The Company owns its 410,000 square foot corporate headquarters buildings, associated parking facilities and a 13,500 square foot child care facility located in downtown Winston-Salem, North Carolina. The Company also owns a 191,000 square foot office complex in Burlington, North Carolina. The Domestic Insurance Subsidiaries rent various small office facilities, primarily field claims offices, throughout its marketing territories.
The following section contains forward-looking statements regarding future profit levels, premium growth, cash flows and other matters, which involve risks and uncertainties that may affect the Company's actual results of operations.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
The Company believes that the severity trends noted above reflect general increases in the costs of repairing automobiles, attributable to air bags, advanced technology and anti-lock brakes and other more expensive components in an increasing number of vehicles insured by the Company, as well as to general price inflation. To some extent, the Company's pricing in 1996 did not adequately factor in such cost increases.
Interest expense increased from 3.5% from $14.5 million in 1995 to $15.0 million in 1996 due to increased short-term borrowings to pay parent company expenses.
Net premiums written increased 70.7% from $363.5 million in 1994 to $620.4 million in 1995. Nonstandard auto insurance net premiums written increased 69.8% from $334.6 million in 1994 to $568.1 million in 1995. Premiums earned on all lines of business increased 69.5% from $334.5 million in 1994 to $567.0 million in 1995. Nonstandard auto insurance premiums earned increased $216.6 million, or 70.2%, over the amount earned in 1994. The growth in premium volume is due to the acquisition of Bankers and Shippers in October 1994 and increased market penetration in most of the Company's existing territories as well as entrance into new markets.
Policy acquisition and other underwriting expenses increased 66.7% from $73.6 million in 1994 to $122.7 million in 1995. The expense ratio decreased from 22.0% in 1994 to 21.6% in 1995. The decrease in the expense ratio was due primarily to increased operating efficiencies.
Net investment income increased 67.1% from $17.9 million in 1994 to $29.9 million in 1995. The average balance of invested assets increased 41.7% from 1994 to 1995 due primarily to the acquisition of Bankers and Shippers and operating cash flow. The overall pre-tax yield for the Company was 6.3% in 1994 and 1995. The Company significantly reduced investments in tax-exempt securities to 24.3% of total cash and invested assets at December 31, 1995 compared to 57.4% at December 31, 1994. The after-tax yield was 4.7% in 1995 compared to 4.9% in 1994.
Other income less other expenses resulted in income of $2.5 million and $.4 million in 1995 and 1994, respectively. The increase in income in 1995 was primarily due to lower corporate expenses of $1.3 million and
Interest expense increased from $8.4 million in 1994 to $14.5 million in 1995 due to the issuance in October 1994 of 9.5% Senior Notes due 2001 in connection with the acquisition of Bankers and Shippers and short-term borrowings under the committed credit facility in 1995.
Subject to the limitations on dividends described below, the foregoing sources are expected to be available for future needs of Integon Corporation. Such dividends are limited pursuant to the North Carolina insurance laws and regulations. In determining the ability of its insurance subsidiaries to pay dividends, the Company monitors its subsidiaries' operating leverage based on the level of net premiums written to statutory surplus. In addition, the P&C Subsidiaries' ability to pay dividends is limited by the terms of the Company's Credit Facility, which requires the P&C Subsidiaries to maintain a net premiums written to statutory surplus of 3.25x. The P&C Subsidiaries' premium written to statutory surplus ratio for the year ended December 31, 1996 was approximately 3.248x. See "--Financing Activities." Dividends will be retained by the subsidiaries as needed to comply with the covenants of the Company's Credit Facility and, in any event, may be retained to fund growth.
The maximum amounts of dividends from the Domestic Insurance Subsidiaries that could be payable during 1997 without the approval by the North Carolina Insurance Commissioner is approximately $7.9 million. However, the payment of dividends is further restricted by the terms of the Company's Credit Facility. See "--Financing Activities."
USES OF FUNDS: Integon Corporation's principal uses of funds are the payment of corporate operating expenses, taxes, debt service and dividends on preferred and common stock. During 1996, Integon Corporation contributed $10.1 million of capital to the P&C Subsidiaries.
The principal uses of funds of the Company's subsidiaries are the payment of claims on insurance policies, the payment of operating expenses, purchase of investments, tax sharing payments and, to the extent permissible, dividends to Integon Corporation.
