FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
Commission file no. 0-15176
SCOR U.S. CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-1791342
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
110 William Street (Suite 1800)
New York, N.Y. 10038-3995
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, (212) 978-8200
including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class New York Stock Exchange, Inc.
Common Stock, $.30 par value (Registered exchange)
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 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 as of March 28, 1995 of the voting stock
held by non-affiliates of the registrant was $28,934,912 calculated using
the closing sale price of the shares on The New York Stock Exchange on
that date. At March 28, 1995, there were 18,164,620 shares of Common
Stock, $0.30 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required by Items 10, 11, 12 and 13 of Form 10-K
is incorporated by reference into Part III hereof from the registrant's
Proxy Statement (the "Proxy Statement") for its 1995 Annual Meeting of
Stockholders, 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>
FORM 10-K
INDEX
PART I PAGE
Item 1. Business 3
Item 2. Properties 33
Item 3. Legal Proceedings 33
Item 4. Submission of Matters to a Vote of
Security Holders 33
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 34
Item 6. Selected Financial Data 35
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 37
Item 8. Financial Statements and Supplementary Data 49
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 49
PART III
Item 10. Directors and Executive Officers of the
Registrant 49
Item 11. Executive Compensation 49
Item 12. Security Ownership of Certain Beneficial
Owners and Management 49
Item 13. Certain Relationships and Related Transactions 49
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 50
SIGNATURES 50
CONSOLIDATED FINANCIAL STATEMENTS F-1 - F-40
SCHEDULES S-1 - S-7
EXHIBIT INDEX
2<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
SCOR U.S. Corporation ("SCOR U.S." or, collectively with its
subsidiaries, the "Company") is a holding company, the principal
operating subsidiary of which is SCOR Reinsurance Company ("SCOR
Re"). The Company also operates through SCOR Re's wholly owned
subidiaries, General Security Insurance Company ("GSIC"), The Unity
Fire and General Insurance Company ("Unity Fire") and General
Security Indemnity Company ("GSIND"). (SCOR Re, GSIC, Unity Fire and
GSIND are collectively referred to as the "Operating Subsidiaries").
The Company, through its subsidiaries, provides property and
casualty insurance and reinsurance. Reinsurance is provided to
primary insurance companies on both a treaty and facultative basis.
SCOR Re specializes in underwriting treaties covering non-standard
automobile, commercial and technical risks and provides property,
casualty and special risk coverages on a facultative basis. SCOR Re
writes treaty business almost exclusively through reinsurance
intermediaries and writes facultative business directly with primary
insurance companies and through reinsurance intermediaries. GSIC and
Unity Fire provide commercial property and casualty insurance on both
a primary and excess basis and underwrite alternative risk market
coverages. GSIND provides commercial property and casualty coverages
on a surplus lines basis.
The Company's principal competitive strengths include (i) its
consistent and disciplined underwriting strategy, (ii) its
diversified products and sources of business, (iii) financial
security offered ceding companies and reinsurance intermediaries, and
(iv) its relationship with its principal shareholder, SCOR S.A.,
Paris, France.
The Operating Subsidiaries have emphasized the development of
long-term relationships with medium-size, regional and specialty
companies. The Company has historically underwritten substantial
amounts of both property and casualty reinsurance on both a treaty
and facultative basis. In 1994, property risks and casualty risks
each represented approximately one-half of the Company's net premiums
written and its treaty operations generated approximately 82% of its
net premiums written.
SCOR Re's treaty and facultative property operations specialize
in technical risks, such as boiler and machinery, oil, gas and
chemical plants and non-standard automobile coverages, and also
underwrite a broad range of other types of property risks. SCOR Re
underwrites casualty business on both a treaty and facultative basis,
primarily focusing on the short-tail automobile and general liability
lines, as opposed to long-tail risks, such as medical malpractice and
most products liability lines. The Company believes that its
emphasis on technical risks and short-tail exposures provides it with
a greater opportunity to attain favorable underwriting results.
As part of its underwriting strategy, the Company generally
underwrites each piece of business separately with the goal of
3<PAGE>
achieving favorable underwriting results rather than increasing
market share. The Company has over time reduced its writings of
business that fail to meet clearly defined profit margin standards,
and increased its writings in certain targeted areas which it
believes hold greater profit potential. The Company utilizes its
actuaries to provide assistance in determining premiums to be charged
for all significant treaties and facultative casualty contracts
written on an excess of loss basis.
The Company believes that its investment strategy, which
emphasizes quality and liquidity, enhances the financial security it
offers its ceding companies and reinsurance intermediaries. The
Company's investment portfolio consists primarily of high-grade fixed
maturity debt securities. As of December 31, 1994, virtually all of
the Company's bond portfolio was rated A or better by Moody's
Investors Services, Inc.
The Company is protected against certain adverse loss reserve
development through retrocessional agreements with SCOR S.A, its
majority shareholder. Under those agreements, the Company has
significant protection against adverse reserve development for all
pre-1986 business and certain pre-1990 business. See "Retrocession
Agreements".
The Company believes that its relationship with SCOR S.A.
strengthens its competitive position by providing the Company with
management and underwriting expertise, increased underwriting
capacity in certain business lines through retrocessional support,
and assistance in identifying potential new products. With equity in
excess of $1 billion, SCOR S.A., together with its reinsurance
subsidiaries, ranks as the largest professional reinsurer in France
and among the largest in the world.
The Company is headquartered in New York and operates throughout
the United States with SCOR Re facultative branches in Chicago,
Dallas, Hartford, New York City and San Francisco.
HISTORY
SCOR U.S. was organized as a Delaware corporation in 1981 and
prior to the completion of a public offering (the "Offering") in
October 1986 of 4,000,000 shares of SCOR U.S. common stock, Societe
Commerciale de Reassurance ("SCOR Paris"), a French reinsurer, and
Caisse Centrale de Reassurance ("CCR"), a reinsurer wholly-owned by
the French Government, owned 100% of the common stock of SCOR U.S.
After the Offering, SCOR Paris and CCR owned approximately 68% of
such stock. As a result of its participation in joint SCOR U.S.-SCOR
Paris stock repurchase programs, as well as its purchase of CCR's
shares of SCOR U.S. stock, SCOR Paris owned approximately 71% of the
outstanding common stock of SCOR U.S. at December 31, 1989. A
reorganization completed in France in November 1989 resulted in SCOR
Paris and UAP Reassurances ("UAP Re"), a former subsidiary of Societe
Commerciale Union des Assurances de Paris ("UAP"), becoming wholly-
owned subsidiaries of SCOR S.A. In December 1990 SCOR Paris and UAP
Re were merged into SCOR S.A.
In March 1990, the Board of Directors of SCOR U.S. (the "Board")
adopted an Agreement and Plan of Merger (the "Merger Agreement"),
4<PAGE>
which provided for the merger (the "Merger") with and into SCOR U.S.
of Rockleigh Management Corporation ("Rockleigh"), a Delaware
corporation. Rockleigh provided treaty and facultative property and
casualty reinsurance through two operating subsidiaries, General
Security Assurance Corporation of New York ("General Security") and
Unity Fire. General Security and Unity Fire were commonly known as
"The Unity Group". The Merger Agreement was executed as of March 6,
1990, and was approved by the stockholders of SCOR U.S. in June 1990.
In connection with the merger, 5,353,427 shares of SCOR U.S. common
stock were issued to UAP Re in exchange for all of the outstanding
common stock of Rockleigh. SCOR S.A. owned approximately 80% of the
outstanding common stock of SCOR U.S. at December 31, 1994.
As part of a reorganization of The Unity Group, effective
January 1, 1991, all reinsurance business of Unity Fire, including
related assets and liabilities as of that date, were transferred to
General Security pursuant to an assumption reinsurance agreement.
Subsequently, Unity Fire became a subsidiary of General Security.
Effective January 1, 1994, General Security was merged into SCOR
Re. Throughout this report, all references to SCOR Re reflect the
combined entity resulting from the merger of General Security into
SCOR Re. The purpose of the merger was to form a single operating
entity for the Company's assumed reinsurance business.
SCOR Re was organized in 1974 by SCOR Paris as part of the
expansion of SCOR Paris's operations in the United States reinsurance
market. SCOR Re operated as a Texas-based reinsurance company until
1985 when, as part of a general restructuring of its operations, it
was merged into a newly-formed New York domiciled reinsurer which
changed its name to the present name. Unity Fire was incorporated in
New York in 1942 under the name Unity Fire Insurance Corporation. It
was formed as the successor to the U.S. branch of a French insurer
known in the United States as The Union Fire Accident and General
Insurance Company, which had operated in the United States since
1910. Unity Fire's current name was adopted in 1950. General
Security had been formed in New York in 1941 to succeed to the
business and affairs of the U.S. branch of a French insurer known in
the United States as General Fire Assurance Company. On December 4,
1992, SCOR Re acquired GSIC, formerly named The International
Insurance Company of Takoma Park, Maryland. GSIC was formed in
Maryland in 1936 by the General Conference of Seventh-day Adventists
("General Conference") and prior to its acquisition had provided
various types of insurance to the General Conference. All of its
prior business was transferred prior to its purchase by SCOR Re.
GSIND, formerly named Southwest International Reinsurance Company,
was organized in 1984 as a joint venture between the Company and The
Dai-Tokyo Fire and Marine Insurance Company, Ltd. and has been a
wholly-owned subsidiary of SCOR Re since 1990.
SCOR Re is licensed to conduct property and casualty insurance
and/or reinsurance business in 32 states and is an approved reinsurer
in fourteen additional states. In addition, primary insurers ceding
to SCOR Re can take credit for reinsurance with respect to such
business in the remaining four states, as a result of the fact that
SCOR Re is domiciled in a state with substantially similar laws and
maintains certain minimum requirements regarding surplus to
policyholders. GSIC is licensed to conduct property and casualty
5<PAGE>
insurance and/or reinsurance business in 26 states. Unity Fire is
licensed as a property and casualty insurer in 13 states and is an
approved surplus lines insurer in one state. GSIND is a licensed
property and casualty insurer in one state and is an approved surplus
lines insurer in seven other states. In Canada, SCOR Re holds a
Federal license and is licensed in the Province of Quebec, and Unity
Fire holds a Federal license and is licensed in the Provinces of
Alberta, British Columbia, New Brunswick and Ontario.
SCOR U.S. believes that its combined reinsurance operations rank
as the 17th largest professional reinsurance organization in the
United States in terms of statutory surplus at December 31, 1994,
based on a report by the Reinsurance Association of America (the
"RAA"). When compared with companies in the RAA report that operate
primarily in the brokered reinsurance market the Company ranks as the
11th largest professional reinsurance organization.
The Company recently was notified by A.M. Best & Company, Inc.
("A.M. Best") that the rating of the Operating Subsidiaries has been
reduced from "A+ (Superior)" to "A (Excellent)". A.M. Best attributed
its action principally to the Company's volatile operating results.
The only higher ratings obtainable from A.M. Best are "A++(Superior)"
and "A+ (Superior)". A.M. Best is an independent insurance industry
rating organization. A.M. Best's ratings are based on an analysis of
the financial condition and operating performance of an insurance
company as it relates to the industry in general. A.M. Best's
publications indicate that the "A (Excellent)" rating is assigned to
those companies which in A.M. Best's opinion have achieved excellent
overall performance when compared to the standards established by
A.M. Best and which have demonstrated a strong ability to meet their
obligations to policyholders over a long period of time. A.M. Best's
ratings are based upon factors of concern to policyholders and may
not adequately reflect the considerations applicable to an investment
in an insurance or reinsurance company. A.M. Best reviews its
ratings at least annually and there is no assurance that SCOR Re,
GSIC, Unity Fire and GSIND will be able to maintain their current
A.M. Best ratings.
INDUSTRY OVERVIEW
Reinsurance
Reinsurance is a transaction in which a primary insurer
transfers, or cedes, a portion of its insurance risk to a reinsurance
company. In consideration for reinsuring risks, the reinsurer is
paid a premium by the primary insurer. Although reinsurance does not
legally discharge the primary insurer from its liability for the
coverage provided by its policies, it does make the reinsurer liable
to the primary insurer with respect to losses sustained under the
policy or policies issued by the primary insurer that are covered by
the reinsurance transaction.
Reinsurance provides primary insurers with three major benefits:
increased premium writing capacity by reducing exposure on individual
risks; protection against catastrophic losses; and stabilization of
underwriting results.
6<PAGE>
In general, casualty insurance protects the insured against
financial loss arising out of its obligation to others for loss or
damage to persons or property. Property insurance protects the
insured against financial loss arising out of the loss of property or
its use caused by an insured peril. Property and casualty reinsurance
protects the ceding company against loss to the extent of the
reinsurance coverage provided. Property reinsurance involves a high
degree of volatility but losses are generally reported within a
relatively short time period after the event. A greater degree of
unpredictability is associated with casualty risks because there
tends to be a greater lag in the reporting and payment of casualty
claims, due to the nature of the risk and the greater potential for
litigation.
Generally, there are two classes of reinsurance: treaty
reinsurance and facultative reinsurance. Treaty reinsurance is a
contractual arrangement that provides for the automatic reinsuring of
an agreed type or category of risk underwritten by the primary
insurer. In treaty reinsurance, the reinsurer generally does not
evaluate each individual risk but rather evaluates the overall profit
potential of the business assumed from the ceding company.
Facultative reinsurance is the reinsurance of individual risks.
Rather than agreeing to reinsure all or a portion of an entire class
of risk, the reinsurer separately rates and underwrites each risk.
Facultative reinsurance is traditionally purchased by primary
insurers for individual risks not covered by their reinsurance
treaties, for excess losses on risks covered by their reinsurance
treaties, and for unusual risks. Typically, the demand for
facultative reinsurance is inversely related to the supply of treaty
reinsurance.
The two major forms of reinsurance are proportional reinsurance
and excess of loss reinsurance. Premiums received from both treaty
and facultative reinsurance agreements vary according to, among other
things, whether the reinsurance is on an excess of loss or on a
proportional basis. Under proportional reinsurance, the reinsurer
and the primary insurer share premiums and losses on a proportional
basis. Under excess of loss reinsurance, the reinsurer indemnifies
the primary insurer for all covered losses incurred on underlying
insurance policies in excess of a specified retention.
Premiums that the primary insurer pays to the reinsurer for
excess of loss coverage are not directly proportional to the premiums
that the primary insurer receives because the reinsurer does not
assume a proportional risk. The price or rating of excess of loss
reinsurance may be either a fixed percentage applied to the entire
portfolio of business covered or may be calculated on a self-rating
basis under which the rate is adjusted in accordance with actual
losses, subject to a minimum and maximum premium.
In proportional reinsurance, the reinsurer generally pays the
primary insurer a ceding commission. The ceding commission is
generally based on the primary insurer's cost of obtaining the
business being reinsured (including commissions, local taxes, and
miscellaneous administrative expenses). Furthermore, additional
commissions may be paid to the ceding company based upon actual loss
experience. The reinsurer generally does not pay any ceding
7<PAGE>
commissions to the primary insurer in connection with excess of loss
reinsurance.
A reinsurer often reinsures some of its business with other
reinsurers called retrocessionaires. Reinsurance companies enter
into retrocessional agreements for reasons similar to those that
cause primary insurers to purchase reinsurance.
Alternative Risk Market
The volatility in cost and availability of traditional
commercial insurance coverage has prompted many entities, both
individually and in groups, to utilize a variety of mechanisms to
insure their property and casualty risks. These vehicles include
self-insurance, captive insurance companies, risk retention groups
and government pools and trusts. SCOR U.S. and other reinsurance
groups provide both insurance on an excess basis and reinsurance to
such entities.
UNDERWRITING
SCOR Re provides property and casualty treaty and facultative
reinsurance. Its treaty business is conducted out of its home office
in New York City. Its facultative business is conducted out of its
branch offices in Chicago, Dallas, Hartford, New York City and San
Francisco.
