a valid and binding agreement of Buyer, enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally. Section 4.2 Acquisition for Buyer's Account. Any Shareholder Shares to be acquired upon exercise of the Option will be acquired by Buyer for its own account and not with a view to the public distribution or resale thereof and will not be transferred except in compliance with the Securities Act of 1933, as amended. ARTICLE 5 COVENANTS OF THE SHAREHOLDERS Each of the Shareholders hereby covenants and agrees that: 6 7 Section 5.1 No Proxies for or Encumbrances on Shareholder Shares. Except pursuant to the terms of this Agreement, such Shareholder shall not, without the prior written consent of Buyer, directly or indirectly, (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any Shares or (ii) acquire, sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect acquisition or sale, assignment, transfer, encumbrance or other disposition of, any Shares, any shares of preferred stock or any warrants during the term of this Agreement other than the acquisition of Shares by means of existing options, warrants or other convertible securities, provided that upon exercise or acquisition the Shares become Shareholder Shares subject to this Agreement. Section 5.2 Other Offers. Each Shareholder in his or its capacity as a shareholder of the Company agrees to be bound to his obligations and the restrictions placed upon him as a director of the Company pursuant to Section 5.4 of the Merger Agreement. Section 5.3 Conduct of Shareholders. Such Shareholder will not (i) take, agree or commit to take any action that would make any representation and warranty of such Shareholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (ii) omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. Section 5.4 Disclosure. Each Shareholder hereby permits Buyer to publish and disclose in the offer documents and, if approval of the Company's shareholders is required under applicable law, a proxy statement (including all documents and schedules filed with the SEC) their identity and ownership of the Shares and the nature of their commitments, arrangements and understandings under this Agreement. ARTICLE 6 MISCELLANEOUS Section 6.1 Termination of Agreement. This Agreement shall terminate and unexercised Options, if any, shall expire on the earliest to occur of (a) termination of the Merger Agreement pursuant to Section 9.1(a), (b), (c) or (d) thereof; (b) upon consummation of the Offer by payment for Shares duly tendered pursuant to the Offer; or (c) December 31, 2000. No such termination of this Agreement shall relieve any party hereto from any liability for any breach of this Agreement prior to its termination. Upon termination of this Agreement, all proxies granted pursuant to Article 2 shall lapse. Any obligation of Buyer to pay the Option Purchase Amount for Shareholder Shares acquired through exercise of the Option, as such Option Purchase Amount may be adjusted pursuant to Sections 1.2, 1.3 or 1.4(a), shall survive termination of this Agreement. Section 6.2 Indemnification of Shareholders. If the grant or exercise of the Option or proxy made by any Shareholder pursuant to Sections 1.1 or 2.1, respectively, hereof results in any violation or alleged violation of insurance laws or regulations, Buyer will indemnify each such Shareholder against all claims, actions, suits, proceedings or investigations, losses, 7 8 damages, liabilities (or actions in respect thereof), costs and expenses (including reasonable fees and expenses of counsel) if brought by an insurance regulatory body or insurance agency having jurisdiction over the subject matter hereof arising out of or based upon such violation or alleged violation and unless Buyer shall have assumed the defense thereof, as provided below, (a) Buyer shall pay as incurred the reasonable fees and expenses of counsel selected by the Shareholder, which counsel shall be reasonably satisfactory to Buyer, promptly as statements therefor are received, and (b) Buyer will cooperate in the defense of any such matter; provided, however, that Buyer shall not be liable for any settlement effected without its prior written consent (which consent shall not be unreasonably withheld); and provided, further, that Buyer shall not be obliged pursuant to this Section 6.2 to pay the fees and disbursements of more than one counsel for all Shareholders in any single action except to the extent that, in the opinion of counsel for the Shareholders, two or more of such Shareholders have conflicting interests in the outcome of such action. In the event any person asserts a claim against a Shareholder for which such Shareholder intends to seek indemnification hereunder, such Shareholder shall give prompt notice to Buyer, and shall permit Buyer to assume the defense of any such claim or any litigation resulting therefrom with counsel selected by Buyer, which counsel shall be Winstead Sechrest & Minick P.C. (unless such firm shall have a conflict of interest) or other counsel reasonably acceptable to such Shareholder; provided that such Shareholder may participate in such defense at its own expense, and provided further that the failure of any Shareholder to give notice as provided herein shall not relieve Buyer of its obligations under this Section 6.2 except to the extent Buyer is materially prejudiced thereby. Buyer shall not, in the defense of any such claim or litigation, except with the consent of the Shareholder being indemnified, consent to the entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Shareholder of a release from all liability in respect of such claim or litigation. Each Shareholder shall promptly furnish such information regarding itself or the claim in question as Buyer may reasonably request and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom. Section 6.3 Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense. Section 6.4 Further Assurances. (a) In the event the Buyer exercises the Option, the Buyer