<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994 COMMISSION FILE NUMBER 1-8026
GENERAL RE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 06-1026471
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
695 EAST MAIN STREET
STAMFORD, CONNECTICUT 06904-2351
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 328-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12 (B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ----------------------------------------- -----------------------
<S> <C>
Common Stock, $.50 par value New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of 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. [X]
The aggregate market value on March 1, 1995 of the voting stock held by
non-affiliates of the registrant was $10,423 million.
The number of shares outstanding of each of the issuer's classes of common stock
as of the close of the period covered by this report:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MARCH 1, 1995
- ----------------------------- ----------------------------
<S> <C>
Common Stock, $.50 par value 81,937,208
</TABLE>
Certain information required by Items 10, 11 and 12 of Form 10-K is incorporated
by reference into Part III hereof from the registrant's proxy statement which
will be filed with the Securities and Exchange Commission within 120 days of the
close of the registrant's fiscal year ended December 31, 1994.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
General Re Corporation (the "Corporation") was established in 1980 to serve as
the parent holding company of General Reinsurance Corporation ("GRC", formed in
1921) and its affiliates, together constituting the General Re Group (the
"Group"). The Corporation operates in three principal businesses: domestic
property/casualty and life reinsurance, international property/casualty and life
reinsurance and financial services. The Group comprises the largest professional
property/casualty reinsurer domiciled in the United States and the third largest
in the world.
Domestic Property/Casualty
The Corporation's largest business (82.2% of 1994 consolidated revenues) is
domestic property/casualty reinsurance. Domestically, the Corporation primarily
operates as a treaty and facultative reinsurer, underwriting property and
casualty business on a direct basis throughout the United States and Canada. The
Corporation predominately writes excess of loss reinsurance across various lines
of business. Casualty reinsurance business represented approximately 55 percent
of the Corporation's domestic property/casualty net premiums written in 1994 and
property reinsurance business represented approximately 34 percent. The
Corporation also writes excess and surplus lines insurance and provides excess
insurance to self-insured programs. These lines represented approximately 11
percent of the domestic property/casualty net premiums in 1994.
It is not possible to determine the number of the Corporation's competitors.
There are virtually no barriers to entry to the reinsurance industry and
competitors may be domestic or foreign, licensed or unlicensed companies.
Reinsurers compete on the basis of reliability, financial strength and
stability, service, business ethics, price, performance, and almost every aspect
of the transaction. Purchasers of reinsurance are themselves insurers and, in
some cases, reinsurers.
U.S. domestic property and casualty insurers, including reinsurers, are subject
to regulation by their states of domicile and by those states in which they are
licensed. The Corporation's principal subsidiary, GRC, is domiciled in Delaware
and licensed in every state but Hawaii. The Corporation's excess and surplus
insurers, the General Star companies, are domiciled in Connecticut and Ohio. The
Genesis companies, which are the Corporation's direct excess and alternative
market insurers, are domiciled in Connecticut and North Dakota.
In addition to solvency regulation, licensed primary insurers are typically
subject to regulatory approval of insurance policy forms and the rates charged
to policyholders; similar approvals are not typically required for either
reinsurance contracts or the rates agreed to between ceding insurers and their
reinsurers. The insurance regulators of every state participate in the National
Association of Insurance Commissioners (the "NAIC"). The NAIC adopts forms,
instructions and accounting procedures for use by U.S. domestic insurers,
including reinsurers, in preparing and filing annual statutory financial
statements. These forms, instructions and procedures are collectively known as
statutory accounting practices ("SAP"). Every state requires use of the NAIC
annual statement form, although some states require or permit variations from
the NAIC form and SAP.
In addition to its activities relating to the annual statement and SAP, the NAIC
develops model laws and regulations for use by its members. In 1989, the NAIC
adopted its Financial Regulation Standards to guide state legislatures and state
regulators in the development of effective insurer solvency regulation. The
standards are viewed by the NAIC as minimum requirements for an effective state
regulatory scheme.
In 1990, the NAIC adopted a formal accreditation program to encourage states to
comply with the standards. Each state insurance department may be reviewed by an
independent accreditation team to determine whether the state's laws and
regulations (including certain NAIC model laws and regulations or their
substantially similar equivalents), and the department's administrative
practices, comply with the standards. Accredited states may refuse to accept
reports of financial examination of insurers issued by non-accredited states;
other sanctions may also be imposed, including a refusal to license insurers
domiciled in non-accredited states. It is
2
<PAGE> 3
likely that during 1995 the NAIC will reassess the accreditation program, and
the sanctions, if any, to be imposed on non-accredited states. As of December
1994, the insurance departments of 44 states were accredited, including the
Delaware Insurance Department.
The NAIC developed its Financial Regulation Standards and Accreditation Program
as an effective national system of solvency regulation to demonstrate that
federal involvement in the regulation of the business of insurance is
unnecessary. This action was prompted in part by a series of hearings on state
regulation of insurance held by the Energy and Commerce Oversight Subcommittee
of the U.S. House of Representatives. Legislation mandating a Federal role in
the regulation of insurers and reinsurers was introduced in the 102nd and 103rd
Congress. No similar legislation has been introduced yet in 1995. It is expected
that state regulators and some insurers and reinsurers would vigorously oppose
any new legislation, and prospects for passage of such legislation are
uncertain. The final form of any legislation is also uncertain.
The NAIC has adopted a risk-based capital formula which applies to statutory
annual statements of property/casualty companies beginning with the calendar
year 1994 statement (filed by March 1, 1995). The NAIC has also adopted a
risk-based capital model law which, if adopted by the domiciliary states of the
Corporation's domestic insurance subsidiaries, would supplant current minimum
capital and surplus requirements with the risk-based capital requirement. The
formula has been made a part of the Financial Regulation Standards; the model
law became a part of the standards during 1994, and states must adopt it or a
substantially similar law within two years. If enacted, the model law would
subject an insurer failing its risk-based capital requirement to various levels
of regulatory action. Each of the Corporation's domestic insurance subsidiaries
have filed 1994 statutory annual statements reporting risk-based capital well
above the threshold for regulatory action.
The Corporation is dependent upon the ability of its operating subsidiaries for
the transfer of funds in the form of loans, advances or dividends. The insurance
holding company laws require the filing of annual reports by the insurance
company members of the system and regulate transactions between the holding
company and affiliated insurance companies to the extent that such transactions
must be fair, reasonable and assure the adequacy of insurance companies'
statutory surplus in relation to their liabilities and financial needs.
The laws also subject extraordinary dividends and other extraordinary
distributions to insurance company stockholders to regulatory approval.
Dividends or distributions in a twelve-month period exceeding the greater of 10
percent of an insurance company's surplus as of the prior year end or 100
percent of net income, excluding realized gains, for the previous calendar year
are generally considered extraordinary and require such approval. Based on these
restrictions, ordinary dividend payments by domestic insurance subsidiaries to
the Corporation are limited to $420 million in 1995. Foreign and non-insurance
subsidiaries generally are subject to fewer restrictions on the payment of
dividends.
Reference is made to Management's Discussion and Analysis -- Financial
Condition -- Liabilities for additional discussion of regulatory matters.
International Property/Casualty
The Corporation's international property/casualty underwriting operations
generated revenues of $456 million, or 11.9 percent, of the consolidated total
in 1994. The international operations in 1994 were conducted through
subsidiaries based in the United Kingdom, Australia, Argentina, Spain,
Switzerland and Uruguay. Revenues were also generated in branch offices in
certain other countries. The international property/casualty operations
principally wrote treaty reinsurance in 1994. In recent years, the Corporation
has expanded its facultative writings in these operations.
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re"), which collectively represents a 66.3 percent economic interest
in Cologne Re. In exchange for its Cologne Re shares, Colonia, for itself and as
trustee for Nordstern Allgemeine Versicherungs AG (collectively the "CKAG
Group"), received 100 percent of the Class A shares of the new company, General
Re-CKAG Reinsurance and Investment S.A.R.L. ("GR-CK"). The Corpora-
3
<PAGE> 4
tion contributed $884 million (DM 1,377 million) to GR-CK, in exchange for 100
percent of the Class B shares of GR-CK. The Class A shares have 49.9 percent of
the votes of GR-CK and are entitled to an annual Class A dividend, while the
Class B shares have 50.1 percent of the votes of GR-CK and are entitled to the
earnings of GR-CK in excess of the Class A dividend. As a result of the
ownership and control structure of GR-CK and Cologne Re, the Corporation has
consolidated GR-CK and Cologne Re in its financial statements and recorded as
minority interests the share of the CKAG Group in GR-CK and of other
stockholders in Cologne Re.
Cologne Re writes both property/casualty and life reinsurance business
throughout the world with its principal operations located in Germany. In 1994,
Cologne Re wrote approximately DM 4,123 million (U.S. $2,595 million) of net
premiums, of which property/casualty reinsurance premiums were approximately DM
2,742 million, and life and health reinsurance net written premium was
approximately DM 1,381 million. The largest portion of Cologne Re's
property/casualty business is generated from fire and automobile coverages.
Cologne Re's life reinsurance is geographically distributed throughout the world
with the largest percentage of premiums written in the United States and
Germany. The results from Cologne Re's operations did not impact the Corporation
in 1994 as the transaction closed at the end of the year. In future years, the
Corporation's operating results will include its proportional share of Cologne
Re's operations, which will be reported on a quarter lag. Reference is made to
Item 7, Management's Discussion and Analysis, and Note 3, "Reinsurance
Ventures", for additional discussion of this transaction.
Financial Services
The Corporation's financial services operations include derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. The financial services operations
generated $226 million, or 5.9 percent, of the Corporation's 1994 revenues.
Other Information
The business of the operating subsidiaries of the Corporation is developed and
served by employees primarily located in the United States, Canada, Argentina,
Australia, Denmark, Egypt, Italy, Germany, Japan, New Zealand, Singapore,
Switzerland, Spain and the United Kingdom. The addition of Cologne Re to the
Corporation added significant operations based in Germany, the United States,
the United Kingdom, Australia, South Africa and Austria. The Corporation
employed 3,282 persons at December 31, 1994; 2,237 employees in North America
and 1,045 employees in international operations, of which 922 are employed by
Cologne Re.
For further information about the Corporation's business, reference is made to
Item 7, Management's Discussion and Analysis, and Note 20, "Segment Information"
included in this report. Reference is also made to the caption,
"Property/Casualty Insurance Reserve Disclosures" on pages 22-25 of this report.
ITEM 2. PROPERTIES
The Corporation and most of its domestic subsidiaries occupy approximately 75
percent of a six story building in Stamford, Connecticut. This building,
consisting of approximately 560,000 square feet of office space and a multiple
level parking garage, with approximately eight acres of land on which it is
located, was originally owned by Elm Street Corporation, a wholly owned
subsidiary of the Corporation. The Corporation has guaranteed the obligations of
Elm Street Corporation in connection with this transaction. On November 12,
1984, the land was leased, the improvements were sold and the land and
improvements were leased back by the Corporation. Under the terms of the lease,
the Corporation has the option to purchase the improvements upon expiration of
the 25 year lease or at an earlier date upon the occurrence of certain events.
GRC Realty Corporation, also a wholly owned subsidiary of the Corporation, has
retained title to the Group's former home office site in Greenwich, Connecticut.
This site consists of approximately four acres of land and an office building
which has about 160,000 square feet of office space that is rented to
non-affiliates. The Greenwich site is subject to a mortgage expiring December
31, 1998, which had a remaining balance of $7 million at December 31, 1994.
4
<PAGE> 5
Cologne Re's German operations are principally based in an office building of
approximately 130,000 square feet in Cologne, Germany. The building has an
estimated fair value of $40 million and is owned by Cologne Re. The United
States operations of Cologne Re are based in an office building in Stamford,
Connecticut which had an estimated fair value of $8 million at December 31,
1994.
In addition, the Corporation's domestic and international operations have branch
and affiliate operations conducted from leased premises in various cities in the
United States and foreign countries.
At this time, the Corporation believes its facilities are suitable for its
purposes, having adequate capacity for the Corporation's present and anticipated
needs.
ITEM 3. LEGAL PROCEEDINGS
On September 12, 1994, the Corporation's subsidiary, General Reinsurance
Corporation, along with 31 other insurance companies and insurance industry
organizations, reached a settlement of civil antitrust actions brought by 20
State Attorneys General and several private plaintiffs.
The lawsuit was originally dismissed on motion by the United States District
Court for the Northern District of California on September 20, 1989. The United
States Court of Appeals for the Ninth Circuit reversed the dismissal and
remanded the case to the District Court for further proceedings. On October 5,
1992, the United States Supreme Court granted, in part, defendants' petition for
certiorari. On June 28, 1993, the Supreme Court affirmed in part and reversed in
part the decision of the Court of Appeals and remanded the Case to the Court of
Appeals for further action. On October 6, 1993, the Court of Appeals remanded
the case to the District Court for trial in accordance with the opinion of the
Supreme Court. There has been no finding of any wrongdoing or illegality by any
defendant in this civil action.
The settlement involves a restructuring of the insurance industry's largest loss
and statistical gathering bureau, the Insurance Services Office, whose board of
directors had previously been dominated by insurer representatives, and the
funding by the defendants of a national public risk database and a public entity
risk services institute to assist risk management efforts. The terms of the
settlement, which provide for no admission of wrongdoing, illegality or payment
of damages, will be subject to the approval of the District Court. The effect of
the settlement was not material to the Corporation's results of operations,
financial condition or cash flows.
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting insurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary damages.
The Corporation's reinsurance subsidiaries are also indirectly involved in
coverage litigation. In those cases, plaintiffs seek coverage for their
liabilities under insurance policies from insurance companies reinsured by the
Corporation's reinsurance subsidiaries. In the judgment of management, none of
these cases, individually or collectively, is likely to result in judgments for
amounts which, net of claim and claim expense liabilities previously established
and applicable reinsurance, would be material to the financial position, results
of operations or cash flow of the Corporation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE CORPORATION.
The Executive Officers of the Corporation as of February 28, 1995 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald E. Ferguson....... 53 Chairman, President and Chief Executive Officer of the
Corporation since 1987 and Vice Chairman of General
Reinsurance Corporation since February, 1995;
previously President and Chief Operating Officer of the
Corporation 1983-1987; Vice President and Group
Executive 1981-1983. Chairman of General Reinsurance
Corporation 1985-1995; Executive Vice President of
General Reinsurance Corporation 1982-1984; Senior Vice
President, General Reinsurance Corporation, Operations
Division 1981-1982. With the Group since 1969.
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -------------------------------------------------------
<S> <C> <C>
John C. Etling........... 59 Vice Chairman of the Corporation since 1987 and Vice
Chairman of General Reinsurance Corporation since
February, 1995; previously Senior Vice President and
Group Executive of the Corporation 1984-1987; Vice
President and Group Executive 1981-1984. President and
Chief Executive Officer, General Reinsurance
Corporation 1983-1995; Executive Vice President General
Reinsurance Corporation 1982-1983; Senior Vice
President of General Reinsurance Corporation,
Underwriting and Marketing Division 1981-1982. With the
Group since 1961.
James E. Gustafson....... 48 Chairman and Chief Executive Officer of General
Reinsurance Corporation since February, 1995;
previously Executive Vice President of General
Reinsurance Corporation 1991-1995; Senior Vice
President and Manager of Underwriting of General
Reinsurance Corporation 1982-1991; President and Chief
Executive Officer of General Re Services Corporation
1987-Present; Vice President of General Reinsurance
Corporation Treaty Underwriting Department 1978-1982.
With the Group since 1969.
Tom N. Kellogg........... 58 President and Chief Operating Officer of General
Reinsurance Corporation since February, 1995;
previously Executive Vice President and Chief Marketing
Officer of General Reinsurance Corporation 1991-1995;
Senior Vice President of General Reinsurance
Corporation Claims, Facultative Casualty, Property and
Ocean Marine 1978-1991. With the Group since 1968.
Charles F. Barr.......... 45 Vice President, General Counsel and Secretary of the
Corporation since 1994; previously Vice President and
Assistant General Counsel of General Reinsurance
Corporation 1992-1994; Second Vice President and
Assistant General Counsel of General Reinsurance
Corporation 1990-1992; Assistant General Counsel
1989-1990. With the Group since 1989. Prior thereto,
Vice President, General Counsel and Secretary, General
Accident Insurance Company of America, 1987-1989; Vice
President and General Counsel United Pacific Life
Insurance Company and Assistant General Counsel,
Reliance Insurance Company, 1981-1987.
Joseph P. Brandon........ 36 Vice President and Chief Financial Officer of the
Corporation since 1991 and Senior Vice President of
General Reinsurance Corporation since 1991; previously
Vice President, Treaty Division of General Reinsurance
Corporation 1990-1991; Second Vice President, Treaty
Division 1989-1990. With the Group since 1989. Prior
thereto, Vice President, American Mutual Insurance
Group, 1986-1989; Coopers & Lybrand, Audit Staff,
1981-1986.
Ernest C. Frohboese...... 54 Vice President of the Corporation since 1990 and Senior
Vice President and Chief Investment Officer of General
Reinsurance Corporation since 1990. With the Group
since 1990. Prior thereto, Senior Vice President and
Chief Investment Officer Capitoline Investment
Services, Inc. 1985-1990; Senior Vice President and
Director of Research, Morgan Keegan, Inc. 1984-1985.
Elizabeth A. Monrad...... 40 Corporate Controller since 1992 and Vice President and
Treasurer of General Reinsurance Corporation since
1992. With the Group since 1992. Prior thereto, with
Coopers & Lybrand, Partner, 1989-1992, Audit Staff,
1980-1989.
</TABLE>
The Chairman, President, Secretary and Controller are elected by the Board for
one-year terms. Vice Presidents are appointed and serve at the pleasure of the
Board. Other officers may be appointed by and serve at the pleasure of the Chief
Executive Officer.
6
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
(a) The common stock of the Corporation is traded on the New York Stock
Exchange. The following table sets forth information as to the closing price of
the Corporation's common stock on the Exchange during 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------------------- -------------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First Quarter........................... $114.00 $102.50 $130.00 $112.13
Second Quarter.......................... 125.38 105.75 123.13 109.13
Third Quarter........................... 115.63 104.88 132.75 115.50
Fourth Quarter.......................... 128.50 105.00 123.88 105.38
</TABLE>
(b) The number of holders of record of the Corporation's common stock at
December 31, 1994 was 4,163.
(c) The following table sets forth information as to the cash dividends paid by
the Corporation on shares of its common stock during each of the past two years.
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
First Quarter.................................................. $.48 $.47
Second Quarter................................................. .48 .47
Third Quarter.................................................. .48 .47
Fourth Quarter................................................. .48 .47
</TABLE>
It is the intention of the Corporation to declare quarterly dividends to the
extent deemed by the Board of Directors to be appropriate. Dividends are paid
principally from amounts received by the Corporation as dividends from General
Reinsurance Corporation and the other operating subsidiaries. The payment of
dividends by General Reinsurance Corporation is subject to certain restrictions.
See page 3 within the section, "Business -- Domestic Property/Casualty".
7
<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND
RATIOS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INFORMATION
Total revenues................................. $ 3,837 $ 3,560 $ 3,387 $ 3,207 $ 2,954
Net premiums written........................... 3,001 2,524 2,349 2,249 2,150
After-tax income before accounting
changes(1).................................. 665 697 596 657 614
Per share................................... 7.97 8.11 6.84 7.46 6.89
Net income..................................... 665 711 657 657 614
Per share................................... 7.97 8.28 7.55 7.46 6.89
After-tax income, excluding realized
gains(1).................................... 621 604 465 563 566
Per share................................... 7.43 7.01 5.30 6.37 6.35
Net investment income before tax............... 749 755 755 752 706
Net investment income after tax................ 622 619 620 618 581
Investments.................................... 18,898 14,346 11,532 10,842 9,510
Total assets................................... 29,597 19,419 14,700 12,416 11,033
Long-term debt................................. 157 192 199 301 302
Common stockholders' equity.................... 4,859 4,761 4,227 3,911 3,270
Return on equity(3)............................ 12.9% 13.4% 11.4% 15.6% 17.8%
------- ------- ------- ------- -------
DOMESTIC PROPERTY/CASUALTY OPERATIONS
Net premiums written........................... $ 2,581 $ 2,275 $ 2,177 $ 2,122 $ 2,040
Net investment income before tax............... 686 705 703 703 662
After-tax income, excluding realized
gains(1).................................... 538 556 445 545 551
Statutory surplus.............................. 3,770 3,836 3,452 3,363 2,902
Investments.................................... 11,177 11,601 10,477 10,003 8,848
Claims and claim expense liabilities(4)........ 7,029 6,803 6,635 6,230 5,816
Statutory loss ratio........................... 70.7% 70.6% 78.8% 72.5% 68.2%
Statutory expense ratio........................ 30.6% 30.9% 29.6% 29.7% 30.8%
Statutory combined ratio....................... 101.3% 101.5% 108.4% 102.2% 99.0%
------- ------- ------- ------- -------
INTERNATIONAL PROPERTY/CASUALTY OPERATIONS
Net premiums written........................... $ 420 $ 249 $ 172 $ 127 $ 110
Net investment income before tax............... 52 43 47 44 39
After-tax income, excluding realized
gains(1).................................... 29 14 16 19 16
Investments(5)................................. 757 589 509 469 442
------- ------- ------- ------- -------
FINANCIAL SERVICES
Revenues, excluding net realized gains......... $ 229 $ 211 $ 115 $ 100 $ 88
After-tax income, excluding realized
gains(1).................................... 54 34 4 (1) (1)
------- ------- ------- ------- -------
COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding.............. 82.1 84.5 85.7 87.1 88.0
Dividend per common share...................... $ 1.92 $ 1.88 $ 1.80 $ 1.68 $ 1.52
Common stockholders' equity per share.......... 59.35 56.92 49.89 45.14 37.50
Common share price(6): High................... 128.50 132.75 123.13 101.88 93.00
Low.................... 102.50 105.38 78.63 84.88 69.00
Year end............... 123.50 107.00 115.75 101.88 93.00
------- ------- ------- ------- -------
</TABLE>
See page 10 and notes to consolidated financial statements.
8
<PAGE> 9
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA -- (CONTINUED)
<TABLE>
<CAPTION>
1989 1988 1987 1986 1985 1984 CAGR(2)
------- ------ ------ ------ ------ ------ -------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED INFORMATION
Total revenues....................... $ 2,742 $2,719 $3,115 $2,853 $1,772 $1,314 11.3%
Net premiums written................. 1,898 1,903 2,365 2,561 1,646 1,122 10.3
After-tax income before accounting
changes(1)........................ 599 513 469 321 142 44 31.2
Per share......................... 6.52 5.39 4.62 3.14 1.52 0.49 32.2
Net income........................... 599 480 511 329 139 156 15.6
Per share......................... 6.52 5.04 5.04 3.22 1.45 1.74 16.4
After-tax income, excluding realized
gains(1).......................... 559 518 458 298 137 42 30.9
Per share......................... 6.08 5.44 4.52 2.92 1.46 .47 31.8
Net investment income before tax..... 673 570 506 413 301 232 12.4
Net investment income after tax...... 558 494 435 345 254 222 10.9
Investments.......................... 8,799 7,866 6,969 5,978 4,182 3,336 18.9
Total assets......................... 10,390 9,394 8,902 8,078 6,005 5,026 19.4
Long-term debt....................... 263 114 115 115 116 17 24.9
Common stockholders' equity.......... 3,084 2,695 2,563 2,413 1,794 1,368 13.5
Return on equity(3).................. 19.3% 19.7% 18.4% 14.2% 8.7% 3.1% --
------- ------ ------ ------ ------ ------ -------
DOMESTIC PROPERTY/CASUALTY OPERATIONS
Net premiums written................. $ 1,789 $1,780 $2,251 $2,485 $1,591 $1,065 9.3%
Net investment income before tax..... 638 539 479 386 273 213 12.4
After-tax income, excluding realized
gains(1).......................... 524 481 424 264 116 21 38.3
Statutory surplus.................... 2,684 2,319 2,009 1,840 1,091 711 18.2
Investments.......................... 8,417 7,532 6,666 5,725 3,939 3,126 13.6
Claims and claim expense
liabilities(4).................... 5,535 5,218 4,739 4,024 2,913 2,453 11.1
Statutory loss ratio................. 70.6% 70.0% 74.3% 79.6% 84.8% 95.8% --
Statutory expense ratio.............. 29.0% 29.1% 25.5% 23.7% 26.0% 31.2% --
Statutory combined ratio............. 99.6% 99.1% 99.8% 103.3% 110.8% 127.0% --
------- ------ ------ ------ ------ ------ -------
INTERNATIONAL PROPERTY/CASUALTY
OPERATIONS
Net premiums written................. $ 109 $ 123 $ 114 $ 76 $ 55 $ 57 22.1%
Net investment income before tax..... 31 27 24 21 18 13 14.9
After-tax income, excluding realized
gains(1).......................... 26 20 18 16 7 9 12.4
Investments(5)....................... 342 299 279 221 177 161 16.7
------- ------ ------ ------ ------ ------ -------
FINANCIAL SERVICES
Revenues, excluding net realized
gains............................. $ 90 $ 101 $ 106 $ 101 $ 91 $ 53 15.8
After-tax income, excluding realized
gains(1).......................... 9 17 16 18 14 12 16.2%
------- ------ ------ ------ ------ ------ -------
COMMON STOCKHOLDERS' INFORMATION
Average common shares outstanding.... 91.3 95.3 101.4 102.0 93.7 90.2 --
Dividend per common share............ $ 1.36 $ 1.20 $ 1.00 $ 0.88 $ 0.78 $ 0.72 10.5%
Common stockholders' equity per
share............................. 34.28 29.04 26.20 23.47 18.48 15.17 14.6
Common share prices(6): High......... 95.75 59.25 68.38 68.88 52.50 33.38 14.4
Low....... 55.00 45.88 48.75 49.44 30.57 23.25 16.0
Year
end............................... 87.13 55.25 55.88 55.50 50.06 31.88 14.5
------- ------ ------ ------ ------ ------ -------
</TABLE>
See page 10 and notes to consolidated financial statements.
9
<PAGE> 10
NOTES TO THE ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Only continuing operations are presented. Balance sheet data are as of December
31st.
(1) Excludes the cumulative effect of accounting changes. The balance sheet data
in the table above reflect the adoption of Statement of Financial Accounting
Standards No. 115, "Accounting For Certain Investments in Debt and Equity
Securities" in 1994 and the adoption of Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts" in 1993, with reclassifications
made for 1992. Adoption of the Standard did not affect results from
operations or common stockholders' equity. In 1993, the Corporation adopted
the accounting prescribed by the Emerging Issues Task Force for
multiple-year, retrospectively rated reinsurance contracts. The cumulative
effect from prior years recorded in 1993 increased net income by $14 million
or $.17 per share. In 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative
effect from prior years recorded in 1992 increased net income by $61 million
or $.71 per share. In 1984, the Corporation adopted the practice of
discounting certain workers' compensation claims. The cumulative effect of
the change in 1984 was $81 million or $.89 per share.
(2) Represents compound annual growth rate.
(3) Return on equity is income from continuing operations excluding after-tax
realized gains and cumulative effects of accounting changes divided by
average common stockholders' equity at the beginning and end of the year.
(4) Net of reinsurance.
(5) Excludes the investments of Cologne Re and GR-CK of $5,301 million as of
December 31, 1994.
(6) The common share price information is based on the Corporation's daily
closing price on the New York Stock Exchange.
10
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OPERATING RESULTS
Consolidated
Comparison of 1994 with 1993
Net income in 1994 was $665 million or $7.97 per share, a decrease of 3.7
percent over $8.28 per share earned in 1993. These results include after-tax
realized gains of $.54 per share in 1994 and $1.10 per share in 1993. Net income
in 1993 also included a cumulative benefit of $.17 per share resulting from the
adoption of the accounting prescribed by the Emerging Issues Task Force for
multiple-year, retrospectively rated reinsurance contracts. Excluding after-tax
realized gains and cumulative-effect adjustments, after-tax income for the year
ended December 31, 1994 was $7.43 per share, an increase of 6.0 percent over
$7.01 per share in 1993.
Consolidated net premiums written in 1994 were $3,001 million, an increase of
$477 million or 18.9 percent from $2,524 million in 1993. Domestic
property/casualty premium volume was $2,581 million in 1994, compared with
$2,275 million in 1993, an increase of 13.4 percent. Net premiums written in the
international insurance operations were $420 million in 1994, an increase of
69.0 percent over 1993 volume.
Consolidated net investment income was $749 million in 1994, compared with $755
million in 1993. The level of investment income was adversely affected by the
shift in assets from taxable to tax-advantaged securities in response to the
Corporation's tax planning strategies, the use of the Corporation's cash flow
from operations for stock repurchases, and an increase in lower yielding,
short-term securities during the year to fund an investment in Cologne Re. The
consolidated pretax investment yield on invested assets, excluding the invested
assets of General Re Financial Products Corporation ("GRFP"), was 5.9 percent in
1994, compared with 6.5 percent in 1993. Net investment income for the domestic
property/casualty operations was $686 million in 1994, a decrease of 2.7 percent
over $705 million earned in 1993. Net investment income for the international
property/casualty operations increased 20.9 percent to $52 million in 1994,
compared with $43 million in 1993. The financial services operations had
investment income of $11 million in 1994, compared with $7 million in 1993.
Comparison of 1993 with 1992
Net income in 1993 was $711 million or $8.28 per share, an increase of 9.7
percent over $7.55 per share earned in 1992. These results include after-tax
realized gains of $1.10 per share in 1993 and $1.54 per share in 1992. Net
income in 1992 also includes a cumulative benefit of $.71 per share resulting
from the adoption of SFAS 109. Excluding after-tax realized gains and
cumulative-effect adjustments, income for 1993 was $7.01 per share, an increase
of 32.3 percent over $5.30 per share in 1992.
Consolidated net premiums written for 1993 of $2,524 million increased 7.5
percent over $2,349 million in 1992. Domestic property/casualty premium volume
was $2,275 million in 1993, compared with $2,177 million in 1992, an increase of
4.5 percent. The international property/casualty operations net premiums written
were $249 million in 1993, an increase of 44.5 percent from the comparable
amount in 1992.
Consolidated net investment income was $755 million in 1993, unchanged from 1992
levels, as the benefit from increased cash flow from operations available for
investment was offset by lower investment portfolio yields. The consolidated
pretax investment yield on invested assets (excluding GRFP's invested assets) of
6.5 percent in 1993 declined from 7.0 percent in 1992. Investment income for the
domestic property/casualty operations was $705 million in 1993, a slight
increase from the $703 million earned in 1992. Net investment income for the
international property/casualty operations declined 8.5 percent to $43 million
in 1993, compared with $47 million in 1992. The financial services operations
had investment income of $7 million in 1993, compared with $5 million in 1992.
11
<PAGE> 12
Domestic Property/Casualty
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Income before cumulative effect of accounting changes............ $ 578 $ 649 $ 576
After-tax realized gains......................................... 40 93 131
------ ------ ------
Income, excluding realized gains and accounting changes.......... $ 538 $ 556 $ 445
====== ====== ======
Net premiums written............................................. $2,581 $2,275 $2,177
Net underwriting (loss).......................................... (46) (23) (188)
Net investment income............................................ 686 705 703
Statutory combined underwriting ratio............................ 101.3% 101.5% 108.4%
</TABLE>
Domestic property/casualty income, excluding after-tax realized gains and the
cumulative effect of accounting changes, decreased 3.2 percent from 1993's
income, principally the result of catastrophe claims arising from the
Northridge, California earthquake on January 17, 1994 and reduced investment
income, due primarily to lower yields on the portfolio.
The statutory combined underwriting ratio is computed based on the relationship
of losses and underwriting expenses to premiums. This ratio is the Corporation's
principal indicator of underwriting performance, with 100 percent or lower
generally indicating a statutory underwriting profit. In 1994, the combined
ratio for the domestic property/casualty segment was 101.3 percent, compared to
101.5 percent in 1993 and 108.4 percent in 1992. The 1994 underwriting result
fell short of the Corporation's objective of an underwriting profit primarily
due to the Northridge earthquake. Improvement in the 1993 combined ratio over
1992 was largely attributable to lower catastrophe claims in 1993 as Hurricanes
Andrew and Iniki adversely impacted 1992's underwriting result. While the 1993
underwriting result did not meet the Corporation's goal of an underwriting
profit, the improvement over 1992 was achieved in a difficult environment for
both the economy in general, and for insurers and reinsurers, specifically.
Net premiums written in 1994 for the domestic property/casualty operations of
$2,581 million increased 13.4 percent from $2,275 million in 1993. Premium
volume by operating unit expressed as a percentage of total domestic
property/casualty premiums was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
General Reinsurance Corporation (direct reinsurance)................ 88.6% 89.2% 89.2%
General Star Companies (excess and surplus lines)................... 7.4 6.8 6.3
Genesis Companies (direct excess and alternative markets)........... 4.0 4.0 4.5
----- ----- -----
Total............................................................... 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
While the domestic primary insurance market grew by about 4 percent, General
Reinsurance Corporation's ("GRC") premiums grew by 15.0 percent during 1994. The
Corporation believes that the growth in its premiums written is due to its
marketing efforts, the increase in insurance premiums written by medium and
smaller-sized primary companies that generally purchase relatively more
reinsurance, increased reinsurance cessions by primary companies seeking to
deleverage their capital in response to rating agency concerns and increased
demand by primary companies for reinsurance from better capitalized and more
credit-worthy reinsurers.
For the General Star companies, which write primary and excess specialty
insurance on a licensed and surplus lines basis, premium volume grew 23.4
percent in 1994, due to both increased marketing activities and improved rates
for coverage containing property exposures. General Star produced a statutory
underwriting profit for the tenth consecutive year.
The Genesis companies provide direct excess insurance and excess reinsurance to
self-insured programs. Underwriting results for the Genesis companies improved
during 1994. Premiums increased during the year by 13.0 percent over 1993 levels
due principally to growth in casualty premiums.
12
<PAGE> 13
Net premiums written for the domestic property/casualty insurance segment of
$2,275 million in 1993 increased 4.5 percent over $2,177 million in 1992. As
discussed in Note 3 to the consolidated financial statements, North Star
Reinsurance Corporation, a wholly owned subsidiary, was sold to Signet Star
Holdings, Inc. in 1993. The disposal affects premium comparisons relative to
prior years. During 1992, North Star contributed $157 million to the domestic
property/casualty premium volume. During the first quarter of 1993, North Star
had net premiums written of $41 million. After the first quarter of 1993,
however, domestic property/casualty premiums exclude North Star. When North
Star's premiums are excluded from the 1993 and 1992 results, domestic
property/casualty premiums increased by 10.6% in 1993, as compared to 1992, due
primarily to growth in treaty reinsurance, property facultative and General
Star's business. North Star's premiums for 1993 and 1992 are included with GRC
in the preceding table.
International Property/Casualty
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Net income............................................................ $ 35 $ 14 $ 16
After-tax realized gains.............................................. 6 -- 1
---- ---- ----
Income, excluding after-tax realized gains............................ $ 29 $ 14 $ 15
==== ==== ====
Net premiums written.................................................. $420 $249 $172
Net underwriting income (loss)........................................ 6 (13) (20)
Net investment income................................................. 52 43 47
</TABLE>
Net income for the international property/casualty operations of $35 million in
1994 increased 152.9 percent over 1993 levels. Included in these results were
after-tax realized gains of $6 million in 1994. Growth in the income for the
international property/casualty operations resulted principally from an
underwriting profit of $6 million in 1994, compared to an underwriting loss of
$13 million in 1993. Underwriting results improved over 1993 due to stronger
pricing and demand in higher margin businesses, particularly in the
Corporation's European operations. International premiums written of $420
million in 1994 increased $171 million, or 69.0 percent, over 1993 premiums of
$249 million. The premium growth reflects continued expansion of existing client
relationships, an increase in reinsurance rates, and development of new
reinsurance relationships, particularly in European operations. In 1994, the
Corporation combined its subsidiaries located in the United Kingdom and
Switzerland to enhance client service and to improve capital efficiency in the
European markets. Premium growth in 1994 also resulted from expanded operations
in Madrid and the opening of new offices in Cologne, Milan, Paris and Singapore
during the past two years.
Net income for the international property/casualty operations of $14 million in
1993 decreased from $16 million in 1992. Included in these results were
after-tax realized gains of $1 million in 1992. Income for the international
property/casualty operations was adversely affected during 1993 by the
strengthening of the U.S. dollar compared to foreign currencies and by
nonrecurring charges related to the expansion of operations. The international
property/casualty underwriting results, while still unprofitable, improved by $7
million over 1992 underwriting result, which was adversely affected by
catastrophic events. International premiums written of $249 million in 1993
increased 44.5 percent over 1992 premium of $172 million.
Cologne Re
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Cologne Re, which collectively represent a
66.3 percent economic interest in Cologne Re. In exchange for its Cologne Re
shares, Colonia, for itself and as trustee for Nordstern Allgemeine
Versicherungs AG (collectively, the "CKAG Group"), received 100 percent of the
Class A shares of the new company, General Re-CKAG Reinsurance and Investment
S.A.R.L. ("GR-CK"). The Corporation initially contributed $884 million (DM 1,377
million) to GR-CK in exchange for 100 percent of the Class B shares of GR-CK. On
December 30,
13
<PAGE> 14
1994, GR-CK paid $302 million (DM 475 million) to a subsidiary of the
Corporation in exchange for notes having a principal amount of DM 475 million.
The notes pay interest of 8.0 percent annually to GR-CK and are due on December
30, 2004.
The Class A shares have 49.9 percent of the votes of GR-CK and are entitled to
an annual Class A dividend, while the Class B shares have 50.1 percent of the
votes of GR-CK and are entitled to the earnings of GR-CK in excess of the Class
A dividend. The Corporation has an option after seven years to purchase the
Class A shares of GR-CK owned by the CKAG Group at a formula price. The option
has a minimum exercise price of DM 1,306 million and a maximum of DM 1,509
million, subject to certain warranty adjustments that may reduce the exercise
price.
CKAG Group will receive an annual Class A cash dividend which is based on a
formula and is estimated to be approximately DM 36 million. The Corporation will
also receive an annual Class B cash dividend of 50.1 percent of GR-CK's
distributable income, as defined in the joint venture agreement. It is expected
that Cologne Re may increase its capital through an offering of equity
securities in the first half of 1995. In connection with this equity offering,
GR-CK anticipates it will use approximately DM 300 million of its funds to
purchase additional Cologne Re shares. Since the closing occurred at the end of
1994, the transaction did not have a material effect on the Corporation's
results from operations. Due to the ownership and control structure of GR-CK and
Cologne Re, the Corporation has consolidated GR-CK and Cologne Re in its balance
sheet at December 31, 1994.
Financial Services
The financial services operations include the Corporation's derivative products,
insurance brokerage and management, investment management, reinsurance brokerage
and real estate management operations. Net income for the financial services
operations was $52 million in 1994, an increase of 53.2 percent from $34 million
earned in 1993. The increase in 1994 income was principally due to increased
profitability of the Corporation's derivative products subsidiary, GRFP, and new
revenues from General Re Underwriting Services Limited ("GRUS") and General Re
Asset Management Corporation ("GRAM"). GRUS principally provides underwriting
services for Tempest Reinsurance Company Limited, an affiliated Bermuda-based
company specializing in excess property catastrophe reinsurance.
GRFP is engaged as a dealer in derivative financial products, such as interest
rate and foreign currency swaps, foreign exchange contracts, options, and swap
options. GRFP's gross trading revenue was $135 million in 1994, compared with
$142 million in 1993 and $41 million in 1992. During 1994, higher global
interest rates reduced capital market activity, thus lowering demand for
derivative products. In addition, the Corporation believes concerns regarding
the appropriate use of derivative products by certain end users in the United
States reduced the overall market demand for derivative products. Despite these
limiting factors, GRFP's trading revenue in 1994 only decreased 5.2 percent as
compared to 1993.