Unity Fire had operated as a property and casualty reinsurer,
but subsequent to the above-mentioned 1991 reorganization of The
Unity Group, it now provides property and casualty insurance
coverages on a primary and excess basis. GSIC also operates as an
insurer of such coverages in states where Unity Fire is not licensed.
GSIND provides commercial property and casualty coverages on a
surplus lines basis. It is the intent of the Company to merge Unity
Fire and GSIC subject to approval by such companies' Boards of
Directors and state regulatory authorities. The purpose of the
merger is to form a single broadly licensed operating unit for the
Company's primary and excess insurance business, including
alternative risk business. GSIC, Unity Fire and GSIND wrote a
limited amount of business in 1994.
Intercompany Pooling Agreement
Effective January 1, 1991, SCOR Re and the other Operating
Subsidiaries operate under a reinsurance pooling agreement pursuant
to which the net amounts under all new and renewal business written
by each such company is pooled. The net balances of the pool are
then distributed to each company in accordance with established
proportions.
UNDERWRITING STRATEGY
SCOR Re specializes in underwriting treaties covering
commercial, technical and non-standard automobile risks and in the
provision of facultative property, casualty and special risk covers.
SCOR Re writes treaty business almost exclusively through reinsurance
8<PAGE>
intermediaries and conducts its facultative operations directly with
primary insurers and through reinsurance intermediaries. The
underwriting strategies of the Company's operating subsidiaries are
based upon long-term disciplined underwriting practices. These
practices, which react to current industry conditions, may result in
fluctuations in the Company's mix of business from year to year. The
following table presents certain information with respect to the
business written by the principal SCOR U.S. operating subsidiaries
for the years indicated:
(Dollars in thousands) TREATY
Year Ended December 31,
1994 1993 1992
Gross Premiums Written $228,795 $268,333 $237,376
Net Premiums Written 190,361 209,311 169,330
Net Premiums Earned 187,833 200,663 156,095
Net Losses Incurred 164,566 140,961 147,854
Commissions 54,442 59,816 52,027
FACULTATIVE
Year Ended December 31,
1994 1993 1992
Gross Premiums Written $77,997 $66,186 $67,452
Net Premiums Written 40,699 36,102 36,213
Net Premiums Earned 40,411 35,388 35,955
Net Losses Incurred 26,704 15,331 12,691
Commissions 4,992 1,508 3,933
TOTAL
Year Ended December 31,
1994 1993 1992
Gross Premiums Written $306,792 $334,519 $304,828
Net Premiums Written 231,060 245,413 205,543
Net Premiums Earned 228,244 236,051 192,050
Net Losses Incurred 191,270 156,292 160,545
Commissions 59,434 61,324 55,960
Net losses incurred for 1994 were adversely affected by
$32.2 million of losses resulting from property catastrophe events.
The January 1994 Northridge earthquake ("Northridge Earthquake")
accounted for $26.1 million of the total for 1994. Gross premiums
written and net premiums written for 1994 were increased by $1.0
million and reduced by $5.0 million, respectively, for additional
premiums to reinstate catastrophe reinsurance protections primarily
related to the Northridge earthquake.
Net losses incurred for 1993 were adversely affected by
$13.7 million of losses resulting from property catastrophe events.
Net losses incurred for 1992 were adversely affected by $50.9 million
of losses resulting from property catastrophe events (primarily
Hurricane Andrew). Gross premiums written and net premiums written
9<PAGE>
for 1992 were increased by $5.6 million and reduced by $6.5 million,
respectively, for additional premiums to reinstate catastrophe
reinsurance protections subsequent to Hurricane Andrew.
SCOR Re has historically written substantial amounts of
both casualty and property business. During 1994 the Company
accelerated its withdrawal from property pro rata treaties that
contained rates and/or conditions deemed to be inadequate. This
strategy, along with the targeting of additional casualty business,
has caused the Company's overall portfolio mix to continue to shift
towards a more balanced split between property and casualty
businesss. The following table presents gross premiums written and
net premiums written segregated by the general nature of the risks
underwritten:
Gross Premiums Written
(Dollars in thousands)
Casualty Property
% of % of Total
Amount Total Amount Total Amount
1994 $142,703 46.5 $164,089 53.5 $306,792
1993 125,475 37.5 209,044 62.5 334,519
1992 91,448 30.0 213,380 70.0 304,828
Net Premiums Written
(Dollars in thousands)
Casualty Property
% of % of Total
Amount Total Amount Total Amount
1994 $114,988 49.8 $116,072 50.2 $231,060
1993 105,726 43.1 139,687 56.9 245,413
1992 74,094 36.0 131,449 64.0 205,543
Treaty Reinsurance
Underwriting philosophy, quality of management, claims handling
ability, financial strength of the ceding insurance company, and the
pricing and make-up of the portfolio to be assumed, as well as
historical loss experience and exposure data, are among the primary
factors considered by SCOR Re in determining whether to accept and
continue to participate on a particular treaty. Generally, the
Company's treaty department (the "Treaty Department") performs
underwriting audits before agreeing to enter into a significant new
treaty relationship. Before the Treaty Department agrees to accept a
significant new casualty treaty, the Company's claims department (the
"Claims Department") generally performs claims audits of the
prospective ceding company. In addition, the Company's actuarial
department (the "Actuarial Department") provides assistance in
determining the premium to be charged for all significant excess of
loss contracts. The Actuarial Department utilizes both exposure
rating and experience rating techniques in evaluating the rate
adequacy of all significant excess of loss treaty submissions before
they are bound. The Actuarial Department utilizes explicit trend
10<PAGE>
factors in its pricing activities. The factors are specifically
designed to account for the impact of inflation.
The amount of premium received and ultimate profitability of
results experienced by the reinsurer for reinsuring risks on a
proportional basis are generally tied to the primary insurer's
initial pricing and underwriting standards. Thus, if the primary
insurer does not accurately estimate the ultimate losses to be
incurred on the risk insured, the reinsurer could incur substantial
underwriting losses. Excess of loss reinsurance allows the reinsurer
the flexibility to negotiate terms and conditions, as well as a
premium based on the reinsurer's own estimate of its exposure to
losses. As a practical matter, however, the amount of premium that
the primary insurer charges, which may be subject to governmental
regulation, may affect the rates that may be charged by the
reinsurer.
Once a treaty is written, a reinsurer is not involved in the
day-to-day decisions of the ceding company with respect to the
underwriting of insurance policies covered by the treaty. However,
treaty contracts contain provisions that allow the reinsurer access
to the ceding company's records in order to review any changes in
underwriting philosophy, the quality of risks accepted, price
adequacy and compliance with the terms of the treaty. SCOR Re
undertakes such audits for a majority of its major accounts on an
annual basis. Further, the Claims Department performs periodic audits
of overall claims operations of significant ceding companies as well
as of specific losses.
SCOR Re writes treaty reinsurance almost exclusively through
reinsurance intermediaries. SCOR Re seeks to be a lead reinsurer on
treaties in which it participates, a factor that SCOR Re believes
permits it to more effectively influence the terms and conditions of
a treaty. SCOR Re is a lead reinsurer on treaties representing
approximately 43% of its gross treaty premiums written for
underwriting year 1994.
SCOR Re's Treaty Department concentrates underwriting activity in
"working layer" areas (generally the first $1 million to $5 million
of limit) where loss frequency, quicker loss settlement and reporting
factors, as well as the increased ability to analyze the reinsurer's
exposure from ceded coverages and limits, can generally yield more
accurate and credible pricing analyses. SCOR Re's Treaty Department
emphasizes medium-size, regional, or specialty companies which are
believed to offer a more stable environment for coverage conditions
and rates. In addition, in this market SCOR Re believes that its
technical underwriting process provides greater opportunity to
influence underwriting results. Property underwriting reflects an
emphasis on technical risks (as described below), while casualty
underwriting emphasizes short-tail exposures in the automobile and
general liability lines of business where claims develop over a
shorter period of time than do claims arising in such lines of
business as medical malpractice and products liability. A
significant growth area in SCOR Re's treaty underwriting has been in
non-standard automobile liability. For 1994, non-standard automobile
represented 20% of the Treaty Department's net premium writings.
SCOR Re typically writes gross capacity for property of up to $5.0
11<PAGE>
million as to any one ceding company program and for casualty of up
to $2 million as to any one ceding company program. SCOR Re's gross
capacity for catastrophe business is $8.0 million per program. See
"Retrocession Agreements" for a discussion of amounts retained by
SCOR Re.
The portion of SCOR Re's treaty business that was previously
written by General Security prior to its merger into SCOR Re is
predominantly property reinsurance, with emphasis on proportional
reinsurance. In addition to participation in large programs, a
special effort had been made to reinsure smaller regional companies.
Because of their more modest size and resources, these companies
generally concentrate on less complex types of business (such as
homeowners and small commercial risks). In addition, such companies
rely more extensively on the use of proportional reinsurance and tend
to develop long-term relationships with the reinsurer.
General Security had developed its reinsurance treaty operations
over a period of almost fifty years using intermediaries as its
source of business. Because of its long-term presence in the
reinsurance market, the consistency of its underwriting approach and
its continuous emphasis on service, General Security participated in
a very broad cross-section of property reinsurance programs.
Treaty operations generated approximately $190.4 million, or 82%,
of SCOR Re's net written premium volume in 1994. Property and
casualty treaties represented approximately 48% and 52%,
respectively, of total treaty net written premium volume. As of
December 31, 1994, SCOR Re was a party to 145 proportional treaties,
representing 23% of treaties in force and accounting for 83% of
treaty gross written premiums, and 499 excess of loss treaties,
representing 77% of treaties in force and 17% of gross treaty
premiums written. SCOR Re entered into reinsurance treaties with 290
ceding companies in 1994. As previously indicated the Company has
accelarated its withdrawal from property pro rata treaties deemed to
have inadequate terms and/or conditions. This strategy has
contributed to approximately one third fewer treaties in force at
December 31, 1994 compared with December 31, 1993. The Company's
strategy continued in 1995 and following the January 1995 renewal
season the number of treaties in force were further reduced by
approximately 25%. The Company has been increasing its share of
treaties written in an attempt to develop fewer but larger cedent
relationships and maintain or increase its premium volume while
reducing its treaty count. SCOR Re's Treaty Department comprises
twelve underwriters, with an average of over 18 years industry
experience.
Effective January 1, 1992, General Security entered into a
management agreement with California Reinsurance Management
Corporation ("Cal Re"). Pursuant to that agreement Cal Re places
property insurance business on a treaty basis with SCOR Re as the
successor to General Security. SCOR Re retained approximately 21% of
the business during 1994 and retroceded the remainder to a pool,
managed by Cal Re, comprised of domestic and foreign reinsurers, most
of which have been members prior to 1992. SCOR U.S. owns
approximately 92% of the outstanding stock of Cal Re.
12<PAGE>
Facultative Reinsurance
Facultative reinsurance involves separate negotiation of each
risk being underwritten; therefore, the reinsurer is in a better
position to influence the terms of the original insurance. The
Actuarial Department assists in the pricing of complex facultative
casualty submissions. The Facultative casualty unit conducts
business both directly with ceding companies and through reinsurance
intermediaries out of SCOR Re's Chicago, Dallas, Hartford, New York
City and San Francisco branch offices. The Facultative property unit
conducts business directly with ceding companies from these branch
offices, and through reinsurance intermediaries from the intermediary
unit located in Hartford. SCOR Re's facultative operations generated
approximately $40.7 million, or 18%, of its net written premium
volume in 1994. Property and casualty coverages represented 28% and
72%, respectively, of SCOR Re's total facultative net premium volume.
Facultative Property
SCOR Re's facultative property underwriting focus has been
directed toward large technical risks such as boiler and machinery;
oil, gas and chemical plants; operating utilities; manufacturing
facilities; heavy commercial, industrial and builder's risks; and
real estate. Generally, this business involves insurance policies
covering property values in excess of $20 million. The Department
operates with a gross capacity of $20 million per risk, on a maximum
foreseeable loss basis (as determined by SCOR Re underwriters). See
"Retrocession Agreements" for a discussion of amounts retained by
SCOR Re.
In order to evaluate and underwrite these risks, SCOR Re believes
that specialized technical analysis is required. SCOR Re has 13
underwriters in the Facultative property unit, substantially all of
whom have engineering or closely related technical degrees and have
joined SCOR Re from the engineering industry or specialized
underwriting organizations that place considerable emphasis on the
engineering aspects of the insured risks. In addition to an average
engineering industry or related experience of seven years, the staff
averages 12 years of insurance and reinsurance industry experience.
Facultative property reinsurance is provided to targeted primary
companies selected for their compatibility with SCOR Re's
underwriting approach and experience in this specialized area.
Marketing is accomplished by direct calls to ceding companies,
attendance at key industry functions, technical presentations,
participation in industry associations and through reinsurance
intermediaries. During 1994, 20% of SCOR Re's facultative property
certificates (accounting for 55% of gross premiums written) were
written on a proportional basis, with the remaining 80% (accounting
for 45% of gross premiums written) written on an excess of loss
basis.
Facultative Casualty
SCOR Re's Facultative casualty unit primarily reinsures risks in
the commercial automobile and general liability areas, focusing on
working layer (generally the first $1 million of liability) and lower
13<PAGE>
excess and umbrella layer (generally the next $1 million to $10
million of liability) business, which SCOR Re believes permits more
accurate claims prediction and, therefore, more accurate pricing,
because the frequency and more rapid reporting and settlement of
claims allows greater statistical reliability. During 1994, all of
SCOR Re's facultative casualty certificates were written on an excess
of loss basis. SCOR Re markets directly to ceding companies which
generally retain a significant amount of liability for their own
account and with which SCOR Re has established long-term
relationships as well as through reinsurance intermediaries. The
Facultative casualty unit's gross capacity is $5 million for any one
risk. SCOR Re retains a large portion of its facultative casualty
business. See "Retrocession Agreements" for a discussion of amounts
retained by SCOR Re.
SCOR Re has 15 underwriters in the Facultative casualty unit. The
staff averages 17 years of insurance and reinsurance industry
experience.
Retrocession Agreements
SCOR Re, like most reinsurance companies, enters into
retrocession arrangements for many of the same reasons primary
insurers seek reinsurance, including increasing their premium writing
and risk capacity without requiring additional capital and reducing
the effect of individual or aggregate losses. Historically, SCOR Re
has retroceded risks to retrocessionaires on both a proportional and
excess of loss basis. Since a reinsurer remains liable to a ceding
company with respect to any risk subject to a retrocession agreement,
such retrocessionaires are subject to an initial review of financial
condition before final acceptability is confirmed and subsequent
reviews on an annual basis.
From 1974 through 1986, virtually all of SCOR Re's retrocessions
had been to affiliates. Based on the increased surplus resulting from
SCOR U.S.'s public offering in 1986, SCOR Re significantly decreased
the total amount of reinsurance retroceded, a large portion of which
continues to be retroceded to affiliates. All reinsurance agreements
with affiliates must be submitted to the New York Insurance
Department for prior review. In 1994, 11.5% of gross premiums
written by the Company were retroceded to SCOR S.A., compared with
15.6% and 14.0% in 1993 and 1992, respectively.
Under its 1995 retrocessional program, SCOR Re retains a maximum
of $2.0 million as to any one ceding company program for treaty
business. SCOR Re retains a maximum of $3.9 million and $1.0 million
per risk for facultative property and facultative casualty business,
respectively. Under its 1994 retrocessional program SCOR Re retained
a maximum of $2.0 million as to any one ceding company program for
treaty business and a maximum of $3.3 million and $1.1 million per
risk for facultative property and facultative casualty business,
respectively.
SCOR Re purchases coverage against the accumulation of
losses resulting from a single catastrophic event. As with most
reinsurers, SCOR Re retains a share of its catastrophe exposures. In
1995, SCOR Re has general catastrophe retrocessional coverage, which
14<PAGE>
covers property exposures only, for generally 78% of $48 million in
excess of $20 million per occurrence. The Company also has
underlying coverage for $15 million in excess of $5 million per
occurrence after a $5 million deductible. SCOR S.A. participates in
SCOR Re's 1995 general catastrophe retrocessional program for a total
limit of approximately $13.7 million.
