-----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, UqGZvYoOt1+JZHO40KjrrxbnhG2Ytg5p3d3s/UN9nUjglB8h+QGdIOsfoZPv8duo q8/p53CXv8ZEiwqXZ9jU/A== 0001017062-98-000641.txt : 19980330 0001017062-98-000641.hdr.sgml : 19980330 ACCESSION NUMBER: 0001017062-98-000641 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 19 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTRIS GROUP INC CENTRAL INDEX KEY: 0000798085 STANDARD INDUSTRIAL CLASSIFICATION: SURETY INSURANCE [6351] IRS NUMBER: 330097221 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12099 FILM NUMBER: 98576205 BUSINESS ADDRESS: STREET 1: 650 TOWN CENTER DR STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 7145491600 MAIL ADDRESS: STREET 1: 650 TOWN CENTER DRIVE STREET 2: STE 1600 CITY: COSTA MESA STATE: CA ZIP: 92626-1925 FORMER COMPANY: FORMER CONFORMED NAME: US FACILITIES CORP DATE OF NAME CHANGE: 19920703 10-K 1 FORM 10-K DATED DECEMBER 31, 1997 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K (MARK ONE) [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO --------- ------------ COMMISSION FILE NUMBER: 001-12099 --------------- THE CENTRIS GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 33-0097221 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
650 TOWN CENTER DRIVE, SUITE 1600, COSTA MESA, CA 92626 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (714) 549-1600 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF SECURITIES EXCHANGES ON WHICH REGISTERED ---------- ----------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE COMMON STOCK PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Aggregate Market Value of Voting Stock held by non-affiliates of the Registrant as of March 20, 1998: $130,483,488 (10,817,284 shares at the closing price of $12 1/16 per share). For this purpose, all shares held by officers and directors of the Registrant are considered to be held by affiliates, but neither the Registrant nor such persons concede that they are affiliates of the Registrant. Number of Shares of Common Stock of the Registrant outstanding as of March 20, 1998: 12,166,796 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1997 Annual Report to Stockholders are incorporated by reference into Part II of this Form 10-K. Portions of the Registrant's definitive Proxy Statement to be filed within 120 days after December 31, 1997, are incorporated by reference into Part III of this Form 10-K. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART 1 ITEM 1. BUSINESS GENERAL INFORMATION The Registrant, The Centris Group, Inc., formerly US Facilities Corporation (the "Company"), is a Delaware holding company formed in 1982 which, through its subsidiaries, operates as a specialty insurance group. The Company's USBenefits Insurance Services, Inc. ("US Benefits") subsidiary is the managing general underwriter and marketing organization for medical lines coverages issued by The Continental Insurance Company ("Continental"), one of the CNA Insurance Companies. The Company's USF RE INSURANCE COMPANY ("USF RE") subsidiary writes property/casualty reinsurance and insurance. The Company's INTERRA Reinsurance Group, Inc. ("INTERRA") subsidiary manages and underwrites catastrophic accident and health risks nationally and internationally. In January, 1997 USBenefits acquired the operations of Global Excess Holdings, Inc. a Michigan based managing general underwriter of medical stop- loss insurance. In early September, 1997 the Company acquired INTERRA, an Indiana based company which, as noted above, manages and underwrites catastrophic accident and health risks nationally and internationally. In late September, 1997 USF RE, acquired from The Hanover Insurance Company its Allmerica Re property/casualty treaty operation. On February 3, 1998 the Company announced that its Board of Directors had authorized a two-for-one split of its common stock in the form of a 100% stock dividend to stockholders of record as of February 18, 1998. Certificates reflecting the stock split were issued February 27,1998. All references in this Form 10-K to number of shares, per share amounts and market prices of the Company's common stock have been adjusted retroactively for all periods presented to reflect this change in capital structure. FINANCIAL INFORMATION RELATING TO BUSINESS SEGMENTS The Company's operations are classified into two business segments: (1) medical lines and (2) property/casualty. For additional information see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and also "Note 10" of Notes to CONSOLIDATED FINANCIAL STATEMENTS, which are incorporated herein by this reference from the Company's 1997 Annual Report to Stockholders in response to Items 7 and 8 hereof, respectively. MEDICAL LINES GENERAL Since 1980, USBenefits has had an agreement to underwrite and manage medical lines coverages for Continental or its predecessor. Such agreement provides that USBenefits is responsible for designing medical lines products, marketing the products, underwriting risks, collecting premiums, administering coverage agreements, investigating and settling claims and making claim payments within specified limits. While USBenefits participates in the setting of rates and underwriting standards, which are the ultimate responsibility of Continental, it does not insure any risks in its role as underwriting manager; all insurance risks are borne by Continental and its reinsurers, including USF RE. See "BUSINESS--MEDICAL LINES--MEDICAL LINES REINSURANCE". Under its current management agreement with Continental, USBenefits is paid management fees for its services, which are a percentage of premiums collected. The management agreement may be terminated by either 2 party at any December 31 upon 90 days prior notice, and can also be terminated upon the occurrence of certain events. The management agreement provides that during its term and for a period ranging from 12 to 18 months following termination, Continental will not solicit or take away USBenefits' customers, and that upon termination USBenefits has the right to the expirations and renewals of the medical lines business. The Company believes that these provisions permit USBenefits to move the medical lines business to another insurance company if its relationship with Continental were to terminate. Alternatively, USBenefits could write medical lines coverages on a direct basis through its affiliate, USF RE, which is currently licensed to issue such coverage in 42 states and the District of Columbia. USBenefits also markets various employee benefits insurance products on behalf of several large national life insurance companies. Other than Continental, no one insurance company, third party administrator ("TPA") or insurance producer accounts for 10% or more of USBenefits' revenues. INTERRA underwrites on behalf of an unaffiliated life insurance company and underwrites accident and health reinsurance for its affiliate, USF RE, in addition to providing catastrophic claims management services to the Company and its subsidiaries. INTERRA also provides the Company with growth opportunities in the international accident and health reinsurance marketplace MARKETING USBenefits markets and distributes its medical lines products through a network of TPAs, insurance agents, brokers and consultants (collectively "Producers"). Producers have non-exclusive arrangements with USBenefits that enable them to submit requests for coverage quotations on behalf of their clients. Continental may pay a fee or commission to Producers for placing the coverage, the amount of which is based on a percentage of the premium written and is negotiated on a case-by-case basis. Additionally, USBenefits may pay an annual production bonus to Producers based on the amount of new business and rate of retention of accounts during the calendar year. USBenefits markets its products to a variety of employers, including both large and small employee groups. The Company believes there will be opportunities for growth from industry consolidation. Several of USBenefits' competitors have been acquired, and this activity is expected to continue. Many smaller managing general underwriters have lost their issuing carriers due to unacceptably high loss ratios on their books of business. There has also been consolidaiton in the third-party administrator marketplace, one of USBenefits' primary sources of business. The third party administrators which remain are larger, more financially secure, and seek to do business with sound, well established companies such as USBenefits. In the past few years USBenefits has embarked on a program of aggressively marketing its products to brokers and consultants. These producers control a sizable portion of USBenefits' target market, midsized employer groups, and are the exclusive source of business for larger employer groups. USBenefits has been able to increase its business with the brokerage community while maintaining its committment to its traditional third-party administrator distribution system. PRODUCTS Medical Stop-Loss. USBenefits offers two types of medical stop-loss products: specific excess and aggregate excess. Employers can elect to purchase specific excess coverage only, or a combination of specific and aggregate coverage. USBenefits does not offer aggregate coverage separately. Generally, self-insured employers purchase a combination of specific and aggregate medical stop-loss coverage in order to minimize their exposure. Medical stop-loss coverage is written on a basic form which can be customized to meet the employer's individual needs and ability to retain risk. Medical stop-loss coverage indemnifies only the employer for its obligations under its self-insured plan of medical benefits; no plan participant or beneficiary is covered by the medical stop-loss policy. Provider Excess. USBenefits provider excess product limits the exposure which providers of medical services incur when they enter into capitated fee arrangements; it protects these providers from excessive losses that can arise when expenses exceed a predetermined level. 3 UNDERWRITING MANAGEMENT Under its agreement with Continental, USBenefits, with the assistance of USF RE, provides the services necessary to underwrite and service the medical lines business, including, but not limited to: (i) selecting Producers; (ii) accepting medical lines risks and issuing coverage agreements on behalf of Continental within mutually agreed upon underwriting and pricing guidelines; and (iii) processing claims for reimbursement under policies on behalf of Continental. MEDICAL LINES REINSURANCE USF RE reinsures a portion of the medical lines business underwritten by USBenefits. Under the reinsurance agreement with Continental, USF RE is responsible for 50% of Continental's liability under such contracts issued through USBenefits. In addition, USF RE is responsible for a proportionate share of loss adjustment expenses and any liability incurred by Continental for extra-contractual or punitive damages. The amount of premium ceded by Continental to USF RE under the reinsurance agreement is equal to a proportionate share of the original gross premiums written by Continental, less a ceding commission paid by USF RE to Continental which covers Continental's costs of acquiring and servicing such business. PROPERTY/CASUALTY GENERAL Property/Casualty reinsurance and insurance underwriting is conducted by USF RE and its wholly-owned subsidiary USF Insurance Company ("USFIC"). These subsidiaries both carry an "A" (Excellent) rating from A.M. Best Company and USF RE is assigned a claims paying ability rating of Aq (Good) by Standard & Poor's. Insurance companies purchase reinsurance in order to control and manage the risks they accept when they issue policies. USF RE assumes facultative and treaty reinsurance from unaffiliated insurance companies, primarily through reinsurance intermediaries. Facultative is reinsurance of one risk at a time, while reinsurance treaties cover a portion of all policies written by another insurer in a particular risk category. USF RE concentrates its casualty writings in commercial auto liability, general liability and products liability. It also provides a broad range of coverages for most types of property exposures. USF RE is licensed to write various lines of insurance in 47 states, the District of Columbia and Puerto Rico. RETROCESSIONS USF RE has entered into retrocession (reinsurance) agreements which mitigate USF RE's exposure to losses and therefore allow it to increase the limits it can offer on each property/casualty account. Other retrocession agreements protect against catastrophic losses. Management believes its current retrocessional arrangements are adequate to protect the Company from excessive catastrophic losses. USF RE evaluates the financial condition of potential retrocessionaires to determine whether to cede retrocessional coverage to such companies. USF RE's retrocession agreements are placed with unaffiliated companies which management believes to be financially secure and experienced in this type of business. Reinsurance recoverables are monitored continually, and any retrocessionaire not qualified in USF RE's state of domicile, Massachusetts, is requested to post security in the amount of its estimated liability to USF RE. SURPLUS LINES USFIC, a Pennsylvania domiciled insurance company, is eligible to offer surplus lines coverages in 33 states, the District of Columbia and the U.S. Virgin Islands and is also licensed as an admitted insurer in New York and Florida. USFIC writes surplus lines insurance on commercial property/casualty risks which are marketed through independent excess and surplus lines brokers. STATUTORY FINANCIAL INFORMATION The information presented below conforms to the requirements of "Disclosures Concerning Unpaid Claims and Claim Adjustment Expenses of Property/Casualty Insurance Underwriters" contained in the Securities Exchange Act of 1934 Guide 4 and the Securities Act of 1933 Guide 6. 4 COMBINED RATIO The statutory combined ratio is the traditional indicator of the potential underwriting profitability of an insurance company's business. It reflects the percentage of losses and loss adjustment expenses incurred to earned premiums (the "loss ratio") plus the percentage of production and servicing expenses to net written premiums (the "underwriting expense ratio"). The table below sets forth USF RE's consolidated loss ratio, underwriting expense ratio and combined ratio determined in accordance with statutory accounting practices ("SAP") for the years indicated.
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 1995 -------- ------- ------- Loss ratio.......................................... 78.4 71.0 67.6 Underwriting expense ratio.......................... 27.5 27.9 28.4 -------- ------- ------- Combined ratio...................................... 105.9 98.9 96.0 ======== ======= =======
LOSS AND LOSS ADJUSTMENT EXPENSE ("LAE") RESERVES For information pertinent to loss and loss adjustment expense reserves see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and also "Note 1(F)" and "Note 5" of "Notes to CONSOLIDATED FINANCIAL STATEMENTS," which are incorporated herein by this reference from the Company's 1997 Annual Report to Stockholders in response to Items 7 and 8 hereof, respectively. The following table reconciles USF RE's consolidated reserve for losses and LAE from SAP to amounts based on GAAP:
DECEMBER 31, ------------------------ 1997 1996 1995 -------- ------- ------- (DOLLARS IN THOUSANDS) Statutory loss and LAE reserves................... $ 90,862 $72,385 $62,420 Reserves ceded to reinsurers...................... 25,939 22,265 16,426 Provision for uncollectible reinsurance........... -- 19 48 -------- ------- ------- GAAP loss and LAE reserves........................ $116,801 $94,669 $78,894 ======== ======= =======
Except for the foregoing, there is no difference in USF RE's reserves for losses and LAE whether determined in accordance with GAAP or SAP. The table below provides a reconciliation of beginning and ending consolidated statutory liability balances as of December 31, 1997, 1996 and 1995.
DECEMBER 31, ---------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) Reserves for losses and LAE at beginning of period....................................... $ 72,385 $ 62,420 $ 56,304 Reserves of acquired company.................. 7,348 Incurred losses and LAE: Provision for losses and LAE for claims occurring in the current year.............. 116,968 83,485 74,935 Increase in estimated losses and LAE for claims occurring in prior years............ 8,103 4,688 2,808 Payments: Losses and LAE payments for claims occurring during: The current year.......................... (75,434) (43,287) (39,511) Prior years............................... (38,508) (34,921) (32,116) -------- -------- -------- Reserve for losses and LAE at end of period................................... $ 90,862 $ 72,385 $ 62,420 ======== ======== ========
5 The table on this page presents the development of USF RE's consolidated statutory balance sheet liability for losses and LAE for 1987 through 1997. The top line of the table shows the estimated liability for unpaid losses and LAE recorded at December 31 for each of the indicated years. This liability represents the estimated amount of losses and LAE for claims arising in all years that are unpaid at the balance sheet date, including losses that had been incurred but not yet reported. The upper portion of the table shows the re-estimated amount of the previously recorded liability based on experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of claims for individual years. The lower portion of the table shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year, and a reconciliation of the gross and net amounts for the latest five years.
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 ------- ------- ------- ------- ------- ------- ------- ------- ------- -------- -------- (DOLLARS IN THOUSANDS) Net Liability for Losses/LAE-- End of Year.............. $ 8,623 $17,660 $28,697 $35,975 $36,481 $45,483 $51,358 $56,304 $62,420 $ 72,385 $ 90,862 Net Liability re-estimated as of: 1 year later.............. 11,143 17,003 29,715 33,871 37,528 47,119 53,783 59,112 67,108 80,488 2 years later............. 11,622 17,752 29,619 32,720 36,381 47,482 52,625 56,601 67,017 3 years later............. 12,370 18,290 29,694 31,654 36,037 46,786 50,185 54,756 4 years later............. 12,717 18,294 28,581 30,222 34,529 42,785 47,973 5 years later............. 12,154 18,063 27,392 29,610 31,614 41,639 6 years later............. 12,288 17,994 26,815 27,111 30,787 7 years later............. 12,326 17,707 25,647 26,277 8 years later............. 12,314 17,496 24,769 9 years later............. 12,271 17,347 10 years later............ 12,196 Net Cumulative redundancy/(deficiency).. (3,573) 313 3,928 9,698 5,694 3,844 3,385 1,548 (4,597) (8,103) Cumulative %.............. (41)% 2% 14% 27% 16% 8% 7% 3% (8)% (11)% Paid (cumulative) as of: 1 year later.............. 6,988 9,373 14,255 13,918 14,516 22,190 26,075 32,115 34,921 38,509 2 years later............. 8,424 11,676 18,265 17,497 17,832 26,374 33,952 38,884 45,611 3 years later............. 9,638 14,959 21,095 19,946 20,164 31,747 38,488 43,269 4 years later............. 11,472 15,693 21,833 21,276 24,004 34,347 40,256 5 years later............. 11,741 15,927 22,653 22,868 25,672 35,813 6 years later............. 11,920 16,606 23,480 23,281 26,762 7 years later............. 12,028 16,122 23,606 23,801 8 years later............. 12,042 16,170 23,701 9 years later............. 12,091 16,196 10 years later............ 12,115
Gross Liability--End of Year................................................... 58,542 69,597 78,846 94,650 116,801 Reinsurance Recoverable........................................................ 7,184 13,293 16,426 22,265 25,939 Net Liability--End of Year..................................................... 51,358 56,304 62,420 72,385 90,862 Gross Re-Estimated Liability-Latest............................................ 55,575 70,010 84,229 101,798 Re-Estimated Recoverable-Latest................................................ 7,602 15,254 17,212 21,310 Net Re-Estimated Liability-Latest.............................................. 47,973 54,756 67,017 80,488 Gross Cumulative Redundancy (Deficiency)....................................... 2,967 (413) (5,383) (7,148)
6 INVESTMENTS For information, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", Note 1 (c) and Note 3 of Notes to CONSOLIDATED FINANCIAL STATEMENTS," incorporated herein by this reference from the Company's 1997 Annual Report to Stockholders in response to Item 7 and Item 8 herein. COMPETITION The insurance and reinsurance industries are highly competitive and consist of a large number of companies, many of which have financial resources, employees, facilities and experience substantially in excess of those of the Company. MEDICAL LINES The medical lines business is highly competitive and involves a diversified field of participants from small, start-up operations to large, well- established organizations such as USBenefits. A precise measure of the size of the medical stop-loss market is not possible because data on the market is not routinely collected, compiled or systematically analyzed. However, the Company believes that there are currently over 200 providers of medical stop-loss and provider excess coverages. Based on its over-17 years of experience in the medical stop-loss business, the Company believes that it is the largest provider of medical stop-loss coverage in the United States and one of the leading sources of provider excess coverage. However, other large and established companies offer medical lines products and services similar to those offered by the Company. USBenefits currently relies on its long-standing relationships with independent TPAs as a source of business, as well as growing relationships with insurance agents, brokers and consultants. USBenefits must compete for its business by offering competitively priced products, providing high quality, timely services and paying commissions which are competitive. USBenefits believes that its experience in the medical stop-loss business and the claims data it has collected over the years give it a competitive advantage over many of its competitors who must rely on general industry information. PROPERTY/CASUALTY REINSURANCE Competition in the reinsurance business is based on many factors, including a reinsurer's perceived overall financial strength, premiums charged, A.M. Best Company rating, services offered, claims handling, experience in the lines of business written and the number of jurisdictions in which a reinsurer is authorized to do business. The reinsurance market has two basic segments: reinsurers that primarily obtain their business directly from ceding insurance companies, and those that primarily obtain business through reinsurance intermediaries. USF RE obtains the majority of its property/casualty business through reinsurance intermediaries. USF RE's competition in this field includes numerous major international and domestic insurance and reinsurance companies and underwriting syndicates. Conditions remain highly competitive in most areas of the property/ casualty reinsurance market. USF RE has been able to compete against many companies with significantly larger policyholders' surplus and greater resources by focusing its efforts on specialty areas where it can best utilize its underwriting expertise and capital resources. The Company believes USF RE's "A" (Excellent) rating from A.M. Best Company, its Aq (Good) claims paying ability rating from Standard & Poor's and its excellent financial condition have strengthened USF RE's position in its markets. 7 REGULATION GENERAL Insurance and reinsurance companies are subject to primary regulation and supervision by the insurance departments of their states of domicile, as well as by agencies of other states where they are licensed or authorized to transact business. Such regulation and supervision is designed to protect policyholders, not stockholders. Although the extent of such regulation varies from state to state, in general the insurance laws of states provide such supervisory agencies with broad administrative powers. These powers include the granting and revocation of licenses to transact business, the licensing of agents, the approval of policy forms and rates, the determination of reserve requirements, the monitoring of financial stability, the form and content of required financial statements, and the type and character of investments. The National Association of Insurance Commissioners ("NAIC") has proposed a variety of model laws and regulations as part of its accreditation program affecting insurance companies generally, including laws and regulations relating to solvency standards for all insurance companies. Most of these model laws and regulations have been adopted by the majority of states and only two states, New York and Nevada, have not been accredited. Adoption of these laws has not had a material negative impact on the Company's insurance operations. USF RE and USFIC are required to file detailed annual financial and other reports with the appropriate insurance regulatory agency in each state in which they are admitted or authorized to do business. Their business and accounts are subject to examination by such agencies at any time, and the laws of Massachusetts and Pennsylvania and other states require periodic examination of USF RE and USFIC. USF RE was examined by the Division of Insurance of the Commonwealth of Massachusetts during 1993 for the four-year period ended December 31, 1992. USFIC was examined by the Insurance Department of the Commonwealth of Pennsylvania during 1993 for the four-year period ended December 31, 1992. The final reports of these examinations did not indicate any concerns of a material nature or which were significant to USF RE's or USFIC's surplus as regards policyholders. Both companies are scheduled to be examined during 1998 for the five year periods ending December 31, 1997. PROPERTY/CASUALTY Historically the property/casualty reinsurance business had not been subject to extensive regulation. However, reinsurance is now under closer scrutiny by state agencies, as evidenced by the promulgation by the NAIC of several model laws and regulations specifically relating to reinsurance. Management expects this trend toward greater regulation of the insurance and reinsurance industries to continue. At this time management cannot anticipate what impact, if any, such regulation would have on the Company's operations. USFIC is required by state laws governing surplus lines to be eligible to write business as a surplus lines insurer in each state in which its products are sold. Eligibility is based on a number of considerations, including size, financial condition, experience in the insurer's state of domicile, expertise of management and plan of operations. The writing of surplus lines is constrained by laws that require that the business can be written in a state only if coverage for the risk is not available from an insurer admitted in such state. Furthermore, the business can only be written through a licensed excess and surplus lines broker. MEDICAL LINES State regulation of self-insured medical plans is preempted by the Employee Retirement Income Security Act of 1974 ("ERISA"). However, as medical stop- loss has grown in importance, states have attempted to circumvent ERISA's preemption by seeking to assert their regulatory authority over insurance companies writing medical stop-loss coverages and related service providers, such as USBenefits. The NAIC has adopted a model Managing General Agents Law, the substance of which has been enacted in 49 states and the District of Columbia. This model law requires the licensing of managing general agents that perform certain functions on behalf of insurance companies, such as underwriting together with claims settlement and payment. It also 8 imposes certain requirements with respect to the content of agreements between insurance companies and managing general agents. USBenefits is licensed or registered as a managing general agent or third party administrator in various states where such licensing is required. It is also licensed directly, or through one or more of its employees, in 47 states and the District of Columbia as an accident and health insurance agent and in 49 states and the District of Columbia as a property/casualty insurance agent. Additionally, the Company's INTERRA subsidiary is subject to regulation in various states where it operates in any one of its capacities as a reinsurance broker or intermediary, a third-party administrator or a claims management company. STATE INSURANCE HOLDING COMPANY LAWS The Company, its stockholders, and its insurance company subsidiaries are subject to the Insurance Holding Company Acts of the Commonwealth of Massachusetts where USF RE is domiciled and the Commonwealth of Pennsylvania where USFIC is domiciled. Until 1997 USF RE had been deemed to be "commercially domiciled" in the State of California and thereby subject to the California Holding Company Act. Generally these Insurance Holding Company Acts prohibit any person from acquiring "control" of a domestic insurer, or of a company controlling a domestic insurer without prior approval of the insurance commissioner of such insurer's state of domicile. Control is presumed to exist through ownership or the right to acquire 10% or more of the stock of the insurer; but this presumption may be rebutted. These Insurance Holding Company Acts require holding companies and their insurance subsidiaries to register and file on a regular basis reports which include information concerning their capital structure, ownership and financial condition. All transactions between members of the holding company group are subject to fairness and reasonableness standards, and notice of certain transactions must be given to the Commissioners of Insurance of Massachusetts and Pennsylvania 30 days prior to entering into such transactions, during which time the Commissioners of these states may indicate their disapproval. The amount of dividends which USF RE is permitted to pay the Company is limited by the insurance laws of Massachusetts. USF RE must give notice to the Massachusetts Insurance Commissioner of all dividends and other distributions to stockholders within five business days after they are declared, and may not pay such dividends until ten business days after receipt by the Commissioner of the required notices. Following such dividends or distributions, USF RE's surplus to policyholders must be reasonable in relation to its outstanding liabilities and adequate for its financial needs. In addition, USF RE may not pay any "extraordinary" dividend or distribution until 30 days after the Massachusetts Insurance Commissioner has received notice of such dividend or distribution, and until the Commissioner has either (i) not disapproved such payment within such 30-day period, or (ii) approved such payment within such 30-day period. For 1998, the amount which may be paid in dividends by USF RE without prior regulatory approval is $11,266,000. The amount of dividends which USFIC may pay to USF RE is subject to similar restrictions under the laws of Pennsylvania. Since being acquired by the Company, neither USF RE nor USFIC has paid any dividends. LEGISLATIVE AND REGULATORY DEVELOPMENTS As noted in prior filings with the Securities and Exchange Commission by the Company, various Federal and state healthcare legislative and regulatory proposals which could impact the financing and delivery of healthcare have been considered. Congress enacted certain of those proposals, some of which cover self-insured medical benefit plans. Management cannot predict at this time what impact, if any, these enactments would have on the Company's medical lines business. However, based on management's review of the latest information received, management believes that these enactments will not have an adverse impact on the Company's business. Some of the statements included within this Item 1 and in Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as in the consolidated financial statements and related notes (incorporated herein by reference from the Company's 1997 Annual Report to Stockholders in response to 9 items 7 and 8 hereof, respectively) may be considered to be forward looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995), and which are subject to certain risks and uncertainties. Among those factors which could cause the actual results to differ materially from those suggested by such statements are: catastrophe losses in the Company's insurance lines or a material aggregation of losses; changes in federal or state law affecting an employer's ability to self-insure; the availability of adequate retrocessional insurance coverage at appropriate prices; a downturn in the general economy; the effects of competitive market pressures within the medical lines or property/casualty marketplaces; the effect of changes required by generally accepted accounting practices or statutory accounting practices; and other risks which are described from time to time in the Company's filings with the Securities and Exchange Commission. The words "believes", "anticipates", "expects" and similar expressions are intended to identify forward looking statements. EMPLOYEES As of March 20, 1998 the Company had 196 full-time employees. No employees are represented by labor unions, and management considers its employee relations to be excellent. 10 EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are:
NAME AGE POSITION ---- --- -------- David L. Cargile........ 52 Chairman, President and Chief Executive Officer Howard S. Singer........ 52 Executive Vice President-Corporate Finance and Investor Relations John T. Grush........... 49 Senior Vice President Charles M. Caporale..... 47 Senior Vice President, Chief Financial Officer and Treasurer Jose A. Velasco......... 43 Senior Vice President, Chief Administrative Officer, Secretary and General Counsel Craig J. Kelbel......... 44 Senior Vice President Edward D. Jones......... 52 Senior Vice President Mark A. Carney.......... 39 Senior Vice President
All executive officers other than Charles M. Caporale, Mark A. Carney and Edward D. Jones have been employed by the Company for more than five years. There are no family relationships among any of the executive officers of the Company. There have been no events under bankruptcy or insolvency laws, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any executive officer during the past five years. Mr. Caporale joined the Company in July, 1997 as Senior Vice President, Chief Financial Officer and Treasurer. Before joining the Company, Mr. Caporale began his career at Coopers & Lybrand and served in various capacities in the insurance industry prior to joining the Minet group of companies in 1985. He occupied several management positions in Minet companies, including Executive Vice President and Chief Financial Officer of Minet, Inc. Mr. Carney joined the company in September, 1997 as a Senior Vice President in connection with the acquisition of INTERRA and continues to serve as its President and Chief Operating Officer. Prior to joining the Company, Mr. Carney held various executive positions with health care companies. He founded INTERRA in 1993, and until its acquisition served as its Chairman, President and Chief Operating Officer. Mr. Jones joined the Company in September, 1993 as a Vice President and was promoted to Senior Vice President in March, 1998. He is responsible for corporate strategic and business planning, government affairs, customer service, and spearheads the Company's electronic data interchange (EDI) efforts. Before joining the Company, Mr. Jones served as Executive Vice President and as a member of the Board of Directors of Medical Review Systems, a firm that he co-founded in 1990. He has also served as a consultant to and held positions with various academic and governmental organizations. ITEM 2. PROPERTIES The principal executive offices of the Company and its subsidiaries are located in 40,281 square feet of leased office space at 650 Town Center Drive, Costa Mesa, California. The lease on this facility was renewed for the period from October 1, 1995 through March 31, 2007, with a five-year option to extend. Additional offices are maintained in leased premises in Chicago, Illinois; Indianapolis, Indiana; Florham Park, New Jersey; Philadelphia, Pennsylvania; Atlanta, Georgia; Tulsa, Oklahoma and Phoenix, Arizona. ITEM 3. LEGAL PROCEEDINGS From time to time the Company is a party to legal proceedings incidental to its business, none of which individually or in the aggregate is considered by the Company to be material to its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of security holders, through the solicitation of proxies or otherwise. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS On February 3, 1998, the Company announced that its Board of Directors had authorized a two-for-one split of its common stock in the form of a 100% stock dividend to stockholders of record as of February 18, 1998. Certificates reflecting the stock split were issued February 27, 1998. Amounts presented have been retroactively adjusted to reflect the stock split. The Company paid quarterly cash dividends of $.03 per share in 1997 and 1996, respectively, and $.025 per share in 1995. In addition, material appearing under the captions "Stockholder Information" and "Stock Price Information" in the 1997 Annual Report to Stockholders of The Centris Group, Inc. (the "Annual Report") is hereby incorporated by this reference. ITEM 6. SELECTED FINANCIAL DATA Material appearing under the caption "Selected Financial Data" in the Company's Annual Report is hereby incorporated by this reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Material appearing under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report is hereby incorporated by this reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Material appearing under the captions "Report on Consolidated Financial Statements" and "Independent Auditors' Report" and contained in the Company's consolidated financial statements and notes thereto in the Company's Annual Report is hereby incorporated by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors and executive officers of the Registrant as required by Items 401 and 405 of Regulation S-K is set forth in Part I of this Form 10-K under the caption "EXECUTIVE OFFICERS OF THE COMPANY" and under the caption "ELECTION OF DIRECTORS" in the Company's definitive Proxy Statement for the Company's 1998 Annual Meeting of Stockholders scheduled to be held on May 13, 1998, and which will be filed with the Securities and Exchange Commission not later than 120 days after December 31, 1997 (the "Proxy Statement"), and is hereby incorporated by this reference. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 402 of Regulation S-K is set forth under the caption "COMPENSATION OF EXECUTIVE OFFICERS," "COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION," and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" in the Company's Proxy Statement, and is hereby incorporated by this reference. 12 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 403 of Regulation S-K is set forth under the captions "SECURITY OWNERSHIP OF MANAGEMENT" and "SECURITY OWNERSHIP OF CERTAIN OTHER STOCKHOLDERS" in the Company's Proxy Statement, and is hereby incorporated by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information regarding certain relationships and related transactions as required by Item 404 of Regulation S-K is set forth in the Company's Proxy Statement under the captions "COMPENSATION OF EXECUTIVE OFFICERS" and "RELATED TRANSACTIONS," and is hereby incorporated by this reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: (i) The following is a list of financial statements, together with reports thereon, filed as part of this Form 10-K, all of which have been incorporated herein by reference to the material in the Company's Annual Report as described under Item 8 of this Form 10-K: Report on Consolidated Financial Statements Consolidated Income Statements--Years ended December 31, 1997, 1996 and 1995 Consolidated Balance Sheets--December 31, 1997 and 1996 Consolidated Statements of Stockholders' Equity--at December 31, 1997, 1996, and 1995 Consolidated Statements of Cash Flows--Years ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Independent Auditors' Report (ii) The following is a list of financial statement schedules filed with this Form 10-K: Index to Schedules Independent Auditor's Report Schedule I--Summary of Investments Schedule II--Condensed Financial Information of Registrant Schedule III--Supplementary Insurance Information Schedule IV--Reinsurance All other schedules to the Consolidated Financial Statements required by Article 7 of Regulation S-X are not required under the related instructions or are inapplicable and therefore have been omitted. (iii) The following is a list of exhibits required to be filed as part of this Form 10-K by Item 601 of Regulation-K: 3.1, 4.1* The Company's Restated Certificate of Incorporation, as amended, as presently in effect. 3.2, 4.2* Amended and Restated Bylaws of the Company, as presently in effect. 4.3 Stock Certificate of the Company. Filed as Exhibit 4.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 (the "June 1997 Form 10-Q"), and incorporated herein by this reference. 4.4 Rights Agreement. Filed as Exhibit 2 to the Company's Current Report on Form 8-K dated May 24, 1990, and incorporated herein by this reference.