GRFP closely monitors its derivatives operations and actively manages its open
positions to control its exposures. GRFP hedges its exposure to market risk
(which includes foreign exchange, interest rate, swap spread, volatility, and
yield curve risks) in connection with its dealer activities by purchasing or
selling futures contracts, entering into forward foreign exchange contracts,
purchasing or selling government securities or entering into offsetting
transactions. Market risk is kept within conservative tolerance limits and is
monitored on a daily basis across all swap and option products. In accordance
with mark-to-market accounting, GRFP evaluates and records a fair-value
adjustment against trading revenue to recognize counterparty credit exposure and
future costs associated with administering each contract. The expected credit
exposure for each trade is initially established on the trade date and is
determined through the use of a proprietary credit exposure model that is based
on historical default probabilities, market volatilities and, if applicable, the
legal right of set off. These exposures are continually monitored and adjusted
due to changes in the credit quality of the counterparty, changes in interest
and currency rates or changes in other factors affecting credit exposure. The
fair value allowance for counterparty credit exposures and future administrative
costs on existing contracts was $55 million and $44 million at December 31, 1994
and 1993, respectively. GRFP has not experienced any counterparty defaults or
writeoffs on such contracts.
14
<PAGE> 15
The Corporation's insurance and reinsurance brokerage operations also
contributed to the increased profitability of the financial services segment in
1994. In addition, investment management fees increased due to growth in the
business of the Corporation's investment management subsidiary, GRAM. The
Corporation's investment management clients are other insurance companies,
primarily reinsurance clients, that seek the Corporation's expertise in managing
insurance company investment portfolios.
Income for the financial services operations of $34 million in 1993 increased
significantly from $4 million earned in 1992. The increase in 1993 income was
principally due to growth in GRFP, which was a startup operation in 1992. The
Corporation's reinsurance brokerage operations also contributed to the improved
results in 1993, in part due to the reinsurance brokerage operation's improved
ability to place catastrophe reinsurance at higher prices.
FINANCIAL CONDITION
Assets
At December 31, 1994, total assets were $29,597 million, compared with $19,419
million at December 31, 1993. Included in the December 31, 1994 balance sheet
was $9,325 million of GR-CK assets related to the Cologne Re joint venture.
Excluding the Cologne Re joint venture, total assets increased during 1994 by
7.4 percent, or $1,435 million, to $20,854 million at December 31, 1994. This
growth in assets was attributable to an increase of $566 million in the total
assets of the domestic property/casualty operations, $223 million in the
international property/casualty operations and $646 million in the financial
services segment.
The Corporation's invested assets increased from $14,346 million at December 31,
1993 to $18,898 million at December 31, 1994. Included in the December 31, 1994
balance sheet are GR-CK invested assets of $5,301 million. Excluding the impact
of the Cologne Re transaction, invested assets decreased by $167 million as a
result of a decrease of $494 million in the financial services operations, which
was partially offset by an increase of $158 million in the domestic
property/casualty segment and an increase of $169 million in the international
property/casualty segment. The after-tax unrealized appreciation on the
Corporation's total investment portfolio was $453 million and $1,137 million at
December 31, 1994 and December 31, 1993, respectively. The decline was
principally due to increased market interest rates and reduced equity values.
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The Statement addresses accounting for investments in equity
and debt securities and requires these investments to be classified into three
categories. Debt securities that the Corporation has the positive intent and
ability to hold to maturity are classified as held-to-maturity and reported at
amortized cost. Debt and equity securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading and
reported at fair value, with unrealized gains and losses included in income.
Other debt that is not classified as either held-to-maturity or trading and
equity securities not classified as trading are included in available-for-sale
securities and reported at fair value, with unrealized gains and losses, net of
deferred income taxes, excluded from income and reported in a separate component
of common stockholders' equity. The effect of Statement No. 115 decreased the
reported fair value of invested assets by $123 million at December 31, 1994. The
Statement's adoption had no effect on the Corporation's results from operations.
The overall pretax yield on domestic invested assets (excluding GRFP) was 5.9
percent in 1994, compared to 6.4 percent in 1993. The decline in the domestic
investment portfolio's pretax yield reflects the shift in assets from taxable to
tax-exempt bonds, the decline in market interest rates in recent years and the
increased amount of calls of higher coupon investments during this period. The
increase in market rates of interest during 1994 had a minimal impact on 1994's
investment income.
Included in fixed maturities were mortgage-backed securities ("MBS") of $629
million (3.3 percent of consolidated invested assets) and asset-backed
securities ("ABS") of $244 million (1.3 percent of consolidated invested assets)
at December 31, 1994. These securities have interest and principal repayment
patterns that differ from typical fixed maturities. MBS issued by quasi-federal
agencies, federally supported institutions and corporations can either be direct
pass-throughs of cash flows from the underlying mortgages or can be a
15
<PAGE> 16
grouping of underlying mortgages into various principal repayment tranches
("CMO's"). The MBS portfolio is comprised of pass-through securities (56
percent) and CMO's (44 percent) based on December 31, 1994 market values. The
CMO portfolio is comprised almost entirely of planned amortization class
("PAC's") securities which have experienced less volatility in repayment of
principal than other types of CMO securities. ABS are usually collateralized by
credit card or auto loan receivables which are packaged into debt instruments
whose interest and principal payments will vary with the underlying receivable.
Almost all of the MBS and ABS portfolios are publicly traded and market values
were obtained from an external pricing service.
The Corporation continues to place strong emphasis on credit research. Credit
considerations are an important part of the Corporation's fixed maturity
investment strategy. At December 31, 1994, the Corporation had no bond issues in
default. Bonds rated below investment grade represented less than .5 percent of
the portfolio. The overall fixed-maturity portfolio continued to average a
credit rating of AA. The distribution of the Corporation's domestic
fixed-maturity portfolio by credit quality was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------
TAXABLE TAX-EXEMPT
------- ----------
<S> <C> <C>
AAA........................................................ 59.5% 47.8%
AA......................................................... 11.7 23.6
A.......................................................... 22.4 26.2
BBB........................................................ 5.0 1.1
Below BBB.................................................. 0.3 --
Non-rated.................................................. 1.1 1.3
</TABLE>
At December 31, 1994, investments in domestic equity securities totaled $2,367
million, representing 20.4 percent of the domestic portfolio and 48.7 percent of
common stockholders' equity. The domestic equity portfolio is well diversified
and primarily consists of companies with large capitalizations that,
collectively, have a calculated volatility approximating the Standard & Poor's
500 index.
A small portion of the domestic investment portfolio was dedicated to
non-traditional, private investments. These alternative investments, included in
the balance sheet caption, "other invested assets", were $325 million (1.7
percent of consolidated invested assets) at December 31, 1994. Most of these
investments are interests in limited partnerships run by professional managers.
Over time, these investments are expected to provide a higher return than the
overall portfolio. This segment, however, also may entail a greater amount of
risk both in terms of limited liquidity and greater uncertainty of returns
compared to the rest of the Corporation's investment portfolio. The Corporation
evaluates the fair value of these alternative investments on a quarterly basis
by reviewing available financial information of the investee and by performing
other financial analyses in consultation with external advisers. Any changes in
the fair value of limited partnerships are included as unrealized appreciation
or depreciation in common stockholders' equity, unless a decline in fair value
is considered other than temporary, resulting in a charge to income.
The Corporation's international property/casualty subsidiaries held investment
portfolios of $6,060 million at December 31, 1994. These portfolios include
$4,719 million of Cologne Re's investments, $582 million of GR-CK investments
and $759 million in pre-existing international operations. At December 31, 1994,
Cologne Re's portfolio was invested approximately 70 percent in fixed
maturities, 13 percent in equity securities and 17 percent in short-term and
other investments. Cologne Re's investment portfolio is geographically
diversified with most fixed maturities having terms of less than five years.
Cologne Re's investments are primarily managed by internal investment managers
and smaller portfolios are managed by local professional asset managers.
The investments held by GR-CK are all denominated in German marks as stipulated
by the investment guidelines of the joint venture agreement.
The invested assets of the Corporation's pre-existing international subsidiaries
were $759 million at December 31, 1994. This portfolio was invested
approximately 75 percent in fixed maturities, 15 percent in equities
16
<PAGE> 17
and 10 percent in short-term investments. The pretax yield on these investments
was 7.6 percent in 1994 and 7.8 percent in 1993. The portfolio of each
subsidiary is managed by local professional asset managers who are overseen by a
local Board of Directors and the Corporation's investment department based in
Stamford.
Liabilities
The Corporation's gross liability for claims and claim expenses, which provides
for future obligations arising from current and prior property/casualty
reinsurance and insurance transactions, amounted to $12,158 million at December
31, 1994. Growth in the liability of $3,706 million during 1994 is due to $3,135
million associated with the Cologne Re joint venture and $571 million from
pre-existing international operations. In addition to the gross liability for
property/casualty claim and claim expenses, the Corporation, through its
interest in Cologne Re, has a gross liability for future policy benefits for
life and health contracts of $1,960 million. The asset for reinsurance
recoverable on paid and unpaid losses was $2,067 million at December 31, 1994,
compared to $1,476 million at December 31, 1993. Growth of $591 million in the
asset is due to $373 million associated with Cologne Re ($224 million for
property/casualty business and $149 million related to life and health business)
and $218 million from pre-existing operations.
The ongoing financial integrity of the Corporation is dependent on reserve
adequacy. The gross liability and reinsurance recoverable for claims and claim
expenses were based on the Corporation's analysis of reports and individual case
estimates received from ceding companies. The liability and related recoverables
also include an amount estimated by the Corporation for claims and claim
expenses incurred but not reported. The liability and recovery are evaluated
continuously by management, annually by the Corporation's independent
accountants in conjunction with their audit and periodically by independent
consulting actuaries. Any resulting adjustments are included in income
currently.
The liability for claims and claim expenses for 1993 and prior accident years,
net of related reinsurance recoveries, decreased by $36 million in 1994. The
decrease, which had a favorable effect on the Corporation's net income in 1994,
was principally the result of the net impact of favorable loss development on
casualty lines of business, partly offset by reserve strengthening for
environmental and latent injury claims. The liability for prior accident years
was increased by $140 million and $56 million during 1993 and 1992,
respectively, adversely impacting net income in those years. The adverse income
impact was the result of reserve strengthening principally for environmental and
latent injury claims.
Included in the Corporation's liability for claims and claim expenses were
liabilities for environmental and latent injury damage claims. These amounts
include provisions for both reported and incurred but not reported (IBNR)
claims. The table below presents the three-year development of the balance sheet
liability for unpaid environmental and latent injury claims:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Gross liability, beginning of year....................... $1,332 $1,092 $ 911
Reinsurance recoverable.................................. 444 358 320
------ ------ ------
Liability, net of reinsurance, beginning of year......... 888 734 591
Amount incurred during year.............................. 239 224 198
Less amount paid during year............................. 100 70 55
Cologne Re............................................... 69 -- --
------ ------ ------
Liability, net of reinsurance, end of year............... 1,096 888 734
Reinsurance recoverable.................................. 382 444 358
------ ------ ------
Gross liability, end of year............................. $1,478 $1,332 $1,092
====== ====== ======
</TABLE>
The Corporation continually estimates its liabilities and related reinsurance
recoveries for environmental and latent injury claims and claim expenses. These
exposures do not lend themselves to traditional methods of loss development
determination and therefore may be considered less reliable than reserves for
standard lines of
17
<PAGE> 18
business (e.g., automobile). The estimate is composed of four parts: known
claims, development on known claims, IBNR and direct excess coverage litigation
expenses. Although reliability is constrained by uncertainties, the Corporation
has confidence in the reported, known claim liabilities, and based on
alternative methods, has projected a fairly reliable estimate of development for
these claims. The Corporation has also included an estimate for IBNR which is
based on fitted curves of estimated future claim emergence; this estimate is
less reliable than the estimated liability for reported claims. The effect of
joint and several liability on the severity of claims and a provision for future
claims inflation have been included in the loss development estimate.
The Corporation has established a liability for litigation costs associated with
coverage disputes arising primarily from direct excess insurance policies. The
Corporation's subsidiaries were parties in approximately 120 active direct
coverage cases at December 31, 1994. Such coverage litigation expenses are
estimated using an actuarial forecast of actionable items and their projected
costs. The Corporation paid $10 million in such costs during 1994 and as of
December 31, 1994 the liability for future litigation costs related to coverage
disputes was $174 million (included in the table above). The Corporation has not
recorded any reinsurance recoveries for these liabilities.
As coverage disputes are tried and verdicts rendered, the Corporation expects
that settled case law will result in a downward trend in future coverage
litigation expenses. Because reinsurance contracts generally contain arbitration
clauses which control disputes between the ceding company and the reinsurer, the
Corporation does not expect the future costs associated with reinsurance
disputes to be material.
Ceding companies report information about environmental and latent injury claims
based upon their individual and differing methodologies for characterizing
claims. For example, some ceding companies report one claim for a policyholder
with a number of exposure sites, whereas others report each exposure at each
site as a separate claim. In addition, a substantial number of latent injury
claims, which are often reported to the Corporation on a precautionary basis by
ceding companies and insureds prior to reaching the reinsured layer, close
without reinsurance payment. Due to these factors, the Corporation is unable to
provide meaningful claim count information.
The liability for environmental and latent injury claims and claim expenses is
management's best estimate of future claim and claim expense payments and
recoveries which are expected to develop over the next thirty years. The
Corporation continues to monitor evolving case law and its effect on
environmental and latent injury claims. Changing government regulations and
legislation, newly identified toxins, newly reported claims, new theories of
liability, new contract interpretations and other factors could significantly
affect future claim development. While the Corporation has recorded its current
best estimate of its liabilities for unpaid claims and claim expenses, it is
reasonably possible that these estimated liabilities, net of estimated
reinsurance recoveries, may increase in the future and that the increase may be
material to the Corporation's results from operations, cash flows and financial
position. It is not possible to estimate reliably the amount of additional net
loss, or the range of net loss, that is reasonably possible.
The Corporation discounts certain liabilities associated with workers'
compensation claims. A new statutory accounting rule adopted in December 1993 by
the NAIC, effective for calendar year 1994 and subsequent statutory annual
statements, allows the discounting of "tabular reserves", as defined, and allows
discounting of non-tabular reserves if permitted by the insurer's state of
domicile. As of December 31, 1994, GRC recorded $1,328 million in discount on
its loss reserves. Of that amount, $839 million relates to reserves eligible for
the tabular reserve discount and $489 million relates to non-tabular reserves
for medical costs associated with tabular reserve claims. The Delaware Insurance
Department has confirmed that GRC may continue to discount both its tabular
reserves and the medical expenses associated with such tabular reserves at 4.5%
per year. Accordingly, the adoption of the statutory reserve discount rule
during 1994 did not effect the Corporation's results from operations, cash flows
and financial condition.
Assets and Liabilities of the Financial Services Operations
The asset and liability positions of the financial services operations fluctuate
based on its dealer and related risk-management activities. GRFP manages its
market risk through the purchase and sale of government
18
<PAGE> 19
securities and futures contracts and by entering into offsetting derivative
transactions. The purchase of government securities (fixed maturities at fair
value), which are financed through collateralized repurchase agreements
(securities sold under agreements to repurchase), and the sale of government
securities (securities sold but not yet purchased), whose proceeds are invested
in reverse repurchase agreements (securities purchased under agreements to
resell), contribute to the short-term fluctuation in the operation's total
assets and liabilities, while generally not having any material effect on common
stockholders' equity. During 1994, invested assets of these operations decreased
$494 million to $1,661 million. Securities purchased under agreements to resell
(an asset) increased $680 million in 1994 to $813 million. Securities sold under
agreements to repurchase (a liability) decreased $628 million in 1994 to $938
million. Securities sold but not yet purchased represent obligations of the
Corporation to deliver the specified security at the contracted price, thereby
creating a liability to repurchase the security in the market at prevailing
prices. Accordingly, the Corporation's ultimate obligation to satisfy the sale
of securities sold but not yet purchased may exceed the amount recognized in the
balance sheet. The Corporation controls and manages this risk through the use of
credit and market risk limits and reviews its market exposure on a daily basis.
The liability for securities sold but not yet purchased increased $385 million
in 1994 to $927 million at December 31, 1994.
Effective January 1, 1994, the Corporation adopted FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts. The Interpretation further
clarifies the definition of a right of set-off. Effective December 31, 1994, the
Corporation adopted FASB Interpretation No. 41, Offsetting of Amounts Related to
Certain Repurchase and Reverse Repurchase Agreements. The Interpretation
modified the accounting in FASB Interpretation No. 39 to permit offsetting in
the balance sheet of payables and receivables for repurchase and reverse
repurchase agreements when these agreements are with the same counterparty, have
the same settlement date, are part of a master netting arrangement, and can be
settled for cash on a net basis. The Corporation has reclassified amounts on the
December 31, 1993 balance sheet to conform to the new Interpretations. The
combined effect of adopting Interpretations Nos. 39 and 41 increased reported
assets and liabilities by approximately $950 million at December 31, 1993 and
$1,747 million at December 31, 1994. Adoption of these Interpretations had no
impact on results from operations, cash flows or stockholders' equity.
Equity
Common stockholders' equity at December 31, 1994 was $4,859 million, an increase
of 2.1 percent over $4,761 million at December 31, 1993. The change in common
stockholders' equity was primarily due to net income of $665 million less the
decline in after-tax unrealized appreciation of $230 million, stock repurchases
of $207 million and dividends paid of $168 million. Common stockholders' equity
at December 31, 1993 increased 12.6 percent over the $4,227 million at year end
1992.
The ratio of claim and claim expense reserves, net of reinsurance, to common
stockholders' equity at December 31, 1994 was 2.1 to 1.0, and the ratio of net
written premiums to common stockholders' equity was 0.6 to 1.0. These two ratios
are conservative by insurance industry averages and indicate the capacity to
assume additional reinsurance business.
GRC, the principal domestic operating subsidiary, has a claims-paying rating of
AAA from Standard & Poor's and a financial strength rating of Aaa from Moody's.
GRC is also rated A++ by A.M. Best Company, a leading insurance industry rating
agency. Each of these ratings represents the highest category for the respective
rating agency.
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
A summary of the Corporation's cash flow by business segment was as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -----
(IN MILLIONS)
<S> <C> <C> <C>
Operating activities:
Domestic property/casualty............................ $ 968 $ 899 $ 673
International property/casualty....................... 215 80 42
Financial services.................................... 1,227 (1,257) (88)
------- ------- -----
Consolidated operating cash flows....................... 2,410 (278) 627
------- ------- -----
Investing activities:
Domestic property/casualty............................ (16) (871) (248)
International property/casualty....................... (189) (60) (30)
Financial services.................................... (507) (417) (27)
Net purchase of shares in GR-CK....................... (582) -- --
Cash obtained on purchase of GR-CK.................... 153 -- --
------- ------- -----
Consolidated investing cash flows....................... (1,141) (1,348) (305)
------- ------- -----
Financing activities:
Domestic property/casualty............................ (350) (16) (420)
International property/casualty....................... (22) (18) (13)
Financial services.................................... (715) 1,679 118
------- ------- -----
Consolidated financing cash flows....................... (1,087) 1,645 (315)
------- ------- -----
Consolidated change in cash............................. $ 182 $ 19 $ 7
======= ======= =====
</TABLE>
The Corporation's cash flow from operations was $2,410 million in 1994, compared
with negative $278 million in 1993, and positive $627 million in 1992. The
Corporation's negative operating cash flow in 1993 was not a result of a
deterioration in the Corporation's liquidity or profitability. Rather, the
negative operating cash flow resulted from the requirement under generally
accepted accounting principles to disaggregate GRFP's interrelated cash flows
into operating, investing, and financing activities. GRFP hedges its open
derivative product positions by the purchase or sale of government securities.
These transactions are classified as operating activities in the statement of
cash flows. GRFP finances its security purchases through collateralized
repurchase agreements which are characterized as financing activities in the
cash flow statement. The Corporation invests its short-term cash proceeds in
securities purchased under agreements to resell ("reverse repos"), which are
characterized as investing activities in the cash flow statement. The
disaggregation of these interrelated cash flows for financial reporting purposes
creates variability in reported operating cash flow of the financial services
segment without a corresponding effect on results from operations.
Domestic and international operating cash flows grew in 1994 and 1993,
reflecting growth in the business. Domestic property/casualty financing cash
flows include the Corporation's stock repurchases and dividends to stockholders.
As discussed earlier, the Corporation made a net cash investment in 1994 of $582
million in GR-CK, the holding company which owns approximately 66.3 percent of
the economic interest of Cologne Re. The funds invested in GR-CK are not
available for the Corporation's general business purposes, but are subject to
certain restrictions according to the joint venture agreement. The Corporation's
domestic cash flow should not be significantly affected by the joint venture
structure as interest paid to GR-CK on the intercompany note will be funded by
dividends received from GR-CK.
Dividends paid to common and preferred stockholders were $168 million, $170
million and $164 million in 1994, 1993 and 1992, respectively. The Corporation
used $207 million, $134 million and $179 million to repurchase 1,912,500 shares,
1,213,600 shares and 2,138,100 shares of its common stock in the years ended
December 31, 1994, 1993 and 1992, respectively. Through December 31, 1994, the
Corporation has purchased $1,563 million (21,909,300 shares) of its common stock
since the inception of the repurchase program in
20
<PAGE> 21
1987. In February 1994, the Corporation's Board of Directors authorized an
additional repurchase of up to $250 million of common stock. At December 31,
1994, the Corporation had $100 million available under Board authorized
repurchase programs and additional standing authority to repurchase shares in
anticipation of shares to be issued under various compensation plans. On
February 8, 1995, the Board of Directors declared a regular quarterly dividend
of $.49 per share on the common stock of the Corporation. This represents an
increase of 2.1% over the $.48 per share dividend paid in prior quarters of 1994
and the 19th consecutive year in which the Corporation has had a dividend
increase.
At December 31, 1994, the Corporation had $150 million of senior debt
outstanding, which is rated AAA by Standard and Poor's and Aa1 by Moody's. The
Corporation issues short-term commercial paper to provide additional financial
flexibility for its operations. Commercial paper offered by the Corporation has
been rated A1+ by Standard & Poor's and Prime 1 by Moody's. At December 31,
1994, $31 million of short-term commercial paper was outstanding with an average
interest rate of 6.0 percent and a weighted average maturity of 29.8 days. In
June 1994, the Corporation increased its lines of credit through a number of
participating banks, from $500 million to $1 billion, to provide additional
support for commercial paper issuance and to increase its financial flexibility.
At December 31, 1994, the Corporation had no outstanding loans under this
facility.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
GENERAL RE CORPORATION
INDEX TO RESERVE DISCLOSURES, FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
RESERVE DISCLOSURES
Property/Casualty Insurance Reserve Disclosures (Unaudited)........................ 22-25
FINANCIAL STATEMENTS
Report of Independent Accountants.................................................. 26
Consolidated Statements of Income for the years ended December 31, 1994, 1993 and
1992............................................................................. 27
Consolidated Balance Sheets as of December 31, 1994 and 1993....................... 28
Consolidated Statements of Common Stockholders' Equity for the years ended December
31, 1994, 1993 and 1992.......................................................... 29
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993
and 1992......................................................................... 30
Notes to Financial Statements...................................................... 31-55
FINANCIAL STATEMENT SCHEDULES
I. Condensed Financial Information of Registrant as of December 31, 1994 and
1993 and for the years ended December 31, 1994, 1993 and 1992................. S-1-S-3
V. Supplementary Insurance Information as of December 31, 1994, 1993 and 1992 and
for the years then ended...................................................... S-4
</TABLE>
Schedules other than those listed above have been omitted since they are either
not required, not applicable or repeat information disclosed in the notes to
financial statements.
21
<PAGE> 22
PROPERTY/CASUALTY INSURANCE RESERVE DISCLOSURES
The consolidated financial statements include estimated liabilities for unpaid
claims and claim expenses of the Corporation's domestic and international
property/casualty reinsurance subsidiaries. The provision for reported but
unpaid claims and claim expenses is based on audited client reports and
individual case estimates, including anticipated salvage and subrogation
recoverable. A provision is included for incurred but not reported ("IBNR")
claims and claim expenses on the basis of past experience. Historic premium,
claim and claim expense data are organized in actuarial formats, analyzed for
credibility, and processed through actuarial formulae. Using actuarial judgment,
forecasts of IBNR claims and claim expenses are determined and tested for
validity. The Corporation strives for accuracy in its reserving structure and
monitors its predictions against actual claims and claim expense emergence. The
methods of making such estimates and for establishing the resulting liabilities
are continually reviewed and updated. All adjustments to the reserve structure
(which encompasses claims from up to 50 years ago) are included in current
operating results.
The actuary relied upon by management in forming the basis of its belief as to
the adequacy of reserves is Lee R. Steeneck, FCAS, MAAA, a Vice President of
GRC. In addition to the ongoing review by management, these liabilities are
subject to independent review on a regular basis. The Corporation's independent
public accountants use actuaries during their annual financial statement audit
to review both current balance sheet liabilities and charges to the income
statement. In addition, the Audit Committee of the Board of Directors has
periodically engaged the services of an actuarial consulting firm to compare the
reserve liabilities established by management with the estimates of an
independent consulting actuary.
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for 1994, 1993 and 1992.
TABLE 1
RECONCILIATION OF LIABILITY
FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------ ------
<S> <C> <C> <C>
Balance at January 1............................................ $ 8,452 $8,204 $7,416
Reinsurance recoverables on unpaid claims and claim
expenses................................................... (1,396) (1,366) (1,022)
------- ------ ------
Net balance at January 1........................................ 7,056 6,838 6,394
Incurred claims and claim expenses related to:
Current year.................................................. 2,017 1,583 1,773
Prior years................................................... (36) 140 56
------- ------ ------
1,981 1,723 1,829
------- ------ ------
Claim and claim expense payments related to:
Current year.................................................. 423 214 341
Prior years................................................... 1,206 1,291 1,044
------- ------ ------
Total payments.................................................. 1,629 1,505 1,385
------- ------ ------
Net balance at December 31...................................... 7,408 7,056 6,838
Reinsurance recoverables on unpaid claims and claim
expenses................................................... 1,615 1,396 1,366
Cologne Re unpaid claims and claim expenses................... 3,135 -- --
------- ------ ------
Balance at December 31.......................................... $12,158 $8,452 $8,204
======= ====== ======
</TABLE>
The Corporation discounts certain domestic workers' compensation loss reserves
at an interest rate of 4.5 percent per annum, the same rate used for reporting
to state regulatory authorities with respect to the same claim liabilities.
These claims are characterized by periodic indemnity payments principally for
wage loss and
22
<PAGE> 23
medical/rehabilitation expenses which are generally fixed or determinable, both
in amount and duration. The amortization of the discount is included in current
operating results as part of the development of prior years' liabilities. The
effect of discounting was to reduce liabilities for claims and claim expenses,
net of reinsurance, as follows:
TABLE 2
RECONCILIATION OF DISCOUNTING
NET LIABILITY FOR CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Cumulative discount, beginning of year........................... $1,319 $1,222 $1,081
Discount benefit for year........................................ 64 146 187
Amortization of discount......................................... (55) (49) (46)
------ ------ ------
Effect of discounting on income before income taxes.............. 9 97 141
------ ------ ------
Cumulative discount benefit, end of year......................... $1,328 $1,319 $1,222
====== ====== ======
</TABLE>
Table 3 reconciles the difference between liabilities for claims and claim
expenses, net of reinsurance, reported in the consolidated financial statements
under generally accepted accounting principles ("GAAP") with that reported in
annual statements filed with state insurance regulators in accordance with SAP.
TABLE 3
GAAP TO SAP RECONCILIATION OF NET LIABILITY FOR
CLAIMS AND CLAIM EXPENSES
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------
<S> <C>
Consolidated GAAP basis:
Gross.................................................................. $12,158
Ceded.................................................................. (1,841)
-------
Net.................................................................... 10,317
Loss portfolios.......................................................... (507)
Liability of international subsidiaries.................................. (378)
Cologne Re............................................................... (2,910)
-------
Domestic liability reported on a SAP basis............................... $ 6,522
=======
</TABLE>
Table 4 presents the development of net balance sheet liabilities for the
Corporation's property/casualty operations from 1984 through 1994. Table 5
presents the development of the gross balance sheet liability for the
Corporation's property/casualty operations from 1992 through 1994. Reference is
made to Exhibit 28, "Combined Domestic Property/Casualty Insurance Company
Schedule P" for a more detailed review of SAP liabilities on an accident year
basis. Claim and claim expense liabilities associated with the Cologne Re joint
venture are included in the Corporation's liabilities in Table 4 and Table 5 at
December 31, 1994, although the joint venture had no effect on claim development
during 1994 and prior years. The accident-year information required to complete
Table 4 and Table 5 for the Corporation's other international subsidiaries was
not available in prior years. Although the related amounts were not significant
to the consolidated total in prior years, these amounts have been included
beginning in 1994. The net liabilities for unpaid claims and claim expenses of
these international operations and percentages of the consolidated total were
$378 million or 3.7 percent for 1994, $253 million or 3.6 percent for 1993 and
$202 million or 3.0 percent for 1992.
23
<PAGE> 24
The first data row shows the estimated net liability for unpaid claims and claim
expenses recorded at the balance sheet date for each of the indicated years.
This liability represents the estimated amount of claims and claim expenses,
including IBNR, that are outstanding as of the balance sheet date.
The upper "triangle" of data shows the reestimated amount of the previously
recorded net 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 "Cumulative (Deficiency) Redundancy" represents the aggregate change in the
initial estimates from the original date through December 31, 1994. Annual
changes in the estimates are reflected in current operating results each year as
the liabilities are reevaluated. The lower "triangle" of data shows the
cumulative amount paid with respect to the previously recorded liability as of
the end of each succeeding year.
TABLE 4
ANALYSIS OF NET UNPAID CLAIMS AND CLAIM EXPENSES DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31 1984 1985 1986 1987 1988 1989 1990 1991 1992
- --------------------------------- ------- ------- ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net liability for unpaid claims
and claim expenses............. $ 2,539 $ 2,924 $ 4,043 $4,738 $5,217 $5,549 $5,842 $6,230 $6,635
Net liability reestimated as of:
1 year later................... 2,702 3,443 4,348 4,903 5,185 5,537 5,856 6,286 6,775
2 years later.................. 3,090 3,742 4,691 4,927 5,247 5,481 5,778 6,352 6,850
3 years later.................. 3,289 4,000 4,757 4,991 5,166 5,502 5,906 6,475
4 years later.................. 3,537 4,123 4,874 4,983 5,236 5,683 6,091
5 years later.................. 3,598 4,268 4,910 5,077 5,420 5,900
6 years later.................. 3,657 4,321 5,022 5,284 5,642
7 years later.................. 3,743 4,442 5,225 5,528
8 years later.................. 3,850 4,654 5,467
9 years later.................. 4,070 4,935
10 years later................. 4,307
Total cumulative (deficiency)
redundancy..................... (1,768) (2,011) (1,424) (790) (425) (351) (249) (245) (215)
Cumulative amount of net
liability paid through:
1 year later................... 490 622 890 747 812 927 905 1,044 1,291
2 years later.................. 975 1,229 1,385 1,354 1,436 1,584 1,613 1,955 2,195
3 years later.................. 1,390 1,614 1,877 1,846 1,903 2,115 2,332 2,570
4 years later.................. 1,657 1,980 2,267 2,209 2,320 2,689 2,769
5 years later.................. 1,896 2,280 2,565 2,546 2,814 3,025
6 years later.................. 2,109 2,503 2,842 2,965 3,085
7 years later.................. 2,293 2,724 3,207 3,203
8 years later.................. 2,444 2,965 3,413
9 years later.................. 2,636 3,146
10 years later................. 2,799
<CAPTION>
YEAR ENDED
DECEMBER 31 1993 1994
- --------------------------------- ------ -------
<S> <C> <C>
Net liability for unpaid claims
and claim expenses............. $6,803 $10,317
Net liability reestimated as of:
1 year later................... 6,767
2 years later..................
3 years later..................
4 years later..................
5 years later..................
6 years later..................
7 years later..................
8 years later..................
9 years later..................
10 years later.................
Total cumulative (deficiency)
redundancy..................... 36 XX
Cumulative amount of net
liability paid through:
1 year later................... 1,206
2 years later..................
3 years later..................
4 years later..................
5 years later..................
6 years later..................
7 years later..................
8 years later..................
9 years later..................
10 years later.................
</TABLE>
24
<PAGE> 25
TABLE 5
ANALYSIS OF GROSS UNPAID CLAIMS AND CLAIM EXPENSES DEVELOPMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1992 1993 1994
------ ------ -------
<S> <C> <C> <C>
Gross liability for unpaid claims and claim expenses............ $7,968 $8,122 $12,158
Gross liability reestimated as of:
1 year later.................................................. 8,087 8,061
2 years later................................................. 8,149
Total cumulative (deficiency) redundancy........................ (181) 61
Cumulative amount of gross liability paid through:
1 year later.................................................. 1,620 1,351
2 years later................................................. 2,641
</TABLE>
A number of major trends occurred within the industry which have significantly
affected the development of the Corporation's liabilities for claims and claim
expenses displayed in Table 4. Starting in 1980, the Corporation considerably
strengthened the liability for claims and claim expenses for latent injury
(e.g., asbestos-related) and environmental (e.g., pollution) claims. When
originally written, these exposures, some dating back to the 1940s, were not
known to cause bodily harm or property damage. Coverage, if any, was provided to
policyholders on a very limited basis. Liberal interpretations of very carefully
worded insurance policy contract language have, in retrospect, created
unanticipated liabilities for the property/casualty insurance industry. The
cumulative deficiency in the Corporation's historical liabilities shown in Table
4 reflects development of environmental and latent injury damage claims.
Adjustments to the Corporation's liabilities have been made in each year's
current operating results since 1980 to reflect the evolution of case law which
has widened the nature and extent of insurance and reinsurance coverage for
these exposures.
Between 1983 and 1987, the Corporation strengthened its reserves for reinsurance
of medical malpractice liability insurance business written on the occurrence
form. The crisis in medical malpractice insurance led the Corporation to
eliminate occurrence coverage and solely reinsure on a claims made basis.
Reinsurance of other classes of professional liability coverage is also
generally written on a claims made basis. Patterns of reinsurance liability
emergence for claims made coverages differ substantially from such patterns for
occurrence coverages.
Beginning in 1985, the Corporation strengthened its prices and continued to
increase its reserves. Significant reserve strengthening on excess liability to
qualified self insurers, written on both an excess of specific loss and
aggregate basis, has been partially offset by favorable development on
reinsurance of liability business written at the higher pricing levels.
High levels of social and economic inflation have had a leveraged effect on
liabilities for claims and claim expenses. Implicit within the reserve structure
is an increase in both the frequency and severity of claims between years. In
recent years, some of the Corporation's clients have increased the amount of
their retained risk which partially offsets the effect of social and economic
inflation.
The Corporation purchases reinsurance, in both the domestic and international
markets, which provides protection from large property, liability or workers'
compensation claims and allows the Corporation to offer greater capacity to
clients for certain lines of business. The Corporation has increased its
capacity over time by retaining more risk and by purchasing additional
reinsurance protection above its retentions.
In evaluating this information, it should be noted that conditions and trends
affecting the development of liabilities in the past may not occur in the
future. Accordingly, it is not appropriate to extrapolate future redundancies or
deficiencies based on these tables. Current actuarial studies indicate that
liabilities for claims and claim expense as of December 31, 1994, net and gross
of reinsurance, are adequate.
25
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of General Re Corporation
Stamford, Connecticut
We have audited the consolidated financial statements and schedules of General
Re Corporation and subsidiaries listed in the index on page 21 of this Form
10-K. These financial statements and schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and schedules 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 consolidated financial position of General
Re Corporation and subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As discussed in Note 2 to the consolidated financial statements, the Corporation
adopted Financial Accounting Standards No. 109, and accordingly, changed its
method of accounting for income taxes in 1992.
COOPERS & LYBRAND L.L.P.
New York, New York
February 6, 1995
26
<PAGE> 27
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUES
Net premiums written................................. $3,001 $2,524 $2,349
====== ====== ======
Net premiums earned.................................. $2,788 $2,446 $2,319
Net investment income................................ 749 755 755
Other revenues....................................... 234 200 113
Net realized gains on investments.................... 66 159 200
------ ------ ------
Total revenues............................. 3,837 3,560 3,387
------ ------ ------
EXPENSES
Claims and claim expenses............................ 1,981 1,723 1,829
Acquisition costs.................................... 614 552 499
Other operating costs and expenses................... 448 400 338
------ ------ ------
Total expenses............................. 3,043 2,675 2,666
------ ------ ------
Income before income taxes and cumulative
effect adjustments....................... 794 885 721
Income tax expense (benefit):
Current............................................ 152 160 144
Deferred........................................... (23) 28 (19)
------ ------ ------
Income tax expense................................... 129 188 125
------ ------ ------
Income before cumulative effect
adjustments.............................. 665 697 596
Cumulative effect of accounting changes.............. -- 14 61
------ ------ ------
Net income................................. $ 665 $ 711 $ 657
====== ====== ======
SHARE DATA:
Income before cumulative-effect adjustments.......... $ 7.97 $ 8.11 $ 6.84
Cumulative effect of accounting changes.............. -- .17 .71
------ ------ ------
Net income per common share.......................... $ 7.97 $ 8.28 $ 7.55
====== ====== ======
Dividends per share to common stockholders........... $ 1.92 $ 1.88 $ 1.80
Average common shares outstanding.................... 82,071,651 84,542,686 85,667,413
</TABLE>
In 1993, the Corporation adopted the accounting prescribed by the Emerging
Issues Task Force for multiple-year, retrospectively rated reinsurance
contracts. The pro forma effect of adopting the consensus would have resulted in
net income of $618 million ($7.10 per share) in 1992.