Pursuant to a Net Aggregate Excess of Loss Retrocessional
Agreement dated as of July 1, 1986 ("the 1986 Retrocessional
Agreement"), SCOR S.A. reinsured SCOR Re for adverse loss development
from pre-1986 business that exceeded the total of loss reserves
established as of June 30, 1986 and premiums earned after June 30,
1986 from such pre-1986 business. The 1986 Retrocessional Agreement
provided protection to the Company for business underwritten by SCOR
Re only and did not provide coverage for pre-1986 business
underwritten by any other subsidiary. However, business underwritten
by General Security and Unity Fire is protected against adverse
development by a separate net aggregate excess of loss retrocessional
agreement, as described below. The 1986 Retrocessional Agreement
terminated on December 31, 1993, at which time, SCOR S.A.'s liability
to SCOR Re was $16.2 million. This amount is the actuarially
determined expected ultimate loss from the pre-1986 business in
excess of the "aggregate deductible" (which is defined as the total
of net outstanding loss and loss expense reserves, net incurred but
not reported ("IBNR") loss reserves and net unearned premium reserves
established as of June 30, 1986 for the pre-1986 business, plus all
net premiums and future net premium adjustments earned after June 30,
1986 under retrospectively rated treaties for such business). During
the first quarter of 1994, SCOR Re received $16.2 million from SCOR
S.A. in settlement of its liability under this agreement.
Given the remaining uncertainty of the ultimate liability of
certain exposures underwritten in the pre-1986 SCOR Re business, SCOR
Re and SCOR S.A. entered into a new Net Aggregate Excess of Loss
Agreement ("the 1994 Retrocessional Agreement") effective January 1,
1994, which protects the same business covered under the 1986
Retrocessional Agreement. Under this Agreement, SCOR Re is
responsible for any further adverse development up to $8.8 million
beyond the $16.2 million of adverse development recognized under the
1986 Retrocessional Agreement, at which point the 1994 Retrocessional
Agreement attaches and provides coverage for up to $10 million of any
additional adverse development. Because the losses related to the
1986 Retrocessional Agreement settlement have not yet been paid, the
Company earns interest on the funds received. Based on the Company's
assumption of the expected payment pattern of these reserves, the
Company expects that such investment income would at least equal any
adverse development below the attachment point. SCOR Re paid a
premium of $2 million for this coverage, which expires on December
31, 2004. At December 31, 1994, no recovery was recognized under the
1994 Retrocessional Agreement. In addition, based on the Agreement's
experience, SCOR Re is eligible to receive a contingent commission of
up to 27.75% of the premium.
SCOR S.A. entered into a Net Aggregate Excess of Loss
Retrocessional Agreement with each of Unity Fire and General
Security, pursuant to which SCOR S.A. agreed to reinsure those
companies to the extent that their net ultimate incurred losses (as
15<PAGE>
defined in the agreements) arising in 1989 and prior accident years
exceed an aggregate deductible. As a result of the above-described
assumption by General Security of the rights, liabilities and
obligations of Unity Fire, the Net Aggregate Excess of Loss
Retrocessional Agreement with Unity Fire was terminated and the Net
Aggregate Excess of Loss Retrocessional Agreement with General
Security was amended (as so amended, the "Agreement") to include the
protection formerly provided to Unity Fire by its retrocessional
agreement with SCOR S.A. As a result of the merger of General
Security into SCOR Re, the protection under the Agreement is now for
the benefit of SCOR Re. The aggregate deductible is defined as the
sum of net outstanding loss and loss expense reserves and net IBNR
loss reserves as of December 31, 1989, for 1989 and prior accident
years, as documented in the 1989 statutory financial statements of
Unity Fire and General Security. This amount has been established at
a combined aggregate of $93.8 million. The annual premium for this
protection is $210,000 through 2004. The Agreement continues in
force until all covered losses are settled. At December 31, 1994,
SCOR S.A.'s estimated liability to SCOR Re under the Agreement was
approximately $11.7 million.
The retrocession of risks underwritten by a reinsurer does not
legally discharge it from liability for any part of the risk
retroceded. Accordingly, the Operating Subsidiaries would be required
to pay the full amount of the loss associated with the reinsured risk
if for any reason SCOR S.A. or any other retrocessionnaire was unable
or failed to meet its reinsurance obligations. Generally, under the
New York Insurance Law, retrocessionaires which are not licensed or
otherwise authorized reinsurers in New York must provide letters of
credit or other permitted assets to secure their obligations to the
ceding reinsurer (based on the ceding reinsurer's current estimate of
the ceded liability) in order for the ceding reinsurer to take credit
on its statutory financial statements for the reinsurance ceded. This
security can be applied by the ceding reinsurer toward discharging
its own liability in the event of a default by the retrocessionaire.
At December 31, 1994, the amount of estimated liability for which
retrocessionaires were liable to the Operating Subsidiaries was
approximately $265.7 million, of which approximately $215.2 million
was secured by letters of credit in favor of, or funds held by, the
Operating Subsidiaries. Additionally, an amount of $37.6 million
represents the liability on reinsurance ceded to New York licensed or
authorized reinsurance companies, which are not required to provide
additional security in order for the ceding reinsurer to take credit
for the reinsurance ceded. The amounts of estimated liability
recoverable from retrocessionaires at December 31, 1993 and 1992 were
approximately $285.1 million and $289.2 million, respectively. The
Operating Subsidiaries' exposure to amounts deemed unrecoverable from
retrocessionaires has been limited and to the extent it has been
exposed, paid losses, outstanding losses and incurred but not
reported losses recoverable from retrocessionaires which are
determined to be uncollectible are charged to operations.
The following table sets forth certain information regarding
insurers and reinsurers that are parties to retrocessional agreements
with the Company for the periods indicated:
16<PAGE>
<TABLE>
<CAPTION>
December 31, 1994
(Dollars in thousands)
Paid Loss Unpaid Loss Unearned % of Total
Company Recoverable Recoverable Premiums Total Recoverable
<S> <C> <C> <C> <C> <C>
SCOR S.A. 4,065 120,355 10,463 134,883 50.8%
Dai-Tokyo Fire and Marine
Insurance Co. 2,103 24,771 1,152 28,026 10.5%
Zurich Versicherung
Gesellschaft AG -0- 20,000 -0- 20,000 7.5%
Other <F1>
Affiliate 334 6,741 41 7,116 2.7%
Non-Affiliate 17,253 50,805 7,651 75,709 28.5%
------ ------- ----- ------ ------
Total 23,755 222,672 19,307 265,734 100.0%
====== ======= ====== ======= ======
<CAPTION>
December 31, 1993
(Dollars in thousands)
Paid Loss Unpaid Loss Unearned % of Total
Company Recoverable Recoverable Premiums Total Recoverable
SCOR S.A. 8,734 128,007 14,424 151,165 53.0%
Dai-Tokyo Fire and Marine
Insurance Company 720 28,538 1,080 30,338 10.6%
Zurich Versicherung -0- 20,000 -0- 20,000 7.0%
Gesellschaft AG
Other <F1>
Affiliate 764 6,147 154 7,065 2.5%
Non-Affiliate 26,609 39,151 10,759 76,519 26.9%
------ ------- ------ ------- -----
Total 36,827 221,843 26,417 285,087 100.0%
====== ======= ====== ======= ======
17<PAGE>
<CAPTION>
December 31,1992
(Dollars in thousands)
Paid Loss Unpaid Loss Unearned % of Total
Company Recoverable Recoverable Premiums Total Recoverable
<S> <C> <C> <C> <C> <C>
SCOR S.A. 13,703 100,622 12,754 127,079 44.0%
Dai-Tokyo Fire and Marine
Insurance Company 1,979 31,112 1,121 34,212 11.8
Zurich Versicherung
Gesellschaft AG -0- 20,000 -0- 20,000 6.9
Other <F1>
Affiliate 2,074 12,175 149 14,398 5.0
Non-Affiliate 24,599 56,742 12,205 93,546 32.3%
------ ------ ------ ------ -----
Total 42,355 220,651 26,229 289,235 100.0%
====== ======= ====== ======= ======
<FN>
<F1>
There is no amount recoverable and no percent of total recoverable from any other reinsurer
greater than $4,640 (1.7%), $6,173 (2.2%) and $10,047 (3.5%) for the years ended December 31,
1994, 1993 and 1992, respectively.
</FN>
</TABLE>
18<PAGE>
MARKETING
SCOR Re writes all treaty business out of its home office in New
York City. Virtually all treaty business is written through
reinsurance intermediaries, who represent the primary insurers in
negotiations with SCOR Re for the purchase of reinsurance. Brokerage
commissions paid to intermediaries vary from 1% to 10% of assumed
premiums depending on the type of contract negotiated, with these
payments constituting part of SCOR Re's total acquisition costs. For
the underwriting year 1994 approximately 95% of the gross premiums
written and recorded in 1994 by SCOR Re for treaty business was
arranged through intermediaries. SCOR Re's three largest intermediary
production sources are E. W. Blanch Co., John P. Woods Co., Inc. and
Guy Carpenter & Company, Inc., which accounted for 24%, 17% and 11%,
respectively, of gross premiums written for underwriting year 1994.
SCOR Re believes that the loss of all or substantially all of the
business provided by any of these intermediaries could have a material
adverse effect on SCOR Re's operations. However, because of the
nature and extent of these relationships, as well as SCOR Re's
competitive position in the marketplace, such an eventuality is
considered unlikely.
The above-mentioned intermediaries are among the largest
intermediaries in the reinsurance industry. The concentration of
business written by SCOR Re through a small number of sources is
consistent with the concentration of the property and casualty
intermediary reinsurance market, in which a majority of the business
is written through the top ten intermediaries.
SCOR Re conducts its facultative business principally on a direct
basis through its branch offices in Chicago, Dallas, Hartford, New
York City and San Francisco. SCOR Re also uses intermediaries to
produce business for its facultative operations.
CLAIMS
Individual claims reported to the Operating Subsidiaries are
managed by the Claims Department. The Claims Department consists of
seven professionals with an average of 19 years of insurance and
reinsurance industry claims experience. In addition to managing
reported claims and conferring with ceding companies on claim matters,
the Claims Department conducts periodic audits of specific claims and
the overall claims procedures at the offices of ceding companies.
Prior to SCOR Re's acceptance of certain risks, the Claims Department
often conducts claims audits of prospective ceding companies, which
the Company believes benefit all parties to the reinsurance
arrangement. SCOR Re attempts to monitor whether the ceding company
uses proper adjusting techniques, reserves properly, has sufficient
staff and follows proper claims processing procedures. During such
audits, the ceding company's management is provided with a
constructive review and assessment of its claims operation.
Recommendations regarding procedures, processing and personnel are
provided to the ceding company. Potentially contested material claims
are reviewed with senior management of the respective companies and
with the Company's Law Department ("Law Department").
19<PAGE>
RESERVES
Significant periods of time may elapse between the occurrence of
an insured loss, the reporting of the losses to the insurer and the
reinsurer, the insurer's payment of that loss, and subsequent payments
by the reinsurer. To recognize liabilities for unpaid losses, insurers
and reinsurers establish loss and loss expense reserves, which are
balance sheet liabilities representing estimates of future amounts
needed to pay claims and related expenses with respect to insured
events which have occurred. Loss and loss expense reserves have two
components: case reserves, which are reserves for reported claims, and
IBNR reserves, which are reserves for claims that have occurred but
which have not yet been reported to the reinsurer.
Loss reserves are only estimates at a given point in time of what
the insurer or reinsurer expects to pay on losses, based on facts and
circumstances then known, predictions of future events, estimates of
further trends in claim severity and frequency, and other variable
factors. During the loss settlement period, which may be many years
in the case of casualty claims, additional facts regarding individual
claims may become known. As the insurer or reinsurer learns
additional facts, it often becomes necessary to refine and adjust the
estimates of liability on a claim upward or downward, and even then
ultimate liability may exceed or be less than the revised estimates.
The IBNR reserving process is intended to provide implicit recognition
of the impact of inflation and other factors affecting claim payments
by taking into account changes in historical payment patterns and
apparent trends.
The inherent uncertainty of estimating loss reserves is
exacerbated for reinsurers, especially casualty reinsurers, by the
significant periods of time that often elapse between the occurrence
of a loss and the reporting of the loss to the primary insurer and,
ultimately, the reinsurer.
Loss and loss expense reserves for individual claims are
initially established when reports or notices of claims are received
from the ceding company. They are based upon the amount of reserves
recommended by the ceding company and any additional reserves deemed
necessary by the Claims Department, after an evaluation of numerous
factors, including coverage, liability, severity of injury or damage,
jurisdiction, and ability of the ceding company to properly evaluate
and handle the claim. It is the Claims Department's policy to
establish case reserves in an amount at least equal to the amount
recommended by any ceding company.
The Company calculates IBNR reserves for the Operating
Subsidiaries using loss development and premium based methods. In an
effort to reduce the uncertainty of the reporting pattern of losses,
the Company analyzes several different sources of industry data,
extensively reviews the historical loss development patterns of its
ceding companies which have many years of loss experience and uses the
data and loss ratios developed by its own actuaries who are involved
in the pricing of most treaty accounts and all excess of loss
accounts. Loss development techniques are generally accepted within
the industry to be appropriate for the common lines of casualty
business (subsequent to the first several years). The Company's loss
development techniques utilize both Company and industry development
20<PAGE>
patterns. SCOR U.S. uses premium based formulas to establish minimum
IBNR amounts for the most recent underwriting years on casualty
business. For such immature casualty business, premium based
techniques are used since the loss reporting patterns for this
business are not sufficiently credible at this stage to allow the
proper use of loss development methods. SCOR U.S. also uses, where
deemed appropriate, the Bornhuetter-Ferguson IBNR formula which blends
both the loss development and premium based approaches. IBNR reserves
are established for large treaties based on the loss experience
encountered with respect to such treaties through the application of
industry average loss development factors derived from RAA data.
Smaller treaties, and treaties without adequate individual loss
experience, are grouped both by class of business and by underwriting
year or accident year relevant to IBNR calculations. The techniques
applied by SCOR U.S. are generally accepted actuarial methods for
establishing IBNR reserves.
The Senior Vice President and Actuary of SCOR U.S., as well as
senior management, monitor IBNR reserve development on a frequent
basis by reviewing and analyzing the reserves established by the
Claims Department and by comparing actual with predicted development.
SCOR U.S. re-evaluates its reserves quarterly to reflect current
information with respect to the development of loss experience. SCOR
U.S. does not discount any of its reserves for reported or unreported
claims to a present value basis.
The actuarial staff consists of two Actuaries who are Fellows of
the Casualty Actuarial Society and Members of the American Academy of
Actuaries, and four actuarial assistants.
SCOR Re is protected by net aggregate excess of loss
retrocessional agreements with SCOR S.A. ("the SCOR S.A.
Retrocessional Agreements"). (See "Underwriting - Retrocession
Agreements" for a description of these agreements.)
The operating subsidiaries of SCOR U.S. have not underwritten
significant amounts of business in those classes or with those
insurers that are known to be exposed to asbestos and environmental
related claims. During the years ended December 31, 1994, 1993 and
1992, the Company has not experienced any significant amount of net
loss reporting or development on claims related to these exposures.
In addition, the Company is significantly protected from adverse
development under the SCOR S.A. Retrocessional Agreements. Any
recoveries under such agreements are considered to be fully
realizable. Based on the above information, the Company believes that
its exposure to asbestos and environmental related claims is not
material to the Company's financial position or results of operations.
Net incurred losses for asbestos and environmental-related coverages
during the year ended December 31, 1994 were estimated to be $2.4 million.