and the Shareholders will each execute and deliver or cause to be executed and delivered all further documents and instruments and use commercially reasonable efforts to secure such consents and take all such further action as may be reasonably necessary in order to consummate the transactions contemplated hereby or to enable the Buyer and any assignee to exercise and enjoy all benefits and rights of the Shareholders with respect to the Option and the Shareholder Shares. (b) Buyer and each of the Shareholders acknowledge that it is Buyer's obligation to obtain the consent or approval of any insurance regulatory body or insurance agency that may be required for the grant or exercise of the Option or the proxy granted pursuant 8 9 to this Agreement. Each of the Shareholders agrees to cooperate fully with Buyer in obtaining any such consent or approval. Notwithstanding the preceding sentence, the period in which the Option is exercisable pursuant to the terms of Section 1.2 hereof will not be extended by this Section 6.4(b). Section 6.5 Additional Agreements. Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations and which may be required under any agreements, contracts, commitments, instruments, understandings, arrangements or restrictions of any kind to which such party is a party or by which such party is governed or bound, to consummate and make effective the transactions contemplated by this Agreement. Section 6.6 Specific Performance. The parties hereto agree that the Buyer may be irreparably damaged if for any reason any Shareholder failed to sell such Shareholder's Shares (or other securities deliverable pursuant to Section 1.3 upon exercise of the Option or to perform any of its other obligations under this Agreement, and that the Buyer would not have an adequate remedy at law for money damages in such event. Accordingly, the Buyer shall be entitled to specific performance and injunctive and other equitable relief to enforce the performance of this Agreement by each Shareholder. This provision is without prejudice to any other rights that the Buyer may have against any Shareholder for any failure to perform its obligations under this Agreement. Section 6.7 Notices. All notices, requests, claims, demands and other communications hereunder shall be deemed to have been duly given when delivered in person, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to such party and shall be given: (a) if to Buyer to: Merger Sub of Delaware, Inc. 13403 Northwest Freeway Houston, Texas 77040 Telecopy: (713) 462-2401 Attention: Frank J. Bramanti 9 10 with copies (which shall not constitute notice) to: Winstead Sechrest & Minick P.C. 910 Travis, Suite 2400 Houston, Texas 77002 Telecopy: (713) 650-2400 Attention: Arthur S. Berner and Gibson, Dunn & Crutcher LLP 4 Park Plaza Irvine, California 92614 Telecopy: (949) 451-3800 Attention: Robert E. Dean (b) if to a Shareholder, at the address set forth below such Shareholder's name on the signature pages hereto. Section 6.8 Survival of Representations and Warranties. All representations and warranties contained in this Agreement shall survive delivery of and payment for the Shareholder Shares. Section 6.9 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the maximum extent possible. Section 6.10 Amendments. This Agreement may not be modified, amended, altered or supplemented, except upon the execution and delivery of a written agreement executed by the parties hereto. Section 6.11 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns, provided that Buyer may assign its rights and obligations to any affiliate of Buyer in which case Buyer shall remain liable hereunder; and provided, further, that no Shareholder may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the Buyer. 10 11 Section 6.12 Governing Law. This Agreement shall be construed in accordance with and governed by the law of the State of Delaware regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. Section 6.13 Jurisdiction. Each of the parties hereto (a) consents to submit itself to the non-exclusive personal jurisdiction of any court of the United States located in the State of Delaware or of any Delaware state court in the event any dispute arises out of this Agreement or the transactions contemplated by this Agreement, and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court. Section 6.14 Counterparts; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Section 6.15 Definitions. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Merger Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. Merger Sub of Delaware, Inc. By: /s/ STEPHEN L. WAY -------------------------------- Name: Stephen L. Way ------------------------------ Title: Chairman of the Board and Chief Executive Officer ----------------------------- /s/ DAVID L. CARGILE ------------------------------------ David L. Cargile 26231 Mount Diablo Road Laguna Hills, CA 92653 Telephone: (949) 831-2123 Facsimile: (949) 360-9558 [Signatures continued on next page] 11 12 /s/ L. STEVEN MEDGYESY, M.D. ----------------------------------- L. Steven Medgyesy, M.D. 161 East Chicago Avenue Apt. 40D & E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 /s/ ROBERT M. LEVIN ----------------------------------- Robert M. Levin Co-Trustee of the Greedy Hand Trust 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 /s/ ERMA S. MEDGYESY ----------------------------------- Erma S. Medgyesy, Co-Trustee of the Greedy Hand Trust 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the Laura Descendants Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 S-1 (Signature Page to Shareholder Option Agreement) 13 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the Laura Family Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the LSM Daughter Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the Laura L. Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the LSM Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the L. Steven Jr. Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 S-2 (Signature Page to Shareholder Option Agreement) 14 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the LSM Children Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the LSM Son Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the L. Steven Jr. Descendants Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, Trustee of the L. Steven Jr. Family Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ ROBERT M. LEVIN ----------------------------------- Robert M. Levin Co-Trustee of the Popcorn Trust 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 S-2 (Signature Page to Shareholder Option Agreement) 15 /s/ LAURA MEDGYESY ----------------------------------- Laura Medgyesy Co-Trustee of the Popcorn Trust 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 /s/ ROBERT M. LEVIN ----------------------------------- Robert M. Levin, Co-Trustee of the Hit & Run Trust 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 /s/ LASZLO STEVEN MEDGYESY ----------------------------------- Laszlo Steven Medgyesy, Co-Trustee of the Hit & Run Trust 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 /s/ ERMA S. MEDGYESY ----------------------------------- Erma S. Medgyesy, 161 East Chicago Avenue Apt. 40D&E Chicago, IL 60611 Telephone: (312) 787-0108 Facsimile: (312) 787-1741 S-2 (Signature Page to Shareholder Option Agreement) 16 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer, general partner of UBI Partnership 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ ALISA M. SINGER ----------------------------------- Alisa M. Singer, Trustee of the Howard and Alisa Singer Descendants Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ HOWARD S. SINGER ----------------------------------- Howard S. Singer IRA, Bear Stearns Security Corp. Custodian (individual retirement account f/b/o Howard S. Singer) 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 /s/ L. STEVEN MEDGYESY ----------------------------------- L. Steven Medgyesy, Trustee of the Singer Family Trust 2956 Techny Road Northbrook, IL 60062 Telephone: (847) 272-2842 Facsimile: (847) 272-3556 S-2 (Signature Page to Shareholder Option Agreement) 17 EXHIBIT A
SHAREHOLDER(1) SHARES OPTIONS(2) David L. Cargile 44,000(3) 485,000 L. Steven Medgyesy, M.D. 150,932 32,000 Howard Singer, Trustee of the L. Steven Medgyesy Family Trust(4),(5) 67,060 0 Robert M. Levin and Erma S. Medgyesy, Co-Trustees of the Greedy Hand Trust(4) 100,000 0 Robert M. Levin and Laura Medgyesy, Co-Trustees of the Popcorn Trust(4) 68,834 0 Erma S. Medgyesy and Laszlo Steven Medgyesy, Jr., Co-Trustees of the Hit & Run Trust(4) 85,834 0 Erma S. Medgyesy 16,120 0 Howard S. Singer 270,005 84,200 UBI Partnership, Howard S. Singer, general partner 14,000 0 Alisa M. Singer, Trustee of the Howard and Alisa Singer Descendants Trust(4) 16,828 0 Howard S. Singer IRA, Bear Stearns Security Corp. Custodian (individual retirement 5,600 0 account f/b/o/ Howard S. Singer) L. Steven Medgyesy, Trustee of the Singer Family Trust(4) 172,622 0
- -------- (1) Certain of the Shares set forth above have been pledged to secure certain obligations of the Shareholders. In addition, certain of the shares set forth above may deemed "beneficially owned" for federal securities law purposes by more than one Shareholder. Such additional beneficial ownership is not reflected in the above table in order to avoid duplicative reporting of Shares. (2) Any options held by a Shareholder to purchase additional Shares ("Company Options") are not subject to the Option granted to Buyer pursuant to this Agreement. Pursuant to Section 1.1 of this Agreement, to the extent any Company Option held by a Shareholder is exercised prior to the exercise of the Option granted pursuant to this Agreement, the Shares issuable by the Company to the Shareholder under such Company Option will become subject to this Agreement. As of the date hereof, the Company Options held by the Shareholders are noted on this Exhibit A for information only. (3) Mr. Cargile may be deemed a "beneficial owner" of 3,000 Shares owned by his daughter, Amanda Cargile, who resides with him. Those 3,000 Shares are not included in Mr. Cargile's Shareholder Shares and are not subject to this Agreement. (4) With respect to each of the above-mentioned Shareholders that are trusts, the trustees thereof hold legal title and sole power to vote and dispose of the Shares held by the subject trust. (5) The L. Steven Medgyesy Family Trust is actually ten individual trusts, each holding 6,706 Shares. EX-99.C3 11 STOCK OPTION AGREEMENT DATED 10/11/99 1 STOCK OPTION AGREEMENT This STOCK OPTION AGREEMENT (the "Agreement") made and entered into this 11th day of October, 1999 by and between HCC INSURANCE HOLDINGS, INC. ("Parent"), a Delaware corporation, and THE CENTRIS GROUP, INC. (the "Company"), a Delaware corporation. WHEREAS, Parent, Merger Sub of Delaware, Inc., a Delaware corporation and wholly owned subsidiary of Parent (the "Merger Subsidiary"); and the Company have entered into an Agreement and Plan of Merger of even date herewith (the "Merger Agreement") whereby Parent through Merger Subsidiary will acquire the Company at a price of $12.50 per share in cash; and WHEREAS, Parent and the Company wish to enter into this Stock Option Agreement whereby Parent will be granted a stock option pursuant to the terms hereof to acquire shares of common stock $.01 par value together with attached rights to purchase shares (the "Common Stock") of the Company. NOW, THEREFORE, in consideration of the mutual covenants, agreements and promises set forth herein and other good and valuable consideration the sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: 1. Grant of Option. The Company hereby grants to Parent an option (the "Option") to purchase, subject to the terms hereof, 2,327,797 shares of Common Stock of the Company (the "Option Shares") equal to approximately 19.9% of the shares of Common Stock issued and outstanding as of the date hereof, at a price per