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE> 28
GENERAL RE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
ASSETS
INVESTMENTS:
Fixed maturities:
Held-to-maturity (fair value: $1,971 in 1994; $2,122 in 1993)....... $ 1,900 $ 1,925
Available-for-sale (cost: $10,840 in 1994; fair value: $7,793 in
1993).............................................................. 10,717 7,219
Trading (cost: $1,579 in 1994; $2,044 in 1993)...................... 1,557 2,073
Equity securities, at fair value (cost: $2,318 in 1994; $1,560 in
1993)............................................................... 2,977 2,459
Short-term investments, at amortized cost which approximates fair
value............................................................... 1,032 224
Other invested assets.................................................. 715 446
------- -------
Total investments...................................................... 18,898 14,346
------- -------
Cash..................................................................... 242 60
Accrued investment income................................................ 272 240
Accounts receivable...................................................... 1,421 851
Funds held by reinsured companies........................................ 1,942 208
Reinsurance recoverable.................................................. 2,067 1,476
Deferred acquisition costs............................................... 324 153
Securities purchased under agreements to resell.......................... 813 133
Trading account assets................................................... 1,928 1,568
Other assets............................................................. 1,690 384
------- -------
Total assets................................................... $29,597 $19,419
======= =======
LIABILITIES
Claims and claim expenses................................................ $12,158 $ 8,452
Future policy benefits for life and health contracts..................... 1,960 --
Unearned premiums........................................................ 1,642 840
Other reinsurance balances............................................... 2,318 372
Notes payable and commercial paper....................................... 188 453
Income taxes............................................................. 196 313
Securities sold under agreements to repurchase........................... 938 1,566
Securities sold but not yet purchased.................................... 927 542
Trading account liabilities.............................................. 2,320 1,395
Other liabilities........................................................ 1,046 724
Minority interest........................................................ 1,044 --
------- -------
Total liabilities.............................................. 24,737 14,657
------- -------
Cumulative convertible preferred stock (shares issued: 1,734,717 in 1994
and 1,741,010 in 1993; no par value)................................... 148 149
Loan to employee savings and stock ownership plan........................ (147) (148)
------- -------
1 1
------- -------
COMMON STOCKHOLDERS' EQUITY
Common stock (102,827,344 shares issued in 1994 and 1993; par value
$.50).................................................................. 51 51
Paid-in capital.......................................................... 604 596
Unrealized appreciation of investments, net of income taxes.............. 421 651
Currency translation adjustments, net of income taxes.................... (20) (42)
Retained earnings........................................................ 5,330 4,830
Less common stock in treasury, at cost (shares held: 20,955,202 in 1994
and 19,195,866 in 1993)................................................ (1,527) (1,325)
------- -------
Total common stockholders' equity.............................. 4,859 4,761
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity................................... $29,597 $19,419
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK:
Beginning of year........................................... $ 51 $ 51 $ 51
Change for the year......................................... -- -- --
------- ------- -------
End of year.............................................. 51 51 51
------- ------- -------
PAID-IN CAPITAL:
Beginning of year........................................... 596 589 581
Stock issued under stock option and other incentive plans... 6 5 4
Other....................................................... 2 2 4
------- ------- -------
End of year.............................................. 604 596 589
------- ------- -------
UNREALIZED APPRECIATION OF INVESTMENTS, NET OF INCOME TAXES:
Beginning of year........................................... 651 517 519
Cumulative effect of accounting change (FAS 115), net of
income taxes of $201 million............................. 373 -- --
Change for the year......................................... (942) 203 26
Applicable income taxes..................................... 339 (69) (28)
------- ------- -------
End of year.............................................. 421 651 517
------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS, NET OF INCOME TAXES:
Beginning of year........................................... (42) (19) (5)
Change for the year......................................... 22 (23) (14)
------- ------- -------
End of year.............................................. (20) (42) (19)
------- ------- -------
RETAINED EARNINGS:
Beginning of year........................................... 4,830 4,285 3,788
Net income.................................................. 665 711 657
Dividends paid on common stock.............................. (157) (159) (153)
Dividends paid on preferred stock, net of income taxes...... (8) (7) (7)
------- ------- -------
End of year.............................................. 5,330 4,830 4,285
------- ------- -------
COMMON STOCK IN TREASURY:
Beginning of year........................................... (1,325) (1,196) (1,023)
Cost of shares acquired during year......................... (207) (134) (179)
Issued under stock option and other incentive plans......... 5 5 6
------- ------- -------
End of year.............................................. (1,527) (1,325) (1,196)
------- ------- -------
Total common stockholders' equity................... $ 4,859 $ 4,761 $ 4,227
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
GENERAL RE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 665 $ 711 $ 657
Cumulative effect of accounting changes..................... -- (14) (61)
Adjustments to reconcile net income to net cash provided by
operating activities:
Change in claim and claim expense liabilities............ 571 248 788
Change in reinsurance recoverable........................ (220) (30) (345)
Change in unearned premiums.............................. 261 4 35
Amortization of acquisition costs........................ 613 561 499
Acquisition costs deferred............................... (672) (559) (496)
Purchase of trading account securities................... 1,247 (1,131) (108)
Other changes in assets and liabilities.................. 11 91 (142)
Realized gains on investments............................ (66) (159) (200)
------- ------- -------
Net cash from (used in) operating activities........ 2,410 (278) 627
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Fixed maturities: held-to-maturity
Purchases................................................ (40) (66) (56)
Calls and maturities..................................... 296 395 333
Sales.................................................... -- -- --
Fixed maturities: available-for-sale
Purchases................................................ (4,375) (4,020) (4,131)
Calls and maturities..................................... 267 624 290
Sales.................................................... 4,042 2,495 3,406
Equity securities
Purchases................................................ (999) (1,372) (777)
Sales.................................................... 978 1,014 595
Other invested assets....................................... (61) (168) (47)
Net (purchases) sales of short-term investments............. (139) 189 148
Securities purchased under agreements to resell............. (681) (439) (66)
Net purchase of shares in GR-CK............................. (582) -- --
Cash obtained on purchase of GR-CK.......................... 153 -- --
------- ------- -------
Net cash used in investing activities............... (1,141) (1,348) (305)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes payable................................. (21) (6) (100)
Commercial paper borrowing (repayment), net................. (230) 251 (5)
Securities sold under agreements to repurchase.............. (628) 1,597 123
Change in contract deposits................................. 171 98 --
Cash dividends paid to stockholders: Common................. (157) (159) (153)
Preferred.............. (11) (11) (11)
Acquisition of treasury stock............................... (222) (134) (179)
Other....................................................... 11 9 10
------- ------- -------
Net cash (used in) from financing activities........ (1,087) 1,645 (315)
------- ------- -------
Change in cash................................................ 182 19 7
Cash, beginning of year....................................... 60 41 34
------- ------- -------
Cash, end of year............................................. $ 242 $ 60 $ 41
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following are the significant accounting policies and practices of General
Re Corporation and Subsidiaries (the "Corporation"):
BASIS OF PRESENTATION: The Corporation's consolidated financial statements have
been prepared on the basis of generally accepted accounting principles. The
consolidated financial statements include the Corporation and its subsidiaries.
All significant intercompany transactions have been eliminated. Certain
international subsidiaries report their results on a quarter lag. This practice
has no material effect on the consolidated financial statements.
On December 28, 1994, the Corporation and Colonia Konzern AG ("Colonia") formed
a new company that acquired 75 percent of the common shares and approximately 30
percent of the preferred shares of Kolnische Ruckversicherungs-Gesellschaft AG
("Cologne Re"). As a result of its investment in GR-CK at the end of 1994 (see
Note 3), the Corporation's operating results were not materially affected by the
Cologne Re joint venture. Due to the ownership and control structure of GR-CK
and Cologne Re, the Corporation has consolidated the balance sheet of the joint
venture in its balance sheet at December 31, 1994.
Certain reclassifications have been made to 1993 and 1992 balances to conform to
the 1994 presentation.
INVESTMENTS: Effective for 1994, fixed maturity securities that the Corporation
has both the ability and intent to hold to maturity are classified as
held-to-maturity and carried at amortized cost. Fixed maturity securities that
the Corporation may sell prior to maturity in response to changes in market
interest rates, changes in liquidity needs, or other factors and equity
securities are classified as available-for-sale and carried at fair value, with
unrealized gains and losses, net of deferred income taxes, excluded from income
and reported in a separate component of common stockholders' equity. Fixed
maturity securities that are held for resale are classified as trading and
carried at fair value, with unrealized gains and losses included in income. In
1993, fixed maturity securities that the Corporation might have sold prior to
maturity in response to changes in market interest rates, changes in liquidity
needs or other factors were carried at the lower of aggregate amortized cost or
fair value. These securities, which are shown in the balance sheet as comparable
to the available-for-sale category utilized in 1994, are carried at fair value
commencing in 1994. See Note 2, "Accounting Changes", for additional discussion
of the Corporation's adoption of Statement of Financial Accounting Standards No.
115.
Realized gains or losses on sales of investments are primarily determined on the
basis of identified cost and include adjustments to the net realizable value of
investments for declines in value that are considered to be other than
temporary. Realized gains or losses include gains and losses arising from the
translation into U.S. dollars of investments held by the domestic operations and
denominated in foreign currencies. Investment income is recognized as earned and
includes the amortization of bond discount and accretion of bond premium.
Included in other invested assets are investments in reinsurance ventures,
limited partnerships and real estate. Reinsurance ventures accounted for under
the equity method are carried at initial cost which is adjusted after
acquisition for the Corporation's proportionate share of the venture's earnings.
The amount of the adjustment is included in income. Limited partnerships are
carried at estimated fair value with distributions of income recognized in
investment income when received. Real estate is valued at cost and depreciated
over its estimated useful life.
PROPERTY/CASUALTY OPERATIONS
PREMIUMS EARNED: Premiums are recognized in income over the contract period
in proportion to the amount of insurance or reinsurance provided. Unearned
premium liabilities are established to cover the
31
<PAGE> 32
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
unexpired portion of premiums written. Such liabilities are computed by pro
rata methods based on statistical data and reports received from ceding
companies. Premium adjustments on contracts and audit premiums are accrued
on an estimated basis throughout the contract term. Premiums are net of
retrocessions.
ACQUISITION COSTS: Acquisitions costs, consisting principally of
commissions and brokerage expenses incurred at contract issuance, are
deferred and amortized over the contract period in which the related
premiums are earned, generally one year. Deferred acquisition costs are
reviewed to determine that they do not exceed recoverable amounts, after
considering investment income.
DEFERRED CHARGES: Deferred charges ($41 million and $48 million at December
31, 1994 and 1993, respectively), which arose from certain reinsurance
contracts, are amortized over the periods in which the related investment
income is expected to be earned.
CLAIMS AND CLAIM EXPENSES: The liability for claims and claim expenses is
based on reports and individual case estimates received from ceding
companies. The liability also includes incurred but not reported losses,
which are based on past experience and is reduced by anticipated salvage
and subrogation recoverable. The methods of determining such estimates and
establishing the related liabilities are regularly reviewed and updated,
and any resulting adjustments are currently included in income. Reinsurance
recoveries on unpaid claims and claim expenses, net of uncollectible
amounts, are recognized as assets at the same time and in a manner
consistent with the Corporation's method for establishing the related
liability. Workers' compensation liabilities, after deduction of
reinsurance recoverable for unpaid losses, were $1,186 million and $1,212
million at December 31, 1994 and 1993, respectively, after being discounted
at an interest rate of 4.5 percent.
LIFE INSURANCE OPERATIONS
FUTURE POLICY BENEFITS FOR LIFE AND HEALTH CONTRACTS: The liability for
future policy benefits for life and health contracts has been computed
based upon assumed investment yields and mortality and withdrawal rates
anticipated at the time of the Corporation's investment in Cologne Re.
These assumptions include a margin for adverse deviation and vary with the
characteristics of the reinsurance contract's year of issue, policy
duration, country of risk, and other appropriate factors. The interest rate
assumptions used vary by country ranging from 3.0 percent to 7.0 percent.
There was no participating life business; however, appropriate provisions
for profit-sharing commission payments to ceding companies were made.
PRESENT VALUE OF FUTURE PROFITS: In conjunction with the formation of the
Cologne Re joint venture, the Corporation obtained the right to receive
future profits from life reinsurance contracts existing at the date of the
joint venture's formation. The value of these profits is the actuarially
determined present value of the projected profits from the obtained
reinsurance contracts. The calculation of the estimated profits includes
anticipated future premiums, benefit payments, lapse rates, expenses and
related investment income. The present value of future profits was
determined using risk adjusted discount rates ranging primarily from 10
percent through 16 percent. The interest rates selected for the valuation
were determined based on the applicable interest rates in the country of
risk and the risk inherent in the realization of the estimated future
profits. The present value of future profits of $132 million will be
amortized over the duration of the related life business, approximately 20
years, based upon the assumed underlying profits of the business acquired.
FUNDS HELD BY REINSURED COMPANIES: Funds held by reinsured companies represent
ceded premium retained by the ceding company, for a period, according to
contractual terms. The Corporation generally earns investment income on these
balances during the period funds are held.
32
<PAGE> 33
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GOODWILL: The Corporation amortizes on a straight-line basis goodwill recorded
in connection with its business combinations. Included in the balance sheet
caption "other assets", was goodwill of $509 million at December 31, 1994, which
is principally related to the Cologne Re joint venture and is being amortized
over the expected life of the operations acquired, not exceeding 40 years.
DEFERRED INCOME TAXES: Deferred income taxes have been provided for all
temporary differences between the bases of assets and liabilities used in the
financial statements and the Corporation's tax returns. Deferred income taxes
are also provided for unrealized appreciation (depreciation) of equity
securities and certain fixed maturities, and for foreign currency translation
gains or losses by a charge (credit) directly to the applicable component of
common stockholders' equity.
FOREIGN CURRENCY TRANSLATION: Revenues and expenses in foreign currencies are
translated at the rate of exchange at the transaction date. Assets and
liabilities are translated at the rate of exchange in effect at the close of the
period. Gains or losses resulting from translating foreign currency financial
statements are accumulated in a separate component of common stockholders'
equity. Gains or losses resulting from foreign currency transactions
(transactions denominated in a currency other than the entity's functional
currency) are included in net income. The net effect of foreign currency
transactions on operating results during 1994, 1993 and 1992 was immaterial.
DEPOSITS: Reinsurance contracts that do not indemnify the ceding company against
loss or liability are recorded as deposits. These deposits are treated as
financing transactions and are credited or charged with interest income or
expense according to contract terms.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: The Corporation establishes an allowance for
uncollectible reinsurance recoverables and other doubtful receivables. The
allowance was recorded as a valuation account that reduces the corresponding
asset. The allowance was $121 million and $79 million at December 31, 1994 and
1993, respectively.
FINANCIAL SERVICES: Acting as a dealer, the Corporation engages in interest rate
and currency swaps, forward rate agreements, forward foreign exchange, option,
and synthetic security transactions. These contracts were accounted for as
contractual commitments and were carried at estimated fair value based on then
current interest, currency rates, and security values. Securities owned,
securities sold but not yet purchased and futures contracts were carried at fair
value. Realized and unrealized gains or losses from selling or valuing
securities and contractual commitments at fair value were included in "Other
revenues". Purchases of securities under agreements to resell and sales of
securities under agreements to repurchase are accounted for as collateralized
investing and financing transactions and were recorded at their contractual
resale or repurchase amounts, plus accrued interest. Included in the balance
sheet caption, trading account assets and liabilities, were the unrealized gains
and losses on interest rate and currency swaps, forward currency commitments and
option products.
EARNINGS PER SHARE: Earnings per common share were based on earnings, less
preferred dividends, divided by the weighted average common shares outstanding
during each year.
2. ACCOUNTING CHANGES
Effective January 1, 1994, the Corporation adopted Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The after-tax impact of Statement No. 115 decreased common
stockholders' equity by $81 million at December 31, 1994. The Statement's
adoption had no impact on the Corporation's results from operations. See Note 1
for additional details on the resultant changes to the Corporation's investment
accounting.
Effective January 1, 1994, the Corporation adopted FASB Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts. The Interpretation further
clarifies the definition of a right of set-off. Effective
33
<PAGE> 34
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1994, the Corporation adopted FASB Interpretation No. 41,
Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements. The Interpretation modified the accounting in Interpretation No. 39
to permit offsetting in the balance sheet of payables and receivables for
repurchase and reverse repurchase agreements when certain conditions are met.
The Corporation has reclassified amounts on the December 31, 1993 balance sheet
to conform to the new Interpretations. The combined effect of adopting
Interpretations 39 and 41 increased reported assets and liabilities by
approximately $950 million at December 31, 1993 and $1,747 million at December
31, 1994. Adoption of these Interpretations had no impact on results from
operations or common stockholders' equity.
In 1994, the Corporation adopted Statement of Financial Accounting Standards No.
119, Disclosure about Derivatives Financial Instruments and Fair Value of
Financial Instruments. The Statement provides new disclosure requirements for
derivative financial instruments (see Notes 14 and 15).
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 113, Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts. The Statement specifies the
accounting for reinsurance of insurance contracts and also applies to
retrocessions of reinsurance contracts. Under the Statement, prepaid reinsurance
premiums and reinsurance recoveries on unpaid claims and claim expenses are to
be reported as assets, rather than as reductions in liabilities. The Statement
also establishes the risk transfer requirements that a contract must satisfy in
order to be accounted for as reinsurance and prescribes accounting and reporting
standards for reinsurance contracts. Contracts that do not both transfer
significant insurance risk and result in the reasonable possibility that the
reinsurer (or retrocessionaire) may realize a significant loss from the
insurance risk assumed are required to be accounted for as deposits. Adoption of
the risk transfer components of the new Statement did not have a material impact
on the Corporation's financial position or results from operations in 1993.
On July 22, 1993, the Emerging Issues Task Force of the Financial Accounting
Standards Board reached a consensus on accounting for multiple-year,
retrospectively rated reinsurance contracts. The Corporation adopted the EITF's
prescribed method of accounting for such contracts during the third quarter of
1993. Accordingly, the Corporation reported a cumulative-effect adjustment of
$14 million, or $.17 per share, principally to recognize an asset for the
amounts due from retrocessionaires related to favorable contract experience
through January 1, 1993.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other than Pensions. See Note 8 for additional details on the adoption of this
Statement.
Effective January 1, 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. The Statement
requires the use of the liability method of accounting for deferred income
taxes. The cumulative effect of the change in accounting increased net income in
1992 by $61 million, or $.71 per common share.
3. REINSURANCE VENTURES
Cologne Re
On December 28, 1994, the Corporation and Colonia formed a new company that
acquired 75 percent of the common shares and approximately 30 percent of the
preferred shares of Cologne Re, which collectively represents a 66.3 percent
economic interest in Cologne Re. In exchange for its Cologne Re shares, Colonia,
for itself and as trustee for Nordstern Allgemeine Versicherungs AG
(collectively the "CKAG Group"), received 100 percent of the Class A shares of
the new company, General Re-CKAG Reinsurance and Investment S.A.R.L. ("GR-CK").
The Corporation initially contributed $884 million (DM 1,377 million) to GR-CK
in exchange for 100 percent of the Class B shares of GR-CK. On December 30,
1994, GR-CK paid $302 million (DM 475 million) to a subsidiary of the
Corporation in exchange for notes in the principal amount of DM 475
34
<PAGE> 35
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million. The notes pay interest of 8.0 percent annually to GR-CK and are due on
December 30, 2004. The intercompany note has been eliminated in consolidation.
The Class A shares have 49.9 percent of the votes of GR-CK and are entitled to
an annual Class A dividend, which is based on a formula and is subject to a
minimum of approximately DM 36 million, while the Class B shares have 50.1
percent of the votes of GR-CK and are entitled to the earnings of GR-CK in
excess of the Class A dividend. The Corporation has an option after seven years
to purchase the Class A shares of GR-CK owned by the CKAG Group at a formula
price. The option has a minimum exercise price of DM 1,306 million ($842
million) and a maximum exercise price of DM 1,509 million ($973 million),
subject to certain warranty adjustments that may reduce the exercise price.
The acquisition of the shares of Cologne Re through GR-CK has been accounted for
as a purchase. As a result of the ownership and control structure, the
Corporation consolidated GR-CK and Cologne Re in its financial statements and
recorded as minority interests the share of the CKAG Group in GR-CK and of the
other stockholders in Cologne Re. Since the closing occurred at the end of 1994,
the transaction did not have a material effect on the Corporation's results from
operations in 1994. In future years, the Corporation's operating results will
include its proportional share of Cologne Re's operations, which will be
reported on a quarter lag. The cost of the acquisition has been preliminarily
allocated on the basis of the estimated fair value of the assets acquired and
the liabilities assumed in the transaction. The allocation of the purchase price
will be finalized during 1995 with any resulting change adjusting goodwill.
The following unaudited, pro forma information was prepared assuming the
transaction with Cologne Re had occurred as of the beginning of the periods
presented. These results were prepared for informational purposes and do not
purport to be the actual results of the entities had they been combined at that
time. The pro forma information includes all significant adjustments to the
historical results that were directly attributable to the transaction and were
expected to have a continuing effect on the Corporation.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------------
1994 1993
------------------- -------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- ------ -------- ------
(IN MILLIONS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
Revenues.............................................. $3,837 $6,658 $3,560 $6,236
Income before cumulative-effect adjustments........... 665 694 697 720
Per common share...................................... 7.97 8.32 8.11 8.39
</TABLE>
Engineering Insurance Group
On December 30, 1994, General Reinsurance Corporation ("GRC") exchanged its 50
percent partnership interest in Engineering Insurance Group to EIG Co. ("EIG"),
a machinery breakdown insurer, for non-voting preferred stock in EIG having a
value of $20 million. The preferred stock pays dividends at a rate of 6.5
percent per annum and matures on December 30, 2004.
Signet Star Holdings
In 1993, the Corporation entered into a joint venture with W.R. Berkley
Corporation to form Signet Star Holdings, Inc. ("SSH"), which acquired the
common stock of North Star Reinsurance Corporation ("North Star"), a wholly
owned subsidiary of the Corporation, and Signet Reinsurance Company, a wholly
owned subsidiary of W.R. Berkley Corporation. Under the agreement, the
Corporation acquired shares representing 40 percent of the equity interest of
SSH, $36 million of 6.96 percent convertible debt due in January 2003 and $40
million of 9.80 percent senior debt due in January 2000. The Corporation
accounts for its interest in SSH under the equity method.
35
<PAGE> 36
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In November 1993, SSH called the senior debt at par plus accrued interest. The
convertible debt is convertible, at the Corporation's discretion, into common
stock of SSH between June 30, 1995 and July 15, 1995. If the Corporation
converts the debt to equity, it will own a 50 percent equity interest in SSH.
The Corporation, through its wholly owned subsidiary, GRC, has retained the net
claim and claim expense liability of North Star for all reinsurance contracts
underwritten by North Star prior to January 1, 1993. These claim and claim
expense liabilities are currently in runoff and did not have a material impact
on the Corporation's results from operations or financial position during 1994.
Tempest Reinsurance Company Limited
In September 1993, the Corporation acted as sponsor in the formation of Tempest
Reinsurance Company Limited ("Tempest"), a Bermuda-based reinsurance company
specializing in excess property catastrophe reinsurance. The Corporation
accounted for its 20.5 percent interest in Tempest of $112 million at December
31, 1994 under the equity method. The Corporation provides underwriting and
investment management services for Tempest.
4. STATUTORY FINANCIAL INFORMATION
The Corporation's domestic reinsurance and insurance subsidiaries file financial
statements prepared in accordance with statutory accounting practices prescribed
or permitted by insurance regulators. Statutory accounting differs from
generally accepted accounting principles in the reporting of certain reinsurance
contracts, acquisition expenses, furniture and equipment, deferred income taxes
and certain other items. Combined statutory surplus at December 31, 1994 and
1993 was $3,770 million and $3,836 million, respectively, and combined statutory
net income for the years ended December 31, 1994, 1993 and 1992 was $511
million, $655 million and $547 million, respectively.
The Corporation's subsidiaries prepare their statutory financial statements in
accordance with accounting practices prescribed or permitted by their
domiciliary state's insurance department. Prescribed accounting practices
include a variety of publications of the National Association of Insurance
Commissioners (NAIC), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed that have been permitted by the insurance
department of the insurer's domiciliary state.
As discussed in Note 1, the Corporation discounts certain workers' compensation
liabilities at an annual rate of 4.5 percent. Included in the discount
recognized for statutory purposes is a benefit of $489 million for certain
liabilities which the Corporation has been permitted by the domiciliary
insurance department to discount.
36
<PAGE> 37
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVESTMENTS
The cost, fair value and gross unrealized appreciation and depreciation of
short-term, fixed maturity, equity and other investments were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST(1) APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS........................ $ 1,032 -- -- $ 1,032
FIXED MATURITIES -- HELD-TO-MATURITY
U.S. Government............................. 3 -- -- 3
German federal and state governments........ 14 -- -- 14
Tax exempt.................................. 1,432 $ 80 $ 5 1,507
Foreign..................................... 451 2 6 447
------- ------ ---- -------
Total fixed maturities --
held-to-maturity....................... 1,900 82 11 1,971
------- ------ ---- -------
FIXED MATURITIES -- AVAILABLE-FOR-SALE
U.S. Government............................. 1,214 -- 25 1,189
German federal and state governments........ 552 -- -- 552
Tax exempt.................................. 3,814 109 131 3,792
Corporate................................... 1,192 10 42 1,160
Mortgage-backed............................. 647 2 20 629
Asset-backed................................ 253 -- 9 244
Foreign..................................... 3,168 -- 17 3,151
------- ------ ---- -------
Total fixed maturities --
available-for-sale..................... 10,840 121 244 10,717
------- ------ ---- -------
FIXED MATURITIES -- TRADING
U.S. Government............................. 511 -- 1 510
Foreign..................................... 1,068 1 22 1,047
------- ------ ---- -------
Total fixed maturities -- trading........ 1,579 1 23 1,557
------- ------ ---- -------
EQUITIES...................................... 2,318 719 60 2,977
OTHER INVESTED ASSETS......................... 642 92 19 715
------- ------ ---- -------
Total............................... $18,311 $1,015 $357 $18,969
======= ====== ==== =======
</TABLE>
- ---------------
(1) Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
37
<PAGE> 38
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED FAIR
COST(1) APPRECIATION DEPRECIATION VALUE
------- ------------ ------------ -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS......................... $ 224 -- -- $ 224
------- ------------ --- -------
FIXED MATURITIES -- HELD-TO-MATURITY
Tax exempt.................................. 1,687 $ 182 $ 1 1,868
Foreign..................................... 238 16 -- 254
------- ------ --- -------
Total fixed maturities --
held-to-maturity....................... 1,925 198 1 2,122
------- ------ --- -------
FIXED MATURITIES -- AT LOWER OF AMORTIZED COST
OR FAIR VALUE
U.S. Government............................. 1,132 55 2 1,185
German federal and state governments........ 4 -- -- 4
Tax exempt.................................. 3,510 371 -- 3,881
Corporate................................... 1,672 92 3 1,761
Mortgage-backed............................. 360 18 1 377
Asset-backed................................ 71 3 -- 74
Foreign..................................... 470 41 -- 511
------- ------ --- -------
Total fixed maturities -- at lower of
amortized cost or fair value........... 7,219 580 6 7,793
------- ------ --- -------
FIXED MATURITIES -- TRADING
U.S. Government............................. 728 -- -- 728
Foreign..................................... 1,316 32 3 1,345
------- ------ --- -------
Total fixed maturities -- trading........ 2,044 32 3 2,073
------- ------ --- -------
EQUITIES...................................... 1,560 914 15 2,459
OTHER INVESTED ASSETS......................... 368 83 5 446
------- ------ --- -------
Total............................... $13,340 $1,807 $ 30 $15,117
======= ====== ==== =======
</TABLE>
- ---------------
(1) Cost is amortized cost for short-term investments and fixed maturities and
original cost for equity securities and other invested assets.
Gross gains of $57 million, $120 million and $140 million and gross losses of
$120 million, $22 million and $10 million were realized on sales of
available-for-sale fixed maturities in 1994, 1993 and 1992, respectively. The
contractual maturities of fixed maturity investments are shown in the following
table. Actual maturities may differ from contractual maturities because
borrowers may have the right to call or prepay certain obligations.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
----------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
-------------------- ---------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- ------ --------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Due in one year or less............................. $ 78 $ 79 $ 879 $ 880
Due after one year through five years............... 479 476 3,444 3,400
Due after five years through ten years.............. 631 671 2,139 2,117
Due after ten years................................. 712 745 3,478 3,447
Mortgage and asset-backed........................... -- -- 900 873
------- ------ ------- -------
Total............................................... $ 1,900 $1,971 $10,840 $10,717
======= ====== ======= =======
</TABLE>
38
<PAGE> 39
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Realized gains or losses recognized in income for fixed maturities and equity
securities were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.............................................. $(63) $ 98 $130
Equity securities............................................. 129 61 70
---- ---- ----
Total realized gains.......................................... 66 159 200
Income taxes.................................................. 22 66 68
---- ---- ----
Realized gains on investments, after income taxes............. $ 44 $ 93 $132
==== ==== ====
</TABLE>
Investment income, which consists of interest and dividends from all fixed
maturities, equity securities, short-term investments and from other sources,
was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Fixed maturities.............................................. $648 $658 $661
Equity securities............................................. 75 76 54
Short-term investments........................................ 35 22 42
Miscellaneous, net............................................ 8 12 10
---- ---- ----
Total investment income....................................... 766 768 767
Investment expenses........................................... (17) (13) (12)
---- ---- ----
Net investment income......................................... $749 $755 $755
==== ==== ====
</TABLE>
Securities with a par value of $549 million at December 31, 1994 were on deposit
with various state or governmental departments to comply with insurance laws.
6. FEDERAL AND FOREIGN INCOME TAXES
Income tax expense (benefit) was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------------------------------------------------
1994 1993 1992
------------------------ ------------------------ ------------------------
UNITED UNITED UNITED
STATES FOREIGN TOTAL STATES FOREIGN TOTAL STATES FOREIGN TOTAL
------ ------- ----- ------ ------- ----- ------ ------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current.............. $ 99 $53 $152 $137 $23 $160 $122 $22 $144
Deferred............. (21) (2) (23) 27 1 28 (20) 1 (19)
---- --- ---- ---- --- ---- ---- --- ----
Total $ 78 $51 $129 $164 $24 $188 $102 $23 $125
==== === ==== ==== === ==== ==== === ====
</TABLE>
Income taxes were established on a consolidated basis for all domestic and
foreign subsidiaries of the Corporation. No provision has been made for U.S.
income taxes on that portion of cumulative undistributed income of international
subsidiaries of $107 million at December 31, 1994, which is considered
permanently reinvested.
39
<PAGE> 40
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Corporation's effective income tax rate is less than the U.S. statutory rate
due to permanent differences between financial statement income and taxable
income. An analysis of the Corporation's effective tax rate as a percentage of
pretax income follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35.0% 35.0% 34.0%
Reduction in taxes resulting from:
Tax-exempt bond interest.................................. (14.6) (12.7) (15.5)
Dividends received deduction.............................. (1.9) (1.3) (1.4)
Miscellaneous............................................. (2.2) .2 .2
----- ----- -----
Effective tax rate.......................................... 16.3% 21.2% 17.3%
===== ===== =====
</TABLE>
Income taxes paid were $138 million, $142 million and $117 million in 1994, 1993
and 1992, respectively.
The components of the net deferred income tax liability were as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1994 1993
---- ----
(IN MILLIONS)
<S> <C> <C>
DEFERRED INCOME TAX ASSETS:
Claim and claim expense liabilities................................. $(10) $ 14
Alternative minimum tax credit...................................... 12 5
Unearned premiums................................................... 64 52
Accruals not currently deductible................................... 52 36
Other............................................................... 72 54
---- ----
Total deferred tax assets........................................ 190 161
---- ----
DEFERRED INCOME TAX LIABILITIES:
Unrealized appreciation of investments.............................. 199 328
Deferred acquisition costs.......................................... 56 51
Deferred charges.................................................... 14 17
Discount on fixed maturity investments.............................. 26 31
Other............................................................... 63 47
---- ----
Total deferred tax liabilities................................... 358 474
---- ----
Net deferred income tax liability..................................... $168 $313
==== ====
</TABLE>
7. NOTES PAYABLE AND COMMERCIAL PAPER
The carrying amounts of the Corporation's notes payable were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1993
---- ----
(IN MILLIONS)
<S> <C> <C>
9.00% Debenture due in 2009........................................... $150 $150
Variable rate notes (9.17% - 9.40%)................................... -- 34
7.70% Mortgage payable through 1998................................... 7 8
---- ----
Total notes payable................................................... $157 $192
==== ====
</TABLE>
40
<PAGE> 41
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 9% debenture due in 2009 has a covenant requiring the Corporation not to
encumber its common stock holding in General Reinsurance Corporation, the
largest subsidiary of the Corporation. The variable rate notes were issued by
EIG, which was sold to the Corporation's joint venture partner on December 30,
1994 (see Note 3). The mortgage payable is collateralized by the Corporation's
prior home office.
The Corporation issues commercial paper for financial flexibility and liquidity
purposes. Information on the commercial paper program is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Year-end balance.............................................. $ 31 $261 $ 10
Average interest rate at year end............................. 5.96% 3.20% 3.33%
Average maturity at year end (in days)........................ 29.8 30.2 37.0
Average outstanding balance during the year................... $209 $179 $ 56
Average interest rate for the year............................ 4.13% 3.08% 3.42%
</TABLE>
The Corporation has $1,000 million of available lines of credit from banks, all
of which were unused at December 31, 1994. The credit agreement with the banks
requires the Corporation to maintain a minimum consolidated tangible net worth,
as defined, of $2,500 million. Interest expense and interest paid for all loans
payable and commercial paper were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Interest expense............................................ $25 $23 $19
Interest paid............................................... 25 23 18
</TABLE>
8. RETIREMENT PLANS
The Corporation and its subsidiaries have noncontributory pension plans covering
substantially all employees. Pension expense for foreign employees was not
material to the Corporation. Plans for United States employees provide pension
benefits that are generally computed on the basis of the average earnings during
the three consecutive years of highest earnings during the employee's service.
The Corporation's funding policy is to contribute sufficient amounts to meet the
minimum annual funding required by applicable regulations plus such additional
amounts as it may determine to be appropriate from time to time for U.S. plans.
Pension plan assets are principally invested in investment-grade fixed
maturities and equities. Cologne Re provides pensions benefits to its employees
based on years of service and age at retirement.
The components of pension expense related to both funded and unfunded plans for
United States employees were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost-benefits earned during the year................ $ 10 $ 10 $ 9
Interest cost on projected benefit obligation............... 12 11 10
Actual (return) loss on plan assets......................... 4 (14) (6)
Net amortization and deferral............................... (12) 5 (2)
---- ---- ---
Pension expense............................................. $ 14 $ 12 $11
==== ==== ===
</TABLE>
The projected benefit obligation for U.S. employees was determined using an
assumed discount rate of 8.25% in 1994, 7.25% for 1993 and 8.0% for 1992, and an
assumed long-term compensation increase of 6.0% in 1994,
41
<PAGE> 42
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5.5% for 1993 and 6.0% for 1992. An assumed long-term rate of return on plan
assets of 8.5% was used in determining pension expense in 1994, 1993 and 1992.
The projected benefit obligation for Cologne Re employees was determined using
an assumed discount rate of 7.0 percent and an assumed long-term compensation
increase of 3.5 percent.
The Corporation provides pension benefits for certain employees above amounts
allowed under tax qualified plans, through unfunded plans. The Corporation also
provides postretirement retainers through unfunded plans for members of the
Board of Directors.
The following table sets forth the plans' funded status and amount recognized in
the Corporation's consolidated balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------
1994 1993
----------------- -----------------
FUNDED UNFUNDED FUNDED UNFUNDED
------ -------- ------ --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Accumulated benefit obligation:
Vested.......................................... $ 85 $ 50 $ 77 $ 15
Non-vested...................................... 10 7 10 3
---- ---- ---- ----
Accumulated benefit obligation.................... 95 57 87 18
Effect of projected salary increases.............. 33 31 54 7
---- ---- ---- ----
Projected benefit obligation.................... 128 88 141 25
Plan assets at fair value......................... 111 -- 113 --
---- ---- ---- ----
Projected benefit obligation in excess of plan
assets.......................................... (17) (88) (28) (25)
Unrecognized net (gain) loss...................... (5) 6 3 7
Unrecognized prior service cost................... (6) 6 7 (7)
Unrecognized net (asset) obligation at
transition...................................... (9) 2 (9) 2
---- ---- ---- ----
Accrued pension liability....................... $(37) $(74) $(27) $(23)
==== ==== ==== ====
</TABLE>
Substantially all of the Corporation's employees in the United States become
eligible for certain health care and group life insurance benefits upon
retirement from the Corporation. Effective January 1, 1993, the Corporation
adopted Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions. The Corporation has
funded the benefit cost of current retirees, with the retiree paying a portion
of the costs. The retiree's portion of the costs varies depending upon the
individual's length of service with Corporation upon retirement. As of December
31, 1994 and 1993 the Corporation had funded $2 million for postretirement
health care benefits for current retirees and had an accrued liability of $23
million and $20 million, respectively, for current employees.
9. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN
The Corporation has a leveraged Employee Savings and Stock Ownership Plan
(ESSOP) in which substantially all United States employees may participate. The
ESSOP borrowed from the Corporation $150 million at 9.25%, payable annually
through 2014. The proceeds of this borrowing were used by the ESSOP to purchase
1,754,386 shares of 7.25% ($6.20 dividend per share) cumulative convertible
preferred stock of the Corporation. All preferred stock outstanding is held by
the ESSOP and is convertible into common stock. The preferred stock is held by
the ESSOP trustee as collateral for the loan from the Corporation. The
Corporation makes contributions to the ESSOP which, together with the dividend
on shares of the preferred stock, are
42
<PAGE> 43
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sufficient to make loan interest and principal repayments back to the
Corporation. As interest and principal are repaid, a portion of the preferred
stock is allocated to participating employees.
The following summarizes ESSOP activity:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
YEARS ENDED DECEMBER 31:
Dividends paid on preferred stock:
Allocated shares......................................... $ 2 $ 1 $ 1
Unallocated shares....................................... 9 10 10
Compensation expense........................................ 5 4 5
Contribution to ESSOP....................................... 4 4 4
Interest income from ESSOP.................................. 14 14 14
ESSOP SHARE INFORMATION AT DECEMBER 31:
Fair value per share........................................ $ 125.60 $ 110.50 $ 121.25
Shares allocated to employees during the year............... 72,051 61,540 67,173
Committed to be released.................................... 2,881 15,847 18,655
</TABLE>
10. INCENTIVE PLANS
The Corporation has a Long-term Compensation Plan (the "Plan") which provides
for the granting of incentive and non-qualified stock options to Directors, key
executives and managerial employees. The Plan provides that the exercise price
of the options granted may not be less than the fair market value of the
Corporation's common stock on the date the options are granted. The options are
exercisable cumulatively, 20 percent each year, commencing one year from the
date of grant and expire ten years from the grant date. In certain
circumstances, replacement options may be granted upon exercise of an original
option, with the exercise price equal to the current market price and with a
term extending to the expiration date of the original option.
The Plan also permits the granting of stock appreciation rights (SARs) in
connection with options granted under the Plan. SARs permit the grantee to
surrender an exercisable option for an amount equal to the excess of the market
price of the common stock over the option price when the right is exercised. No
SARs have been granted since 1988.
43
<PAGE> 44
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the activity for options and SARs:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
STOCK OPTIONS
Outstanding, beginning of year............................ 2,501,412 2,125,983 1,897,332
Granted ($104.81 to $127.63 per share).................... 814,532 546,467 526,898
Exercised ($41.88 to $116.88 per share)................... (171,093) (124,707) (259,143)
Cancelled................................................. (34,030) (44,691) (35,634)
Voided due to SARs exercise............................... (2,970) (1,640) (3,470)
--------- --------- ---------
Outstanding, end of year.................................. 3,107,851 2,501,412 2,125,983
========= ========= =========
Options exercisable ($41.86 to $131.94 per share)......... 1,479,718 1,181,462 859,955
========= ========= =========
Shares available for future options....................... 1,087,096 1,884,038 2,429,038
========= ========= =========
STOCK APPRECIATION RIGHTS
Outstanding, beginning of year............................ 12,170 13,810 17,280
Exercised................................................. (2,970) (1,640) (3,470)
--------- --------- ---------
Outstanding, end of year.................................. 9,200 12,170 13,810
========= ========= =========
</TABLE>
The Plan also permits the granting of restricted stock awards to key executives
and managerial employees. Shares of restricted stock become outstanding when
granted, receive dividends and have voting rights identical to other outstanding
shares of common stock. Restrictions lapse upon termination of the restriction
period or upon death, disability or normal retirement. During 1994, 1993 and
1992, the Corporation made aggregate restricted stock awards of 17,250, 38,250,
and 31,000 shares, respectively. The cost of restricted stock awards is based on
the market value of the common stock at the date of grant and is recognized as
expense over the restriction period. The expense of the restricted stock plan
was $2 million in 1994, and $1 million in 1993 and 1992.
11. LEASES
The Corporation and its subsidiaries lease office space and data processing
equipment under non-cancelable leases expiring in various years through 2010.
Several of the leases have renewal options with various terms and rental rate
adjustments. Rental expense was $32 million in 1994 and $33 million in 1993 and
1992. The future minimum annual rental commitments under non-cancelable leases
at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
1995................................................... $ 30
1996................................................... 26
1997................................................... 22
1998................................................... 20
1999................................................... 19
Subsequent to 1999..................................... 143
-----
Total.................................................. $ 260
=====
</TABLE>
Future minimum rental payments have not been reduced by $24 million of
anticipated sub-lease rental income on non-cancelable leases.
44
<PAGE> 45
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. REINSURANCE
Premiums written, premiums earned, and claims and claim expenses are reported
net of reinsurance in the Corporation's statements of income. Direct, assumed,
ceded and net amounts for these items were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------
PREMIUMS PREMIUMS CLAIMS AND CLAIM
WRITTEN EARNED EXPENSES
-------- -------- ----------------
(IN MILLIONS)
<S> <C> <C> <C>
1994
Direct......................................... $ 438 $ 423 $ 290
Assumed........................................ 3,058 2,785 2,118
Ceded.......................................... (495) (420) (427)
------ ------ ------
Net.......................................... $3,001 $2,788 $1,981
====== ====== ======
1993
Direct......................................... $ 378 $ 357 $ 233
Assumed........................................ 2,634 2,606 2,000
Ceded.......................................... (488) (517) (510)
------ ------ ------
Net.......................................... $2,524 $2,446 $1,723
====== ====== ======
1992
Direct......................................... $ 359 $ 347 $ 274
Assumed........................................ 2,462 2,436 2,229
Ceded.......................................... (472) (464) (674)
------ ------ ------
Net.......................................... $2,349 $2,319 $1,829
====== ====== ======
</TABLE>
The Corporation utilizes reinsurance to reduce its exposure to large claims.
These agreements provide for recovery of a portion of certain claims and claim
expenses from reinsurers. If the reinsurers are unable to meet their obligations
under the agreements, the Corporation would be liable for such defaulted
amounts. The Corporation holds partial collateral under these agreements.