The Company and its subsidiaries are committed to using funds to continue its investment in new technology and to continue to expand information system personnel primarily to enhance operations, as well as to accomplish the modifications necessary to accommodate the Year 2000.
Management has determined that the entire fixed maturity securities portfolio should be classified as "available for sale." Fixed maturity securities classified as "available for sale" are carried at estimated market value. The market value and amortized cost of all fixed maturity securities at December 31, 1996 were $521.3 million and $522.5 million, respectively.
Management believes that the securities in the Company's investment portfolio at December 31, 1996 are readily marketable.
REGULATION: Insurance laws and regulations impose certain restrictions on the amount of dividends that may be paid by insurance companies. The maximum amount of ordinary dividends that a North Carolina domiciled property and casualty insurance company may pay at any point in time without regulatory approval is the lesser of (a) 10% of the policyholders' statutory surplus of such property and casualty insurance company as of the preceding December 31 or (b) the statutory net income of such property and casualty insurance company for the preceding calendar year, less the amount of dividends paid during the preceding 12 months. The Company's insurance subsidiaries paid approximately $4.8 million of ordinary dividends in 1996, which was less than that available for payment in 1996. See "--Sources of Funds" for a discussion of the maximum amount of dividends payable in 1997.
To The Board of Directors and Stockholders of Integon Corporation Winston-Salem, North Carolina
We have audited the accompanying consolidated balance sheets of Integon Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our audits also included the financial statement schedules listed in the Index at Item 14. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Integon Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as whole, present fairly in all material respects the information set forth therein.
BASIS OF PRESENTATION: The consolidated financial statements and notes are presented in accordance with generally accepted accounting principles ("GAAP") for property and casualty insurance companies. All material intercompany accounts and transactions have been eliminated for all periods presented. Integon Corporation (the "Company") has one segment that is engaged in the business of developing, marketing and financing property and casualty insurance products, primarily nonstandard auto. Certain reclassifications have been made to the 1995 and 1994 amounts to conform to the 1996 presentation.
INVESTMENTS: Investments are classified at the time of purchase based on the maturity of the investment. Investments, including redeemable preferred stock, that mature in one year or longer are classified as fixed maturity investments.
The entire fixed maturity portfolio has been classified as "available for sale." Management determines the appropriate classification of debt securities at the time of purchase and reevaluates the designation as of each balance sheet date. Securities classified as "available for sale" are carried at estimated market value, with the unrealized gains and losses reported as a separate component of stockholders' equity, net of tax effect.
The amortized cost of debt securities in these categories is adjusted for amortization of premiums and accretion of discounts. Such amortization and accretion are included in interest income from investments. Realized investment gains and losses, and declines in value judged to be other-than- temporary, are included in net realized investment gains (losses). The cost of securities sold is based on the specific identification basis.
GOODWILL: Goodwill, which represents the excess of cost over the fair value of net assets acquired, is amortized on a straight-line basis over periods not exceeding 40 years. The realizability of goodwill and other intangibles is evaluated periodically. Such evaluation is based on various analyses, including cash flow and profitability projections that incorporate, as applicable, the impact on existing company businesses. The analyses necessarily involve significant management judgment to evaluate the capacity of the Company and its acquired businesses to perform within projections.
RECOGNITION OF PREMIUM REVENUE: Premiums are recognized as revenue primarily on a pro rata basis over the period of risk.
STATUTORY ACCOUNTING PRACTICES: Integon Corporation's insurance subsidiaries, domiciled in North Carolina, prepare their statutory financial statements in accordance with accounting practices prescribed or permitted by the North Carolina Insurance Department. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners, as well as state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.
LOSS AND LOSS ADJUSTMENT EXPENSES PAYABLE: Loss and loss adjustment expenses payable represent the estimated liability on claims reported to the Company plus reserves for claims incurred but not yet reported and the estimated settlement expenses related to these claims. The liabilities for claims and related settlement expenses are determined using "case basis" evaluations and statistical analysis and represent estimates of the ultimate net cost of all losses incurred through the balance sheet date. Although considerable variability is inherent in such estimates, management believes that the liabilities for unpaid claims and related settlement expenses are adequate. The estimates are continually reviewed by management and, as adjustments to these liabilities become necessary, such adjustments are reflected in current operations.
