SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 3)*
RISCORP, Inc.
(Name of Issuer)
Class A Common Stock
(Title of Class of Securities)
767597107
(CUSIP Number)
Robert L. Chapman, Jr., Chapman Capital L.L.C., Citicorp Center, 23rd Floor,
725 S. Figueroa Street, Los Angeles, California 90017
Tel: (213) 895-4172
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
October 28, 1999
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box
[ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
Page 10 of 10
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Chap-Cap Partners, L.P., a Delaware Limited Partnership
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[x]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER
0
8 SHARED VOTING POWER
1,026,500
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
1,026,500
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,026,500
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.2%
14. TYPE OF REPORTING PERSON*
PN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Chapman Capital L.L.C., a Delaware Limited Liability Company
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[x]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER
0
8 SHARED VOTING POWER
1,026,500
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
1,026,500
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,026,500
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.2%
14. TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Robert L. Chapman, Jr.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a)[x]
(b)[ ]
3. SEC USE ONLY
4. SOURCE OF FUNDS*
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON WITH
7. SOLE VOTING POWER
0
8 SHARED VOTING POWER
1,026,500
9. SOLE DISPOSITIVE POWER
0
10. SHARED DISPOSITIVE POWER
1,026,500
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,026,500
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11)
EXCLUDES CERTAIN SHARES* [ ]
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.2%
14. TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
This statement is filed pursuant to Rule 13d-2(a) with respect to the
shares of common stock (the "Common Stock") of RISCORP, Inc. (the "Issuer")
beneficially owned by the Reporting Persons specified herein as of October 29,
1999 and amends and supplements the Schedule 13D dated March 23, 1999, as
amended (the "Schedule 13D"). Except as set forth herein, the Schedule 13D, as
previously amended, is unmodified.
ITEM 4. Purpose of Transaction
On October 28, 1999, Chapman Capital L.L.C. sent a letter to Walter L.
Revell, Vice Chairman of the Issuer, proposing that the Issuer promptly
terminate its management agreement with Phoenix Management Company, Ltd. and
cease all payments to Phoenix thereunder. A copy of this letter is attached
hereto as Exhibit B.
Except as set forth above and as previously disclosed in the Schedule
13D, as of the date of this filing none of the Reporting Persons has any plans
or proposals, which relate to or would result in any of the actions set forth in
parts (a) through (j) of Item 4. Such persons may at any time reconsider and
change their plans or proposals relating to the foregoing.
ITEM 7. Material to be Filed as Exhibits
Letter from Chapman Capital L.L.C. to Walter L. Revell, Vice Chairman,
Riscorp Inc.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief,
the undersigned each certifies that the information with respect to it set forth
in this statement is true, complete and correct.
Dated: October 29, 1999
CHAP-CAP PARTNERS, L.P.
By: Chapman Capital L.L.C.,
as General Partner
By: /s/ Robert L. Chapman
Robert L. Chapman, Jr.
Managing Member
CHAPMAN CAPITAL L.L.C.
By: /s/ Robert L. Chapman
Robert L. Chapman, Jr.
Managing Member
/s/ Robert L. Chapman________
Robert L. Chapman, Jr.
<PAGE>
EXHIBIT B
CHAPMAN CAPITAL L.L.C.
Takeovers and Turnarounds
Robert L. Chapman, Jr.
Managing Member
October 28, 1999
Mr. Walter L. Revell
Vice Chairman, Riscorp Inc.
c/o HJ Ross Associates Inc.
3770 Southwest 8th Street #200
Coral Gables, FL 33134
(305) 567-1888 x 204
Via Airborne Express and Facsimile (305/567-1771)
Dear Mr. Revell,
It was with much sorrow that I read of Mr. Fred Dawson's passing away
over the weekend. Despite Chap-Cap Partners' complaint with regard to the
company's financial accounting under his supervision, he seemed to expend
significant energy to assure the Zenith asset sale's consummation. I extend my
deepest sympathy to his friends and family during this very difficult time.
Unfortunately, I have felt for some time that the management agreement
(the "Management Agreement") made and entered into as of February 18, 1998 by
and among the Phoenix Management Company, Ltd. ("Phoenix") and RISCORP, Inc..
("Riscorp") was excessively generous to Phoenix given the micro-capitalization
of Riscorp, the extraordinary amount of financial, legal and accounting work
outsourced and paid for by Riscorp directly, and the horrendous performance of
the common shares since the Management Agreement was signed. Not only has
Phoenix been paid $1,200,000.00 per year free and clear of Riscorp-related
expenses (including reimbursing Phoenix for the legal and consulting services it
used to negotiate the Management Agreement itself!), but the 1,725,000-share
stock and options grants (with attendant tax benefits) given to Phoenix stands
at multiples of that cash sum. This level of compensation cannot be justified by
any measure of shareholder value creation (post February 18, 1998) nor through
comparison to other insurance company or small-cap turnaround executives.
To put the $1,200,000.00 into perspective, Maurice "Hank" Greenberg,
the extraordinarily successful CEO of $150 billion-capitalization and
$40-billion annual revenue American International Group, is paid $1,000,000.00
per year in a role that cannot be anything but the most challenging and sizable
leadership position in all of the insurance industry. During the period of May
19, 1997 through October 24, 1999 (the period over which both Greenberg and
Dawson were CEO's of their respective publicly-traded companies), AIG's
Greenberg led his company to a 95% appreciation in his stock price/share and
thus created over $50 billion in shareholder value. By comparison, during the
same period Dawson's leadership involved Riscorp's stock price/share falling by
over 50% and thus saw the expulsion of tens of millions of dollars in
shareholder value for a company with total capitalization now standing at under
$100 million.