13. DIVIDENDS
The Corporation is the ultimate controlling entity in the General Re Group
insurance holding company system, which includes domestic insurance companies
that are subject to the insurance holding company acts of Delaware and various
other states. The Corporation is dependent upon the ability of its operating
subsidiaries for the transfer of funds in the form of loans, advances or
dividends. The insurance holding company laws require the filing of annual
reports by the insurance company members of the system and regulate transactions
between the holding company and affiliated insurance companies to the extent
that such transactions must be fair, reasonable and assure the adequacy of
insurance companies' statutory surplus in relation to their liabilities and
financial needs.
The laws also subject extraordinary dividends and other extraordinary
distributions to insurance company stockholders to regulatory approval.
Dividends or distributions in a twelve-month period exceeding the greater of 10
percent of an insurance company's surplus as of the prior year end or 100
percent of net income, excluding realized gains, for the previous calendar year
are generally considered extraordinary and require such approval. Based on these
restrictions, ordinary dividend payments by domestic insurance subsidiaries to
the Corporation are limited to $420 million in 1995. Foreign and non-insurance
subsidiaries generally are subject to fewer restrictions on the payment of
dividends.
45
<PAGE> 46
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. GENERAL RE FINANCIAL PRODUCTS
General
General Re Financial Products Corporation ("GRFP") is a dealer in derivative
financial instruments. GRFP's products include currency and interest rate swaps,
interest rate caps and floors, foreign exchange contracts, and options on swaps.
These instruments are carried at their current fair value, which is a function
of underlying interest rates, currency rates, securities values, volatilities
and the credit worthiness of counterparties. Future changes in interest rates,
currency rates, security values, and interest rate volatilities or a combination
thereof may impact the fair value of these instruments with any resulting
adjustment, including amounts in excess of those previously recognized in the
financial statements, being included currently in the income statement. In the
course of conducting its business, GRFP also engages in a variety of other
related transactions to manage its exposure to market and credit risks.
GRFP reduces exposure to market, currency rate and interest rate risk in
connection with its dealer activities by purchasing or selling futures
contracts, entering into forward contracts, purchasing or selling government
securities, purchasing or selling exchange traded interest rate options, or
entering into offsetting transactions. These hedging instruments are carried at
fair value and contain elements of market and credit risk associated with the
execution, settlement and financing of these instruments similar to the
financial instruments described above.
Trading Revenue
The results of GRFP's trading activities are summarized by category of products
in the following table. Trading revenue includes any associated gains and losses
on hedging instruments. Trading revenue was included in "other revenues" in the
income statement.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------
1994 1993 1992
---- ---- ----
(IN MILLIONS)
<S> <C> <C> <C>
Interest rate and foreign currency swaps.................. $105 $116 $30
Interest rate and foreign currency options................ 30 26 11
---- ---- ----
Gross trading revenues.................................... $135 $142 $41
==== ==== ====
</TABLE>
Nature and Terms
GRFP is a dealer in various types of derivative instruments which are described
below.
Interest rate and currency swaps are agreements between two parties to exchange,
at particular intervals, payment streams calculated on a specified notional
amount. The parties to a currency swap typically exchange a principal amount in
two currencies at inception of the contract, agreeing to reexchange the
currencies at a future date and agreed exchange rate.
Interest rate and currency options grant the purchaser, for a premium payment,
the right to either purchase from or sell to the writer a specified financial
instrument under agreed terms. Interest rate caps and floors require the writer
to pay the purchaser at specified future dates the amount, if any, by which the
option's underlying market interest rate exceeds the fixed cap or falls below
the fixed floor rate, applied to a notional amount.
Forward rate agreements and futures contracts are commitments either to purchase
or sell a financial instrument at a future date for a specified price and are
generally settled in cash. Forward rate agreements settle in cash at a specified
future date based on the differential between agreed interest rates applied to a
notional amount.
46
<PAGE> 47
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GRFP is party to a variety of foreign exchange spot and forward contracts in its
dealer and risk management activities. Foreign exchange contracts generally
involve the exchange of two currencies at agreed rates; spot contracts usually
require the exchange to occur within two business days of the contract date.
A summary of contract and notional amounts of interest rate contracts at
December 31, 1994, and 1993 is included in the table below. For swap and option
transactions, the contract and notional amounts represent the principal volume,
which is referenced by the counterparties in computing payments to be exchanged,
and are not indicative of GRFP's exposure to market or credit risk, future cash
requirements or receipts from such transactions. Approximately 77% of the
notional volume outstanding for swap and option contracts at December 31, 1994
have a term of five years or less and substantially all of the instruments have
a term of less than ten years.
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1994 1993
-------- --------
(IN MILLIONS)
<S> <C> <C>
Interest rate and currency swap agreements............................. $201,076 $116,405
Options written........................................................ 35,933 17,931
Options held........................................................... 36,723 20,001
Financial futures contracts:
Commitments to purchase.............................................. 7,002 7,732
Commitments to sell.................................................. 7,366 9,238
Forward rate agreements................................................ 10,339 4,938
Foreign exchange spot and forwards..................................... 7,720 7,008
</TABLE>
Fair Value of Trading Instruments
The table below discloses the net fair value at the reporting date for each
class of derivative financial instrument held or issued by GRFP for dealer or
risk management purposes, as well as the average fair value during the year,
based on monthly observations. The aggregate fair value of swap and option
contracts represents the net unrealized gain or loss on all swap and option
contracts of GRFP.
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------
1994 1993
--------------------- ---------------------
AVERAGE AVERAGE
YEAR END FOR YEAR YEAR END FOR YEAR
-------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate and foreign currency swaps
Asset................................................ $ 232 $192 $276 $189
Liability............................................ (236) (56) (7) (2)
Interest rate and foreign currency options
Held................................................. 113 88 59 49
Written.............................................. (47) (46) (79) (59)
-------- -------- -------- --------
Aggregate fair value of swap and option contracts...... 62 178 249 177
Futures contracts
Assets............................................... 11 18 11 13
-------- -------- -------- --------
Net fair value......................................... $ 73 $196 $260 $190
====== ====== ====== ======
</TABLE>
Risk Management
GRFP's components of market risk include foreign exchange risk, interest rate
risk, swap spread risk, volatility risk and yield curve risk. These are
monitored on a daily basis across all swap and option products by
47
<PAGE> 48
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
calculating the profit and loss impact of potential changes in market risks over
a one week period. Based on historical market volatility data and informed
judgment, GRFP sets market risk limits for each type of risk based on a 95
percent probability that movements in market rates will not exceed the limits.
GRFP also monitors its consolidated market risk across all trading books on a
weekly basis and has established limits designed to withstand simultaneous
losses of two market risk components, each at the 95 percent confidence level.
GRFP's aggregate weekly market risk limit across all trading books was $10
million. Since inception, GRFP has not experienced a weekly position change
exceeding this aggregate limit. In addition to these daily and weekly
assessments of risk, GRFP prepares periodic stress tests to assess its exposure
to extreme movements in various market risk factors.
Credit Risk
Credit risk arises from the possible inability of counterparties to meet the
terms of their contracts. In the event counterparties are unable to fulfill
their contractual obligations, future losses due to defaults may exceed amounts
currently recognized in the balance sheet. Counterparties to the financial
instruments are, in decreasing order of magnitude, foreign and domestic
commercial banks, U.S. government-chartered organizations, sovereigns and
corporations. GRFP evaluates the creditworthiness of its counterparties by
performing formal internal credit analyses and by referring to ratings of widely
accepted credit rating services. Counterparty credit limits are determined based
on this analysis and counterparty credit exposures are monitored in accordance
with these limits. GRFP receives cash and/or investment grade securities from
certain counterparties as collateral to mitigate its credit exposure. GRFP also
incorporates into contracts with certain counterparties provisions which allow
the unwinding of these transactions in the event of a downgrade in credit rating
of either the counterparty or GRFP.
GRFP assesses credit risk by counterparty based on transactions with each
respective counterparty. Assuming nonperformance by all counterparties on all
contracts potentially subject to a loss, the maximum potential loss, based on
the cost of replacement at market rates prevailing at December 31, 1994,
approximated $1,869 million. This value is net of amounts offset pursuant to
rights of setoff and qualifying master netting arrangements with various
counterparties and is presented in accordance with Interpretation No. 39,
Offsetting of Amounts Related to Certain Contracts and FASB Interpretation No.
41, Offsetting of Amounts Related to Certain Repurchase and Reverse Repurchase
Agreements. The Interpretation further clarifies the definition of a right of
set-off. The maximum potential loss will increase or decrease during the life of
the transaction as a function of maturity period, accounting values, and
interest and currency rates. In the judgment of management, the likelihood that
all counterparties would default, resulting in a maximum potential loss, is
remote. GRFP has not experienced any counterparty defaults or write-offs on such
contracts.
In connection with certain purchases and sales of government securities, GRFP
enters into collateralized repurchase and reverse repurchase agreements, which
may result in credit losses in the event the counterparty to the transaction is
unable to fulfill its contractual obligations. Principally all of these
transactions are collateralized by government securities. GRFP's exposure to
credit risks associated with the non-performance of counterparties in fulfilling
these contractual obligations can be directly affected by market fluctuations,
which may impair the counterparties' ability to satisfy their obligations. It is
GRFP's policy to take possession of securities purchased under agreements to
resell. GRFP monitors the market value of the underlying securities as compared
to the related receivable, including accrued interest, and requests additional
collateral when appropriate. Counterparties to repurchase agreements and futures
transactions are commercial banks and securities brokers and dealers.
GRFP enters into futures contracts for delayed delivery of foreign currencies or
securities in which the seller/purchaser agrees to make/take delivery at a
specified future date of a specified instrument, at a specified price or yield.
Risks arise from the inability of the exchange to meet the terms of the
contracts and from counterparties inability to remit additional margin.
48
<PAGE> 49
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
GRFP regularly consults with internal and external legal counsel (in relevant
jurisdictions) to determine legality and enforceability of various transactions
with different types of counterparties. When there is a perceived risk that a
proposed counterparty may lack legal capacity to enter into a transaction, the
relevant statutes, regulations, and consents are examined.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following are the estimated fair values of the Corporation's financial
instruments:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1994 1993
------------------- -------------------
STATEMENT FAIR STATEMENT FAIR
VALUE VALUE VALUE VALUE
------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS
Invested assets (see Note 5)........................ $18,898 $18,969 $14,346 $15,117
Cash................................................ 242 242 60 60
Securities purchased under agreements to resell..... 813 813 133 133
Mortgage receivable (included in other assets)...... 88 115 90 133
Loan to ESSOP....................................... 147 160 148 188
Contract deposit assets............................. 77 77 58 58
Trading account assets.............................. 1,928 1,928 1,568 1,568
FINANCIAL LIABILITIES
9% debenture due in 2009............................ 150 155 150 183
Variable rate note (9.17% -- 9.42%)................. -- -- 34 35
7.70% mortgage payable through 1998................. 7 7 8 9
Commercial paper.................................... 31 31 261 261
Securities sold under agreements to repurchase...... 938 938 1,566 1,566
Securities sold but not yet purchased............... 927 927 542 542
Contract deposit liabilities........................ 1,361 1,361 155 155
Trading account liabilities......................... 2,320 2,320 1,395 1,395
</TABLE>
The Corporation uses various methods and assumptions in estimating the fair
value of financial instruments. The following valuation methods and assumptions
were utilized by the Corporation in estimating the fair value of financial
instruments:
Cash and short-term investments -- The carrying amounts reported in the
consolidated balance sheet approximate the fair values for these financial
instruments.
Fixed maturities -- Fair values for fixed maturities were generally based
on quoted market prices or dealer quotes.
Equity securities -- Fair values for equity securities were based on quoted
market prices.
Other invested assets -- The fair value of investments in limited
partnerships, which were included in other invested assets on the
consolidated balance sheet, was determined by reviewing available financial
information of the investee and by performing other financial analyses in
consultation with external advisors. Fair values for investments in real
estate were determined using discounted cash flow analyses for each
property. Fair value disclosures for reinsurance ventures were included at
the Corporation's proportionate share in the entity's shareholders' equity
as the cost of determining fair value exceeds the benefits derived.
49
<PAGE> 50
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage and loans receivable/payable -- The fair value of the
Corporation's mortgage and notes receivable/payable was estimated using
discounted cash flow analyses, based on the Corporation's current
incremental borrowing rates for similar types of arrangements. The fair
value of the Corporation's 9.0 percent debenture due 2009 was based on a
market quote.
Contract deposit assets/liabilities -- The fair value of contract deposit
assets and liabilities approximate their carrying value.
Securities purchased under agreements to resell, securities sold under
agreements to repurchase -- The carrying value for these financial
instruments approximates their fair value.
Trading account assets/liabilities -- The fair value for trading account
assets/liabilities was based on the use of valuation models that utilize,
among other factors, current interest and foreign exchange rates and market
volatility data.
Securities sold but not yet purchased -- The fair value for securities sold
but not yet purchased was based on quoted market prices.
16. LEGAL PROCEEDINGS
On September 12, 1994, the Corporation's subsidiary, General Reinsurance
Corporation, along with 31 other insurance companies and insurance industry
organizations, reached a settlement of civil antitrust actions brought by 20
State Attorneys General and several private plaintiffs.
The lawsuit was originally dismissed on motion by the United States District
Court for the Northern District of California on September 20, 1989. The United
States Court of Appeals for the Ninth Circuit reversed the dismissal and
remanded the case to the District Court for further proceedings. On October 5,
1992, the United States Supreme Court granted, in part, defendants' petition for
certiorari. On June 28, 1993, the Supreme Court affirmed in part and reversed in
part the decision of the Court of Appeals and remanded the Case to the Court of
Appeals for further action. On October 6, 1993, the Court of Appeals remanded
the case to the District Court for trial in accordance with the opinion of the
Supreme Court. There was no finding of any wrongdoing or illegality by any
defendant in this civil action.
The settlement includes an already completed restructuring of the Insurance
Services Office and the proposed funding by the defendants of a national public
risk database and a public entity risk services institute to assist risk
management efforts. The terms of the settlement, which provide for no admission
of wrongdoing, illegality or payment of damages, will be subject to the approval
of the United States District Court. The effect of the settlement was not
material to the Corporation's results of operations, cash flows or financial
condition.
The Corporation and its subsidiaries have been named as defendants in litigation
in the ordinary course of conducting an insurance business. These lawsuits
generally seek to establish liability under insurance or reinsurance contracts
issued by the subsidiaries, and occasionally seek punitive or exemplary damages.
The Corporation's reinsurance subsidiaries are also indirectly involved in
coverage litigation. In those cases, plaintiffs seek coverage for their
liabilities under insurance policies from insurance companies reinsured by the
Corporation's reinsurance subsidiaries. In the judgment of management, none of
these cases, individually or collectively, is likely to result in judgments for
amounts which, net of claim and claim expense liabilities previously established
and applicable reinsurance, would be material to the financial position, results
of operations or cash flow of the Corporation.
50
<PAGE> 51
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. CLAIMS AND CLAIM EXPENSES
The table below provides a reconciliation of the beginning and ending claim and
claim expense liability, net of reinsurance, for 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Balance at January 1............................................ $ 8,452 $ 8,204 $ 7,416
Reinsurance recoverables on unpaid claims and claim
expenses................................................... (1,396) (1,366) (1,022)
------- ------- -------
Net balance at January 1........................................ 7,056 6,838 6,394
Incurred claims and claim expenses related to:
Current year.................................................. 2,017 1,583 1,773
Prior years................................................... (36) 140 56
------- ------- -------
1,981 1,723 1,829
------- ------- -------
Claim and claim expense payments related to:
Current year.................................................. 423 214 341
Prior years................................................... 1,206 1,291 1,044
------- ------- -------
Total payments.................................................. 1,629 1,505 1,385
------- ------- -------
Net balance at December 31...................................... 7,408 7,056 6,838
Reinsurance recoverables on unpaid claims and claim
expenses................................................... 1,615 1,396 1,366
Cologne Re unpaid claims and claim expenses................... 3,135 -- --
------- ------- -------
Balance at December 31.......................................... $12,158 $ 8,452 $ 8,204
======= ====== ======
</TABLE>
The Corporation continually estimates its liabilities and related reinsurance
recoveries for environmental and latent injury claims and claim expenses. These
exposures do not lend themselves to traditional methods of loss development
determination and, therefore, may be considered less reliable then reserves for
standard lines of business (e.g., automobile). The estimate is composed of four
parts: known claims, development on known claims, IBNR and direct excess
coverage litigation expenses. Although reliability is constrained by
uncertainties, the Corporation has confidence in the reported known claim
liabilities and, based on alternative methods, has projected a fairly reliable
estimate of development for these claims. The Corporation has also included an
estimate for IBNR that is based on fitted curves of estimated future claim
emergence. This estimate is less reliable than the estimated liability for
reported claims. The effect of joint and several liability on the severity of
losses and a provision for future claim inflation have been included in the loss
development estimate. The Corporation has established a liability for litigation
costs associated with coverage disputes arising out of direct excess insurance
policies, rather than from reinsurance assumed. Direct excess coverage
litigation expenses are estimated using a modified count and amount actuarial
study.
The gross liability for environmental and latent injury claims and claim
expenses and the related reinsurance recoverable were $1,478 million and $382
million, respectively, at December 31, 1994. These amounts are management's best
estimate of future claim and claim expense payments and recoveries that are
expected to develop over the next thirty years. The Corporation continues to
monitor evolving case law and its effect on environmental and latent injury
claims. Changing government regulations and legislation, newly identified
toxins, newly reported claims, new theories of liability, new contract
interpretations, and other factors could significantly affect future claim
development. While the Corporation has recorded its current best estimate of its
liabilities for unpaid claims and claim expenses, it is reasonably possible that
these estimated liabilities, net of estimated reinsurance recoveries, may
increase in the future and that the increase may be material to the
Corporation's results of operations, cash flows and financial position. It is
not possible to estimate reliably the amount of additional net loss, or the
range of net loss, that is reasonably possible.
51
<PAGE> 52
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The liability for claims and claims expenses for 1993 and prior accident years,
net of related reinsurance recoveries, decreased by $36 million in 1994. The
decrease is principally the result of favorable loss development on casualty
lines of business partly offset by reserve strengthening for environmental,
latent injury and associated litigation costs discussed above.
18. COMMON AND PREFERRED STOCK
The Corporation has the authority to issue 250,000,000 shares of $.50 par value
common stock, of which 102,827,344 have been issued. Common stock purchased in
the open market is carried at cost and shown as a reduction to common
stockholders' equity. When treasury shares are reissued, the treasury stock
account is reduced for the cost of the common stock reissued on a first-in,
first-out basis. No treasury stock of the Corporation is held by any subsidiary.
The number of shares included in treasury stock were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------------------------
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year............................. 19,195,866 18,112,410 16,186,808
Purchases, net of reissuances.......................... 1,759,336 1,083,456 1,925,602
----------- ----------- -----------
Balance, end of year................................... 20,955,202 19,195,866 18,112,410
========= ========= =========
</TABLE>
The Corporation also has the authority to issue 20 million shares of preferred
stock of which 1,734,717 are issued and outstanding and held by the ESSOP and 1
million (Series A Junior Participating Preferred) are reserved for the
Shareholders' Rights Plan. Under the Shareholders' Rights Plan, one right
attaches to each outstanding share of common stock. In the event a person or
group acquires or commences a tender or exchange offer for 20% or more of the
Corporation's common stock, each right entitles common stockholders to purchase
Series A Junior Participating Stock, which is convertible to common stock having
a value equal to two times the exercise price.
19. INFORMATION ABOUT THE CORPORATION'S OPERATIONS
The Corporation conducts its operations principally through the following
business segments:
PROPERTY/CASUALTY -- The domestic property/casualty operations of the
Corporation include reinsurance of most property/casualty lines of business,
including general liability, property, workers' compensation and auto liability
in the United States and Canada. In addition, the Corporation conducts excess
and surplus lines insurance business.
International property/casualty operations are conducted as of December 31, 1994
through subsidiaries and branch offices located in Argentina, Australia,
Barbados, Bermuda, France, Germany, Hong Kong, Italy, Ireland, Latvia, Mexico,
Denmark, the Netherlands, New Zealand, Singapore, South Africa, Spain,
Switzerland, Sweden, United Kingdom and Venezuela, and include reinsurance of
property/casualty business in those countries and elsewhere outside the United
States and Canada. At the end of 1994, the Corporation acquired an ownership
interest in Cologne Re. See Note 3 for a further discussion of this transaction.
Cologne Re was not included in the Corporation's results from operations during
1994 but was consolidated in the December 31, 1994 balance sheet, and therefore,
it has been included in the total asset information under the property/casualty
segment in this note.
FINANCIAL SERVICES -- The Corporation's financial services operations engage in
various financial services for affiliated and non-affiliated companies.
Financial services include the Corporation's derivative products, insurance
brokerage and management, reinsurance brokerage, investment management and real
estate management operations.
52
<PAGE> 53
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a summary of industry segment activity for 1994, 1993 and 1992.
<TABLE>
<CAPTION>
1994 -- INDUSTRY SEGMENTS
---------------------------------------------------------
PROPERTY/CASUALTY FINANCIAL SERVICES CONSOLIDATED
----------------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Net premiums written............................ $ 3,001 -- $ 3,001
======= ======== ========
Net premiums earned............................. $ 2,788 -- $ 2,788
Net investment income........................... 738 $ 11 749
Other revenues.................................. 16 218 234
Net realized gains on investments............... 69 (3) 66
------- ------ --------
Total revenues................................ 3,611 226 3,837
------- ------ --------
Claims and claim expenses....................... 1,981 -- 1,981
Acquisition costs............................... 614 -- 614
Other operating costs and expenses.............. 303 145 448
------- ------ --------
Total expenses................................ 2,898 145 3,043
------- ------ --------
Income before income taxes and accounting
changes.................................. $ 713 $ 81 $ 794
======= ====== ========
Total assets -- December 31................... $24,712 $4,885 $ 29,597
======= ====== ========
</TABLE>
<TABLE>
<CAPTION>
1993 -- INDUSTRY SEGMENTS
---------------------------------------------------------
PROPERTY/CASUALTY FINANCIAL SERVICES CONSOLIDATED
----------------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Net premiums written............................ $ 2,524 -- $ 2,524
======= ====== ========
Net premiums earned............................. $ 2,446 -- $ 2,446
Net investment income........................... 748 $ 7 755
Other revenues.................................. (3) 203 200
Net realized gains on investments............... 159 -- 159
------- ------ --------
Total revenues................................ 3,350 210 3,560
------- ------ --------
Claims and claim expenses....................... 1,723 -- 1,723
Acquisition costs............................... 552 -- 552
Other operating costs and expenses.............. 247 153 400
------- ------ --------
Total expenses................................ 2,522 153 2,675
------- ------ --------
Income before income taxes and accounting
changes.................................. $ 828 $ 57 $ 885
======= ====== ========
Cumulative effect of accounting changes....... $ 14 -- $ 14
======= ====== ========
Total assets -- December 31..................... $15,180 $4,239 $ 19,419
======= ====== ========
</TABLE>
53
<PAGE> 54
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1992 -- INDUSTRY SEGMENTS
---------------------------------------------------------
PROPERTY/CASUALTY FINANCIAL SERVICES CONSOLIDATED
----------------- ------------------ ------------
(IN MILLIONS)
<S> <C> <C> <C>
Net premiums written............................ $ 2,349 -- $ 2,349
============= ============= =========
Net premiums earned............................. 2,319 -- $ 2,319
Net investment income........................... 750 $ 5 755
Other revenues.................................. 4 109 113
Net realized gains on investments............... 200 -- 200
----------------- ------ ------------
Total revenues................................ 3,273 114 3,387
----------------- ------ ------------
Claims and claim expenses....................... 1,829 -- 1,829
Acquisition costs............................... 499 -- 499
Other operating costs and expenses.............. 233 105 338
----------------- ------ ------------
Total expenses................................ 2,561 105 2,666
----------------- ------ ------------
Income before income taxes and accounting
changes.................................. $ 712 $ 9 $ 721
============= ============= =========
Cumulative effect of accounting changes....... $ 74 $(13) $ 61
============= ============= =========
Total assets -- December 31..................... $13,815 $885 $ 14,700
============= ============= =========
</TABLE>
The following table is a summary of the Corporation's business by geographic
area. Allocations to geographic area have been made on the basis of subsidiary
location.
<TABLE>
<CAPTION>
GEOGRAPHIC AREA
---------------------------------------
DOMESTIC INTERNATIONAL CONSOLIDATED
-------- ------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
1994
Revenues..................................................... $ 3,381 $ 456 $ 3,837
Income before income taxes................................... 741 53 794
Identifiable assets at December 31........................... 19,195 10,402 29,597
1993
Revenues..................................................... $ 3,285 $ 275 $ 3,560
Income before income taxes................................... 869 16 885
Identifiable assets at December 31........................... 18,564 855 19,419
1992
Revenues..................................................... $ 3,175 $ 212 $ 3,387
Income before income taxes................................... 695 26 721
Identifiable assets at December 31........................... 14,012 688 14,700
</TABLE>
54
<PAGE> 55
GENERAL RE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
20. UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data were as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1994
Net premiums written...................................... $ 820 $ 665 $ 811 $ 705
Net premiums earned....................................... 774 639 670 705
Net investment income..................................... 182 186 187 194
Expenses.................................................. 908 679 710 746
Net income................................................ 98 176 191 200
Per common share:
Net income.............................................. 1.15 2.12 2.29 2.41
Common dividends........................................ .48 .48 .48 .48
Common stock price range*
High.................................................... 114.00 125.38 115.63 128.50
Low..................................................... 102.50 105.75 104.88 105.50
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- ------- ------- -------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1993
Net premiums written...................................... $ 659 $ 588 $ 652 $ 625
Net premiums earned....................................... 648 572 617 609
Net investment income..................................... 183 194 189 189
Expenses.................................................. 727 608 676 664
Income before cumulative effect of changes in
accounting.............................................. 163 189 174 171
Net income................................................ 177 189 174 171
Per common share:
Income before cumulative effect of change in
accounting........................................... 1.89 2.20 2.03 2.00
Net income.............................................. 2.06 2.20 2.03 2.00
Common dividends........................................ .47 .47 .47 .47
Common stock price range*
High.................................................... 130.00 123.13 132.75 123.88
Low..................................................... 112.13 109.13 115.50 105.38
</TABLE>
- ---------------
* Closing price, New York Stock Exchange
Earnings per common share for each quarter are required to be computed
independently and, due to purchases of treasury shares, will not equal the
total year earnings per common share amounts.
55
<PAGE> 56
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the captions "Board of Directors" and "Election of
Directors" in the Proxy Statement. Information with respect to the Corporation's
Executive Officers is set forth under the caption "Executive Officers of the
Corporation" at the end of Part I of this report, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the caption "Executive Compensation" in the Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the caption "Transactions with Management and Others" in
the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND EXHIBITS
1. The Financial Statements, Reserve Disclosures (unaudited) and
Financial Statement Schedules listed in the accompanying index on
page 21 are filed as part of this Report.
<TABLE>
<C> <S> <C>
2. Exhibits
3. (a)1 The Restated Certificate of Incorporation of General Re Corporation, as
amended, is incorporated by reference herein from the Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1987.
(b) The By-Laws of the Corporation, as amended, included as Exhibit 3(b) to
the Corporations Report on Form 8-K filed on February 24, 1995, is hereby
incorporated herein by reference.
4.1 Rights Agreement, dated as of September 11, 1991 between the Corporation
and The Bank of New York, as Rights Agent.
10.11,2 The General Re Corporation 1989 Long-Term Compensation Plan.
.21,2 Form of Indemnity Agreement among the Corporation and directors and
executive officers.
11. Computation of Earnings Per Share.
21. Subsidiaries of the Registrant.
23. Consent of Independent Accountants.
</TABLE>
- ---------------
1 Filed herewith
2 Management contracts or compensatory plans filed pursuant to Item 14(c)
56
<PAGE> 57
<TABLE>
<S> <C>
25. Powers of Attorney of Directors.
27. Financial Data Schedules.
28. Combined Domestic Property/Casualty Insurance Companies Schedule P.
</TABLE>
(B) REPORTS ON FORM 8-K
Form 8-K, dated July 18, 1994, filed on October 11, 1994, consisting of Item
5.
Form 8-K, dated September 16, 1994, filed on December 22, 1994, consisting
of Item 5.
57
<PAGE> 58
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
GENERAL RE CORPORATION
(Registrant)
By: ELIZABETH A. MONRAD
(Elizabeth A. Monrad, Vice
President and Treasurer)
Dated: March 9, 1995
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
RONALD E. FERGUSON Chairman and Chief Executive March 9, 1995
(Ronald E. Ferguson) Officer and Director
JOSEPH P. BRANDON Vice President and Chief Financial March 9, 1995
(Joseph P. Brandon) Officer (Principal Financial Officer)
ELIZABETH A. MONRAD Vice President and Treasurer March 9, 1995
(Elizabeth A. Monrad) (Principal Accounting Officer)
*LUCY WILSON BENSON Director March 9, 1995
(Lucy Wilson Benson)
*WALTER M. CABOT Director March 9, 1995
(Walter M. Cabot)
*JOHN C. ETLING Vice Chairman and Director March 9, 1995
(John C. Etling)
*WILLIAM C. FERGUSON Director March 9, 1995
(William C. Ferguson)
*DONALD J. KIRK Director March 9, 1995
(Donald J. Kirk)
*KAY KOPLOVITZ Director March 9, 1995
(Kay Koplovitz)
*EDWARD H. MALONE Director March 9, 1995
(Edward H. Malone)
*ANDREW W. MATHIESON Director March 9, 1995
(Andrew W. Mathieson)
*DAVID E. MCKINNEY Director March 9, 1995
(David E. McKinney)
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
*STEPHEN A. ROSS Director March 9, 1995
(Stephen A. Ross)
*WALTER F. WILLIAMS Director March 9, 1995
(Walter F. Williams)
</TABLE>
- ---------------
*By either Charles F. Barr or Robert D. Graham pursuant to a power of attorney.
59
<PAGE> 60
GENERAL RE CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GENERAL RE CORPORATION
CONDENSED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(PARENT COMPANY)
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Assets
Fixed maturities -- available-for-sale................................. $ 94 $ 258
Equity securities, at fair value....................................... -- 25
Short-term investments, at amortized cost which approximates fair
value............................................................... 20 --
Investment in GR-CK.................................................... 582
Investment in subsidiaries, at equity.................................. 4,427 4,497
Other invested assets.................................................. 92 207
Other assets........................................................... 20 21
Due from subsidiaries.................................................. 49 410
------- -------
Total assets................................................... $ 5,284 $ 5,418
======= =======
Liabilities
Commercial paper....................................................... $ 31 $ 262
Note payable due 2009.................................................. 150 150
Income taxes........................................................... 134 172
Other liabilities...................................................... 109 72
------- -------
Total liabilities.............................................. 424 656
------- -------
Cumulative convertible preferred stock (shares issued: 1,734,717 in 1994
and 1,741,010 in 1993; no par value)................................... 148 149
Loan to employee savings and stock ownership plan........................ (147) (148)
------- -------
1 1
------- -------
Common Stockholders' Equity
Common stock (102,827,344 shares issued in 1994 and 1993; par value
$.50)............................................................... 51 51
Paid-in capital........................................................ 604 596
Unrealized appreciation of investments, net of income taxes............ 421 651
Currency translation adjustments, net of income taxes.................. (20) (42)
Retained earnings...................................................... 5,330 4,830
Less common stock in treasury, at cost (shares held: 20,955,202 in 1994
and 19,195,866 in 1993)............................................. (1,527) (1,325)
------- -------
Total common stockholders' equity.............................. 4,859 4,761
------- -------
Total liabilities, cumulative convertible preferred stock and
common stockholders' equity................................... $ 5,284 $ 5,418
======= =======
</TABLE>
S-1
<PAGE> 61
GENERAL RE CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(PARENT COMPANY)
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
REVENUES
Distributions from subsidiaries
Insurance subsidiaries.......................................... $ 441 $295 $450
Other subsidiaries.............................................. 394 5 185
----- ---- ----
Total distributions from subsidiaries...................... 835 300 635
Net investment income.............................................. 26 33 15
Other revenues..................................................... 37 8 --
Net realized gains (losses) on investments......................... 6 (3) 3
----- ---- ----
904 338 653
----- ---- ----
EXPENSES
Other operating costs and expenses................................. 29 26 10
Income taxes....................................................... (4) (15) (17)
----- ---- ----
25 11 (7)
----- ---- ----
Income before equity income and cumulative effect
adjustments.............................................. 879 327 660
----- ---- ----
Equity in net income of consolidated subsidiaries less dividends
received of $835 in 1994, $300 in 1993 and $635 in 1992............ (214) 370 (64)
Cumulative effect of accounting changes.............................. -- 14 61
----- ---- ----
Net income................................................. $ 665 $711 $657
===== ==== ====
</TABLE>
S-2
<PAGE> 62
GENERAL RE CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(PARENT COMPANY)
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
----- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................................... $ 665 $711 $657
Cumulative effect of accounting changes............................ -- (14) (61)
Equity in net income of consolidated subsidiaries less dividends
received........................................................ 214 (370) 64
Other.............................................................. 351 (294) (42)
----- ---- ----
Net cash from operating activities......................... 1,230 33 618
----- ---- ----
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities:
Purchases....................................................... (132) (484) (253)
Sales........................................................... 276 362 121
Maturities...................................................... 40 95 5
Equity securities:
Sales........................................................... 1 -- --
Other invested assets.............................................. 105 (25) --
Net (purchases) sales of short-term investments.................... (20) 75 (52)
Purchase of shares in GR-CK........................................ (884) -- --
Capital contribution to other subsidiaries......................... (6) (10) --
----- ---- ----
Net cash (used in) from investing activities............... (620) 13 (179)
----- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of note payable.......................................... -- -- (100)
Commercial paper borrowing (repayment), net........................ (230) 251 (5)
Cash dividends paid to stockholders
Common.......................................................... (157) (159) (153)
Preferred....................................................... (11) (11) (11)
Acquisition of treasury stock...................................... (222) (134) (179)
Other.............................................................. 11 9 10
----- ---- ----
Net cash used in financing activities...................... (609) (44) (438)
----- ---- ----
Change in cash....................................................... 1 2 1
Cash, beginning of year.............................................. 3 1 --
----- ---- ----
Cash, end of year.................................................... $ 4 $ 3 $ 1
===== ==== ====
</TABLE>
S-3
<PAGE> 63
SCHEDULE V
GENERAL RE CORPORATION
SCHEDULE V--SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN MILLIONS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN C
NET
FUTURE COLUMN E COLUMN H
POLICY OTHER BENEFITS, COLUMN I
BENEFIT POLICY CLAIMS, AMORTIZATION
COLUMN A COLUMN B LOSSES, COLUMN D CLAIMS COLUMN G LOSSES OF DEFERRED COLUMN J
YEAR DEFERRED CLAIMS NET AND COLUMN F NET AND POLICY OTHER COLUMN K
AND ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COSTS EXPENSES PREMIUMS PAYABLE REVENUE INCOME EXPENSES COSTS EXPENSES WRITTEN
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1994
Property/
Casualty, Life
Domestic....... $ 204 $ 7,029 $ 910 -- $2,394 $686 $1,709 $535 $251 $2.581
Interna-
tional........ 120 3,288 543 $1,960 394 52 272 79 52 420
----- ------- ------ ------ ------ ---- ------ ---- ---- ------
Total........ $ 324 $10,317 $1,453 $1,960 $2,788 $738 $1,981 $614 $303 $3,001
===== ======= ====== ====== ====== ==== ====== ==== ==== ======
1993
Property/Casualty
Domestic....... $ 147 $ 6,803 $ 747 $ -- $2,225 $705 $1,557 $510 $213 $2,275
International.. 6 253 68 -- 221 43 166 42 34 249
----- ------- ------ ------ ------ ---- ------ ---- ---- ------
Total........ $ 153 $ 7,056 $ 815 $ -- $2,446 $748 $1,723 $552 $247 $2,524
===== ======= ====== ====== ====== ===== ====== ==== ==== ======
1992
Property/Casualty
Domestic $ 152 $ 6,635 $ 736 $ -- $2,166 $703 $1,706 $470 $206 $2,177
International.. 3 203 46 -- 153 47 123 29 27 172
----- ------- ------ ------ ------ ---- ------ ---- ---- ------
Total........ $ 155 $ 6,838 $ 782 $ -- $2,319 $750 $1,829 $499 $233 $2,349
===== ======= ====== ====== ====== ==== ====== ==== ==== ======
</TABLE>
- ---------------
Note: The gross liability for unpaid claims and claim expenses was $12,158
million, $8,452 million and $8,204 million in 1994, 1993 and 1992,
respectively. The gross unearned premiums were $1,642 million , $840
million, $836 million in 1994, 1993 and 1992, respectively. The totals
shown in the Schedule include only the reinsurance and insurance
operations of the Corporation and may not correspond with consolidated
amounts.
S-4
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ------------
<S> <C> <C>
4. Rights Agreement, dated as of September 11, 1994 between the Corporation and The
Bank of New York, as Rights Agent.................................................
10.1 The General Re Corporation 1989 Long-Term Compensation Plan.......................
.2 Form of Indemnity Agreement among the Corporation and directors and executive
officers..........................................................................
11. Computation of Earnings Per Share.................................................
21. Subsidiaries of Registrant........................................................
23. Consent of Independent Accountants................................................
24. Powers of Attorney of Directors...................................................
27. Financial Data Schedules..........................................................
28. Combined Domestic Property/Casualty Insurance Companies Schedule P................
</TABLE>
<PAGE> 1
EXHIBIT
4. Rights Agreement, dated as of September 11, 1991
between the Corporation and
the Bank of New York as Rights Agent
<PAGE> 2
- --------------------------------------------------------------------------------
GENERAL RE CORPORATION
and
THE BANK OF NEW YORK,
Rights Agent
---------------
Rights Agreement
Dated as of September 11, 1991
- --------------------------------------------------------------------------------
<PAGE> 3
Table of Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Appointment of Rights Agent . . . . . . . . . . . . . . . . . . . . . 5
3 Issue of Rights Certificates . . . . . . . . . . . . . . . . . . . . . 5
4 Form of Rights Certificates . . . . . . . . . . . . . . . . . . . . . 7
5 Countersignature and Registration . . . . . . . . . . . . . . . . . . 9
6 Transfer, Split Up, Combination and Exchange
of Rights Certificates; Mutilated,
Destroyed, Lost or Stolen
Rights Certificates . . . . . . . . . . . . . . . . . . . . . . . 10
7 Exercise of Rights; Purchase Price;
Expiration Date of Rights . . . . . . . . . . . . . . . . . . . . 11
8 Cancellation and Destruction of Rights
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9 Reservation and Availability of Capital Stock . . . . . . . . . . . . 14
10 Preferred Stock Record Date . . . . . . . . . . . . . . . . . . . . . 16
11 Adjustment of Purchase Price, Number and Kind
of Shares or Number of Rights . . . . . . . . . . . . . . . . . . 17
12 Certificate of Adjusted Purchase Price or Number
of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
13 Consolidation, Merger or Sale or Transfer of
Assets or Earning Power . . . . . . . . . . . . . . . . . . . . . 30
14 Fractional Rights and Fractional Shares . . . . . . . . . . . . . . . 34
15 Rights of Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
16 Agreement of Rights Holders . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
17 Rights Certificate Holder Not Deemed a Stockholder . . . . . . . . . . . . . 37
18 Concerning the Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . 38
19 Merger or Consolidation or Change of Name of Rights Agent . . . . . . . . . 38
20 Duties of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
21 Change of Rights Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
22 Issuance of New Rights Certificates . . . . . . . . . . . . . . . . . . . . 44
23 Redemption and Termination . . . . . . . . . . . . . . . . . . . . . . . . . 45
24 Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . 46
25 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
26 Supplements and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . 48
27 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
28 Determinations and Actions by the Board of Directors, etc. . . . . . . . . . 49
29 Benefits of this Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 50
30 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
31 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
32 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
33 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
Exhibit A -- Certificate of Designation, Preferences
and Rights of Series A Junior
Participating Preferred Stock
Exhibit B -- Form of Rights Certificate
Exhibit C -- Summary of Rights to Purchase Preferred Stock
ii
<PAGE> 5
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of September 11, 1991 (the "Agreement"), between
General Re Corporation, a Delaware corporation (the "Company"), and The Bank of
New York, a New York banking corporation (the "Rights Agent").