share of $12.50 (the "Option Price"); provided, however, that in no event shall the number of shares of Common Stock for which this Option is exercisable exceed 19.9% of the Company's issued and outstanding shares of Common Stock (without giving effect to any Option Shares subject to or issued pursuant to this Option). The number of Option Shares of Common Stock that may be received upon the exercise of the Option and the Option Price are, subject to adjustment as set forth at Section 5. The Option shall be nontransferable, except as expressly provided herein. The Option shall become exercisable and may be exercised in whole, or in part, at any time and from time to time, until the expiration of the Option as provided herein. The Option shall only be exercisable if, at any time after the date hereof and prior to the expiration of the Option, the Company shall have entered into, or shall have publicly announced its intention to enter into, an agreement or an agreement in principle with respect to any Acquisition Proposal or Superior Acquisition Proposal (as defined in the Merger Agreement). The Option shall expire at 11:59 p.m. California time on the earlier of the fifth Business Day after the Acquisition Proposal or Superior Acquisition Proposal is terminated or December 31, 2000. 2. Exercise of Option. Upon exercise of all or any part of the Option, Parent shall pay the aggregate exercise price attributable to such exercise to the Company by certified or official bank check or by wire transfer of funds. 2 3. Option Shares; Certificates. The Option Shares acquired upon exercise of the Option shall be validly issued, fully paid and nonassessable and the certificate or certificates evidencing the Option Shares shall constitute good delivery, shall be registered in the name of Parent and shall bear the legend: "The shares evidenced by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold or transferred except in compliance with that Act. The transfer of the shares represented by this certificate are further subject to certain provisions of an agreement between the registered holder hereof and The Centris Group, Inc. A copy of such agreement is on file at the principal office of The Centris Group, Inc. and will be provided to the holder hereof without charge upon receipt by The Centris Group, Inc. of a written request therefor." It is understood and agreed that: (i) the reference to the transfer restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend shall be removed by delivery of substitute certificate(s) without such reference if Parent shall have delivered to the Company a copy of a letter from the staff of the Securities and Exchange Commission (the "SEC"), or an opinion of counsel, in form and substance reasonably satisfactory to the Company, to the effect that such legend is not required for purposes of the 1933 Act; (ii) the reference to the provisions of this Agreement in the above legend shall be removed by delivery of substitute certificate(s) without such reference if the shares have been sold or transferred in compliance with the provisions of this Agreement and under circumstances that do not require the retention of such reference in the opinion of counsel, in form and substance reasonably satisfactory to the Company; and (iii) the legend shall be removed in its entirety if the conditions in the preceding subsections (i) and (ii) are both satisfied. In addition, such certificates shall bear any other legend as may be required by law. 4. Parent Representations for Exercise. In connection with the exercise of the Option, Parent shall furnish the Company with such representations and commitments with respect to the Option Shares as shall be reasonably requested by the Company in order to insure compliance with the 1933 Act. 5. Adjustment of Shares. (a) In the event that any shares of Common Stock are redeemed, repurchased, retired or otherwise cease to be outstanding after the date of this Agreement, or in the event of any exercise of stock options held by employees or directors of the Company the number of shares of Common Stock subject to the Option shall be decreased or increased, as appropriate, so that, after such redemption, repurchase, retirement or exercise or other action, such number equals 19.9% of the number of shares of Common Stock then issued and outstanding without giving effect to any shares subject to or issued pursuant to this Option. Nothing contained in this Section 5(a) or elsewhere in this Agreement shall be deemed to authorize the Company or the Parent to redeem, repurchase or retire shares in breach of any provision of the Merger Agreement. 2 3 (b) In addition to the adjustment in the number of shares of Common Stock that are purchasable upon exercise of the Option pursuant to Section 5(a) of this Agreement, the number of shares of Common Stock purchasable upon the exercise of the Option and the Option Price shall be subject to adjustment from time to time as provided in this Section 5(b). In the event of any change in, or distributions in respect of, the Common Stock by reason of stock dividends, split-ups, mergers, recapitalizations, combinations, subdivisions, conversions, exchanges of shares, distributions on or in respect of the Common Stock the type and number of Option Shares purchasable upon exercise hereof and the Option Price shall be appropriately adjusted in such manner as shall fully preserve the economic benefits provided hereunder and proper provision shall be made in any agreement governing any such transaction to provide for such proper adjustment and the full satisfaction of the Company's obligations hereunder. 