FEDERAL INCOME TAX: Current income taxes are based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income tax assets and liabilities are recognized based on the differences between financial statements carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws.
STOCK-BASED COMPENSATION: The Company has adopted Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," and has elected to utilize the provisions of APB Opinion No. 25 (APB 25) and related Interpretations in measuring stock-based compensation for employees. While use of APB 25 is acceptable under the provisions of SFAS 123 the Company must provide all the disclosures required for SFAS 123's fair value based method of accounting for stock based compensation. In addition, SFAS 123 requires the Company to make pro forma disclosures of net income and earnings per share as if the fair value method had been applied. The disclosure provisions of SFAS 123 are effective for fiscal years beginning after December 15, 1995.
The purchase price paid by the Company was allocated to the assets acquired and liabilities assumed in accordance with GAAP. Adjustments to the carrying value of the net assets acquired to record them at their fair value at the purchase date are as follows:
The Company acquired the nonstandard private passenger automobile insurance business (the "Acquired Business") of Bankers and Shippers and its subsidiary, Bankers and Shippers Indemnity Company ("Bankers and Shippers Indemnity"). Simultaneously with the closing of the acquisition, Bankers and Shippers, Bankers and Shippers Indemnity and a subsidiary of TravelersGroup ("Travelers") entered into reinsurance agreements, pursuant to which Bankers and Shippers and Bankers and Shippers Indemnity ceded to Travelers all of the risks of the business written by Bankers and Shippers and its subsidiaries that were not related to the Acquired Business (the "Unrelated Business"). Bankers and Shippers transferred to Travelers the assets of the Unrelated Business, together with a portion of the cash and invested assets of Bankers and Shippers (the "B&S Portfolio"), which collectively was equal to the reserves and other liabilities of the Unrelated Business, adjusted to take into account a portion of the net unrealized losses in the B&S Portfolio as of the closing of the acquisition.
The results of operations of Bankers and Shippers are included with the results of the Company from October 18, 1994.
The following information is presented assuming the acquisition of Bankers and Shippers and the Offerings had occurred on January 1 of each year presented (unaudited):
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at December 31, 1996 and 1995. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The table excludes cash and cash equivalents, short-term investments, reinsurance receivable, short-term debt, net premiums due and uncollected, and net accounts and notes receivable, all of which had fair values approximating carrying values.
NOTES PAYABLE--These estimates are based upon issues with similar current yields and credit ratings.
The Company had $2.3 million of securities producing income at a lower than contractual rate at December 31, 1996.
The Company maintains a diversified portfolio, and management believes a concentration of credit risk does not exist. Cash equivalent investments are primarily invested in mutual funds comprised of issues of the U.S. Treasury with an average maturity of less than 90 days.
The components of the provision for deferred income taxes were as follows:
Federal income taxes recoverable of $3,948 have been included in other assets at December 31, 1996. Federal income taxes payable of $7,730 have been included in accrued expenses and other liabilities at December 31, 1995.
For financial reporting purposes, a valuation allowance was not recognized to offset the deferred tax assets. The Company believes it is more likely than not that the deferred tax assets will be realized based on the available evidence of the existence of sufficient taxable income in carryback and carryforward periods under existing tax law.
The estimated fair value of the notes payable is based upon issues with similar current yields and credit ratings.
Short-term debt consists of borrowings under a revolving line of credit ("Credit Facility"). In 1996, the maximum amount of the Credit Facility was increased from $25.0 million to $75.0 million and the term of the Credit Facility was extended to 1999. The interest rate charged on the Credit Facility is based on the bids of the participating lenders and in the case of Eurodollar loans a margin percentage ranging from .55% to .675% is added. The facility fee ranges from .20% to .35% of the total amount of the facility. The weighted average interest rate of all outstanding loans at December 31, 1996 and 1995 was 6.37% and 6.93%, respectively. At December 31, 1996 and 1995, borrowings under the Credit Facility were $44.0 million and $16.0 million, respectively.
The Company is involved in the cession of insurance to other insurance companies. Ceded unearned premiums and ceded loss and loss adjustment expenses payable are reported in the financial statements as prepaid reinsurance premiums and reinsurance receivable, respectively. To the extent of reinsurance ceded, the Company has transferred insurance risk to the reinsurer; however, the Company remains liable to the extent the reinsuring companies cannot meet their obligations under these reinsurance treaties. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk to minimize its exposure to significant losses from reinsurer insolvencies.