W I T N E S S E T H
WHEREAS, on September 11, 1991 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company authorized and declared a dividend
distribution of one Right for each share of common stock, par value $.50 per
share, of the Company (the "Common Stock") outstanding at the close of business
on October 1, 1991 (the "Record Date"), and has authorized the issuance of one
Right (as such number may hereinafter be adjusted pursuant to the provisions of
Section 11(p) hereof) for each share of Common Stock of the Company issued
between the Record Date (whether originally issued or delivered from the
Company's treasury) and the Distribution Date each Right initially representing
the right to purchase one one-hundredth of a share of Series A Junior
Participating Preferred Stock of the Company having the rights, powers and
preferences set forth in the form of Certificate of Designation, Preferences and
Rights attached hereto as Exhibit A, upon the terms and subject to the
conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates of such Person, shall be the Beneficial Owner of
20% or more of the shares of Common Stock then outstanding, but shall not
include the Company, any Subsidiary of the Company, any employee benefit plan of
the Company or of any Subsidiary of the Company, or any Per-
<PAGE> 6
son or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan.
(b) "Affiliate" and "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 amended and in effect on the date of this
Agreement (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and shall be deemed
to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided, however, that
a Person shall not be deemed the "Beneficial Owner" of, or to "beneficially
own," (A) securities tendered pursuant to a tender or exchange offer made
by such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase or exchange, or (B)
securities issuable upon exercise of Rights at any time prior to the
occurrence of a Triggering Event, or (C) securities issuable upon exercise
of Rights from and after the occurrence of a Triggering Event which Rights
were acquired by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof (the "Original Rights") or pursuant to Section 11(i)
hereof in connection with an adjustment made with respect to any Original
Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange
2
<PAGE> 7
Act), including pursuant to any agreement, arrangement or understanding,
whether or not in writing; provided, however, that a Person shall not be
deemed the "Beneficial Owner" of, or to "beneficially own," any security
under this subparagraph (ii) as a result of an agreement, arrangement or
understanding to vote such security if such agreement, arrangement or
understanding: (A) arises solely from a revocable proxy given in response
to a public proxy for consent solicitation made pursuant to, and in
accordance with, the applicable provisions of the General Rules and
Regulations under the Exchange Act, and (B) is not also then reportable
by such Person on Schedule l3D under the Exchange Act (or any comparable
or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person (or any Affiliate or Associate thereof) with which such Person
(or any of such Person s Affiliates or Associates) has any agreement,
arrangement or understanding (whether or not in writing), for the purpose
of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to subparagraph (ii) of this paragraph (c)) or
disposing of any voting securities of the Company; provided,
however, that nothing in this paragraph (c) shall cause a person
engaged in business as an underwriter of securities to be the "Beneficial
Owner" of, or to "beneficially own," any securities acquired through such
person's participation in good faith in a firm commitment underwriting
until the expiration of forty days after the date of such acquisition.
(d) "Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(e) "Close of business" on any given date shall mean 5:00 P.M., New York
City time, on such date; provided, however, that if such date is
not a Business
3
<PAGE> 8
Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business
Day.
(f) "Common Stock" shall mean the common stock, par value $.50 per share,
of the Company, except that "Common Stock" when used with reference to any
Person other than the Company shall mean the capital stock of such Person with
the greatest voting power, or the equity securities or other equity interest
having power to control or direct the management, of such Person.
(g) "Person" shall mean any individual, firm, corporation, partnership or
other entity.
(h) "Preferred Stock" shall mean shares of Series A Junior Participating
Preferred Stock, without par value, of the Company, and, to the extent that
there are not a sufficient number of shares of Series A Junior Participating
Preferred Stock authorized to permit the full exercise of the Rights, any other
series of Preferred Stock, without par value, of the Company designated for such
purpose containing terms substantially similar to the terms of the Series A
Junior Participating Preferred Stock.
(i) "Section 11(a)(ii) Event" shall mean any event described in Section
11(a)(ii)(A) hereof.
(j) "Section 13 Event" shall mean any event described in clauses(x), (y) or
(z) of Section 13(a) hereof.
(k) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) under the Exchange Act) by
the Company or an Acquiring Person that an Acquiring Person has become such.
(l) "Subsidiary" shall mean, with reference to any Person, any corporation
of which an amount of voting securities sufficient to elect at least a majority
of the directors of such corporation is beneficially owned, directly or
indirectly, by such Person, or otherwise controlled by such Person.
4
<PAGE> 9
(m) "Triggering Event" shall mean any Section 11(a)(ii) Event or any
Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company in accordance with the terms
and conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable upon ten (10) days' prior written notice to the Rights
Agent. The Rights Agent shall have no duty to supervise, and shall in no event
be liable for, the acts or omissions of any such Co-Rights Agent.
Section 3. Issue of Rights Certificates.
(a) Until the earlier of (i) the close of business on the tenth day after
the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition
Date occurs before the Record Date, the close of business on the Record Date),
or (ii) the close of business on the tenth-business day (or such later date as
the Board shall determine) after the date that a tender or exchange offer by any
Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any Person
or entity organized, appointed or established by the Company for or pursuant to
the terms of any such plan) is first published or sent or given within the
meaning of Rule 14d-2(a) of the General Rules and Regulations under the Exchange
Act, if upon consummation thereof, such Person would be the Beneficial Owner of
20% or more of the shares of Common Stock then outstanding (the earlier of (i)
and (ii) being herein referred to as the "Distribution Date"), (x) the Rights
will be evidenced (subject to the provisions of paragraph (b) of this Section 3)
by the certificates for the Common Stock registered in the names of the holders
of the Common Stock (which certificates for Common Stock shall be deemed also to
be certificates for Rights) and not by separate certificates, and (y) the Rights
will be transferable only in connection with the transfer of the underlying
shares of Common Stock (including a transfer to the Company). As soon as
practicable after the Distribution Date, the Rights Agent will, at the Company's
expense, send by first-class, insured, postage prepaid mail, to each record
holder of the Common Stock as of the close of business on the Distribution
5
<PAGE> 10
Date, at the address of such holder shown on the records of the Company, one or
more right certificates, in substantially the form of Exhibit B hereto (the
"Rights Certificates"), evidencing one Right for each share of Common Stock so
held, subject to adjustment as provided herein. In the event that an adjustment
in the number of Rights per share of Common Stock has been made pursuant to
Section 11(p) hereof, at the time of distribution of the Right Certificates, the
Company shall make the necessary and appropriate rounding adjustments (in
accordance with Section 14(a) hereof) so that Rights Certificates representing
only whole numbers of Rights are distributed and cash is paid in lieu of any
fractional Rights. As of and after the Distribution Date, the Rights will be
evidenced solely by such Rights Certificates.
(b) As promptly as practicable, the Company will send a copy of a Summary
of Rights, in substantially the form attached hereto as Exhibit C (the "Summary
of Rights"), by first-class, postage prepaid mail, to each record holder of the
Common Stock as of the close of business on the Record Date, at the address of
such holder shown on the records of the Company. With respect to certificates
for the Common Stock outstanding as of the Record Date, until the Distribution
Date, the Rights will be evidenced by such certificates for the Common Stock and
the registered holders of the Common Stock shall also be the registered holders
of the associated Rights. Until the earlier of the Distribution Date or the
Expiration Date (as such term is defined in Section 7 hereof), the transfer of
any certificates representing shares of Common Stock in respect of which Rights
have been issued shall also constitute the transfer of the Rights associated
with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock which
are issued (whether originally issued or from the Company's treasury) after the
Record Date but prior to the earlier of the Distribution Date or the Expiration
Date. Certificates representing such shares of Common Stock shall also be deemed
to be certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between General
6
<PAGE> 11
Re Corporation (the "Company") and The Bank of New York (the "Rights
Agent") dated as of September 11, 1991 (the "Rights Agreement"), the terms
of which are hereby incorporated herein by reference and a copy of which is
on file at the principal offices of the Company. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. The Company will mail to the holder of this certificate a copy
of the Rights Agreement, as in effect on the date of mailing, without
charge promptly after receipt of a written request therefor. Under certain
circumstances set forth in the Rights Agreement, Rights issued to, or held
by, any Person who is, was or becomes an Acquiring Person or any Affiliate
or Associates thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any subsequent
holder, may become null and void.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase and of
assignment to be printed on the reverse thereof) shall each be substantially in
the form set forth in Exhibit B hereto and may have such marks of identification
or designation and such legends, summaries or endorsements printed thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any applicable law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Rights
7
<PAGE> 12
may from time to time be listed, or to conform to usage. The Rights Certificates
shall be in a machine printable format and in a form reasonably satisfactory to
the Rights Agent. Subject to the provisions of Section 11 and Section 22 hereof,
the Rights Certificates, whenever distributed, shall be dated as of the Record
Date, shall show the date of countersignature, and on their face shall entitle
the holders thereof to purchase such number of one one-hundredths of a share of
Preferred Stock as shall be set forth therein at the price set forth therein
(such exercise price per one one-hundredth of a share, the "Purchase Price"),
but the amount and type of securities purchasable upon the exercise of each
Right and the Purchase Price thereof shall be subject to adjustment as provided
herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section 22
hereof that represents Rights beneficially owned by: (i) an Acquiring Person or
any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person becomes such, or (iii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such and
receives such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person to holders of equity interests in such
Acquiring Person or to any Person with whom such Acquiring Person has any
continuing agreement, arrangement or understanding regarding the transferred
Rights or (B) a transfer which the Board of Directors of the Company has
determined is part of a plan, arrangement or understanding which has as a
primary purpose or effect avoidance of Section 7(e) hereof, and any Rights
Certificate issued pursuant to Section 6 or Section 11 hereof upon transfer,
exchange, replacement or adjustment of any other Rights Certificate referred to
in this sentence, shall contain (to the extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person (as such terms are defined in the Rights
Agreement). Accordingly, this Rights Certificate
8
<PAGE> 13
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Agreement.
The Company shall instruct the Rights Agent in writing of the Rights which
should be so legended and shall supply the Rights Agent with such legended
Rights Certificates.
Section 5. Countersignature and Registration.
(a) The Rights Certificates shall be executed on behalf of the Company by
its Chairman of the Board, its President or any Vice President, either manually
or by facsimile signature, and shall have affixed thereto the Company's seal or
a facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The Rights
Certificates shall be manually countersigned by an authorized signatory of the
Rights Agent, which need not be the same authorized signatory for all of the
Rights Certificates and shall not be valid for any purpose unless so
countersigned. In case any officer of the Company who shall have signed any of
the Rights Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by an authorized
signatory of the Rights Agent and issued and delivered by the Company with the
same force and effect as though the person who signed such Rights Certificates
had not ceased to be such officer of the Company; and any Rights Certificates
may be signed on behalf of the Company by any person who, at the actual date of
the execution of such Rights Certificate, shall be a proper officer of the
Company to sign such Rights Certificate, although at the date of the execution
of this Rights Agreement any such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its office or offices designated as the appropriate place for
surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the names and addresses of the respective holders of the Rights
Certificates, the number of Rights evidenced on its face
9
<PAGE> 14
by each of the Rights Certificates and the date of each of the Rights,
Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
(a) Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date, and at
or prior to the close of business on the Expiration Date any Rights Certificate
or Certificates may be transferred, split up, combined or exchanged for another
Rights Certificate or Certificates, entitling the registered holder to purchase
a like number of one one-hundredths of a share of Preferred Stock (or, following
a Triggering Event, Common Stock, other securities, cash or other assets, as the
case may be) as the Rights Certificate or Certificates surrendered then entitled
such holder (or former holder in the case of a transfer) to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Certificates shall make such request in writing delivered to the
Rights Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the office or offices of the
Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment on the reverse side of such Rights Certificate and shall have
provided such additional evidence of the identity of the Beneficial Owner (or
former Beneficial Owner) or Affiliates or Associates thereof as the Company
shall reasonably request. Thereupon the Rights Agent shall, subject to Section
4(b), Section 7(e) and Section 14 hereof, countersign and deliver to the Person
entitled thereto a Rights Certificate or Rights Certificates, as the case may
be, as so requested. The Company may require payment by the holder of a Rights
Certificate of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any transfer, split up, combination or exchange of
Rights Certificates.
10
<PAGE> 15
(b) Upon receipt by the Company and the Rights Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of a Rights
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to them, and reimbursement to the Company and
the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender to the Rights Agent and cancellation of the Rights Certificate, if
mutilated, along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request, the Company will
execute and deliver a new Rights Certificate of like tenor to the Rights Agent
for countersignature and delivery to the registered owner in lieu of the Rights
Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights.
(a) Subject to Section 7(e) hereof, the registered holder of any Rights
Certificate may exercise the Rights evidenced thereby (except as otherwise
provided herein including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the office or offices of the Rights Agent designated for such purpose, along
with a signature guarantee and such other and further documentation as the
Rights Agent may reasonably request, together with payment of the aggregate
Purchase Price with respect to the total number of one one-hundredths of a share
(or other securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earlier of (i) the
close of business on September 11, 2001 (the "Final Expiration Date"), or (ii)
the time at which the Rights are redeemed as provided in Section 23 hereof (the
earlier of (i) and (ii) being herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of Preferred
Stock pursuant to the exercise of a Right shall initially be $350, and shall be
subject to adjustment from time to time as provided in
11
<PAGE> 16
Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph
(c) below.
(c) Upon receipt of a Rights Certificate representing exercisable Rights,
with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the shares of Preferred Stock (or make available, if
the Rights Agent is the transfer agent for such shares) certificates for the
total number of one one-hundredths of a share of Preferred Stock to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply with
all such requests, or (B) if the Company shall have elected to deposit the total
number of shares of Preferred Stock issuable upon exercise of the Rights
hereunder with a depositary agent, requisition from the depositary agent
depositary receipts representing such number of one one-hundredths of a share of
Preferred Stock as are to be purchased (in which case certificates for the
shares of Preferred Stock represented by such receipts shall be deposited by the
transfer agent with the depositary agent) and the Company will direct the
depositary agent to comply with such request, (ii) requisition from the Company
the amount of cash, if any, to be paid in lieu of fractional shares in
accordance with Section 14 hereof, (iii) after receipt of such certificates or
depositary receipts, cause the same to be delivered to or upon the order of the
registered holder of such Rights Certificate, registered in such name or names
as may be designated by such holder, and (iv) after receipt thereof, deliver
such cash, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced
pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified
bank check or bank draft payable to the order of the Company. In the event that
the Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property
12
<PAGE> 17
are available for distribution by the Rights Agent, if and when appropriate. The
Company reserves the right to require prior to the occurrence of a Triggering
Event that, upon any exercise of Rights, a number of Rights be exercised so that
only whole shares of Preferred Stock would be issued.
(d) In case the registered holder of any Rights Certificate shall exercise
less than all the Rights evidenced thereby, a new Rights Certificate evidencing
Rights equivalent to the Rights remaining unexercised shall be issued by the
Rights Agent and delivered to, or upon the order of, the registered holder of
such Rights Certificate, registered in such name or names as may be designated
by such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from and
after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially
owned by (i) an Acquiring Person or an Associate or Affiliate of an Acquiring
Person, (ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee prior to or concurrently with the Acquiring
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person to holders of
equity interests in such Acquiring Person or to any Person with whom the
Acquiring Person has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (B) a transfer which the Board of Directors
of the Company has determined is part of a plan, arrangement or understanding
which has as a primary purpose or effect the avoidance of this Section 7(e),
shall become null and void without any further action and no holder of such
Rights shall have any rights whatsoever with respect to such Rights, whether
under any provision of this Agreement or otherwise. The Company shall use all
reasonable efforts to insure that the provisions of this Section 7(e) and
Section 4(b) hereof are complied with, but shall have no liability to any holder
of Rights Certificates or other Person as a result of its failure to make any
determinations with respect to an Acquiring
13
<PAGE> 18
Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary, neither the
Rights Agent nor the Company shall be obligated to undertake any action with
respect to a registered holder upon the occurrence of any purported exercise as
set forth in this Section 7 unless such registered holder shall have (i)
completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates
thereof as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the Rights
Agent for cancellation and retirement, and the Rights Agent shall so cancel and
retire, any other Rights Certificate purchased or acquired by the Company
otherwise than upon the exercise thereof. The Rights Agent shall deliver all
cancelled Rights Certificates to the Company.
Section 9. Reservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be reserved and
kept available out of its authorized and unissued shares of Preferred Stock
(and, following the occurrence of a Triggering Event, out of its authorized and
unissued shares of Common Stock and/or other securities or out of its authorized
and issued shares held in its treasury), the number of shares of Preferred Stock
(and, following the occurrence of a Triggering Event, Common Stock and/or other
securities) that, as provided in this Agreement including Section 11(a)(iii)
hereof, will be sufficient to permit the exercise in full of all outstanding
Rights.
14
<PAGE> 19
(b) So long as the shares of Preferred Stock (and, following the occurrence
of a Triggering Event, Common Stock and/or other securities) issuable and
deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, a registration statement under the Securities Act of 1933 (the "Act"),
with respect to the securities purchasable upon exercise of the Rights on an
appropriate form, (ii) cause such registration statement to become effective as
soon as practicable after such filing, and (iii) cause such registration
statement to remain effective (with a prospectus at all times meeting the
requirements of the Act) until the earlier of (A) the date as of which the
Rights are no longer exercisable for such securities, and (B) the date of the
expiration of the Rights. The Company will also take such action as may be
appropriate under, or to ensure compliance with, the securities or "blue sky"
laws of the various states in connection with the exercisability of the Rights.
The Company may temporarily suspend, for a period of time not to exceed ninety
(90) days after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file such
registration statement and permit it to become effective. Upon any such
suspension, the Company shall issue a public announcement, and shall give
simultaneous written notice to the Rights Agent stating that the exercisability
of the Rights has been temporarily suspended, as well as a public announcement
at such time as the suspension is no longer in effect. In addition, if the
Company shall determine that a registration statement is required following the
Distribution Date, the Company may temporarily suspend the exercisability of the
Rights until such time as a registration statement has been declared effective.
Notwithstanding any provision of this Agreement to the contrary, the Rights
shall not be exercisable in any
15
<PAGE> 20
jurisdiction if the requisite qualification in such jurisdiction shall not have
been obtained, the exercise thereof shall not be permitted under applicable law
or a registration statement shall not have been declared effective. The Rights
Agent may assume that any Right exercised is permitted to be exercised under
applicable law and shall have no liability for acting in reliance upon such
assumption.
(d) The Company covenants and agrees that it will take all such action as
may be necessary to ensure that all one one-hundredths of a share of Preferred
Stock (and, following the occurrence of a Triggering Event, Common Stock and/or
other securities) delivered upon exercise of Rights shall, at the time of
delivery of the certificates for such shares (subject to payment of the Purchase
Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when due and
payable any and all federal and state transfer taxes and charges which may be
payable in respect of the issuance or delivery of the Rights Certificates and of
any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) upon the
exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Rights Certificates to a Person other than, or the issuance or delivery of a
number of one one-hundredths of a share of Preferred Stock (or Common Stock
and/or other securities, as the case may be) in respect of a name other than
that of, the registered holder of the Rights Certificates evidencing Rights
surrendered for exercise or to issue or deliver any certificates for a number of
one one-hundredths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) in a name other than that of the registered
holder upon the exercise of any Rights until such tax shall have been paid (any
such tax being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction that
no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
any certificate for a number of one
16
<PAGE> 21
one-hundredths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of such fractional
shares of Preferred Stock (or Common Stock and/or other securities, as the case
may be) represented thereby on, and such certificate shall be dated, the date
upon which the Rights Certificate evidencing such Rights was duly surrendered
and payment of the Purchase Price (and all applicable transfer taxes) was made;
provided, however, that if the date of such surrender and payment is a date
upon which the Preferred Stock (or Common Stock and/or other securities, as the
case may be) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares (fractional or
otherwise) on, and such certificate shall be dated, the next succeeding
Business Day on which the Preferred Stock (or Common Stock and/or other
securities, as the case may be) transfer books of the Company are open. Prior
to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to shares for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled
to receive any notice of any proceedings of the Company, except as provided
herein.
Section 11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights. The Purchase Price, the number and kind of shares covered
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date of
this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the
17
<PAGE> 22
continuing or surviving corporation), except as otherwise provided in
this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at
the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind
of shares of Preferred Stock or capital stock, as the case may be, issuable
on such date, shall be proportionately adjusted so that the holder of any
Right exercised after such time shall be entitled to receive, upon payment
of the Purchase Price then in effect, the aggregate number and kind of
shares of Preferred Stock or capital stock, as the case may be, which, if
such Right had been exercised immediately prior to such date and at a time
when the Preferred Stock transfer books of the Company were open, he would
have owned upon such exercise and been entitled to receive by virtue of
such dividend, subdivision, combination or reclassification. If an event
occurs which would require an adjustment under both this Section 11(a)(i)
and Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Person (other than the Company, any Subsidiary of the Company, any
employee benefit plan of the Company or of any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan), alone or together with its Affiliates
and Associates, shall, at any time after the Rights Dividend Declaration Date,
become the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding, unless the event causing the 20% threshold to be crossed is a
transaction set forth in Section 13(a) hereof, or is an acquisition of shares of
Common Stock pursuant to a tender offer or an exchange offer for all outstanding
shares of Common Stock at a price and on terms determined by at least a majority
of the members of the Board of Directors who are not officers of the Company and
who are not representatives, nominees, Affiliates or Associates
18
<PAGE> 23
of an Acquiring Person, after receiving advice from one or more investment
banking firms, to be (a) at a price which is fair to stockholders (taking into
account all factors which such members of the Board deem relevant including,
without limitation, prices which could reasonably be achieved if the Company or
its assets were sold on an orderly basis designed to realize maximum value) and
(b) otherwise in the best interests of the Company and its stockholders, then,
promptly following the occurrence of any event described in Section
11(a)(ii)(A) hereof, proper provision shall be made so that each holder of a
Right (except as provided below and in Section 7(e) hereof) shall thereafter
have the right to receive, upon exercise thereof at the then current Purchase
Price in accordance with the terms of this Agreement, in lieu of a number of one
one-hundredths of a share of Preferred Stock, such number of shares of Common
Stock of the Company as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the then number of one one-hundredths of a share
of Preferred Stock for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event, and (y) dividing that product
(which, following such first occurrence, shall thereafter be referred to as the
"Purchase Price" for each Right and for all purposes of this Agreement) by 50%
of the current market price (determined pursuant to Section 11(d) hereof) per
share of Common Stock on the date of such first occurrence (such number of
shares, the "Adjustment Shares").
(iii) In the event that the number of shares of Common Stock which are
authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
11(a), the Company shall (A) determine the value of the Adjustment Shares
issuable upon the exercise of a Right (the "Current Value"), and (B) with
respect to each Right (subject to Section 7(e) hereof), make adequate
provision to substitute for the Adjustment Shares, upon the exercise of a
Right
19
<PAGE> 24
and payment of the applicable Purchase Price, (l) cash, (2) a reduction in
the Purchase Price, (3) Common Stock or other equity securities of the
Company (including, without limitation, shares, or units of shares, of
preferred stock, such as the Preferred Stock, which the Board has deemed
to have essentially the same value or, economic rights as shares of Common
Stock (such shares of preferred stock being referred to as "Common Stock
Equivalents")), (4) debt securities of the Company, (5) other assets, or
(6) any combination of the foregoing, having an aggregate value equal to
the Current Value (less the amount of any reduction in the Purchase
Price), where such aggregate value has been determined by the Board based
upon the advice of a nationally recognized investment banking firm
selected by the Board; provided, however, that if the Company shall not
have made adequate provision to deliver value pursuant to clause (B) above
within thirty (30) days following the later of (x) the first occurrence of
a Section 11(a)(ii) Event and (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) and (y)
being referred to herein as the "Section 11(a)(ii) Trigger Date"), then
the Company shall be obligated to deliver, upon the surrender for exercise
of a Right and without requiring payment of the Purchase Price, shares of
Common Stock (to the extent available) and then, if necessary, cash, which
shares and/or cash have an aggregate value equal to the Spread. For
purposes of the preceding sentence, the term "Spread" shall mean the
excess of (i) the Current Value over (ii) the Purchase Price. If the Board
determines in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon exercise in
full of the Rights, the thirty (30) day period set forth above may be
extended to the extent necessary, but not more than ninety (90) days after
the Section 11(a)(ii) Trigger Date, in order that the Company may seek
shareholder approval for the authorization of such additional shares
(such thirty (30) day period, as
20
<PAGE> 25
it may be extended, is herein called the "Substitution Period"). To
the extent that action is to be taken pursuant to the first and/or third
sentences of this Section 11(a)(iii), the Company (l) shall provide,
subject to Section 7(e) hereof, that such action shall apply uniformly to
all outstanding Rights, and (2) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to seek
such shareholder approval for such authorization of additional shares
and/or to decide the appropriate form of distribution to be made pursuant
to such first sentence and to determine the value thereof. In the event of
any such suspension, the Company shall issue a public announcement stating
that the exercisability of the Rights has been temporarily suspended, as
well as a public announcement at such time as the suspension is no longer
in effect. For purposes of this Section 11(a)(iii), the value of each
Adjustment Share shall be the Current Market Price per share of the Common
Stock on the Section 11(a)(ii) Trigger Date and the per share or per unit
value of any Common Stock Equivalent shall be deemed to equal the Current
Market Price per share of the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of rights,
options or warrants to all holders of Preferred Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Preferred Stock (or shares having the same rights,
privileges and preferences as the shares of Preferred Stock ("equivalent
preferred stock")) or securities convertible into Preferred Stock or equivalent
preferred stock at a price per share of Preferred Stock or per share of
equivalent preferred stock (or having a conversion price per share, if a
security convertible into Preferred Stock or equivalent preferred stock) less
than the current market price (as determined pursuant to Section 11(d) hereof)
per share of Preferred Stock on such record date, the Purchase Price to be in
effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the number of
21
<PAGE> 26
shares of Preferred Stock outstanding on such record date, plus the number of
shares of Preferred Stock which the aggregate offering price of the total number
of shares of Preferred Stock and/or equivalent preferred stock so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price, and the denominator
of which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
equivalent preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent and shall be binding on the Rights Agent and the holders of the Rights.
Shares of Preferred Stock owned by or held for the account of the Company shall
not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed; and
in the event that such rights or warrants are not so issued, the Purchase Price
shall be adjusted to be the Purchase Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to all
holders of Preferred Stock (including any such distribution made in connection
with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the earnings or retained earnings of the Company), assets
(other than a dividend payable in Preferred Stock, but including any dividend
payable in stock other than Preferred Stock) or subscription rights or warrants
(excluding those referred to in Section 11(b) hereof), the Purchase Price to be
in effect after such record date shall be determined by multiplying the Purchase
Price in effect immediately prior to such record date by a fraction, the
numerator of which shall be the current market price (as determined pursuant to
Section 11(d) hereof) per share of Preferred Stock on such record date, less the
fair market value (as determined in good
22
<PAGE> 27
faith by the Board of Directors of the Company, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock and the
denominator of which shall be such current market price (as determined pursuant
to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be
made successively whenever such a record date is fixed, and in the event that
such distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d) (i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock for the thirty (30)
consecutive Trading Days immediately prior to such date, and for purposes of
computations made pursuant to Section 11(a)(iii) hereof, the Current Market
Price per share of Common Stock on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock for the ten (10)
consecutive Trading Days immediately following such date; provided,
however, that in the event that the Current Market Price per share of
the Common Stock is determined during a period following the announcement by the
issuer of such Common Stock of (A) a dividend or distribution on such Common
Stock payable in shares of such Common Stock or securities convertible into
shares of such Common Stock (other than the Rights), or (B) any subdivision,
combination or reclassification of such Common Stock, and the ex-dividend date
for such dividend or distribution, or the record date for such subdivision,
combination or reclassification shall not have occurred prior to the
commencement of the requisite thirty (30) Trading Day or ten (10) Trading Day
period, as set forth above, then, and in each such case, the Current Market
Price shall be properly adjusted to take into account exdividend trading. The
closing price for each day shall be the last sale price, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction re-
23
<PAGE> 28
porting system with respect to securities listed or admitted to trading on the
New York Stock Exchange or, if the shares of Common Stock are not listed or
admitted to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotation System or such other system then
in use, or, if on any such date the shares of Common Stock are not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Common Stock selected by
the Board. If on any such date no market maker is making a market in the Common
Stock, the fair value of such shares on such date as determined in good faith by
the Board shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading is open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to trading on any national
securities exchange, a Business Day. If the Common Stock is not publicly held or
not so listed or traded, Current Market Price per share shall mean the fair
value per share as determined in good faith by the Board, whose determination
shall be described in a statement filed with the Rights Agent and shall be
conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the Current Market Price
per share of Preferred Stock shall be determined in the same manner as set forth
above for the Common Stock in clause (i) of this Section 11(d) (other than the
last sentence thereof). If the Current Market Price per share of Preferred Stock
cannot be determined in the manner provided above or if the Preferred Stock is
not publicly held or listed or traded in a manner described in clause (i) of
this Section 11(d), the Current Market Price per share of Preferred Stock shall
be conclusively deemed to be an amount equal to 100 (as such number may be
appropriately
24
<PAGE> 29
adjusted for such events as stock splits, stock dividends and recapitalizations
with respect to the Common Stock occurring after the date of this Agreement)
multiplied by the Current Market Price per share of the Common Stock. If neither
the Common Stock nor the Preferred Stock is publicly held or so listed or
traded, Current Market Price per share of the Preferred Stock shall mean the
fair value per share as determined in good faith by the Board, whose
determination shall be described in a statement filed with the Rights Agent and
shall be conclusive for all purposes. For all purposes of this Agreement, the
Current Market Price of a Unit shall be equal to the Current Market Price of one
share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a share of Common Stock
or other share or one-millionth of a share of Preferred Stock, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i)
three (3) years from the date of the transaction which mandates such
adjustment, or (ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section 11(a)(ii) or
Section 13(a) hereof, the holder of any Right thereafter exercised shall become
entitled to receive any shares of capital stock other than Preferred Stock,
thereafter the number of such other shares so receivable upon exercise of any
Right and the Purchase Price thereof shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k) and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Preferred Stock shall apply on like
terms to any such other shares.
25
<PAGE> 30
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of the
Purchase Price to adjust the number of Rights, in lieu of any adjustment in the
number of one one-hundredths of a share of Preferred Stock purchasable upon the
exercise of a Right. Each of the Rights outstanding after the adjustment in the
number of Rights shall be exercisable for the number of one one-hundredths of a
share of Preferred Stock for which a Right was exercisable immediately prior to
such adjustment. Each Right held of record prior to such adjustment of the
number of Rights shall become that number of Rights (calculated to the nearest
one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on which
the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the
26
<PAGE> 31
public announcement. If Rights Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(i), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Rights Certificates on such record date Rights Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the date
of adjustment, and upon surrender thereof, if required by the Company, new
Rights Certificates evidencing all the Rights to which such holders shall be
entitled after such adjustment. Rights Certificates so to be distributed shall
be issued, executed and countersigned in the manner provided for herein (and may
bear, at the option of the Company, the adjusted Purchase Price) and shall be
registered in the names of the holders of record of Rights Certificates on the
record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or the
number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredth of a
share and the number of one one-hundredth of a share which were expressed in the
initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing the
Purchase Price below the then stated value, if any, of the number of one
one-hundredths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-hundredths of a share
of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an adjustment
in the Purchase Price be made effective as of a record date for a specified
event, the Company may elect to defer until the occurrence of
27
<PAGE> 32
such event the issuance to the holder of any Right exercised after such
record date the number of one one-hundredths of a share of Preferred Stock and
other capital stock or securities of the Company, if any, issuable upon such
exercise over and above the number of one one-hundredths of a share of
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares (fractional or otherwise) or securities
upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment the Board of Directors of the
Company shall determine to be advisable in order that any (i) consolidation or
subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares
of Preferred Stock at less than the current market price, (iii) issuance wholly
for cash of shares of Preferred Stock or securities which by their terms are
convertible into or exchangeable for shares of Preferred Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Preferred Stock
shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time after
the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each of
28
<PAGE> 33
which complies with Section 11(o) hereof), if (x) at the time of or immediately
after such consolidation, merger or sale there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which would
substantially diminish or otherwise eliminate the benefits intended to be
afforded by the Rights or (y) prior to, simultaneously with or immediately after
such consolidation, merger or sale, the shareholders of the Person who
constitutes, or would constitute, the "Principal Party" for purposes of Section
13(a) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates and Associates.
(o) The Company covenants and agrees that, after the Distribution Date, it
will not, except as permitted by Section 23 or Section 26 hereof, take (or
permit any Subsidiary to take) any action if at the time such action is taken it
is reasonably foreseeable that such action will diminish substantially or
otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in the
event that the Company shall at any time after the Rights Dividend Declaration
Date and prior to the Distribution Date (i) declare a dividend on the
outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator which
shall be the total number of shares of Common Stock outstanding immediately
prior to the occurrence of the event and the denominator of which shall be the
total number of shares of Common Stock outstanding immediately following the
occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of Shares.
Whenever an adjustment is
29
<PAGE> 34
made as provided in Section 11 and Section 13 hereof, the Company shall (a)
promptly prepare a certificate setting forth such adjustment, the adjusted
Purchase Price and a brief statement of the facts accounting for such
adjustment, (b) promptly file with the Rights Agent, and with each transfer
agent for the Preferred Stock and the Common Stock, a copy of such certificate,
and (c) mail a brief summary thereof to each holder of a Rights Certificate (or,
if prior to the Distribution Date, to each holder of a certificate representing
shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent
shall be fully protected in relying on any such certificate and on any
adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly or
indirectly, (x) the Company shall consolidate with, or merge with and into, any
other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) hereof), and the Company shall not be the continuing
or surviving corporation of such consolidation or merger, (y) any Person (other
than a Subsidiary of the Company in a transaction which complies with Section
11(o) hereof) shall consolidate with, or merge with or into, the Company, and
the Company shall be the continuing or surviving corporation of such
consolidation or merger and, in connection with such consolidation or merger,
all or part of the outstanding shares of Common Stock shall be changed into or
exchanged for stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell, mortgage or otherwise transfer (or one
or more of its Subsidiaries shall sell, mortgage or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and its
Subsidiaries (taken as a whole) to any Person or Persons (other than the Company
or any Subsidiary of the Company in one or more transactions each of which
complies with Section 11(o) hereof), then, and in each such case (except as may
be contemplated by Section 13(d) hereof), proper provision shall be made so
that: (i) each holder of a Right, except as provided in Section 7(e) hereof,
shall thereafter have the right to receive, upon the exercise thereof at the
then current Purchase
30
<PAGE> 35
Price in accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, non-assessable and freely tradeable shares of
Common Stock of the Principal Party (as such term is hereinafter defined), not
subject to any liens, encumbrances, rights of first refusal or other adverse
claims, as shall be equal to the result obtained by (l) multiplying the then
current Purchase Price by the number of one one-hundredth of a share of
Preferred Stock for which a Right is exercisable immediately prior to the first
occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred
prior to the first occurrence of a Section 13 Event, multiplying the number of
such one one-hundredths of a share for which a Right was exercisable immediately
prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price
in effect immediately prior to such first occurrence), and dividing that product
(which, following the first occurrence of a Section 13 Event, shall be referred
to as the "Purchase Price" for each Right and for all purposes of this
Agreement) by (2) 50% of the current market price (determined pursuant to
Section 11(d)(i) hereof) per share of the Common Stock of such Principal Party
on the date of consummation of such Section 13 Event; (ii) such Principal Party
shall thereafter be liable for, and shall assume, by virtue of such section 13
Event, all the obligations and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer to such Principal
Party, it being specifically intended that the provisions of Section 11 hereof
shall apply only to such Principal Party following the first occurrence of a
Section 13 Event; (iv) such Principal Party shall take such steps (including,
but not limited to, the reservation of a sufficient number of shares of its
Common Stock) in connection with the consummation of any such transaction as may
be necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its shares of Common
Stock thereafter deliverable upon the exercise of the Rights; and (v) the
provisions of Section 11(a)(ii) hereof shall be of no effect following the first
occurrence of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or (y) of
the
31
<PAGE> 36
first sentence of Section 13(a), the Person that is the issuer of any
securities into which shares of Common Stock of the Company are converted
in such merger or consolidation, and if no securities are so issued, the
Person that is the other party to such merger or consolidation; and
(ii) in the case of any transaction described in clause (z) of the
first sentence, of Section 13(a), the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to
such transaction or transactions;
provided, however, that in any such case, (1) if the Common Stock of such
Person is not at such time and has not been continuously over the preceding
twelve (12) month period registered under Section 12 of the Exchange Act, and
such Person is a direct or indirect Subsidiary of another Person the Common
Stock of which is and has been so registered, "Principal Party" shall refer to
such other Person; and (2) in case such Person is a Subsidiary, directly or
indirectly, of more than one Person, the Common Stocks of two or more of which
are and have been so registered, "Principal Party" shall refer to whichever of
such Persons is the issuer of the Common Stock having the greatest aggregate
market value.
(c) The Company shall not consummate any such consolidation, merger, sale
or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act, with
respect to the Rights and the securities purchasable
32
<PAGE> 37
upon exercise of the Rights on an appropriate form, and will use its
best efforts to cause such registration statement to (A) become effective
as soon as practicable after such filing and (B) remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
Expiration Date; and
(ii) deliver to holders of the Rights historical financial statements
for the Principal Party and each of its Affiliates which comply in all
respects with the requirements for registration on Form 10 under the
Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, Section 13
shall not be applicable to a transaction described in subparagraphs (x) and (y)
of Section 13(a) if (i) such transaction is consummated with a Person or Persons
who acquired shares of Common Stock pursuant to a tender offer or exchange offer
for all outstanding shares of Common Stock which complies with the provisions of
Section 11(a)(ii)(A) hereof (or a wholly owned subsidiary of any such Person or
Persons), (ii) the price per share of Common Stock offered in such transaction
is not less than the price per share of Common Stock paid to all holders of
shares of Common Stock whose shares were purchased pursuant to such tender offer
or exchange offer and (iii) the form of consideration being offered to the
remaining holders of shares of Common Stock pursuant to such transaction is the
same as the form of consideration paid pursuant to such tender offer or exchange
offer. Upon consummation of any such transaction contemplated by this Section
13(d), all Rights hereunder shall expire.
(e) In no event shall the Rights Agent have any liability in respect of any
such Principal Party transactions, including, without limitation, the propri-
33
<PAGE> 38
ety thereof. The Rights Agent may rely and be fully protected in relying upon a
certificate of the Company stating that the provisions of this Section 13 have
been fulfilled. Notwithstanding anything in this Agreement to the contrary, the
prior written consent of the Rights Agent, which consent shall not be
unreasonably withheld, must be obtained in connection with any such supplemental
agreement which alters the rights or duties of the Rights Agent.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights, except
prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of such
fractional Rights, there shall be paid to the registered holders of the Rights
Certificates with regard to which such fractional Rights would otherwise be
issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to securities listed or admitted to trading on the New York Stock
Exchange or, if the Rights are not listed or admitted to trading on the New York
Stock Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national securities
exchange on which the Rights are listed or admitted to trading, or if the Rights
are not listed or admitted to trading on any national securities exchange, the
last quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board
34
<PAGE> 39
of Directors of the Company. If on any such date no such market maker is making
a market in the Rights the fair value of the Rights on such date as determined
in good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one-
one hundredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one-one hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one-one hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one-one hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value of
one-one hundredth of a share of Preferred Stock shall be one-one hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall not
be required to issue fractions of shares of Common Stock upon exercise of the
Rights or to distribute certificates which evidence fractional shares of Common
Stock. In lieu of fractional shares of Common Stock, the Company may pay to the
registered holders of Rights Certificates at the time such Rights are exercised
as herein provided an amount in cash equal to the same fraction of the current
market value of one (1) share of Common Stock. For purposes of this Section
14(c), the current market value of one share of Common Stock shall be the
closing price of one share of Common Stock (as determined pursuant to Section
11(d)(i) hereof) for the Trading Day immediately prior to the date of such
exercise.
