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STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (the "Agreement") made and entered into
this 11th day of October, 1999 by and between HCC INSURANCE HOLDINGS, INC.
("Parent"), a Delaware corporation, and THE CENTRIS GROUP, INC. (the
"Company"), a Delaware corporation.
WHEREAS, Parent, Merger Sub of Delaware, Inc., a Delaware corporation
and wholly owned subsidiary of Parent (the "Merger Subsidiary"); and the
Company have entered into an Agreement and Plan of Merger of even date herewith
(the "Merger Agreement") whereby Parent through Merger Subsidiary will acquire
the Company at a price of $12.50 per share in cash; and
WHEREAS, Parent and the Company wish to enter into this Stock Option
Agreement whereby Parent will be granted a stock option pursuant to the terms
hereof to acquire shares of common stock $.01 par value together with attached
rights to purchase shares (the "Common Stock") of the Company.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and promises set forth herein and other good and valuable consideration the
sufficiency of which is hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Grant of Option. The Company hereby grants to Parent an option (the
"Option") to purchase, subject to the terms hereof, 2,327,797 shares of Common
Stock of the Company (the "Option Shares") equal to approximately 19.9% of the
shares of Common Stock issued and outstanding as of the date hereof, at a price
per share of $12.50 (the "Option Price"); provided, however, that in no event
shall the number of shares of Common Stock for which this Option is exercisable
exceed 19.9% of the Company's issued and outstanding shares of Common Stock
(without giving effect to any Option Shares subject to or issued pursuant to
this Option). The number of Option Shares of Common Stock that may be received
upon the exercise of the Option and the Option Price are, subject to adjustment
as set forth at Section 5. The Option shall be nontransferable, except as
expressly provided herein. The Option shall become exercisable and may be
exercised in whole, or in part, at any time and from time to time, until the
expiration of the Option as provided herein. The Option shall only be
exercisable if, at any time after the date hereof and prior to the expiration
of the Option, the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or an agreement in
principle with respect to any Acquisition Proposal or Superior Acquisition
Proposal (as defined in the Merger Agreement). The Option shall expire at 11:59
p.m. California time on the earlier of the fifth Business Day after the
Acquisition Proposal or Superior Acquisition Proposal is terminated or December
31, 2000.
2. Exercise of Option. Upon exercise of all or any part of the Option,
Parent shall pay the aggregate exercise price attributable to such exercise to
the Company by certified or official bank check or by wire transfer of funds.
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3. Option Shares; Certificates. The Option Shares acquired upon
exercise of the Option shall be validly issued, fully paid and nonassessable
and the certificate or certificates evidencing the Option Shares shall
constitute good delivery, shall be registered in the name of Parent and shall
bear the legend:
"The shares evidenced by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold or
transferred except in compliance with that Act. The transfer of the
shares represented by this certificate are further subject to certain
provisions of an agreement between the registered holder hereof and
The Centris Group, Inc. A copy of such agreement is on file at the
principal office of The Centris Group, Inc. and will be provided to
the holder hereof without charge upon receipt by The Centris Group,
Inc. of a written request therefor."
It is understood and agreed that: (i) the reference to the transfer
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if Parent shall have delivered to the Company a copy of a letter
from the staff of the Securities and Exchange Commission (the "SEC"), or an
opinion of counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such legend is not required for purposes of the
1933 Act; (ii) the reference to the provisions of this Agreement in the above
legend shall be removed by delivery of substitute certificate(s) without such
reference if the shares have been sold or transferred in compliance with the
provisions of this Agreement and under circumstances that do not require the
retention of such reference in the opinion of counsel, in form and substance
reasonably satisfactory to the Company; and (iii) the legend shall be removed
in its entirety if the conditions in the preceding subsections (i) and (ii) are
both satisfied. In addition, such certificates shall bear any other legend as
may be required by law.
4. Parent Representations for Exercise. In connection with the
exercise of the Option, Parent shall furnish the Company with such
representations and commitments with respect to the Option Shares as shall be
reasonably requested by the Company in order to insure compliance with the 1933
Act.
5. Adjustment of Shares.
(a) In the event that any shares of Common Stock are
redeemed, repurchased, retired or otherwise cease to be outstanding after the
date of this Agreement, or in the event of any exercise of stock options held
by employees or directors of the Company the number of shares of Common Stock
subject to the Option shall be decreased or increased, as appropriate, so that,
after such redemption, repurchase, retirement or exercise or other action, such
number equals 19.9% of the number of shares of Common Stock then issued and
outstanding without giving effect to any shares subject to or issued pursuant
to this Option. Nothing contained in this Section 5(a) or elsewhere in this
Agreement shall be deemed to authorize the Company or the Parent to redeem,
repurchase or retire shares in breach of any provision of the Merger Agreement.
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(b) In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 5(a) of this Agreement, the number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as provided in this Section 5(b). In
the event of any change in, or distributions in respect of, the Common Stock by
reason of stock dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in respect
of the Common Stock the type and number of Option Shares purchasable upon
exercise hereof and the Option Price shall be appropriately adjusted in such
manner as shall fully preserve the economic benefits provided hereunder and
proper provision shall be made in any agreement governing any such transaction
to provide for such proper adjustment and the full satisfaction of the
Company's obligations hereunder.