6. Repurchase of Option. If, before the expiration of the Option, there is either (i) an Acquisition Proposal which at any time becomes a Superior Acquisition Proposal (each as defined in the Merger Agreement) (regardless of whether it is consummated) or (ii) the commencement of a tender offer or exchange offer for at least 20% of the shares of Common Stock of the Company or (iii) the acquisition by any person or "group" (within the meaning of Rule 13d-5 under the Securities Exchange Act of 1934, as amended) of at least 20% of the shares (or rights to acquire shares) of Common Stock of the Company, then, in either event, for a period of 100 days after (x) such Acquisition Proposal becomes a Superior Acquisition Proposal (as defined in the Merger Agreement) or (y) such event occurs, but prior to the expiration of the Option, Parent shall be entitled to sell the Option to the Company and the Company shall be required to purchase the Option from Parent, for $6,000,000 in cash against Parent's written acknowledgment that it has surrendered all of its rights to the Option. 7. Notice of Repurchase. If Parent determines to sell the Option to the Company, Parent shall give the Company written notice of such determination. 8. Closing of Repurchase. The closing of the sale of the Option shall take place at the Houston offices of Winstead Sechrest & Minick P.C. in Houston, Texas at 9:30 a.m. Houston time on the 3rd business day after Parent has given the Company written notice of its intention to sell the Option to the Company. 9. Expiration Upon Payment of Termination Fee. Notwithstanding anything to the contrary herein, the Option shall expire if the Parent shall have been paid or shall be paid the Termination Fee pursuant to Section 10.4 of the Merger Agreement. 10. Amendment of Rights Agreement. The Company hereby agrees that immediately prior to execution of this Agreement, it shall take all necessary action under the Rights Agreement, dated as of May 24, 1990, as amended by and between the Company and American Stock Transfer & Trust Company (the "Rights Agreement"), including any required amendment thereto, so that the grant or exercise of the Option on the terms permitted hereunder and as contemplated herein will not cause (i) the rights (the "Rights") issued pursuant to the Rights Agreement to become exercisable under the Rights Agreement, (ii) the Parent, or any subsidiary of the Parent, including Merger Subsidiary to be deemed a "10% Stockholder" (as defined in the 3 4 Rights Agreement) or (iii) the "10% Stock Ownership Date" (as defined in the Rights Agreement) to occur upon such consummation, provided, however, that the Company shall not be required to make such amendments to the Rights Agreement if, (x) the Parent has not performed or complied in all material respects with this Agreement prior to the exercise of the Option or (y) the Company obtains, and there is in force from the Delaware Court of Chancery, an order permanently, preliminarily or temporarily declaring that the making of such amendments to the Rights Agreement would be contrary to the fiduciary duties of the Board of Directors of the Company. Notwithstanding anything else contained herein, in no event shall the Board of Directors of the Company make any comparable amendment of the Rights Agreement in favor of any other person without making such amendment in favor of the Parent. 11. Representations and Warranties of the Company. The Company hereby represents and warrants to Parent as follows: (a) The Company has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by the Board of Directors of the Company and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the transactions so contemplated. This Agreement has been duly and validly executed and delivered by the Company. (b) The Company has taken all necessary corporate action to authorize and reserve and to permit it to issue, and at all times from the date hereof through the termination of this Agreement in accordance with its terms will have reserved for issuance upon the exercise of the Option, that number of shares of Common Stock equal to the maximum number of shares of Common Stock at any time and from time to time issuable hereunder, and all such shares, upon issuance pursuant hereto, will be duly authorized, validly issued, fully paid, nonassessable, and will be delivered free and clear of all claims, liens, encumbrance and security interests and not subject to any preemptive rights. 12. Representations and Warranties of the Parent. Parent hereby represents and warrants to the Company that: (a) Parent has all requisite corporate power and authority to enter into this Agreement and, subject to any approvals or consents to herein, to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of Parent. This Agreement has been duly executed and delivered by Parent. (b) The Option is not being, and any shares of Common Stock or other securities acquired by Parent upon exercise of the Option will not be, acquired with a view to the public distribution thereof and will not be transferred or otherwise disposed of except in a transaction registered or exempt from registration under the 1933 Act. 4 5 13. Equitable Remedies. The parties hereto acknowledge that damages would be an inadequate remedy for a breach of this Agreement by either party hereto and that the obligations of the parties hereto shall be enforceable by either party hereto through injunctive or other equitable relief. 14. Validity. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal or state regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions and covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. 15. Filings; Waiting Period. Each of Parent and the Company will use commercially reasonable efforts to make all filings with, and to obtain all consents of, all governmental authorities necessary to the consummation of the transactions contemplated by this Agreement, including, without limitation, to promptly make or cause to be made the filings required of such party or any of its subsidiaries under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder and the expiration or termination of any prescribed waiting period. 