Under statute, the Company is required to participate in the North Carolina Reinsurance Facility (the "NCRF"). The Company's insurance subsidiaries cede business to the NCRF. The balance sheets reflect the following amounts related to reinsurance ceded:
North Carolina law provides that cumulative losses incurred by the NCRF are recoverable either through direct surcharges to North Carolina motorists or by assessments of the member insurers, which are subsequently recouped from individual policyholders. The net reinsurance receivable on paid claims less ceded premiums due from the NCRF was approximately $12,897 and $17,849, at December 31, 1996 and 1995, respectively. As of September 30, 1996, the NCRF had a cumulative operating surplus of $105,205.
The following table provides a reconciliation of beginning and ending loss and loss adjustment expense reserve balances:
ADVISORY SERVICES: Effective December 1, 1990, the Company entered into an Investment Advisory Agreement with Head Asset Management L.L.C. ("Head Asset Management"), an affiliate of Head & Company L.L.C. ("Head Company"), a managing member of which is John C Head III, the Chairman of the Board and Chief Executive Officer of the Company. In accordance with the terms of the agreement, Head Asset Management provides investment advisory and related services to the Company and its subsidiaries. In consideration of the services provided by Head Asset Management, the Company pays Head Asset Management a fee at the rate of $1.50 per $1,000 (15 basis points) on the market value of all invested assets managed by Head Asset Management. The Investment Advisory Agreement may be terminated upon 90 days prior written notice by either party. For the years ended December 31, 1996, 1995 and 1994, the Company paid $779, $685 and $409, respectively, in fees under the Investment Advisory Agreement.
AUTOMOBILE WARRANTY BUSINESS: The Company, as of December 31, 1992, had guaranteed to fund up to $8.1 million of claims in connection with the sale of Integon International, Ltd. ("International"), a subsidiary of the Company, that was sold to an affiliate of John C Head III. Revaluations by management of the estimated ultimate liabilities associated with the guarantee resulted in reductions of the liability by $.9 million, ($.6 million after federal income tax benefit), and $1.0 million ($.7 million after federal income tax benefit) in 1995 and 1994, respectively. The reductions to the liability and resulting gains have been reported as extraordinary items.
NOTES RECEIVABLE: To effect the restructuring, the Company loaned $10.0 million to Integon Life Corporation ("ILC"), an affiliate. ILC prepaid the note in full in September 1995. Interest income of $.8 million and $1.0 million was recorded for the years ended December 31, 1995 and 1994, respectively.
SERVICES/LEASE AGREEMENTS: The Company was a party to a services agreement with an affiliate, ISC, under which the Company purchased certain services needed for operations. These services were charged based upon direct costs incurred. The Company expensed $17.3 million for the year ended December 31, 1994 for these services. In December 1994, the Company purchased ISC from an affiliate of John C Head III for approximately $3.0 million.
In connection with the sale of ILC to PennCorp Financial Group, Inc. ("PennCorp"), upon recommendation of the Company's non-affiliated directors, the Company entered into an intercompany agreement, dated January 20, 1995 (the "Intercompany Agreement"), with ILC, ILIC, ISC and PennCorp pursuant to which the parties, among other things, made certain agreements regarding (i) the payment and administration of certain employee-related liabilities and (ii) payments in connection with any adjustments to the Company's or its subsidiaries', on the one hand, and ILC's or its subsidiaries', on the other hand, tax returns for the periods dating from the acquisition of the Company in 1990 to the Restructuring.
On December 31, 1993, the Company purchased its home office buildings and associated parking facilities as well as furniture and equipment from ILIC for $38.0 million and $2.3 million, respectively. Simultaneously with the acquisition, the Company entered into a five-year lease agreement with ILIC at an annual rate of approximately $.7 million. The Company can terminate the lease upon 180 days notice. Pursuant to the Intercompany Agreement, the Company acknowledged that from the date of the acquisition by PennCorp, ILIC will only be liable for rent under the lease agreement through January 25, 1997 and that such lease payments shall not exceed $1.3 million.
COMMON STOCK: The amount of Common Stock authorized to be issued by the Company is 55,000,000 shares, par value of $.01 per share, consisting of (i) 35,000,000 shares of Common Stock, and (ii) 20,000,000 shares of Class A Non- Voting Common Stock.