13 4.5 First Amendment to Rights Agreement. Filed as Exhibit 1 to the Company's Current Report on Form 8-K dated January 16, 1992, and incorporated herein by this reference. 4.6 Second Amendment to Rights Agreement. Filed as Exhibit 10.1 to the Company's Current Report on Form 8-K dated April 29, 1994, incorporated herein by this reference. 4.7 Third Amendment to Rights Agreement. Filed as Exhibit 4 to the Company's Current Report on Form 8-K dated September 28, 1995, and incorporated herein by this reference. 4.8 Fourth Amendment to Rights Agreement. Filed as Exhibit 1 to the Company's Current Report on Form 8-K dated July 23, 1997, and incorporated herein by this reference. 4.9 Fifth Amendment to Rights Agreement. Filed as Exhibit 1 to the Company's Current Report on Form 8-K dated January 28, 1998, and incorporated herein by this reference. 9 Not applicable. 10 Material Contracts. 10.1 Agreement of Employment between the Company and David L. Cargile effective as of November 1, 1996, including relocation loan arrangement and Amendment No. 1 thereto, filed as Exhibit 10.4(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K"), and filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1996 (the "1996 Form 10-K"), and which are incorporated herein by this reference. 10.2 Agreement of Employment between the Company and Howard S. Singer effective as of November 1, 1996. Filed as Exhibit 10.3 to the Company's 1996 Form 10-K, and incorporated herein by this reference. 10.3 Agreement of Employment between the Company and Craig J. Kelbel effective as of November 1, 1996. Filed as Exhibit 10.4 to the Company's 1996 Form 10-K, and incorporated herein by this reference. 10.4 Agreement of Employment between the Company and Mark A. Carney effective as of September 6, 1997. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (the "September 1997 Form 10-Q"), and incorporated herein by this reference. 10.5(i) Severance Agreement dated May 24, 1994 between the Company and David L. Cargile. Filed as Exhibit 10.3 to the Company's June 1994 Form 10-Q, and incorporated herein by this reference; and Amendment No. 1 thereto dated December 4, 1996, filed as Exhibit 10.5(vii) to the Company's 1996 Form 10-K, and incorporated herein by this reference. 10.5(ii)* Amendment No. 2 dated August 29, 1997 to Severance Agreement between the Company and David L. Cargile. 10.5(iii) Severance Agreement dated May 24, 1994 between the Company and Howard S. Singer. Filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June, 1994 (the "June 1994 Form 10 -Q"), and incorporated herein by this reference; and Amendment No. 1 thereto dated December 4, 1996, filed as Exhibit 10.4(viii) to the Company's 1996 Form 10-K, and incorporated herein by this reference. 10.5(iv)* Amendment No. 2 dated August 29, 1997 to Severance Agreement between the Company and Howard S. Singer. 10.5(v) Severance Agreement dated May 24, 1994 between the Company and John T. Grush. Filed as Exhibit 10.4 to the Company's June 1994 Form 10- Q, and incorporated herein by this reference; and Amendment No. 1 dated December 4, 1996, filed as Exhibit 10.4(ix) to the Company's 1996 Form 10-K, and incorporated herein by this reference.
14 10.5(vi)* Amendment No. 2 dated August 29, 1997 to Severance Agreement between the Company and John T. Grush. 10.5(vii) Severance Agreement dated May 24, 1994 between the Company and Craig J. Kelbel. Filed as Exhibit 10.14(v) to the Company's 1995 Form 10-K, and incorporated herein by this reference; and Amendment No. 1 dated December 4, 1996, filed as Exhibit 10.5(x) to the Company's 1996 Form 10-K, and incorporated herein by this reference. 10.5(viia)* Amendment No. 2 dated August 29, 1997 to Severance Agreement between the Company and Craig T. Kelbel. 10.5(viii) Severance Agreement dated May 24, 1994 between the Company and Jose A. Velasco. Filed as Exhibit 10.6 to the Company's June 1994 Form 10-Q, and incorporated herein by this reference; and Amendment No. 1 dated December 4, 1996, filed as Exhibit 10.5(xii) to the Company's 1996 Form 10-K, and incorporated herein by this reference. 10.5(ix)* Amendment No. 2 dated August 29, 1997 to Severance Agreement between the Company and Jose A. Velasco. 10.5(x) Severance Agreement dated July 23, 1997 between the Company and Charles M. Caporale. Filed as Exhibit 10.3 to the Company's September 1997 Form 10-Q, and incorporated herein by this reference. 10.5(xi) Severance Agreement dated September 6, 1997 between the Company and Mark A. Carney. Filed as Exhibit 10.2 to the Company's September 1997 Form 10-Q, and incorporated herein by this reference. 10.5(xii)* Severance Agreement dated December 4, 1996 between the Company and Edward D. Jones, III; and Amendment No. 1 dated August 29, 1997. 10.6 Lease Agreement dated May 28, 1985 between Center Tower Associates and US Benefits, Inc. Filed as Exhibit 10.13 to the Company's Form S-1 Registration Statement declared effective by the Securities and Exchange Commission ("Commission") on October 31, 1986, and incorporated herein by this reference; and First Amendment dated November 24, 1986 between Center Tower Associates and the Company as assignee of US Benefits, Inc., filed as Exhibit 10.26 to the Company's Form S-2 Registration Statement declared effective by the Commission on December 4, 1991 (the "S- 2 Registration Statement"), and incorporated herein by this reference; and Second Amendment dated July 8, 1992, filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992, and incorporated herein by this reference; and Third Amendment dated May 4,1993, filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 ( the "1993 Form 10-K"), and incorporated herein by this reference; and Fourth and Fifth Amendments dated August 29, 1994 and October 1, 1995, respectively, filed as Exhibit 10.18(i) to the Company's 1995 Form 10-K, and incorporated herein by this reference. 10.7(i) Management Agreement No. 1 dated October 3, 1994 (with Addenda) between The Continental Insurance Company and USBenefits Insurance Services, Inc. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended September, 1994, and incorporated herein by this reference; and Additional Addenda to Management Agreement No.1, filed as Exhibit 10.19(i) to the Company's 1995 Form 10-K and incorporated herein by this reference. 10.7(ii)* Addendum Eight and Addendum Nine, both dated April 24th, 1997, to Management Agreement No. 1 between The Continental Insurance Company and USBenefits Insurance Services, Inc.
15 10.8 Quota Share Retrocession Agreement dated July 11, 1986 between The Continental Insurance Company, as successor to Harbor Insurance Company by assumption, and USF RE INSURANCE COMPANY, as amended. Filed as Exhibit 10.47 to the Company's S-2 Registration Statement, and incorporated herein by this reference; and Amendment dated January 16, 1991, filed as Exhibit 10.21 to the Company's 1993 Form 10-K, and incorporated herein by this reference; and Amendment dated October 3, 1994, filed as Exhibit 10.21(i) to the Company's Annual Report on Form 10-K for the year ended December 31, 1994, and incorporated herein by this reference. 10.9 Credit Agreement dated as of December 20, 1994 between the Company and Fleet National Bank of Connecticut (formerly known as Shawmut Bank Connecticut, N.A.), including Revolving Note and Pledge Agreement. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, and incorporated herein by this reference; and First and Second Amendments to the Credit Agreement, filed as Exhibit 10.1 to the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and September 30, 1996, respectively, and incorporated herein by this reference. 10.10* The Company's Amended 1988 Employee Stock Plan. 10.11* The Company's Amended and Restated 1991 Employee Stock Option Plan. 10.12 Form of Stock Option Agreement under The Company's. Amended and Restated 1991 Employee Stock Option Plan. Filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996 (the "June 1996 Form 10-Q"), and incorporated herein by this reference. 10.14* The Company's 1991 Directors Stock Option Plan Amended and Restated. 10.15 Form of Stock Option Agreement under The Company's 1991 Directors Stock Option Plan Amended and Restated. Filed as Exhibit 10.2 to the Company's June 1996 Form 10-Q, and incorporated herein by this reference 10.22 The Company's Amended Incentive Compensation Program. Filed as Exhibit 10.26 to the Company's 1995 Form 10-K, and incorporated herein by this reference. 10.23* The Company's 1997 Long-Term Incentive-Performance Unit Plan, including form of Plan Agreement. 10.24 The Company's Non-Qualified Deferred Compensation Plan, including form of Plan Agreement. Filed as Exhibit 10.23 to the Company's 1996 Form 10-K, and incorporated herein by this reference. 11* The Centris Group, Inc. and Subsidiaries Computation of Earnings Per Share. 12 Not applicable. 13* The Centris Group, Inc. 1997 Annual Report to Stockholders (filed with the Commission only to the extent it is specifically incorporated by reference in this Form 10-K). 18 Not applicable. 19 Not applicable. 21* Subsidiaries of The Centris Group, Inc.. 22 Not applicable. 23* Independent Auditors' Consent dated March 26, 1998. 24 Not applicable. 27* Financial Data Schedules.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of the year ended December 31, 1997. - -------- * Describes a document filed with the Annual Report on Form 10-K for the year ended December 31, 1997. 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 25, 1998 THE CENTRIS GROUP, INC. /s/ David L. Cargile By: _________________________________ David L. Cargile Chairman of the Board, Chief Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ David L. Cargile Chairman of the Board, Chief March 25, 1998 ____________________________________ Executive Officer and David L. Cargile President (Principal Executive Officer) /s/ John F. Kooken Director March 25, 1998 ____________________________________ John F. Kooken /s/ L. Steven Medgyesy Director March 25, 1998 ____________________________________ L. Steven Medgyesy /s/ Bernard H. Ross Director March 25, 1998 ____________________________________ Bernard H. Ross /s/ Charles L. Schultz Director March 25, 1998 ____________________________________ Charles L. Schultz /s/ Howard S. Singer Director and Executive Vice March 25, 1998 ____________________________________ President--Corporate Howard S. Singer Finance and Investor Relations Director MARCH , 1998 ____________________________________ Kenneth C. Tyler /s/ Charles M. Caporale Senior Vice President, Chief March 25, 1998 ____________________________________ Financial Officer and Charles M. Caporale Treasurer (Principal Financial and Accounting Officer)
17 INDEX TO SCHEDULES INDEPENDENT AUDITORS' REPORT ON SCHEDULES Summary of Investments............................................. Schedule I Condensed Financial Information of Registrant...................... Schedule II Supplementary Insurance Information................................ Schedule III Reinsurance........................................................ Schedule IV
18 INDEPENDENT AUDITORS' REPORT Under date of February 3, 1998, we reported on the consolidated balance sheets of The Centris Group, Inc., formerly US Facilities Corporation, and Subsidiaries as of December 31, 1997 and 1996, and related consolidated income statements, statements of stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997 as contained in the 1997 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1997. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedules as listed in the accompanying index. These consolidated financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statement schedules based on our audits. In our opinion, such schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP Los Angeles, California February 3, 1998 19 THE CENTRIS GROUP, INC. AND SUBSIDIARIES SCHEDULE I--SUMMARY OF INVESTMENTS DECEMBER 31, 1997
AMOUNT AT WHICH SHOWN ON BALANCE COST(/1/) VALUE(/1/) SHEET(/1/) --------- ---------- ----------- (DOLLARS IN THOUSANDS) Fixed maturities: Bonds: United States Government agencies and authorities............................ $ 36,430 $ 37,205 $ 37,205 States, municipalities and political subdivisions........................... 98,007 103,591 103,591 Foreign governments..................... 510 529 529 All other corporate bonds............... 42,315 44,793 44,793 -------- -------- -------- Total fixed maturities................ 177,262 186,118 186,118 ======== ======== ======== Equity securities: Preferred stocks: Industrial and miscellaneous............ 250 256 256 Common stocks: Industrial and miscellaneous............ 14,753 15,308 15,308 -------- -------- -------- Total................................. 15,003 15,564 15,564 ======== ======== ======== Other invested assets..................... 509 509 509 Short-term investments.................... 21,633 21,633 21,633 -------- -------- -------- Total investments..................... $214,407 $223,824 $223,824 ======== ======== ========
- -------- (1) Cost represents the amortized cost of investments to the Company. Value represents current market value. Amount at which investments are shown on the balance sheet represents current market value as required by SFAS No. 115. 20 THE CENTRIS GROUP, INC. AND SUBSIDIARIES SCHEDULE II--CONDENSED INCOME STATEMENTS THE CENTRIS GROUP (PARENT COMPANY ONLY)
YEAR ENDED DECEMBER 31, ------------------------- 1997 1996 1995 ------- ------- ------- (DOLLARS IN THOUSANDS) Revenues: Dividends from subsidiaries........................ $ 4,000 $ 4,000 $ 6,000 Other.............................................. 62 58 49 ------- ------- ------- Total revenues................................... 4,062 4,058 6,049 Operating expenses: Other general and administrative................... 990 896 1,723 Interest........................................... 2,373 2,610 2,259 ------- ------- ------- Total operating expenses......................... 3,363 3,506 3,982 ------- ------- ------- Income (loss) before income taxes.................... 699 552 2,067 Income tax benefits.................................. (1,420) (1,652) (2,324) ------- ------- ------- Income before equity in earnings of subsidiaries..... 2,119 2,204 4,391 Equity in earnings of subsidiaries................... 13,093 12,816 9,463 ------- ------- ------- Net income........................................... $15,212 $15,020 $13,854 ======= ======= =======
21 THE CENTRIS GROUP, INC. AND SUBSIDIARIES SCHEDULE II--CONDENSED BALANCE SHEETS THE CENTRIS GROUP (PARENT COMPANY ONLY)
YEAR ENDED DECEMBER 31, ------------------------ 1997 1996 ----------- ----------- (DOLLARS IN THOUSANDS) ASSETS ------ Cash.................................................. $ 1,548 $ 641 Investment in and due from affiliates................. 146,164 134,838 Other assets.......................................... 4,021 3,889 ----------- ----------- Total assets...................................... $ 151,733 $ 139,368 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Note payable.......................................... $ 32,500 $ 35,000 Accounts payable and accrued expenses................. 1,643 2,004 ----------- ----------- Total liabilities................................. 34,143 37,004 =========== =========== Stockholders' equity: Common stock........................................ 124 122 Paid-in capital..................................... 46,188 45,442 Net unrealized investment gain...................... 6,121 5,860 Retained earnings................................... 66,654 52,883 ----------- ----------- 119,087 104,307 Less treasury stock, at cost........................ (1,497) (1,943) ----------- ----------- Total stockholders' equity........................ 117,590 102,364 ----------- ----------- Total liabilities and stockholders' equity........ $ 151,733 $ 139,368 =========== ===========
22 THE CENTRIS GROUP, INC. AND SUBSIDIARIES THE CENTRIS GROUP, INC. (PARENT COMPANY ONLY) SCHEDULE II--CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------- 1997 1996 1995 -------- -------- -------- (DOLLARS IN THOUSANDS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................... $ 15,212 $ 15,020 $ 13,854 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Increase (decrease) in accounts payable and accrued expenses............................. (361) (224) (359) Increase in other assets...................... (132) (1,464) (690) Equity in income of and change in due from affiliates................................... (10,286) (14,140) (15,310) -------- -------- -------- Net cash provided by (used in) operating activities................................. 4,433 (808) (2,505) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable...................... -- -- 10,000 Payment on note payable......................... (2,500) -- -- Proceeds from issuance of common stock.......... 1,194 2,044 2,405 Dividends Paid.................................. (1,441) (1,410) (1,125) -------- -------- -------- Net cash (used in) provided by financing activities................................. (2,747) 634 11,280 CASH FLOWS FROM INVESTING ACTIVITIES: Increase in investment in affiliates............ (779) -- (10,500) -------- -------- -------- Net increase (decrease) in cash................. 907 (174) (1,725) Cash at beginning of year....................... 641 815 2,540 -------- -------- -------- Cash at end of year............................. $ 1,548 $ 641 $ 815 ======== ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest........................................ $ 2,303 $ 2,498 $ 2,187 Income taxes.................................... $ 4,366 $ 4,771 $ 5,217
23 THE CENTRIS GROUP, INC. AND SUBSIDIARIES SCHEDULE III-SUPPLEMENTARY INSURANCE INFORMATION
AMORTIZATION BENEFITS, OF DEFERRED FUTURE POLICY CLAIMS, DEFERRED POLICY BENEFITS, LOSSES, NET LOSSES AND POLICY OTHER NET ACQUISITION CLAIMS AND UNEARNED PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS SEGMENT COSTS LOSS EXPENSES PREMIUMS REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN ------- ----------- ----------------- -------- ------- ---------- ---------- ------------ --------- -------- (DOLLARS IN THOUSANDS) 1997 ---- Medical lines...... $ -- 23,585 -- 103,479 3,605 82,760 34,732 13,328 103,479 Property/casualty.. 4,495 93,216 30,249 56,054 7,424 42,311 11,464 4,535 62,071 ------ ------- ------ ------- ------ ------- ------ ------ ------- Total............. $4,495 116,801 30,249 159,533 11,029 125,071 46,196 17,863 165,550 ====== ======= ====== ======= ====== ======= ====== ====== ======= 1996 ---- Medical lines...... $ -- 17,400 -- 84,179 3,312 58,095 28,526 10,111 84,179 Property/casualty.. 3,644 77,269 22,936 39,945 6,777 30,078 8,653 3,988 43,799 ------ ------- ------ ------- ------ ------- ------ ------ ------- Total............. $3,644 94,669 22,936 124,124 10,089 88,173 37,179 14,099 127,978 ====== ======= ====== ======= ====== ======= ====== ====== ======= 1995 ---- Medical lines...... $ -- 17,947 -- 81,546 3,269 54,563 27,069 12,025 81,546 Property/casualty.. 2,830 60,947 17,705 33,425 5,872 23,180 8,895 3,304 35,350 ------ ------- ------ ------- ------ ------- ------ ------ ------- Total............. $2,830 78,894 17,705 114,971 9,141 77,743 35,964 15,329 116,896 ====== ======= ====== ======= ====== ======= ====== ====== =======
24 THE CENTRIS GROUP, INC. AND SUBSIDIARIES SCHEDULE IV--REINSURANCE
INSURANCE PREMIUMS EARNED 1997 1996 1995 ------------------------- -------- -------- -------- (DOLLARS IN THOUSANDS) Gross amount (direct)............................. $ 11,986 $ 10,279 $ 12,218 Ceded to other companies.......................... 23,097 20,869 14,398 Assumed from other companies...................... 170,644 134,714 117,151 Net amount........................................ 159,533 124,124 114,971 Percentage of amount assumed to net............... 107.0% 108.5% 101.9%
25 EX-3.1 2 THE COMPANY'S RESTATED CERTIFICATE OF INCORPORATION Restated Certificate Of Incorporation Of The Centris Group, Inc. (Formerly U.S. Facilities Corporation and originally incorporated as U S HOLDINGS INC. on June 18, 1982) ____________________________________ FIRST: The name of the Corporation is The Centris Group, Inc. (hereinafter sometimes referred to as the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at that address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-five million (45,000,000), consisting of: (1) Five million (5,000,000) shares of Preferred Stock, par value one cent ($.01) per share (the "Preferred Stock"); and (2) Forty million (40,000,000) shares of Common Stock, par value one cent ($.01) per share (the "Common Stock"). B. The board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holdings of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the series of Preferred Stock. FIFTH: The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: A. The business and affairs of the Corporation shall be managed by or under the direction of the board of directors. In addition to the powers and authority expressly conferred upon them by statute or by this Restated Certificate of Incorporation or the by-laws of the Corporations, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. B. The directors of the Corporation need not be elected by written ballot unless the by-laws so provide. C. Special meetings of stockholders of the Corporation may be called only by the board of directors pursuant to a resolution adopted by a majority of the directors then in office. Special meetings of stockholders may not be called by the stockholders. -2- SIXTH: A. The number of directors shall be fixed from time to time exclusively by the board of directors pursuant to a resolution adopted by a majority of the directors then in office. The directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1987 annual meeting of stockholders, the term of office of the second class to expire at the 1988 annual meeting of stockholders and the term of office of the third class to expire at the 1989 annual meeting of stockholders. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the board of directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director. C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire board of directors, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least 66-2/3 percent of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. -3- SEVENTH: The board of directors is expressly empowered to adopt, amend or repeal by-laws of the Corporation. The stockholders shall also have power to adopt, amend or repeal the by-laws of the Corporation. In addition to any vote of the holders of any class or series of stock of this Corporation required by law or by this Restated Certificate of Incorporation of the Corporation, the affirmative vote of the holders of at least 66-2/3 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provisions of the by-laws of the Corporation. EIGHTH: The stockholder vote required to approve Business Combinations (as hereinafter defined) shall be as set forth in this Article EIGHTH. A. (1) Except as otherwise expressly provided in section B. of this Article EIGHTH: (i) Any merger or consolidation of the Corporation or any Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as hereinafter defined) or (b) any other corporation (whether or not itself an Interested Stockholder) which is, or after such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or (ii) Any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Stockholder or any Affiliate of any Interested Stockholder of any assets of the Corporation or any Subsidiary having an aggregate Fair Market Value (as hereinafter defined) of $10,000,000 or more; or (iii) The issuance or transfer by the Corporation of any Subsidiary (in one transaction or a series of transactions) of any securities of the Corporation or any Subsidiary to any -4- Interested Stockholder or any Affiliate of any Interested Stockholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $10,000,000 or more; or (iv) The adoption of any plan or proposal for the liquidation or dissolution of the Corporation proposed by or on behalf of any Interested Stockholder or any Affiliate of any Interested Stockholder; or (v) Any reclassification of securities (including any reverse stock split) or recapitalization of the Corporation, or any merger or consolidation of the Corporation with any of its Subsidiaries, or any other transaction (whether or not with or into or otherwise involving any Interested Stockholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Corporation or any Subsidiary which is directly or indirectly owned by any Interested Stockholder or any Affiliate of any Interested Stockholder shall require the affirmative vote of the holders of at least 66-2/3 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (hereinafter in this Article EIGHTH referred to as the "Voting Stock"), voting together as a single class (it being understood that, for purposes of this Article EIGHTH, each share of the Voting Stock shall have the number of votes granted to it pursuant to Article FOURTH of this Restated Certificate of Incorporation or any designation of the rights, powers and preferences of any class or series of Preferred Stock made pursuant to said Article FOURTH [a "Preferred Stock Designation"]). Such affirmative vote shall be required notwithstanding any other provisions of this Restated Certificate of Incorporation or any provision of law or of any agreement with any national securities exchange which might otherwise permit a lesser vote or no -5- vote, but such affirmative vote shall be required in addition to any affirmative vote of the holders of any particular class or series of the Voting Stock required by law, this Restated Certificate of Incorporation or any Preferred Stock Designation. (2) The term "Business Combination" as used in this Article EIGHTH shall mean any transaction which is referred to in any one or more of subparagraphs (i) through (v) of paragraph (1) of this section A. B. The provisions of section A. of this Article EIGHTH shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law, any other provision of this Restated Certificate of Incorporation of the Corporation, any Preferred Stock Designation or any agreement with any national securities exchange, if, in the case of a Business Combination that does not involve any cash or other consideration being received by the stockholders of the Corporation, solely in their respective capacities as stockholders of the Corporation, the condition specified in the following paragraph (1) is met, or, in the case of any other Business Combination, the conditions specified in either of the following paragraphs (1) or (2) are met: (1) The Business Combination shall have been approved by two-thirds of the Continuing Directors (as hereinafter defined), it being understood that this condition shall not be capable of satisfaction unless there is at least one Continuing Director. (2) All of the following conditions shall have been met: (i) The consideration to be received by holders of shares of a particular class of outstanding Voting Stock shall be in cash or in the same form as the Interested Stockholder has paid for shares of such class of Voting Stock within the two-year period ending on and including the date on which the Interested Stockholder became an Interested Stockholder (the "Determination Date"). If, within such two-year period, the Interested Stockholder has -6- paid for shares of any class of Voting Stock with varying forms of consideration, the form of consideration to be received per share by holders of shares of such class of Voting Stock shall be either cash or the form used to acquire the largest number of shares of such class of Voting Stock acquired by the Interested Stockholder within such two-year period. (ii) The aggregate amount of (x) the cash and (y) the Fair Market Value, as of the date (the "Consummation Date") of the consummation of the Business Combination, of the consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following (it being intended that the requirements of this paragraph (2)(ii) shall be required to be met with respect to all shares of Common Stock outstanding whether or not the Interested Stockholder has previously acquired any shares of Common Stock): (a) (If applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of Common Stock acquired by it within the two-year period immediately prior to the date of the first public announcement of the proposal of the Business Combination (the "Announcement Date") or in the transaction in which it became an Interested Stockholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of such bank headquartered in the City of Los Angeles, California, as may be selected by the Continuing Directors from time to time in effect, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, on each share of Common Stock from the Determination Date through the Consummation Date in an amount up to, but not exceeding, the amount of interest so payable per share of Common Stock; or -7- (b) The Fair Market Value per share of Common Stock on the Announcement Date. (iii) The aggregate amount of (x) the cash and (y) the Fair Market Value, as of the Consummation Date, of the consideration other than cash to be received per share by holders of shares of any class, other than Common Stock, of outstanding Voting Stock shall be at least equal to the highest of the following (it being intended that the requirements of this paragraph (2)(iii) shall be required to be met with respect to every such class of outstanding Voting Stock, whether or not the Interested Stockholder has previously acquired any shares of a particular class of Voting Stock): (a) (If applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Stockholder for any shares of such class of Voting Stock acquired by it within the two-year period immediately prior to the Announcement Date or in the transaction in which it became an Interested Stockholder, whichever is higher, plus interest compounded annually from the Determination Date through the Consummation Date at the prime rate of interest of such major bank headquartered in the City of Los Angeles as may be selected by the Continuing Directors from time to time in effect, less the aggregate amount of any cash dividends paid, and the Fair Market Value of any dividends paid in other than cash, on each share of such class of Voting Stock from the Determination Date through the Consummation Date in an amount up to, but not exceeding, the amount of interest so payable per share of such class of Voting Stock; or (b) The Fair Market Value per share of such class of Voting Stock on the Announcement Date; or -8- (c) The highest preferential amount per share to which the holders of shares of such class of Voting Stock are entitled in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation. (iv) After such Interested Stockholder has become an Interested Stockholder and prior to the consummation of such Business Combination: (a) except as approved by a majority of the Continuing Directors, there shall have been no failure to declare and pay at the regular date therefor any full quarterly dividends (whether or not cumulative) on any outstanding Preferred Stock; (b) there shall have been (I) no reduction in the annual rate of dividends paid on the Common Stock (except as necessary to reflect any subdivision of the Common Stock), except as approved by a majority of the Continuing Directors, and (II) an increase in such annual rate of dividends as necessary to reflect any reclassification (including any reverse stock split), recapitalization, reorganization or any similar transaction which has the effect of reducing the number of outstanding shares of the Common Stock, unless the failure so to increase such annual rate is approved by a majority of the Continuing Directors; and (c) such Interested Stockholder shall have not become the beneficial owner of any additional shares of Voting Stock except as part of the transaction which results in such Interested Stockholder becoming an Interested Stockholder. (v) After such Interested Stockholder has become an Interested Stockholder, such Interested Stockholder shall not have received the benefit, directly or indirectly (except proportionately, solely in such Interested Stockholder's capacity as a stockholder of the Corporation), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Corporation, whether in anticipation of or in connection with such Business Combination or otherwise. -9- (vi) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to all stockholders of the Corporation at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). -10- C. For the purposes of this Article EIGHTH: (1) A "person" shall mean any individual, firm, corporation or other entity. (2) "Interested Stockholder" shall mean any person (other than the Corporation or any Subsidiary) or which: (i) Is the beneficial owner, directly or indirectly, of more than 10 percent of the voting power of the outstanding Voting Stock; or (ii) Is an Affiliate of the Corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10 percent or more of the voting power of the then-outstanding Voting Stock; or (iii) Is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Stockholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. (3) A person shall be a "beneficial owner" of any Voting Stock: (i) Which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) Which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) Which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or -11- understanding for the purpose of acquiring, holding, voting or disposing of any shares of Voting Stock. (4) For the purposes of determining whether a person is an Interested Stockholder pursuant to paragraph (2) of this section C., the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of paragraph (3) of this section C., but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (5) "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on January 1, 1986. (6) "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in paragraph (2) of this section C., the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Corporation. (7) "Continuing Director" means any member of the board of directors of the Corporation (the "Board") who is unaffiliated with the Interested Stockholder and was a member of the Board prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a Continuing Director who is unaffiliated with the Interested Stockholder and is recommended to succeed a Continuing Director by a majority of Continuing Directors then on the Board. (8) "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on -12- the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or, if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. (9) In the event of any Business Combination in which the Corporation survives, the phrase "consideration other than cash to be received" as used in paragraphs (2)(ii) and (2)(iii) of section B. of this Article EIGHTH shall include the shares of Common Stock and/or the shares of any other class of outstanding Voting Stock retained by the holders of such shares. D. A majority of the directors then in office shall have the power and duty to determine, on the basis of information known to them after reasonable inquiry, all facts necessary to determine compliance with this Article EIGHTH, including, without limitation: (i) whether a person is an Interested Stockholder, (2) the number of shares of Voting Stock beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether the applicable conditions set forth in paragraph (2) of section B. have been met with respect to any Business Combination, and (5) whether the assets which are the subject of any Business Combination referred to in paragraph (1)(ii) of section A. have, or the consideration to be received for the issuance or transfer of securities by the Corporation or any Subsidiary in any Business Combination referred to in paragraph (1)(iii) of section A. has, an aggregate Fair Market Value of $10,000,000 or more. -13- E. Nothing contained in this Article EIGHTH shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. NINTH: A. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of this Corporation or is or was serving at the request of this Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged activity in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by this Corporation to the fullest extent authorized by the General Corporation Law of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits this Corporation to provide broader indemnification rights than said Law permitted this Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with any such proceeding and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that this Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the board of directors of this Corporation. Such right shall be a -14- contract right and shall include the right to be paid by this Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided however, that if the Delaware General Corporation Law requires the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, it shall be made only upon delivery to this Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Article or otherwise. B. If a claim under section A. is not paid in full by this Corporation within ninety (90) days after a written claim has been received by this Corporation, the claimant may at any time thereafter institute a proceeding against this Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such proceeding. It shall be a defense to any such proceeding (other than a proceeding brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that -15- the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of Delaware for this Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on this Corporation. Neither the failure of this Corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such proceeding that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the General Corporation Law of Delaware, nor an actual determination by this Corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the proceeding or create a presumption that claimant has not met the applicable standard of conduct. C. The rights conferred on any person by sections A. and B. shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of this Restated Certificate of Incorporation, by- law of this Corporation, agreement, vote of stockholders or disinterested directors or otherwise. D. This Corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of this Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not this Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. TENTH: A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ELEVENTH: The Corporation reserves the right to amend or repeal any provision contained in this restated Certificate of Incorporation in the manner prescribed by the laws of the State of -16- Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law, by this Restated Certificate of Incorporation or any certificate of designation filed with the Delaware Secretary of State pursuant to Article FOURTH hereof, the affirmative vote of the holders of at least 66-2/3 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article ELEVENTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article NINTH. In Witness Whereof, this Restated Certificate of Incorporation, having been duly adopted by the board of directors of The Centris Group, Inc. in accordance with section 245 of the General Corporation Law of Delaware, restates and integrates and does not further amend the provisions of the Corporation's Certificate of Incorporation as heretofore amended or supplemented, and there is no discrepancy between those provisions and the provisions of this Restated Certificate of Incorporation, and has been executed by David L. Cargile, its President, and attested by Jose A. Velasco, its Secretary, this 25th day of March, 1998. THE CENTRIS GROUP, INC. By /s/ DAVID L. CARGILE ----------------------- DAVID L. CARGILE, President Attest: /s/JOSE A. VELASCO - ---------------------------- JOSE A. VELASCO, Secretary -17- EX-3.2 3 AMENDED AND RESTATED BYLAWS OF THE COMPANY THE CENTRIS GROUP, INC. ----------------------- BY-LAWS ARTICLE I - STOCKHOLDERS Section 1. Annual Meeting. An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 2. Special Meetings. Special meetings of the stockholders of the Corporation may be called by the Board of Directors pursuant to a resolution adopted by a majority of the directors then in office. Special meetings of stockholders may not be called by the stockholders. (Amended March 4, 1992) Section 3. Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten nor more than sixty days before the date on which the meeting is to be held, to each stockholders entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any 1. adjourned meeting is more than thirty days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 4. Quorum. At any meeting of the stockholders, the holders of one third (1/3) of all the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of one-third (1/3) of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. If a notice of any adjourned special meeting of stockholders is sent to all stockholders entitled to vote thereat, stating that it will be held with those present constituting a quorum, then except as otherwise required by law, those present at such adjourned meeting shall constitute a quorum, and all matters shall be determined by a majority of the votes cast at such meeting. (amended May 16, 1994) Section 5. Organization. Such person as the Board of Directors may have designated or, in the absence of such a person, the chief executive officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. 2. Section 6. Conduct of Business. The Chairman of the Board of Directors shall preside at each meeting of stockholders. In the absence of the Chairman, the meeting shall be chaired by an officer of the Corporation in accordance with the following order: Vice Chairman of the Board, Chairman of the Executive Committee of the Board, President, Executive Vice President, Senior Vice President and Vice President. In the absence of all such officers, the meeting shall be chaired by a person chosen to so act by the vote of a majority of the shares of stock present in person or represented by proxy and entitled to vote thereat. The Secretary of the Corporation, or in his or her absence an Assistant Secretary, or in the absence of the Secretary and all Assistant Secretaries, a person whom the Chairman of the meeting shall appoint, shall act as Secretary of the meeting and keep a record of the proceedings thereof. The Board of Directors of the Corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations, if any, as adopted by the Board of Directors, the Chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such Chairman, are necessary, appropriate or convenient for the proper conduct of the meeting. These rules, regulations and procedures may include, without limitation, (i) establishing an agenda or order of business for the meeting, (ii) rules and procedures for maintaining order at the meeting and the safety of those present, (iii) limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies, and such other persons as the Chairman shall permit, (iv) restrictions on entry to the meeting after the time fixed for commencement thereof, (v) limitations on the time allotted to questions or comment by participants, and (vi) regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Further, to the extent determined by the Board of Directors or the Chairman of the meeting, meetings of stockholders of the Corporation shall not be required to be held in accordance with rules of parliamentary procedure. (amended January 31, 1996) 3. Section 7. Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation, not less than 90 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 7. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 7, and if he or she should so determine, he or she shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. 4. Section 8. Proxies and Voting. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his or her name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. At any meeting of stockholders, all elections for directors shall be -------------------------------------------------------------------- determined by a plurality of the votes of the shares present in person or by - ---------------------------------------------------------------------------- proxy entitled to vote; and other matters shall be determined by a majority of - ------------------------------------------------------------------------------ the vote of the shares present in person or by proxy entitled to vote, except as - -------------------------------------------------------------------------------- may be otherwise required by law or by the Corporation's Restated Certificate of - -------------------------------------------------------------------------------- Incorporation. (Amended March 25, 1998) - ---------------------------------------- Section 9. Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This 5. list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. Section 10. Consent of Stockholders in Lieu of Meeting Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. ARTICLE II - BOARD OF DIRECTORS Section 1. Number and Term of Office. The number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the directors then in office. The directors shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 1987 annual meeting of stockholders, the term of office of the second class to expire at the 1988 annual meeting of stockholders and the term of office of the third class to expire at the 1989 annual meeting of stockholders. At each annual meeting of stockholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Section 2. Vacancies and Newly Created Directorships. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a 6. majority vote of the directors then in office, though less than a quorum, and directors so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of office of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 3. Removal. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least 66 2/3 percent of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. (Amended June 5, 1986) Section 4. Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. Section 5. Special Meetings. Special meetings of the Board of Directors may be called by one-third of the directors then in office (rounded up to the nearest whole number) or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given each director by whom it is not waived by mailing written notice not less than five days before the meeting or by transmitting the text of the notice by telecopier (facsimile transmission) or telegraph not less than twenty-four hours before the meeting. The method of notice need not be the same for each director. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. (Amended September 2, 1987) 7. Section 6. Quorum. At any meeting of the Board of Directors, a majority of the total number of the whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 7. Participation in Meetings By Conference Telephone. Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 8. Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 9. Powers. The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (1) To declare dividends from time to time in accordance with law; (2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; (3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non- negotiable, secured or unsecured, and to do all things necessary in connection therewith; 8. (4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being; (5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (6) To adopt from time to time such stock, option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; (7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and, (8) To adopt from time to time regulations, not inconsistent with these by-laws, for the management of the Corporation's business and affairs. Section 10. Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors. Section 11. Nomination of Director Candidates. Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, nominations for the election of Directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of Directors generally. However, any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at a meeting only if timely notice of such stockholder's intent to make such nomination or nominations has been given in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days prior to the meeting; provided, however, that in the event that less than 100 days' notice or 9. prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; and (e) the consent of each nominee to serve as a director of the Corporation if so elected. In the event that a person is validly designated as a nominee in accordance with this Section 11 and shall thereafter become unable or unwilling to stand for election to the Board of Directors, the Board of Directors or the stockholder who proposed such nominee, as the case may be, may designate a substitute nominee upon delivery, not fewer than five days prior to the date of the meeting for the election of such nominee of a written notice to the secretary setting forth such information regarding such substitute nominee as would have been required to be delivered to the Secretary pursuant to this Section 11 had such substitute nominee been initially proposed as a nominee. Such notice shall include a signed consent to serve as a Director of the Corporation, if elected, of each such substitute nominee. If the Chairman of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 11, such nomination shall be void; provided, however, that nothing in this Section 11 shall be deemed to limit any voting rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock. 10. ARTICLE III - COMMITTEES Section 1. Committees of the Board of Directors. The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 2. Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one-third of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. 11. ARTICLE IV - OFFICERS Section 1. Generally. The officers of the Corporation shall consist of a President, one or more Vice Presidents, a Secretary, a Treasurer and such other officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. The President shall be a member of the Board of Directors. Any number of offices may be held by the same person. Section 2. President. The President shall be the chief executive officer of the Corporation. Subject to the provisions of these by-laws and to the direction of the Board of Directors, he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and shall perform all duties and have all powers which are commonly incident to the office of chief executive or which are delegated to him or her by the Board of Directors. He or she shall have power to sign all stock certificates, contracts and other instruments of the Corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the Corporation. Section 3. Vice President. Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One Vice President shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President's absence or disability. Section 4. Treasurer. The Treasurer shall have the responsibility for maintaining the financial records of the Corporation and shall have custody of all monies and securities of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and 12. shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe. Section 5. Secretary. The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe. Section 6. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 7. Removal. Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors. Section 8. Action with Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. ARTICLE V - STOCK Section 1. Certificates of Stock. Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant 13. Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile. Section 2. Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these by- laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefore. Section 3. Record Date. The Board of Directors may fix a record date, which shall not be more than sixty nor less than ten days before the date of any meeting of stockholders, nor more than sixty days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to express consent to corporate action in writing without a meeting; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. Section 4. Lost, Stolen or Destroyed Certificates In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5. Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. 14. ARTICLE VI - NOTICES Section 1. Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by pre-paid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram, shall be the time of the giving of the notice. Section 2. Waivers. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. ARTICLE VII - MISCELLANEOUS Section 1. Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these by-laws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 2. Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the 15. Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer. Section 3. Reliance upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care. Section 4. Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 5. Time Periods. In applying any provision of these by-laws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer, employee or agent of another corporation, or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged activity in an official capacity as a director, officer, employee or agent or in any other capacity while serving 16. as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended, (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection with any such proceeding and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Such right shall be a contract right and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. Section 2. Right of Claimant to Bring Suit. If a claim under Section 1 is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter institute a proceeding against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such proceeding. It shall be a defense to any such proceeding (other than a proceeding brought to enforce a claim for expenses incurred in defending any 17. proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such proceeding that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the proceeding or create a presumption that claimant has not met the applicable standard of conduct. Section 3. Non-Exclusivity of Rights. The rights conferred on any person by Sections 1 and 2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 4. Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ARTICLE IX - AMENDMENTS The Board of Directors is expressly empowered to adopt, amend or repeal By-laws of the Corporation. The stockholders shall also have power to adopt, amend or repeal the By-laws of the Corporation. In addition to any vote of the holders of any class or series of 18. stock of this Corporation required by law, by the certificate of incorporation of the Corporation or by these By-laws, the affirmative vote of the holders of at least 66 2/3 percent of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provisions of the By-laws of the Corporation. 19. EX-10.5(II) 4 AMENDMENT NO. 2 DATED AUGUST 29, 1997 Amendment No. 2 To Severance Agreement Between The Centris Group, Inc. (Formerly US Facilities Corporation) And David L. Cargile ________________________________ Whereas, The Centris Group, Inc., a Delaware corporation (the "Company"), and David L. Cargile (the "Executive") entered into a Severance Agreement dated May 24, 1994, and to an Amendment No. 1 thereto dated December 4, 1996 (collectively referred to herein as the "Agreement"), which relates to the termination of Executive's employment with the Company under certain circumstances; and Whereas, the Company and the Executive desire to amend Section 4(e)(i) to clarify the definition of events which constitute a "Change in Control" for purposes of this Agreement; Now, Therefore, in consideration of the Company's agreement to continue the employment of Executive for a period of a minimum of six (6) months from the date of this Amendment and the payment to Executive of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Executive hereby agree to enter into this Amendment to the Agreement as follows: 1. Section 4(e)(i) of the Agreement as originally written shall be stricken and eliminated from the Agreement, and shall be completely replaced by a new Section 4(e)(i), which shall read in full as follows: (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Direcors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute and unfettered authority to make the final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. 2. This Amendment shall be retroactive and shall be considered and deemed to have been in effect as of May 24, 1994, the Effective Date of the Agreement, which is the date when it was entered into by the parties hereto. 3. Apart from this Amendment, the terms of the Agreement as entered into on May 24, 1994 and as amended by Amendment No. 1 on December 4, 1996 shall otherwise in all respects remain as originally written to the extent that such terms do not conflict with or are inconsistent with this Amendment. -2- In Witness Whereof, this Amendment No. 2 has been executed by a duly authorized officer of the Company and by the Executive as of the 29th day of August, 1997. Company: The Centris Group, Inc. ------- By /s/ Jose A. Velasco -------------------------------- Jose A. Velasco Senior Vice President, Chief Administrative Officer, Secretary and General Counsel Executive: --------- By /s/ David L. Cargile -------------------------------- David L. Cargile -3- EX-10.5(IV) 5 AMENDMENT NO. 2 DATED AUGUST 1997 Amendment No. 2 To Severance Agreement Between The Centris Group, Inc. (formerly US Facilities Corporation) And Howard S. Singer ________________________________ Whereas, The Centris Group, Inc., a Delaware corporation (the "Company"), and Howard S. Singer (the "Executive") entered into a Severance Agreement dated May 24, 1994, and to an Amendment No. 1 thereto dated December 4, 1996 (collectively referred to herein as the "Agreement"), which relates to the termination of Executive's employment with the Company under certain circumstances; and Whereas, the Company and the Executive desire to amend Section 4(e)(i) to clarify the definition of events which constitute a "Change in Control" for purposes of this Agreement; Now, Therefore, in consideration of the Company's agreement to continue the employment of Executive for a period of a minimum of six (6) months from the date of this Amendment and the payment to Executive of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Executive hereby agree to enter into this Amendment to the Agreement as follows: 1. Section 4(e)(i) of the Agreement as originally written shall be stricken and eliminated from the Agreement, and shall be completely replaced by a new Section 4(e)(i), which shall read in full as follows: (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Direcors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute and unfettered authority to make the final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. 2. This Amendment shall be retroactive and shall be considered and deemed to have been in effect as of May 24, 1994, the Effective Date of the Agreement, which is the date when it was entered into by the parties hereto. 3. Apart from this Amendment, the terms of the Agreement as entered into on May 24, 1994 and as amended by Amendment No. 1 on December 4, 1996 shall otherwise in all respects remain as originally written to the extent that such terms do not conflict with or are inconsistent with this Amendment. -2- In Witness Whereof, this Amendment No. 2 has been executed by a duly authorized officer of the Company and by the Executive as of the 29th day of August, 1997. Company: The Centris Group, Inc. ------- By /s/David L. Cargile -------------------------- David L. Cargile President and Chief Executive Officer Executive: --------- By /s/Howard S. Singer -------------------------- Howard S. Singer -3- EX-10.5(VI) 6 AMENDMENT NO. 2 DATED AUGUST 29, 1997 Amendment No. 2 To Severance Agreement Between The Centris Group, Inc. (formerly US Facilities Corporation) And John T. Grush ______________________________ Whereas, The Centris Group, Inc., a Delaware corporation (the "Company"), and John T. Grush (the "Executive") entered into a Severance Agreement dated May 24, 1994, and to an Amendment No. 1 thereto dated December 4, 1996 (collectively referred to herein as the "Agreement"), which relates to the termination of Executive's employment with the Company under certain circumstances; and Whereas, the Company and the Executive desire to amend Section 4(e)(i) to clarify the definition of events which constitute a "Change in Control" for purposes of this Agreement; Now, Therefore, in consideration of the Company's agreement to continue the employment of Executive for a period of a minimum of six (6) months from the date of this Amendment and the payment to Executive of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Executive hereby agree to enter into this Amendment to the Agreement as follows: 1. Section 4(e)(i) of the Agreement as originally written shall be stricken and eliminated from the Agreement, and shall be completely replaced by a new Section 4(e)(i), which shall read in full as follows: (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Direcors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute and unfettered authority to make the final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. 2. This Amendment shall be retroactive and shall be considered and deemed to have been in effect as of May 24, 1994, the Effective Date of the Agreement, which is the date when it was entered into by the parties hereto. 3. Apart from this Amendment, the terms of the Agreement as entered into on May 24, 1994 and as amended by Amendment No. 1 on December 4, 1996 shall otherwise in all respects remain as originally written to the extent that such terms do not conflict with or are inconsistent with this Amendment. -2- In Witness Whereof, this Amendment No. 2 has been executed by a duly authorized officer of the Company and by the Executive as of the 29th day of August, 1997. Company: The Centris Group, Inc. ------- By /s/ David L. Cargile --------------------------------- David L. Cargile President and Chief Executive Officer Executive: --------- By /s/ John T. Grush --------------------------------- John T. Grush -3- EX-10.5(VIIA) 7 AMENDMENT NO. 2 DATED AUGUST 29, 1997 Amendment No. 2 To Severance Agreement Between The Centris Group, Inc. (Formerly US Facilities Corporation) And Craig J. Kelbel _________________________________ Whereas, The Centris Group, Inc., a Delaware corporation (the "Company"), and Craig J. Kelbel (the "Executive") entered into a Severance Agreement dated May 24, 1994, and to an Amendment No. 1 thereto dated December 4, 1996 (collectively referred to herein as the "Agreement"), which relates to the termination of Executive's employment with the Company under certain circumstances; and Whereas, the Company and the Executive desire to amend Section 4(e)(i) to clarify the definition of events which constitute a "Change in Control" for purposes of this Agreement; Now, Therefore, in consideration of the Company's agreement to continue the employment of Executive for a period of a minimum of six (6) months from the date of this Amendment and the payment to Executive of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Executive hereby agree to enter into this Amendment to the Agreement as follows: 1. Section 4(e)(i) of the Agreement as originally written shall be stricken and eliminated from the Agreement, and shall be completely replaced by a new Section 4(e)(i), which shall read in full as follows: (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Directors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute and unfettered authority to make the final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. 2. This Amendment shall be retroactive and shall be considered and deemed to have been in effect as of May 24, 1994, the Effective Date of the Agreement, which is the date when it was entered into by the parties hereto. 3. Apart from this Amendment, the terms of the Agreement as entered into on May 24, 1994 and as amended by Amendment No. 1 on December 4, 1996 shall otherwise in all respects remain as originally written to the extent that such terms do not conflict with or are inconsistent with this Amendment. -2- In Witness Whereof, this Amendment No. 2 has been executed by a duly authorized officer of the Company and by the Executive as of the 29th day of August, 1997. Company: The Centris Group, Inc. ------- By /s/ David L. Cargile ----------------------------------------- David L. Cargile President and Chief Executive Officer Executive: --------- By /s/ Craig J. Kelbel ----------------------------------------- Craig J. Kelbel -3- EX-10.5(IX) 8 AMENDMENT NO. 2 DATED AUGUST 29, 1997 Amendment No. 2 To Severance Agreement Between The Centris Group, Inc. (formerly US Facilities Corporation) And Jose A. Velasco ______________________________ Whereas, The Centris Group, Inc., a Delaware corporation (the "Company"), and Jose A. Velasco (the "Executive") entered into a Severance Agreement dated May 24, 1994, and to an Amendment No. 1 thereto dated December 4, 1996 (collectively referred to herein as the "Agreement"), which relates to the termination of Executive's employment with the Company under certain circumstances; and Whereas, the Company and the Executive desire to amend Section 4(e)(i) to clarify the definition of events which constitute a "Change in Control" for purposes of this Agreement; Now, Therefore, in consideration of the Company's agreement to continue the employment of Executive for a period of a minimum of six (6) months from the date of this Amendment and the payment to Executive of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Executive hereby agree to enter into this Amendment to the Agreement as follows: 1. Section 4(e)(i) of the Agreement as originally written shall be stricken and eliminated from the Agreement, and shall be completely replaced by a new Section 4(e)(i), which shall read in full as follows: (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Direcors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute and unfettered authority to make the final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. 2. This Amendment shall be retroactive and shall be considered and deemed to have been in effect as of May 24, 1994, the Effective Date of the Agreement, which is the date when it was entered into by the parties hereto. 3. Apart from this Amendment, the terms of the Agreement as entered into on May 24, 1994 and as amended by Amendment No. 1 on December 4, 1996 shall otherwise in all respects remain as originally written to the extent that such terms do not conflict with or are inconsistent with this Amendment. -2- In Witness Whereof, this Amendment No. 2 has been executed by a duly authorized officer of the Company and by the Executive as of the 29th day of August, 1997. Company: The Centris Group, Inc. ------- By /s/ David L. Cargile ------------------------------------------ David L. Cargile President and Chief Executive Officer Executive: --------- By /s/ Jose A. Velasco ------------------------------------------ Jose A. Velasco -3- EX-10.5(XII) 9 SEVERANCE AGREEMENT DATED DECEMBER 4, 1996 Severance Agreement ______________________________ This Agreement is made and entered into as of this 4th day of December, 1996, by and between US Facilities Corporation, a Delaware corporation (the "Company"), and Edward D. Jones, III ("Executive"). RECITALS Whereas, the Executive is currently employed by the Company and is considered a key employee of the Company; and Whereas, the Company desires to retain the services of the Executive; and Whereas, the Company and the Executive desire to set forth the amounts payable and benefits to be provided by the Company to the Executive in the event of a termination of the Executive's employment with the Company under the circumstances set forth herein after the happening of a Change in Control (as defined herein); Now, Therefore, in consideration of the foregoing and the mutual agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: AGREEMENT 1. Continued Employment. In reliance upon the promises of the Company -------------------- hereinafter contained, the Executive agrees that, for a period of not less than six (6) months commencing on the date set forth above, and subject to reasonable absences for illness, holiday and vacation or personal leave of absence in accordance with the Company's policies and practices in effect on the date hereof, the Executive will continue his employment with the Company and shall devote his best efforts to such duties as may be assigned to him by the Company from time to time. 2. Other Severance Arrangements. Except to the extent specifically set forth ---------------------------- herein, in the event of the termination of the Executive's employment with the Company, the Executive shall be entitled to receive any Company benefits payable under any employee benefit plan, program, policy or arrangement as such may then be in effect, including all such termination arrangements with Executive that may be described in any employment agreement. 3. Effective Date. This Agreement shall be effective as of the date first -------------- above written ("Effective Date") and shall continue and remain in full force and effect until the termination of Executive's employment with the Company, unless this Agreement is earlier terminated by the parties in writing. The completion of six (6) months of employment with the Company by the Executive as set forth in Section 1 shall not be a condition precedent to the effectiveness of this Agreement or to the payments of amounts or provision of benefits hereunder in the event the Executive's employment with the Company is terminated under the circumstances described in Section 4(b). 4. Termination of Employment. ------------------------- (a) Events Requiring No Payments Under Section 5: In the event the Executive's employment with the Company is terminated under any of the following circumstances, no payments shall be or become due and owing, and the Company shall have no other obligations under Section 5 of this Agreement: (i) By either party for any reason prior to the happening of a Change in Control (as hereinafter defined); (ii) By either party for any reason at any time more than two (2) years after a Change in Control; -2- (iii) By the Company at any time, whether prior to, contemporaneous with or subsequent to a Change in Control, for reason of "Cause" (as hereinafter defined) or due to the request or demand of any regulatory authority; or (iv) By the Executive at any time, whether prior to, contemporaneous with or subject to a Change in Control, upon his retirement or resignation for reasons other than "Good Reason" (as hereinafter defined). Notwithstanding the foregoing, nothing contained in this Section 4(a) shall prevent the Executive or his spouse, heirs, estate or personal representative from receiving any amounts payable under any other plan, program, policy or arrangement that is not a severance plan, program, policy or arrangement. (b) Events Requiring Payments Under Section 5: In the event the Executive's employment with the Company is terminated under any of the following circumstances set forth in (i) and (ii) below, the Company shall make the payments and provide the benefits as set forth in Section 5: (i) By the Company, contemporaneously with or within two (2) years after the happening of a Change in Control, for any reason other than (1) for Cause or (2) due to the request or demand of any regulatory authority; or (ii) By the Executive, contemporaneously with or within two (2) years after a Change in Control, for Good Reason. (c) For purposes of this Agreement, the term "Cause" shall mean (i) the commission by Executive of any material act of fraud or dishonesty; (ii) a final conviction of Executive of a felony in either a state or federal court proceeding; (iii) intentional and willful failure by Executive to faithfully carry out his duties and responsibilities as an employee of the Company, after reasonable notice in writing to and discussion thereafter with Executive; and (iv) Executive engaging in -3- activities which place Executive in a direct or indirect conflict with the Company or its interests. The decision as to the existence of "Cause," as described in (i), (iii) and (iv) above, shall be determined by a majority of the Company's nonemployee Directors; provided, however, if there is a change in the composition of the Board such that those persons who served as nonemployee Directors on the Effective Date of this Agreement represent less than fifty percent (50%) of the total number of nonemployee Directors, then "Cause" shall be determined by use of the Settlement of Disputes provisions set forth in Section 8 of this Agreement. (d) For purposes of this Agreement, the term "Good Reason" shall mean the following five (5) events; provided, however, that Executive may waive in writing his objection to the occurrence of any such event, in which case such event will no longer constitute "Good Reason": (i) Any material breach by the Company of its obligations contained in this Agreement; (ii) The assignment to the Executive of any duties inconsistent with the status of his position with the Company as such duties and position existed on the day immediately preceding the happening of a Change in Control, or an alteration in the nature or status of the Executive's duties and responsibilities that renders the Executive's position to be of less dignity, responsibility or scope from that which existed on the day immediately preceding the happening of a Change in Control; provided, however, it shall not be an event of Good Reason if the Executive is assigned additional duties for the Company or any affiliate or subsidiary of the Company which are not inconsistent with the duties described in Section 1 hereof so long as the aggregate of all duties assigned to the Executive in connection with his service with the Company, its affiliates or subsidiaries do not require the Executive to devote, on a consistent and sustained basis, substantially more time than other senior level executives of the Company are required to devote to their duties; -4- (iii) A reduction by the Company in the Executive's annual base salary as was in effect on the day immediately preceding the happening of a Change in Control or as the same may be increased from time to time; (iv) The failure of the Company to continue in effect of the benefits enjoyed by the Executive under the Company's 1988 Employee Stock Plan or its 1991 Employee Stock Option Plan or under the Company's Incentive Compensation Program, or any other compensation plan, program or arrangement, or any of the Company's pension, retirement, profit sharing, savings, life insurance, medical, health-and-accident, disability or other employee benefit plans, programs or arrangements as they existed on the day immediately preceding the happening of a Change in Control, or the failure of the Company to continue the Executive's participation therein; or the failure by the Company to provide the Executive with the number of paid vacation days to which he is entitled on the basis of years of service and position with the Company in accordance with the Company's normal vacation policy, or the failure of the Company to continue or if the Company adversely changes or reduces other specific contractual benefits or perquisites provided to Executive as they existed on the day immediately preceding the happening of a Change in Control, including, but not limited to, providing an automobile or an automobile allowance, club memberships, and dues for professional associates for Executive; (v) The assignment of the Executive to an office which is located more than 50 miles from the office at which the Executive was primarily performing his duties on the day immediately preceding the happening of a Change in Control. (e) For purposes of this Agreement, a "Change in Control" shall mean the occurrence, after the Effective Date hereof, of any of the following events if such events are not approved by the Board of Directors of the Company prior to their occurrence; (i) At any time during the term of this Agreement, any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange -5- Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement) of outstanding securities of the Company representing 10% or more of the combined voting power of the Company's then outstanding securities. For purposes of this subsection (i) of Section 4(e) of the Agreement, a person becomes, directly or indirectly, the beneficial owner of outstanding securities of the Company representing 10% or more of the combined voting power of the Company's outstanding securities when such person, together with all affiliates and associates of such person, acquires beneficial ownership of, in the aggregate, a number of voting shares of the Company equal to 1% or more of the voting shares then outstanding, and thereupon or thereafter beneficially owns (as defined in the aforenoted Rule 13d-3 under the Exchange Act) 10% or more of the voting shares of the Company then outstanding; provided, however, that the concept of any person becoming the owner of 10% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any person if such person would not otherwise be a 10% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which plan or tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 10% or more of the combined voting shares shall include such beneficial owner after the first date upon which (x) such person, since the date of commencement of such plan or tender offer, shall have acquired beneficial ownership of, in the aggregate, a number of voting shares of the Company equal to 1% or more of the voting shares then outstanding, and (y) such person, together with all affiliates and associates of such person, shall beneficially own 10% or more of the voting shares of the Company then outstanding. In calculating the percentage of the person for purposes of this -6- subsection, voting shares that are beneficially owned by such person shall be deemed outstanding, and voting shares that are not beneficially owned by such person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, rights (other than rights), warrants or options shall not be deemed outstanding. Any determination made by the directors as to whether any person is or is not a 10% stockholder for purposes of this subsection shall be conclusive and binding upon the Company and upon all stockholders; (ii) At any time during the term of this Agreement the composition of the Board of Directors of the Company is changed such that persons who were directors of the Company as of the Effective Date, or persons nominated or elected as directors by a majority of such persons who were directors as of the Effective Date, do not continue to comprise a majority of the members of such Board of Directors of the Company; (iii) At any time during the term of this Agreement the stockholders of the Company approve a merger or consolidation of the Company with, or a reorganization transaction involving the Company and, any other entity, other than a merger, consolidation or reorganization which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation; or (iv) At any time during the term of this Agreement the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of more than 50% of its consolidated assets. 5. Obligations of the Company Upon Termination of Employment. Upon --------------------------------------------------------- termination of Executive's employment with the Company under the circumstances set forth in Section 4(b), the -7- Executive shall be entitled to receive, notwithstanding such termination, the following payments and to be provided the following benefits: (a) Salary and Bonus: Subject to the limitations set forth in Section 7 hereof, the Company shall pay to the Executive that amount which is equal to his regular base salary, at the rate then in effect, for a period of one (1) year, plus a bonus in an amount which shall be equal to the largest cash bonus actually received by Executive during his term of employment with the Company; provided, however, that if Executive shall have entered into an Employment Agreement with the Company which is in effect at the time of Executive's termination, then and in that event the Company and Executive agree that upon Executive's termination Executive shall be entitled to receive either (i) the salary and bonus termination payments under this Section 5(a), or (ii) the salary and bonus terminations payments provided for in such Employment Agreement, whichever salary and bonus termination payment is the greater; but under no conditions shall Executive be entitled to receive upon termination both the salary and bonus termination payments under this Severance Agreement and the salary and bonus termination payments under any such Employment Agreement. (b) Method of Payment: The payments due to Executive under Section 5(a) of this Agreement shall be made as follows: (i) The Company shall pay to the Executive his regular base salary in installments consistent with the Company's payroll practices then in effect, or in a single lump sum payment, whichever method is selected by Executive, in his sole discretion; (ii) The Company shall pay to Executive the bonus payments in a single lump sum; and (iii) Any lump sum payments due to Executive shall be paid to Executive on the Effective Date of his termination of employment. -8- (c) Other Benefits: The Company shall continue in force for Executive for a period of two (2) years after Executive's termination the life insurance, medical, health-and-accident and disability benefit plans or programs then in effect on the date of Executive's termination from the Company; provided, however, that such Other Benefits as are set forth in this Section 5(c) shall not be required to be available to Executive if subsequent employment by Executive with another employer offers to Executive similar plans or programs in which the benefits equal or exceed the benefits which Executive could receive under the Company's plans or programs as provided herein. 