16. Notices. All notices, requests, claims, demands and other communications hereunder shall be deemed to have been duly given when delivered in person, by cable, telegram, telecopy or telex, or by registered or certified mail (postage prepaid, return receipt requested) at the respective addresses of the parties set forth in the Merger Agreement. 17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. 18. Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original, but all of which shall constitute one and the same agreement. 19. Expenses. Except as otherwise expressly provided herein, each of the parties hereto shall bear and pay all costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including fees and expenses of its own financial consultants, investment bankers, accountants and counsel. 20. Entire Agreement. Except as otherwise expressly provided herein or in the Merger Agreement, this Agreement contains the entire agreement between the parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereof, written or oral. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns. Nothing in this Agreement, expressed or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein. 5 6 21. Capitalized Terms. Capitalized terms used in this Agreement and not defined herein shall have the meanings ascribed thereto in the Merger Agreement. IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. HCC INSURANCE HOLDINGS, INC. /s/ STEPHEN L. WAY --------------------------------------------- By: Stephen L. Way Chairman of the Board and Chief Executive Officer THE CENTRIS GROUP, INC. /s/ DAVID L. CARGILE --------------------------------------------- By: David L. Cargile Chairman of the Board and Chief Executive Officer 6 EX-99.C4 12 CONFIDENTIALITY AGREEMENT DATED 8/22/99 1 August 22, 1999 PRIVATE AND CONFIDENTIAL ------------------------ Stephen L. Way Chairman & Chief Executive Officer HCC Insurance Holdings, Inc. 13403 Northwest Freeway Houston, TX 77040-6094 RE: CONFIDENTIALITY AGREEMENT Dear Stephen: In connection with your consideration of a possible transaction with The Centris Group, Inc. ("Centris"), we will provide you, upon your request, certain financial and other information (the "Evaluation Material") concerning the business and affairs of Centris. The terms "you" or "your" in this Agreement include HCC Insurance Holdings, Inc. and all of its affiliates as that term is defined in the Federal Securities laws. The term "Evaluation Material" includes all information furnished to you in connection with a possible transaction, regardless of the source or manner in which it is furnished, whether written or oral or electronically stored or transmitted, furnished before or after the date hereof to you or your Representatives (as defined below) by Centris (which shall be deemed to include its directors, officers, employees, agents and representatives), or by other sources together with any analyses, compilations, studies, or other documents or records prepared by you or your Representatives, containing, reflecting, or resulting from such information; provided, however, Evaluation Material does not include information which (i) is or becomes generally available to the public other than as a result of a disclosure by you or your directors, officers, employees, affiliates, agents, accountants, attorneys, financial advisors or any of their affiliates, representatives, agents or advisors, (all of the foregoing collectively referred to as "your Representatives"); or (ii) was or becomes available to you on a non-confidential basis from a source other than Centris, provided that such source is not known to you to be bound by a confidentiality agreement or other contractual, legal or fiduciary obligations of non-disclosure with Centris; or (iii) was lawfully within your possession prior to its being furnished to you by or on behalf of Centris, as evidenced by your written records, provided that the source of such information was not known to you to be bound by a confidentiality agreement or prohibited from furnishing the information to you due to a contractual, legal or fiduciary obligation with Centris in respect thereof; or (iv) is independently developed by you without any reliance on or use of the Evaluation Material. 2 Stephen L. Way August 22, 1999 Page 2 As a condition to you and your Representatives being furnished with any Evaluation Material, you agree as follows: (1) You recognize and acknowledge the competitive value and confidential nature of the Evaluation Material and the damage that could result to Centris if information contained therein is disclosed to any third party. The Evaluation Material will not be used by you or your affiliates or Representatives in any way detrimental to Centris, including, without limitation, in competition with Centris. (2) You agree that the Evaluation Material will be used solely for the purpose of evaluating a possible transaction between Centris and you. You also agree that you and your Representatives will keep the Evaluation Material confidential and will not disclose any of the Evaluation Material now or hereafter received or obtained from Centris, or any of their representatives to any third party, without the prior written consent of Centris; provided, however, that any of the Evaluation Material may be disclosed to your Representatives who need to know the information contained in the Evaluation Material for the purpose of evaluating a possible transaction with Centris and who agree to keep such information confidential and to be bound by this Agreement to the same extent as if they were parties hereto (it being understood and agreed that your Representatives shall be informed by you of the confidential nature of the Evaluation Material and shall be directed by you to treat the Evaluation Material confidentially). In any event, you shall be fully legally responsible for any improper use of the Evaluation Material by your Representatives. (3) In addition, Centris will not and, without the prior written consent of Centris, or unless required by valid court order or other valid order of an adjudicatory body, neither you nor your Representatives will