PREFERRED STOCK: The Company is authorized to issue 2,000,000 shares of preferred stock, $.01 par value, in series as designated by the Board of Directors of the Company.
On October 12, 1994, the Company issued 1,437,500 shares of $3.875 Convertible Preferred Stock with an issue price of $50.00 per share. Dividends at an annual rate of $3.875 per share are cumulative from the date of original issue and are payable quarterly in arrears out of legally available funds on each March 15, June 15, September 15 and December 15, when, as and if declared by the Board of Directors. The liquidation value is $50 per share plus accrued and unpaid dividends. The Convertible Preferred Stock is convertible into Common Stock at any time at the option of the holder at an initial conversion price of $19.05 per share, subject to adjustment in certain events. The Convertible Preferred Stock may be redeemed at the option of the Company, in whole or in part, after September 15, 1997 at $52.33 per share and thereafter at prices that decline ratably annually to $50.00 per share after September 15, 2003, in each case plus accrued and unpaid dividends. The Convertible Preferred Stock is non-voting, except that holders will be entitled to vote separately as a class (together with stock ranking on a parity) to elect two directors if the equivalent of six or more quarterly dividends (whether or not consecutive) on the Convertible Preferred Stock are in arrears. These voting rights will continue until the dividend arrearage on the Convertible Preferred Stock and other stock ranking on a parity with it has been paid in full. See Note Q.
Each of the Company's domestic insurance subsidiaries is required to maintain minimum statutory capital and surplus of $4.5 million according to North Carolina law. At December 31, 1996, capital and surplus of these subsidiaries ranged from $7.6 million to $98.5 million. The maximum amounts of dividends from the Domestic Insurance Subsidiaries that could be payable during 1997 without the approval by the North Carolina Insurance Commissioner is approximately $7.9 million. However, the payment of dividends is further restricted by the terms of the Company's Credit Facility. See Note F.
COMMITMENTS AND CONTINGENCIES: The Company is party to various lawsuits primarily incident to the ordinary course of its business that would not materially affect the financial position and the results of operations of the Company.
The plan amendment reducing the benefits available to employees who were at least age 45 on or before December 31, 1994, resulted in the reduction of the accumulated postretirement benefit obligation of $787, which is being recognized as a reduction in benefit expense on a straight line basis over periods of 6 to 7 years.
The curtailment of retiree benefits to employees under age 45 resulted in a reduction to the accumulated postretirement benefit obligation of $973 which was recognized in 1994 and is reflected in the accrued postretirement benefit cost at December 31, 1994.
The postretirement benefit liability as of December 31, 1996 was calculated assuming an annual trend rate in medical care inflation of 8.0% in 1997 grading down to 5.5% in 2000 and thereafter. The liability as of December 31, 1995 was calculated assuming an annual trend rate in medical care inflation of 9.0% in 1996, grading down to 5.5% in 2000 and thereafter. Mortality rates were calculated by referencing the 1983 group annuity mortality table (set back six years for females). Contribution increases were assumed to match the rates of inflation for medical care. The net cost of the postretirement benefits discounted value was based on a 7.5% rate in 1996 and 1995.
DEFERRED COMPENSATION: The liability for deferred compensation agreements for certain officers was $488 and $548 as of December 31, 1996 and 1995, respectively. Expenses for the periods ended December 31, 1996, 1995 and 1994, were $27, $34 and $20, respectively.
RETIREMENT SAVINGS PLAN: All full-time, permanent employees who attain age 21 and complete one year of service are eligible to participate in the Integon Employees' Retirement Savings Plan (the "Retirement Savings Plan"). Under the Retirement Savings Plan, participants are eligible to reduce their compensation by up to 10%, which is contributed to the trust established for the Retirement Savings Plan. The Company matches 50% of contributions (up to 3% of employees' compensation). The matching contributions for the periods ended December 31, 1996, 1995 and 1994 were $1,142, $923 and $492, respectively. Participants are fully vested in all contributions.
EMPLOYEE STOCK OWNERSHIP PLAN: Effective January 1, 1996, all full-time, permanent employees who attain age 21 and complete one year of service are eligible to participate in the Integon Corporation Employee Stock Ownership Plan ("ESOP"). Each year the Board of Directors will have the discretion to set the amount for the Company to contribute.