6. Repurchase of Option. If, before the expiration of the Option,
there is either (i) an Acquisition Proposal which at any time becomes a
Superior Acquisition Proposal (each as defined in the Merger Agreement)
(regardless of whether it is consummated) or (ii) the commencement of a tender
offer or exchange offer for at least 20% of the shares of Common Stock of the
Company or (iii) the acquisition by any person or "group" (within the meaning
of Rule 13d-5 under the Securities Exchange Act of 1934, as amended) of at
least 20% of the shares (or rights to acquire shares) of Common Stock of the
Company, then, in either event, for a period of 100 days after (x) such
Acquisition Proposal becomes a Superior Acquisition Proposal (as defined in the
Merger Agreement) or (y) such event occurs, but prior to the expiration of the
Option, Parent shall be entitled to sell the Option to the Company and the
Company shall be required to purchase the Option from Parent, for $6,000,000 in
cash against Parent's written acknowledgment that it has surrendered all of its
rights to the Option.
7. Notice of Repurchase. If Parent determines to sell the Option to
the Company, Parent shall give the Company written notice of such
determination.
8. Closing of Repurchase. The closing of the sale of the Option shall
take place at the Houston offices of Xxxxxxxx Xxxxxxxx & Xxxxxx P.C. in
Houston, Texas at 9:30 a.m. Houston time on the 3rd business day after Parent
has given the Company written notice of its intention to sell the Option to the
Company.
9. Expiration Upon Payment of Termination Fee. Notwithstanding
anything to the contrary herein, the Option shall expire if the Parent shall
have been paid or shall be paid the Termination Fee pursuant to Section 10.4 of
the Merger Agreement.
10. Amendment of Rights Agreement. The Company hereby agrees that
immediately prior to execution of this Agreement, it shall take all necessary
action under the Rights Agreement, dated as of May 24, 1990, as amended by and
between the Company and American Stock Transfer & Trust Company (the "Rights
Agreement"), including any required amendment thereto, so that the grant or
exercise of the Option on the terms permitted hereunder and as contemplated
herein will not cause (i) the rights (the "Rights") issued pursuant to the
Rights Agreement to become exercisable under the Rights Agreement, (ii) the
Parent, or any subsidiary of the Parent, including Merger Subsidiary to be
deemed a "10% Stockholder" (as defined in the
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Rights Agreement) or (iii) the "10% Stock Ownership Date" (as defined in the
Rights Agreement) to occur upon such consummation, provided, however, that the
Company shall not be required to make such amendments to the Rights Agreement
if, (x) the Parent has not performed or complied in all material respects with
this Agreement prior to the exercise of the Option or (y) the Company obtains,
and there is in force from the Delaware Court of Chancery, an order
permanently, preliminarily or temporarily declaring that the making of such
amendments to the Rights Agreement would be contrary to the fiduciary duties of
the Board of Directors of the Company. Notwithstanding anything else contained
herein, in no event shall the Board of Directors of the Company make any
comparable amendment of the Rights Agreement in favor of any other person
without making such amendment in favor of the Parent.
11. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent as follows:
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement has
been duly and validly executed and delivered by the Company.
(b) The Company has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
12. Representations and Warranties of the Parent. Parent hereby
represents and warrants to the Company that:
(a) Parent has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents to herein,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent. This Agreement has been duly executed and delivered by Parent.
(b) The Option is not being, and any shares of Common Stock
or other securities acquired by Parent upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the 1933 Act.
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13. Equitable Remedies. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
14. Validity. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated.
15. Filings; Waiting Period. Each of Parent and the Company will use
commercially reasonable efforts to make all filings with, and to obtain all
consents of, all governmental authorities necessary to the consummation of the
transactions contemplated by this Agreement, including, without limitation, to
promptly make or cause to be made the filings required of such party or any of
its subsidiaries under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder and the expiration
or termination of any prescribed waiting period.
16. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by cable, telegram, telecopy or telex, or by registered or certified
mail (postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
17. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
18. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
19. Expenses. Except as otherwise expressly provided herein, each of
the parties hereto shall bear and pay all costs and expenses incurred by it or
on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
20. Entire Agreement. Except as otherwise expressly provided herein or
in the Merger Agreement, this Agreement contains the entire agreement between
the parties with respect to the transactions contemplated hereunder and
supersedes all prior arrangements or understandings with respect thereof,
written or oral. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto,
and their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
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21. Capitalized Terms. Capitalized terms used in this Agreement and
not defined herein shall have the meanings ascribed thereto in the Merger
Agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
HCC INSURANCE HOLDINGS, INC.
/s/ XXXXXXX X. WAY
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By: Xxxxxxx X. Way
Chairman of the Board and Chief Executive
Officer
THE CENTRIS GROUP, INC.
/s/ XXXXX X. XXXXXXX
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By: Xxxxx X. Xxxxxxx
Chairman of the Board and Chief Executive
Officer
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