disclose to any person (which shall include, without limitation, any corporation, company, group, partnership or individual) (a) that the Evaluation Material has been made available to you, (b) that you have inspected any portion thereof, (c) that discussions or negotiations are taking place concerning a possible transaction with Centris or (d) any of the terms, conditions or other facts with respect to any such possible transaction, including the status thereof. (4) In the event that the transaction contemplated by this agreement is not consummated, or upon Centris' request, all Evaluation Materials (and all copies, extracts or other reproductions in whole or in part thereof) provided to you by Centris or its representatives shall be returned to Centris (or, with Centris' written 3 Stephen L. Way August 22, 1999 Page 3 permission, destroyed, and, if requested by Centris, such destruction shall be certified in writing to Centris by an authorized officer supervising such destruction) and not retained by you or your Representatives in any form (electronically or otherwise) or for any reason. All documents, copies, summaries and analyses, memoranda, notes and other writings, including information in electronic form whatsoever which was prepared by you or your Representatives and which contain Evaluation Material shall be destroyed or purged, and, if requested by Centris, such destruction shall be certified in writing to Centris by an authorized officer supervising such destruction. (5) You agree that (except as permitted in the following paragraph) for a period of six (6) months from the date of this Agreement, neither you nor any of your affiliates or associates will, in any manner, alone or in concert with third parties (whether or not pursuant to any legally binding agreement or commitment), without the prior written approval of the Board of Directors or Executive Committee of Centris (i) acquire, or offer to acquire, directly or indirectly, record or beneficial ownership of any equity securities of Centris or of any subsidiary of Centris; (ii) acquire or offer to acquire, directly or indirectly, any options or other rights to acquire any equity securities of Centris or of any subsidiary of Centris (whether or not exercisable only after the passage of time or the occurrence of any event); (iii) acquire or offer to acquire, directly or indirectly, any assets of Centris; (iv) offer to enter into any acquisition or other business combination transaction relating to Centris or to any subsidiary of Centris; (v) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" or "written authorization or consent" (as such terms are used in the proxy rules of the Securities and Exchange Commission) to vote, or seek to advise or influence any person with respect to the voting of any voting securities of Centris; (vi) otherwise act alone or in concert with third parties, to seek to control or influence the management, the Board of Directors or the policies of Centris; (vii) directly or indirectly participate in or encourage the formation of any "group" (within the meaning of Section 13 (d) (3) of the Securities Exchange Act of 1934) which owns or seeks or offers to acquire record or beneficial ownership of equity securities of Centris (including rights to acquire such equity securities) or which seeks or offers to affect control of Centris or otherwise seeks or proposes to do any of the acts specified in (i) through (vi) above; (viii) propose, or publicly announce or otherwise disclose any request for permission or consent in respect of, any of the foregoing; or (ix) advise, assist or encourage any third parties in connection with any of the foregoing. You also agree during such period not to (a) request Centris (or its directors, officers, employees or agents), directly or indirectly, to amend or waive any provision of this paragraph (including this 4 Stephen L. Way August 22, 1999 Page 4 sentence) or (b) take any action which would require Centris to make a public announcement regarding the possibility of a business combination or merger without the prior written approval as noted above. Notwithstanding the generality of the foregoing, this Agreement shall not prohibit: (i) the purchase by you, or of any investment fund managed by you or any of your affiliates, of equity securities of Centris; provided that no such purchase shall result in the beneficial ownership by you, taken in the aggregate with any such investment funds, of five percent (5%) or more of the outstanding shares of any class of equity securities of Centris; (ii) an offer by you to acquire all of the outstanding shares of Centris common stock at a purchase price of $14.00 per share or greater; or (iii) in the event the Board of Directors of Centris shall approve an "Acquisition Transaction" with another party, an offer by you to acquire all of the outstanding stock of Centris, or the purchase of shares of common stock pursuant to your offer. As used herein, an "Acquisition Transaction" means any transaction in which all or substantially all of the assets of Centris, or a majority of the common stock of Centris will be acquired by any person, or a merger in which the shares of common stock of Centris outstanding immediately prior to such transaction, or of any other person issued in exchange for such Centris shares, will represent either (a) less than a majority of the outstanding shares of the surviving corporation in such merger; or (b) (if the surviving corporation is a wholly owned subsidiary of another corporation) less than a majority of the outstanding shares of such parent corporation, immediately upon completion of such merger. In the event that, while this Section 5 remains in effect, Centris determines not to oppose any publicly disclosed offer by a third party for an Acquisition Transaction, Centris will afford you an opportunity, not less than five (5) business days, to submit a competing offer and to make public disclosure concerning the same. This Section 5 shall terminate and be of no further effect in the event Centris' stockholders' equity shall be reduced by 5% or more from the amount thereof as of June 30, 1999, without giving effect to: (i) any reduction of up to $3.8 million resulting from the repurchase of common stock of Centris, and (ii) any unrealized loss on investments resulting from a general change in interest rates or other general changes in market conditions. (6) Neither you nor your Representatives will initiate any communications with any employee of Centris concerning the Evaluation Material without the prior consent of the Chairman of Centris or his appointed representative. 