(d) The holder of a Right by the acceptance of the Rights expressly waives
his right to receive any fractional Rights or any fractional shares upon
35
<PAGE> 40
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of
the Common Stock); and any registered holder of any Rights Certificate (or,
prior to the Distribution Date, of the Common Stock), without the consent of
the Rights Agent or of the holder of any other Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), may, in his own behalf and for his
own benefit, enforce, and may institute and maintain any suit, action or
proceeding, against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Rights Certificate in the manner
provided in such Rights Certificate and in this Agreement. Without limiting the
foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to
specific performance of the obligations hereunder and injunctive relief against
actual or threatened violations of the obligations hereunder of any Person
subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable only in
connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are transferable
only on the registry books of the Rights Agent if surrendered at the office or
offices of the Rights Agent designated for such purposes, duly endorsed or
accompanied by a proper instrument of transfer and with the appropriate forms
and certificates fully executed, along with a signature guarantee and such other
and further documentation as the Rights Agent may reasonably request;
36
<PAGE> 41
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and the
Rights Agent may deem and treat the person in whose name a Rights Certificate
(or, prior to the Distribution Date, the associated Common Stock certificate) is
registered as the absolute owner thereof and of the Rights evidenced thereby
(notwithstanding any notations of ownership or writing on the Rights
Certificates or the associated Common Stock certificate made by anyone other
than the Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent, subject to the last sentence of Section 7(e)
hereof, shall be required to be affected by any notice to the contrary; and
(d) notwithstanding anything in this Agreement to the contrary, neither the
Company nor the Rights Agent shall have any liability to any holder of a Right
or other Person as a result of its inability to perform any of its obligations
under this Agreement by reason of any preliminary or permanent injunction or
other order, decree or ruling issued by a court of competent jurisdiction or by
a governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of such
obligation; provided, however, the Company must use its best efforts to have
any such order, decree or ruling lifted or otherwise overturned as soon as
possible.
Section 17. Rights Certificate Holder Not Deeded a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one
one-hundredths of a share of Preferred Stock or any other securities of the
Company which may at any time be issuable on the exercise of the Rights
represented thereby, nor shall anything contained herein or in any Rights
Certificate be construed to confer upon the holder of any Rights Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in Section 24 hereof), or to receive dividends or subscription rights,
or otherwise,
37
<PAGE> 42
until the Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent such compensation as
shall be agreed to in writing between the Company and the Rights Agent for all
services rendered by it hereunder and, from time to time, on demand of the
Rights Agent, its reasonable expenses and counsel fees and disbursements and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability, or expense, incurred without gross negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including, without limitation, the costs and expenses of defending
against any claim of liability in the premises. The provisions of this Section
18(a) shall survive the expiration of the Rights and the termination of this
Agreement.
(b) The Rights Agent shall be protected and shall incur no liability for or
in respect of any action taken, suffered or omitted by it in connection with its
administration of this Agreement in reliance upon any Rights Certificate or
certificate for Common Stock or for other securities of the Company, instrument
of assignment or transfer, power of attorney, endorsement, affidavit, letter,
notice, direction, consent, certificate, statement, or other paper or document
believed by it to be genuine and to be signed and executed by the proper Person
or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to the
corporate trust busi-
38
<PAGE> 43
ness of the Rights Agent or any successor Rights Agent, shall be the successor
to the Rights Agent under this Agreement without the execution or filing of any
paper or any further act on the part of any of the parties hereto; provided,
however, that such corporation would be eligible for appointment as a successor
Rights Agent under the provisions of Section 21 hereof. In case at the time
such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Rights Certificates so countersigned;
and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed and
at such time any of the Rights Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Rights Certificates so countersigned; and in case at that time
any of the Rights Certificates shall not have been countersigned, the Rights
Agent may countersign such Rights Certificates either in its prior name or in
its changed name; and in all such cases such Rights Certificates shall have the
full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations expressly imposed by this Agreement, and no implied
duties or obligations shall be read into this Agreement against the Rights
Agent, upon the following terms and conditions, by all of which the Company and
the holders of Rights Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its selection (who
may be legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection to the
39
<PAGE> 44
Rights Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "current market price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by [the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant Treasurer, the Secretary or any Assistant Secretary of the Company]
and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
Section 13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such
40
<PAGE> 45
adjustment (except with respect to the exercise of Rights evidenced by Rights
Certificates after actual notice of any such adjustment); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or Preferred Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable, nor shall the Rights Agent
be responsible for the legality of the terms hereof in its capacity as an
administrative agent.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer or for
any delay in acting while waiting for those instructions. Any application by the
Rights Agent for written instructions from the Company may, at the option of the
Rights Agent, set forth in writing any action proposed to be taken or omitted by
the Rights Agent under this Agreement and the date on and/or after which such
action shall be taken or such omission shall be effective. The Rights Agent
shall not be liable, except in the case of its gross negligence, bad faith or
willful misconduct, for any action taken by, or omission of, the Rights Agent in
accordance with a proposal included in such application on or after the date
specified in such application (which date shall not be less than three Business
Days after the date any officer of the Company actually receives such
application, unless any such officer shall have consented in writing to any
earlier date) unless prior to taking
41
<PAGE> 46
any such action (or the effective date in the case of an omission), the Rights
Agent shall have received written instructions in response to such application
specifying the action to be taken or omitted.
(h) The Rights Agent and any stockholder, director, officer or employee of
the Rights Agent may buy, sell or deal in any of the Rights or other securities
of the Company or become pecuniarily interested in any transaction in which the
Company may be interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Rights Agent under this
Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was
exercised in the selection thereof.
(j) No provision of this Agreement shall require the Rights Agent to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Right Certificate surrendered to the Rights
Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
requested exercise of transfer without first consulting with the Company.
42
<PAGE> 47
(l) In addition to the foregoing, the Rights Agent shall be protected and
shall incur no liability for, or in respect of, any action taken or omitted by
it in connection with its administration of this Agreement if such acts or
omissions are in reliance upon (i) the proper execution of the certification
concerning beneficial ownership appended to the form of assignment and the form
of election to purchase attached hereto unless the Rights Agent shall have
actual knowledge that, as executed, such certification is untrue, or (ii) the
non-execution of much certification including, without limitation, any refusal
to honor any otherwise permissible assignment or election by reason of such
non-execution.
(m) The Company agrees to give the Rights Agent prompt written notice of
any event or ownership which would prohibit the exercise or transfer of the
Right Certificates.
Section 21. Change of Rights Agent. The Rights Agent or any successor Rights
Agent may resign and be discharged from its duties under this Agreement upon
thirty (30) days' notice in writing mailed to the Company. The Company may
remove the Rights Agent or any successor Rights Agent upon thirty (30) days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Stock and Preferred
Stock, by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be
removed or shall otherwise become incapable of acting, the Company shall
appoint a successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then the Company shall become the Rights Agent
until a successor Rights Agent has been appointed, and any registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under
43
<PAGE> 48
the laws of the United States or of the State of New York (or of any other state
of the United States so long as such corporation is authorized to do business as
a banking institution in the State of New York), in good standing, having a
principal office in the State of New York, which is authorized under such laws
to exercise corporate trust powers and is subject to supervision or examination
by federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100,000,000. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not later than the effective date of any such
appointment, the Company shall file notice thereof in writing with the
predecessor Rights Agent and each transfer agent of the Common Stock and the
Preferred Stock, and mail a notice thereof in writing to the registered holders
of the Rights Certificates. Failure to give any notice provided for in this
Section 21, however, or any defect therein, shall not affect the legality or
validity of the resignation or removal of the Rights Agent or the appointment of
the successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any of the
provisions of this Agreement or of the Rights to the contrary, the Company may,
at its option, subject to Section 4 hereof, issue new Rights Certificates
evidencing Rights in such form as may be approved by its Board of Directors to
reflect any adjustment or change in the Purchase Price and the number or kind
or class of shares or other securities or property purchasable under the Rights
Certificates made in accordance with the provisions of this Agreement. In
addition, in connection with the issuance or sale of shares of Common Stock
following the Distribution Date and prior to the redemption or expiration of
the Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or under any employee
plan or arrangement, granted or awarded as of the Distribution Date, or upon
the exercise, conversion or exchange of securities hereinaf-
44
<PAGE> 49
ter issued by the Company, and (b) may, in any other case, if deemed necessary
or appropriate by the Board of Directors of the Company, issue Rights
Certificates representing the appropriate number of Rights in connection with
such issuance or sale; provided, however, that (i) no such Rights Certificate
shall be issued if, and to the extent that, the Company shall be advised by
counsel that such issuance would create a significant risk of material adverse
tax consequences to the Company or the Person to whom such Rights Certificate
would be issued, and (ii) no such Rights Certificate shall be issued if, and to
the extent that, appropriate adjustment shall otherwise have been made in lieu
of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any time
prior to the earlier of (i) the close of business on the tenth day following the
Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred
prior to the Record Date, the close of business on the tenth day following the
Record Date), or (ii) the Final Expiration Date, redeem all but not less than
all the then outstanding Rights at a redemption price of $.01 per Right, as
such amount may be appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such redemption
price being hereinafter referred to as the "Redemption Price"). Notwithstanding
anything contained in this Agreement to the contrary, the Rights shall not be
exercisable after the first occurrence of a Section 11(a)(ii) Event until such
time as the Company's right of redemption hereunder has expired. The Company
may, at its option, pay the Redemption Price in cash, shares of Common Stock
(based on the "current market price", as defined in Section 11(d)(i) hereof, of
the Common Stock at the time of redemption) or any other form of consideration
deemed appropriate by the Board of Directors.
(b) Immediately upon the action of the Board of Directors of the Company
ordering the redemption of the Rights, evidence of which shall have been filed
with the Rights Agent and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price for each
45
<PAGE> 50
Right so held. Promptly after the action of the Board of Directors ordering the
redemption of the Rights, the Company shall give notice of such redemption to
the Rights Agent and the holders of the then outstanding Rights by mailing such
notice to all such holders at each holder's last address as it appears upon the
registry books of the Rights Agent or, prior to the Distribution Date, on the
registry books of the Transfer Agent for the Common Stock. Any notice which is
mailed in the manner herein provided shall be deemed given, whether or not the
holder receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the Distribution
Date, (i) to pay any dividend payable in stock of any class to the holders of
Preferred Stock or to make any other distribution to the holders of Preferred
Stock (other than a regular quarterly cash dividend out of earnings or retained
earnings of the Company), or (ii) to offer to the holders of Preferred Stock
rights or warrants to subscribe for or to purchase any additional shares of
Preferred Stock or shares of stock of any class or any other securities, rights
or options, or (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision of outstanding
shares of Preferred Stock), or (iv) to effect any consolidation or merger into
or with any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof), or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to effect any sale
or other transfer), in one transaction or a series of related transactions, of
more than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company and/or
any of its Subsidiaries in one or more transactions each of which complies with
Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding
up of the Company, then, in each such case, the Company shall give to each
holder of a Rights Certificate and to the Rights Agent, to the extent feasible
and in accordance with Section 25 hereof, a notice of such proposed action,
which shall specify the record date for the purposes of
46
<PAGE> 51
such stock dividend, distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the shares of Preferred Stock, if any such date is to
be fixed, and such notice shall be so given in the case of any action covered by
clause (i) or (ii) above at least twenty (20) days prior to the record date for
determining holders of the shares of Preferred Stock for purposes of such
action, and in the case of any such other action, at least twenty (20) days
prior to the date of the taking of such proposed action or the date of
participation therein by the holders of the shares of Preferred Stock whichever
shall be the earlier.
(b) In case any of the events set forth in Section 11(a)(ii) hereof shall
occur, then, in any such case, (i) the Company shall as soon as practicable
thereafter give to each holder of a Rights Certificate and to the Rights Agent,
to the extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this Agreement to be
given or made by the Rights Agent or by the holder of any Rights Certificate
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing
with the Rights Agent) as follows:
General Re Corporation
Financial Centre
Stamford, Connecticut 06904-2350
Attention: General Counsel
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, ad-
47
<PAGE> 52
dressed (until another address is filed in writing with the Company) as
follows:
The Bank of New York
101 Barclay Street, 22W
New York, New York 10286
Attention: Equity Tender and Exchange Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend any
provision of this Agreement without the approval of any holders of certificates
representing shares of Common Stock. From and after the Distribution Date and
subject to the penultimate sentence of this Section 26, the Company and the
Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights Certificates in order
(i) to cure any ambiguity, (ii) to correct or supplement any provision
contained herein which may be defective or inconsistent with any other
provisions herein, (iii) to shorten or lengthen any time period hereunder, or
(iv) to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely affect
the interests of the holders of Rights Certificates (other than an Acquiring
Person or an Affiliate or Associate of an Acquiring Person); provided, this
Agreement may not be supplemented or amended to lengthen, pursuant to clause
(iii) of this sentence, (A) a time period relating to when the Rights may be
redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights.
Upon the delivery of a certificate from an appropriate officer of the Company
which states
48
<PAGE> 53
that the proposed supplement or amendment is in compliance with the terms of
this Section 26, the Rights Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price, the
Final Expiration Date, the Purchase Price or the number of one one-hundredths of
a share of Preferred Stock for which a Right is exercisable. Prior to the
Distribution Date, the interests of the holders of Rights shall be deemed
coincident with the interests of the holders of Common Stock. Notwithstanding
any other provision hereof, the Rights Agent's consent, which consent shall not
be unreasonably withheld, must be obtained regarding any amendment or supplement
pursuant to this Section 26 which alters the Rights Agent's rights or duties.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors, etc. For
all purposes of this Agreement, any calculation of the number of shares of
Common Stock outstanding at any particular time, including for purposes of
determining the particular percentage of such outstanding shares of Common
Stock of which any Person is the Beneficial Owner, shall be made in accordance
with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and
Regulations under the Exchange Act. The Board of Directors of the Company shall
have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the
Company, or as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights or to amend the Agreement).
All such actions, calculations, interpretations and determinations (including,
for purposes of clause (y) below, all omissions with respect to the fore-going)
which are done or made by the Board in good faith, shall (x) be final,
conclusive and binding on the Compa-
49
<PAGE> 54
ny, the Rights Agent, the holders of the Rights and all other parties, and (y)
not subject the Board to any liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any Person other than the Company, the Rights Agent and
the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
however, that notwithstanding anything in this Agreement to the contrary, if
any such term, provision, covenant or restriction is held by such court or
authority to be invalid, void or unenforceable and the Board of Directors of
the Company determines in its good faith judgment that severing the invalid
language from this Agreement would adversely affect the purpose or effect of
this Agreement, the right of redemption set forth in Section 23 hereof shall
be reinstated and shall not expire until the close of business on the tenth day
following the date of such determination by the Board of Directors. Without
limiting the foregoing, if any provision requiring that a determination be made
by less than the entire Board (or at a time or with the concurrence of a group
of directors consisting of less than the entire Board) is held by a court of
competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board in accordance
with applicable law and the Company's Restated Certificate of Incorporation and
By-laws.
Section 31. Governing Law. This Agreement, each Right and each Rights
Certificate issued hereunder shall be deemed to be a contract made under the
laws of
50
<PAGE> 55
the State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts made and to be
performed entirely within such State, provided, however, that the rights and
obligations of the Rights Agent shall be governed by and construed in accordance
with the laws of the State of New York.
Section 32. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the several
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Witness: GENERAL RE CORPORATION
By: By:
------------------------ ---------------------------
Name: Name:
Title: Title:
Witness: THE BANK OF NEW YORK,
as Rights Agent
By: By:
------------------------ ---------------------------
Name: Name:
Title: Title:
51
<PAGE> 56
Exhibit A
FORM OF
CERTIFICATE OF DESIGNATION, PREFERENCES AND
RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
GENERAL RE CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Ronald E. Ferguson, Chairman of the Board, and Edmond F. Rondepierre,
Secretary, of General Re Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Restated Certificate of Incorporation of the said Corporation, the said Board of
Directors on September 11, 1991, adopted the following resolution creating a
series of 1,100,000 shares of Preferred Stock designated as Series A Junior
Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of this Corporation in accordance with the provisions of its Restated
Certificate of Incorporation, a series of Preferred Stock of the Corporation be
and it hereby is created, and that the designation and amount thereof and the
voting powers, preferences and relative, participating, optional and other
special rights of the shares of such series, and the qualifications, limitations
or restrictions thereof are as follows:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" and the number
of shares constituting such series shall be 1,100,000.
<PAGE> 57
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any shares
of any series of Preferred Stock ranking prior and superior to the shares of
Series A Junior Participating Preferred Stock with respect to dividends, the
holders of shares of Series A Junior Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the first day of January, April, July and October in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Junior Participating Preferred Stock, in an
amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00
or (b) subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.50 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Junior Participating Preferred Stock. In the event the Corporation shall at any
time after September 11, 1991 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount to which holders of
shares of Series A Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the preceding sentence shall
be adjusted by multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately after such event
and the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
2
<PAGE> 58
(B) The Corporation shall declare a dividend or distribution on the Series
A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stack
(other than a dividend payable in shares of Common Stock); provided that in the
event no dividend or distribution shall have been declared on the Common Stock
during the period between any Quarterly Dividend Payment Date and the next
subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the
Series A Junior Participating Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding shares
of Series A Junior Participating Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares of Series A Junior
Participating Preferred Stock, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which case
dividends on such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a
date after the record date for the determination of holders of shares of Series
A Junior Participating Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Junior Participating Preferred Stock in an amount
less than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:
3
<PAGE> 59
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Junior Participating Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the stockholders of
the Corporation. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the number of votes per share to which holders of shares of Series A Junior
Participating Preferred Stock were entitled immediately prior to such event
shall be adjusted by multiplying such number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
(B) Except as otherwise provided herein or by law, the holders of shares of
Series A Junior Participating Preferred Stock and the holders of shares of
Common Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Junior Participating
Preferred Stock shall be in arrears in an amount equal to six (6) quarterly
dividends thereon, the occurrence of such contingency shall mark the beginning
of a period (herein called a "default period") which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly dividend
periods and for the current quarterly dividend period on all shares of Series A
Junior Participating Preferred Stock then outstanding shall have been declared
and paid or set apart for payment. During each default period, all holders of
Preferred Stock (including holders of the Series A Junior Participating
Preferred Stock) with dividends in arrears in an amount equal to six (6)
quarterly dividends thereon, voting as a class, irrespective of series, shall
have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of Series
A Junior Participating Preferred Stock may be exercised initially at a special
4
<PAGE> 60
meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any
annual meeting of stockholders, and thereafter at annual meetings of
stockholders, provided that neither such voting right nor the right of the
holders of any other series of Preferred Stock, if any, to increase, in certain
cases, the authorized number of Directors shall be exercised unless the holders
of ten percent (10%) in number of shares of Preferred Stock outstanding shall
be present in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of Preferred Stock of
such voting right. At any meeting at which the holders of Preferred Stock shall
exercise such voting right initially during an existing default period, they
shall have the right, voting as a class, to elect Directors to fill such
vacancies, if any, in the Board of Directors as may then exist up to two (2)
Directors or, if such right is exercised at an annual meeting, to elect two (2)
Directors. If the number which may be so elected at any special meeting does
not amount to the required number, the holders of the Preferred Stock shall
have the right to make such increase in the number of Directors as shall be
necessary to permit the election by them of the required number. After the
holders of the Preferred Stock shall have exercised their right to elect
Directors in any default period and during the continuance of such period, the
number of Directors shall not be increased or decreased except by vote of the
holders of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A Junior
Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing
default period, have previously exercised their right to elect Directors, the
Board of Directors may order, or any stockholder or stockholders owning in the
aggregate not less than ten percent (10%) of the total number of shares of
Preferred Stock outstanding, irrespective of series, may request, the calling
of special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice-President or the Secretary of the
Corporation. Notice of such meeting and of any annual meeting at which holders
of Preferred Stock are entitled to vote pursuant to this paragraph (C) (iii)
shall be given to each holder of record of Preferred Stock by mailing a copy of
such notice to him at his last address as the same appears on
5
<PAGE> 61
the books of the Corporation. Such meeting shall be called for a time not
earlier than 20 days and not later than 60 days after such order or request or
in default of the calling of such meeting within 60 days after such order or
request, such meeting may be called on similar notice by any stockholder or
stockholders owning in the aggregate not less than ten percent (10%) of the
total number of shares of Preferred Stock outstanding. Notwithstanding the
provisions of this paragraph (C)(iii), no such special meeting shall be called
during the period within 60 days immediately preceding the date fixed for the
next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes
of stock of the Corporation if applicable, shall continue to be entitled to
elect the whole number of Directors until the holders of Preferred Stock shall
have exercised their right to elect two (2) Directors voting as a class, after
the exercise of which right (x) the Directors so elected by the holders of
Preferred Stock shall continue in office until their successors shall have been
elected by such holders or until the expiration of the default period, and (y)
any vacancy in the Board of Directors may (except as provided in paragraph
(C)(ii) of this Section 3) be filled by vote of a majority of the remaining
Directors theretofore elected by the holders of the class of stock which elected
the Director whose office shall have become vacant. References in this paragraph
(C) to Directors elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as provided in
clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of
the holders of Preferred Stock as a class to elect Directors shall cease, (y)
the term of any Directors elected by the holders of Preferred Stock as a class
shall terminate, and (z) the number of Directors shall be such number as may be
provided for in the certificate of incorporation or by-laws irrespective of any
increase made pursuant to the provisions of paragraph (C)(ii) of this Section 3
(such number being subject, however, to change thereafter in any manner provided
by law or in the certificate of incorporation or by-laws). Any vacancies in the
Board of Directors effected by the provisions of clauses (y) and (z) in the pre-
6
<PAGE> 62
ceding sentence may be filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Junior Participating
Preferred Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with holders of
Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Junior Participating Preferred
Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, except dividends paid ratably on the Series
A Junior Participating Preferred Stock and all such parity stock on which
dividends are payable or in arrears in proportion to the total amounts to
which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior
Participating Preferred Stock, provided that the Corporation
7
<PAGE> 63
may at any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the Corporation
ranking junior (either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Junior Participating Preferred Stock;
(iv) purchase or otherwise acquire for consideration any shares of
Series A Junior Participating Preferred Stock, or any shares of stock
ranking on a parity with the Series A Junior Participating Preferred Stock,
except in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all holders of
such shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective
series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation to
purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancel led promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock and may be reissued as part
of a new series of Preferred Stock to be created by resolution or resolutions
of the Board of Directors, subject to the conditions and restrictions on
issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquida-
8
<PAGE> 64
tion, dissolution or winding up) to the Series A Junior Participating Preferred
Stock unless, prior thereto, the holders of shares of Series A Junior
Participating Preferred Stock shall have received $100 per share, plus an amount
equal to accrued and unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation Preference").
Following the payment of the full amount of the Series A Liquidation Preference,
no additional distributions shall be made to the holders of shares of Series A
Junior Participating Preferred Stock unless, prior thereto, the holders of
shares of Common Stock shall have received an amount per share (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as set forth in
subparagraph (c) below to reflect such events as stock splits, stock dividends
and recapitalizations with respect to the Common Stock) (such number in
clause (ii), the "Adjustment Number"). Following the payment of the full amount
of the Series A Liquidation Preference and the Common Adjustment in respect of
all out standing shares of Series A Junior Participating Preferred Stock and
Common Stock, respectively, holders of Series A Junior Participating Preferred
Stock and holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such Preferred Stock and Common
Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets available
to permit payment in full of the Series A Liquidation Preference and the
liquidation preferences of all other series of preferred stock, if any, which
rank on a parity with the Series A Junior Participating Preferred Stock, then
such remaining assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences. In the event,
however, that there are not sufficient assets available to permit payment in
full of the Common Adjustment, then such remaining assets shall be distributed
ratably to the holders of Common Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common
9
<PAGE> 65
Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to the provision
for adjustment hereinafter set forth) equal to 100 times the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, into which or for which each share of Common Stock is changed or
exchanged. In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such
case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Junior Participating Preferred Stock
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
Section 8. No Redemption. The shares of Series A Junior Participating
Preferred Stock shall not be redeemable.
Section 9. Ranking. The Series A Junior Participating Preferred Stock
shall rank junior to all other series of the Corporation's Preferred Stock as
to the payment of dividends and the distribution of assets,
10
<PAGE> 66
unless the terms of any such series shall provide otherwise.
Section 10. Amendment. The Restated Certificate of Incorporation of
the Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Junior Participating Preferred Stock so as to affect them adversely
without the affirmative vote of the holders of a majority or more of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series A Junior Participating Preferred
Stock may be issued in fractions of a share which shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury this ____ day of
September , 1991.
------------------------------
Chairman of the Board
Attest:
- -----------------------------
Secretary
11
<PAGE> 67
Exhibit B
[Form of Rights Certificate]
Certificate No. R- _________ Rights
NOT EXERCISABLE AFTER September 11, 2001 OR EARLIER IF REDEEMED BY THE COMPANY.
THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $.01 PER
RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN
CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS
DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.]*
Rights Certificate
GENERAL RE CORPORATION
This certifies that , or registered assigns, is the registered owner of
the number of Rights set forth above, each of which entitles the owner thereof,
subject to the terms, provisions and conditions of the Rights Agreement, dated
as of September 11, 1991 (the "Rights Agreement"), between General Re
Corporation, a Delaware corporation (the "Company"), and The Bank of New York, a
New York banking corporation (the "Rights Agent"), to purchase from the Company
at any time prior to 5:00 P.M. (New York City time) on September 11, 2001 at the
office or offices of the Rights Agent designated for such purpose, or its
successors as Rights Agent, one-one hundredth of a fully paid, non-assessable
share of
- -----------------
* The portion of the legend in brackets shall be inserted only if applicable and
shall replace the preceding sentence.
<PAGE> 68
Series A Junior Participating Preferred Stock (the "Preferred Stock") of the
Company, at a purchase price of $350 per one one-hundredth of a share (the
"Purchase Price") payable in lawful money of the United States of America by
certified check or bank draft payable to the order of the Company, upon
presentation and surrender of this Rights Certificate with the Form of Election
to Purchase and related Certificate duly executed, along with a signature
guarantee and such other and further documentation as the Rights Agent may
reasonably request. The number of Rights evidenced by this Rights Certificate
(and the number of shares which may be purchased upon exercise thereof) set
forth above, and the Purchase Price per share set forth above, are the number
and Purchase Price as of September 11, 1991 based on the Preferred Stock as
constituted at such date. The Company reserves the right to require prior to the
occurrence of a Triggering Event (as such term is defined in the Rights
Agreement) that a number of Rights be exercised so that only whole shares of
Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Rights Certificate are
beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of
any such Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or Affiliate, or (iii)
under certain circumstances specified in the Rights Agreement, a transferee of a
person who, after such transfer, became an Acquiring Person, or an Affiliate or
Associate of an Acquiring Person, such Rights shall become null and void and no
holder hereof shall have any right with respect to such Rights from and after
the occurrence of such Section 11(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities, which may be purchased
upon the exercise of the Rights evidenced by this Rights Certificate are subject
to modification and adjustment upon the happening of certain events, including
Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Rights Certificates, which
limitations of rights include the temporary suspension of the exercisability of
such Rights under the specific circumstances set forth in the Rights Agreement.
Copies of the Rights Agreement are on file at
2
<PAGE> 69
the above-mentioned office of the Rights Agent and are also available upon
written request to the Rights Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the office or offices of the Rights Agent designated for such
purpose, along with a signature guarantee and such other and further
documentation as the Rights Agent may reasonably request, may be exchanged for
another Rights Certificate or Rights Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
one-one hundredths of a share of Preferred Stock as the Rights evidenced by the
Rights Certificate or Rights Certificates surrendered shall have entitled such
holder to purchase. If this Rights Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Rights
Certificate or Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a redemption
price of $.01 per Right at any time prior to the earlier of the close of
business on (i) the tenth day following the Stock Acquisition Date (as such time
period may be extended pursuant to the Rights Agreement), and (ii) the Final
Expiration Date.
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are integral
multiples of one-one hundredth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of shares of Preferred Stock
or of any other securities of the Company which may at any time be issuable on
the exercise hereof, nor shall anything contained in the Rights Agreement or
herein be construed to confer upon the holder hereof, as such, any of the rights
of a stockholder of the Company or any right to vote for the election of
directors or upon any matter submitted to stockholders at any meeting thereof,
or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in the
Rights Agreement), or to receive dividends or subscription rights, or otherwise,
until the Right or Rights evidenced by this Rights Certificate shall have been
exercised as provided in the Rights Agreement.
3
<PAGE> 70
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by an authorized signatory of the Rights
Agent.
WITNESS the facsimile signature of the proper officers of the Company and
its corporate seal.
Dated as of September __, 1991
ATTEST: GENERAL RE CORPORATION
By
- ----------------------------- ----------------------------
Secretary Title:
Countersigned:
The Bank of New York,
as Rights Agent
By
---------------------------
Authorized Signatory
Date of countersignature:
4
<PAGE> 71
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Rights Certificate.)
FOR VALUE RECEIVED______________________________________________________________
hereby sells, assigns and transfers unto________________________________________
________________________________________________________________________________
(Please print name and address of transferee)
this Rights Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: _________________, 19__
------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of the New York Stock
Exchange, Inc. or a commercial bank or trust company having an office or
correspondent in New York City.
<PAGE> 72
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or subsequently became an Acquiring Person or an Affiliate or
Associate of an Acquiring Person.
Dated: __________, 19__
---------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of the New York Stock
Exchange, Inc. or a commercial bank or trust company having an office or
correspondent in New York City.
NOTICE
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
6
<PAGE> 73
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by
the Rights Certificate.)
To: GENERAL RE CORPORATION:
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
Please insert social security or
other taxpayer identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security or
other taxpayer identifying number
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated: , 19
--------- --
7
<PAGE> 74
------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of the New York Stock
Exchange, Inc. or a commercial bank or trust company having an office or
correspondent in New York City.
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring Person or
an Affiliate or Associate of any such Acquiring Person (as such terms are
defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate from any
Person who is, was or became an Acquiring Person or an Affiliate or Associate of
an Acquiring Person.
Dated: , 19
-------- -- ------------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of the New York Stock
Exchange, Inc. or a commercial bank or trust company having an office or
correspondent in New York City.
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
8
<PAGE> 75
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED STOCK
On September 11, 1991, the Board of Directors of GENERAL RE CORPORATION
(the "Company") declared a dividend distribution of one Right for each
outstanding share of Company Common Stock to stockholders of record at the close
of business on October 1, 1991. Each Right entitles the registered holder to
purchase from the Company a unit consisting of one-one hundredth of a share (a
"Unit") of Series A Junior Participating Preferred Stock, without par value (the
"Preferred Stock"), at a Purchase Price of $350 per Unit, subject to adjustment.
The description and terms of the Rights are set forth in a Rights Agreement (the
"Rights Agreement") between the Company and The Bank of New York, as Rights
Agent.
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate Rights Certificates will
be distributed. The Rights will separate from the Common Stock and a
Distribution Date will occur upon the earlier of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 20% or more of the outstanding shares of Common Stock (the "Stock
Acquisition Date"), or (ii) 10 business days (or such later date as the Board
shall determine) following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 20% or more of such
outstanding shares of Common Stock. Until the Distribution Date, (i) the Rights
will be evidenced by the Common Stock certificates and will be transferred with
and only with such Common Stock certificates, (ii) new Common Stock certificates
issued after October 1, 1991 will contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any certificates
for Common Stock outstanding will also constitute the transfer of the Rights
associated with the Common Stock represented by such certificate. Pursuant to
the Rights Agreement, the Company reserves the right to require prior to the
occurrence of a Triggering Event (as defined below) that, upon any exercise of
Rights, a
<PAGE> 76
number of Rights be exercised so that only whole shares of Preferred Stock will
be issued.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on September 11, 2001, unless earlier redeemed by the
Company as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of the Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except as otherwise determined by
the Board of Directors, only shares of Common Stock issued prior to the
Distribution Date will be issued with Rights.
In the event that, at any time following the Distribution Date, (i) a
Person becomes the beneficial owner of more than 20% of the then outstanding
shares of Common Stock (except pursuant to an offer for all outstanding shares
of Common Stock which the independent directors determine to be fair to and
otherwise in the best interests of the Company and its shareholders (a "Fair
Offer")), each holder of a Right will thereafter have the right to receive, upon
exercise, Common Stock (or, in certain circumstances, cash, property or other
securities of the Company) having a value equal to two times the exercise price
of the Right. Notwithstanding any of the foregoing, following the occurrence of
the event set forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned by any
Acquiring Person will be null and void. However, Rights are not exercisable
following the occurrence of either of the events set forth above until such time
as the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $350 per Right, each Right not owned
by an Acquiring Person (or by certain related parties) following an event set
forth in the preceding paragraph would entitle its holder to purchase $700
worth of Common Stock (or other consideration, as noted above) for $350.
Assuming that the Common Stock had a per share value of $175 at such time, the
holder of each valid Right would be entitled to purchase 4 shares of Common
Stock for $350.
2
<PAGE> 77
In the event that, at any time following the Stock Acquisition Date, (i)
the Company is acquired in a merger or other business combination transaction in
which the Company is not the surviving corporation (other than a merger which
follows and is on the same term as a Fair Offer), or (ii) 50% or more of the
Company's assets or earning power is sold or transferred, each holder of a Right
(except Rights which previously have been voided as bet forth above) shall
thereafter have the right to receive, upon exercise, common stock of the
acquiring company having a value equal to two times the exercise price of the
Right. The events set forth in this paragraph and in the second preceding
paragraph are referred to as the "Triggering Events."
The Purchase Price payable, and the number of Units of Preferred Stock or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Stock, (ii) if holders of the Preferred Stock are granted certain rights or
warrants to subscribe for Preferred Stock or convertible securities at less than
the current market price of the Preferred Stock, or (iii) upon the distribution
to holders of the Preferred Stock of evidences of indebtedness or assets
(excluding regular quarterly cash dividends) or of subscription rights or
warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Stock on the last
trading date prior to the date of exercise.
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right (payable in cash, Common Stock or other consideration deemed appropriate
by the Board of Directors). Immediately upon the action of the Board of
Directors ordering redemption of the Rights, the Rights will terminate and the
only right of the holders of Rights will be to receive the $.01 redemption
price.
3
<PAGE> 78
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for
common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
Board of Directors of the Company prior to the Distribution Date. After the
Distribution Date, the provisions of the Rights Agreement may be amended by the
Board in order to cure any ambiguity, to make changes which do not adversely
affect the interests of holders of Rights (excluding the interests of any
Acquiring Person), or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption shall be made at such time as the Rights are not
redeemable.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
September __, 1991. A copy of the Rights Agreement is available free of charge
from the Rights Agent. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, which is incorporated herein by reference.
4
<PAGE> 1
EXHIBIT
10.1 The General Re Corporation 1989 Long Term Compensation Plan
<PAGE> 2
GENERAL RE CORPORATION
1989 LONG-TERM COMPENSATION PLAN
AS AMENDED
THROUGH DECEMBER 7, 1993
INCLUDES AMENDMENTS MADE:
12/12/89
11/14/90
12/11/90
5/29/92
12/7/93
<PAGE> 3
GENERAL RE CORPORATION
1989 LONG-TERM COMPENSATION PLAN
1. Purpose. There is hereby established the Long-Term Compensation Plan (the
"Plan") of General Re Corporation, a Delaware corporation (the "Company").
The Plan is intended as an incentive and to encourage stock ownership by
certain key executive and managerial employees of the Company or any other
corporation of which at least 50% of the voting stock is owned, directly or
indirectly, by the Company ("Subsidiary"), and to encourage such employees
to remain in the employ of the Company or its Subsidiaries and to have a
proprietary interest in the success of the Company. The Plan permits
granting of Incentive Stock Options, Nonqualified Stock Options, Approved
Stock Options, Rights, Annual Incentive Bonuses, Performance Bonuses and
Restricted Stock, each as hereinafter defined.
2. Definitions. For the purposes of this Plan:
(a) The term "Incentive Stock Option" shall mean an option granted
pursuant to the provisions of this Plan which meets the requirements of Section
422A of the Internal Revenue Code of 1986, as amended ("Section 422A").
(b) The term "Nonqualified Stock Option" shall mean any option granted
pursuant to the provisions of this Plan which is neither an Incentive Stock
Option nor an Approved Stock Option.
(c) The term "Approved Stock Option" shall mean any option granted
pursuant to the provisions of the United Kingdom Sub-Plan of this Plan. Such
options shall not be subject to the provisions of Section 6 of the Plan.
(d) The term "Right" shall mean any stock appreciation right granted
pursuant to the provisions of the Plan.
(e) The term "Annual Incentive Bonus" shall mean an annual bonus
payable in accordance with Section 8.
(f) The term "Performance Bonus" shall mean a bonus contingent upon the
achievement of performance objectives established by the Committee in accordance
with Section 8.
(g) The term "Restricted Stock" means stock delivered subject to the
restrictions described in Section 9.
(h) The term "Grantee" shall mean any person to whom an option, Right,
Restricted Stock, Annual Incentive Bonus or Performance Bonus hereunder has been
granted.
(i) The term "Fair Market Value" shall be deemed to be, on a per share
basis, the mean between the opening and closing sales price of the Company's
Common Stock on the Composite Tape for New York Stock Exchange-Listed Stocks on
the date as of which the determination is being made or, if no
<PAGE> 4
sales were reported on such date, on the next preceding day on which there were
sales of the Common Stock so reported.
(j) The term "Grant Date" shall mean the date on which the Incentive
Stock Option, Nonqualified Stock Option, Approved Stock Option, Restricted Stock
or Right is authorized by the Committee (as hereinafter defined) or such later
date as may be specified by the Committee in such authorization.
(k) The term "Non-Employee Director" shall mean each member of the
Board of Directors of the Company who is not also an employee of the Company.
3. Administration.
(a) The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company (the "Committee"). The Committee shall consist
of not less than three members of the Company's Board of Directors who shall be
ineligible to receive Incentive Stock Options, Nonqualified Stock Options,
Approved Stock Options, Rights, Restricted Stock, Annual Incentive Bonus or
Performance Bonuses pursuant to the Plan or stock options or rights under any
other plan of the Company or any of its Subsidiaries (unless the Board of
Directors determines that such options or rights can be granted pursuant to the
Plan or under another plan without adversely affecting the Committee's status as
"disinterested" for purposes of Rule 16(b)-3 of the Rules of the Securities
Exchange Commission). The Committee shall from time to time at its discretion
select employees eligible for Incentive Stock Options, Nonqualified Stock
Options, or Approved Stock Options and determine whether the stock option shall
be an Incentive Stock Option, Nonqualified Stock Option, or Approved Stock
Option, the number of shares subject to such option, the term of such options
and whether such option shall be related to Rights and the number of such
Rights, and other matters specifically delegated to it under this Plan.
(b) The Committee shall in its discretion select employees eligible for
an Annual Incentive Bonus and/or a Performance Bonus opportunity under the
provisions of Section 8(c). The Committee shall also, in its discretion, select
employees eligible for Restricted Stock under the provisions of Section 9. The
Committee shall determine the amount of Restricted Stock to be awarded to an
employee based on the Committee's assessment of the value of the services the
employee has rendered to the Company.
(a) The Committee shall have the final authority to interpret and
construe the terms of the Plan and of any Incentive Stock Option, Nonqualified
Stock Option, Approved Stock Option, Right, Restricted Stock, Annual Incentive
Bonus or Performance Bonus, and any agreements relating thereto. No member of
the Committee shall be liable for any action, interpretation or construction
made in good faith with respect to the Plan or any Incentive Stock Option,
Nonqualified Stock Option, Approved Stock Option, Right, Restricted Stock,
Annual Incentive Bonus or Performance Bonus. The Committee may prescribe, amend
and rescind rules and regulations relating to the Plan and shall make all other
determinations necessary or advisable for administration of the Plan.
(a) The Board of Directors may fill any Committee vacancy and may
remove any member of the Committee at any time with or without cause.
3
<PAGE> 5
4. Eligibility.
(a) Key executive and managerial employees (including officers, whether
or not they are directors) of the Company or of any Subsidiary, which by action
of its Board of Directors, shall have elected to participate, shall be eligible
to receive Incentive Stock Options, Nonqualified Stock Options, Rights,
Restricted Stock, Annual Incentive Bonus or Performance Bonuses. An eligible
employee holding Incentive Stock Options may be granted Nonqualified Stock
Options and/or additional Incentive Stock Options and an eligible employee
holding Nonqualified Stock Options may be granted Incentive Stock Options and
additional Nonqualified Stock Options.