6. No Duty to Mitigate. The Executive shall not be required to mitigate the ------------------- amount of any payment required hereunder by seeking other employment or otherwise, nor shall the amount paid hereunder be reduced or offset by any compensation earned or received by the Executive as a result of employment with another employer, self-employment or any amount received from any other plan, program, policy or arrangement of the Company. 7. Nonapplicability of Excise Tax. The parties intend that this Agreement ------------------------------ shall govern the rights an obligations of the parties with respect to severance payments payable upon a termination of Executive's employment with the Company, and that the excise tax as provided in Section 280G of the Internal Revenue Code shall not be applicable to payments under this Agreement. Accordingly, the parties agree that the aggregate amount which shall be paid to Executive under this Agreement shall be $1.00 less than that amount which would make such payment to Executive an "excess parachute payment" under the provisions of Sections 280G of the Internal Revenue Code, and to which an excise tax would be applicable. 8. Settlement of Disputes. ---------------------- (a) It is specifically agreed that any controversy or dispute between the parties to this Agreement involving the construction, interpretation, application, performance or breach of the terms, covenants or conditions of this Agreement or in any way arising under this Agreement shall, on demand of one of the parties by written notice hereto served on the other in the manner prescribed in Section 9(a) hereof, be determined pursuant to the general reference procedures -9- prescribed by California Code of Civil Procedure Sections 638(1), et seq., as they may be amended from time to time, by a retired or former judge of the Superior Court for the County of Orange, State of California. The parties intend this general reference agreement to be specifically enforceable in accordance with said Section 638(1). (b) The reference may be commenced by any party hereto by the filing in the Superior Court of the State of California for the County of Orange of a petition or a motion for a general reference proceeding. (c) The petition or motion may designate as a sole referee a retired judge working with JAMS who is acceptable to that party. If the parties to the reference proceeding are unable to mutually agree upon a referee, the Presiding Judge or any judge of the Orange County Superior Court to whom the matter is assigned shall appoint a retired or former Orange County Superior Court Judge from those listed with JAMS as available to act as a referee. (d) The petition and any opposition or response thereto shall recite in a clear and meaningful manner the factual basis of the controversy between the parties and identify the issues to be submitted to the referee for decision. (e) The parties acknowledge that this agreement is specifically enforceable and that the decision by the referee is tantamount to a judgment by a trial court (CCP (S) 644) and is subject to review in accordance with CCP (S) 645, and that any judgment rendered in the trial court is appealable in the same manner as any other trial court judgment. (f) The parties may agree on limited discovery. However, in the absence of an agreement, each party may: (i) take up to three depositions not totaling more than six hours cumulatively; (ii) propound one set of interrogatories, not to exceed 20 single questions; (iii) serve not more than 10 requests for admissions; and (iv) propound not to exceed 15 requests to produce documents, all as may be "reasonable," as measured by the circumstances and amount in dispute -10- between the parties. Any disagreements between the parties regarding discovery matters shall be resolved by the referee. (g) The hearing shall be held within 60 days after the referee is selected. The referee shall issue a written memorandum of decision setting forth his findings of fact and conclusions of law. 9. Miscellaneous. ------------- (a) Notices: All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, first-class postage prepaid, to the parties to this Agreement at the following addresses: If to the Company: US Facilities Corporation 650 Town Center Drive, Suite 1600 Costa Mesa, California 92626 Attention: Chief Executive Officer If to Executive: Edward D. Jones, III 3324 Wildcat Point Johns Island, South Carolina 29455 or to such other address as either party to this Agreement shall have last designated by notice to the other party. All such notices and communications shall be deemed to have been received on the earlier of the date of receipt or the third business day after the date of mailing thereof. (b) Binding Effect; Benefits: This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns. Nothing in this Agreement, express or implied, is intended or shall be construed to give any person, other than the parties to this Agreement or their respective successors or assigns, any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein. -11- (c) Waiver: Either party hereto may by written notice to the other (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive compliance with any of the conditions or covenants of the other contained in this Agreement; and (iii) waive or modify performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants or agreements contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any preceding or succeeding breach and no failure by either party to exercise any right or privilege hereunder shall be deemed a waiver of such party's rights or privileges hereunder or shall be deemed a waiver of such party's rights to exercise the same any subsequent time or times hereunder. (d) Amendment: This Agreement may be terminated, amended, modified or supplemented only by a written instrument executed by the Executive and the Company. (e) Nonassignability: Neither this Agreement nor any right, remedy, obligation or liability arising hereunder or by reason hereof shall be assignable by either the Company or the Executive without the prior written consent of the other party. (f) Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the State of California, regardless of the law that might be applied under principles of conflict of laws. (g) Section and Other Headings: The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. -12- (h) Withholding of Taxes: The Company may withhold from amounts required to be paid to the Executive hereunder any applicable federal, state, local and other taxes with respect thereto; provided, however, that the Company shall promptly pay over the amounts so withheld to the appropriate taxing bodies and provide to the Executive appropriate statements on forms proscribed for such purposes on the amounts so withheld. (i) Severability: If, for any reason, any provision of this Agreement is held invalid, such invalidity shall not affect any other provision of this Agreement not held so invalid, and each such other provision shall, to the full extent consistent with law, continue in full force and effect. If any provision of this Agreement shall be held invalid in part, such invalidity shall in no way affect the rest of such provision not held so invalid, and the rest of such provision, together with all other provisions of this Agreement, shall to the full extent consistent with law continue in full force and effect. If this Agreement is held invalid or cannot be enforced, then to the full extent permitted by law, any prior agreement between the Company (or any predecessor thereof) and the Executive shall be deemed reinstated as if this Agreement had not been executed. (j) Counterparts: This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. -13- In Witness Whereof, the Company has caused this Agreement to be executed and its seal affixed hereunto by its officers thereunto duly authorized, and the Executive has signed this Agreement, all as of the date first above written. Company: US Facilities Corporation ------- By /s/ David L. Cargile ----------------------------------------- David L. Cargile President and Chief Executive Officer Executive: --------- By /s/ Edward D. Jones, III ------------------------------------------ Edward D. Jones, III -14- Amendment No. 1 To Severance Agreement Between The Centris Group, Inc. (formerly US Facilities Corporation) And Edward D. Jones, III __________________________________ Whereas, The Centris Group, Inc., a Delaware corporation (the "Company"), and Edward D. Jones, III (the "Executive") entered into a Severance Agreement dated December 4, 1996 (the "Agreement"), which relates to the termination of Executive's employment with the Company under certain circumstances; and Whereas, the Company and the Executive desire to amend Section 4(e)(i) to clarify the definition of events which constitute a "Change in Control" for purposes of this Agreement; Now, Therefore, in consideration of the Company's agreement to continue the employment of Executive for a period of a minimum of six (6) months from the date of this Amendment and the payment to Executive of $1.00 and other good and valuable consideration, receipt of which is hereby acknowledged, the Company and the Executive hereby agree to enter into this Amendment to the Agreement as follows: 1. Section 4(e)(i) of the Agreement as originally written shall be stricken and eliminated from the Agreement, and shall be completely replaced by a new Section 4(e)(i), which shall read in full as follows: (i) At any time during the term of this Agreement, any "Person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the regulations of the Securities and Exchange Commission (the "SEC") thereunder, each as in effect on the Effective Date of this Agreement (including any such Persons that may be deemed to be acting in concert with respect to the Company or the acquisition, ownership or voting of Company securities) becomes, directly or indirectly, the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act and the regulations of the SEC thereunder, each as in effect on the Effective Date of this Agreement), without the prior approval of the Board of Directors of the Company, of outstanding securities of the Company representing 15% or more of the combined voting power of the Company's then outstanding securities; provided, however, that the concept of any Person becoming the owner of 15% or more of the combined voting shares shall not include: (A) the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any Person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (B) any Person if such Person would not otherwise be a 15% stockholder but for a reduction in the number of outstanding voting shares resulting from a stock repurchase program or other similar plan instituted by the Company or from a self-tender offer of the Company, which stock repurchase plan or Company self-tender offer commenced on or after the Effective Date of this Agreement; provided, however, that the concept of becoming the owner of 15% or more of the combined voting shares shall include such Beneficial Owner after the first date upon which (x) such Person, since the date of commencement of such stock repurchase plan or Company self-tender offer, shall have acquired Beneficial Ownership of, in the aggregate, additional voting shares of the Company representing 1% or more of the voting shares then outstanding, and (y) such Person, together with all affiliates and associates of such Person, shall Beneficially Own 15% or more of the voting shares of the Company then outstanding. In calculating the percentage of outstanding voting shares that are Beneficially Owned by a Person for purposes of this subsection, voting shares that are Beneficially Owned by such Person shall be deemed outstanding, and voting shares that are not Beneficially Owned by such Person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, warrants or options shall not be deemed outstanding. The Board of Directors shall have the absolute and unfettered authority to make the final determination as to whether any Person is or is not to be considered a 15% Stockholder for purposes of this Agreement, which determination shall be conclusive for all purposes and shall be binding upon the Company and upon the Executive. 2. This Amendment shall be retroactive and shall be considered and deemed to have been in effect as of December 4, 1996, the Effective Date of the Agreement, which is the date when it was entered into by the parties hereto. 3. Apart from this Amendment, the terms of the Agreement as entered into on December 4, 1996 shall otherwise in all respects remain as originally written to the extent that such terms do not conflict with or are inconsistent with this Amendment. -2- In Witness Whereof, this Amendment No. 1 has been executed by a duly authorized officer of the Company and by the Executive as of the 29th day of August, 1997. Company: The Centris Group, Inc. ------- By /s/David L. Cargile ------------------------------------- David L. Cargile President and Chief Executive Officer Executive: --------- By /s/Edward D. Jones, III ------------------------------------- Edward D. Jones, III -3- EX-10.7(II) 10 MANAGEMENT AGREEMENT NO. 1 DATED 4/24/1997 ADDENDUM EIGHT to MANAGEMENT AGREEMENT NO. 1 between USBENEFITS INSURANCE SERVICES, INC. and THE CONTINENTAL INSURANCE COMPANY, (one of the CNA Insurance Companies) Management Agreement No. 1 is hereby amended as set forth below, effective as of March 30, 1996. Paragraph 6.2 of Section 6 - MANAGEMENT OF CLAIMS AND LOSSES is amended to read in its entirety as follows: Claim payments shall be made on the Company's checks issued by the Underwriting Manager in the Company's name which checks shall be drawn on the Company's accounts. Scheduled employees of the Underwriting Manager covered by the fidelity bond required by Section 11.4 hereof are authorized to issue claims checks up to $100,000, as provided in the Claims Guidelines. IN WITNESS WHEREOF, the parties hereto by their respective duly authorized officers have caused this Addendum Eight to be executed in duplicate this 24th day of April, 1997. The Continental Insurance Company USBenefits Insurance Services, Inc. By: /s/ PAUL V. POLACHEK By: /s/ CRAIG J. KELBEL --------------------------- ---------------------------------- Craig J. Kelbel, President and Chief Operating Officer Witnessed: Witnessed: /s/ KURT SCHERER /s/ B. RETTEW - ------------------------- -------------------------------------- ADDENDUM NINE to MANAGEMENT AGREEMENT NO. 1 between USBENEFITS INSURANCE SERVICES, INC. and THE CONTINENTAL INSURANCE COMPANY, (one of the CNA Insurance Companies) Management Agreement No. 1 is hereby amended as set forth below, effective as of April 18, 1997. Paragraph 6.2 of Section 6 - MANAGEMENT OF CLAIMS AND LOSSES is amended to read in its entirety as follows: Claim payments shall be made on the Company's checks issued by the Underwriting Manager in the Company's name which checks shall be drawn on the Company's accounts. Scheduled employees of the Underwriting Manager covered by the fidelity bond required by Section 11.4 hereof are authorized to issue claims checks up to $250,000, as provided in the Claims Guidelines. IN WITNESS WHEREOF, the parties hereto by their respective duly authorized officers have caused this Addendum Nine to be executed in duplicate this 24th day of April, 1997. The Continental Insurance Company USBenefits Insurance Services, Inc. By: /s/ Paul V. Polachek By: /s/ Craig J. Kelbel ----------------------------- ---------------------------------- Paul V. Polachek Craig J. Kelbel, President and Chief Operating Officer Witnessed: Witnessed: /s/ Janet L. Schaeffer /s/ Timothy J. Barden - --------------------------------- -------------------------------------- EX-10.10 11 THE COMPANY'S AMENDED 1988 EMPLOYEE STOCK PLAN THE CENTRIS GROUP, INC. ---------------------- AMENDED 1988 EMPLOYEE STOCK PLAN I. PURPOSE The purpose of The Centris Group, Inc. 1988 Employee Stock Plan, as Amended ----------------------- in January 1997, (the "Plan") is to further the interest of The Centris Group, ------------------ Inc. (the "Company") by inducing individuals to become, or remain employees of - ---- the Company or its Subsidiaries through stock options, stock appreciation rights and restricted stock which may be granted under the Plan. Options granted under the Plan may either be options intended to qualify as "incentive stock options" within the meaning of Section 422A of the Internal Revenue Code, or nonqualified stock options. II. DEFINITIONS The following terms shall have the following meanings for purposes of this Plan: a. "Award" shall mean a grant of Stock Options, Stock Appreciation Rights, Restricted Stock or any combination thereof. b. "Board" shall mean the Board of Directors of The Centris Group, Inc. ----------------------- c. "Code" shall mean the Internal Revenue Code of 1986, as amended. d. "Committee" shall mean the committee appointed by the Board pursuant to Section III(A) below to administer the Plan or, if no committee has been appointed, the Board. e. "Common Stock" shall mean the common stock of the Company, as described in the Company's Articles of Incorporation. f. "Company" shall mean The Centris Group, Inc., a Delaware corporation. ----------------------- g. "Disability" shall mean that because of injury or sickness a person cannot perform each of the material duties of his or her regular occupation. h. "Non-Employee Director" means any director of the Company who qualifies as a "non-employee director" within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended. i. "Employee" shall mean any officer, or employee of the Company or its Subsidiaries. For purposes of grants of Incentive Stock Options under this Plan, the term Employee shall be limited to active employees of the Company or its Subsidiaries. j. "Fair Market Value Per Share" shall be the mean between the highest and lowest quoted selling prices of the Common Stock on the date of the grant of the Award, or if not available, the mean between the bona fide bid and asked prices of the Common Stock on the date of the grant of the Award. k. "Incentive Stock Option" ("ISO") shall mean an Option granted under the Plan which is designated as an incentive stock option, and which qualifies as such within the meaning of Section 422A of the Code. l. "Nonqualified Option" ("NQSO") shall mean an Option granted under the Plan which is designated as a nonqualified stock option, and which shall not be qualified as an incentive stock option within the meaning of Section 422A of the Code. m. "Option" shall mean an Incentive Option, as defined in Section II(k) above, or a Non-qualified Option as defined in Section II(l) above. n. "Optionee" shall mean any Employee who has been awarded an Option to purchase shares of Common Stock or who has been awarded SARs under the Plan. o. "Plan" shall mean The Centris Group, Inc. 1988 Employee Stock Plan, as ---------------------- amended. p. "Restricted Stock" shall mean shares of Common Stock awarded to an Employee under Section X of the Plan. q. "Stock Appreciation Right" ("SAR") shall mean the right to receive the appreciation in value of the Common stock between the date of the grant of the SAR and the date the SAR is exercised. A granted SAR may be attached to an Option or separate from an Option. 2 III. ADMINISTRATION A. The Plan shall be administered by the Board or, in the discretion of the Board, by a committee of the Board that is composed solely of two or more Non-Employee Directors (the "Committee"). Subject to the provisions of the Plan, the Committee or the Board shall have the authority to construe and interpret the Plan and to make all determinations necessary or advisable for the administration of the Plan. All determinations of the Committee or the Board shall be binding on all Plan participants. B. The Company will indemnify and hold harmless the members of the Board and the Committee from and against any and all liabilities, costs and expenses incurred by such persons as a result of any act, or omission in connection with the performance of such persons' duties, responsibilities and obligations under the Plan, other than such liabilities, costs and expenses as may result from the bad faith, willful misconduct or criminal acts of such persons. IV. SHARES SUBJECT TO PLAN The stock subject to the Plan shall consist of 600,000 shares (as adjusted --------------------------- for the February, 1998 100% stock split) of the Company's Common Stock. If any - ---------------------------------------- Option granted hereunder shall expire or terminate for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for the purposes of this Plan. If any Restricted Stock is forfeited to the Company, such shares shall again be available for the purposes of this Plan. Any shares of stock that are surrendered to the Company in a stock-for- stock exercise of an Option shall be available for issuance under the Plan. V. ELIGIBILITY AND PARTICIPATION A. The Committee shall determine the Employees to whom Options, SARs, Restricted Stock or any combination thereof, shall be granted, the time or times at which such Awards shall be granted, and the number of shares to be subject to each Award. An Employee may be granted ISOs, NQSOs, SARs, Restricted Stock or any combination of the four; provided, however, that the grant of ISOs and NQSOs to an Employee shall be made in separate Option grants, and each ISO and each NQSO shall be specifically designated as such. B. No Employee shall be granted ISOs such that the aggregate fair market value (determined at the time the Option is granted) of the shares granted under all stock option plans of the Company exceeds $100,000 for options becoming exercisable in any calendar year. VI. PURCHASE PRICE The purchase price of each share covered by each Option shall be established by the Committee at the date of grant, but such price shall not be less than 100 percent of the Fair Market Value Per Share of the Common Stock; provided, however, that if at the time an ISO is granted the Optionee, owns or would be considered to own by reason of Section 425(d) of the Code, more than 10 percent of the total combined voting power of all classes of stock of the Company, the purchase price of the shares covered by such ISO shall not be less than 110 3 percent of the Fair Market Value Per Share of the common stock on the date the ISO is granted. VII. DURATION OF OPTIONS The expiration date of any Option shall be determined by the Committee. In the event the Committee does not specify the expiration date of the Option, the expiration date shall be ten years after the date of grant for ISOs and ten years and one day from the date of grant for NQSOs, subject to earlier termination as provided herein. VIII. OPTIONS A. Options awarded under the Plan shall be evidenced by an Option agreement which shall be in such form as the Committee may determine. Without limiting the foregoing, the Committee may include in any Option agreement a provision conditioning or accelerating the grant of an Option, or the receipt of benefits pursuant to such Option, upon the exercise or settlement of a previous Option. B. An Optionee may purchase fewer than the total number of shares granted in an Option, provided that a partial exercise of an Option may not be for less than 100 shares, unless fewer than 100 shares remain unexercised in an Award, in which case the entire remaining Option must be exercised at one time. As a condition to the exercise, in whole or in part, of any Option, the Committee may require the Optionee to pay, in addition to the purchase price of the shares covered by the Option, an amount equal to any federal, state, or local taxes that are required to be paid in connection with the exercise of such Option. C. To the extent the right to purchase shares has vested, Options may be exercised from time to time by giving written notice to the Company stating the number of shares with respect to which the Option is being exercised. Such notice shall comply with all applicable rules established by the Committee. D. Full payment for the shares with respect to which such Option, or portion thereof is exercised shall be made in combination of cash, check, or shares of the Company's Common Stock (valued at their fair market value on the date of delivery) owned by the Optionee, duly endorsed for transfer to the Company, equal to the aggregate option price and applicable taxes of the shares with respect to which such Option or portion thereof is being exercised; provided, however, that the Committee may, in the exercise of its discretion, (i) allow exercise of an Option in a broker-assisted or similar transaction in which the exercise price is not received by the Company until promptly after exercise, (ii) allow the Company to loan the exercise price to the person entitled to exercise the Award, if the exercise will be followed by a prompt sale of some or all of the underlying shares and a portion of the sale proceeds is dedicated to full payment of the exercise price and applicable taxes, and/or (iii) allow the Company to assist any Optionee (including any officer of the Company) in the payment of the exercise price payable upon exercise of such Option, by lending the amount of such exercise price to the Optionee on such terms and at such rates of interest and upon such 4 security (or unsecured) as shall have been authorized by or under authority of the Committee or the Board. IX. STOCK APPRECIATION RIGHTS The Committee, in its discretion, may grant, either by attachment to an Option at the time of grant, or by amendment, or on a separate basis, a Stock Appreciation Right which shall be subject to such terms and conditions, not inconsistent with the Plan as the Committee may impose, including the following: a. SARs awarded under the Plan shall be evidenced by a Stock Appreciation Rights agreement which shall be in such form as the Committee may determine. b. An SAR may be exercised only to the extent that the Option to which it is attached is at the time exercisable; or, if issued separately, pursuant to the terms of the Stock Appreciation Rights agreement. c. An SAR shall entitle the holder to surrender to the Company either the Option (or a portion thereof) to which the SAR is attached, or the SAR, if issued separately from an Option, and receive in exchange therefore, as the Committee in its discretion may determine, either cash, shares of the Company's Common Stock, or a combination of both having a fair market value on the date of exercise in the aggregate equal to the appreciation in value of the shares in respect to which the right is exercised. Such appreciation shall be measured by either the difference between the aggregate Option price of such shares and their fair market value at the date of exercise (with respect to SARs attached to an Option), or the difference between the fair market value of such shares at the time of grant and at the time of exercise (with respect to SARs issued separately from Options). d. If the Stock Appreciation Right is attached to an Option, the exercise of the Stock Appreciation Right shall cancel the Option to which the Stock Appreciation Right is attached. X. RESTRICTED STOCK A. The Committee may award shares of Restricted Stock which are subject to the terms of this Section X and such other conditions as the Committee may prescribe in a Restricted Stock Award. Each certificate for Restricted Stock shall be registered in the name of the Employee and deposited with the Company by the Employee, together with a stock power endorsed in blank. B. Restricted Stock awarded under the Plan shall be evidenced by a Restricted Stock agreement which shall be in such form as the Committee may determine. C. At the time of the Award, there shall be established for the Employee a "Restriction Period" of such length as shall be determined by the Committee. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as herein 5 provided, during the Restriction Period. Except for such restrictions, the Employee shall have all the rights of a stockholder of the Company, with respect to such Restricted Stock. D. At the expiration of the Restriction Period, the Company shall redeliver to the Employee (or the Employee's legal representative or beneficiary) the shares and stock power deposited with the Company pursuant to Section X.A. XI. NONTRANSFERABILITY OF AWARDS An Employee may not transfer, assign, pledge, or hypothecate any Option, SAR or Restricted Stock granted under this Plan, except pursuant to an exercise of an Option through the use of a Regulation T Margin Account solely for the purpose of exercising the underlying Option. Otherwise, Awards may only be transferred pursuant to the Employee's will, or the laws of descent and distribution. XII. CONTINUATION OF EMPLOYMENT Nothing contained in the Plan or any Award granted under the Plan shall confer upon any Employee any rights with respect to continuation of employment by the Company, nor shall this Plan or any individual agreement issued pursuant hereto be deemed a contract of employment. XIII. TERMINATION OF EMPLOYMENT - ISOS/SARS A. If an Optionee ceases to be an Employee for any reason other than death, Disability, or retirement at or after age 55, any ISO or SAR previously granted shall terminate upon the termination of employment. B. If an Optionee ceases to be an Employee due to retirement at or after age 55, any ISO or SAR shall terminate 90 days following the date oftermination, unless by its terms it shall expire before such date, or otherwise terminate as provided herein, in which case it shall only be exercisable to the extent that it would have been exercisable had the Employee not terminated employment. C. If an Optionee terminates employment due to death or Disability, any ISO or SAR granted under this Plan shall terminate one year after the date of termination of employment, unless by its terms it shall expire before such date, or otherwise terminate as provided herein, in which case it shall only be exercisable to the extent that it would have been exercisable had the employee not terminated employment. In the case of death, any outstanding ISO or SAR may be exercised by the person or persons to whom the Optionee's rights under the ISO or SAR shall pass by will or by the laws of descent and distribution. 6 XIV. TERMINATION OF EMPLOYMENT - NQSOS A. If an Optionee ceases to be an Employee for any reason other than death, Disability, or retirement at or after age 55, any NQSOs previously granted shall terminate upon the termination of employment. B. If an Optionee ceases to be an Employee due to retirement at or after age 55 any NQSOs granted to the employee under this Plan shall terminate upon their normal expiration date as if the Optionee had remained an employee of the Company. C. If an Optionee terminates employment due to death or Disability, any NQSO granted under this Plan shall terminate one year after the date of termination of employment, unless by its terms it shall expire before such date, or otherwise terminate as provided herein, in which case it shall only be exercisable to the extent that it would have been exercisable had the employee not terminated employment. In the case of death, any outstanding NQSO may be exercised by the person or persons to whom the Optionee's rights under the option shall pass by will or by the laws of descent and distribution. XV. TERMINATION OF EMPLOYMENT - RESTRICTED STOCK A. If a recipient of Restricted Stock ceases to be an Employee for any reason other than death, Disability or retirement at or after age 55, any shares of Restricted Stock to which the restrictions of Section X have not lapsed shall be forfeited. B. If a recipient of Restricted Stock ceases to be an Employee for reasons of death, Disability or retirement at or after age 55, the Employee, the legal representative or named beneficiary of the Employee if the Employee is legally incapacitated or deceased, shall be entitled to receive, free of restrictions of Section X, such portion of an Award as the Committee shall determine, but in no event less than the number of shares in an Award multiplied by a fraction, the numerator of which shall be the number of months elapsed from the date of the Award, and the denominator of which shall be the number of months in the Restriction Period. XVI. DILUTION AND OTHER ADJUSTMENTS A. In the event any change in the outstanding Common Stock of the Company occurs by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event, if the Committee shall determine in its sole discretion, that such change equitably requires an adjustment in the number, or option price per share of the Options, or the number of shares, SARs or Restricted Stock awarded, such shares, SARs or the price of such Options may be appropriately adjusted by the Committee. B. Notwithstanding Subsection (A) of this Section, upon the dissolution or liquidation of the Company, or upon any change in control, any options or SARs granted and outstanding under the Plan shall become immediately exercisable in full and shall remain 7 exercisable until the effective date of such transaction and the Restriction Period on any Restricted Stock shall lapse. Any Option or SAR not exercised by the effective date of such transaction shall terminate on such date. XVII. AMENDMENT AND TERMINATION OF PLAN A. The Board may from time to time, and with respect to any shares at the time not subject to an Option or SAR or issued as Restricted Stock, suspend or terminate the Plan or amend or revise the terms of the Plan, provided that any material amendment to the Plan shall be approved by the stockholders of the Company. B. No amendment, suspension, or termination of the Plan shall, without the consent of the Employees who have received Awards, alter or impair any rights or obligations under any Award previously granted under the Plan. C. The terms and conditions of any Award granted to an Employee may be modified only by a written agreement executed by the Employee and the Company; provided, however, that if any amendment or modification of an ISO would constitute a "modification, extension, or renewal" within the meaning of Section 425(h) of the Code, such amendment shall state that "the parties hereto recognize and agree that this amendment constitutes a modification, renewal, or extension of the option granted within the meaning of Section 425(h) of the Code." XVIII. EFFECTIVE DATE This Plan shall become effective upon adoption by the Board and approval by the stockholders of the Company; provided, however, that prior to approval of the Plan by the stockholders, but after adoption by the Board, Options may be granted under the plan subject to approval of adoption of the Plan by the stockholders. The Plan shall be null and void ab initio if not approved by the Company's stockholders within 12 months after the date of adoption of the Plan by the Board. XIX. TERM OF THE PLAN No Option, SAR or Restricted Stock shall be granted pursuant to the Plan after ten years from date of adoption of the Plan by the Board. XX. GOVERNING LAW The Plan shall be governed by and construed and enforceable in accordance with the laws of Delaware. 8 XXI. NOTICE Any notice or filing required or permitted to be given to the Company shall be sufficient if in writing and hand delivered or when sent by U.S. mail, postage prepaid to the principal office of the Company directed to the attention of the Secretary of the Company. Any notice to the Employee must be in writing and is effective when delivered or when mailed by U.S. mail, postage prepaid to the Employee or his personal representatives at his last address on record with the Company. XXII. GENDER, SINGULAR AND PLURAL All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, or neuter as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. XXIII. CAPTIONS The captions to the sections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. XXIV. ADOPTION OF THE PLAN The date of adoption of this Amended 1988 Employee Stock Plan shall be the date upon which the stockholders approve this Amended Plan. 9 EX-10.11 12 THE COMPANY'S AMENDED AND RESTATED 1991 E.S.O.P. EXHIBIT 10.11 THE CENTRIS GROUP, INC. ----------------------- AMENDED AND RESTATED 1991 EMPLOYEE STOCK OPTION PLAN (INCLUDING ALL AMENDMENTS THROUGH FEBRUARY 1998) ---------------- I. PURPOSE The purpose of The Centris Group, Inc. 1991 Employee Stock Option Plan is to ---------------------- further the interests of The Centris Group, Inc. by inducing individuals to ---------------------- become or remain employees of the Company or its subsidiaries through stock options, stock appreciation rights and restricted stock which may be granted under the Plan. Options granted under the Plan may either be options intended to qualify as "incentive stock options" within the meaning of Section 422 of the Code, or nonqualified stock options. II. DEFINITIONS The following terms shall have the following meanings for purposes of this Plan: a. "Award" shall mean a grant of Options, Stock Appreciation Rights, Restricted Stock or any combination thereof. b. "Board" shall mean the Board of Directors of The Centris Group, Inc. ---------------------- c. "Change in Control" means the following and shall be deemed to occur if any of the following events occur: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Exchange Act, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (ii) Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall, for the purposes of this Plan, be considered as though such person were a member of the Incumbent Board; (iii) The stockholders of the Company approve a merger or consolidation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more than 50% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquired 50% or more of the combined voting power of the Company's then outstanding voting securities; or (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or other disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the preceding provisions of this Section II.c., a Change in Control shall not be deemed to have occurred (1) if the "person" described in the preceding provisions of this Section II.c. is an underwriting or underwriting syndicate that has acquired the ownership of 50% or more of the combined voting power of the Company's then outstanding voting securities solely in connection with a public offering of the Company's securities; (2) if the "person" described in the preceding provisions of this Section II.c. is an employee stock ownership plan or other employee benefit plan maintained by the Company (or any of its affiliated companies) that is qualified under the provisions of the Employee Retirement Income Security Act of 1974, as amended; or (3) if the person described in clause (i) of the preceding provisions of this section II.c. would not otherwise be a beneficial owner of 25% or more of the combined voting power of the Company's then outstanding voting securities but for a reduction in the number of outstanding voting securities resulting from a stock repurchase program or other similar plan of the Company or from a self tender offer of the Company, which plan or tender offer commenced on or after the date hereof; provided, however, that the term "person" shall include such person from and after the first date upon which (A) such person, since the date of the commencement of such plan or tender offer, shall have acquired beneficial ownership of, in the aggregate, a number of voting securities of the Company equal to 1% or more of the voting securities of the Company then outstanding, and (B) such person, together with all affiliates and associates of such person, shall beneficially own 25% or more the voting securities of the Company then outstanding. d. "Code" shall mean the Internal Revenue Code of 1986, as amended. e. "Committee" shall mean the committee appointed by the Board to administer the Plan or, if no committee has been appointed, the Board, exclusive of persons who do not meet the requirements for being Non-Employee Directors or persons who are not "outside directors" (within the meaning of the regulations under Section 162(m) of the Code) if the Award granted by the Committee is intended to constitute Performance-Based Compensation. f. "Common Stock" shall mean the common stock of the Company, as described in the Company's Restated Certificate of Incorporation. g. "Company" shall mean The Centris Group, Inc., a Delaware corporation, ---------------------- or any successor thereto. h. "Disability" shall mean that because of injury or sickness a person cannot perform each of the material duties of his or her regular occupation. i. "Employee" shall mean any officer or employee of the Company or its subsidiaries. For purposes of grants of ISOs under this Plan, the term Employee shall be limited to active employees of the Company or its subsidiaries. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. k. "Fair Market Value" with respect to the Common Stock shall be the closing price of the Common Stock as reported by The New York Stock Exchange on --------------------------- the date of valuation or, if not available, the mean between the bonafide bid --------------------------------- and asked prices of the Common Stock on such date. - -------------------------------------------------- l. "Incentive Stock Option" ("ISO") shall mean an Option granted under the Plan which is designated as an incentive stock option, and which qualifies as such within the meaning of Section 422 of the Code m. "Non-Employee Director" means any director of the Company who qualifies as a "non-employee director" within the meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission pursuant to the Exchange Act. n. "Nonqualified Stock Option" ("NQSO") shall mean an Option granted under the Plan which is designated as a nonqualified stock option, and which shall not be qualified as an incentive stock option within the meaning of Section 422 of the Code. o. "Option" shall mean an ISO as defined as in Section II.l. above, or an NQSO as defined in Section II.m. above. p. "Optionee" shall mean any Employee who has been awarded an Option to purchase shares of Common Stock or who has been awarded SARs under the Plan. q. "Performance-Based Compensation" means performance-based compensation as described in Section 162(m) of the Code and the regulations thereunder. If the amount of compensation an Employee will receive under any Award is not based solely on an increase in the value of Common Stock after the date of grant or award, the Committee, in order to qualify an Award as performance-based compensation under Section 162(m) of the Code and the regulations thereunder, can condition the grant, award, vesting, or exercisability of such an award on the attainment of a preestablished, objective performance goal. For this purpose, a preestablished, objective performance goal may include one or more of the following performance criteria: (i) cash flow, (ii) earnings per share (including earnings before interest, taxes, and amortization), (iii) return on equity, (iv) total stockholder return, (v) return on capital, (vi) return on assets or net assets, (vii) income or net income, (viii) operating income or net operating income, (ix) operating margin, (x) return on operating revenue, and (xi) any other similar performance criteria contemplated by the regulations under Section 162(m) of the Code. r. "Plan" shall mean The Centris Group, Inc. 1991 Employee Stock Option ---------------------- Plan, as amended. s. "Restricted Stock" shall mean shares of Common Stock awarded to an Employee under Section X of the Plan. t. "Stock Appreciation Right" ("SAR") shall mean the right to receive the appreciation in value of the Common Stock between the date of the grant of the SAR and the date the SAR is exercised. A granted SAR may be attached to an Option or separate from an Option. III ADMINISTRATION A. The Plan will be administered by the Committee, which will be composed solely of two or more Non-Employee Directors (the "Committee"). In addition, if Awards are to be made to persons subject to Section 162(m) of the Code and such awards are intended to constitute Performance-Based Compensation, then each of the Committee's members shall also be an "outside director," as such term is defined in the regulations under Section 162(m) of the Code. Notwithstanding anything contained herein, no person shall be disqualified from being a member of the Committee merely because such person is entitled to receive grants or awards pursuant to The Centris Group, Inc. 1991 Directors Stock Option Plan, as ---------------------- amended. B. Subject to the provisions of the Plan, the Committee or the Board shall have the authority to construe and interpret the Plan and to make all determinations necessary or advisable for the administration of the Plan. All determinations of the Committee or the Board shall be binding on Plan participants. C. The Company will indemnify and hold harmless the members of the Board and the Committee from and against any and all liabilities, costs and expenses incurred by such person as a result of any act or omission in connection with the performance of such persons' duties, responsibilities and obligations under the Plan, other than such liabilities, costs and expenses as may result from the bad faith, willful misconduct or criminal acts of such persons. IV. SHARES SUBJECT TO PLAN A. The stock subject to the Plan shall consist of the 1,600,000 shares (as -------------------- adjusted for the February, 1998 100% stock split) shares previously authorized - ------------------------------------------------- to be issued under the Plan plus (i) an additional 400,000 shares (as adjusted) ---------------------------- of the Company's Common Stock, with (ii) an annual number of incremental shares to be added to the Plan on the first trading day of each successive calendar year commencing after December 31, 1996, which incremental amount shall be calculated at 5% of the total outstanding shares (as adjusted) of the Company as -------------- of the last day of the prior calendar year, less any shares authorized but unissued under the Plan. The total allocation of shares available for issuance under the 1991 Employee Plan, when added to the total amount of shares authorized but unissued under all of the Company's option plans, shall not at any time exceed 15% of the total outstanding shares of the Company's Common Stock on a fully diluted basis. B. If any Option granted hereunder shall expire, terminate or otherwise be cancelled for any reason without having been exercised in full, the unpurchased shares subject thereto shall again be available for issuance under this Plan. If any Restricted Stock is forfeited to the Company, such shares shall again be available for purposes of this Plan. Any shares of stock that are surrendered to the Company in a stock-for-stock exercise of an Option shall be available for issuance under the 1991 Employee Plan. C. Notwithstanding any other provision of this Plan, no Employee shall be granted Awards with respect to more than 240,000 shares (as adjusted) of Common ----------------------------- Stock in any one calendar year; provided, however, that this limitation shall not apply if it is not required in order for the compensation attributable to Awards hereunder to qualify as Performance-Based Compensation. The limitation set forth in this Section IV.C shall be subject to adjustment as provided in Section XVI, but only to the extent such adjustment would not affect the status of compensation attributable to Awards hereunder as Performance-Based Compensation. D. Notwithstanding any other provision of this Plan, the maximum number of shares issuable upon exercise of Awards granted in the form of ISOs after March 27, 1996 shall be the lesser of the number of shares available for grant under this Plan pursuant to Section IV.A or 1,000,000 shares (as adjusted). ----------------------------- V. ELIGIBILITY AND PARTICIPATION A. The Committee shall determine the Employees to whom Options, SARs, Restricted Stock or any combination thereof, shall be granted, the time or times at which such Awards shall be granted, the number of shares to be subject to each Award, and whether to grant such an Award as Performance-Based Compensation. An Employee may be granted ISOs, NQSOs, SARs, Restricted Stock or any combination of the four; provided, however, that the grant of ISOs and NQSOs to an Employee shall be made in separate Option grants, and each ISO and each NQSO shall be specifically designated as such. B. No Employee shall be granted ISOs such that the aggregate Fair Market Value (determined at the time the Option is granted) of the shares granted under all stock option plans of the Company exceeds $100,000 for options becoming exercisable in any calendar year. VI. PURCHASE PRICE The purchase price of each share covered by each Option shall be established by the Committee at the date of grant, but such price shall not be less than 100 percent of the Fair Market Value per share of the Common Stock on the date of grant; provided, however, that if at the time an ISO is granted, the Optionee owns more than 10 percent of the total combined voting power of all classes of stock of the Company, the purchase price of the shares covered by such ISO shall not be less than 110 percent of the Fair Market Value per share of the Common Stock on the date the ISO is granted. VII. DURATION OF OPTIONS The expiration date of any Option shall be determined by the Committee. In the event the Committee does not specify the expiration date of the Option, the expiration date shall be ten years after the date of grant (five years for owners of more than 10% of the total combined voting power) for ISOs and ten years and one day from the date of grant for NQSOs, subject to earlier termination as provided herein. VIII. OPTIONS A. Options awarded under the Plan shall be evidenced by an Option agreement which shall be in such form as the Committee may determine. Without limiting the foregoing, the Committee may include in any Option agreement a provision conditioning or accelerating the grant of an Option, or the receipt of benefits pursuant to such Option, upon the exercise or settlement of a previous Option. B. An Optionee may purchase fewer than the total number of shares granted in an Option, provided that a partial exercise of an Option may not be for less than 100 shares, unless fewer than 100 shares remain unexercised in an Award, in which case the entire remaining Option must be exercised at one time. As a condition to the exercise, in whole or in part, of any Option, the Committee may require the Optionee to pay, in addition to the purchase price of the shares covered by the Option, an amount equal to any federal, state or local taxes that are required to be paid in connection with the exercise of such Option. C. To the extent the right to purchase shares has vested, Options may be exercised from time to time by giving written notice to the Company stating the number of shares with respect to which the Option is being exercised. Such notice shall comply with all applicable rules established by the Committee. D. Full payment for the shares with respect to which such Option, or portion thereof, is exercised shall be made in a combination of cash, check or shares of the Company's Common Stock (valued at their Fair Market Value on the date of delivery) owned by the Optionee, duly endorsed for transfer to the Company, equal to the aggregate option price and applicable taxes of the shares with respect to which such Option or portion thereof is being exercised; provided, however, that the Committee may, in the exercise of its discretion, (i) allow exercise of an Option in a broker-assisted or similar transaction in which the exercise price is not received by the Company until promptly after exercise, (ii) allow the Company to loan the exercise price to the person entitled to exercise the Award, if the exercise will be followed by a prompt sale of some or all of the underlying shares and a portion of the sale proceeds is dedicated to full payment of the exercise price and applicable taxes, and/or (iii) allow the Company to assist any Optionee (including any officer of the Company) in the payment of the exercise price payable upon exercise of such Option, by lending the amount of such exercise price to the Optionee on such terms and at such rates of interest and upon such security (or unsecured) as shall have been authorized by or under authority of the Committee or the Board. IX. STOCK APPRECIATION RIGHTS The Committee in its discretion may grant, either by attachment to an Option at the time of grant, or by amendment, or on a separate basis, a Stock Appreciation Right which shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee may impose, including the following: a. SARs awarded under the Plan shall be evidenced by a Stock Appreciation Rights agreement which shall be in such form as the Committee may determine. b. A SAR may be exercised only to the extent that the Option to which it is attached is at the time exercisable; or if issued separately, pursuant to the terms of the Stock Appreciation Rights agreement. The grant price of a separately issued SAR shall not be less than 100 percent of the Fair Market Value per share of Common Stock on the date of grant of the SAR. c. A SAR shall entitle the holder to surrender to the Company either the Option (or a portion thereof) to which the SAR is attached, or the SAR, if issued separately from an Option, and receive in exchange therefore, as the Committee in its discretion may determine, either cash, shares of the Company's Common Stock or a combination of both having a Fair Market Value on the date of exercise in the aggregate equal to the appreciation in value of the shares in respect to which the right is exercised. Such appreciation shall be measured by either the difference between the aggregate option price of such shares and their Fair Market Value at the date of exercise (with respect to SARs attached to an Option), or the difference between the grant price of the SAR and the Fair Market Value of the Common Stock at the time of exercise (with respect to SARs issued separately from an Option). d. If the SAR is attached to an Option, the exercise of the SAR shall cancel the Option to which the SAR is attached. X. RESTRICTED STOCK A. The Committee may award shares of Restricted Stock which are subject to the terms of this Section X and such other conditions as the Committee may prescribe in a Restricted Stock Award. Each certificate for Restricted Stock shall be registered in the name of the Employee and deposited with the Company by the Employee, together with a stock power endorsed in blank. B. Restricted Stock awarded under the Plan shall be evidenced by a Restricted Stock agreement which shall be in such form as the Committee may determine. C. At the time of the Award, there shall be established for the Employee a "Restriction Period" of such length as shall be determined by the Committee. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered, except as herein provided, during the Restriction Period. Except for such restrictions, the Employee shall have all the rights of a stockholder of the Company, with respect to such Restricted Stock. D. At the expiration of the Restriction Period, the Company shall redeliver to the Employee (or the Employee's legal representative or beneficiary) the shares and stock power deposited with the Company pursuant to Section X.A. E. In no event shall the number of shares issued as Restricted Stock under this Plan exceed 100,000 shares (as adjusted). ----------------------------- XI. NONTRANSFERABILITY OF AWARDS No Award granted under this Plan shall be assignable or transferable except (i) by will or by the laws of descent and distribution, or (ii) subject to the final sentence of this Section XI, upon dissolution of marriage pursuant to a qualified domestic relations order or, in the discretion of the Committee and under circumstances that would not adversely affect the interests of the Company, pursuant to a nominal transfer that does not result in a change in beneficial ownership. During the lifetime of an Award recipient, an Award granted to such person shall be exercisable only by the recipient (or the recipient's permitted transferee) or such person's guardian or legal representative. Notwithstanding the foregoing, (i) no Award owned by a recipient subject to Section 16 of the Exchange Act may be assigned or transferred in any manner inconsistent with Rule 16b-3, and (ii) ISOs (or other Awards subject to transfer restrictions under the Code) may not be assigned or transferred in violation of Section 422(b)(5) of the Code (or any comparable or successor provision) or the regulations thereunder, and nothing herein is intended to allow such assignment or transfer. XII. CONTINUATION OF EMPLOYMENT Nothing contained in the Plan or any Award granted under the Plan shall confer upon any Employee any rights with respect to continuation of employment by the Company, nor shall this Plan or any individual agreement issued pursuant hereto be deemed a contract of employment. XIII. TERMINATION OF EMPLOYMENT--ISOS/SARS A. If an Optionee ceases to be an Employee for any reason other than death, Disability or retirement at or after age 55, any ISO or SAR previously granted shall terminate upon the termination of employment. B. If an Optionee ceases to be an Employee due to retirement at or after age 55, any ISO or SAR shall terminate 90 days following the date of retirement, unless by its terms it shall expire before such date, or otherwise terminate as provided herein, in which case it shall only be exercisable to the extent that it would have been exercisable had the Employee not terminated employment. C. If an Optionee terminates employment due to death or Disability, any ISO or SAR granted under this Plan shall terminate one year after the date of termination of employment, unless by its terms it shall expire before such date, or otherwise terminate as provided herein, in which case it shall be exercisable only to the extent that it would have been exercisable had the employee not terminated employment. In the case of death, any outstanding ISO or SAR may be exercised by the person or persons to whom the Optionee's rights under the ISO or SAR shall pass by will or by the laws of descent and distribution. XIV. TERMINATION OF EMPLOYMENT--NQSOS A. If an Optionee ceases to be an Employee for any reason other than death, Disability or retirement at or after age 55, any NQSOs previously granted shall terminate upon the termination of employment. B. If an Optionee ceases to be an Employee due to retirement at or after age 55, any NQSOs granted to the employee under this Plan shall terminate upon their normal expiration date as if the Optionee had remained an employee of the Company. C. If an Optionee terminates employment due to death or Disability, any NQSO granted under this Plan shall terminate one year after the date of termination of employment, unless by its terms it shall expire before such date, or otherwise terminate as provided herein, in which case it shall be exercisable only to the extent that it would have been exercisable had the Employee not terminated employment. In the case of death, any outstanding NQSO may be exercised by the person or persons to whom the Optionee's rights under the Option shall pass by will or by the laws of descent and distribution. XV. TERMINATION OF EMPLOYMENT--RESTRICTED STOCK A. If a recipient of Restricted Stock ceases to be an Employee for any reason other than death, Disability or retirement at or after age 55, any shares of Restricted Stock with respect to which the restrictions of Section X have not lapsed shall be forfeited. B. If a recipient of Restricted Stock ceases to be an Employee for reasons of death, Disability or retirement at or after age 55, the Employee, the legal representative or named beneficiary of the Employee if the Employee is legally incapacitated or deceased, shall be entitled to receive, free of the restrictions of Section X, such portion of an Award as the Committee shall determine, but in no event less than the number of shares in an Award multiplied by a fraction, the numerator of which shall be the number of months elapsed from the date of the Award, and the denominator which shall be the number of months in the Restriction Period. XVI. DILUTION AND OTHER ADJUSTMENTS A. In the event any change in the outstanding Common Stock of the Company occurs by reason of any stock split, stock dividend, recapitalization, merger, consolidation, reorganization, combination or exchange of shares or other similar event, if the Committee shall determine, in its sole discretion, that such change equitably requires an adjustment in the number, or option price per share of the Options, or the number of shares, SARs or Restricted Stock awarded, such shares, SARs or the price of such Options may be appropriately adjusted by the Committee. B. Notwithstanding Section XVI.A., upon the dissolution or liquidation of the Company, or upon any Change in Control, any Options or SARs granted and outstanding under the Plan shall become immediately exercisable in full and shall remain exercisable until the effective date of such transaction, and the Restriction Period on any Restricted Stock shall lapse. Any Option or SAR not exercised by the effective date of such transaction shall terminate on such date. XVII. AMENDMENT AND TERMINATION OF PLAN A. The Board may from time to time, and with respect to any shares at the time not subject to an Option or SAR or issued as Restricted Stock, suspend or terminate the Plan or amend or revise the terms of the Plan, provided that any material amendment to the Plan shall be approved by the stockholders of the Company. B. No amendment, suspension or termination of the Plan shall, without the consent of the Employees who have received Awards, alter or impair any rights or obligations under any Award previously granted under the Plan. C. The terms and conditions of any Award granted to an Employee may be modified only by a written agreement executed by the Employee and the Company; provided, however, that if any amendment or modification of an ISO would constitute a "modification, extension or renewal" within the meaning of Section 424 of the Code, such amendment shall state that "the parties hereto recognize and agree that this amendment constitutes a modification, renewal or extension of the option granted within the meaning of Section 424 of the Code." XVIII. EFFECTIVE DATE This Plan shall become effective upon adoption by the Board and approval by the stockholders of the Company; provided, however, that prior to approval of the Plan by the stockholders, but after adoption by the Board, Options may be granted under the Plan subject to approval of adoption of the Plan by the stockholders. The Plan shall be null and void ab initio if not approved by the Company's stockholders within 12 months after the date of adoption of the Plan by the Board. XIX. TERM OF PLAN No Option, SAR or Restricted Stock shall be granted pursuant to the Plan after ten years from date hereof. XX. GOVERNING LAW The Plan shall be governed by and construed and enforceable in accordance with the laws of the State of Delaware. XXI. NOTICE Any notice or filing required or permitted to be given to the Company shall be sufficient if in writing and hand delivered or sent by U.S. mail, postage prepaid, to the principal office of the Company directed to the attention of the Secretary of the Company. Any notice to the Employee must be in writing and is effective when delivered or mailed by U.S. mail, postage prepaid, to the Employee or his personal representatives at his or her last address on record with the Company. XXII. GENDER, SINGULAR AND PLURAL All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. XXIII. CAPTIONS The captions to the sections and paragraphs of the Plan are for convenience only and shall not control or affect the meaning or construction of any of its provisions. XXIV. ADOPTION OF THE PLAN The date of adoption of this Amended and Restated 1991 Employee Stock Option Plan was May 14, 1997. ----------------- EX-10.14 13 THE COMPANY'S 1991 DIRECTORS STOCK OPTION PLAN EXHIBIT 10.14 THE CENTRIS GROUP, INC.THE CENTRIS GROUP, INC. --------------------------------------------- 1991 Directors Stock Option Plan Amended and Restated As of July 26, 1995 and March 27, 1996 I. General Provisions 1.1 Purposes of the Plan. The Centris Group, Inc. has adopted this 1991 ---------------------- Directors Stock Option Plan, to enable the Company to attract and retain the services of experienced and knowledgeable Nonemployee Directors and to align further their interests with those of the stockholders of the Company by providing for or increasing the proprietary interests of the Nonemployee Directors in the Company. 1.2 Plan History. The Centris Group, Inc. 1991 Directors Stock Option ---------------------- Plan was originally adopted by the Board of Directors of the Company on March 6, 1991 and approved by the Company's stockholders on May 23, 1991. It was amended and restated by the Board of Directors of the Company on December 18, 1991 and was submitted to and approved by the Company's stockholders at the 1992 Annual Meeting of Stockholders held on May 27, 1992. The Plan was further amended and restated by the Board of Directors of the Company on July 26, 1995 and on March 27, 1996, and will, as so amended, be submitted to the Company's stockholders for approval at the Company's 1996 Annual Meeting of Stockholders. Further non- ------------ material amendments were adopted by the Board without stockholder action in - --------------------------------------------------------------------------- January, 1998. - ------------- 1.3 Definitions. The following terms, when used in this Plan, shall have the meanings set forth in this Section 1.3: (a) "Award" means an award of any Stock Option under the Plan. (b) "Board" or "Board of Directors" means the Board of Directors of the Company. (c) "Change in Control" means the following and shall be deemed to occur if any of the following events occur: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (ii) Individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall, for the purposes of this Plan, be considered as though such person were a member of the Incumbent Board; (iii) The stockholders of the Company approve a merger or consolidation with any other corporation, other than (A) A merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more than 50% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such merger or consolidation, or (B) A merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquired 50% or more of the combined voting power of the Company's then outstanding voting securities; or (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or other disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the preceding provisions of this Section 1.3(c), a Change in Control shall not be deemed to have occurred (1) if the "person" described in the preceding provisions of this Section 1.3(c) is an underwriting or underwriting syndicate that has acquired the ownership of 50% or more of the combined voting power of the Company's then outstanding voting securities solely in connection with a public offering of the Company's securities; (2) if the "person" described in the preceding provisions of this Section 1.3(c) is an employee stock ownership plan or other employee benefit plan maintained by the Company (or any of its affiliated companies) that is qualified under the provisions of the Employee Retirement Security Act of 1974, as amended; or (3) if the person described in clause (i) of the preceding provisions of this subsection (c) would not otherwise be a beneficial owner of 25% or more of the combined voting power of the Company's then outstanding voting securities but for a reduction in the number of outstanding voting securities resulting from a stock repurchase program or other similar plan of the Company or from a self tender offer of the Company, which plan or tender offer commenced on or after the date hereof; provided, however, that the term "person" shall include such person from and after the first date upon which (A) such person, since the date of the commencement of such plan or tender offer, shall have acquired beneficial ownership of, in the aggregate, a number of voting securities of the Company equal to 1% or more of the voting securities of the Company then outstanding, and (B) such person, together with all affiliates and associates of such person, shall beneficially own 25% or more the voting securities of the Company then outstanding. (d) "Common Stock" means the common stock of the Company, par value $0.01 per share. 2. (e) "Company" means The Centris Group, Inc., a Delaware corporation, ---------------------- or any successor thereto. (f) "Fair Market Value" of shares of stock shall be calculated on the basis of the closing price of stock of that class on the day in question (or, if such day is not a trading day in the U.S. securities markets, on the nearest preceding trading day), as reported with respect to the principal market (or the composite of the markets, if more than one) in which such shares are then traded; or, if no such closing prices are reported, on the basis of the mean between the high bid and low asked prices that day on the principal market or national quotation system on which such shares are then quoted; or, if not so quoted, as furnished by a professional securities dealer making a market in such shares selected by the Board or a committee of the Board; or if no such dealer is available, then the Fair Market Value shall be determined in good faith by the Board. (g) "Nonemployee Director" means any member of the Board of Directors who is not an employee of the Company or of any parent corporation (as defined in Section 424 of the Internal Revenue Code of 1986, as amended) with respect to the Company. (h) "Participant" means any Nonemployee Director who receives an Award pursuant to the terms of the Plan. (i) "Plan" means The Centris Group, Inc. 1991 Directors Stock Option Plan, as set forth herein, as amended from time to time. (j) "Stock Option" means a right to purchase Common Stock which is the subject of an Award under this Plan. 1.4 Common Shares Subject to Plan. (a) Subject to the provisions of Section 1.4(c) and 4.1, the maximum number of shares of Common Stock which may be issued pursuant to Awards under this Plan shall not exceed 300,000 shares (as adjusted for the February, 1998 -------------------------------------------------- 100% stock split). - ----------------- (b) The shares of Common Stock to be delivered under the Plan shall be made available, at the discretion of the Board of Directors, either from authorized but unissued shares of Common Stock, or from previously issued shares of Common Stock reacquired by the Company, including shares purchased in the open market. (c) Shares of Common Stock, subject to the unexercised portion of any Stock Option granted under this Plan that expires, terminates or is canceled, will again become available for grant of further Awards under this Plan. 3. II. Awards of Stock Options 2.1 Award Grants. (a) Each Nonemployee Director who is serving as a member of the Board of Directors as of July 26, 1995 shall automatically be granted, effective as of July 26, 1995, an Award consisting of Stock Options covering 6,000 shares (as ---------------- adjusted) of Common Stock. - -------- (b) Each Nonemployee Director who is serving as a member of the Board of Directors on the third business day following the 1996 Annual Meeting of Stockholders shall automatically be granted an Award consisting of Stock Options covering 6,000 shares (as adjusted) of Common Stock, effective as of the date of ------------------------- such grant. (c) Each Nonemployee Director who is serving as a member of the Board of Directors on the third business day following the Annual Meeting of Stockholders of every calendar year commencing with the 1997 Annual Meeting of Stockholders shall automatically be granted an Award, effective as of the date of such grant, consisting of Stock Options covering between 6,000 and 9,000 --------------- shares (as adjusted) of Common Stock, the exact number of Stock Options to be - ------------------- determined based on the following formula: (i) if the Company's Return On Equity is 15% or less, the grant shall be for options representing 6,000 shares ------------ (as adjusted); (ii) if the Return On Equity is more than 15% but less than 18%, - ------------ the grant shall be for options representing 8,000 shares (as adjusted); and ------------------------- (iii) if the Return On Equity is greater than 18%, the grant shall be for options representing 9,000 shares (as adjusted). ------------------------- (d) Each Nonemployee Director who is newly appointed or elected as such after the third business day following the Annual Meeting of Stockholders of any calendar year, but prior to the Annual Meeting of Stockholders of the next calendar year, shall, upon the date of such appointment or election, automatically be granted an Award consisting of Stock Options covering that number of shares of Common Stock (exclusive of fractional shares) equal to the product of 3,000 multiplied by a fraction the numerator of which is the number of days until the next Annual Meeting of Stockholders and the denominator of which is 365. 2.2 Return on Equity. For purposes of this Article II, "Return On Equity" for any fiscal year shall mean net income for such fiscal year as determined by generally accepted accounting principles, divided by stockholders' equity as of December 31 of the prior fiscal year as reported in the Company's audited consolidated financial statements. 2.3 Award Procedures. All Nonemployee Directors shall receive Awards under this Plan, which Awards shall be granted automatically as provided in this Article II. A Nonemployee Director to whom an Award has been made shall be notified of the Award, and the Company shall promptly cause to be prepared and executed a written agreement evidencing the Stock Options which are the subject of such Award. 2.4 Securities Law Requirements. Shares of Common Stock shall not be offered or issued under this Plan unless the offer, issuance and delivery of such shares shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the 4. Securities Act of 1933, as amended, the California Corporate Securities Law of 1968, as amended, and the requirements of any stock exchange upon which the Common Stock may then be listed. As a condition precedent to the issuance of shares of Common Stock pursuant to an Award, the Company may require the Participant to take any reasonable action to comply with such requirements. III. Stock Options 3.1 Purchase Price. The purchase price of Common Stock issuable upon exercise of each Stock Option shall be the Fair Market Value, as of the date of grant of the Stock Option, of the Common Stock subject to such Stock Option. 3.2 Stock Option Term. Unless earlier exercised or terminated pursuant to the provisions of Sections 3.3 or 3.4 of this Article III, each Stock Option shall expire and no longer be exercisable on a date which is ten years after the date of grant. 3.3 Exercise of Stock Options. (a) Options covering 25% of the shares of Common Stock subject to a grant of Stock Options shall become exercisable upon the expiration of one full year of service as a Nonemployee Director of the Company following the date of grant of such Stock Options and may thereafter be exercisable until the Stock Options are exercised or expire as provided in this Article III. Options covering the remaining 50% of the shares of Common Stock subject to such Stock Option grant shall become exercisable upon the expiration of two full years of service as a Nonemployee Director of the Company following the date of grant of such Options and may thereafter be exercisable until the Stock Options are exercised or expire as provided in this Article III. (b) At the time of the exercise of a Stock Option, the purchase price shall be paid in full in cash, or in shares of Common Stock valued at their Fair Market Value as of the exercise date. No fractional shares will be issued pursuant to the exercise of a Stock Option, nor will any cash payment be made in lieu of fractional shares. Holders of Stock Options may purchase fewer than the total number of shares of Common Stock granted in a Stock Option, provided that a partial exercise of a Stock Option may not be for less than 100 shares, unless fewer than 100 shares remain unexercised in an Award in which case the entire remaining Stock Option must be exercised at one time. 3.4 Termination of Director Status. In the event that the holder of Stock Options ceases to be a director of the Company as a result of death, -------------------- disability or retirement ("Termination"), and provided that such holder has been - -------------------------------------------------------------------------------- a director of the Company for at least one year at the time of Termination, all - ------------------------------------------------------------------------------- Stock Options granted to a Director, whether or not exercisable on the effective - -------------------------------------------------------------------------------- date of such Termination, shall not expire at that time, but shall thereafter - ----------------------------------------------------------------------------- continue to be exercisable by the Option holder (or, in the event of the death - ------------------------------------------------------------------------------ of the Option holder, by the transferee holder pursuant to a will or in - ----------------------------------------------------------------------- accordance with the laws of descent and distribution) until expiration of the - ----------------------------------------------------------------------------- applicable option term. In the event the option holder dies within one year of - ------------------------------------------------------------------------------ initial election or appointment to the Board, the options will - -------------------------------------------------------------- 5. continue to be exercisable by will or according to the laws of descent and - -------------------------------------------------------------------------- distribution for a period of three years following the date of death. If for any - -------------------------------------------------------------------------------- reason other than death an optionee ceases to be a Director within one year of - ------------------------------------------------------------------------------ the Director's initial election or appointment to the Board, any options granted - -------------------------------------------------------------------------------- under the Director Plan and held by such Director shall be canceled as of the - ----------------------------------------------------------------------------- date of such termination. - ------------------------ 3.5 Rights With Respect to Common Stock. No Participant and no beneficiary or other person claiming under or through such Participant will have any right, title or interest in or to any shares of Common Stock subject to any Stock Option unless and until such Stock Option is duly exercised pursuant to the terms of this Plan. IV. Adjustment Provisions 4.1 Changes in Outstanding Securities. Subject to Section 4.2 below, (i) if the outstanding shares of Common Stock of the Company are increased, decreased or exchanged for a different number or kind of shares or other securities of the Company, or if additional shares or different shares or other securities of the Company are distributed in respect of such shares of Common Stock (or any stock or securities received with respect to such Common Stock), through reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split, spin-off or other distribution with respect to such shares of Common Stock (or any stock or securities received with respect to such Common Stock), or (ii) of the value of the outstanding shares of Common Stock of the Company is reduced by reason of an extraordinary cash dividend, an appropriate or proportionate adjustment may be made in (x) the maximum number and kind of shares provided in Section 1.4 of Article I, and (y) the number and kind of shares or other securities subject to then outstanding Stock Options, and (z) the purchase or exercise price for each share of Common Stock subject to an outstanding Stock Option. 4.2 Change of Control. In addition to the adjustments permitted by Section 4.1 above, upon the occurrence of a Change in Control any outstanding Stock Options not theretofore exercisable shall immediately become exercisable in their entirety, notwithstanding any of the other provisions of the Plan. 4.3 Termination of Independent Corporate Status. Upon the dissolution or liquidation of the Company or upon a reorganization, merger or consolidation of the Company with one or more corporations, as a result of which the Company goes out of existence or becomes a subsidiary of another corporation, or upon a sale of substantially all of the property of the Company to another corporation (in each of such cases a "Corporate Termination Event"), this Plan shall terminate. Any Stock Option theretofore granted under the Plan and not exercised on or prior to the Corporate Termination Event shall expire and terminate, unless provision be made in writing in connection with such Corporate Termination Event for the assumption of the Stock Option or the substitution for such Stock Option of a new option covering the stock of a successor corporation, or a parent or subsidiary thereof or of the Company, with appropriate adjustments as to number and kind of shares and prices, in which event such Stock Option shall continue in the manner and under the terms so provided. 