5 Stephen L. Way August 22, 1999 Page 5 (7) Neither you nor your Representatives will initiate discussions with respect to the prospective employment of Centris' employees with you or any of your Representatives for a period of twelve (12) months after the date of signing this Agreement without the prior written consent of Centris. (8) Neither Centris nor its agents make any representations or warranties as to the accuracy or completeness of the Evaluation Material. Centris and its agents expect that you will conduct your own independent investigation and analysis. You agree that neither Centris nor any of its officers, directors, employees, agents or representatives shall have any liability to you or your Representatives resulting from the use of the Evaluation Material supplied by Centris or any of its representatives under this Agreement. (9) No delay or failure in exercising any right, power or privilege hereunder shall be construed to be a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any right, power or privilege hereunder. (10) Notwithstanding anything to the contrary set forth herein, in the event that you or any of your Representatives are requested or become legally compelled (by oral questions, interrogatories, request for information or documents, subpoena, civil investigative demand or similar process) to disclose any of the Evaluation Material or take any other action prohibited hereby, you will provide Centris with prompt written notice so that Centris may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or that Centris waives compliance with the provisions of this Agreement, you will use commercially reasonable efforts to furnish only that portion of the Evaluation Material or take only such action which is legally required and to obtain reliable assurances that confidential treatment will be accorded any Evaluation Material so furnished. (11) It is understood that Centris may institute appropriate proceedings against you to enforce its rights hereunder. Because the harm which may be done to Centris by the disclosure of the Evaluation Material, you acknowledge and agree that money damages would not be a sufficient remedy for any violation of the terms of this Agreement. Accordingly, you agree that Centris shall be entitled to specific performance and injunctive relief as remedies for any violation by you of your obligations hereunder. These remedies shall not be deemed to be the exclusive 6 Stephen L. Way August 22, 1999 Page 6 remedies for a violation of the terms of this Agreement but shall be in addition to all other remedies available to Centris at law or equity. (12) You understand and agree that no contract or Agreement providing for a transaction between you and Centris shall be deemed to exist unless and until a definitive transaction agreement (a "Transaction Agreement") has been executed and delivered by the parties to this Agreement, and you hereby waive, in advance, any claim (including, without limitation, breach of contract) in connection with a possible transaction unless and until both parties hereto shall have entered into a Transaction Agreement. You also agree that unless and until a Transaction Agreement between us has been executed and delivered, Centris has no legal obligation of any kind whatsoever with respect to any such transaction by virtue of this Agreement or any other written or oral expression with respect to such transaction except, in the case of this Agreement or any other written agreement, for the matters specifically agreed to herein or therein. (13) This Agreement is made pursuant to and to be construed under and conclusively deemed for all purposes to be governed by the laws of the State of California (without giving effect to the principles of conflict of laws) and any judicial proceeding arising out of this Agreement or any matter related thereto shall be brought in the Superior Court of the County of Orange of the State of California, or in the United States District Court for the Central District of California. By execution and delivery of this Agreement, each party accepts the jurisdiction of such courts as noted above, and agrees to be bound by any judgment rendered therein in connection with this Agreement. The prevailing party of any litigation arising out of this Agreement shall be entitled to receive from the losing party all costs and expenses, including the reasonable counsel fees incurred by the prevailing party. (14) This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. (15) Your confidentiality obligations with respect to the Evaluation Material shall survive the date of this Agreement for a period of two (2) years. 7 Stephen L. Way August 22, 1999 Page 7 If the terms hereof are acceptable, please sign and return to Centris one copy of this Agreement to evidence your acceptance of and agreement to the foregoing, whereupon this Agreement will become a binding agreement. Very truly yours, THE CENTRIS GROUP, INC. By: /s/ DAVID L. CARGILE ----------------------------------------------- David L. Cargile Chairman, President and Chief Executive Officer Agreed and consented to this 22nd day of August, 1999: HCC INSURANCE HOLDINGS, INC. By: /s/ STEPHEN L. WAY ----------------------------------------------- Stephen L. Way Chairman and Chief Executive Officer DLC/mks -----END PRIVACY-ENHANCED MESSAGE-----