The Company did not incur any net losses and loss expenses for asbestos and
environmental related coverages during the years ended December 31, 1993
and 1992. Gross losses and loss expenses incurred for the year ended
December 31, 1994 were estimated to be $8.6 million. At December 31, 1994,
reserves for losses and loss expenses for asbestos and environmental
related coverages, on a gross and net basis, were an estimated $30.5
million and an estimated $16.9 million, respectively. At December 31,
1994, reported case reserves represented an estimated $11.5 million of the
21<PAGE>
total gross reserves and an estimated $6.5 million of the total net
reserves.
The table below sets forth the changes in loss and loss expense
reserves of the SCOR U.S. subsidiaries for each year in the three-year
period ended December 31, 1994. The lower portion of the table sets forth
the adjustment between Generally Accepted Accounting Principles ("GAAP")
and Statutory Accounting Practices ("SAP") reserves for losses and loss
expenses. The amounts set forth below are net of deductions for
reinsurance.
Year Ended December 31,
1994 1993 1992
(Dollars in thousands)
Reserve for losses and loss expenses at
beginning of year - GAAP, net $340,366 $341,162 $324,117
-------- -------- --------
Provision for losses and loss expenses:
Occurring in current year 193,587 160,695 165,468
Occurring in prior years (2,317) (4,403) (4,923)
------- ------- -------
Total 191,270 156,292 160,545
------- ------- -------
Payments for losses and loss expenses:
Occurring in current year 55,155 36,018 51,514
Occurring in prior years 94,366 121,070 91,986
------- ------- -------
Total 149,521 157,088 143,500
------- ------- -------
Reserve for losses and loss expenses at
end of year - GAAP, net 382,115 340,366 341,162
Adjustment(1) 11,700 26,724 7,600
------- ------- -------
Reserve for losses and loss expenses at
end of year - SAP $393,815 $367,090 $348,762
======== ======== ========
Reserves for losses and loss expenses at
end of year - GAAP, net $382,115 $340,366 $341,162
Reinsurance recoverable on unpaid losses 222,672 221,843 220,651
-------- ------- -------
Reserves for losses and loss expenses at
end of year - GAAP, gross $604,787 $562,209 $561,813
======== ======== ========
(1) The net GAAP reserve for losses and loss expenses reflected above is
net of $11,700,000, $26,724,000 and $7,600,000 of recoveries in 1994,
1993 and 1992, respectively, under the Retrocessional Agreements with
SCOR S.A. SAP requires that losses and loss expense reserves ceded
under the SCOR S.A. Retrocessional Agreements be reported as an asset
rather than a reduction to net losses and loss expense reserves.
22<PAGE>
The table on page 24 represents the development of balance sheet
reserves for 1984 through 1994 calculated in accordance with GAAP. The
top line shows the reserves at the balance sheet date for each of the
indicated years, representing the estimated amounts of losses and loss
expenses for claims arising during that year and in all prior years
that are unpaid at the balance sheet date, including losses that had
been incurred but not yet reported. The upper portion of the table
shows the re-estimated amount of the previously recorded reserves
based on experience as of the end of each succeeding year. The
estimate changes as more information becomes known about claims for
individual years. The lower portion of the table shows the cumulative
amounts paid as of successive years with respect to that reserve
liability. The cumulative redundancy (deficiency) represents the
aggregate change in the estimates over all prior years.
In evaluating information in the table, it should be noted that
each amount includes the effects of all changes in amounts for prior
periods. For example, the amount of the deficiency related to losses
settled in 1985 but incurred in 1984 will be included in the
cumulative deficiency amount for the year 1984. The table does not
present accident or policy year development data. Conditions and
trends that have affected the development of liability in the past
will not necessarily occur in the future. Accordingly, it may not be
appropriate to extrapolate future redundancies or deficiencies based
on this table.
Under the 1986 Retrocessional Agreement, SCOR Re was generally
protected from any net adverse loss development, in the aggregate, for
all pre-1986 underwriting business. However, while some adverse loss
reserve development is included in the table set forth below, such
adverse loss development is entirely offset by premiums subsequently
earned on pre-1986 underwriting business, which are not reflected in
the table.
The reserve for losses and loss expenses is based upon estimates
received from ceding reinsureds on treaty contracts, accumulation of
case estimates for losses and loss expenses on claims reported on
facultative contracts and estimates of losses and loss expenses
incurred but not reported based upon the Company's expectations of
what may have been incurred. Such provisions are necessarily based on
estimates and, accordingly, there can be no assurance that the
ultimate liability will not exceed such estimates and have a material
adverse effect on the Company's results of operations and financial
condition. Nevertheless, the Company believes that its reserves make
reasonable provision for all unpaid losses and loss expense
obligations, including sufficient provision for any potential future
adverse development of previous years' reserves.
23<PAGE>
<TABLE>
<CAPTION>
Development of Net GAAP Reserves
Year Ended December 31,
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial reserves for
losses and loss expenses $86,501 $103,708 $138,068 $191,883$241,345 $289,085 $319,218 $324,117$341,162 $340,366 $382,115
Re-estimated as of:
One year later 89,498 116,488 138,656 192,488 238,835 301,427 325,945 319,194 336,759 338,049
Two years later 98,116 114,577 132,416 183,458 234,012 296,696 318,322 301,917 334,706
Three years later 101,437 114,925 123,373 186,498 225,007 291,800 299,788 301,711
Four years later 105,787 120,358 133,223 180,011 222,747 274,016 298,112
Five years later 108,250 137,214 133,552 178,450 212,706 275,110
Six years later 122,641 136,977 131,180 170,840 212,497
Seven years later 119,358 135,469 126,900 173,179
Eight years later 117,846 131,352 129,188
Nine years later 117,534 133,025
Ten years later 116,813
Cumulative
redundancy/(deficiency) (30,312) (29,317) 8,880 18,704 28,848 13,975 21,106 22,406 6,456 2,317
Percentage -35% -28% 6% 10% 12% 5% 7% 7% 2% 1%
Cumulative amount of liability
paid through:
One year later $32,766 $32,853 $29,867 $42,010 $59,088 $61,893 $84,918 $91,986$121,070 $94,366*
Two years later 48,034 52,540 48,080 73,005 88,776 112,953 138,758 144,536 161,448*
Three years later 62,246 66,487 65,439 92,699 115,245 148,850 175,918 158,646*
Four years later 70,512 80,434 78,729 106,022 139,352 174,114 180,337*
Five years later 81,005 91,744 88,243 123,314 151,085 173,222*
Six years later 87,208 99,658 98,176 130,680 142,583*
Seven years later 92,985 107,317 103,548 118,144*
Eight years later 97,358 111,285 90,721*
Nine years later 99,854 101,103*
Ten years later 92,333*
<FN>see asterisk
<F1>
Amounts are net of $16.2 million of paid loss recoveries received in 1994 under the 1986 Retrocessional Agreement with SCOR
S.A. The settlement was based upon incurred losses covered under the agreement.
</FN>
24<PAGE>
<CAPTION>
Development of Gross GAAP Reserves
Year ended December 31,
1984 l985 l986 l987 l988 l989 l990 1991 1992 1993 1994
(Dollars in thousands)
<S> <C> <C> <C>
Gross Liability - End of Year $561,813 $562,209 $604,787
Reinsurance Recoverable 220,651 221,843 222,672
Net Liability - End of Year 341,162 340,366 382,115
Gross Re-Estimated Liability - Latest 598,782 587,144
Re-Estimated Recoverable - Latest 264,076 249,097
Net Re-Estimated Liability - Latest 338,047 336,759
Gross Cumulative (Deficiency)/Redundancy (36,969) (24,938)
</TABLE>
25<PAGE>
INVESTMENTS
The investments of the Company's reinsurance and insurance
subsidiaries must comply with the insurance laws of their respective
states of domicile, and of certain other states in which they are
regulated. The principal operating subsidiaries are all domiciled in the
State of New York, except for General Security Insurance Company which is
domiciled in Maryland. These laws prescribe the kind, quality, and
concentration of investments which may be made by reinsurance and
insurance companies. In general, these laws permit investments, within
specified limits and subject to certain qualifications, in federal, state
and municipal obligations, corporate bonds, preferred and common stocks,
real estate mortgages and real estate.
The Company's investments are managed by an investment officer,
currently the Vice President and Treasurer of SCOR U.S., who presents
proposed investment strategies quarterly to the Finance Committee of the
SCOR U.S. Board of Directors and the Boards of Directors of SCOR U.S.,
SCOR Reinsurance Company, General Security Insurance Company, Unity Fire
and General Insurance Company and General Security Indemnity Company for
approval. The Finance Committee and the Boards of Directors approve all
investment transactions and proposed adjustments to investment strategies
on a quarterly basis. SCOR U.S.'s current investment policy (i) requires
an amount at least equal to reserves to be invested in fixed income U.S.
Government and agency obligations and corporate and municipal bonds with,
in the aggregate, a weighted average Moody's rating of Aa and (ii)
permits the remaining invested assets to be invested in common stocks,
instruments deemed to be common stock equivalents and debt instruments.
The Company's current investment strategy is to maximize after-tax
investment income through a high quality diversified portfolio of
primarily taxable and tax-exempt fixed maturity securities while
maintaining an adequate level of liquidity and minimizing changes in the
market value due to changes in interest rates.
The following table sets forth carrying values, principally at
market, of SCOR U.S.'s bond portfolio, as rated by Moody's, at
December 31, 1994:
BONDS CLASSIFIED BY RATING
DECEMBER 31, 1994
(in thousands)
NAIC Carrying % of Bond
Classification Value Portfolio
U.S. Treasuries and Agencies 1 $158,571 28.6%
Foreign Government and Agencies 1 14,636 2.6%
Aaa 1 202,626 36.5%
Aa 1 89,607 16.2%
A 1 86,346 15.6%
Baa 2 2,787 0.5%
Total $554,573 100%
26<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the components at their carrying values of the SCOR U.S. investment
portfolio at December 31, for the last three years:
1994 1993 1992 1994 1993 1992
(in thousands) (% of Total Portfolio)
<S> <C> <C> <C> <C> <C> <C>
Bonds $554,573 $572,074 $535,894 82.4% 79.8% 89.2%
Redeemable preferred stocks 31,954 33,906 25,507 4.7 4.7 4.2
-------- -------- -------- ----- ----- -----
Total fixed maturities 586,527 605,980 561,401 87.1 84.5 93.4
-------- -------- -------- ----- ----- -----
Common stocks 476 12,068 16,751 0.1 1.7 2.9
Non-redeemable preferred stocks 1,262 6,883 6,229 0.2 1.0 1.0
----- ------ ------ ---- ---- ----
Total equity securities 1,738 18,951 22,980 0.3 2.7 3.9
----- ------ ------ ---- ---- ----
Other long-term investments 1,225 1,081 1,004 0.2 0.2 0.2
Short term investments 83,303 90,642 15,213 12.4 12.6 2.5
Total investments $672,793 $716,654 $600,598 100.0% 100.0% 100.0%
======== ======== ======== ====== ====== ======
<CAPTION>
The following table classifies fixed maturities, excluding redeemable preferred stocks, by taxable
and tax-exempt instruments:
1994 1993 1992 1994 1993 1992
(in thousands) (% of Total Portfolio)
<S> <C> <C> <C> <C> <C> <C>
Taxable bonds $312,791 $296,138 $312,645 56.4% 51.8% 58.3%
Non-taxable bonds 241,782 275,936 223,249 43.6% 48.2 41.7
-------- -------- -------- ----- ----- -----
Total Bonds $554,573 $572,074 $535,894 100.0% 100.0% 100.0%
======== ======== ======== ====== ====== ======
</TABLE>
At December 31, 1994, the aggregate amortized cost of the fixed
maturities portfolio exceeded the aggregate fair market value by $33.7
million or 5.4% of the total amortized cost of fixed maturities. This
amount consists of $1.4 million of unrealized gains and $35.1 million of
unrealized losses. At December 31, 1993, fair value of the fixed maturities
portfolio exceeded amortized cost by $24.5 million. The net unrealized loss
on fixed maturities at the end of 1994 was attributable to rising interest
rates. The weighted average life of SCOR U.S.'s fixed maturity portfolio
was 5.8 years at December 31, 1994.
The following table sets forth the investment results of SCOR U.S. and
its subsidiaries for each of the years indicated:
27<PAGE>
Year Ended December 31.
1994 1993 1992
(in thousands)
Net investment income $40,990 $42,044 $42,880
Average invested assets 694,785 658,626 604,770
Bond portfolio yield (a) 6.5% 7.1% 7.6%
Equity portfolio yield (b) 6.9 4.8 4.2
Pre-tax yield (c) 5.9 6.4 7.1
After-tax yield 4.6 4.9 5.3
Realized gains $ 984 $12,930 $15,048
Unrealized gains (losses) (d) (40,116) 5,686 (10,439)
---------------------------------
(a) Yield based on average amortized cost.
(b) Yield based on average market value.
(c) Net investment income divided by average invested assets at carrying
value.
(d) Represents the yearly change in net unrealized gains (losses) on fixed
maturities and equity securities, net of any tax effect.
Net investment income for 1994 decreased 3% to $41.0 million from $42.0
million in 1993. Net investment income (pre-tax) has been adversely
affected by the high level of claim payments made since mid-1992 related to
catastrophic events and the lower reinvestment rates available during 1993
and early 1994 as the Company sold securities to realize investment gains.
On an after-tax basis net investment income was $31.6 million for 1994, a
decrease of 2% from $32.3 million in 1993. Net realized investment gains
for 1994 were $1.0 million, compared with $12.9 million for 1993.
The following table provides a maturity profile of the SCOR U.S. fixed
maturity investments based on carrying values at December 31 for the last
three years:
1994 1993 1992
(in thousands)
Maturity
1 year or less $21,955 $13,847 $21,478
Over 1 year - 3 years 62,109 77,028 52,214
Over 3 years - 5 years 107,826 101,393 94,713
Over 5 years - 10 years 359,809 392,340 363,570
Over 10 years - 15 years 30,023 15,975 20,355
Over 15 years - 20 years 1,348 2,392 5,754
Over 20 years 3,457 3,005 3,317
------ ------- ------
Total fixed maturities $586,527 $605,980 $561,401
======== ======== ========
REGULATION
The terms and conditions of reinsurance agreements generally are not
subject to regulation by any government authority with respect to rates or
coverage terms and conditions. This is in contrast with primary policies
which are generally closely regulated by state insurance departments. As
a practical matter, however, in a competitive market, such as was the case
in 1994, the lower rates charged by primary insurers influence downward the
rates that can be charged by reinsurers.
SCOR U.S. and its reinsurance operations are subject to regulation under
the insurance statutes (including holding company regulations) of various
states. These regulations vary from state to state, but generally require
insurance holding companies and insurers and reinsurers that are
subsidiaries of holding companies to register and file with
28<PAGE>
state regulatory authorities certain reports including information
concerning their capital structure, ownership, financial condition and
general business operations. State regulatory authorities monitor
compliance with state mandated standards of solvency, licensing
requirements, investment limitations, restrictions on the size of
risks which may be reinsured, deposits of securities for the benefit
of reinsureds, methods of accounting, and reserves for unearned
premiums, losses and other purposes. In general, such regulations are
for the protection of reinsureds and, ultimately, their policyholders,
rather than securityholders.
State laws also require prior notice or regulatory agency approval
of changes in control of an insurer or its holding company and of
certain intercorporate transfers of assets within the holding company
structure. The insurance laws of New York and Maryland provide that
no corporation or other person except an authorized insurer, may
acquire control of a domestic insurance or reinsurance company unless
it has given notice to such company and obtained prior written
approval of the Superintendent of Insurance. Any purchaser of 10% or
more of the outstanding voting securities of an insurance or
reinsurance company is presumed to have acquired control, unless such
presumption is rebutted. Therefore, an investor who intends to acquire
10% or more of the outstanding voting securities of SCOR U.S. could
become subject to such regulations and would be required to file
certain notices and reports with the New York Superintendent of
Insurance and the Maryland Commissioner of Insurance prior to such
acquisition.