6. 4.4 Other Adjustments. Adjustments under this Article IV will be made by the Board, whose determination as to what adjustments will be made and the extent thereof will be final, binding and conclusive. No fractional interests will be issued under the Plan resulting from any such adjustments. V. Miscellaneous Provisions 5.1 Amendment, Suspension, Termination or Interpretation of the Plan. (a) The Board may at any time amend, suspend or terminate the Plan; provided, however, that no such action shall: (i) increase the maximum number of shares specified in Section 1.4(a) of Article I, unless approved by the stockholders of the Company; (ii) alter, terminate or impair in any manner which is materially adverse to a Participant any Award previously granted; (iii) change the nondiscretionary manner in which Awards are made under Article II; or (iv) change, more than once in any six-month period, provisions of the Plan dealing with the amount of any Award, the purchase price of the Common Stock which is the subject of any Award, the timing of the grant of any Awards, or the exercisability features of Awards. (b) Questions of interpretation of any of the provisions of the Plan shall be resolved by competent legal counsel for the Company selected by the Chief Executive Officer of the Company. 5.2 Effective Date and Duration of Plan. This Plan has been approved by the Board and shall become effective as of March 27, 1996, subject to its approval by the holders of a majority of the outstanding shares of Common Stock present in person or by proxy and entitled to vote at the first meeting of the stockholders of the Company occurring after March 27, 1996. This Plan shall terminate at such time as the Board, in its discretion, shall determine. No Award may be granted under the Plan after the date of such termination, but such termination shall not affect any Award theretofore granted and any shares of Common Stock subject thereto. 5.3 Director Status. Nothing in this Plan or in any instrument executed pursuant hereto shall confer upon any Nonemployee Director any right to continue as a member of the Board of Directors of the Company or any subsidiary thereof. 5.4 No Entitlement to Shares. No Nonemployee Director (individually or as a member of a group) and no beneficiary or other person claiming under or through such Nonemployee Director shall have any right, title or interest in or to any shares of Common 7. Stock allocated or reserved for the purpose of the Plan or subject to any Award except as to such shares of Common Stock, if any, as shall have been issued to such Nonemployee Director. A Nonemployee Director's rights to any shares of Common Stock issued to the name of such Nonemployee Director pursuant to an Award under this Plan shall be subject to such limitations and restrictions as are set forth in or imposed pursuant to this Plan. 5.5 Withholding of Taxes. The Company may make such provisions as it deems appropriate for the withholding by the Company pursuant to federal or state income tax laws of such amounts as the Company determines it is required to withhold in connection with any Award. The Company may require a Participant to satisfy any relevant tax requirements before authorizing any issuance of Common Stock to such Participant or payment of any other benefit hereunder to such Participant. Any such settlement shall be made in the form of cash, a certified or bank cashier's check or such other form of consideration as is satisfactory to the Board. 5.6 Transferability. No Award granted under this Plan shall be assignable or transferable except (i) by will or by the laws of descent and distribution, or (ii) subject to the final sentence of this Section 5.6, upon dissolution of marriage pursuant to a qualified domestic relations order or, in the discretion of the Committee and under circumstances that would not adversely affect the interest of the Company, pursuant to a nominal transfer that does not result in a change in beneficial ownership. During the lifetime of a Participant, an Award granted to such person shall be exercisable only by the Participant (or the Participant's permitted transferee) or such person's guardian or legal representative. Notwithstanding the foregoing, no Award may be assigned or transferred in any manner inconsistent with Rule 16b-3. 5.7 Other Plans. Nothing in this Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or benefits to directors generally, which the Company now has or may hereafter lawfully put into effect, including, without limitation, any retirement, pension, insurance, stock purchase, incentive compensation or bonus plan. 5.8 Singular, Plural; Gender. Whenever used herein, nouns in the singular shall include the plural, and the masculine pronoun shall include the feminine gender, as the context may require. 5.9 Applicable Law. This Plan shall be governed by, interpreted under and construed and enforced in accordance with the internal laws of the State of Delaware. 5.10 Successors. The Plan and any agreement with respect to an Award shall be binding upon the successors and assigns of the Company and upon each Participant and such Participant's heirs, executors, administrators, personal representatives, permitted assignees and successors in interest. 8. EX-10.23 14 THE COMPANY'S 1997 LONG-TERM INCENTIVE-PERFORMANCE THE CENTRIS GROUP, INC. ----------------------- 1997 LONG-TERM INCENTIVE - PERFORMANCE UNIT PLAN I. INTRODUCTION 1.1 This document describes the terms and conditions of The Centris Group, ------------------ Inc. 1997 Long-Term Incentive - Performance Unit Plan pursuant to which - --- Performance Units may be granted to eligible officers of the Company and its subsidiaries. The following statements summarize the principal provisions of the Plan, against which the Board or the Compensation Committee of the Board, in their sole discretion shall interpret and administer the Plan. 1.2 The Long-Term Incentive - Performance Unit Plan was approved by the Compensation Committee of the Board of Directors of the Company on September 17, 1996 and by the Board of Directors of the Company on December 4, 1996 and January 29, 1997, subject to approval by the holders of a majority of the outstanding shares of Common Stock present in person or by proxy and entitled to vote at the Company's Annual Meeting of Stockholders to be held in May 1997. The Plan is not subject to any provision of the Employee Retirement Income Security Act of 1974, as amended, and is not required to be qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended. The Plan was amended as of May 14, 1997 to reflect the Company's new name adopted as of that date. II. DESCRIPTION 2.1 The Plan provides for the Grant of Performance Units to eligible officers of the Company and its subsidiaries, contingent on the Company achieving specific predetermined operating targets. The number of Performance Units awarded will be determined based on actual performance over the Performance Period relative to target. III. PURPOSE 3.1 The purpose of the Plan is to reward key executives for the Company's long-term operating performance. The underlying purpose and objective is to further the interests of the Company by providing incentives for individuals to become or remain employees of the Company or its subsidiaries through the granting of long-term incentives such as Performance Units granted under the Plan. IV. DEFINITIONS 4.1 The following terms shall have the following meanings for purposes of the Plan: a) "Agreement" shall mean a document executed by the Company for an individual participant describing the specific terms and conditions of a Grant issued under the Plan. b) "Board" shall mean the Board of Directors of The Centris Group, Inc. ---------------------- c) "Base Compensation" shall mean the Participant's base salary at the time the Performance Unit Grant is made. d) "Change in Control" means the following and shall be deemed to occur if any of the following events occur: (i) Any "person," as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of the Company's then outstanding voting securities; (ii) Individuals who, as of the date of the Plan, constituted the Board of Directors ("Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to such date whose election, or nomination for election by the Company's stockholders, is approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of the office is in connection with an actual or threatened election contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall, for the purposes of the Plan, be considered as though such person were a member of the Incumbent Board; (iii) The stockholders of the Company approve a merger or consolidation with any other corporation, other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of another entity) more than 50% of the combined voting power of the voting securities of the Company or such other entity outstanding immediately after such merger or consolidation, or (B) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no person acquired 50% or more of the combined voting power of the Company's then outstanding voting securities; or (iv) The stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or other disposition by the Company of all or substantially all of the Company's assets. Notwithstanding the preceding provisions of this Section 4.1(d), a Change in Control shall not be deemed to have occurred (1) if the "person" described in clause (i) of the preceding provisions of this Section 4.1(d) above (1) is an underwriter or underwriting syndicate that has acquired the ownership of 50% or more of the combined voting power of the Company's then outstanding voting securities solely in connection with a public offering of the Company's securities; (2) is the Company, any wholly owned subsidiary of the Company, any employee benefit plan of the Company or of a subsidiary of the Company, or any person holding voting shares for or pursuant to the terms of any such employee benefit plan; or (3) would not otherwise be a beneficial owner of 25% or more of the combined voting power of the Company's then outstanding voting securities but for a reduction in the number of outstanding voting securities resulting from a stock repurchase program or other similar plan of the Company or from a self tender offer of the Company, which plan or tender offer commenced on or after the date hereof; provided, however, that the term "person" shall include such person from and after the first date upon which (A) such person, since the date of the commencement of such plan or tender offer, shall have acquired beneficial ownership of, in the aggregate, a number of voting securities of the Company equal to 1% or more of the voting securities of the Company then outstanding, and (B) such person, together with all affiliates and associates of such person, shall beneficially own 25% or more the voting securities of the Company then outstanding. In calculating the percentage of the person for purposes of this subsection, voting shares that are beneficially owned by such person shall be deemed outstanding, and voting shares that are not beneficially owned by such person and that are subject to issuance upon the exercise or conversion of outstanding conversion rights, exchange rights, rights (other than rights), warrants or options shall not be deemed outstanding. Any determination made by the Committee as to whether any person is or is not a 25% stockholder for purposes of this subsection shall be conclusive and binding upon the Company and upon all stockholders. e) "Code" shall mean the Internal Revenue Code of 1986, as amended. f) "Committee" shall mean the Compensation Committee of the Board of Directors, appointed by the Board, constituted of persons who meet the requirements for being "non-employee directors" of the Company Plan pursuant to Rule 16b-3 under the Exchange Act and persons who are considered "outside directors" within the meaning of the regulations under Section 162(m) of the Code if the Award granted by the Committee is intended to constitute Performance-Based Compensation. g) "Company" shall mean The Centris Group, Inc., a Delaware corporation ---------------------- (formerly known as "US Facilities Corporation"), including any subsidiaries and affiliates or any successors thereto. h) "Date of Grant" shall mean the date the Committee determines to Grant Performance Units to a Participant as reflected in an Agreement. i) "Disability" shall mean that because of injury or sickness a person cannot perform each of the material duties of his or her regular occupation. j) "Employee" shall mean an employee of the Company. For purposes of Grants of Performance Units under this Plan, the term Employee shall be limited to officers of the Company. k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. l) "Grant" shall mean a Grant of Performance Units made to eligible Participants at the beginning of the Performance Period. m) "Outside or Non-employee Director" shall mean a member of the Board that is not currently an employee of the Company. n) "Participant" shall mean an officer of the Company selected by the Committee to participate in the Plan. o) "Payout" shall mean a payment of the Award to the Participants, calculated at the end of each Performance Period. p) "Performance Units" shall mean the number of Units granted to eligible Participants at the beginning of each Performance Period, calculated as the Participant's Target Award divided by the Unit Value. q) "Performance-Based Compensation" shall mean performance-based compensation as described in Section 162(m) of the Code and the regulations thereunder. r) "Plan" shall mean this The Centris Group, Inc. 1997 Long-Term ---------------------- Incentive - Performance Unit Plan. s) "Retirement" shall mean severance from employment with the Company at or after the attainment of age sixty-five (65). t) "Return on Equity" or "ROE" for any year, determined at the end of such fiscal year, shall mean net income of the Company for such fiscal year as determined by generally accepted accounting principles (GAAP) divided by stockholders' equity recorded at the beginning of such fiscal year. ROE for purposes of this Plan as specified below shall mean the average Return on Equity for the three year Performance Period as defined below. The Committee shall determine ROE in good faith and its determination shall be conclusive and binding on the Plan and Plan Participants. u) "Subsidiary" shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting of Performance Units, each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the corporations in such chain. v) "Target Award", expressed as a percent of Base Compensation, determines the number of Performance Units granted to the Participants at the beginning of the Performance Period. w) "Unit Value" shall be $10.00, or other value determined by the Committee. V. ADMINISTRATION 5.1 The Plan shall be administered by the Committee. The Committee shall be appointed by the Board and shall consist of not less than two Outside Directors of the Company, none of whom are eligible to participate in the Plan. The Board may, from time to time, remove members from, or add members to, the Committee. Vacancies on the Committee, however caused, shall be filled by the Board. The Board shall appoint one (1) of the members of the Committee as Chair. The Committee shall hold meetings at such times and places as it may determine. Acts of a majority of the Committee at which a quorum is present, or which are approved in writing by all the members of the Committee, shall be the valid acts of the Committee. 5.2 The Committee has the general authority to interpret the provisions of the Plan and adopt such rules as it deems necessary and desirable for the administration of the Plan. Among its functions are the selection of participants and determination of the kind, number, amounts, terms and conditions of Grants, Awards and Payouts made under the Plan to such persons. The determinations of the Committee are binding on Plan Participants. No member of the Committee shall be held liable for any action or determination made in good faith with respect to the Plan or any Performance Units granted thereunder. VI. ELIGIBILITY 6.1 For purposes of the Plan, to begin as of the Effective Date, the Committee has determined that Plan Participants shall include the Company's president and chief executive officer; senior vice president and president of USF RE Insurance Company; senior vice president and president of USBenefits Insurance Services, Inc.; executive vice president of corporate finance and investor relations; senior vice president and chief financial officer; senior vice president, secretary and general counsel; and executive vice president of USF RE Insurance Company. 6.2 Subsequent to the Plan's Effective Date, the Committee shall, in its discretion, and at any time during the life of the Plan, determine who shall be deemed to be a Participant in the Plan. 6.3 In order to receive Awards under the Plan, a Participant must be employed by the Company and have maintained employment with the Company for at least two (2) years preceding Payouts. If a Participant terminates his/her employment or is terminated by the Company for any reason, all Performance Units previously granted and Awarded, but not paid out, will be forfeited, and no Payouts associated with such Grants will be made to the Participant. 6.4 Participants entering the Plan at any time during the course of the Company's fiscal year will be eligible for grants of Performance Units in the year in which he/she is first deemed a Participant of the Plan by the Committee. The Participant will not be eligible for Awards or Payouts associated with Performance Periods begun in any year preceding the year in which the Participant becomes a Participant in the Plan. VII. TERMS 7.1 Grants The Committee shall determine the number of Performance Units to be granted to each Participant. Participants are granted Performance Units at the beginning of the Performance Period with Payouts contingent on the Company meeting predetermined ROE targets. The number of Performance Units granted to each Participant is calculated as the Participant's Target Award, as defined in Section 7.4, determined by the Committee, multiplied by the participant's Base Compensation. The resulting dollar amount is then divided by $10.00 (or other unit value determined by the Committee) which results in the number of Performance Units to be granted. 7.2 Performance Period The Performance Period refers to the period of time for which the Company's operating performance will be measured against predetermined targets. For purposes of the Plan, the Performance Period is three (3) years in length, with the first Performance Period to begin on January 1, 1997, the Plan's Effective Date, and to end on December 31, 1999. Subsequent three- year Performance Periods will begin annually on the first anniversary of the Effective Date and on each anniversary date thereafter. 7.3 Performance Measure The Performance Measure refers to the measure used to determine Awards following each Performance Period. For purposes of the Plan, the Committee has selected ROE as the Performance Measure to be used in the Plan. The Committee will calculate ROE at the close of each Performance Period. 7.4 Target Awards For purposes of the Plan, Participants are each assigned a Target Award by the Committee, expressed as a percent of Base Compensation, based upon such factors as the Committee may deem appropriate, in its sole discretion, including, but not limited to, the Participants' position in the Company, their roles and responsibilities, and the overall impact of their contributions on the Company's performance. 7.5 Performance Threshold For purposes of the Plan, the Committee has determined that the Company should meet a minimum level of operating performance, or Performance Threshold, for any Payouts to be made from the Plan. It is the determination of the Committee that the Company achieve at least a thirteen (13) percent average ROE over the Performance Period in order for Payouts to be made during the first Performance Period, or any portion of it. The Committee shall establish the Performance Threshold for each subsequent Performance Period. Notwithstanding the above, if the Performance Threshold is not attained with respect to any Performance Period, the Committee shall have the right in its sole discretion and subject only to any required approvals by the Board of Directors, and in conformity with the non- discretionary requirements of Section 162(m) of the Code, to make Awards in such amounts and to such persons as the Committee determines should receive the Awards. If the Performance Threshold is not attained over the Performance Period, any Performance Units granted for such Performance Period may still be awarded as determined under the sole discretion of the Committee subject to Board approval. 7.6 Performance Levels and Awards a) The Committee has determined that four (4) Performance Levels initially be used to determine Plan Payouts. The performance levels will be defined as follows: i) Below Target Performance will refer to the Company achieving a ROE over the Performance Period of at least thirteen (13) percent but less than fifteen (15) percent. If Below Target Performance is achieved then Participants in the Plan will receive a Payout equal to at least fifty (50) percent of their individual Performance Unit Grant. ii) Target Performance will refer to the Company achieving a ROE over the Performance Period of at least fifteen (15) percent but less than seventeen (17) percent. If Target Performance is attained then Participants in the Plan will receive a Payout equal to at least one-hundred (100) percent of their individual Performance Unit Grant. iii) Above Target Performance will refer to the Company achieving ROE over the Performance Period of at least seventeen (17) percent but less than eighteen (18) percent. If Above Target Performance is attained then Participants will receive a Payout equal to at least one-hundred and twenty-five (125) percent of their individual Performance Unit Grant. iv) Well-Above Target Performance will refer to the Company achieving ROE over the Performance Period of at least eighteen (18) percent. If Well-Above Target Performance is attained then Participants will receive a Payout equal to one-hundred and fifty (150) percent of their individual Performance Unit Grant. b) The Committee reserves the right to change or modify the Performance Levels at any time and without notice to Plan Participants, provided that any changes or modifications will not apply to any Performance Units granted prior to the effective date of such changes or modifications. 7.7 Payouts a) Providing the Company meets the Performance Threshold, Payouts earned by the Participants will be automatically deferred into the Company's Non-Qualified Deferred Compensation Plan, approved by the Committee on December 4, 1996. b) Payouts will be calculated by multiplying the value of the Performance Units awarded to the Participants by the Performance Level achieved, as defined in Section 7.5 and 7.6. c) Payouts earned will be determined as soon as practicable following the year in which the Performance Period ends. The Committee will certify, in writing, the accuracy of Awards prior to Payouts being made. d) The CEO shall have the authority, subject only to approval by the Committee and the Board, and in conformity with the non-discretionary requirements of Section 162(m) of the Code, to adjust a Participant's Payout to take into account strategic and financial events, conditions or results, including, but not limited to, recognizing a Participant's business unit's results which had a significant impact on the Company's overall Company financial results for any Performance Period. VIII. MISCELLANEOUS PROVISIONS 8.1 Amendments and Termination a) The Committee may from time to time suspend or terminate the Plan or amend or revise the terms of the Plan, provided that any material amendment to the Plan shall be approved by the Board or the Company's stockholders, as may be required in each case. b) No amendment, suspension or termination of the Plan shall, without the consent of the Participants who have received a Payout, alter or impair any rights or obligations under any Payout previously granted under the Plan. 8.2 Nontransferability of Awards The Participant may not transfer, assign, pledge or hypothecate any Performance Units granted under this Plan. Performance Awards may only be transferred pursuant to the Participant's will, or the laws of descent and distribution, or to a revocable trust created by the Participant for the benefit of the Participant or the Participant's family of which the Participant is the sole trustee. 8.3 Continuation of Employment Nothing contained in the Plan or any Performance Unit granted under the Plan shall confer upon any Participant any rights with respect to continuation of employment by the Company, nor shall this Plan or any individual agreement issued pursuant hereto be deemed a contract of employment, or in any manner alter the "at will" employment relationship that exists between the Company and its employees. 8.4 Termination of Employment a) If a Participant terminates employment for any reason other than death, Disability or Retirement, any Performance Units previously granted and not paid out shall be forfeited. b) If a Participant terminates employment for reasons of death, Disability, or retirement, the Participant, the beneficiary, the legal representative or the named beneficiary of the Participant (if the Participant is legally incapacitated or deceased) shall be entitled to receive, a portion or all of the Payout, providing the Company has achieved Threshold Performance, as the Committee shall determine in good faith, but in no event less than the target award multiplied by a fraction, the numerator or which shall be the number of months elapsed from the Date of Grant, and the denominator which shall be the number of months in a Performance Period. 8.5 Adjustments a) In the event an extraordinary event occurs, such as a recapitalization, merger, consolidation, or other similar event, if the Committee shall determine, in its sole discretion, that such change equitably requires an adjustment in the calculation of ROE, performance levels, or award payouts, such calculation or ROE, performance levels, or award payouts, in conformity with the non-discretionary requirements of Section 162(m) of the Code, may be appropriately adjusted by the Committee. b) Notwithstanding Section 8.5(a) above, upon the dissolution or liquidation of the Company, or upon any Change in Control, either (i) Payouts with respect to Performance Units granted and outstanding shall be made to Participants in the Plan, in consideration of the Company's actual ROE performance over the Performance Period, to date, relative to Target Performance, providing that the Company has achieved its predetermined Performance Threshold, or (ii) Payouts with respect to Awards determined by the Committee, but not yet paid, shall be made to Participants in the Plan. 8.6 Effective Date This Plan shall become effective on January 1, 1997 subject to approval by the Company's stockholders, and shall continue in effect for subsequent years unless it is terminated or amended by the Committee. 8.7 Code Section 162(m) (a) It is the intent of the Company that all Payouts under the Plan qualify as performance-based compensation for purposes of Code Section 162(m)(4)(C) so that the Company's tax deduction for such Payouts is not disallowed in whole or in part under Code Section 162(m). The Plan is to be applied and interpreted accordingly. (b) The Committee may from time to time suspend, revise, amend or terminate the Plan; provided, however, that any such amendment or revision which requires approval of the Company's stockholders in order to maintain the qualifications of Payouts as performance-based compensation pursuant to Code Section 162(m)(4)(C) shall not be made without such approval. 8.8 Governing Law The Plan shall be governed by and construed and enforceable in accordance with the laws of the state of California. 8.9 Notice Any notice or filing required or permitted to be given to the Company shall be sufficient if in writing and hand delivered or sent by U.S. mail, postage prepaid, or Federal Express or any other recognized courier service to the principal office of the Company directed to the attention of the Company's Vice President of Human Resources. Any notice to the Participant must be in writing and is effective when hand delivered or sent by U.S. mail, postage prepaid, or Federal Express or any other recognized courier service to the Participant or his personal representatives at his her last address on record with the Company. 8.10 Gender, Singular and Plural All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter as the identity of the person or persons may require. As the context may require, the singular may be read as the plural and the plural as the singular. 8.11 Captions The captions to the sections and paragraphs of the Plan are for convenience only and shall not control or effect the meaning or construction of any of its provisions. 8.12 Withholding of Taxes In the event the Company determines that it is required to withhold state or federal or Social Security taxes, the Company shall have the authority to withhold from the Participants such required state and federal income taxes as it deems appropriate. 8.13 Legality of Issuance The Company shall not be under any obligation to make payment with respect to any Performance Units unless and until the Company has determined that all applicable provisions of state and federal income tax laws have been satisfied. 8.14 Adoption of the Plan The date of adoption of this The Centris Group, Inc. 1997 Long-Term ----------------------- Incentive - Performance Unit Plan shall be the date upon which the Board of Directors approved the Plan, subject to ratification by the Stockholders of the Company at the 1997 Annual Meeting of Stockholders to be held in May, 1997. THE CENTRIS GROUP, INC. 1997 LONG-TERM INCENTIVE - PERFORMANCE UNIT PLAN AGREEMENT This Agreement is made and entered into this ____ day of _____________, ____, by and between The Centris Group, Inc., a Delaware Corporation (the "Company"), and _____________________________ (the "Participant"), pursuant to The Centris Group, Inc. 1997 Long-Term Incentive - Performance Unit Plan (the "Plan"). Section 1. Grant of Performance Units. The Compensation Committee of the Company's Board of Directors (the "Committee") hereby grants to the Participant ____________ Performance Units. The effective date of grant is January 1, ____. Each Performance Unit shall have a grant value of $____ and is granted pursuant to the Plan. The Participant acknowledges having received and read the text of the Plan, the terms and conditions of which are incorporated into this Agreement by reference thereto. In the event of a conflict between this Agreement and the Plan, the terms and conditions of the Plan shall prevail. Section 2. Performance Period. The Performance Period for this grant shall be the three (3) year period from January 1, ____ through December 31, 20__. Section 3. Payouts. Payouts (as defined in the Plan) shall be determined at the end of the Performance Period on the basis of the Company's actual ROE (as defined in the Plan) over the performance period relative to predetermined ROE targets as set forth in the Plan. Payouts under the Plan shall be automatically deferred into the Company's Non-Qualified Deferred Compensation Plan. Section 4. Determinations. All determinations, decisions, and interpretations made under this Agreement by the Committee or the Board are made at their sole discretion and shall be binding upon the Plan and the Participants. Section 5. Termination of Employment. Amounts due to participants upon termination of employment shall be determined in accordance with the provisions of the Plan. Once Payouts are deferred to the Non-Qualified Deferred Compensation Plan, they may be withdrawn only in accordance with the terms of such plan. Section 6. No Employment Rights. Nothing contained in this Agreement shall confer upon any Participant any rights with respect to continuation of employment by the Company, nor shall this Agreement be deemed a contract of employment, or to alter in any manner the "at will" employment relationship that exists between the Company and its employees. IN WITNESS WHEREOF, the Company and the Participant have executed this Agreement as of the day and year first written above. The Centris Group, Inc. By: -------------------------- Participant - ----------------------------- EX-11 15 THE CENTRIS GROUP, INC. AND SUBSIDIARIES EXHIBIT 11 THE CENTRIS GROUP, INC. AND SUBSIDIARIES Computation of Earnings Per Share The computation of per share income is based upon the weighted average number of common and common equivalent shares outstanding during each year ended December 31, adjusted to reflect the February 27, 1998 two-for-one stock split. Such information, presented in conformance with the provisions of Statement of Financial Accounting Standards No. 128, "Earnings per Share", is as follows:
(000 omitted, except for per share data) 1996 1995 1994 --------- -------- -------- Net income...................................................... $15,212 $15,020 $13,854 Weighted average shares outstanding during the period (Basic Shares).................................... 11,980 11,732 11,204 Common stock equivalent shares.................................. 174 218 252 --------- -------- -------- Common and common stock equivalent shares outstanding for purposes of calculating diluted income per share..................................... 12,154 11,950 11,456 ========= ======== ======== Basic income per share.......................................... $ 1.27 $ 1.28 $ 1.24 Diluted income per share........................................ $ 1.25 $ 1.26 $ 1.21
EX-13 16 THE CENTRIS GROUP, INC. 1997 ANNUAL REPORT EXHIBIT 13
SELECTED FINANCIAL DATA Year ended December 31, 1997 1996 1995 1994 1993 (In thousands of dollars, except per share data) INCOME STATEMENT DATA: Premiums earned $159,533 $124,124 $114,971 $ 93,269 $ 83,206 Commissions and fees 33,635 26,722 25,994 23,583 21,736 Investment income including realized investment gains 21,304 12,273 10,212 5,959 7,037 -------- -------- -------- -------- -------- Total revenues $214,472 $163,119 $151,177 $122,811 $111,979 ======== ======== ======== ======== ======== Income before income taxes $ 21,995 $ 20,162 $ 18,159 $ 7,382 $ 8,407 Net income $ 15,212 $ 15,020 $ 13,854 $ 6,238 $ 6,767 Diluted income per share* $ 1.25 $ 1.26 $ 1.21 $ .52 $ .57 Cash dividends per share $ .12 $ .12 $ .10 -- -- BALANCE SHEET DATA: Total assets $343,248 $288,743 $249,872 $199,737 $154,723 -------- -------- -------- -------- -------- Notes payable $ 32,500 $ 35,000 $ 35,000 $ 25,000 -- -------- -------- -------- -------- -------- Stockholders' equity $117,590 $102,364 $ 88,061 $ 63,079 $ 63,333 -------- -------- -------- -------- -------- CASH FLOW DATA: From operating activities $ 22,276 $ 27,794 $ 13,220 $ 16,469 $ 12,958 From investing activities (19,539) (25,461) (20,837) (36,406) (9,793) From financing activities (2,747) 634 11,280 21,588 (1,337)
*Share data adjusted to reflect the February 27, 1998 two-for-one stock split MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OPERATIONS The Centris Group, Inc. (the "Company") conducts business primarily in two segments: Medical lines includes medical stop-loss and provider excess coverages underwritten by USBenefits Insurance Services, Inc. ("USBenefits") on behalf of The Continental Insurance Company ("Continental"), one of the CNA Insurance Companies, reinsurance of 50% of this business by USF RE INSURANCE COMPANY ("USF RE") and catastrophic accident and health risks underwritten and managed nationally and internationally by INTERRA Reinsurance Group, Inc. ("INTERRA"). USBenefits is the underwriting manager and marketing organization for medical lines coverages issued on behalf of Continental and for group life insurance coverage issued by an affiliate of Continental. Medical stop-loss coverage is a form of excess insurance that protects employers that self-fund their employee healthcare plans by capping their exposure from the risk of loss. Provider excess coverage limits the financial risks healthcare providers face from medical plans that prepay the providers fixed sums per plan participant (capitated fees) or provide specified rates for services. USBenefits also markets other employee benefits related products. Medical lines products are marketed through a network of unaffiliated third party administrators, insurance agents, brokers and consultants. Substantially all commissions and fees and approximately 65%, 67% and 71% of premiums earned for 1997, 1996 and 1995, respectively, arise from USBenefits' and USF RE's relationship with Continental and its affiliate. Property/Casualty reinsurance and insurance underwriting is conducted by USF RE and its wholly-owned subsidiary USF Insurance Company ("USFIC"). These subsidiaries both carry an "A" (Excellent) rating from A.M. Best Company and USF RE is assigned a claims paying ability rating of Aq (Good) by Standard & Poor's. Insurance companies purchase reinsurance in order to control and manage the risks they accept when they issue policies. USF RE assumes facultative and treaty reinsurance from unaffiliated insurance companies, primarily through reinsurance intermediaries. Facultative is reinsurance of one risk at a time, while reinsurance treaties cover a portion of all policies written by another insurer in a particular risk category. USF RE concentrates its casualty writings in commercial auto liability, general liability and products liability lines. It also provides a broad range of coverages for most types of property exposures. USFIC writes surplus lines insurance on commercial property/casualty risks which are marketed through independent excess and surplus lines brokers. ACQUISITIONS In January, 1997 USBenefits acquired the operations of Global Excess Holdings, Inc. ("Global") a Michigan based managing general underwriter of medical stop- loss insurance that produced approximately $30,000,000 of medical stop-loss premiums in 1996. The results of this operation have been incorporated into the medical lines segment. In early September, 1997 the Company acquired INTERRA, an Indianapolis based company which manages and underwrites catastrophic accident and health risks nationally and internationally. INTERRA brings fee income and underwriting opportunities for the Company's risk assumption businesses in one of the fastest growing sectors of the industry -- international accident and health insurance and reinsurance. INTERRA underwrites on behalf of an unaffiliated life insurance company and has expanded its operations to include underwriting accident and health reinsurance for its affiliate, USF RE, and providing catastrophic claims management services to the Company and its subsidiaries. INTERRA's results have also been incorporated into the medical lines segment. In late September, 1997 USF RE acquired from The Hanover Insurance Company its Allmerica Re property/casualty treaty operation. This acquisition is expected to give USF RE a more visible presence in the eastern United States while adding approximately $24,000,000 of premium in 1998 as the existing business is renewed by USF RE. The addition of an east coast treaty branch office enhances the growth and development plans for the property/casualty treaty reinsurance business and brings to the Company underwriting expertise in marine and international reinsurance. The results of this operation have been incorporated into the property/casualty segment. Each of these transactions was accounted for as a purchase. The transactions were not material to the financial statements of the Company. The results of operations of each entity since the acquisition dates are included in the accompanying consolidated financial statements. The Company continues to actively pursue accretive acquisition opportunities in complementary business lines. STOCK SPLIT On February 3, 1998 the Company announced that its board of directors had authorized a two-for-one split of its common stock in the form of a stock dividend to stockholders of record as of February 18, 1998. Certificates reflecting the stock split were issued on February 27, 1998. All share amounts in the accompanying consolidated financial statements have been adjusted to reflect the stock split. RESULTS OF OPERATIONS CONSOLIDATED RESULTS The table below presents certain consolidated financial information regarding the Company's operations.