During 1996 and 1995, the Company also issued 74,000 and 98,000 unit awards, respectively to key employees. The initial dollar value of all such awards was $13.00. The Company established multipliers applicable to such units. Multipliers are numbers used to obtain the final dollar value for a particular unit award based on growth in the Company's net written premiums and average combined operating ratio for the three year period commencing on the first day of the fiscal year in which such unit is awarded and ending on the last day of the second fiscal year following the year in which the unit is awarded. Due to an amendment to the Omnibus Plan at the end of the measurement period, the awards, if any, will be paid out to participants in the form of Common Stock rather than restricted stock. Generally, if a participant terminates employment prior to the end of the measurement period, the units awarded will be forfeited. See Note Q.
The Company has operating lease commitments with terms greater than one year for equipment and office space, some with options to renew at the end of the lease periods. The minimum rental commitments under all such noncancelable leases at December 31, 1996 were as follows: 1997--$3.0 million; 1998--$2.0 million; 1999--$1.3 million; 2000--$.1 million and 2001--$.1 million. Total rental expense incurred by the Company for 1996, 1995 and 1994 was $2.9 million, $4.3 million and $2.9 million, respectively.
Automobile Warranty Business--The amounts for 1995 represent reductions of the estimated ultimate liabilities relating to a guarantee associated with the sale of International (see Note I).
On January 22, 1997, the Board of Directors adopted a Shareholder Rights Plan (the "Rights Plan") and declared a dividend of one preferred share purchase right with respect to each share of common stock outstanding at the close of business on February 11, 1997. Each right entitles the holder to purchase one-thousandth of a share of a newly authorized series of the Company's preferred stock at a purchase price of $70. Each one-thousandth of a share of such preferred stock is intended to be the economic and voting equivalent of one share of common stock. The rights are not presently exercisable, and initially will be evidenced by the Company's common stock certificates and will trade automatically with the common stock.
In the event a person or group acquires beneficial ownership of 20 percent or more of the Company's common stock, then after a specified period each right (other than Rights beneficially owned by such person or group, which become void) will entitle its holder to purchase, at the purchase price, shares of the Company's common stock, (or, at the option of the Board, such preferred stock) having a market value equal to twice the purchase price. Additionally, if after any such person or group acquires beneficial ownership of 20 percent or more of Integon's common stock, the Company is acquired in a merger or other business combination or 50 percent or more of its consolidated assets or earning power are sold, each right (other than rights beneficially owned by such person or group, which will have become void) will entitle its holder to purchase, at the purchase price, shares of common stock of the person or group with whom the Company engaged in such transaction having a market value equal to twice the purchase price.
Under certain circumstances, the Company may, at its option, exchange for each outstanding right (other than voided rights) one share of common stock or one-thousandth of a share of such preferred stock. The Company may also, at its option, redeem the rights at a price of $.01 per right at any time prior to a specified period of time after a person or group has become the beneficial owner of 20 percent or more of its common stock.
The rights will expire on January 22, 2007, unless earlier redeemed.
In January 1997, the Omnibus Plan was amended and restated. The Amended and Restated Omnibus Plan provides for (i) non-qualified stock options, (ii) performance awards payable in cash or deferred compensation that is denominated in Common Stock share units or both and (iii) units to key employees payable in cash and common stock. As amended, any future stock options granted under the Omnibus Plan will be subject to terms and conditions set by the Compensation and Personnel Committee of the Board of Directors. All stock options will expire no later than 10 years after the effective date of the option. Unit awards granted under the Amended and Restated Omnibus Plan will be valued annually and paid at the end of the three year cycle rather than valued using a three year average, and restricted stock will no longer be granted under the Omnibus Plan. Common Stock will be granted in lieu of restricted stock.
Investment in subsidiaries includes $16,610 of treasury stock contributed to the Company's subsidiaries in 1996.
The condensed financial information of Integon Corporation (Parent Company) should be read in conjunction with the financial statements of Integon Corporation and subsidiaries and the notes thereto incorporated elsewhere herein by reference.
During 1994, the Company purchased 177,800 shares of its Common Stock at a cost of $3.3 million and are reflected as Treasury Stock on the Company's balance sheet. During 1996, the Company contributed 880,000 shares of treasury stock to its subsidiaries. As of December 31, 1996 and 1995, the Company's balance sheet reflected Treasury Stock of $37.8 million.