SCOR U.S.'s reinsurance and insurance subsidiaries are subject to
periodic examinations of their affairs by the insurance departments of
the states in which they are licensed and to triennial examination by
the New York Insurance Department, the domiciliary state of SCOR Re,
Unity Fire and GSIND and the Maryland Insurance Administration with
respect to GSIC, which is domiciled in Maryland. Each of these
subsidiaries is also required to file annual and other reports
relating to its financial condition and other matters.
SCOR U.S. is a holding company. Its principal sources of cash are
cash dividends from SCOR Re, borrowings, and the issuance of equity
securities. Generally, dividends which can be paid, without prior
approval of the New York Insurance Superintendent, by insurers
domiciled in New York State are limited for any twelve-month period to
the lesser of 10% of statutory surplus or adjusted net investment
income (as defined by New York Insurance Law) for the previous twelve
months. During the year ending December 31, 1994, $11.9 million of
dividends were declared and paid to SCOR U.S. At December 31, 1994,
the aggregate statutory surplus of the SCOR U.S. operating
subsidiaries was $243.4 million. Based on the statutory surplus of
the Company's operating subsidiaries at December 31, 1994,
$24.3 million is the maximum amount available for dividends to the
Company in 1995 without prior regulatory approval.
A substantial number of states have adopted or are considering laws
and regulations which, among other things, mandate rate decreases, or
limit the ability of insurance companies to effect rate increases or
to cancel or not renew existing policies principally in personal
lines, such as automobile insurance. In an effort to improve state
regulation of the insurance industry, the industry introduced various
29<PAGE>
regulatory and legislative changes which may impact reinsurers. There
are also proposals for the Federal government's participation in the
regulation of insurance, either in addition to or in lieu of the
existing state regulatory system. The Federal government is
considering two "tort reform" measures which, among other things,
limit non-economic and punitive damages to the larger of $250,000 or
three times economic injury. These proposals have been passed in the
House of Representatives and are awaiting Senate review. SCOR U.S. is
unable to predict what effect these developments may have on its
operations and financial condition.
The National Association of Insurance Commissioners ("NAIC"), an
organization that assists state insurance regulators in achieving
regulatory objectives, established minimum capital requirements,
referred to as risk-based capital, by adopting a risk-based capital
formula for property and casualty companies in December 1993. The
risk-based capital formula is applied to statutory financial
statements beginning for the year ended December 31, 1994. The
essential elements of these requirements focus on a company's types of
business, historical loss development patterns and asset quality.
Based on the prescribed formula the statutory surplus of each of the
Company's operating subsidiaries is sufficient to meet these risk
based capital requirements and to conduct its respective operations.
The NAIC's Insurance Regulatory Information System ("IRIS") is
primarily intended to assist state insurance departments in executing
their statutory mandates to oversee the financial condition of
insurance companies operating in their respective state. IRIS
identifies eleven industry ratios and specifies "usual values" for
each ratio. Departure from the usual values on four or more of the
ratios generally leads to inquiries from state insurance commissioners
as to certain aspects of the Company's business.
For the year ended December 31, 1994, SCOR Re fell outside the
usual values for one of the eleven ratios, specifically its change in
surplus ratio of -10%. The usual value assigned to the change in
surplus ratio is up to but not including -10%. SCOR Re's departure
from the usual value of the change in surplus ratio was principally
attributable to the combined net loss of the Operating Subsidiaries,
primarily caused by losses from the Northridge Earthquake and $11.9
million of dividends paid to SCOR U.S.
SCOR Re Voting Trust
The New York Insurance Law prohibits (with certain exceptions) the
issuance of a license to a company that is owned or financially
controlled in whole or in part by a government, unless an insurer was
so owned or financially controlled prior to the effective date of such
statute. Both Unity Fire and General Security were so owned or
financially controlled prior to such effective date. Because SCOR
S.A., the controlling stockholder of SCOR U.S., was indirectly
partially owned by certain French insurance companies which were
majority owned by the French Government, SCOR U.S., in 1984, to permit
SCOR Re to obtain a New York insurance license, established a voting
trust for its holdings of capital stock of SCOR Re. The voting trust
was irrevocable for a period of ten years (through June 6, 1994),
unless SCOR Re's New York license was withdrawn. In 1994, in order
for SCOR Re to retain its New York license and obtain a California
30<PAGE>
insurance license, the voting trust was renewed for an additional
period of three years.
The five voting trustees under the voting trust possess and are
entitled to exercise all the rights and powers of absolute owners of
the capital stock of SCOR Re, except to pass any voting right or
ownership interest to others. Decisions of the voting trustees may be
made by majority vote, provided that such majority consists of at
least two voting trustees who are not officers, directors or
stockholders of SCOR S.A. The voting trustees are required to forward
any dividends paid by SCOR Re to SCOR U.S. as the registered holder of
the voting trust certificates evidencing beneficial ownership of SCOR
Re's stock. Transfers of voting trust certificates may only be made
by the registered holder thereof. The current voting trustees are as
follows: Patrick Peugeot, Jacques P. Blondeau, Allan M. Chapin, Michel
J. Gudefin, and David J. Sherwood. All of the voting trustees are
directors of SCOR U.S. with the exception of Mr. Chapin.
Although there can be no assurances as to the actions the voting
trustees may or may not take in the future, since the establishment of
the voting trust in June 1984, the actions of the voting trustees have
been limited primarily to the election of directors of SCOR Re.
General Security Voting Trust
Effective February 1, 1993, a voting trust was established by SCOR
U.S. for its holdings of capital stock of General Security in order to
satisfy the insurance laws of the State of California. Upon
completion of the merger of General Security into SCOR Re in 1994, the
General Security voting trust was terminated.
COMPETITION
The reinsurance business traditionally has been competitive. From
mid-1984 into 1987, there was a significant contraction of capacity in
the reinsurance market which diminished competition. However, since
1987 the capacity of the reinsurance industry has expanded, and
competition has increased. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
The number of competitors of SCOR Re cannot reasonably be
determined because there are virtually no barriers to entry to the
U.S. reinsurance marketplace. Competitors include major domestic and
international reinsurance companies, subsidiaries, affiliates or
reinsurance departments of both domestic and international insurance
companies, and underwriting syndicates.
The reinsurance market has two basic segments: reinsurers that
primarily obtain their business directly from ceding companies and
those that obtain business from ceding companies through reinsurance
intermediaries. Virtually all of SCOR Re's new treaty business is
produced by intermediaries, while SCOR Re's Facultative Department
produces its business directly and through intermediaries.
Competition in the types of reinsurance business in which SCOR
U.S.'s subsidiaries are engaged is based on many factors, including
perceived overall financial strength of the reinsurer, premiums
charged, contract terms and conditions, services offered, speed of
31<PAGE>
claims payment and reputation and experience in the line of business
to be written. Some competitors of SCOR Re possess greater financial
and other resources.
SCOR U.S. believes that the A.M. Best's "A (Excellent)" rating of the
Operating Subsidiaries, as well as their surplus position, reputation
for prompt claims service and active marketing, coupled with their
underwriting skills, targeted markets, SCOR Re's technical engineering
expertise and ability to serve as a lead underwriter on treaties,
available capacity and the benefits derived from being affiliated with
one of the largest reinsurers in the world, such as increased product
development and research capabilities, place its subsidiaries in a
favorable position to compete for new reinsurance business. Another
factor taken into consideration in the placement of business with SCOR
U.S.'s subsidiaries is the number of jurisdictions in which they are
either licensed or authorized to do business. SCOR U.S.'s management
is committed to increasing the number of such jurisdictions.
The Company believes that the reinsurance industry is currently
experiencing a consolidation in which larger reinsurers will write a
greater proportion of total industry premiums as ceding companies and
intermediaries place increasing importance on size and financial
strength in the selection of reinsurers. The aggregate statutory
surplus of the Company's operating subsidiaries was $243.4 million as
of December 31, 1994, making the Company's combined reinsurance
operations the 17th largest in the United States, based on statutory
surplus, according to industry statistics compiled by the RAA.
SCOR U.S. has no significant foreign source business and currently
has no plans for significant expansion into such markets.
EMPLOYEES
At December 31, 1994, SCOR U.S. and its subsidiaries employed a
total of 182 employees. None of SCOR U.S.'s employees is represented
by a labor union, and SCOR U.S. believes that its employee relations
are good.
32<PAGE>
ITEM 2. PROPERTIES
SCOR U.S. and its subsidiaries lease the following properties:
Lease Square
Expiration Feet
110 William Street, New York, New York 5/13/95 (1) 49,858
2 World Trade Center, New York, New York 8/31/98 (1) 16,632
One Commercial Plaza, Hartford, Connecticut 1/31/96 2,766
Xerox Centre, Irving, Texas 5/31/98 4,226
199 South Los Robles Avenue, Pasadena, Ca. 9/30/95 (2) 5,217
919 Conestoga Road, Rosemont, Pennsylvania 2/28/95 (3) 4,645
One Market, San Francisco, California 11/30/98 3,133
300 S. Wacker Drive, Chicago, Illinois 4/01/04 3,215
(1) In March 1995 the Company entered into a lease for its New York
Headquarters for approximately 59,000 square feet of office space at 2
World Trade Center, New York, New York, which expires in 2011. The
Company's existing lease at 2 World Trade Center will terminate upon
taking possession of the new space. The Company also extended its
lease at 110 William Street, New York, New York until September 30,
1995, at which time all New York operations will relocate to 2 World
Trade Center.
(2) The Company intends to relocate the Cal Re Pasedena, California
operations to New York prior to the September 1995 lease expiration.
(3) The Company relocated the operations of its subsidiary, Morgard,
Inc., from Rosemont, Pennsylvania to New York at lease expiration.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various lawsuits arising in the normal
course of its business. The Company does not believe that any of the
litigation to which it is currently a party will have a material
adverse effect on the operating results or financial condition of SCOR
U.S. and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of 1994.
33<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Shares of SCOR U.S. Common Stock, par value $0.30 per share, have
been listed on the New York Stock Exchange (the "NYSE") since 1988
under the symbol "SUR" and are principally traded on the NYSE. The
following table sets forth, for the indicated calendar periods, the
high and low sales prices per share of Common Stock as reported by the
NYSE, and the cash dividends declared and subsequently paid per share:
High Low Dividends
Year Ended December 31, 1994:
First Quarter $ 13 $ 10 1/4 $ .09
Second Quarter 12 1/4 10 1/8 .09
Third Quarter 12 1/4 11 .09
Fourth Quarter 11 3/8 7 1/2 .09
Year Ended December 31, 1993:
First Quarter $ 20 3/4 $ 17 $ .08
Second Quarter 19 3/4 16 1/8 .08
Third Quarter 16 7/8 14 7/8 .08
Fourth Quarter 16 3/4 12 3/8 .08
On March 10, 1995, the Board of Directors of SCOR U.S. reduced
the regular quarterly dividend rate to $.05 per share.
On March 28, 1995, there were approximately 140 holders of
record of SCOR U.S. Common Stock, and in excess of 300 beneficial
holders.
It is the intention of the Company 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 Company as dividends from SCOR Re. Generally, dividends which can
be paid, without prior approval of the New York Superintendent of
Insurance, by insurers domiciled in New York State are limited for any
twelve-month period to the lesser of 10% of statutory surplus or
adjusted net investment income (as defined by New York Insurance Law)
for the previous twelve months. The non-insurer subsidiaries
generally may pay dividends from surplus or, if none, out of profits
for the current and preceding fiscal years. At December 31, 1994, the
statutory surplus of SCOR Re was $243.4 million. Based on SCOR Re's
statutory surplus at December 31, 1994, $24.3 million is available for
dividends to SCOR U.S. during 1995.
34<PAGE>
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is certain selected consolidated financial information for
the last five fiscal years. This information should be read in conjunction
with the consolidated financial statements of SCOR U.S. Corporation and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Year Ended December 31,
1994 1993 1992 1991 1990
(in thousands, except per share data)
Operations Data:
<S> <C> <C> <C> <C> <C>
Premiums written, gross $306,792 $334,519 $304,828 $231,435 $228,940
Premiums written, net 231,060 245,413 205,543 172,708 179,502
Net premiums earned 228,244 236,051 192,050 172,818 176,640
Net investment income 40,990 42,044 42,880 45,993 43,557
Net realized investment gains 984 12,930 15,048 3,526 2,654
Total revenues 270,218 291,025 249,978 222,337 222,851
Loss and loss expenses, net 191,270 156,292 160,545 113,184 116,551
Commissions, net 59,434 61,324 55,960 43,915 46,061
Other underwriting and
administrative expenses 26,009 26,420 23,918 23,433 23,769
Other expenses (income) 4,039 4,073 4,346 (28) 1,664
Interest expense 8,920 8,005 4,579 3,833 3,500
Total expenses 289,672 256,114 249,348 184,337 191,545
Income (loss) from continuing
operations before taxes (19,454) 34,911 630 38,000 31,306
Federal income taxes (benefit) (11,262) 6,983 (3,771) 7,091 6,445
Income (loss) from continuing
operations (8,192) 27,928 4,401 30,909 24,861
Extraordinary gain on redemption
of debentures, net of tax 351 -- -- -- --
Cumulative effect of accounting changes -- (2,600) 2,848 -- --
Net income (loss) $ (7,841) $ 25,328 $ 7,249 $ 30,909 $ 24,861
35<PAGE>
<CAPTION>
Year Ended December 31,
1994 1993 1992 1991 1990
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Per Share Data:
Primary
Income (loss) from continuing operations$ (0.45) $ 1.52 $ 0.25 $ 1.72 $ 1.40
Extraordinary item 0.02 -- -- -- --
Cumulative effect of accounting changes -- (0.14) 0.15 -- --
Net income (loss) (0.43) 1.38 0.40 1.72 1.40
Fully diluted
Income (loss) from continuing operations (0.45) 1.45 0.25 1.72 1.40
Extraordinary item 0.02 -- -- -- --
Cumulative effect of accounting changes -- (0.12) 0.15 -- --
Net income (loss) (0.43) 1.33 0.40 1.72 1.40
Cash dividends declared $ 0.36 $ 0.32 $ 0.28 $ 0.24 $ 0.20
Certain Balance Sheet Data:
Total investments $672,793 $716,654 $600,598 $608,942 $592,681
Total assets 1,143,715 1,194,111 1,069,221 905,194 839,849
Losses and loss expenses 604,787 562,209 561,813 460,230 454,376
Unearned premiums 110,082 114,376 104,824 82,814 79,981
Long-term debt 102,350 106,250 28,000 28,000 28,000
Total liabilities 904,320 903,422 803,105 646,449 615,125
Total stockholders' equity 239,395 290,689 266,116 258,745 224,724
Book value per share $ 13.18 $ 16.05 $ 14.77 $ 14.43 $ 12.57
GAAP ratios (total company)
Loss ratio 83.8% 66.2% 83.6% 65.5% 66.0%
Underwriting expense ratio 39.2% 38.9 43.8 38.9 40.5
Combined ratio 123.0% 105.1% 127.4% 104.4% 106.5%
Certain SAP Data:
SAP ratios (insurance subs. only):
Loss ratio 83.7% 71.1% 84.9% 65.5% 66.0%
Underwriting expense ratio 35.1 32.6 38.4 37.0 36.6
Combined ratio 118.8% 103.7% 123.3% 102.5% 102.6%
Net premiums written to surplus 0.95:1 0.87:1 0.97:1 0.77:1 0.87:1
Statutory surplus $243,416 $271,895 $210,855 $224,327 $207,404
</TABLE>
36<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The operating results of the property and casualty insurance and
reinsurance industry are subject to significant fluctuations due to
competition, catastrophic events, general economic conditions,
interest rates and other factors, such as changes in tax laws and
regulations. The operating results of SCOR U.S. historically have
been influenced by these cycles. In recent years, the results of
certain casualty lines of business have become less predictable for
some insurers and reinsurers as a result of expanding theories of tort
and insurance liability and latent risks, such as asbestos and
pollution liability whose effects may not be known for many years. The
operating subsidiaries of SCOR U.S. have not underwritten significant
amounts of business in those classes or with those insurers that are
known to be exposed to asbestos and environmental related claims. The
Company has not experienced any material amount of net loss reporting
or development on claims related to these exposures. In addition, the
Company is significantly protected from certain adverse loss reserve
development through retrocessional agreements with SCOR S.A., its
majority shareholder (see Note 4 to the Company's Consolidated
Financial Statements). Any recoveries under such agreements are
considered to be fully realizable. Based on the above information,
the Company believes that its exposure to asbestos and environmental
related claims is not material to the Company's financial position or
results of operations.