Year ended December 31, 1997 Change 1996 Change 1995 - ----------------------- ---- ------ ---- ------ ---- (dollars in thousands) Revenues: Premiums earned $159,533 29% $124,124 8% $114,971 Commissions and fees 33,635 26% 26,722 3% 25,994 Net investment income 11,091 9% 10,147 10% 9,190 Realized investment gain 10,213 380% 2,126 108% 1,022 -------- --- -------- --- -------- Total revenues $214,472 31% $163,119 8% $151,177 ======== === ======== === ======== Expenses: Insurance expenses 171,267 37% 125,352 10% 113,707 General and administrative 18,837 26% 14,995 (12%) 17,052 Interest expense 2,373 (9%) 2,610 16% 2,259 -------- --- -------- --- -------- Total expenses 192,477 35% 142,957 7% 133,018 ======== === ======== === ======== Income before income taxes 21,995 9% 20,162 11% 18,159 Income tax expense 6,783 32% 5,142 19% 4,305 -------- --- -------- --- -------- Net income $ 15,212 1% $ 15,020 8% $ 13,854 ======== === ======== === ========
Changes in revenues between the periods presented reflect the Company's diversification in two distinct business segments. Increases in premiums earned and commissions and fees in 1997 as compared to 1996 were primarily attributable to growth in the property/casualty segment, additional medical-stop loss business resulting from the January, 1997 Global acquisition and increased production of provider excess coverage. Revenue changes between 1996 and 1995 primarily reflect managed growth in property/casualty lines. Returns on invested assets are an integral element of results from operations. Underwriting cash flows, which consist of premiums collected over losses and expenses paid, and investment cash flows, which consist of income from existing investments and proceeds from sales and maturities of investments, provide the funds used to build the investment portfolio. The portfolio is managed based upon Company guidelines which incorporate a variety of factors including the relationship of invested assets to liabilities, total return, business needs, regulatory requirements and tax considerations. Increases in net investment income result from higher levels of invested assets in 1997 and 1996 due to higher production levels in each business segment. Increases in realized gains between years are generally a result of continuous evaluation of the investment portfolio to enhance and maintain yields and total return consistent with the Company's investment guidelines. To lessen its exposure to stock market volatility, the Company realized $10,213,000 during 1997 in pre-tax gains primarily from its equity portfolio. Insurance expenses are comprised of losses and loss adjustment expenses incurred and policy acquisition expenses. Insurance and reinsurance companies establish reserves for losses incurred, but not yet paid, in order to match such losses with the related premiums earned. The process of establishing loss reserves is subject to uncertainties that are a normal, recurring aspect of the insurance business which requires the use of informed judgments and estimates. Loss and loss adjustment expense reserve development is reviewed on a regular basis, incorporating analysis of current trends, market changes in the Company's business segments and historical experience to analyze the Company's actuarial assumptions. As additional experience and other data becomes available, the Company's actuarial estimates may be revised. Such revisions may impact earnings. Policy acquisition expenses vary on the basis of market conditions and mix of business. The Company's focus on productivity and expense control continued to favorably impact operations and resulted in maintaining general and administrative (G&A) expenses at 9% of revenues in 1997 even with the effect of three strategic acquisitions, compared to 9% of revenues in 1996 and 11% of revenues in 1995. Net income for 1997 as compared to 1996 reflects the increases in revenues and continuing control of G&A expenses, offset by third quarter reserve adjustments in the medical lines segment. The increase in net income in 1996 as compared to 1995 resulted from increases in revenues and a decrease in consolidated G&A expenses, as the company continued to increase productivity and control expenses in relation to revenues, offset in part by higher claims cost in the medical lines segment. Pre-tax income for 1995 was reduced by $695,000 in connection with the March 1995 resignation of the Company's former Chief Executive Officer. Income taxes as a percentage of pre-tax income fluctuate depending on the proportion of tax exempt investment income to total pre-tax income and the proportion of total income subject to state income taxes. The increase in the effective income tax rate in 1997 primarily results from the tax effect of acquired companies and utilization of tax benefits and changes in valuation allowances which were available in prior periods. BUSINESS SEGMENTS The following tables present pre-tax operating information by business segment and holding company operations (including realized gains) for the years ended December 31, 1997, 1996 and 1995. MEDICAL LINES
Year ended December 31, 1997 Change 1996 Change 1995 - -------------------------- -------- -------- -------- -------- -------- (dollars in thousands) Gross premiums written $103,673 23% $ 84,179 3% $ 81,546 Net premiums written 103,479 23% 84,179 3% 81,546 Revenues: Premiums earned 103,479 23% 84,179 3% 81,546 Commissions and fees 33,335 25% 26,722 3% 25,994 Net investment income 3,605 9% 3,312 1% 3,269 -------- --- -------- --- -------- Total revenues 140,419 23% 114,213 3% 110,809 Expenses: Losses and loss adjustment 82,760 42% 58,095 6% 54,563 Policy acquisition 35,003 23% 28,526 5% 27,069 General and administrative 13,328 32% 10,111 (16%) 12,025 -------- --- -------- --- -------- Total expenses 131,091 36% 96,732 3% 93,657 Income before income taxes $ 9,328 (47%) $ 17,481 2% $ 17,152
Increases in revenues for 1997 are primarily due to additional medical stop-loss business from the acquisition of Global in January 1997 combined with growth in the provider excess line. Medical lines production increased by 3% in 1996 over 1995 due to strong retention of in-force accounts and controlled growth of the provider excess line. The change in medical lines pre-tax income between the 1997 and 1996 periods primarily reflects third quarter additions of $8,000,000 to medical lines reserves. The Company continually reviews its reserves as new information becomes known and claim trends become more fully developed. The Company's third quarter reserve review indicated increases in the severity and frequency of specific and aggregate claims in the second half of 1996 and the first half of 1997. In addition, continuing competitive industry conditions resulted in less improvement in premium rate levels than expected. During the third quarter, the Company implemented a variety of pricing and underwriting actions to support the underwriting profitability of this line of business. Since healthcare costs vary depending on the size and nature of the employer group and the geographic region, the Company has reviewed the distribution of its business and implemented appropriate rating actions. The Company's marketing efforts have become focused on larger groups where there is more predictability and better opportunities to write profitable business. The Company has taken specific rating actions in those regions of the country where managed care is not firmly established. It also reduced the amount of business written through producers whose book of business is less profitable. Implementation of these strategies is restoring underwriting profitability to the medical lines business, which is evident in improved fourth quarter results for the segment, a trend which is expected to be sustained going forward. Equally important, the more stringent standards established for the producer network have resulted in higher quality of business without sacrificing growth in the overall level of premium production. Pre-tax income in 1996 as compared to 1995 reflects increases in the frequency and severity of claims which were not fully offset by corresponding increases in premium rates, as well as the effect of higher formula reserves incurred in 1996 in connection with greater volume in the provider excess line. Policy acquisition expenses vary due to the level of production activity, mix of business and market conditions. Increases in general and administrative expenses in 1997 primarily result from expenses related to the acquired Global operations. The segment information presented in the preceding table includes losses before income tax of $1,156,000 for the year ended December 31, 1995 from the Company's medical bill review operation which was closed effective May 31, 1995.
PROPERTY/CASUALTY Year ended December 31, 1997 Change 1996 Change 1995 - -------------------------- ------- ------- ------- -------- ------- (dollars in thousands) Gross premiums written $86,270 31% $65,850 29% $50,915 Net premiums written 62,071 42% 43,799 24% 35,350 Revenues: Premiums earned 56,054 40% 39,945 19% 33,425 Commissions and fees 300 -- -- Net investment income 7,424 10% 6,777 15% 5,872 ------- -- ------- -- ------- Total revenues 63,778 37% 46,722 19% 39,297 Expenses: Losses and loss adjustment 42,311 41% 30,078 30% 23,180 Policy acquisition 11,193 29% 8,653 (3%) 8,895 General and administrative 4,535 14% 3,988 21% 3,304 ------- -- ------- -- ------- Total expenses 58,039 36% 42,719 21% 35,379 ------- -- ------- -- ------- Income (loss) before income taxes $ 5,739 43% $ 4,003 2% $ 3,918 ======= == ======= == =======
USF RE entered the property/casualty reinsurance market in 1987, and continues to focus on disciplined growth. Since December 31, 1986, statutory policyholders' surplus has increased from $30,555,000 to $112,657,000 at December 31, 1997. In December 1996 A.M. Best Company upgraded its rating of USF RE and USFIC to "A" (Excellent). In 1996 USF RE was also assigned a claims paying ability rating of Aq (Good) by Standard & Poor's. Although market conditions remain highly competitive, the combination of increased surplus levels, strict underwriting standards, an "A" (Excellent) rating from A.M. Best Company and additional underwriting expertise in marine and international business through the east coast treaty branch provide a strong position for USF RE to continue with disciplined growth. Revenue growth in property/casualty lines in 1997 as compared to 1996 was the result of continued expansion of treaty reinsurance operations and increased marketing efforts. Facultative property and casualty lines also grew, but at a slower rate due to an increasingly competitive marketplace. The addition of an east coast USF RE treaty branch office through the Allmerica Re acquisition gives USF RE more presence in the eastern United States and is expected to add approximately $24,000,000 of premium in 1998. Changes in the relationship between gross and net premiums written were due to changes in the Company's ceded reinsurance programs. Some retrocession (reinsurance) agreements mitigate an insurance company's exposure to losses and, therefore, allow increases in the limits which can be offered on each account. Other retrocession agreements protect against catastrophic losses. Management believes its retrocessional coverage is adequate to protect the Company from excessive catastrophic losses. During 1997 and 1996, the Company did not incur any significant catastrophic losses due to natural disasters. The Company evaluates the financial condition of potential retrocessionaires to determine whether to cede coverage to such companies. Retrocession agreements are placed with unaffiliated companies which management believes are financially secure and experienced in this type of business. Reinsurance recoverables are monitored continually and any retrocessionaire not qualified in USF RE's or USFIC's state of domicile is required to post security in the amount of its estimated liability. Fluctuations in losses and loss adjustment expenses and policy acquisition expenses generally result from growth in premiums and changes in the mix of business. Amounts reported in 1996 as compared to 1995 reflect the Company's continued growth in casualty lines which are generally reserved at a higher formula loss ratio than property lines and the 1995 withdrawal from the plate glass business which generally carried a lower loss ratio and higher acquisition expenses. The plate glass business accounted for 4% of premiums earned in 1995. Shifts in policy acquisition expenses between periods presented result from changes in the mix of business and modification of retrocessional arrangements. Differences in pre-tax income between the periods primarily reflect increases in treaty and facultative writings and favorable 1997 property underwriting experience.
HOLDING COMPANY Year ended December 31, 1997 Change 1996 Change 1995 - ----------------------------- ------- -------- -------- -------- -------- (dollars in thousands) Revenues: Investment income $ 62 7% $ 58 18% $ 49 Realized gains 10,213 380% 2,126 108% 1,022 ------- --- ------- --- ------- Total revenues 10,275 370% 2,184 104% 1,071 ======= === ======= === ======= Expenses: General and administrative 974 9% 896 (13%) 1,028 Other -- -- -- -- 695 Interest 2,373 (9%) 2,610 15% 2,259 ------- --- ------- --- ------- Total expenses 3,347 (5%) 3,506 (12%) 3,982 ------- --- ------- --- ------- Income (loss) before income taxes $ 6,928 -- $(1,322) (55%) $(2,911) ======= === ======= === =======
To lessen its exposure to stock market volatility, the Company realized $10,213,000 in pre-tax gains primarily from its equity portfolio and principally during the third quarter of 1997. Interest expenses declined in 1997 as the Company commenced principal payments on its outstanding bank loan. ACCOUNTING POLICIES See Footnote 1 to the Company's Consolidated Financial Statements appearing elsewhere in this Annual Report for information regarding significant accounting policies. INFLATION The healthcare marketplace has long been subject to the effects of increases in costs of services. Inflation in the costs of healthcare tends to generate increases in premiums for medical lines coverage, resulting in greater revenues. Inflation can also negatively impact insurance and reinsurance operations by causing higher claims settlements than may have originally been estimated, while not necessarily allowing an immediate increase in premiums to a level necessary to maintain profit margins. Historically the Company has made no explicit provisions for inflation, but trends are considered when setting underwriting terms and claim reserves. Such reserves are subjected to a continual internal and external review processes to assess their adequacy and are adjusted as deemed appropriate. Overall economic trends also affect interest rates, which in turn affect investment income and the market value of the Company's investment portfolio. LIQUIDITY AND CAPITAL RESOURCES The Company utilizes cash from operations and maturing investments to meet its insurance obligations to policyholders and claimants, as well as to meet operating costs. Primary sources of cash from operations include premium collections, commissions and fees and investment income. The principal uses of cash from operations are for premium payments to insurance companies, payments of claims under USF RE's and USFIC's reinsurance and insurance contracts and operating expenses such as salaries, commissions, taxes and general overhead. The Company secured a $25,000,000 bank loan in December 1994 which was increased to $35,000,000 in November 1995. Of this amount, the Company contributed $30,500,000 to the surplus of its insurance group to support additional growth. At December 31,1997, $32,500,000 was outstanding under the bank loan. The Credit Agreement with the Company's lender contains certain covenants, restrictions and dividend payment limitations with which the Company was in compliance at December 31, 1997. See Footnote 6 to the Company's Consolidated Financial Statements appearing elsewhere in this Annual Report. The Company anticipates that it will continue to generate sufficient cash flow from operations to cover its short-term (1-18 months) and long-term (18 months to 3 years) liquidity needs. While the Company currently has no immediate plans for significant capital outlays, from time to time it contemplates acquisition opportunities that complement its business operations. During 1997, the investment portfolio grew by 15% and currently reflects an allocation of approximately 94% in fixed income investments, both taxable and tax preferenced, with an "AA" average fixed income portfolio rating, and 6% in equities. All such securities are carried at quoted market values at the latest balance sheet date. The portfolio does not contain any real estate investments, derivatives, high yield bonds, private placements or mortgage loans. USF RE is restricted in the annual amount of dividends which it may pay to the Company without receiving prior approval from the Massachusetts Commissioner of Insurance. During 1998, the amount which may be paid without such prior approval is $11,266,000. Since its acquisition by the Company in 1983, USF RE has not paid any dividends. Application of the National Association of Insurance Commissioners risk-based capital ("RBC") requirements for property and casualty insurance entities to USF RE's and USFIC's statutory financial information indicates that presently these companies substantially exceed the capital level required under the RBC requirements. YEAR 2000 As the year 2000 approaches, the Company recognizes the need to ensure that its operations will not be adversely affected by year 2000 computer software issues. The Company has a formal plan in place to evaluate and implement solutions to year 2000 computer software issues. The evaluation phase of this plan, which was completed in December, 1997, included an analysis of the Company's software systems, identification of software enhancements required to address year 2000 issues and identification of vendors and business partners that may impact Company operations. The Company's significant operational and financial software systems are provided by third party vendors who the Company has confirmed, have also been focused on addressing year 2000 issues. Presently, the Company has commenced upgrading its software products and expects to complete this phase of its plan, including testing year 2000 changes, during 1998. The cost of the year 2000 remediation plan is not considered material to the Company's financial position. The Company will continue to make investments in its software systems to ensure year 2000 compliance for all its business processing systems. FORWARD LOOKING STATEMENTS Some of the statements included within Management's Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and related Notes may be considered to be forward looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995), and which are subject to certain risks and uncertainties. Among those factors which could cause the actual results to differ materially from those suggested by such statements are: catastrophe losses in the Company's insurance lines or a material aggregation of losses, changes in federal or state law affecting an employer's ability to self-insure, availability of adequate retrocessional insurance coverage at appropriate prices, a downturn in the general economy, the effects of competitive market pressures within the medical lines or property/casualty marketplaces, the effect of changes required by generally accepted accounting practices or statutory accounting practices, and other risks which are described from time to time in the Company's filings with the Securities and Exchange Commission. The words "believes", "anticipates", "expects" and similar expressions are intended to identify forward looking statements. FINANCIAL STATEMENTS REPORT ON CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements were prepared by the Company, which is responsible for their integrity and objectivity. The statements have been prepared in conformity with generally accepted accounting principles, appropriate in the circumstances, and necessarily include some amounts that are based upon the Company's best estimates and judgment. Financial information presented elsewhere in this Annual Report is consistent with these accompanying consolidated financial statements. The accounting systems and controls of the Company are designed to provide assurance that transactions are executed in accordance with management's authorization, that the financial records are reliable for preparing financial statements and maintaining accountability for assets, and that assets are safeguarded against losses from unauthorized use or disposition. The Company's consolidated financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants, whose audits thereon were made in accordance with generally accepted auditing standards. The audit included a review of internal accounting controls to the extent necessary to design audit procedures to gather sufficient evidence to support their opinion on the fairness of presentation of the consolidated financial statements. The auditors have full access to each member of management in conducting their audits, and their report is contained elsewhere in this Annual Report. The Audit Committee of the Board of Directors, comprised solely of non-employee, independent directors meets regularly with management and the independent accountants to review the work and procedures of each. The independent accountants have free access to the Audit Committee, without management being present, to discuss the results of their work and their opinions on the adequacy of the Company's accounting controls and the quality of the Company's financial reporting. The Board of Directors, upon the recommendation of the Audit Committee, appoints the independent public accountants, subject to annual stockholder approval. /s/ David L. Cargile /s/ Charles M. Caporale Chairman of the Board, President Senior Vice President, treasurer and Chief Executive Officer and chief financial officer
CONSOLIDATED INCOME STATEMENTS Year ended December 31, 1997 1996 1995 - --------------------------------------------------- -------- -------- -------- (In thousands of dollars, except per share data) Revenues: Premiums earned $159,533 $124,124 $114,971 Commissions and fees 33,635 26,722 25,994 Net investment income 11,091 10,147 9,190 Realized investment gains 10,213 2,126 1,022 -------- -------- -------- Total revenues 214,472 163,119 151,177 Operating expenses: Losses and loss adjustment expenses incurred 125,071 88,173 77,743 Policy acquisition expenses 46,196 37,179 35,964 General and administrative expenses 18,837 14,995 16,357 Other expense -- -- 695 Interest expense 2,373 2,610 2,259 -------- -------- -------- Total operating expenses 192,477 142,957 133,018 -------- -------- -------- Income before income taxes 21,995 20,162 18,159 Income tax expense 6,783 5,142 4,305 -------- -------- -------- Net income $ 15,212 $ 15,020 $ 13,854 Basic income per share $1.27 $1.28 $1.24 Diluted income per share $1.25 $1.26 $1.21
See accompanying notes to consolidated financial statements.