(b) Incentive Stock Options may not be granted to any employee who at
the time such Incentive Stock Option is granted owns more than 10 percent of the
total combined voting power of all classes of stock of the Company unless the
purchase price of such shares of common stock issuable upon exercise is not less
than 110 percent of the fair market value of such shares on the date such option
is granted, and such option is not exercisable after the expiration of five
years from the date such option is granted.
(c) Employees described in subsection (a) whose remuneration is liable
to income tax in the United Kingdom under Schedule E (i.e., employees who are
resident and ordinarily resident in the United Kingdom and whose duties are
performed there) shall also be eligible to receive Approved Stock Options.
(d) Each Non-Employee Director will automatically receive a
Nonqualified Stock Option to acquire 500 Shares of Common Stock of the Company
on the first business day of each calendar year during which such Non-Employee
Director shall serve on the Company's Board of Directors.
5. Stock.
(a) The stock subject to Incentive Stock Options, Nonqualified Stock
Options, Approved Stock Options, Rights, Units and Restricted Stock shall be
shares of the Company's Common Stock. Stock issued as Restricted Stock or issued
pursuant to the exercise of options or rights may be authorized but unissued
Common Stock or Common Stock held in the Company's treasury. The total number of
shares of Common Stock with respect to which Incentive Stock Options,
Nonqualified Stock Options, Approved Stock Options, and Restricted Stock may be
granted and the maximum number of shares of Common Stock that may be issued
under the Plan in payment of Rights, Units or Annual Incentive or Performance
Bonuses may equal but shall not exceed in the aggregate 4.0 million shares;
provided, however, that from the aggregate limit of 4.0 million shares, the
maximum number of shares of Common Stock with respect to which Nonqualified
Stock Options may be granted to Non-Employee Directors shall not exceed 40,000
shares. Such number of shares shall be adjusted in accordance with the
provisions of Section 6(g) of the Plan.
(b) For purposes of determining the number of shares of Common Stock
remaining available under the Plan, the exercise of a Right related to an option
shall be equivalent to the exercise of the related Incentive Stock Option,
Nonqualified Stock Option, or approved Stock Option. If Incentive Stock Options,
Nonqualified Stock Options, or Approved Stock Options expire or are terminated,
the corresponding shares of Common Stock may again be subject to either
Incentive Stock Options, Nonqualified Stock Options or Approved Stock Options.
An outstanding related Right shall not be taken into account in determining the
aggregate number of shares with respect to which Incentive Stock Options,
Nonqualified Stock Options, and Approved Stock Options may thereafter be
granted.
4
<PAGE> 6
6. Terms and Conditions of Incentive Stock Options, Nonqualified Stock Options
and Rights. Incentive Stock Options, Nonqualified Stock Options and Rights
granted pursuant to the Plan by the Committee shall be evidenced by agreements
in such form as the Committee shall from time to time determine, which
agreements shall comply with and be subject to the following terms and
conditions:
(a) Incentive Stock Options, Nonqualified Stock Options and Rights:
(1) Each Incentive Stock Option shall state the Number of
Shares to which it pertains. The aggregate Fair Market Value (determined at the
time the Incentive Stock Option is granted) of the stock with respect to which
Incentive Stock Options first become exercisable during any calendar year under
the terms of this Plan for any Grantee may not exceed $100,000. For purposes of
this $100,000 limit, the Grantee's Incentive Stock Options under this Plan and
all plans maintained by the Grantee's employer corporation and its parent and
subsidiary corporations shall be aggregated.
(2) Each Nonqualified Stock Option shall state the number of
shares to which it pertains. Each related Right shall state the number of shares
to which it pertains. The total number of shares of Common Stock with respect to
which Nonqualified Stock Options or Rights may be granted to any one individual
under the Plan through December 31, 1994 may equal but shall not exceed ten
percent (10%) of the aggregate number of shares of Common Stock that may be
issued under the Plan, as stated in Section 5(a).
(b) Exercise Price:
Each Incentive Stock Option, Nonqualified Stock Option, and related
Right shall state the price at which it may be exercised ("Exercise Price"). The
Exercise Price shall be the Fair Market Value of the Common Stock of the Company
on the date of the grant of the stock option. The Exercise Price of a Right
related to an option, regardless of when issued, shall be the same as the
Exercise Price of the Incentive Stock Option or Nonqualified Stock Option to
which it relates.
(c) Medium and Time of Payment:
The Exercise Price with respect to options generally shall be payable
in United States dollars upon exercise of the Incentive Stock Option or
Nonqualified Stock Option and may be paid in cash or by certified check, bank
draft or postal or express money order. The Committee shall have the power to
accept payment of the Exercise Price from residents of a foreign country in
currency of that country. The Company may, at the request of a Grantee, arrange
short-term outside financing for the purpose of financing the Exercise Price of
the Option. The Committee may also, at the request of a Grantee, approve and
comply with any procedures necessary to allow a broker to sell and remit to the
Company the sales proceeds of the portion of the shares to be acquired upon
exercise with a Fair Market Value equal to the sum of the Exercise Price and any
tax withholding required by subsection (i). The Committee may, in its
discretion, at the request of a Grantee, accept prior acquired shares of Common
Stock in partial or full payment of the Exercise Price. Common Stock so accepted
shall be valued at its Fair Market Value on the day prior to the date the
Incentive Stock Option or Nonqualified Stock Option is exercised.
5
<PAGE> 7
(d) Term and Exercise of Incentive Stock Options, Nonqualified Stock
Options and Rights:
(1) No stock option or Right issued under this Plan shall be
exercisable either in whole or in part prior to approval of the Plan by
stockholders of the Company and prior to compliance with all requirements of law
governing the issuance of such shares and exercise of stock options and Rights.
After such approval and compliance, each Incentive Stock Option, Nonqualified
Stock Option or Right shall be exercisable in whole or in part at such time or
times as the Committee in its sole discretion may determine; provided; however,
Non-qualified Stock Options issued to Non-Employee Directors shall provide that
such Options shall be exercisable (or become vested) immediately as of the date
of grant. Further, no Incentive Stock Option granted to an employee described in
Section 4(b) shall be exercisable after the expiration of five years from the
Grant Date. No Incentive Stock Option granted to any other employee and no
Nonqualified Stock Option or Right shall be exercisable after the expiration of
ten years from the Grant Date. No less than 100 shares may be purchased at any
one time under an option or Right unless the number purchased is the total
number at the time purchasable under such option or Right. During the lifetime
of a Grantee, an Incentive Stock Option, Nonqualified Stock Option or Right
shall be exercisable only by the Grantee and shall not be assignable or
transferable, other than by will or by the laws of descent or distribution, by
the Grantee and no other persons shall otherwise acquire any rights therein. A
Right related to an option, regardless of when granted, may be exercised at the
same time and under the same conditions as the Incentive Stock Option or
Nonqualified Stock Option to which it relates, provided that no such Right may
be exercised during the first six months of its term.
(e) Acceleration of Date on Which an Incentive Stock Option,
Nonqualified Stock Option or Right May Be Exercised:
(1) The Committee may advance the date on which all or any
portion of any option or Right may be exercised, provided that no option or
Right held by a Grantee who would be subject to Section 16(b) of the Securities
Exchange Act of 1934 with respect to such option shall be exercised during the
first six months of its term.
(2) Notwithstanding any other provision to the contrary, all
Incentive Stock Options, Nonqualified Stock Options and Rights shall become
immediately and fully exercisable (in whole or in part in the discretion of the
holder thereof) if (i) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Company with respect to which 20% or more of the total
number of votes for the election of the Board of Directors of the Company may be
the case; (ii) as a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of assets or
contested election or combination of the foregoing, the persons who were prior
to the institution thereof directors of the Company shall cease to constitute a
majority of the Board of Directors of the Company; or (iii) stockholders of the
Company shall approve an agreement pursuant to which the Company will cease to
be an independent publicly-owned corporation or for a sale or other disposition
of all or substantially all of the assets of the Company.
(f) Termination of Employment, Termination of Board Service or Death:
(1) In the event a Grantee's employment or Board Service shall
terminate on account of death, disability or retirement, the Grantee may
exercise all Nonqualified Stock Options, Rights or Incentive Stock Options that
are exercisable through the date of termination. Said Nonqualified Stock
6
<PAGE> 8
Options and Rights must be exercised within the earlier of (i) five years of
such date or (ii) the expiration date of the Nonqualified Stock Option or Right,
and Incentive Stock Options must be exercised within the earlier of (i) three
months of such date (or one year if terminated on account of death or
disability) or (ii) the expiration date of the Incentive Stock Option.
(2) In the event a Grantee's employment or Board Service shall
terminate on account of resignation, discharge not for causes or expiration of
elected term, the Grantee may exercise all Nonqualified Stock Options, Rights
and Incentive Stock Options that are exercisable through the date of termination
or, in the case of Employee Nonqualified Stock Options, such later date as the
Committee may in its sole discretion specify. Said Nonqualified Stock Options,
Rights, and Incentive Stock Options must be exercised prior to their respective
expiration dates and also within the later of (i) three months following the
date of termination or, (ii) in the case of Employee Nonqualified Stock Options,
such later date as the Committee may in its sole discretion specify. If a
Grantee's employment shall terminate on account of discharge for cause, no
exercise period shall exist and the Grantee shall forfeit all Nonqualified Stock
Options, Rights or Incentive Stock Options as of the date of termination.
(3) For this purpose, discharge for cause shall mean
termination of employment by the Employer which the Committee, in its
discretion, determines to be for cause.
(4) To the extent not then exercisable in accordance with this
Section, the Incentive Stock Options, Nonqualified Stock Options, or Right of a
Grantee who resigns or whose employment terminates shall, except as set forth in
Section 6(g), terminate on the date his employment terminates.
(5) Termination of employment shall be considered to occur
when an employee is no longer an employee of the Company or any Subsidiary.
Whether an authorized leave of absence or absence on military or government
service shall constitute termination of employment for purposes of this Plan
shall be determined by the Committee. Retirement shall be considered to mean
retirement pursuant to any applicable retirement plan of the Company or any of
its Subsidiaries. Any Incentive Stock Option or Nonqualified Stock Option
exercisable after death may be exercised by the decedent's personal
representatives.
(6) A parental leave shall not constitute termination of
employment for purposes of this Plan provided that the employee returns to
active employment with the Company or any subsidiary within twelve (12)
consecutive months of the date the parental leave began. In the event that an
employee does not return to active employment on or before the twelve (12) month
anniversary date of the date the parental leave began, the employee shall have
three (3) months following the anniversary date of the parental leave within
which to exercise all Non--qualified Stock Options and Rights and Incentive
Options that are exercisable through the employee's date of termination. For
purposes of the Plan, "parental leave"means the absence of an employee from
active employment, due to the birth of a child, placement of a child with the
employee in connection with adoption of such child by the employee, or caring
for a child immediately following such birth or placement for adoption, provided
that the absence from employment does not exceed twelve (12) consecutive months,
excluding the period of absence in which the employee is physically disabled due
to pregnancy.
7
<PAGE> 9
(g) Recapitalization, Merger, Consolidation and Similar Transactions:
(1) Subject to any required action by stockholders, the
aggregate number of shares of Common Stock on which Incentive Stock Options or
Nonqualified Stock Options may be granted hereunder, the number of shares
thereof covered by each outstanding Incentive Stock Option, Nonqualified Stock
Option and Right and the Exercise Price of each Incentive Stock Option,
Nonqualified Stock Option or Right shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock of the
Company resulting from a subdivision or consolidation of shares or the payment
of a stock dividend on the Common Stock other than a stock dividend that is a
substitute for a cash dividend or any other increase in the number of such
shares effected without receipt of consideration by the Company provided no
such adjustment in Exercise Price may reduce the Exercise Price to an amount
per share which is less than the par value of such share.
(2) Subject to any required action by stockholders, if the
Company shall be the surviving corporation in any merger or consolidation
(except a merger or consolidation in which the Company is the surviving
corporation but the holders of Common Stock receive securities of another
corporation), any Incentive Stock Option, Nonqualified Stock Option or Right
granted hereunder shall pertain to and apply to the securities to which a holder
of the number of shares of Common Stock equal to the number of shares subject to
the Incentive Stock Option, Nonqualified Stock Option or Right would have been
entitled. In the event of the dissolution or liquidation of the Company, a
merger of Company, a merger or consolidation in which the Company is not the
surviving corporation or a merger or consolidation in which the Company is the
surviving corporation but the holders of Common Stock receive securities of
another corporation, the Committee shall, in its discretion, have the power,
prior to such event, (i) to cancel any or all Incentive Stock Options,
Nonqualified Stock Options, and Rights which are then exercisable and, in
consideration of such cancellation, pay to each Grantee an amount in cash with
respect to each share of Common Stock as to which an Incentive Stock Option,
Nonqualified Stock Option or Right is then exercisable equal to the difference
between the value per share of the consideration, as determined by the Committee
in its discretion, received by holders of Common Stock as a result of such
dissolution, liquidation, merger or consolidation and the Exercise Price, and to
terminate without consideration all Incentive Stock Options, Nonqualified Stock
Options and Rights not then exercisable; or (ii) if the holders of Common Stock
receive property other than cash as a result of such dissolution, liquidation,
merger or consolidation, to provide for the exchange of an Incentive Stock
Option, Nonqualified Stock Option or Right which is then exercisable for an
Incentive Stock Option or Right on some or all of such property and, incident
thereto, make an equitable adjustment, as determined by the Committee, in the
Exercise Price of each affected Incentive Stock Option, Nonqualified Stock
Option or Right, the number of shares or other property subject to the Incentive
Stock Option, Nonqualified Stock Option or Right and, if appropriate, provide
for a cash payment to the optionees in partial consideration for the exchange
for their Incentive Stock Option, Nonqualified Stock Option or Right and to
terminate without consideration all Incentive Stock Options, Nonqualified Stock
Options or Rights not then exercisable. The foregoing adjustment shall be made
by the Committee, whose determination in that respect shall be final, binding
and conclusive.
(3) If changes in capitalization of the Company other than
those referred to above shall occur, the Committee may, but need not, make such
adjustments in the number and class of shares for which Incentive Stock Options,
Nonqualified Stock Options or Rights may thereafter be granted or in the
8
<PAGE> 10
number and class of shares remaining subject to Incentive Stock Options,
Nonqualified Stock Options and Rights then outstanding and in the Exercise Price
as the Committee may consider appropriate to prevent dilution or enlargement of
rights.
(4) Except as provided in this Section 6(g) and Section
6(e)(2), the Grantee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class, the payment of any stock dividend
or any other increase or decrease in the number of shares of stock of any class,
any dissolution, liquidation, merger, consolidation or change in control or any
issue by the Company of shares of stock of any class, or securities convertible
into shares of stock of any class and no adjustment by reason thereof shall be
made with respect to the Exercise Price or number of shares of Common Stock
subject to an Incentive Stock Option, Nonqualified Stock Option or Right.
(h) Rights of a Stockholder:
A Grantee or a transferee of an Incentive Stock Option, Nonqualified
Stock Option or Right shall have no rights as a stockholder with respect to any
shares covered by his or her option or right until the date as of which stock is
issued following exercise of such option or right. Except as herein provided, no
adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property) or any other distributions for which the
record date is prior to the date as of which such stock is issued.
(i) Withholding of Taxes:
No Incentive Stock Option, Nonqualified Stock Option or Right may be
exercised unless the Grantee has paid or has made provision satisfactory to the
Committee for payment of, federal, state and local income taxes, or any other
taxes (other than stock transfer taxes) which the Company may be obligated to
collect as a result of the issue or transfer of Common Stock upon such exercise
of an Incentive Stock Option or Nonqualified Stock Option or the exercise of any
Right satisfied wholly or partly in Common Stock. In its sole discretion, and at
the request of a Grantee, the Committee may permit a Grantee (including the
Company's officers and directors who are in compliance with Rule 16b- 3e(3)) to
satisfy the obligation imposed by this Section, in whole or in part, by
instructing the Company to withhold up to that number of shares otherwise
issuable to the Grantee with a Fair Market Value equal to the amount of tax to
be withheld.
(j) Other Provisions:
The Committee may, as a condition precedent to the exercise of any
Incentive Stock Option, Nonqualified Stock Option or Right, require the Grantee
of the Incentive Stock Option, Nonqualified Stock Option or Right (including, in
the event of the Grantee's death, his legal representatives, legatees or
distributees) to enter into such agreement or to make such representations as
may be required to make lawful the exercise of the Incentive Stock Option,
Nonqualified Stock Option or Right and the ultimate disposition of the shares
acquired by such exercise. The agreements authorized under the Plan pursuant to
which Incentive Stock Options, Nonqualified Stock Option, or Rights are granted
shall contain such other provisions, consistent with the Plan, as the Committee
shall deem advisable.
9
<PAGE> 11
(k) Reload Options
(1) In the event a Grantee exercises a Nonqualified Stock
Option by using shares of Common Stock, which the Grantee has owned for at least
six (6) months, in partial or full payment of the Exercise Price, the Grantee
shall automatically be granted a new Nonqualified Stock Option to purchase a
number of shares of Common Stock equal to the number of shares of Common Stock
used in payment of the Exercise Price (the "Reload Option").
(2) Notwithstanding any provision of this Plan to the
contrary, (a) the Reload Option shall be exercisable (or become vested) one year
after the date of grant provided that as of that date, the Grantee owns shares
of common stock acquired as a result of the exercise of the original
Nonqualified Option equal to the excess of the shares received on exercise of
the original Nonqualified Option less the sum of the exercise price of the
original Nonqualified Option plus any income tax due as a result of the exercise
of the original Nonqualified Option, and (b) the Reload Option shall expire on
the same date that the original Nonqualified Option (with respect to which the
Reload Option was granted) would have expired by its terms. All other provisions
of this Plan pertaining to Nonqualified Options shall apply to Reload Options.
7. Grant and Exercise of Rights
(a) Granting of Rights Related to Options:
(1) Rights may be granted by the Committee with respect to any
Incentive Stock Option or Nonqualified Stock Option granted pursuant to the
Plan. Such Rights may be granted at the time of the grant of the related option
or at any time during the term of such option prior to the exercise thereof.
Each such related Right shall be subject to the same terms and conditions (and
any such additional terms and conditions as the Committee may deem appropriate)
as the option to which it relates, subject to the requirement of Article 6(d)
that no related Right may be exercised during the first six months of its term,
and further that no related Right may be exercised with respect to less than 100
shares unless it is exercised with respect to all shares then exercisable. On
the exercise of all or a portion of a related Right, all or such portion of the
option related to the Right which has been exercised shall terminate. On the
exercise of all or a portion of an option which is related to a Right, all or
such portion of the Right which is related to the option which has been
exercised shall terminate.
(2) With respect to Rights related to an Incentive Stock
Option, the following conditions shall apply to such related Right:
(i) The Right shall expire no later than the
underlying Incentive Stock Option;
(ii) The Right shall be for no more than 100% of the
difference between the Exercise Price of the underlying Incentive Stock Option
and the Fair Market Value of the stock subject to the underlying Incentive Stock
at the time the Right is exercised;
(iii) The Right shall be transferable only when the
underlying Incentive Stock Option is transferable, and under the same
conditions;
10
<PAGE> 12
(iv) The Right may be exercised only when the
underlying Incentive Stock Option is eligible to be exercised and only when
the Fair Market Value of the stock subject to the underlying Incentive
Stock Option exceeds the Exercise Price.
(b) Exercise of Rights:
Upon exercise of a Right, unless subject to Section 7(c), the Grantee
shall be entitled to receive an amount equal to the product of:
(1) the amount by which the Fair Market Value of the Common
Stock of the Company on the date of exercise of the Right exceeds the Exercise
Price per share specified in the Right, multiplied by
(2) the number of shares of Common Stock in respect of which
the Right shall have been exercised.
(c) Form and Time of Payment of Related Rights:
(1) The amount to which a Grantee is entitled on exercise of a
related Right may be satisfied in Common Stock, in cash or in a combination of
both, as determined by the Committee, in its discretion. If the Committee
determines to satisfy all or part of the amount due the Grantee in Common Stock,
the number of shares of Common Stock to which the Grantee is entitled shall be
the largest whole number obtained by dividing the dollar amount to be satisfied
in Common Stock pursuant to the exercise of the related Right by the Fair Market
Value of the Common Stock, on the date of exercise. No fractional shares shall
be distributed on exercise of any related Right.
(2) The cash and/or Common Stock to which a Grantee is
entitled on exercise of a related Right shall be paid to such Grantee
immediately on exercise of such related Right.
8. Annual Incentive Bonuses; Performance Bonuses.
(a) Annual Incentive Bonuses:
The Committee shall determine an annual incentive goal for the Company
and its subsidiaries for each Award Period, comprised of a fiscal year, and
shall select from among the employees those individuals eligible to receive
Annual Incentive Bonuses and shall determine the dollar amount of each such
employee's Annual Incentive Bonus based upon such criteria as shall be developed
by the Committee in its sole discretion.
(b) Performance Bonuses:
(1) The Committee shall designate Award Periods of not less
than three nor more than five consecutive fiscal years, the first Award Period
to commence January 1, 1989, with respect to which Performance Bonuses shall be
awarded. Prior to the commencement of each Award Period, the Committee shall
determine for each Grantee or group of Grantees a Performance Objective. The
Performance Objective shall be expressed on a before-tax or after-tax basis in
earnings per share, net
11
<PAGE> 13
earnings, return on invested capital, or return on equity investment or in such
other manner as the Committee deems an appropriate measure of performance. Also
prior to the commencement of an Award Period the Committee shall determine the
employees eligible to receive Performance Bonus opportunities for such Award
Period, the amount of the Performance Bonus opportunity for each Grantee, and
the distributable percentage to be applied to the Performance Bonus opportunity
in the event the Performance Objective for the Award Period is not fully
achieved. In the case of an Award Period consisting of five consecutive fiscal
years, during the first three such years the Committee may in its discretion
select additional employees to receive a Performance Bonus, determine for each
such Grantee a Performance Objective based on his entry into the Plan as of
January 1 of the year following his selection and the amount of his Performance
Bonus opportunity, and determine the distributable percentage to be applied to
the Performance Bonus opportunity in the event the Performance Objective for the
shorter Award Period is not achieved. The Committee shall cause each Grantee to
be notified in writing of his Performance Objective and Performance Bonus
opportunity as soon as practicable after such grant.
(c) Termination of Employment:
If a Grantee's employment by the Company or a subsidiary terminates for
any of the reasons stated below prior to the end of an Award Period for which he
was (a) eligible for an Annual Incentive Bonus, or (b) awarded a Performance
Bonus opportunity, the amount of his Bonus shall be determined as follows:
(1) If the Grantee retires pursuant to any applicable
retirement plan of the Company or any of its subsidiaries, or if the Grantee
dies, is disabled, or his employment is involuntarily terminated not for cause
or in such other circumstances as the Committee may in its sole discretion
determine, such Grantee shall receive the proportion of his Bonus (upon
determination by the Committee of the degree of success in achieving the
objective) which the number of full months of active service of the Grantee
during the Award Period bears to the total number of months in such Award
Period, with "disability" being defined as physical or mental condition that
renders the Grantee incapable of performing the work for which the Grantee was
employed or similar work and that qualifies the Grantee for benefits under a
Company-sponsored or subsidiary-sponsored long-term disability plan;
(2) If the Grantee resigns or is discharged he will forfeit
his Bonus, provided, however, that if said Grantee's employment terminates in
the last year in a Performance Bonus Award Period, such Grantee shall receive
whatever portion of his Performance Bonus as the Committee in its sole
discretion shall determine. Whether an authorized leave of absence or absence on
military or government leave shall constitute termination of employment for
purposes of the Plan shall be determined by the Committee.
(d) Crediting and Payment of Bonuses:
(1) The Committee shall determine, in its sole discretion, to
credit, award or pay Annual Incentive Bonuses and Performance Bonuses in cash,
stock, Units or Nonqualified Stock Options, or some combination thereof, and
may, in its sole discretion, offer a Grantee the opportunity to select among
such alternatives for some or all of his Annual Incentive Bonus or Performance
Bonus, provided that in the case where a Grantee is offered a selection between
Units and/or Nonqualified Stock Options and cash or stock, such selection must
be made, in the case of the Annual Incentive Bonus - before the beginning
12
<PAGE> 14
of the applicable Award Period, and in the case of the Performance Bonus -
before the beginning of the last year in the Award Period.
(2) A "Unit" is an accounting entry maintained by the Company
for the purpose of reflecting the Company's unsecured and unfunded promise to
deliver one share of stock to the Grantee upon the fifth anniversary of the date
of grant, or earlier in the event of the Grantee's death, disability, retirement
on or after age 60, a "Change-in-Control", as defined in Section 9(d) hereof, or
as otherwise determined by the Committee in its sole discretion. In converting a
Bonus to Units the Committee shall determine, in its sole discretion, the value
of the Units to be credited to a Grantee's account by taking into account the
illiquidity of the Units, the five-year investment risk, the absence of voting
rights and the risk of forfeiture, provided that the value shall in any event
never be less than 75% of the Fair Market Value of Common Stock on the date of
grant. Additional Units shall be credited to the Grantee's account to reflect
cash dividends, as determined by the Committee in its sole discretion. Also, in
the event of any change in the outstanding shares of Common Stock by reason of
the issuance of additional shares, recapitalization, reclassification,
reorganization, stock split, reverse stock split, combination of shares, stock
dividend or similar transaction, the Committee shall proportionately adjust, in
an equitable manner, the number of Units credited to a Grantee's account. Any
new Units credited with respect to an original grant of Units shall be treated
as if credited as of such original grant date. Units may not be transferred,
assigned, pledged or hypothecated in any manner. Until such time as Common Stock
is deliverable to the Grantee, he will have none of the rights of a shareholder
but only as a general creditor of the Company. If during the time Units are
outstanding a Grantee's employment is terminated for cause or the Grantee
engages in the unauthorized use of proprietary information, both of which
conditions shall be determined by the Committee in its sole discretion, the
Grantee shall forfeit all Units credited to his account. No Common Stock shall
be issued with respect to a Unit unless the Grantee has paid or made provision
satisfactory to the Committee for payment of federal, state and local income
taxes or any other taxes (other than stock transfer taxes) which the Company may
be obligated to collect as a result of the issue or transfer of such Common
Stock. In its sole discretion, and at the request of a Grantee, the Committee
may permit a Grantee (including the Company's officers and directors who are in
compliance with Rule 16b-3e(3)) to satisfy the tax obligation, in whole or in
part, by instructing the Company to withhold up to that number of shares
otherwise issuable to the Grantee with a Fair Market Value equal to the amount
of tax to be withheld.
(e) If (i) any person, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial
owner of shares of the Company with respect to which 20% or more of the total
number of votes for the election of the Board of Directors of the Company may be
cast; (ii) as a result of, or in connection with, any cash tender offer,
exchange offer, merger or other business combination, sale of assets or
contested election or combination of the foregoing, the persons who were prior
to the institution thereof directors of the Company shall cease to constitute a
majority of the Board of Directors of the Company; or (iii) stockholders of the
Company shall approve an agreement pursuant to which the Company will cease to
be an independent publicly-owned corporation or for a sale or other disposition
of all or substantially all of the assets of the Company, then upon the date of
any such occurrence all Performance Bonuses if any shall become fully payable or
creditable, where applicable, to the extent the Committee in its sole discretion
determines that the Performance objectives have been met, but in no event for an
amount greater than the proportion of the Performance Bonus which the number of
months served during the Award Period prior to such occurrence bears to the
total number of months in the Award Period.
13
<PAGE> 15
9. Restricted Stock
(a) Transfer of Restricted Stock. As soon as practicable following
the Grant Date, the Committee shall transfer to the name of each Grantee any
and all awarded shares of Restricted Stock.
(b) Rights and Obligations With Respect to Restricted Stock. A
certificate or certificates for all shares of Restricted Stock registered in the
name of a Grantee shall be promptly drawn and held for the Grantee by the
Company. The Grantee shall thereupon be a stockholder and have all the rights of
a stockholder with respect to such shares, including the right to vote and
receive all dividends or other distributions made or paid with respect to such
shares. As the restrictions are released, a certificate (without the legend
mentioned below) for the number of shares with respect to which restrictions
have been released will be delivered to the Grantee as soon as practicable.
Such Restricted Stock, and any new, additional or different securities,
cash or other property, the Grantee may become entitled to receive with respect
to such Restricted Stock by virtue of the events described in Section 9(e) shall
be subject to the restrictions described in Section 9(c). In order to enforce
such restrictions, the Committee shall cause a legend or legends to make
specific reference to such restrictions on all certificates for Restricted
Stock.
(c) Specific Restrictions and Release of Restrictions. Prior to their
release as provided below, all shares of Restricted Stock held by a Grantee
shall be subject to the following restrictions:
(1) In addition to such other restrictions that the Committee
may deem advisable in its sole discretion, the Restricted Stock may not be sold,
exchanged, transferred, pledged, hypothecated, or otherwise disposed of by the
Grantee until their release as provided below;
(2) The above restrictions on the shares of Restricted Stock
shall be released with respect to the percentage of shares as of such date (or
such dates), as determined by the Committee in its sole discretion;
(3) In the event of the Grantee's termination of employment
with the Company due to (i) disability or (ii) retirement on or after Normal
Retirement Date under the Company's Retirement Plan, all restrictions on the
shares of such Restricted Stock held by the Grantee shall lapse;
(4) In the event of the Grantee's termination of employment
due to the Grantee's death, all restrictions on the shares of such Restricted
Stock held by the Grantee shall lapse and such shares shall be delivered to the
Grantee's Beneficiary. Each Grantee shall file with the Committee a written
designation of one or more persons as the Beneficiary who shall be entitled to
receive the shares, if any, payable under the Plan upon the Grantee's death. A
Grantee may, from time to time, revoke or change his Beneficiary designation
without the consent of any prior Beneficiary by filing a new designation with
the Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of the date prior
to such receipt;
(5) In the event of the Grantee's termination of employment
after the Grant Date for reasons other than those stated in Sections 9(c)(3) and
9(c)(4) above and Section 9(d) below, the
14
<PAGE> 16
provisions of Section 9(c)(2) shall determine the percentage of shares with
respect to which restrictions are released, and the Grantee shall forfeit all
shares of Restricted Stock on which restrictions still apply; provided, however,
that the Committee may, at its sole discretion, determine that, as to the
Grantee, all restrictions on shares of such Restricted Stock held by the Grantee
shall lapse.
(d) Change in Control. If a Change in Control occurs and the
Grantee's employment with the Company terminates (other than by reason of death,
disability, retirement on or after Normal Retirement Date under the Company's
Retirement Plan, termination for cause or voluntary termination by the Grantee
except for Good Reason) within two years thereafter, then upon the date of any
such occurrence, all restrictions on the date of any such occurrence, all
restrictions on all shares of Restricted Stock (or cash, securities or other
property) held by the Grantee under the Plan shall be released. Notwithstanding
the foregoing, if a Change in Control occurs, the Committee may, at its sole
discretion, determine that all or some percentage of the restrictions shall
lapse as to the shares of such Restricted Stock held by the Grantee. A "Change
in Control" shall occur if (i) any person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the
beneficial owner of shares of the Company with respect to which 20% or more of
the total number of votes for the election of the Board of Directors of the
company may be cast; (ii) as a result of, or in connection with, any cash tender
offer, exchange offer, merger or other business combination, sale of assets or
contested election or combination of the foregoing, the persons who were prior
to the institution thereof directors of the Company shall cease to constitute a
majority of the Board of Directors of the Company; or (iii) stockholders of the
Company shall approve an agreement pursuant to which the Company will cease to
be an independent publicly-owned corporation or for a sale or other disposition
of all or substantially all of the assets of the Company. "Termination for
Cause" means any separation from service by the Grantee from his employer which
is effected by reason of fraud, deceit, or other gross misconduct by the Grantee
performed within the scope of his employment. "Termination for Good Reason"
means any separation from service because of the involuntary assignment of the
Grantee to duties materially different from his position prior to such Change in
Control or a reduction of the Grantee's salary which is greater than ten percent
of the Grantee's salary at the annual rate in effect at the time of the Change
in Control.
(e) Recapitalization, Merger, Consolidation and Similar
Transactions.
(1) Subject to any required action by stockholders,
the aggregate number of shares of Common Stock from which Restricted Stock may
be granted hereunder shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock of the Company resulting
from a subdivision or consolidation of shares or the payment of a stock dividend
on the Common Stock, other than a stock dividend that is a substitute for a cash
dividend, or any other increase in the number of such shares effected without
receipt of consideration by Company.
(2) Subject to any required action by stockholders,
in the event of the dissolution or liquidation of the Company, a merger or
consolidation of the Company, a merger or consolidation in which the Company is
not the surviving corporation, or a merger or consolidation in which the Company
is the surviving corporation but the holders of Common Stock receive securities
of another corporation; any Restricted Stock granted hereunder shall pertain to
and apply to the securities, cash or other property (subject to adjustment by
cash payment in lieu of fractional interests) to which a holder of the number of
shares of Common Stock equal to the number of shares of Restricted Stock would
have been entitled.
15
<PAGE> 17
(3) If changes in capitalization of the Company other
than those referred to above shall occur, the Committee may, but need not, make
such adjustments in the number and class of shares of Restricted Stock that may
thereafter be granted or in the number and class of shares of Restricted Stock
then outstanding as the Committee may consider appropriate to prevent dilution
or enlargement of rights.
(f) Withholding of Taxes. Prior to the registration of any shares of
Restricted Stock in the name of a Grantee or the delivery of any shares with
respect to which restrictions have been released, the Grantee shall pay or make
provisions satisfactory to the Committee for the payment of all federal, state,
and local income taxes, or any other taxes (other than stock transfer taxes)
that the Company may be obligated to collect as a result of the issuance of such
shares. In its sole discretion, and at the request of a Grantee, the Committee
may permit a Grantee (including the Company's officers, directors, and 10
percent shareholders who are in compliance with Rule 16b-3e(3)) to satisfy the
obligation imposed by this Section, in whole or in part, by instructing the
Company to withhold up to that number of unrestricted shares otherwise
deliverable to the Grantee with a Fair Market Value equal to the amount of tax
to be withheld.
10. Term of Plan. Subject to Section 10, the Plan shall remain in effect until
December 31, 1998 or until the exercise, expiration or termination of all
Incentive Stock Options, Options and Rights under the Plan, whichever is later;
provided that no grant of an Incentive Stock Option, Option, Right or
Performance Bonus shall be made under the Plan after December 31, 1994.
11. Indemnification of Committee. The Company shall indemnify, to the full
extent permitted by law, each person made or threatened to be made a party to
any civil or criminal action or proceeding by reason of the fact that he, or his
testator or intestate, is or was a member of the Committee.
12. Amendment of the Plan. The Board of Directors of the Company may from time
to time and in the event of a change in control as defined in Section 6(e)(2)
suspend or discontinue the Plan or revise or amend it in any respect whatsoever
except that, without approval of the stockholders, no such revision or amendment
shall increase the number of shares subject to the plan, decrease the price at
which options or rights may be granted, increase the amount to be received on
exercise of a right or option, materially increase the benefits accruing to
participants under the Plan, or materially modify the requirements as to
eligibility for participation in the Plan; and no such suspension,
discontinuance, revision or amendment shall in any manner affect any option or
right theretofore granted without the consent of the Grantee or the transferee
of the option or right. Any Plan amendment shall be effected by action of the
Committee.
13. Application of Funds. Any cash proceeds received by the Company from the
issuance of Common Stock pursuant to exercise options will be used for general
corporate purposes.
14. No Obligation to Exercise Incentive Stock Option, Nonqualified Stock Option
or Right. The granting of an option or right shall impose no obligation upon the
Grantee to exercise such optionor right.
15. Compliance with Certain Laws.
(a) The Company intends that issuances and exercise of options and
rights under the Plan comply with the requirements of Rule 16(b)-3 ("Rule
16b-3") under the Securities Exchange Act of 1934 during the term of the Plan
and that issuances and exercises of Incentive Stock Options comply with Section
422A of the Internal Revenue Code of 1986, as amended. Should any provision of
the Plan not be
16
<PAGE> 18
necessary to comply so with the requirements of Rule 16b-3 or Section 422A
or should any additional provision be necessary for the Plan and grants
and exercises thereunder to so comply, the Board of Directors of the
Company or Committee may amend the Plan to add or modify provisions of
the Plan accordingly.
(b) Should any option or portion thereof designated or granted by the
Committee as an Incentive Stock Option fail to meet the requirements of Section
422A, for any reason whatsoever upon the issuance, exercise, sale of shares
received on the exercise or otherwise, then, in such event, the Grantee shall be
deemed for all purposes of this Plan to have been granted a Nonqualified Stock
Option covering the same number of shares, at the same price, with the same
duration and exercisable on the same terms as the Incentive Stock Option or
portion thereof which failed to meet the requirements of Section 422A.
17
<PAGE> 19
GENERAL RE CORPORATION
1989 LONG TERM COMPENSATION PLAN
UK APPROVED STOCK OPTION PLAN
SPECIAL ADDENDUM FOR THE UK STOCK OPTION PLAN
This Addendum is supplemental to the 1989 Long Term Compensation Plan of General
Re Corporation dated January 1, 1989, and all or any variations or amendments
thereto (hereinafter together referred to as "the Main Plan") and shall apply
for the purposes of granting Options to any Employee (as hereinafter defined)
whose remuneration is liable to income tax under Schedule E in the United
Kingdom. This Addendum shall apply in relation to all Options granted or to be
granted to any such Employee, other than options specifically designated as not
being granted under this Addendum. For the purposes of this Addendum, words and
phrases herein mentioned shall have the meanings ascribed to them in Section 11
hereof.
1. Purpose
The Purpose of the U.K. Plan ("this Plan") is to provide a means by which
certain directors, officers and employees of General Reinsurance Limited ("Gen
Re Ltd."), a United Kingdom company, and its Subsidiaries may be given an Option
to purchase Common Stock of General Re Corporation, a Delaware, U.S.A.
corporation ("the Company"), under a Plan approved by the Board of Inland
Revenue under ICTA 1988 Schedule 9. This Plan is intended to advance the
interests of Gen Re Ltd. and its Subsidiaries (hereinafter collectively referred
to as "the Group") by encouraging stock ownership on the part of certain
directors, officers and employees of companies within the Group ("Employees") by
enabling the Group to secure and retain the services of such Employees, and by
providing such Individuals with an additional incentive to advance the success
of the Group. This Plan shall be available for the grant of Options to different
Employees and groups of Employees and in different jurisdictions in such amounts
to such Employees and on such terms as the Committee (as hereafter defined)
shall in their absolute discretion at any time and from time to time determine
this Plan in any way that they think fit to provide benefits to Employees in any
way and to comply with the local tax laws of any jurisdiction; provided that any
such variation shall not extend the terms of this Plan or the number of shares
over which Options may be granted or otherwise in the opinion of the Committee
(whose decision thereupon shall be conclusive) go outside the bounds, limits,
and intent of this Plan.
The Committee may set out such varied Plan in an addendum to the Main Plan or in
any separate document or set of documents and such plan shall have effect
provided that it is expressed to be supplemental to the Main Plan.
2. SHARES SUBJECT TO OPTION
Subject to adjustment as provided in Section 4 hereof and to the provisions of
ICTA 1988, Options may be granted pursuant to the Main Plan (including grants
pursuant to this Plan) by the Company from time to time to purchase up to an
aggregate of 3.0 million shares of its Common Stock. Common Stock that is no
longer subject to purchase pursuant to an Option granted under the Main Plan or
this Plan, by
<PAGE> 20
reason of the expiration of an Option or otherwise, may be re-optioned under the
Main Plan or this Plan. The Company shall not be required upon the exercise of
any Option, to issue or deliver any Common Stock prior to the completion of such
registration or other qualification of such Common Stock under any national,
state or federal law, rule or regulation as the Compensation Committee shall
determine to be necessary or desirable.
In the event of any recapitalization, merger, consolidation or similar
transaction, the number of shares of Common Stock shall be adjusted in
accordance with the provisions of Section 6(g) of the Main Plan; provided,
however, that they shall first obtain the agreement of the Board of the Inland
Revenue in writing and that the Auditors shall have confirmed in writing that in
their opinion such adjustment is fair and reasonable and that any Option so
adjusted is capable of being exercised after such adjustment as well as prior to
such adjustment in respect of the same proportion of the equity capital of the
Company and provided that no such adjustment shall result in the issue of Common
Stock in consequence of the exercise of an Option at a price per share which is
less than the nominal value thereof. Notice of any such adjustment shall be
given to the Optionee by the Compensation Committee, who may call in Option
Certificates for endorsement.