The industry experienced an extended down cycle from 1979 to the
end of 1984. Underwriting losses in that period grew significantly as
a result of an increase in the frequency and severity of reported
losses. The industry was affected by expanding theories of tort and
insurance liability and by growing exposure to long-tail risks,
including asbestos and pollution claims, which were not adequately
taken into account in the pricing, terms and conditions of insurance
and reinsurance contracts being written during that period. At the
same time, premium rates declined as interest rates increased and
insurers and reinsurers sought premium income to invest at these
higher rates. These conditions led to a decline in the surplus of
reinsurers and the insolvency or voluntary withdrawal from the market
of a number of insurance and reinsurance companies.
From 1985 through 1987, the demand for reinsurance increased and
reinsurance pricing and underwriting results improved. This attracted
increased capacity into the industry as insurers and reinsurers
strengthened their surplus through capital infusions and increased
earnings. In the mid-1980's, the industry adopted contract language
changes designed to exclude asbestos and pollution claims. However,
asbestos and pollution claims result, and will continue to result, in
numerous claims to the insurance industry under policies written prior
to such changes, adversely affecting the operating results of certain
of the Company's competitors.
Beginning in mid-1987, the insurance and reinsurance industry
experienced increased competition and reduced premium rates. In
addition, ceding companies increased their retentions, resulting in
37<PAGE>
less available business to be reinsured, increased competition and
lower premium rates in the reinsurance industry. This competitive
environment, which has continued into 1995, has seen little
improvement in rates compared with recent years, with the exception of
rates for certain property reinsurance coverages.
Property catastrophe losses in 1989 caused a reduction in London
market reinsurance and retrocessional capacity for property reinsurers
at the end of 1990, and a consequent increase in certain property
reinsurance rates in 1991. Record insured catastrophe losses in 1992,
which approximated $23 billion including those caused by Hurricanes
Andrew and Iniki and the Los Angeles riots, led to increases in
property catastrophe reinsurance rates, as well as improved rates,
terms and conditions on certain other property coverages. These
record losses in 1992 also caused a further shortage of catastrophe
retrocessional capacity and led to an influx of new capital to
reinsurers primarily providing catastrophe coverage. Approximately $5
billion of capital was raised by these companies, the majority of
which are located in Bermuda. However, the demand for catastrophe
protection has continued and conditions have remained at favorable
levels for reinsurers as the occurrences of catastrophe losses has
continued subsequent to the record 1992 year. Following a 1993 year
that produced $5.7 billion of catastrophe losses, the estimated 1994
level of $15 billion has made the past 12 months the second most
costly period for catastrophes in the history of the U.S. insurance
industry. Of this total, $10.4 billion was produced by the earthquake
in California ("Northridge earthquake") a loss that has been exceeded
in magnitude only by Hurricane Andrew in 1992.
The Company believes that the reinsurance industry currently is
experiencing a consolidation in which larger reinsurers will write a
greater proportion of total industry premiums, as ceding companies and
intermediaries place increasing importance on size and financial
strength in the selection of reinsurers. The aggregate statutory
surplus of the Company's operating subsidiaries was $243.4 million as
of December 31, 1994, ranking the Company's combined reinsurance
operations as the 17th largest based on the statutory surplus of
reinsurers reporting to the Reinsurance Association of America (RAA)
as of December 31, 1994.
Many of the factors that have resulted in the current down cycle
continue and SCOR U.S. cannot predict if, when or to what extent
general market conditions will improve for the insurance and
reinsurance industry. Even so, SCOR U.S. believes that the
consolidation in the industry, along with the impact of recent
catastrophe losses on the property and casualty insurance industry and
generally declining cash flow in recent years, may favorably influence
property and casualty pricing, as well as reinsurance buying trends,
in the future.
During the first quarter of 1994, the Company merged its two
principal operating subsidiaries, SCOR Reinsurance Company and General
Security Assurance Corporation of New York, to form a single operating
entity for the Company's assumed reinsurance business. The Company
also intends to merge two of its other operating subsidiaries, The
Unity Fire and General Insurance Company and General Security
Insurance Company, subject to approval by such companies' Boards of
Directors and state regulatory authorities, to form a single broadly
38<PAGE>
licensed operating unit for the Company's primary and excess insurance
business. Both the completed merger and the intended merger are not
expected to have a material effect on the Company's growth, liquidity
or results of operations.
UNDERWRITING RESULTS
The underwriting results of a property and casualty insurer or
reinsurer are discussed frequently by reference to its loss ratio,
underwriting expense ratio and combined ratio. The loss ratio is the
result of dividing losses and loss expenses incurred by net premiums
earned. The underwriting expense ratio is the result of dividing
underwriting expenses by net premiums written for purposes of
Statutory Accounting Practices ("SAP") and net premiums earned for
purposes of Generally Accepted Accounting Principles ("GAAP"). The
combined ratio is the sum of the loss ratio and the underwriting
expense ratio. A combined ratio under 100% generally indicates
underwriting profits and a combined ratio exceeding 100% generally
indicates underwriting losses. Underwriting profit is only one
element of overall profitability, which also includes investment
results, interest expense and the effects of income taxation.
Accordingly, the combined ratio alone should not be used to measure
overall profitability. Except as indicated, the ratios discussed
below have been calculated on a GAAP basis.
The following table sets forth the Company's GAAP combined ratios
and the components thereof for the periods indicated, and the SAP
combined ratio for the Company's insurance and reinsurance
subsidiaries and for the reinsurance industry based on statistics
distributed by the RAA. The GAAP ratios include the operating
expenses of the holding company and the operations of the non
insurance subsidiaries, in addition to the operating expenses of the
insurance and reinsurance subsidiaries. The SAP expense ratios
include only the operating expenses of the insurance and reinsurance
subsidiaries. In addition, the GAAP loss ratio takes into
consideration the recoveries under certain retrocessional agreements
with SCOR S.A., whereas these recoveries are included in other income
for SAP purposes. A reconciliation between the Company's GAAP
consolidated net income and statutory net income of the insurance and
reinsurance subsidiaries is included in Note 11 to the Company's
Consolidated Financial Statements.
Year Ended December 31,
1994 1993 1992
GAAP RATIOS
(Total Company)
Loss ratio 83.8% 66.2% 83.6%
Commission ratio 26.0 26.0 29.1
U/W, admin. and other
expense ratio 13.2 12.9 14.7
Expense ratio 39.2 38.9 43.8
Combined ratio 123.0% 105.1% 127.4%
SAP COMBINED RATIOS
Company (insur. subs. only) 118.8% 103.7% 123.3%
Industry 106.7% 107.3% 117.4%
39<PAGE>
COMPARISON OF 1994 WITH 1993
Gross premiums written for 1994 decreased 8% to $306.8 million
from $334.5 million in 1993. Net premiums written for 1994 decreased
6% to $231.1 million from $245.4 million for 1993. Gross premiums
written and net premiums written for 1994 were increased by $1.0
million and reduced by $5.0 million, respectively, for additional
premiums to reinstate catastrophe reinsurance protections primarily
related to the Northridge earthquake. Excluding these reinstatement
premiums, gross premiums written and net premiums written for 1994
decreased by 9% and 4%, respectively, compared with 1993. The decrease
in premium volume was attributable principally to the Company's
continued withdrawal from certain property and casualty lines of
business where the Company believes rates and/or conditions are
inadequate. More specifically, throughout 1994 the Company has been
reducing its property business written on a pro rata basis. A
combination of an acceleration in the reduction of this business and
fewer attractive opportunities in targeted lines of business caused
the reduction in 1994 premium volume. In general, a weak pricing
environment persisted throughout 1994, with the exception of
catastrophe-exposed risks and some specialized lines of business.
Net losses and loss expenses incurred increased 22% in 1994 to
$191 million from $156.3 million in 1993. The loss ratio was 83.8%
for 1994 as compared with 66.2% for 1993. During 1994 the Company
incurred $32.2 million of net losses ($62.7 million of gross losses)
resulting from property catastrophe events, primarily the Northridge
earthquake and the early 1994 winter freeze, which added 15.6 points
to the loss ratio. Of these amounts, the Northridge earthquake
accounted for $26.1 million of net incurred losses and $54.8 million
of gross incurred losses. During 1993 the Company incurred $13.7
million of net losses ($19.1 million of gross losses) resulting from
property catastrophe events, primarily the World Trade Center bombing,
the East Coast blizzard, the Midwest floods and the California fires,
which adversely affected the loss ratio by 5.8 points.
During 1994 and 1993, the Company ceded $82.9 million and $88.9
million of earned premiums, respectively. The Company recovered from
retrocessionnaires $78.4 million and $57.3 million of losses during
1994 and 1993, respectively. Ceded premiums in 1994 included $6.0
million of reinstatement premiums paid by the Company. Ceded losses
in 1994 and 1993 included $30.5 million and $5.4 million,
respectively, of losses resulting from property catastrophe events.
Commission expenses decreased 3% to $59.4 million in 1994 from
$61.3 million in 1993. The decrease was caused principally by the
decline in the Company's net premium volume. The commission ratio was
26.0% for 1994 and 1993. The effect of net reinstatement premiums
related primarily to the Northridge earthquake added approximately 0.5
points to the 1994 commission ratio.
Underwriting, administration and other expenses decreased 1% in
1994 to $30.0 million from $30.5 million in 1993. The underwriting,
administration and other expense ratio was 13.2% for 1994 as compared
with 12.9% for 1993. The effect of net reinstatement premiums related
primarily to the Northridge earthquake added 0.3 points to the 1994
ratio. As discussed in Note 3 to the Company's Consolidated Financial
40<PAGE>
Statements, the Company has made various acquisitions. The pre-tax
effect on operations from recent acquisitions, including the
amortization of goodwill and acquired licenses, was a charge of $2.8
million in 1994 compared with a charge of $2.6 million in 1993. The
operations of the acquired companies are not expected to have a
material effect on the Company's liquidity, financial position or
results of operations.
The combined ratio was 123.0% for 1994, compared with 105.1% for
1993. The effect of property catastrophe events on the 1994 and 1993
combined ratio was 16.4 points and 5.8 points, respectively.
Net investment income for 1994 decreased 3% to $41.0 million from
$42.0 million for 1993. Net investment income (pre-tax) has been
affected adversely by the high level of claim payments made since mid-
1992 related to catastrophe events and the lower reinvestment rates
available during 1993 and early 1994 as the Company sold securities to
realize investment gains. On an after-tax basis net investment income
was $31.6 million for 1994, a decrease of 2% from $32.3 million in
1993. Net realized investment gains for 1994 were $1.0 million,
compared with $12.9 million for 1993.
Interest expense increased 11% to $8.9 million in 1994 from
$8.0 million in 1993. The increase was principally due to a full year
of interest expense recognized on the Company's 5.25% Convertible
Subordinated Debentures due April 1, 2000 ("Debentures") that were
issued in March 1993, compared with nine months of interest expense in
1993. (See Liquidity and Capital Resources)
During 1994 the Company repurchased in the open market $3.9
million in principal amount of the Debentures and recognized an
extraordinary gain of $351,000, or $0.02 per share, net of tax.
As a result of the Company's implementation, as of January 1,
1993, of the FASB's Emerging Issues Task Force consensus regarding
Issue No. 93-6, "Accounting for Multiple-Year Retrospectively Rated
Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"), $2.6
million (net of $1.4 million tax effect), or $0.14 per share, is
included as a reduction to 1993 income for the cumulative effect of
this accounting change.
For 1994, the Company posted a net loss of $7.8 million, or $0.43
per share, on a primary basis, compared with a net income of $25.3
million, or $1.38 per share, for 1993. On a fully diluted basis, net
income for 1993 was $1.33 per share. The 1994 results were affected
by after-tax charges to operations, net of reinsurance, of
$24.2 million, or $1.33 per share for property catastrophe events.
The 1993 results were affected by after-tax charges to operations, net
of reinsurance, of $8.9 million, or $0.48 per share, for property
catastrophe events. Average common and common equivalent shares
outstanding (on a primary basis) for 1994 were 18.2 million, compared
with 18.4 million for 1993.
SUBSEQUENT EVENT
The Company believes that its potential for losses from January
17, 1995 Nambu-Jishin earthquake in Kobe, Japan is limited since
foreign writings represent an insignificant portion of its portfolio.
41<PAGE>
Comparison of 1993 with 1992
Gross premiums written for 1993 increased 10% to $334.5 million
from $304.8 million in 1992. Net premiums written for 1993 increased
19% to $245.4 million from $205.5 million for 1992. Gross premiums
written and net premiums written for 1992 were increased by $5.6
million and reduced by $6.5 million, respectively, for additional
premiums to reinstate catastrophe reinsurance protections subsequent
to Hurricane Andrew. Excluding these reinstatement premiums, gross
premiums written and net premiums written for 1993 increased by 12%
and 16%, respectively, compared with 1992. The increase in premium
volume was attributable principally to new and increased
participations in treaty business. Much of the growth resulted from
targeted market segments such as nonstandard auto, a line of business
that experienced a 73% increase in net premiums written in 1993 to $38
million, or 16% of the total net volume. Offsetting a portion of the
Company's premium growth was a continued withdrawal from certain
property and casualty lines of business where the Company believes
rates and/or conditions are inadequate. In general, a weak pricing
environment persisted throughout 1993, with the exception of
catastrophe-exposed risks and some specialized lines of business.
Net losses and loss expenses incurred decreased 3% in 1993 to
$156.3 million from $160.5 million in 1992. The loss ratio was 66.2%
for 1993 as compared with 83.6% for 1992. During 1993 the Company
incurred $13.7 million of net losses ($19.1 million of gross losses)
resulting from property catastrophe events, primarily the World Trade
Center bombing, the East Coast blizzard, the Midwest floods and the
California fires, which adversely affected the loss ratio by 5.8
points. During 1992 the Company incurred $50.9 million of net losses
($162.6 million of gross losses) resulting from property catastrophe
events, primarily Hurricanes Andrew and Iniki and the Los Angeles
riots, which added 28.4 points to the loss ratio. Of these amounts,
Hurricane Andrew accounted for $37.9 million of net incurred losses
and $137.1 million of gross incurred losses.
During 1993 and 1992, the Company ceded $88.9 million and $90.8
million of earned premiums, respectively. The Company recovered from
retrocessionnaires $57.3 million and $177.1 million of losses during
1993 and 1992, respectively. Ceded premiums in 1992 included $12.1
million of reinstatement premiums paid by the Company. Ceded losses
in 1992 included $111.7 million of losses resulting from property
catastrophe events.
Commission expenses increased 10% to $61.3 million in 1993 from
$56.0 million in 1992. The commission ratio was 26.0% for 1993,
compared with 29.1% for 1992. The decrease in the commission ratio
for 1993 is primarily attributable to the current mix of business, on
which the commission rate for certain new business is lower than the
commission rate on canceled property pro rata treaties and the effect
of net reinstatement premiums related to Hurricane Andrew, which added
approximately one point to the 1992 commission ratio.