Consolidated balance sheets December 31, 1997 1996 - --------------------------------------------------------------- ---------- ---------- (In thousands of dollars) ASSETS Investments: Bonds, available for sale, at market (amortized cost $177,262 in 1997 and $150,674 in 1996) $186,118 $155,480 Equity securities at market (cost $15,003 in 1997 and $16,296 in 1996) 15,564 20,370 Short-term and other investments, at cost which approximates market 22,142 18,502 -------- -------- Total investments 223,824 194,352 Cash and invested cash 11,122 11,132 Restricted cash and short-term investments 27,947 23,771 Accrued investment income 3,196 2,653 Receivables: Reinsurance losses and reserves 26,932 23,975 Premiums 26,012 16,841 Prepaid reinsurance premiums 7,799 6,495 Deferred policy acquisition costs 4,495 3,644 Other assets 11,921 5,880 -------- -------- Total assets $343,248 $288,743 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Insurance liabilities: Amounts due insurance companies $ 36,470 $ 27,148 Losses and loss adjustment expenses 116,801 94,669 Unearned premiums 30,249 22,936 Note payable 32,500 35,000 Accounts payable and accrued expenses 9,638 6,626 -------- -------- Total liabilities 225,658 186,379 ======== ======== STOCKHOLDERS' EQUITY: Common stock, $.01 par value; 40,000,000 shares authorized; 12,465,000 shares issued in 1997 and 12,306,000 issued in 1996, including 298,000 and 386,000 shares held in treasury in 1997 and 1996, respectively. 124 122 Paid in capital 46,188 45,442 Net unrealized investment gain 6,121 5,860 Retained earnings 66,654 52,883 -------- -------- 119,087 104,307 Less treasury stock, at cost (1,497) (1,943) -------- -------- Total stockholders' equity 117,590 102,364 -------- -------- Commitments and contingencies Total liabilities and stockholders' equity $343,248 $288,743 ======== ======== See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Net Unrealized Investment Total Common Paid in Gain Retained Treasury Stockholders' Stock Capital (Loss) Earnings Stock Equity - --------------------------------- ------- ------- -------- -------- -------- ------------- (in thousands of dollars) Balance at January 1, 1995 $118 $44,202 $(2,637) $26,544 $(5,148) $ 63,079 Net income -- -- -- 13,854 -- 13,854 Exercise of stock options (561,400 shares) 4 226 -- -- 2,175 2,405 Dividends paid (.10 per share) -- -- -- (1,125) -- (1,125) Unrealized investment gain, net -- -- 9,848 -- -- 9,848 ---- ------- ------- ------- ------- -------- Balance at December 31, 1995 122 44,428 7,211 39,273 (2,973) 88,061 Net income -- -- -- 15,020 -- 15,020 Exercise of stock options (371,000 shares) -- 1,014 -- -- 1,030 2,044 Dividends paid (.12 per share) -- -- -- (1,410) -- (1,410) Unrealized investment loss, net -- -- (1,351) -- -- (1,351) ---- ------- ------- ------- ------- -------- Balance at December 31, 1996 122 45,442 5,860 52,883 (1,943) 102,364 Net income -- -- -- 15,212 -- 15,212 Exercise of stock options (247,100 shares) 2 746 -- -- 446 1,194 Dividends paid (.12 per share) -- -- -- (1,441) -- (1,441) Unrealized investment gain, net -- -- 261 -- -- 261 ---- ------- ------- ------- ------- -------- Balance at December 31, 1997 $124 $46,188 $ 6,121 $66,654 $(1,497) $117,590 ==== ======= ======= ======= ======= ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, 1997 1996 1995 - ------------------------------------------------------- --------- --------- ---------- (in thousands of dollars) Cash Flows From Operating Activities: Net income $ 15,212 $ 15,020 $ 13,854 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred policy acquisition costs 46,196 37,179 34,281 Deferred policy acquisition costs (47,047) (37,993) (34,064) Realized investment gains (10,213) (2,126) (1,022) Increase in premiums receivable (9,171) (2,776) (4,631) Increase in reinsurance receivables (2,957) (5,378) (4,296) Increase in losses and loss adjustment expenses 22,132 15,775 9,247 Increase in unearned premiums 7,313 5,231 3,092 Other, net 4,624 2,095 (990) Depreciation and amortization 363 502 445 Net transfers to restricted cash and short-term investments (4,176) 265 (2,696) -------- -------- --------- Net cash provided by operating activities 22,276 27,794 13,220 -------- -------- --------- Cash Flows From Investing Activities: Purchases of bonds (56,778) (46,453) (102,339) Purchases of equity securities (14,549) (6,544) (12,790) Proceeds from sales and maturities of investment securities 57,101 31,455 86,587 Net sales (purchases) of short-term investments (4,031) (1,681) 7,886 Purchases of property and equipment (1,282) (2,238) (181) -------- -------- --------- Net cash used in investing activities (19,539) (25,461) (20,837) -------- -------- --------- Cash Flows From Financing Activities: Proceeds from note payable -- -- 10,000 Payments on note payable (2,500) -- -- Dividends paid (1,441) (1,410) (1,125) Proceeds from issuance of common stock 1,194 2,044 2,405 -------- -------- --------- Net cash (used in) provided by financing activities (2,747) 634 11,280 -------- -------- --------- Net (decrease) increase in cash and invested cash (10) 2,967 3,663 Cash and invested cash at beginning of year 11,132 8,165 4,502 -------- -------- --------- Cash and invested cash at end of year $ 11,122 $ 11,132 $ 8,165 ======== ======== ========= Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest $ 2,303 $ 2,498 $ 2,187 Income taxes $ 4,366 $ 4,771 $ 5,217
See accompanying notes to consolidated financial statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS note 1 - summary of significant accounting policies (A) Organization and Principles of Consolidation The consolidated financial statements include the accounts of The Centris Group, Inc., a Delaware corporation (the "Company"), and its wholly owned subsidiaries. The Company's USBenefits Insurance Services, Inc. ("USBenefits") subsidiary is the managing general underwriter and marketing organization for medical lines coverages issued by The Continental Insurance Company ("Continental"), one of the CNA Insurance Companies. The Company's USF RE insurance company ("USF RE") and USF Insurance Company ("USFIC") subsidiaries write property/casualty reinsurance and insurance. The Company's INTERRA Reinsurance Group, Inc. (INTERRA) subsidiary manages and underwrites catastrophic accident and health risks nationally and internationally. All significant intercompany balances and transactions have been eliminated in consolidation. (B) Recognition of Revenue Management fees and brokerage commissions are primarily recognized as of the effective date of the underlying insurance coverage. Insurance and reinsurance premiums are generally recognized as revenues over the terms of the related policies on a pro-rata basis, and are reported net of ceded earned premiums. Substantially all commissions and fees and approximately 65%, 67% and 71% of premiums earned for 1997, 1996 and 1995 respectively, arise from USBenefits' and USFRE's relationship with Continental and an affiliate. Such contracts may be terminated as of any year-end. (C) Investments Securities are purchased to support the investment strategies of the Company, which are based on many factors including, but not limited to, total rate of return, maturity, credit risk, tax considerations, regulatory requirements and market economics. The Company has the ability to hold all bonds to maturity. However, securities in the portfolio may be sold from time to time based upon the Company's investment strategies and market opportunities. Bonds and equity securities are held as "available for sale" and carried at market value as of the balance sheet date. Market values are principally obtained from a national quotation service. Declines in the market value of any security below cost that are deemed other than temporary, will be charged to earnings. Unrealized gains and losses net of income taxes are reported as a separate component of stockholders' equity. Market values of bonds are primarily a function of current interest rates, and vary from period to period. Realized gains or losses on sales of investments are computed on a specific identification basis. (D) Short-Term and Other Investments, Cash and Invested Cash Short-term and other investments and cash and invested cash consist of bank deposits and money market mutual funds. Premiums collected but not yet remitted to insurance companies are restricted by law as to use. Such amounts are reported as restricted cash and short-term investments, which at December 31, 1997 and 1996 consisted primarily of money market mutual funds and U.S. Government obligations. (E) Policy Acquisition Costs The insurers' costs of acquiring new business are deferred to the extent estimated to be recoverable from future income, including investment income, and amortized to operations ratably over the terms of the related policies. Acquisition costs include commissions, premium taxes and certain underwriting expenses related to production of insurance and reinsurance business. (F) Losses and Loss Adjustment Expenses The liability for losses is determined on the basis of claim adjusters' and ceding insurers' reports and other estimates, including those for incurred but not reported losses. The liability for loss adjustment expenses is established by estimating future expenses to be incurred in the settlement of claims provided for in the liability for losses. Both estimates are dependent upon future events, the outcomes of which can be affected by economic, legal, political and social factors. The Company does not discount estimated future expenses to their present values. Management believes that the estimated liability for losses and loss adjustment expenses at December 31, 1997 is adequate to cover the ultimate liability. however, such estimates may be more or less than the amount ultimately paid when the claims are settled. (G) Reinsurance Reinsurance receivables (including amounts related to claims incurred, both reported and not reported) and prepaid reinsurance premiums are reported as assets. In the normal course of business, the Company seeks to reduce the loss that may arise from events which may cause unfavorable underwriting results by reinsuring certain levels of risk with other insurance enterprises. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. However, such estimates may be more or less than the amount ultimately collected when claims are settled. (H) Depreciation and Amortization Depreciation and amortization are provided on the straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized over the lesser of the lease terms or useful lives of the improvements. Intangibles are amortized over their estimated useful lives. (I) Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial reporting basis and the tax basis of the Company's assets and liabilities, as well as expected benefits of utilizing net operating loss carry forwards. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled, and reflected in the consolidated financial statements in the period of enactment. (J) Income per Share and Capital structure Effective December 31, 1997 the Company adopted SFAS No. 128, "Earnings per Share" and SFAS No. 129, "Capital Structure". All quarterly and year-to-date per share information has been restated to conform to the provisions of SFAS No. 128 which did not have a material effect on previous disclosure of per share amounts. (K) Stock-Based Compensation Effective December 31, 1996 the Company adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation". Management has elected to continue use of the accounting methods prescribed by Accounting Principles Board Opinion No. 25 and to expand its disclosure of stock-based compensation as permitted by SFAS No. 123. Accordingly, no related compensation cost has been recognized. (L) Comprehensive Income and Business Segments The Company will adopt SFAS No.130, "Comprehensive Income" and SFAS NO. 131, "Disclosures about Segments of an Enterprise and Related Information" for the year ending December 31, 1998. These SFAS require that additional information be included in a complete set of financial statements, but will have no effect on the Company's net income, stockholders' equity or cash flows. (M) Fair Value of Financial Instruments The Company discloses the fair value of financial instruments and the methods and assumptions used to establish fair value, as required by SFAS No. 107, "Disclosures about the Fair Value of Financial Instruments". (N) Management's Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. note 2 - acquisitions and stock split Effective January 1, 1997 the Companys' USBenefits subsidiary acquired the medical stop-loss operations of Global Excess Holdings, Inc. Effective August 1, 1997 the Company acquired INTERRA which manages and underwrites catastrophic accident and health risks nationally and internationally. On September 30, 1997 the Company's USF RE subsidiary acquired from The Hanover Insurance Company its Allmerica Re property/casualty treaty operation. Each of these transactions was accounted for as a purchase. The purchase transactions were not material to the financial statements of the Company. The results of operations of each entity since the effective acquisition dates are included in the consolidated financial statements. On February 3, 1998 the Company announced that its Board of Directors had authorized a two-for-one split of its common stock in the form of a 100% stock dividend to stockholders of record as of February 18, 1998. Certificates reflecting the stock split were issued February 27, 1998. All references in the consolidated financial statements and related notes thereto to number of shares, per share amounts and market prices of the Company's common stock have been adjusted retroactively for all periods presented to reflect this change in capital structure. note 3 - investments Bonds valued at approximately $11,599,000 were on deposit with various governmental authorities at December 31, 1997. The amortized cost and estimated market values of bonds (in thousands of dollars) at December 31, 1997 and 1996 are as follows:
Gross Gross Gross Amortized Unrealized Unrealized Market December 31, 1997 Cost Gains Losses Value - -------------------------------------- --------- ---------- ----------- -------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 36,430 $ 775 $ -- $ 37,205 Foreign bonds 510 19 -- 529 Obligations of states and political subdivisions 98,007 5,584 -- 103,591 Corporate bonds 42,315 2,529 (51) 44,793 -------- ------ ----- -------- Total $177,262 $8,907 $ (51) $186,118 ======== ====== ===== ======== Gross Gross Gross Amortized Unrealized Unrealized Market December 31, 1996 Cost Gains Losses Value - -------------------------------------- -------- ---------- ---------- -------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 13,265 $ 236 $ (80) $ 13,421 Foreign bonds 529 25 -- 554 Obligations of states and political subdivisions 89,996 3,508 (239) 93,265 Corporate bonds 46,884 1,737 (381) 48,240 -------- ------ ----- -------- Total $150,674 $5,506 $(700) $155,480 ======== ====== ===== ========
The amortized cost and estimated market value of bonds at December 31, 1997, by contractual maturity, are shown below (in thousands of dollars). Expected maturities will differ from contractual maturities because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Maturity Dates Amortized Cost Market Value - ------------------ -------------- ------------ 1998 $ 509 $ 518 1999-2002 49,162 51,110 2003-2007 89,967 92,934 2008-Thereafter 37,624 41,556 -------- -------- Total $177,262 $186,118 ======== ========
Information regarding bond sales (in thousands of dollars) follows:
Year ended Proceeds Gross Gross December 31, From Sales Gains Losses - ------------ ---------- ------ ------ 1997 $31,224 $ 624 $ 47 1996 24,656 809 80 1995 77,373 1,677 522
Information regarding equity dispositions (in thousands of dollars) follows:
Year ended Proceeds Gross Gross December 31, From Sales Gains Losses - ------------ ---------- ------ ------ 1997 $25,878 $9,824 $142 1996 6,799 1,757 120 1995 9,214 211 344
Information regarding gross unrealized gains and losses on equity securities (in thousands of dollars) follows:
Gross Gross Unrealized Unrealized Year Ended December 31, Gains Losses - ----------------------- ---------- ---------- 1997 $1,268 $707 1996 4,766 692 1995 2,243 487
Net investment income (in thousands of dollars) consists of the following:
Year Ended December 31, 1997 1996 1995 - ----------------------- ------- ------- ------- Interest on bonds $ 9,685 $ 8,618 $ 8,134 Short-term investment interest 2,568 2,349 1,569 Dividends on equity securities 278 346 496 ------- ------- ------- 12,531 11,313 10,199 Less: Investment expenses 1,440 1,166 1,009 ------- ------- ------- Net investment income $11,091 $10,147 $ 9,190 ======= ======= =======
note 4 - reinsurance The property and casualty insurance companies cede a portion of their business to other insurance companies, under multiple reinsurance contracts. Generally, the property/casualty companies limit retention on individual reinsurance contracts to $500,000 per occurance. The property/casualty companies also purchase catastrophe reinsurance coverages. Reinsurance contracts do not relieve the Company from its obligations to policyholders. A contingent liability exists for the amount of all reinsurance recoverable in the event that any of the reinsuring companies are unable to pay. consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risks arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from a reinsurer's insolvency. At December 31, 1997 reinsurance recoverables and prepaid premiums of $45,109,000 were unsecured. The Company holds letters of credit totaling $10,769,000 under certain reinsurance agreements that can be drawn on for amounts that remain unpaid for more than 120 days. The effect of reinsurance on premiums written and earned and the effect of ceding arrangements (in thousands of dollars) follows:
Year Ended December 31, 1997 1996 1995 -------------------- -------------------- -------------------- Premiums Premiums Premiums Premiums Premiums Premiums Written Earned Written Earned Written Earned -------- -------- -------- -------- -------- -------- Direct $ 13,791 $ 11,986 $ 10,122 $ 10,279 $ 11,260 $ 12,218 Reinsurance assumed 176,152 170,644 140,102 134,714 121,201 117,151 Reinsurance ceded (24,393) (23,097) (22,246) (20,869) (15,565) (14,398) -------- -------- -------- -------- -------- -------- Net $165,550 $159,533 $127,978 $124,124 $116,896 $114,971 ======== ======== ======== ======== ======== ======== Losses and loss adjustment expenses ceded $ 11,002 $ 12,844 $ 8,327 ======== ======== ======== Liabilities for losses and loss adjustment expenses ceded $ 25,939 $ 22,265 $ 16,426 ======== ======== ======== Commissions ceded $ 6,038 $ 4,144 $ 2,441 ======== ======== ========
note 5 - reserve for losses and loss adjustment expenses The table below summarizes the activity for losses and loss adjustment expenses (LAE), net of reinsurance recoverable, for each of the years ended December 31, 1997, 1996 and 1995, respectively (in thousands of dollars). Reserves are established for losses that have occurred as of each balance sheet date, whether or not reported to the Company. Insurance and reinsurance companies establish reserves for losses incurred, but not yet paid, in order to match such losses with the related premiums earned. The process of establishing loss reserves is subject to uncertainties that are a normal, recurring aspect of the insurance business which requires the use of informed judgments and estimates. Estimating loss reserves is a process where many factors can ultimately affect the final settlement of a claim and, therefore, the ultimate reserve that is needed. In addition, time can be a critical part of reserving determinations, since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amounts may be. In the Company's medical lines segment, increases in the severity and frequency of specific and aggregate claims in the second half of 1996 and the first half of 1997 resulted in third quarter 1997 additions of $8,000,000 to medical lines reserves. Loss and loss adjustment expense reserve development is reviewed on a regular basis, incorporating analysis of current trends, market changes in the Company's business segments and historical experience to analyze the Company's actuarial assumptions. As additional experience and other data become available, the Company's actuarial estimates may be revised and impact earnings.
Year Ended December 31, 1997 1996 1995 - ---------------------------------------------- --------- --------- --------- Balance at beginning of period $ 94,669 $ 78,894 $ 69 647 Less reinsurance recoverables 22,284 16,474 13,343 -------- -------- -------- Reserve for losses and LAE at beginning of period, net 72,385 62,420 56,304 Reserves of acquired company 7,348 Incurred losses and LAE: Provision for losses and LAE for claims occurring in the current year 116,968 83,485 74,935 Increase in estimated losses and LAE for claims occurring in prior years 8,103 4,688 2,808 Loss and LAE payments for claims occurring during: The current year (75,434) (43,287) (39,511) Prior years (38,508) (34,921) (32,116) -------- -------- -------- Reserve for losses and LAE at end of period, net 90,862 72,385 62,420 Plus reinsurance recoverables 25,939 22,284 16,474 -------- -------- -------- Balance at end of period $116,801 $ 94,669 $ 78,894 ======== ======== ========
note 6 - note payable The Company maintains a $35,000,000 reducing, revolving, variable interest rate bank Credit Agreement. Amounts bear interest at LIBOR plus a margin, currently 1%. At December 31, 1997, $32,500,000 was outstanding. Under its terms, the outstanding balance is reduced quarterly, with aggregate annual reductions (in thousands of dollars) as follows:
Year Commitment Reductions - -------- --------------------- 1998 $ 5,300 1999 6,800 2000 6,800 2001 6,800 2002 6,800 ------- Total $32,500
Interest on amounts outstanding at December 31, 1997 is paid at an effective rate of 6.91% through March 23, 1998. The Credit Agreement contains restrictive covenants which include restrictions on other debt, mergers, acquisitions and investment portfolio quality. Additionally, the Credit Agreement requires the Company to maintain certain levels of financial ratios, statutory surplus and pretax statutory net income, minimum consolidated tangible net worth, risk based capital ratio and A.M. Best Company rating. The Credit Agreement is secured by a pledge of all the capital stock of USF RE. At December 31, 1997 the Company was in compliance with all covenants of the Credit Agreement. note 7 - income taxes Income tax expense (benefit) (in thousands of dollars) consists of:
Year Ended December 31, 1997: Federal State Total - -------------------------------- -------- ------- -------- Current $ 7,350 $ 978 $ 8,328 Deferred (1,757) 212 (1,545) ------- ------ ------- Total $ 5,593 $1,190 $ 6,783 ======= ====== ======= Year Ended December 31, 1996: Federal State Total - -------------------------------- ------- ------ ------- Current $ 5,849 $ 452 $ 6,301 Deferred (1,154) (5) (1,159) ------- ------ ------- Total $ 4,695 $ 447 $ 5,142 ======= ====== ======= Year Ended December 31, 1995: Federal State Total - -------------------------------- ------- ------ ------- Current $ 3,818 $ 312 $ 4,130 Deferred 121 54 175 ------- ------ ------- Total $ 3,939 $ 366 $ 4,305 ======= ====== =======
Actual tax expense differs from "expected" tax expense computed by applying the federal statutory rate to income before taxes (in thousands of dollars) as follows:
Year Ended December 31, 1997 1996 1995 - -------------------------------------- -------- -------- -------- "Expected" federal tax expense $ 7,698 $ 7,057 $ 6,174 Tax exempt interest - net (1,463) (1,393) (1,621) Change in valuation allowance 0 (576) (115) State taxes, net of federal benefit 616 290 241 Other (68) (236) (374) ------- ------- ------- Actual income tax expense $ 6,783 $ 5,142 $ 4,305 ======= ======= =======
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 1997 and 1996 are presented below (in thousands of dollars):
December 31, 1997 1996 Deferred tax assets: Loss and loss adjustment expense reserves $ 4,862 $ 3,708 Unearned premiums 1,572 1,151 Net operating loss carry forwards 444 444 Other 464 292 Total deferred tax assets 7,342 5,595 Less valuation allowance (444) (444) ------- ------- Net deferred tax assets 6,898 5,151 Deferred tax liabilities: Intangibles (536) (569) Depreciation (237) (104) Policy acquisition costs (1,573) (1,276) Net unrealized gain (3,297) (3,020) Acquired receivables (228) -- Other (65) (33) ------- ------- Total deferred tax liabilities (5,936) (5,002) ------- ------- Total deferred income taxes $ 962 $ 149 ======= =======
Based on the Company's current and historical earnings, management believes it is more likely than not that the existing net deductible temporary differences will reverse during periods in which the Company generates net taxable income. However, there can be no assurance that the Company will generate any earnings or any specific level of continuing earnings in future years. Valuation allowances established for uncertainties associated with the utilization of future tax benefits are revised when changes in circumstances indicate that it is more likely than not the reversal of such temporary differences will be realized. Certain tax planning strategies could be implemented to supplement income from operations to fully realize recorded tax benefits. Net operating loss carry forwards of $1,268,000 are available to offset future federal taxable income of a subsidiary through 2005. note 8 - stockholders' equity The Company is authorized to issue 40,000,000 shares of common stock and 10,000,000 shares of preferred stock. The Company has a Stockholder Rights Agreement which provides that in the event any person becomes the beneficial owner of 10% or more of the outstanding common stock of the Company, each right (other than rights held by the 10% stockholder) will be exercisable at a predetermined price after the close of business on the tenth business day following such event. Each right entitles the holder thereof to purchase for the then exercise price the number of shares of common stock which have a market value equal to two times the exercise price. The Plan further provides that if, on or after the occurrence of the previously mentioned event, the Company is merged with or into any other corporation, or 50% or more of the Company's assets or earning power are sold, each right (other than rights held by the 10% stockholder) will be exercisable to purchase for the exercise price shares of common stock of the surviving corporation or purchaser which have a market value equal to two times the exercise price. The rights expire on May 24, 2000, and can be redeemed by the Board of Directors at $.0005 per right at any time before the first date on which they first become exercisable. At December 31, 1997 and 1996, USF RE's statutory surplus was $112,657,000 and $109,880,000, respectively. Consolidated statutory net income for USF RE was $5,937,000, $8,022,000, and $10,343,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Statutory amounts are determined on the basis of regulations promulgated by the National Association of Insurance Commissioners, which is a comprehensive basis of accounting other than Generally Accepted Accounting Principles. The more significant of these statutory accounting practices are: (1) premiums are taken into income over the terms of the policies, whereas the related acquisition and commission costs are expensed when incurred; (2) certain assets designated as "non-admitted assets" are charged to surplus; (3) bonds are carried at amortized cost irrespective of the Company's investment portfolio activity; (4) adjustments reflecting the equity in earnings of subsidiaries are carried to the surplus account as unrealized capital gains or losses rather than income; (5) deferred federal income tax effects for tax return timing differences are not provided; (6) gains and losses from retrospective reinsurance contracts are recognized immediately through the income statement; and (7) a provision is made for unearned premiums and losses recoverable, in excess of funds held, on business reinsured with companies not qualified by license, through a charge to surplus. Application of the National Association of Insurance Commissioners risk-based capital (RBC) requirements for property and casualty insurance entities to USF RE's and USFIC's statutory financial information indicates that presently these companies substantially exceed the capital level required under the RBC requirements. USF RE is limited in the amount of dividends it can pay to the Company without approval of the Insurance Commissioner of Massachusetts. Such limitation is the greater of net income or 10% of policyholders' surplus of the preceding year. During 1998 USF RE may pay dividends of $11,266,000 to the Company without such prior approval. USF RE has not paid any dividends since being acquired by the Company in 1983. note 9 - employee compensation and benefits The Centris Group, Inc. Employees Savings Plan is a qualified voluntary contributory 401(k) savings plan covering substantially all employees. Under the Company's plan eligible employees may contribute up to 15% of their compensation on a pre-tax basis up to the IRS allowable limit. The Company makes matching contributions to the plan on a pro-rata basis for all participants up to a maximum of 6% of each individual's compensation. For 1997, 1996 and 1995 such matching contributions were $475,000, $388,000 and $395,000, respectively. The Centris Group, Inc. non-qualified deferred compensation plans, adopted January 1, 1997, provide 401(k) excess salary deferrals, annual bonus deferrals and long-term incentive-performance unit plan deferrals for key employees. Under the plans, eligible employees may elect to defer a percentage of compensation which, when aggregated with amounts deferred under the qualified plan may not exceed 15% of pre-tax compensation. The Company makes matching contributions which, when aggregated with the Company's qualified plan, shall not exceed 6% of the participants' compensation. For 1997, such matching contributions were $73,000. The Centris Group, Inc. long-term incentive-performance unit plan, adopted January 1, 1997, provides for cash payment awards which qualify as performance based compensation under Section 162M of the Internal Revenue Code. A target number of performance units are granted to key employees at the beginning of a performance period, while the actual number of performance units awarded is determined after the performance period. Performance units granted in 1997 had a unit value of $10. The performance period is three years in length, with the first performance period beginning January 1, 1997 and ending on December 31, 1999. Awards are based upon the Company meeting pre-determined return on equity (ROE) targets, and for purposes of the plan, ROE is calculated as the average return on equity over the three-year period. The Company must meet a minimum level of ROE over the three year period before awards, which require Board Compensation Committee approval, will be made. Payouts of awards granted under the plan are automatically deferred to the non-qualified deferred compensation plan. The value of awards is accrued when they can be reasonably estimated based upon the provisions of the plan and actual results. The Company has four fixed stock option plans under which options to purchase shares of the Company's common stock have been or may be granted. As of December 31, 1997 options to purchase up to 600,000 and 2,000,000 shares, respectively, have been authorized under the 1988 and 1991 Employee Stock Option Plans. Options to purchase up to 70,000 and 300,000 shares, respectively, have been authorized under the 1988 and 1991 Director Stock Option Plans. Such plans allow the Company to grant incentive stock options, nonqualified stock options, stock appreciation rights and restricted shares to key employees and directors at prices not lower than the market value at date of grant. Generally options granted vest 50% after one year and 50% after two years from the date of grant and have a maximum term of five years. Options are exercisable through periods ending May 28, 2001. The Company has adopted the disclosure-only provisions of SFAS No.123, "Accounting for Stock-based Compensation," but applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its fixed stock option plans. Accordingly, no related compensation cost has been recognized. If the Company had elected to recognize compensation cost for its Employee and Director plans based on the fair value at the grant dates for awards under those plans, net income and earnings per share adjusted to reflect the February 27, 1998 two-for-one stock split would have been reported as the proforma amounts noted below (in thousands of dollars, except per share information) consistent with the method prescribed by SFAS No.123:
Year ended December 31, 1997 1996 1995 - ------------------------------- ------- ------- -------- Net Income As reported $15,212 $15,020 $13,854 Pro forma $14,958 $14,762 $13,611 Diluted income per share As reported $ 1.25 $ 1.26 $ 1.21 Pro forma $ 1.23 $ 1.24 $ 1.19
The fair value of each option grant subsequent to December 15, 1994 used to compute proforma net income and earnings per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions for 1997: dividend yield of 1.4%, expected volatility of 20%, a risk free interest rate of 6% and an expected holding period of 4 years. Weighted average assumptions used for 1996 and 1995 were: dividend yield of 1.4%, expected volatility of 15%, a risk free interest rate of 5%; and an expected holding period of 4 years. The status of all options granted, adjusted to reflect the February 27, 1998 two for-one stock split, is as follows:
December 31, 1997 1996 1995 - ------------------- ------------------- ------------------ --------------------- Shares Weighted Shares Weighted Shares Weighted -Average -Average -Average Exercise Exercise Exercise Price Price Price -------- ------- --------- -------- --------- ---------- Outstanding-beginning of year 911,300 $ 7.02 1,205,200 $6.78 1,297,800 $4.90 Granted 321,000 10.08 30,000 8.50 510,800 8.00 Exercised (247,100) 5.18 (311,000) 5.87 (561,400) 3.71 Canceled (10,000) 8.04 (12,900) 8.85 (42,000) 6.88 --------- ------ ---------- ----- ---------- ----- Outstanding-end of year 975,200 $ 8.48 911,300 $7.02 1,205,200 $6.78 ========= ====== ========== ===== ========== ===== Options exercisable at year end 639,200 $ 7.68 630,800 $6.57 621,400 $5.82 ========= ====== ========== ===== ========== ===== Weighted-average fair value of options granted during the year $ 2.32 $1.44 $1.54 ====== ===== =====
The following table summarizes information about fixed stock options outstanding at December 31,1997 adjusted to reflect the February 27, 1998 two-for-one stock split :
Options Outstanding Options Exercisable - -------------------------------------------------- --------------------------------------- Weighted- Average Weighted- Weighted- Number Remaining Average Number Average Range of Outstanding at Contractual Exercise Exerciseable at Exercise Exercise price 12/31/97 Life Price 12/31/97 Price - ------------------ -------------- ----------- --------- --------------- --------- $ 4.50 to $7 335,400 2 Years $6.69 335,400 $6.69 $ 8 to $10.16 639,800 4 Years 9.42 303,800 8.77 ------- ------- Total 975,200 639,200 ======= =======
note 10 - segment information Certain information about the Company's operations by industry segment is summarized as follows (in thousands of dollars):
Year Ended December 31, 1997 1996 1995 - ------------------------------ -------- --------- ---------- Revenues: Medical lines $140,419 $114,213 $110,809 Property/casualty 63,778 46,722 39,297 Holding company 10,275 2,184 1,071 -------- -------- -------- Total $214,472 $163,119 $151,177 ======== ======== ======== Income before income taxes: Medical lines $ 9,328 $ 17,481 $ 17,152 Property/casualty 5,739 4,003 3,918 Holding company 6,928 (1,322) (2,911) -------- -------- -------- Total $ 21,995 $ 20,162 $ 18,159 ======== ======== ======== Identifiable assets: Medical lines $110,749 $ 87,228 $ 75,529 Property/casualty 226,930 196,987 170,645 Holding company 5,569 4,528 3,698 -------- -------- -------- Total $343,248 $288,743 $249,872 ======== ======== ========
note 11 - commitments and contingencies The Company leases certain facilities and equipment under long-term operating leases which expire at various dates through 2007. Total rent expense, including month-to-month rentals, was $1,635,000 in 1997, $1,273,000 in 1996 and $1,951,000 in 1995. Future minimum noncancelable lease commitments (in thousands of dollars) are as follows:
Year ending December 31, - -------------- ------------ 1998 $ 1,749 1999 1,468 2000 1,354 2001 1,265 2002 1,265 Thereafter 5,232 ------- $12,333 =======
note 12 - income per share Reconciliation of income and outstanding shares and related per share amounts adjusted to reflect the February 27, 1998 two-for-one stock split, is presented below (in thousands of dollars, except per share data):
Year ended December 31, 1997 1996 1995 - ------------------------------------------ ------- ------- ------- Income (Numerator): Income available to Common Stockholders for Basic and Diluted income per share $15,212 $15,020 $13,854 ======= ======= ======= Weighted Average Shares (Denominator): Basic Shares 11,980 11,732 11,204 Effect of dilutive securities Stock Options 174 218 252 ------- ------- ------- Diluted Shares 12,154 11,950 11,456 ======= ======= ======= Per Share Amounts: Basic Income per Share $ 1.27 $ 1.28 $ 1.24 Diluted Income per Share $ 1.25 $ 1.26 $ 1.21
THE CENTRIS GROUP, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT To: the board of directors and stockholders of the centris group, inc. We have audited the accompanying consolidated balance sheets of The Centris Group, Inc., formerly US Facilities Corporation, and subsidiaries as of December 31, 1997 and 1996 and the related consolidated income statements, statements of stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Centris Group, Inc. and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP February 3, 1998 Los Angeles, California Quarterly results of operations (unaudited) The following is quarterly summary financial information for 1997, 1996 and 1995 (in thousands of dollars, except per share data). As noted earlier in this Annual Report, all share amounts have been adjusted to reflect the February 27, 1998 two-for-one stock split.
1st 2nd 3rd 4th Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1997 Revenues $50,193 $49,033 $58,939 $56,307 Income before income taxes 5,220 5,363 5,845 5,567 Net income 3,660 3,748 4,026 3,778 Basic earnings per share $ .31 $ .32 $ .33 $ .32 Diluted earnings per share $ .30 $ .31 $ .33 $ .31 1996 Revenues $38,918 $38,529 $40,525 $45,147 Income before income taxes 4,977 4,781 5,091 5,313 Net income 3,808 3,585 3,709 3,918 Basic earnings per share $ .33 $ .30 $ .32 $ .33 Diluted earnings per share $ .32 $ .30 $ .31 $ .33 1995 Revenues $35,459 $39,932 $36,330 $39,456 Income before income taxes 3,732 5,023 4,606 4,798 Net income 2,922 3,849 3,477 3,606 Basic earnings per share $ .26 $ .34 $ .31 $ .31 Diluted earnings per share $ .26 $ .34 $ .30 $ .31
stock price information The following are the quarterly high and low prices from January 1, 1996 through February 28, 1998.* The Company believes that as of February 28, 1998 there were approximately 2,000 holders of its common stock.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter High Low High Low High Low High Low ----------- ------- ----------- ------ ----------- ------- ----------- ------ 1998 through February 28 $12 13/16 10 7/8 1997 $10 3/16 9 7/16 $10 5/8 9 $11 7/8 9 3/4 $11 15/16 10 1996 $10 11/16 8 1/4 $10 1/16 8 3/16 $ 9 3/4 7 15/16 $91 5/16 8 9/16
board of directors David L. Cargile[1,3,5] Chairman, President and Chief Executive Officer, The Centris Group, Inc. John F. Kooken[1,2,3] Retired; Director, Golden State Bancorp; Director, Pacific Gulf Properties, Inc.; Former Vice Chairman and Chief Financial Officer, Security Pacific Corporation L. Steven Medgyesy, M.D.[3,4,5] Retired; Former Director of Laboratories, Lincoln West Medical Center Bernard H. Ross[2,4,5] Executive Vice President, Request, Inc.; Former Partner and National Director of Healthcare Services, Touche Ross & Company Charles L. Schultz[2,3,4] Retired; Director, Amwest Insurance Group; Former Senior Vice President, Finance and Chief Financial Officer, Farmers Group, Inc. Howard S. Singer[1,3,5] Executive Vice President, Corporate Finance and Investor Relations, The Centris Group, Inc. Kenneth C. Tyler [2,4,5] Retired; Attorney at Law; Former Vice Chairman and General Counsel, Farmers Group, Inc. Director Emeritus: John A. Allison Retired; Former Vice Chairman, Transamerica Insurance Group 1997 Committee Assignments (1) Member of Executive Committee (2) Member of Audit Committee (3) Member of Investment Committee (4) Member of Compensation Committee (5) Member of Nominating Committee Officers David L. Cargile Chairman of the Board, President and Chief Executive Officer Howard S. Singer Executive Vice President, Corporate Finance and Investor Relations Charles M. Caporale Senior Vice President, Treasurer and Chief Financial Officer Mark A. Carney Senior Vice President John T. Grush Senior Vice President Edward D. Jones, III Senior Vice President Craig J. Kelbel Senior Vice President Jose A. Velasco Senior Vice President, Chief Administrative Officer, Secretary and General Counsel Patricia S. Boisseranc Vice President Barbara Fox Stoner Vice President Frank P. Van Buskirk Vice President Stockholder Information annual meeting The 1998 Annual Meeting of Stockholders of The Centris Group, Inc. will be held May 13, 1998 at 9:00 a.m. local time, at the offices of the Company, 650 Town Center Drive, Suite 1600, Costa Mesa, California 92626. additional information Stockholder inquiries and requests for additional copies of this Annual Report and the Company's 1997 Report on Form 10-K filed with the Securities and Exchange Commission should be directed to: Howard S. Singer, Executive Vice President, The Centris Group, Inc., 5215 Old Orchard Road, Suite 300, Skokie, Illinois 60077, (800) 550-3285. book value $9.67 per share at December 31, 1997, after adjustment to reflect the February 27, 1998 two-for-one stock split. registrar and transfer agent American Stock Transfer & Trust Company, 40 Wall Street, New York, New York 10005. independent auditors KPMG Peat Marwick LLP, 725 South Figueroa Street, Los Angeles, California 90017. stock trading information The Company's common stock trades on The New York Stock Exchange under the symbol CGE. The company's web page can be found at: www.thecentrisgroup.com. EX-21 17 SUBSIDIARIES OF THE CENTRIS GROUP, INC. EXHIBIT 21 SUBSIDIARIES OF THE CENTRIS GROUP, INC. AS OF DECEMBER 31, 1997 THE CENTRIS GROUP, INC. (a Delaware corporation) 100% 100% USBenefits Insurance Services, Inc. USF RE INSURANCE COMPANY (a California corporation) (a Massachusetts corporation) 100% 100% US HOLDINGS, INC. INTERRA REINSURANCE GROUP, INC. (a Delaware corporation) (an Indiana corporation) 100% USF INSURANCE COMPANY (a Pennsylvania corporation) 100% INTERNATIONAL EXCESS RE, LIMITED (a British Virgin Islands corporation) EX-23 18 INDEPENDENT AUDITORS' CONSENT DATED 3/26/98 EXHIBIT 23 The Board of Directors The Centris Group, Inc. We consent to incorporation by reference in Registration Statements (No. 33- 41086 and No. 33-46841), both on Form S-8, of The Centris Group, Inc., formerly US Facilities Corporation of our report dated February 3, 1998, relating to the consolidated balance sheets of The Centris Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated income statements, statements of stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1997, and all related schedules, which report appears in the December 31, 1997 annual report on Form 10-K of The Centris Group, Inc. and subsidiaries. /s/ KPMG PEAT MARWICK LLP Los Angeles, California March 26, 1997 EX-27 19 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 0 0 0 0 0 0 223,824 39,069 26,012 4,495 343,248 116,801 30,249 0 0 32,500 0 0 0 0 343,248 159,533 11,091 10,213 33,635 125,071 46,196 21,210 21,995 6,783 0 0 0 0 15,212 1.27 1.25 79,733 116,968 8,103 75,434 38,508 90,862 8,103
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