Provided that in the period of 10 years commencing at the Adoption Date or such
shorter period as shall be determined by the Main Plan, the aggregate number of
shares of Common Stock over which Options may be granted under the Main Plan
(including grants under this Plan) or the Company or any other plan that is
adopted by the Company shall not exceed 10 percent of the total ordinary share
capital of the Company in issue at the Date of Grant.
3. PARTICIPANTS
Persons eligible to be granted Options under this Plan shall be limited to such
Employees selected by the Committee, provided, however, that no Offer of an
Option shall be made to any Employee if the Date of Grant is less than 2 years
before the normal retirement date under the contract of employment by virtue of
which he is eligible to participate in this Plan.
Participation in this Plan by an Employee is a matter entirely separate from any
pension right or entitlement he may have and from his terms or conditions of
employment and participation in this Plan shall in no respects whatever affect
in any way an Employee's pension rights or entitlement or terms or conditions of
employment and in particular (but without limiting the generality of the
foregoing words) no Employee who ceases to be a director, officer, employee of
the Group shall be entitled to any compensation for any loss of any right or
benefit or prospective right or benefit under this Plan, which he might
otherwise have enjoyed whether such compensation is claimed by way of damages
for wrongful dismissal or other breach of contract or by way of compensation for
loss of office or otherwise howsoever and notwithstanding that he may have been
dismissed wrongfully or unfairly within the meaning of the Employment Protection
(Consolidation) Act 1978.
If there shall be application for Options for more shares of Common Stock than
are available under the Main Plan or any segmented part thereof or then the
Committee shall have decided to grant at any point in time, the Committee shall
scale down the applications or select amongst the applicants as they shall in
their absolute discretion think fit to ensure that no such limit shall be
exceeded.
2
<PAGE> 21
4. TERMS AND CONDITIONS OF OPTIONS
Options granted pursuant to this Plan shall be evidenced by agreements in such
forms, not inconsistent with this Plan, as the Committee shall from time to time
approve, and shall contain such terms and conditions as the Committee in its
sole discretion shall determine (including, but not limited to, provisions as to
the Option Price, Option Term, sequence to exercise, manner of exercise,
assignability, and provision for death, disability, and termination of
employment, provided that any conditions relating to a performance target to be
satisfied prior to the exercise of an Option shall require the prior approval of
the Inland Revenue) and the following provisions shall apply:
(a) Option Price and Material Interests
The Option Price shall be determined on grant by the Committee and
shall be not less than the greater of (i) Fair Market Value and (ii)
the nominal value of a share of Common Stock on the Grant Date.
(b) Term of Option
Each Option under this Plan shall expire one day prior to the end of
ten years from the date the Option is granted or the date the Plan is
terminated, except that under the circumstances described in Section
4(e), Options may expire and terminate at an earlier date.
Except as otherwise provided in this Plan, each Option shall be
exercisable at any time or from the time after the third anniversary of
the Date of Grant and prior to termination of the Option unless the
Committee shall in their absolute discretion waive this condition.
(c) Time of Granting Options
The Grant of an Option shall occur only if, within 30 days of the Date
of Grant, an Option Certificate, together with a cheque for such sum
(not exceeding US $1 or its equivalent in any other currency) as the
Committee may prescribe made payable to the Company in consideration of
the grant of the Option, shall have been duly executed and delivered by
or on behalf of the company and the Employee to whom such Option shall
be granted. Options may be granted at any time hereunder provided that
no Option shall be granted hereunder which grant would result or be
likely to result in a breach by the Committee or the Directors or any
of them of any provision of the "Model Code for Securities Transactions
by Directors of Listed Companies" or any similar code adopted by the
Company.
(d) Limitation on Amount of Option
No Option shall be granted to an Employee if immediately following such
grant he would hold Subsisting Options over Common Stock with an
aggregate Subscription Price exceeding the greater of L100,000 or four
times the amount of the Employee's Relevant Emoluments for the current
or preceding year of assessment (whichever of those years gives the
greater amount) or, if there were no Relevant Emoluments for the
preceding Year of Assessment, four times the amount of the Relevant
Emoluments for the period of twelve months beginning with the first day
during the current Year of Assessment in respect of which there are
Relevant Emoluments.
3
<PAGE> 22
For the purposes of this Section, Options shall include all options
granted under this Plan and all options granted under any other plan
approved under Schedule 9 and established by the Company or any member
of the Group.
For the purpose of calculating the limits on aggregate Subscription
Price specified in Section 4(d) hereof, the Option Price of each Option
expressed in US dollars shall be converted into pounds sterling at the
middle spot rate of exchange quoted in New York by any recognized bank,
selected by the Committee, at the close of business on the Date of
Grant of each such Option granted to an Employee, and the sum of such
sterling amounts shall be aggregated to give the aggregate sterling
Option Price.
(e) Death or Cessation of Employment of Optionee
(i) If an Optionee dies, his legal personal representatives
may exercise the Option within but not later than 12 months after the
date of his death. To the extent that any Option so exercisable is not
exercised within such period it shall forthwith cease and determine.
(ii) If an Optionee ceases to be an Employee by reason of
injury, sickness, disability (evidenced to the satisfaction of the
Committee) or redundancy within the meaning of the Employment
Protection (Consolidation) Act 1978, he may exercise all or any of his
Options within the later of the periods of:
(A) 12 months from such cessation; or
(B) 42 months from the Date of Grant.
To the extent that any Option so exercisable is not exercised within
such period it shall forthwith cease and determine.
(iii) If an Optionee ceases to be an Employee due to
retirement at retirement age under his contract of employment he shall
be entitled to (or where he retires before reaching the retirement age
under his contract of employment, he may at the absolute discretion of
the Committee) exercise all or any of his Options within the later of
the periods of:
(A) 12 months from such cessation; or
(B) 42 months from the Date of Grant.
To the extent that any Option so exercisable is not exercised within
such period it shall forthwith cease and determine.
(iv) If an Optionee ceases to be an Employee for any reason
other than as set out in Section 4(e)(i),(ii), and (iii), he may
exercise all or any of his Options only at the absolute discretion of
the Committee and where such exercise is permitted it shall be within
such period as may be specified by the Committee.
4
<PAGE> 23
(f) Acceleration of Options upon Change of Control
If an event described in Section 6(e)(2) of the Main Plan occurs, all
Options shall become immediately exercisable.
(g) Technical Loss of Employment
If an Optionee ceases to be an Employee by reason only that his office
or employment either is with a company which ceases to be an Affiliate
or relates to a business or part of a business which is transferred
to a person who is neither an Affiliate nor an associated company
of the Company he may exercise any Option in whole or in part within 3
months of his so ceasing (subject always to any other applicable
overall period for exercise of the Option). To the extent that any
Option so exercisable is not exercised within such period, it shall
cease and determine.
(h) Assignment
No Option nor any right thereunder shall be capable of being
transferred, assigned, charged or otherwise alienated, save that on the
death of an Optionee, an Option amy pass to his personal
representative.
(i) Exercise of Options
(i) Options may be exercised in whole or in part.
(ii) In order to exercise an Option in whole or in part, the
Optionee (or as the case may be, his personal representative(s)) must
deliver to the Committee a notice in writing specifying the number of
shares of Common Stock in respect of which the Option is being
exercised accompanied by payment in full for the Common Stock in
respect of which the Option is exercised. Such notice shall take effect
on the day it is delivered and such day shall constitute, for all
purposes, the date of exercise of such Option. Such notice shall be
given only in such form as the Committee may from time to time
prescribe. In the event of an Option being exercised in part only, the
balance of the Option not thereby exercised shall continue to be
exercisable in accordance with this Section 4 and the provisions of
this rule until such time as it shall lapse in accordance with and
subject to the rules of this Plan. The Option Certificate shall also be
lodged with the Committee on the exercise of any Option or any part
thereof.
(iii) As soon as practicable and in any event not less than
thirty days after receipt by the Committee of such notice, Option
Certificate and payment, Common Stock in respect of which the Option
has been exercised shall be issued by the Committee upon definitive
Stock Certificates. If, under the terms of a resolution passed or an
announcement made by the Company prior to the date of exercise of an
Option, a dividend is to be paid or is proposed to be paid to the
holders of the Common Stock on the register of members in respect of a
record date prior to such date of exercise, the Common Stock to be
allotted upon such exercise will not rank for such dividend. Subject as
aforesaid the Common Stock so to be allotted shall be identical and
rank pari passu in all respects with the fully paid Common Stock of the
same class in issue on the date of such exercise.
5
<PAGE> 24
(iv) No Option may be exercised by an individual at any time
when he is precluded by paragraph 8 of Schedule 9 from participating in
this Plan.
5. Administration
(a) This Plan shall be administered by the Committee in accordance
with the terms of the Main Plan.
(b) Subject to the provisions of this Plan, the Committee shall have
full power to grant Options under this Plan, to construe or interpret
this Plan, to prescribe, amend and rescind rules and regulations
relating to it and to make all other determinations necessary or
advisable for its administration. Provided that no such construction,
interpretation, prescription, amendment, recision, or determination
shall either reduce the value of any Option or shares of Common Stock
purchased pursuant to such an Option or take effect if such action
would result in the loss, cancellation, or withdrawal of any relief or
exemption from taxation previously applicable thereto.
(c) Subject to the provisions of Sections 3 and 4 hereof, the Committee
may, from time to time, determine which Employees shall be granted
Options under this Plan, the number of shares of Common Stock subject
to each Option, and the time or times at which Options shall be granted
or exercised, and to grant such Options under this Plan.
(d) No member of the Board of Directors or of the Committee shall be
liable for any action or determination made in good faith with respect
to this Plan or to any Option and service on the Committee shall
constitute service as a director, entitling such Committee member to
indemnification and reimbursement for such service to the same extent
as for service rendered as a director.
(e) All allotments and issues of Common Stock shall be subject to any
necessary consents of HM Treasury or other authorities in the United
States, the United Kingdom or elsewhere under enactments or regulations
for the time being in force and it shall be the responsibility and at
the expense of the Company to comply with any requirements to be
fulfilled in order to obtain or obviate the necessity for any such
consent.
(f) The Company shall at all times keep available for allotment
authorized and unissued or treasury Common Stock of the Company at
least sufficient to satisfy all subsisting Options.
(g) Any notice or other document required to be given hereunder to any
Optionee shall be delivered to him or sent by post to him at his home
address according to the records of the Company or such other address
as may appear to the Company to be appropriate. Any notice or other
document required to be given to the Company shall be delivered or sent
by post to the relevant registered office or offices. Notices sent by
post shall be deemed to have been given on the day but one following
the date of posting.
(h) Optionees not otherwise entitled thereto shall be sent copies of
all notices and other documents sent by the Company to its ordinary
shareholders generally.
6
<PAGE> 25
(i) The decision of the Compensation Committee in any dispute or
question relating to any Option shall be final and conclusive subject
to the terms of this Plan.
6. Adoption Date and Termination
(a) The Adoption Date of this Plan is January 1, 1989.
(b) This Plan shall terminate on December 31, 1988, but the Committee
may terminate this Plan at any time prior to ten years from the
Adoption Date of this Plan. Termination of this Plan shall not alter or
impair, without the consent of the Optionee, any of the rights or
obligations and any Option theretofore granted under this Plan.
7. Use of Proceeds
The proceeds from the sale of shares of Common Stock pursuant to the exercise of
the Options will be used for the Company's general corporate purpose.
8. Amendments
(1) The Committee may, with the prior written approval of the Board of
Inland Revenue, from time to time, alter, amend, suspend, or discontinue this
Plan, or alter or amend any and all Option agreements granted thereunder;
provided, however, that no such action of the Compensation Committee may alter
the provisions of this Plan so as to:
(a) Decrease the minimum Option Price;
(b) Extend the term of this Plan beyond ten years or the maximum term
of the Options granted beyond ten years;
(c) Withdraw the administration of the Plan from the Compensation
Committee;
(d) Permit any member of the Compensation Committee to be eligible to
receive or hold an Option under this Plan;
(e) Alter any outstanding Option Agreement to the detriment of the
Optionee without his consent;
(f) Decrease, directly or indirectly (by cancellation and substitution
of Options or otherwise), the Option Price applicable to any Option
granted under this Plan.
(2)(a) Notwithstanding the provisions of this Section 8(2), the
Compensation Committee may at any time make such alterations (including
additions) to this Plan as are necessary to secure that this Plan
receives initial approval from the Board of Inland Revenue under
Schedule 9.
(b) Subject to Section 8(2)(d) the Directors may, from time to time at
their absolute discretion, amend, waive, or replace any of the
provisions of this Plan provided that, except with the prior approval
of the Company's shareholders,
7
<PAGE> 26
(i) no amendment, waiver, or replacement to the advantage of
Optionees shall be made to Sections 1 and 2 or this Section
8(2)(b) or 8(2)(d) of the Plan or to the definitions of
Employee, Common Stock, Option Price, Date of Grant, Market
Value or Relevant Emoluments; and
(ii) the effect of Sections 3, 4 and 5 of this Plan shall not
be altered.
(c) No amendment, waiver, or replacement to this Plan shall be made
which would have the effect of abrogating or altering adversely any of
the subsisting rights of Optionees except with consent on their part.
(d) No amendment to this Plan shall be made without the prior approval
of the Board of Inland Revenue in writing.
(e) Written notice of any amendment made or to be made in accordance
with this Section B shall be given to all Optionees.
9. Governing Law
This Plan shall (notwithstanding the law applicable to any other contract with
an Employee) be construed according to the laws of England.
10. Inland Revenue Requirements
The Company shall provide to the Inland Revenue, within such time as the Inland
Revenue may direct, information requested by the Inland Revenue under paragraph
6 of Schedule 9 and an Optionee shall:
(i) provide to the Company in timely fashion such information
as the Company shall reasonably request; and
(ii) consent to the Company providing information concerning
him to the Inland Revenue,
for the purpose of complying with such a request from the Inland Revenue.
11. Definitions
For the purpose of interpreting and construing this Plan (except where the
context otherwise requires), the following expressions shall have the meaning
ascribed to them as set out below:
Adoption Date - The date on which the U.K. Plan is approved by the resolution
of the shareholders of the Company;
Auditors - The Auditors for the time being of the Company;
Affiliates - A company which is controlled by the Company within the meaning of
Section 804 of ICTA 1988;
8
<PAGE> 27
Balance Option Certificates - The certificates issued to an Optionee in
accordance with Section 3;
The Capital Gains Tax Act 1979 - The Capital Gains Tax Act 1979 of the United
Kingdom;
Close Company - A company which is a Close Company within the meaning of the
Income and Corporation Taxes Act 1988 as amended for the purpose of Schedule 9;
The Committee - The Compensation Committee of the Board of Directors of the
Company as described in Section 3(a) of the Main Plan;
Companies Act 1985 - The Companies Act 1985 of the United Kingdom;
Date of Grant - The date on which the Committee resolves to grant an Option;
The Directors - The Board of Directors of the Company or a duly authorized
committee thereof;
Employee - An employee (other than a director) of a company which is a member of
the Group whose hours of work for such member of the Group exceeds 20 hours per
week or a full time director of a company which is a member of the Group whose
hours of work for such member of the Group exceed 25 hours per week in both
cases exclusive of meal breaks, and is not precluded by paragraph 8 of Schedule
9 from participating in this Plan;
Fair Market Value - The Market Value of a share of Common Stock subject to the
Option Agreement on the dated Grant or such earlier date or dates as may be
agreed in writing with the Board of Inland Revenue of the United Kingdom;
The Group - General Reinsurance Limited or any Affiliate for the time being
designated by the Committee as a member of the Group for the purposes of this
Plan or, where the context so permits, any one or more of them;
ICTA 1988 - The Income and Corporation Taxes Act 1988 of the United Kingdom;
Market Value - On any day the market value of a share of Common Stock determined
in accordance with the provisions of Part VIII of the Capital Gains Tax Act 1979
and as agreed with the Board of Inland Revenue on or before that day;
Option - A right to subscribe for Common Stock at the Option Price granted to an
Employee under the provisions of this Plan and for the time being subsisting;
Optionee - Any person who holds an Option or (where the context admits) his
legal personal representatives;
Option Certificate - A certificate issued to an Optionee in accordance with
Section 4;
Option Price - The price per share of common stock of General Re Corporation,
par value $.50 per share which satisfies the conditions specified in paragraphs
10-14 inclusive of Schedule 9;
9
<PAGE> 28
This Plan - The Main Plan as varied by this Addendum;
Relevant Emoluments - Emoluments of an Employee of the office or employment by
virtue of which he is eligible to participate in the U.K. Plan as are liable to
be paid under deduction of tax pursuant to Section 203 of the Income and
Corporation Taxes Act 1988 after deducting therefrom amounts included by virtue
of Chapter ii of Part V of the Income and Corporation Taxes Act of 1988;
Schedule 9 - Schedule 9 to the Income and Corporation Taxes Act of 1988;
Subscription Price - The amount payable in relation to the exercise of an
Option, being the amount after any adjustment pursuant to Section 2 of the
relevant Option price multiplied by the number of Shares of Common Stock in
respect of which the Option is exercised;
Subsidiaries - Any subsidiary corporation of General Reinsurance Limited within
the meaning of Section 736 of the Companies Act of 1985;
Subsisting Option - An Option which has neither lapsed nor been exercised;
Year of Assessment - a fiscal year from April 6th to April 5th;
For the purposes of this Plan:
(a) where words denote the masculine gender they shall for the
purposes of interpretation include the feminine and neuter
genders and vice versa;
(b) where words denote the singular they shall for the purposes
of interpretation include the plural and vice versa;
(c) unless the context otherwise require words have the same
meanings as in Schedule 9 of Sections 185 and 187 of ICTA
1988;
(d) when referring to any enactment being construed as a
reference to that enactment as for the time being amended
or re-enacted;
(e) when referring to Sections throughout this Plan be taken to
refer to the Sections of this Plan.
10
<PAGE> 1
EXHIBIT
10.2 Form of Indemnity Agreement among the Corporation and directors and
executive officers
<PAGE> 2
INDEMNIFICATION AGREEMENT
This Agreement made and entered into this __________ day of
__________________,19 ("Agreement"), by and between General Re Corporation, a
Delaware Corporation ("Corporation"), and . . . . . . . . . . . . . .
("Indemnitee"):
WHEREAS, recently highly competent persons have become more reluctant
to serve publicly-held Corporations as directors, or in other capacities, unless
they are provided with better protection from the risk of claims and actions
against them arising out of their service to and activities on behalf of such
corporations; and
WHEREAS, the current uncertainty of the availability of adequate
insurance and the uncertainties related to indemnification have increased the
difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the "Board") has
determined that the inability to attract and retain such persons is detrimental
to the best interests of the Corporation's stockholders and that such persons
should be assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the Corporation to
obligate itself contractually to indemnify such persons to the fullest extent
permitted by applicable law and the certificate of incorporation, the by-laws
and resolutions of the Corporation, so that such persons will serve or continue
to serve the Corporation free from undue concern that they will not be
adequately indemnified; and
WHEREAS, this Agreement is supplemental to and in furtherance of
Article V of the by-laws of the Corporation and any resolutions adopted pursuant
thereto and shall not be deemed to be a substitute therefor nor to diminish or
abrogate any rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve, continue to serve and to take
on additional service for or on behalf of the Corporation on the condition that
he be indemnified according to the terms of this Agreement;
<PAGE> 3
-2-
NOW, THEREFORE, in consideration of the premises and the convenience
contained herein, the Corporation and Indemnitee do hereby covenant and agree as
follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the Corporation
occurring after the Effective Date of a nature that would be required to be
reported in response to Item 5(f) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation
is then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if after
the Effective Date (i) any "person" (as such terms is used in Sections 13(d) and
14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Act), directly or indirectly, of securities of the Corporation
representing 20% or more of the combined voting power of the Corporation's then
outstanding securities without the prior approval of at least two-thirds of the
members of the Board in office immediately prior to such person attaining such
percentage interest; (ii) the Corporation is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy contest, as a consequence of
which members of the Board in office immediately prior to such transaction or
event constitute less than a majority of the Board thereafter; or (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Board (including for this purpose any new director whose
election or nomination for election by the Corporation's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
(b) "Corporate Status" means the status of a person who is or was a
director, officer, employee, agent or fiduciary or consultant of the Corporation
or of any other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is serving at the request of the
corporation.
(c) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the Proceeding in respect of
which indemnification is sought by Indemnitee.
(d) "Effective Date" means October 1, 1990.
<PAGE> 4
-3-
(e) "Expenses" means all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Corporation or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Corporation or Indemnitee in an action to determine Indemnitee's rights under
this Agreement.
(g) "Proceeding" means any action, suit, arbitration, alternate dispute
resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee pursuant to Section 11 of this Agreement to enforce
his rights under this Agreement.
Section 2. Services by Indemnitee. Indemnitee agrees to serve as a
director or officer of the Corporation or material subsidiary, and, at its
request, as a director, officer, employee, agent, fiduciary or consultant of
certain other corporations and entities. Indemnitee may at any time and for any
reason resign from any such position (subject to any other contractual
obligation or any obligation imposed by operation of law).
Section 3. Indemnification - General. The Corporation shall indemnify,
and advance Expenses to, Indemnitee as provided in this Agreement to the fullest
extent permitted by applicable law and the certificate of incorporation, the
by-laws and resolutions of the Corporation in effect on the date hereof and to
such greater extent as applicable law, Certificate of Authority, By-laws and
resolutions may thereafter from time to time permit. The rights of Indemnitee
provided under the preceding sentence shall include, but shall not be limited
to, the rights set forth in the other Sections of this Agreement.
<PAGE> 5
-4-
Section 4. Proceedings Other Than Proceedings by or in the Right of the
Corporation. Indemnitee shall be entitled to the rights of indemnification
provided in this Section if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to any threatened, pending, or completed
Proceeding, other than a Proceeding by or in the right of the Corporation.
Pursuant to this Section, Indemnitee shall be idemnified against Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending or completed Proceeding brought by or
in the right of the Corporation to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses actually and
reasonably incurred by him or on his behalf in connection with any such
Proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation. Notwithstanding
the foregoing, no indemnification against such Expenses shall be made in respect
of any claim, issue or matter in any such Proceeding as to which Indemnitee
shall have been adjudged to be liable to the Corporation if applicable law
prohibits such indemnification; provided, however, that, if applicable law so
permits, indemnification against Expenses shall nevertheless be made by the
Corporation in such event if, and only to the extent that, the Court of Chancery
of the State of Delaware, or the court in which such Proceeding shall have been
brought or is pending, shall allow.
Section 6. Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter.
<PAGE> 6
-5-
For the purposes of this Section and without limiting the foregoing, the
termination of any claim, issue or matter in any such Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter.
Section 7. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding, he shall be
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith.
Section 8. Advancement of Expenses. The Corporation shall advance all
Expenses incurred by or on behalf of Indemnitee in connection with any
Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 9. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement in connection with
any Proceeding, and for the duration thereof, Indemnitee shall submit to the
Corporation a written request, including therein or therewith such documentation
and information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
indemnification. The Secretary of the Corporation shall, promptly upon receipt
of any such request for indemnification, advise the Board in writing that
Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification pursuant to
Section 9(a) hereof, a determination, if required by applicable law, with
respect to Indemnitee's entitlement thereto shall be made in such case: (i) if a
Change in Control shall have occurred, by Independent Counsel (unless Indemnitee
shall request that such determination be made by the Board or the stockholders,
in which case in the manner provided for in clauses (i) or (iii) of this Section
9(b)) in a written opinion to the Board, a copy of which shall be delivered to
Indemnitee; (ii) if a Change of Control shall not have occurred,
<PAGE> 7
-6-
(A) by the Board by a majority vote of a quorum consisting of Disinterested
Directors, or (B) if a quorum of the Board consisting of Disinterested Directors
is not obtainable, or even if such quorum is obtainable and such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered it Indemnitee,
or (y) by the stockholders of the Corporation, as determined by such quorum of
Disinterested Directors, or a quorum of the Board, as the case may be; or (iii)
as provided in Section 10(b) of this Agreement. If it is so determined that
Indemnitee is entitled to indemnification, payment to Indemnitee shall be made
within ten (10) days after such determination. Indemnitee shall cooperate with
the person, persons or entity making such determination with respect to
Indemnitee's entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be elected as follows: (i)
if a Change of Control shall not have occurred, Independent Counsel shall be
selected by the Board, and the Corporation shall give written notice to
Indemnitee advising him of the identity of Independent Counsel so selected; or
(ii) if a Change of Control shall have occurred, Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event (i) shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may, within 7 days after such written notice of selection shall have
been given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
ground that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof, no Independent Counsel shall have
<PAGE> 8
-7-
been selected and not objected to, either the Corporation or Indemnitee may
petition the Court of Chancery of the State of Delaware, or other court of
competent jurisdiction, for resolution of any objection which shall have been
made by the Corporation or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by such court or by such other person as such court shall designate, and the
person with respect to whom an objection is so resolved or the person so
appointed shall act as Independent Counsel under Section 9(b) hereof. The
Corporation shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with its actions
pursuant to this Agreement, and the Corporation shall pay all reasonable fees
and expenses incident to the procedures of this Section 9(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement date of any judicial proceeding or arbitration pursuant to Section
ll(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
Section 10. Presumptions and Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 9(a) of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 9 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to
<PAGE> 9
-8-
indemnification in good faith require(s) such additional time for the obtaining
or evaluating of documentation and/or information relating thereto; and
provided, further, that the foregoing provisions of this Section 10(b) shall not
apply (i) if the determination of entitlement to indemnification is to be made
by the stockholders pursuant to Section 9(b) of this Agreement and if (A) within
15 days after receipt by the Corporation of the request for such determination
the Board has resolved to submit such determination to the stockholders for
their consideration at an annual meeting thereof to be held within 75 days after
such receipt and such determination is made thereat, or (B) a special meeting of
stockholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or matter
therein, by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not (except as otherwise expressly provided
in this Agreement) of itself adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to Section 9
of this Agreement that Indemnitee is not entitled to indemnification under this
Agreement,(ii) advancement of Expenses is not timely made pursuant to Section 8
of this Agreement, (iii) the determination of entitlement to indemnification is
to be made by Independent Counsel pursuant to Section 9(b) of this Agreement and
such determination shall not have been made and delivered in a written opinion
within 90 days after receipt by the Corporation of the request for
indemnification, (iv) payment of indemnification is not made pursuant to Section
7 of this Agreement within ten (10) days after receipt by the Corporation of a
written request therefor, or (v) payment of indemnification is not made within
ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 9 or 10 of this Agreement Indemnitee shall be entitled to an
adjudication in an appropriate court of the State of
<PAGE> 10
-9-
Delaware, or in any other court of competent jurisdiction, of his entitlement to
such indemnification or advancement of Expenses. Alternatively, Indemnitee, at
his option, may seek an award in arbitration to be conducted by a single
arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section ll(a). The
Corporation shall not oppose Indemnitee's right to seek any such adjudication or
award in arbitration.
(b) In the event that a determination shall have been made pursuant to
Section 9 of this Agreement that Indemnitee is not entitled to indemnification,
any judicial proceeding or arbitration commenced pursuant to this Section shall
be conducted in all respects de novo trial or arbitration on the merits and
Indemnitee shall not be prejudiced by reason of that adverse determination. If a
Change of Control shall have occurred, in any judicial proceeding or arbitration
commenced pursuant to this Section the Corporation shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have been made
pursuant to Section 9 or 10 of this Agreement that Indemnitee is entitled to
indemnification, the Corporation shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section, absent
(i) a misstatement by Indemnitee of a material fact, or an omission of a
material fact necessary to make Indemnitee's statement for indemnification, not
materially misleading in connection with the request for indemnification, or
(ii) prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section that the procedures
and presumptions of this Agreement are not valid, binding and enforceable and
shall stipulate in any such court or before any such arbitrator that the
Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section, seeks a
judicial adjudication of, or an award in arbitration to enforce, his rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Corporation, and shall be indemnified by the
Corporation against, any and all expenses (of
<PAGE> 11
-10-
the kinds described in the definition of Expenses) actually and reasonably
incurred by him in such judicial adjudication or arbitration, but only if he
prevails therein. If it shall be determined in such judicial adjudication or
arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with such judicial adjudication or arbitration shall be
appropriately prorated.
Section 12. Non-Exclusivity: Survival of Rights:
Insurance: Subrogation.
(a) The rights of indemnification and to receive advancement of
Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the certificate of incorporation or by-laws of the Corporation, any
agreement, a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration or repeal of this Agreement or any provision hereof shall
be effective as to any Indemnitee with respect to any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal.
(b) To the extent that the Corporation maintains an insurance policy or
policies providing liability insurance for directors, officers, employees,
agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee or agent under such policy or policies.
(c) In the event of any payment under this Agreement, the Corporation
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Corporation to bring suit to enforce such rights.
(d) The Corporation shall not be liable under this Agreement to make
any payment of amounts otherwise indemnificable hereunder if and to the extent
that
<PAGE> 12
-11-
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
Section 13. Severability. If any provision or provisions
of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Agreement (including, without
limitation, each portion of any Section of this Agreement containing any such
provision held to be invalid, illegal or unenforceable that is not itself
invalid, illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or unenforceable.
Section 14. Exception to Right of Indemnification or Advancement of
Expenses. Except as provided in Section ll(e), Indemnitee shall not be entitled
to indemnification or advancement of Expenses under this Agreement with respect
to any proceeding, or any claim therein, brought or made by him against the
Corporation.
Section 15. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the constructions thereof.
<PAGE> 13
-12-
Section 17. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of these provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
Section 18. Notice by Indemnitee. Indemnitee agrees promptly to notify
the Corporation in writing upon being served with any summons, citation,
subpoena, complaint, indictment, information or other document relating to any
Proceeding or matter which may be subject to indemnification or advancement of
Expenses covered hereunder.
Section 19. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given in (i) delivered by hand and receipted for by the party to whom such
notice of other communication shall have been directed; or (ii) mailed by
certified or registered mail with postage postpaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Corporation to:
General Re Corporation
Financial Centre
P.. Box 10351
Stamford, Connecticut 06904-2351
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
Section 20. Governing Law. The parties agree that this agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware.
<PAGE> 14
-13-
Section 21. Miscellaneous. Use of the masculine pronoun shall be deemed
to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
ATTEST: GENERAL RE CORPORATION
By By
--------------------------- ----------------------------
Charles F. Barr
ITS Vice President, General
Counsel and Secretary
Date
-------------------------
INDEMNITEE
------------------------------
<PAGE> 1
EXHIBIT 11
GENERAL RE CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Net income applicable to common stock (in millions)(a)..... $ 654 $ 700 $ 646
========== ========== ==========
Average number of common shares outstanding (b)............ 82,071,651 84,542,686 85,667,413
========== ========== ==========
Net income per share....................................... $ 7.97 $ 8.28 $ 7.55
========== ========== ==========
</TABLE>
- ---------------
(a) After deduction of preferred stock dividends of $11 million for the years
ended December 31, 1994, 1993 and 1992.
(b) Fully diluted earnings per share are not reported because the effect of
potentially dilutive securities was not significant.
<PAGE> 1
EXHIBIT 21
Subsidiaries of the Corporation at December 31, 1994 were as follows:
<TABLE>
<CAPTION>
JURISDICTION INCORPORATED/
OF PERCENT ACQUIRED BY
NAME NATURE OF BUSINESS INCORPORATION OWNED GROUP
- ------------------------------------------------------- ----------------------- --------------- ------- -------------
<S> <C> <C> <C> <C>
General Re Corporation Holding Company Delaware N/A 1980
General Reinsurance Corporation Reinsurer Delaware 100 1970
Elm Street Corporation Real Estate Delaware 100 1981
General Star Indemnity Company Insurer Connecticut 100 1967
General Star National Insurance Company Insurer Ohio 100 1864/1985
General Star Management Company Management Delaware 100 1979
Genesis Underwriting Management Company Management Delaware 100 1988
Broker Markets Agency, Inc. Agent Connecticut 100 1987
Genesis Insurance Company Insurer Connecticut 100 1976/1989
Genesis Indemnity Insurance Company Insurer North Dakota 100 1989
GRC Realty Corporation Real Estate Connecticut 100 1972
Gen Re Holdings, Inc. Holding Company Delaware 100 1981
Reinsurance Underwriting Services Limited Manager UK 100 1966
General Re Europe Limited Reinsurer UK 100 1981
General Re, Correduria de Reaseguros, S.A. Intermediary Spain 100* 1987
General Reinsurance Australasia Limited Reinsurer Australia 100 1961
Recoa Investments Pty. Limited Investment Company Australia 100 1967
General Reinsurance Group, Servicios Comerciales,
S.A. General Business Corp. Spain 100* 1979
General Re Compania de Reaseguros, S.A. Reinsurer Uruguay 100 1990
Mandataria General Re, S.A. Agent Argentina 100* 1990
General Re Compania de Reaseguros, S.A. Reinsurer Argentina 100* 1991
General Re-CKAG Reinsurance and Investment S.A.R.L. Holding Company Luxembourg 50.1 1994
Kolnische Ruckversicherungs-Gesellschaft AG Reinsurer Germany 75 1846/1994
Cologne Holding Company of America Holding Company Connecticut 100 1992/1994
Cologne Reinsurance Company of America Reinsurer Connecticut 100 1975/1994
Cologne Life Reinsurance Company Reinsurer Connecticut 100 1967/1994
U.S. Health & Life Insurance Company Insurer Delaware 100 1982/1994
Idealife Insurance Company Insurer Connecticut 100 1981/1994
Europa Ruckversicherung AG Reinsurer Germany 84 1947/1994
Kolnische Versicherungs-Beratungs-und Service
GmbH General Business Corp. Germany 100 1988/1994
The Cologne Reinsurance Company Ltd. Reinsurer UK 100 1983/1994
Cologne Reinsurance Company Ltd. Reinsurer Ireland 99 1990/1994
LaKolnische Italia Servizi Riassicurativi SRL Agent Italy 100 1989/1994
Kolnische Nordiska Aktiebolag Insurer Sweden 100 1980/1994
Cologne Reinsurance Finance Holdings B.V. Holding Company Netherlands 100 1976/1994
Cologne Reinsurance Company Ltd. Reinsurer Bermuda 100 1980/1994
Cologne Reinsurance Ltd. Reinsurer Barbados 75*** 1989/1994
LaKolnische Latina S.A. Agent Mexico 95 1976/1994
LaKolnische de Venezuela C.A. Agent Venezuela 99 1988/1994
Cologne Reinsurance Company of South Africa Ltd. Reinsurer South Africa 99 1966/1994
Cologne Life Reinsurance Company of Australia
Ltd. Reinsurer Australia 99 1983/1994
Cologne Reinsurance Consultants Ltd. General Business Corp. Hong Kong 99 1987/1994
Die Kolnische Ruck Riga GmbH Agent Latvia 100 1990/1994
LaKolnische Iberica S.A. Agent Spain 100 1981/1994
Kolnische Ruck Buenos Aires S.A. Agent Argentina 100 1992/1994
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
JURISDICTION INCORPORATED/
OF PERCENT ACQUIRED BY
NAME NATURE OF BUSINESS INCORPORATION OWNED GROUP
- ------------------------------------------------------- ----------------------- --------------- ------- -------------
<S> <C> <C> <C> <C>
GRD Corporation General Business Corp. Delaware 100 1987
General Re Financial Products Corporation Swap Dealer Delaware 100 1990
General Re Financial Products (Canada) Limited Agent Ontario 100 1993
General Re Financial Products Limited Agent UK 100 1990
General Re Financial Securities Limited Swap Dealer UK 100 1992
General Re Securities Corporation Broker-Dealer Delaware 100 1991
General Re Underwriting Services Limited Underwriting Services Bermuda 100 1993
Sasco Reinsurance, Ltd. Reinsurer Bermuda 100 1993
General Re T K, Inc. General Business Corp. Delaware 100 1994
General Re Asset Management, Inc. Investment Adviser Delaware 100 1993
North Star Syndicate, Ltd. Insurance Syndicate Delaware 100 1979
United States Aviation Underwriters, Inc. Manager New York 100 1928/1982
USAU Reinsurance Limited Reinsurer Bermuda 100 1978
Canadian Aviation Insurance Managers Ltd. Manager Montreal, Can. 100 1937
Airsurance Limitee Manager Montreal, Can. 100 1982
General Re Services Corporation General Business Corp. Delaware 100 1979
General Re Financial Products (Japan) Inc. Agent/Swap Dealer Delaware 100 1990
Herbert Clough Inc. Intermediary New York 100 1926/1928
Genplus Managers, Inc. Manager Delaware 100 1984
</TABLE>
- ---------------
* Percentages exclude any director qualifying shares
** Partnership percentage
*** Cologne Reinsurance Company Ltd. (Bermuda) owns 75% and Cologne Life
Reinsurance Company (Connecticut) owns 25% of Cologne Reinsurance Ltd.
(Barbados)
(Indentation shows ownership)
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
General Re Corporation and Subsidiaries and on Form S-8 (File Numbers 2-62106,
275489, 33-6483 and 33-33102) of our report, dated February 6, 1995, on our
audits of the consolidated financial statements and financial statement
schedules of General Re Corporation and Subsidiaries as of December 31, 1994 and
1993 and for each of the three years in the period ended December 31, 1994,
which is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 9, 1995
<PAGE> 1
EXHIBIT 24
POWERS OF ATTORNEY
<PAGE> 2
EXHIBIT 24
POWERS OF ATTORNEY
THE UNDERSIGNED, A DIRECTOR OF GENERAL RE CORPORATION, A DELAWARE CORPORATION
(THE "CORPORATION"), HEREBY DESIGNATES EACH OF CHARLES F. BARR AND ROBERT D.
GRAHAM AS HIS ATTORNEY IN FACT TO EXECUTE ON HIS BEHALF, AS A DIRECTOR OF THE
CORPORATION, THE CORPORATION'S ANNUAL REPORT ON FORM 10-K UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED.
--------------------------------------
Original powers of attorney
in this form signed by each
of the following:
LUCY WILSON BENSON
WALTER M. CABOT
JOHN C. ETLING
RONALD E. FERGUSON
WILLIAM C. FERGUSON
DONALD J. KIRK
KAY KOPLOVITZ
EDWARD H. MALONE
ANDREW W. MATHIESON
DAVID E. MCKINNEY
STEPHEN A. ROSS
WALTER F. WILLIAMS
Dated: February 8, 1995
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000317745
<NAME> GENERAL RE CORPORATION
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 12,274
<DEBT-CARRYING-VALUE> 1,900
<DEBT-MARKET-VALUE> 1,971
<EQUITIES> 2,977
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 18,898
<CASH> 242
<RECOVER-REINSURE> 227
<DEFERRED-ACQUISITION> 324
<TOTAL-ASSETS> 29,597
<POLICY-LOSSES> 10,318
<UNEARNED-PREMIUMS> 1,642
<POLICY-OTHER> 1,960
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 188
<COMMON> 51
1
0
<OTHER-SE> 4,808
<TOTAL-LIABILITY-AND-EQUITY> 29,597
2,788
<INVESTMENT-INCOME> 749
<INVESTMENT-GAINS> 66
<OTHER-INCOME> 234
<BENEFITS> 1,981
<UNDERWRITING-AMORTIZATION> 614
<UNDERWRITING-OTHER> 448
<INCOME-PRETAX> 794
<INCOME-TAX> 129
<INCOME-CONTINUING> 665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 665
<EPS-PRIMARY> 7.97
<EPS-DILUTED> 0
<RESERVE-OPEN> 7,056
<PROVISION-CURRENT> 2,017
<PROVISION-PRIOR> (36)
<PAYMENTS-CURRENT> 423
<PAYMENTS-PRIOR> 1,206
<RESERVE-CLOSE> 7,408
<CUMULATIVE-DEFICIENCY> (36)
</TABLE>
<PAGE> 1
EXHIBIT 28
COMBINED DOMESTIC PROPERTY/CASUALTY
INSURANCE COMPANIES SCHEDULE P
This exhibit manually filed with SEC Form SE in accordance with Regulations S-T.