Underwriting, administration and other expenses increased 8% in
1993 to $30.5 million from $28.3 million in 1992. The underwriting,
administration and other expense ratio was 12.9% for 1993 as compared
42<PAGE>
with 14.7% for 1992. The effect of net reinstatement premiums related
to Hurricane Andrew added 0.5 points to the 1992 ratio. The increase
in underwriting, administration and other expenses in 1993 was
principally related to compensation expenses, the majority of which
was an increase in costs associated with the Company's retirement
plans. In addition, as discussed in Note 3 to the Company's
Consolidated Financial Statements, the Company has made various
acquisitions. The pre-tax effect on operations from recent
acquisitions, including the amortization of goodwill and acquired
licenses, was a charge of $2.6 million in 1993 compared with a charge
of $1.8 million in 1992. The operations of the acquired companies are
not expected to have a material effect on the Company's liquidity or
results of operations.
The combined ratio was 105.1% for 1993, compared with 127.4% for
1992. The effect of property catastrophe events on the 1993 and 1992
combined ratio was 5.8 points and 29.8 points, respectively.
Net investment income for 1993 decreased 2% to $42.0 million from
$42.9 million for 1992. Net investment income (pre-tax) has been
affected adversely by: 1) the high level of claim payments made over
the past eighteen months related to catastrophic events; 2) the
Company's managed shift toward a greater percentage of tax-exempt
securities; and 3) the general decline in interest rates over the past
several quarters which has had an adverse effect on available yields
for new and reinvested funds. Offsetting the above factors was an
increase in investment income related to the investment of the
proceeds from the Debentures in March 1993. On an after-tax basis net
investment income was $32.2 million for 1993, virtually unchanged from
1992. Net realized investment gains for 1993 were $12.9 million,
compared with $15.0 million for 1992.
Interest expense increased 75% to $8.0 million in 1993 from
$4.6 million in 1992. The increase was due to $3.5 million of
interest expense recognized on the Debentures.
As a result of the Company's implementation, as of January 1,
1993, of EITF 93-6, $2.6 million (after an income tax benefit of $1.4
million), or $0.14 per share, is included as a reduction to 1993
income for the cumulative effect of this accounting change.
Net income for 1993 increased 249% to $25.3 million, or $1.38 per
share, on a primary basis, compared with $7.2 million, or $0.40 per
share, for 1992. Net income for 1993 on a fully diluted basis was
$1.33 per share, compared with $0.40 per share for 1992. The 1993
results were affected by after-tax charges to operations, net of
reinsurance, of $8.9 million, or $0.48 per share ($0.43 per share on a
fully diluted basis) for property catastrophe events. The 1992
results were affected by after-tax charges to operations, net of
reinsurance, of $37.9 million, or $2.08 per share (on a primary and
fully diluted basis) for property catastrophe events. Average common
and common equivalent shares outstanding (on a primary basis) for 1993
were 18.4 million, compared with 18.3 million for 1992.
INCOME TAXES
SCOR U.S.'s Federal income tax provision (benefit) was
($11.3 million), $7.0 million and ($3.8 million) for the years ended
43<PAGE>
December 31, 1994, 1993 and 1992, respectively. Although the
Company's income from operations before Federal income taxes and
cumulative effect of accounting changes was $630,000 for 1992, a net
operating loss for tax purposes resulted after the elimination of tax-
exempt investment income. A reconciliation between income taxes
computed at the statutory rate and SCOR U.S.'s provisions for income
taxes for the years ended December 31, 1994, 1993 and 1992, is
included in Note 9 to SCOR U.S.'s Consolidated Financial Statements.
The Omnibus Budget Reconciliation Act of 1993 (the "Act") was
signed into law in August 1993. The Act provided for an increase in
the corporate tax rate to 35% from the previous 34% rate. As a result
of the revaluation of the Company's net deferred tax assets to reflect
the change in tax rates, the Company recognized a net benefit of
$472,000, or $.03 per share, in 1993. This benefit is included in the
provision for Federal income taxes attributable to income from
operations. In addition, as a result of the new tax rate, it is
likely that the Company will pay taxes at a higher effective rate in
future years to the extent that the Company generates taxable
earnings.
GAAP requires the establishment of a valuation allowance for
deferred income tax benefits where it is more likely than not that
some portion of the deferred income tax benefits will not be realized.
Management believes, based on the Company's historical record of
generating taxable income and its expectations of future earnings,
that the Company's taxable income in future years will be sufficient
to realize the net deferred income tax benefits reflected on its
consolidated balance sheet as of December 31, 1994. In addition,
management believes certain tax planning strategies exist, including
its ability to alter the mix of its investment portfolio to taxable
investments from tax-exempt investments, which could be implemented if
necessary to ensure sufficient taxable income to realize fully its net
deferred income tax benefits. Management also believes that the
Company's net deferred income tax benefits related to unrealized
depreciation of fixed maturity investments is recoverable through its
ability to hold these investments to maturity. Accordingly, SCOR U.S.
has not established a valuation allowance with respect to its net
deferred income tax benefits.
ECONOMIC ENVIRONMENT
The Company's commercial paper bears interest at short-term rates
in effect at each respective issuance date. To the extent interest
rates increased during 1994, interest expense has been affected
adversely. In addition, prices of fixed maturity investments
generally decline as market interest rates increase. Accordingly, the
fair value of the Company's fixed maturity portfolio holdings has
decreased during the recent period of increasing interest rates. SCOR
U.S. also pursues an investment strategy that tends to mitigate
interest rate risk by establishing a maturity distribution profile of
fixed maturity investments sufficient to fund loss and loss expense
obligations when they become due. In addition, management believes
that SCOR U.S. and its operating companies pursue a conservative
investment strategy which avoids significant exposure to credit risk.
44<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
SCOR U.S. is a holding company. Its principal sources of cash
are cash dividends from its operating subsidiaries, borrowings, and
the issuance of equity securities. Generally, dividends that can be
paid by insurers domiciled in New York State, without prior approval
of the New York Insurance Superintendent, are limited for any twelve-
month period to the lesser of 10% of statutory surplus or adjusted net
investment income (as defined by New York Insurance Law) for the
previous twelve months. During the year ending December 31, 1994,
$11.9 million of dividends were declared to SCOR U.S. At December 31,
1994, the aggregate statutory surplus of the SCOR U.S. operating
subsidiaries was $243.4 million. Based on the statutory surplus of
the Company's operating subsidiaries at December 31, 1994,
$24.3 million is available for dividends to SCOR U.S. during 1995.
On March 29, 1993, SCOR U.S. sold at par $86.25 million of 5.25%
Convertible Subordinated Debentures due April 1, 2000 through a
private offering. The Debentures are not redeemable by the Company
prior to April 3, 1996 and are convertible into approximately 3.4
million shares of SCOR U.S. common stock at a conversion price of
$25.375 per share. Expenses incurred in the offering of approximately
$1.8 million were deferred and are being amortized over the life of
the Debentures. The Company contributed $50 million of the net
proceeds to SCOR Re.
During 1994 the Company repurchased in the open market $3.9
million in principal amount of the Debentures and recognized an
extraordinary gain of $351,000, or $0.02 per share, net of tax. These
purchases were executed under a $10 million program authorized by the
Board of Directors. In January 1995, the Company repurchased an
additional $6.0 million in principal amount of the Debentures under
this authorization. Funding for the aggregate amount of repurchased
Debentures, all of which settled in January 1995, was achieved through
the issuance of the Company's commercial paper.
In January 1995, the Board of Directors authorized the Company to
repurchase up to an additional $20 million of Debentures in the open
market, as market conditions permit. In connection with this
additional authorization, SCOR U.S. has established a $20 million
credit agreement with SCOR S.A. the proceeds of which are restricted
to the repurchase of the Debentures or the repayment of any debt
incurred to repurchase Debentures.
On October 1, 1990 SCOR U.S. renewed a $20.0 million note which
was payable on that date. The new note is due and payable on
October 3, 1995 and bears interest at a fixed annual rate of 9.575%.
The Company has entered into an interest rate swap agreement related
to this note with a commercial bank. The swap agreement has a
maturity date of October 1, 1995 and provides for the Company to make
floating rate payments in exchange for fixed rate payments due on the
loan. The floating rate, which resets every six months and is capped
at 12.380%, was 11.068% as of December 31, 1994. The Company most
likely will refinance this debt when due and is currently exploring
various options.
45<PAGE>
SCOR U.S. has established a commercial paper program which allows
it to raise up to $50.0 million. At December 31, 1994, $11.3 million
of commercial paper was outstanding.
SCOR U.S. has a $30.0 million revolving line of credit with a
bank which serves as a backstop for its commercial paper program. No
borrowings have been made under this facility.
At December 31, 1994, the amount remaining under the Company's
existing stock repurchase program is approximately $1.4 million, which
may be utilized as market conditions permit. During 1993, the Company
repurchased 40,800 shares of its common stock for an aggregate cost of
$616,000. The Company did not repurchase any shares under this
program during 1994.
The primary sources of liquidity for the SCOR U.S. insurance and
reinsurance subsidiaries are net cash flow from operating activities,
the maturity or sale of investments, and capital contributions from
SCOR U.S. Net cash provided by operating activities was $1.3 million
for 1994 compared with $27.8 million for 1993. Cash flow from
operating activities during 1994 was adversely affected by continued
property catastrophe paid loss activity as well as the payment of
several large previously reserved casualty claims. The Company has
not suffered any adverse effect in the timing of recoveries or credit
worthiness of retrocessionnaires due to the recent catastrophe
activity . Loss payments associated with the recent catastrophe
activity are not expected to have an adverse material effect on the
Company's short-term or long-term liquidity.
During 1994 and 1993, the Company incurred $4.1 million and $9.4
million, respectively, of capital expenditures, which primarily
related to the development of information systems. At December 31,
1994, the Company had no significant commitments for capital
expenditures.
Effective January 1, 1991, SCOR Re and certain of the Company's
other operating subsidiaries operate under a reinsurance pooling
agreement pursuant to which the net amounts under all new and renewal
business written by each such company are pooled. The net balances of
the pool are then distributed to each company in accordance with
established proportions.
At December 31, 1994, total investments and cash at carrying
value were $677.6 million compared with $733.8 million at December 31,
1993. The decreased level of investments and cash is primarily
attributable to the $58.9 million decrease in fair value of
investments carried at fair value during the year. SCOR U.S.'s fixed
maturity investments are substantially all investment grade, liquid
securities with a weighted average maturity of 5.8 years.
Approximately 99% of the fixed maturity portfolio is rated A or
better. SCOR U.S. does not have any investment in real estate or high
yield bonds. At December 31, 1994, the Company did not have any non
income producing investments.
SCOR U.S. believes that cash and short-term investments are
maintained at an adequate level for payment of claims and expenses as
they become due. In addition, SCOR U.S. maintains a maturity
distribution profile of fixed maturity investments sufficient to fund
46<PAGE>
anticipated loss and loss expense obligations as they become due. The
Company's long-term obligations primarily consist of the Debentures
and the claims liabilities of its principal operating subsidiaries,
which at December 31, 1994 averaged approximately 4.5 years.
The Company may be subject to gains and losses resulting from
currency fluctuations because some of its investments are denominated
in currencies other than United States dollars, as are some of its net
loss reserve liabilities. The Company makes investments denominated
in foreign currencies to mitigate, in part, the effects of currency
fluctuations on its results of operations. Investments denominated in
foreign currencies do not constitute a material portion of the
Company's investment portfolio and, in the opinion of management, are
sufficient to meet its foreign currency obligations. Net gains
(losses) resulting from foreign currency transactions during 1994,
1993 and 1992 were ($156,000), ($929,000) and $555,000, respectively.
Stockholders' equity at December 31, 1994 was $239.4 million, a
decrease of $51.3 million from December 31, 1993. This decrease
resulted primarily from the net loss of $7.8 million for the year,
unrealized depreciation of investments carried at fair value, net of
tax effect, of $38.3 million and by cash dividends declared of $6.5
million.
The ratio of net premiums written to surplus, sometimes referred
to as "insurance exposure", relates to the amount of risk to which an
insurer's statutory capital and surplus can be exposed, as measured by
the amount of premiums written in relation to such surplus. Insurance
practice and regulatory guidelines suggest that property and casualty
insurance companies maintain a net premiums written to surplus ratio
of less than 3 to 1. For the reinsurance industry, a ratio of 2 to 1
or less is generally considered prudent. SCOR U.S.'s net premiums
written to surplus ratios were .95 to 1, .87 to 1 and .97 to 1 for
1994, 1993 and 1992, respectively.
RATINGS
Upon issuance in 1993, the Debentures were assigned an A3 rating
from Moody's Investors Service Inc. ("Moody's") and were rated BBB-
Plus by Standard & Poor's Corp. ("S&P"). The Company's commercial
paper program has been rated P-1 by Moody's and A-1 by S&P since its
establishment. On November 22, 1994 S&P lowered its ratings on the
Debentures to BBB and on the commercial paper to A-2. S&P attributed
its action to the Company's volatile earnings record and reduced
surplus resulting from its past concentration in reinsuring property
risks, while acknowledging that the Company maintains a good position
in the brokered reinsurance market, a sound investment strategy and
benefits from its ownership by SCOR S.A. Moody's has not changed any
of the Company's ratings to date. Although the Company may experience
increased future borrowing costs as a result of negative ratings
changes, the Company has not experienced any significant adverse
effect subsequent to the above action.
The Company recently was notified by A.M. Best & Company, Inc.,
an independent insurance industry rating organization, that the rating
of its principal operating companies has been reduced from A+
(Superior) to A (Excellent) for reasons similar to those noted above.
47<PAGE>
REGULATORY MATTERS
The National Association of Insurance Commissioners ("NAIC"), an
organization that assists state insurance regulators in achieving
regulatory objectives, established minimum capital requirements,
referred to as risk based capital, by adopting a risk-based capital
formula for property and casualty companies in December 1993. The
risk-based capital formula is applied to statutory financial
statements beginning for the year ending December 31, 1994. The
essential elements of these requirements focus on a company's types of
business, historical loss development patterns and asset quality.
Based on the prescribed formula the statutory surplus of each of the
Company's operating subsidiaries is sufficient to meet these risk-
based capital requirements and to conduct its respective operations.
The NAIC is currently developing an Investments of Insurers Model
Act, which, if adopted by the individual states, would establish
uniform limitations upon the type and amounts of investments insurers
may hold. Based upon the current proposals of this Model Act, which
are subject to review and change, the Company does not believe a
uniform standard would significantly affect the current investment mix
or operations of its insurance and reinsurance subsidiaries.
ACCOUNTING PRONOUNCEMENTS
Effective as of December 31, 1993, the Company adopted Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. The adoption of SFAS 115 did not have
any effect on the Company's financial position or its results from
operations.
The FASB's Emerging Issues Task Force ("EITF") reached a
consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting for
Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming
Enterprises" ("EITF 93-6"). EITF 93-6 has had an impact on certain of
the Company's retrocessional agreements. As a result of the Company's
implementation of the change in accounting method, as of January 1,
1993, $2,600,000 (net of $1,400,000 tax effect), or $0.14 per share,
is included as a reduction to income as a cumulative adjustment. The
effect of this change, excluding the cumulative adjustment, for the
year ended December 31, 1993 was to increase net income by $2,600,000
or $0.14 per share.
In the first quarter of 1993, the Company adopted Statement of
Financial Accounting Standards No. 113 "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts" ("SFAS
113"). The adoption of SFAS 113 did not have a material effect on the
Company's financial position or its results from operations.
In the first quarter of 1992, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS 109"), which changed the method of accounting for income taxes.
As a result of adopting SFAS 109, the Company recognized a cumulative
benefit of the change in accounting principle of $2.4 million, or
$0.13 a share, as of January 1, 1992.
48<PAGE>
In the first quarter of 1992, the Company also changed its
accounting method for deferred policy acquisition costs to consider
anticipated investment income in evaluating the recoverability of such
costs. This new method is preferable because it is the prevalent
method used in the insurance industry. The newly adopted accounting
method also allows for a more appropriate matching of the income
statement amounts of commissions expense with the related earned
premiums and the balance sheet amounts of deferred policy acquisition
costs with the related unearned premiums. This change resulted in the
recognition of a cumulative benefit of the change in accounting
principle of $481,000 (after reduction for income taxes of $248,000),
or $0.02 per share, as of January 1, 1992.