In the Management Agreement, the parties thereto justified the enormous
sums being paid to Phoenix by stating that Dawson's role as a "crisis manager
... demonstrated exceptional leadership and has significantly contributed to the
value that is expected [emphasis added] to be available for distribution to the
shareholders of Riscorp following the sale to Zenith ..." At the time that the
Management Agreement was signed, the Board of Directors of Riscorp (the "Board")
apparently was relying on the same financial statements as Chap-Cap Partners,
L.P. was in early 1998, in which the book value of Riscorp was stated at
approximated $4.50 per share. As we now know following Arthur Anderson's
uncontested analysis, the true book value was actually over $50 million lower
than stated in Dawson's financial statements, the release of which information
over time has caused massive diminution in the value of Riscorp's equity shares.
Moreover, Zenith's recent decision to add over $32 million in after-tax reserve
adjustments due primarily to Riscorp's apparently inadequate reserves for the
years 1994 through 1997 would seem to indicate that the true value of Riscorp's
equity may in fact have been significantly lower than Arthur Anderson's report
expressed.
Given the facts above, I think it is fair to say that Phoenix has been
more-than-fairly compensated for their overseeing the legal, financial and
accounting outsourcing work that has been billed to Riscorp over the past
several years. The combination of two and a half years of $1.2 million/year (or
over $3 million) in cash payments, on top of lucrative stock, option and tax
benefits exceeding this amount, can hardly be labeled as anything but excessive
given the stock's performance under Phoenix's management.
Fred Dawson was a fine choice to lead the initial turnaround efforts of
Riscorp. Before joining Riscorp, Fred Dawson had a "30-year track record as a
successful and highly regarded executive in the financial services business"
(quotes from company release following his hiring). He was also recognized as "a
man of .... imposing experience and reputation as a accomplished senior
executive and industry leader". Dawson, who by the time of his unfortunate death
had almost as much industry experience as Riehemann had years of age, was an
attorney and served as CEO of Integon Life, a $1.5 billion insurance holding
company with business lines in life and annuities, had served as CEO of Harcourt
General Insurance, a $3.5 billion insurance holding company with business lines
in life, A&H, credit and annuities, and as a Managing Director with Citibank in
charge of global mergers and acquisitions. Other roles included executive
positions at Beneficial Corporation's and two commercial banks that he headed.
Just before joining Riscorp, Dawson founded a company focused on crisis
management and shareholder value creation.
Walter Riehemann's limited experience contrasts sharply with Dawson's
(as described above). Riehemann, on the other hand, has to his credit sporadic
associate stints at three different law firms between 1993 and 1995, before
joining Riscorp four years ago as associate general counsel. I would be remiss
not to mention that it was during his role as a legal officer of Riscorp
(beginning August of 1995) that the company became embroiled in one of the worst
legal scandals ever seen by the insurance industry, a scandal so deep that
several of Riehemann's close business associates were indicted and one
eventually sentenced to prison time for felonious acts. During his tenure at
Riscorp, there has been no value creation whatsoever and the company now finds
itself the subject of another class action lawsuit (albeit brought by Chap-Cap
Partners, L.P.) involving the financial statements signed by Riehemann himself.
I think that you will find that Riehemann's compensation under his previous
Employment Agreement (dated April 2, 1997) would more than compensate him for
any consulting role he would provide to the Board and the investment bank hired
to maximize shareholder value.
With the Zenith asset-sale now closed and Riscorp left as a company
with no business operations requiring management, it is fair to say the
specialized work assigned to Phoenix is now behind the company. In fact, I must
emphasize that from the beginning of Phoenix's tenure, it served as nothing more
than an indemnified general contractor that the Board enabled, through the
Management Agreement, to earn $1,200,000.00 per year risk-free (expenses were
paid out of Riscorp's pocket). In addition, Phoenix received enormous upside
should they be able to maintain (as none was created) shareholder value,
initially with a blend of stock and options but later through primarily stock
after the Board, for reasons unknown to me and Chap-Cap Partners' legal counsel,
converted what would now be out-of-the-money options (and thus worthless) to
straight stock.
With Riscorp now being a company requiring simply a good negotiator
(should it decide to maximize value in ways other than a simple liquidation),
the obvious plan from here on out is to terminate the Management Agreement and
hire an investment banking firm (and counsel) to maximize the shareholder value
of the company. Phoenix, with all due respect to Dawson for his labors over the
past several years, is no longer needed.
Given the facts that for all intents-and-purposes Phoenix "was" Fred
Dawson (given his experience cited above), and that Section 7.4 (i) of the
Management Agreement allows Riscorp to terminate the Management Agreement
following Dawson's death, Chapman Capital L.L.C., as the general partner of
Chap-Cap Partners, L.P. (one of the top five owners of Riscorp's Class A
shares), is hereby giving the Board notice that it would appear to be sound
business judgement for the Board, in its fiduciary responsibility to
shareholders, to exercise its rights under Section 7.5 of the Management
Agreement and thus cease all payments to Phoenix immediately.
Riscorp's net asset value is essentially its cash. Thus, the Board's
responsibility is to protect, maintain, and if safely possible, earn a return on
the cash until Riscorp's affairs are wound up. Continuing payments to Phoenix
under the Management Agreement would in no way or form serve this purpose.
Riehemann's serving as either a paid consultant or employee to Riscorp at a rate
of compensation commensurate with his years practicing law would, of course, be
a reasonable use of the company's scarce resources ... $100,000.00 per month is
not.
Please address my concerns seriously. I would appreciate your
contacting me as soon as possible at (213) 895-4172 to discuss your thoughts on
this matter.
Very truly yours,
/s/ Robert L. Chapman
Robert L. Chapman, Jr.