The FASB has issued Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Post Employment Benefits" ("SFAS
112"), which is effective for 1994 financial statements. SFAS 112
establishes accounting standards for employers who provide benefits
for former or inactive employees after employment but before
retirement. SCOR U.S. provides no such applicable post retirement
benefits and therefore is not affected by SFAS 112.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See The Consolidated Financial Statements and Notes thereto and
the Schedules on pages F-1 through F-40 and S-1 through S-7 below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to "Election of Directors" in the Proxy
Statement for the 1995 Annual Meeting of Stockholders, which will be
filed with the Securities and Exchange Commission within 120 days of
the close of SCOR U.S.'s fiscal year ended December 31, 1994 ("Proxy
Statement").
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to "Compensation of Executive Officers and
Directors" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to "Security Ownership of Certain Beneficial
Owners and Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to "Certain Transactions and Relationships with
Directors and Officers" in the Proxy Statement.
49<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
The financial statements and schedules listed in the accompanying
Index to Financial Statements (Page F-1) are filed as part of this
Annual Report on Form 10-K.
The exhibits listed in the accompanying Index to Exhibits are
filed as part of this Annual Report on Form 10-K.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of
1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SCOR U.S. CORPORATION
By: Jeffrey D. Cropsey
Senior Vice President and
Chief Financial Officer
Dated: March 28, 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.
SIGNATURE TITLE DATE
Jacques P. Blondeau* Chairman of March 28, 1995
the Board of Directors
John R. Cox* Director March 28, 1995
Serge M. P. Osouf* Vice Chairman of March 28, 1995
the Board of Directors
Raymond H. Deck* Director March 28, 1995
Michael J. Gudefin* Director March 28, 1995
Jerome Karter* President and March 28, 1995
Chief Executive Officer
Richard M. Murray* Director March 28, 1995
Patrick Peugeot* Director March 28, 1995
50<PAGE>
SIGNATURE TITLE DATE
John W. Popp* Director March 28, 1995
Francois Reach* Director March 28, 1995
David J. Sherwood* Director March 28, 1995
Jeffrey D. Cropsey Sr Vice President and March 28, 1995
Chief Financial Officer
(Principal Financial Officer)
Francis J. Fenwick Vice President & Controller March 28, 1995
(Controller)
*By: John T. Andrews, Jr. Senior Vice President March 28, 1995
Attorney-in-Fact General Counsel and
Corporate Secretary
51<PAGE>
INDEX TO REPORT AND CONSOLIDATED FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS OF SCOR U.S.
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 1994 and 1993 F-3 - F-4
Consolidated Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 F-5 - F-7
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1994, 1993 and 1992 F-8 - F-9
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 F-10 - F-11
Notes to Consolidated Financial Statements F-12 - F-40
Schedules:
Schedule I -- Summary of Investments Other than Investments
in Related Parties at December 31, 1994 S-1
Schedule II -- Condensed Financial Information of Registrant
Balance Sheets at December 31, 1994 and 1993 S-2
Statements of Operations for the years ended
December 31, 1994, 1993 and 1992 S-3
Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992 S-4 - S-5
Schedule IV -- Reinsurance S-6
Schedule VI -- Supplementary Information Concerning
Property/Casualty Insurance Operations for the years
ended December 31, 1994, 1993 and 1992 S-7
F-1<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SCOR U.S. Corporation:
We have audited the consolidated balance sheets of SCOR U.S. Corporation
and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended December 31, 1994 as
listed in the accompanying index of the 1994 Annual Report on Form 10-K of
SCOR U.S. Corporation. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement
schedules as listed in the accompanying index. These consolidated
financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement 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 financial position of SCOR
U.S. Corporation and subsidiaries as of December 31, 1994 and 1993 and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
As discussed in Note 2(k) to the consolidated financial statements, in 1993
the Company adopted the provisions of the Statement of Financial Accounting
Standards ("SFAS") No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," and the provisions of SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities" and
also adopted the consensus opinion regarding the Financial Accounting
Standards Board's Emerging Issues Task Force regarding Issue No. 93-6,
"Accounting for Multiple-Year Retrospectively Related Contracts by Ceding
and Assuming Enterprises". In 1992, the Company adopted the provisions of
SFAS No. 109, "Accounting for Income Taxes", and changed its method of
accounting for deferred policy acquisitions costs.
KPMG Peat Marwick LLP
New York, New York
February 2, 1995
F-2<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
Year Ended December 31,
1994 1993
<S> <C> <C>
Assets Investments:
Fixed maturities:
Available for sale, at fair value
(amortized cost: $596,791 and $558,882) $ 563,656 $ 581,104
Held to maturity, at amortized cost
(fair value: $22,274 and $27,109) 22,871 24,876
Equity securities, at fair value
(cost: $1,897 and $15,581) 1,738 18,951
Short-term investments, at cost 83,303 90,642
Other long-term investments 1,225 1,081
------- -------
672,793 716,654
Cash 4,763 17,096
Accrued investment income 10,339 10,169
Premiums receivable 72,018 80,319
Reinsurance recoverable on paid losses
Affiliates 4,399 9,498
Other 19,356 27,329
Reinsurance recoverable on unpaid losses
Affiliates 127,096 134,154
Other 95,576 87,689
Prepaid reinsurance premiums
Affiliates 10,504 14,578
Other 8,803 11,839
Deferred policy acquisition costs 22,844 24,140
Deferred Federal income tax benefits 34,818 11,894
Investment in affiliates 11,532 10,789
Other assets 48,874 37,963
--------- ---------
$1,143,715 $1,194,111
======== =========
See notes to consolidated financial statements.
</TABLE>
F-3<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
Year Ended December 31,
1994 1993
<S> <C> <C> <C>
Liabilities Losses and loss expenses $ 604,787 $ 562,209
Unearned premiums 110,082 114,376
Funds held under reinsurance treaties
Affiliates 3,654 21,777
Other 17,104 17,825
Reinsurance balances payable
Affiliates 15,328 18,196
Other 28,357 42,037
Convertible subordinated debentures 82,350 86,250
Notes payable 20,000 20,000
Commercial paper 11,310 10,721
Other liabilities 11,348 10,031
------- -------
904,320 903,422
------- -------
Stockholders' Preferred stock, no par value, 5,000
Equity shares authorized; no shares issued -0- -0-
Common stock, $0.30 par value,
50,000 shares authorized;
18,356 and 18,299 shares issued 5,507 5,490
Additional paid-in capital 114,556 112,670
Unrealized appreciation (depreciation)
of investments, net of deferred tax effect (21,640) 16,634
Foreign currency translation adjustment (414) 12
Retained earnings 143,153 157,532
Treasury stock, at cost (192 and 190 shares) (1,767) (1,649)
--------- ---------
239,395 290,689
--------- ---------
$1,143,715 $1,194,111
========== =========
See notes to consolidated financial statements.
</TABLE>
F-4<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues Net premiums earned $228,244 $236,051 $192,050
Net investment income 40,990 42,044 42,880
Net realized investment gains 984 12,930 15,048
------- ------- -------
270,218 291,025 249,978
------- ------- -------
Losses Losses and loss expenses, net 191,270 156,292 160,545
And Commissions, net 59,434 61,324 55,960
Expenses Other underwriting and
administration expenses 26,009 26,420 23,918
Other expenses 4,039 4,073 4,346
Interest expense 8,920 8,005 4,579
------- ------- -------
289,672 256,114 249,348
------- ------- -------
Income (loss) from operations before Federal
income taxes (benefit) (19,454) 34,911 630
Federal income taxes (benefit) (11,262) 6,983 (3,771)
------- ------- -------
Income (loss) from operations (8,192) 27,928 4,401
Extraordinary gain on redemption of debentures,
net of tax 351 -0- -0-
Cumulative effect of accounting changes, net of tax -0- (2,600) 2,848
------- ------- -------
Net income (loss) $(7,841) $25,328 $7,249
======= ======= =======
See notes to consolidated financial statements.
</TABLE>
F-5<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Per Share Average common and common
Data equivalent shares outstanding 18,166 18,395 18,256
Primary ======= ======= =======
Income (loss) from operations $ (0.45) $ 1.52 $ 0.25
Extraordinary item 0.02 -0- -0-
Cumulative effect of accounting changes -0- (0.14) 0.15
------- ------- -------
Net income (loss) $ (0.43) $ 1.38 $ 0.40
======= ======= ======
Fully Average common and common
Diluted equivalent shares outstanding 18,166 20,916 18,256
======= ======= =======
Income (loss) from operations $ (0.45) $ 1.45 $ 0.25
Extraordinary item 0.02 -0- -0-
Cumulative effect of accounting changes -0- (0.12) 0.15
------- ------- -------
Net income (loss) $ (0.43) $ 1.33 $ 0.40
======= ======= =======
</TABLE>
F-6<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
1994 1993 1992
<S> <C> <C>
Pro- Pro-forma amounts assuming
forma retroactive application of the
change in the method of accounting
for multiple-year retrospectively rated
reinsurance contracts:
Income (loss) from operations $27,928 $1,801
======= ======
Income (loss) from operations per share
Primary $ 1.52 $ 0.10
======= =======
Fully diluted $ 1.45 $ 0.10
======= =======
Net income (loss) $27,928 $ 4,649
======= =======
Net income (loss) per share
Primary $ 1.52 $ 0.25
======= =======
Fully diluted $ 1.45 $ 0.25
======= =======
See notes to consolidated financial statements.
</TABLE>
F-7<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Common Stock
Balance at beginning of year $5,490 $5,453 $5,431
Issuance of common stock 17 37 22
------- ------- -------
Balance at end of year 5,507 5,490 5,453
------- ------- -------
Additional paid-in capital
Balance at beginning of year 112,670 112,068 111,361
Issuance of common stock 700 1,428 938
Change in unpaid stock options exercised
(shares of 55, 87 and 97) 1,175 (768) (346)
Deferred compensation 11 (58) 115
------- ------- -------
Balance at end of year 114,556 112,670 112,068
------- ------- -------
Unrealized appreciation (depreciation)
of investments
Balance at beginning of year 16,634 11,416 5,826
Change in unrealized appreciation (38,274) 5,218 5,590
------- ------- -------
Balance at end of year (21,640) 16,634 11,416
------- ------- -------
Foreign currency translation adjustment
Balance at beginning of year 12 254 1,646
Change in foreign currency translation adjustment (426) (242) (1,392)
------- ------- -------
Balance at end of year $ (414) $ 12 $ 254
------- ------- -------
See notes to consolidated financial statements.
</TABLE>
F-8<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except per share data)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Retained earnings
Balance at beginning of year $157,532 $138,002 $135,786
Net income (loss) (7,841) 25,328 7,249
Dividends ($.36, $.32 and $.28 per share) (6,538) (5,798) (5,033)
------- ------- -------
Balance at end of year 143,153 157,532 138,002
------- ------- -------
Treasury stock
Balance at beginning of year (1,649) (1,077) (1,305)
Net (purchases) reissuance of treasury stock (118) (572) 228
------- ------- -------
Balance at end of year (1,767) (1,649) (1,077)
------- ------- -------
Total stockholders' equity at end of year $239,395 $290,689 $266,116
======== ======== ========
Common stock shares
Balance at beginning of year 18,299 18,176 18,105
Issuance of common stock 57 123 71
------- ------- -------
Balance at end of year 18,356 18,299 18,176
======= ======= =======
Treasury stock shares
Balance at beginning of year 190 153 179
Net purchases (reissuance) of treasury stock 2 37 (26)
------- ------- -------
Balance at end of year 192 190 153
======= ======= =======
See notes to consolidated financial statements.
</TABLE>
F-9<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C> <C>
Cash flows Net income (loss) $(7,841) $25,328 $7,249
from Adjustments to reconcile net income
operating (loss) to net cash provided by (used in)
activities operating activities:
Cumulative effect of accounting
changes -0- 2,600 (2,848)
Realized investment gains (984) (12,930) (15,048)
Changes in assets and liabilities net
of effects of acquisitions:
Accrued investment income (170) 403 203
Premium balances, net (8,247) (13,732) 9,779
Prepaid reinsurance premiums 7,110 (188) (8,517)
Reinsurance recoverable on paid
losses 13,072 5,528 (23,302)
Deferred policy acquisition costs 1,296 (1,969) (5,367)
Losses and loss expenses 42,578 396 101,583
Unearned premiums (4,294) 9,552 22,010
Reinsurance recoverable on unpaid
losses (829) (1,192) (84,538)
Funds held under reinsurance
treaties (18,844) 967 7,663
Federal income taxes (11,174) 11,219 (11,769)
Other (10,403) 1,794 (5,172)
------- ------- -------
Net cash provided by (used in)
operating activities $ 1,270 $27,776 $(8,074)
------- ------- -------
See notes to consolidated financial statements.
</TABLE>
F-10<PAGE>
<TABLE>
<CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows Sales, maturities or redemptions of
from fixed maturities $246,868 $349,423 $464,094
investing Sales of equity securities 19,920 12,105 15,279
activities Net sales (purchases) of short-term
investments 9,899 (73,940) 15,181
Investments in fixed maturities (266,174) (375,024) (436,138)
Investments in equity securities (16,161) (6,999) (25,316)
Acquisitions, net of cash acquired -0- -0- (8,153)
Investment in affiliate -0- -0- (9,900)
Other (4,138) (9,422) (3,400)
-------- ------- -------
Net cash provided by (used in)
investing activities (9,786) (103,857) 11,647
------- ------- -------
Cash flows Dividends paid (6,538) (5,798) (5,033)
from Proceeds from issuance of convertible
financing subordinated debentures -0- 85,172 -0-
activities Proceeds from issuance of commercial
paper - net 30 96 10,247
Repayment of notes payable -0- (8,000) -0-
Proceeds from stock options exercised 1,533 967 364
Other 1,158 362 (17)
------- ------- -------
Net cash provided by (used in)
financing activities (3,817) 72,799 5,561
------- ------- -------
Net increase (decrease) in cash (12,333) (3,282) 9,134
Cash at beginning of year 17,096 20,378 11,244
------- ------- -------
Cash at end of year $ 4,763 $17,096 $20,378
======== ======= =======
See notes to consolidated financial statements.
</TABLE>
F-11<PAGE>
SCOR U.S. CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
SCOR U.S. Corporation ("SCOR U.S.") is a Delaware corporation
that was formed in December 1981. Prior to the offering of 4,000,000
shares to the public on September 25, 1986, SCOR U.S. was owned by
Societe Commerciale de Reassurance ("SCOR Paris"), a French
reinsurance company, and by Caisse Centrale de Reassurance ("CCR"), a
reinsurer wholly owned by the French government which also owned
approximately 30% of SCOR Paris. As a result of a corporate
reorganization completed in France in November 1989, SCOR Paris became
a wholly owned subsidiary of SCOR S.A. In December 1990, SCOR Paris
and another subsidiary of SCOR S.A., UAP Reassurances ("UAP Re") were
merged into SCOR S.A.
In June 1990, Rockleigh Management Corporation ("Rockleigh"), a
wholly owned subsidiary of UAP Re, was merged into SCOR U.S.
Rockleigh owned 100% of both The Unity Fire and General Insurance
Company ("Unity Fire") and General Security Assurance Corporation of
New York ("General Security"), each of which was a professional
reinsurance company. On January 1, 1994, General Security was merged
into SCOR Reinsurance Company ("SCOR Re"), the Company's principal
operating subsidiary.
As a result of the issuance of common shares of SCOR U.S. to UAP
Re in the Rockleigh merger, SCOR Paris' participation in SCOR U.S.
stock repurchase programs and various other purchases, as well as SCOR
Paris' purchase of CCR's shares of SCOR U.S., SCOR S.A. owned
approximately 80% of the outstanding common stock of SCOR U.S. at
December 31, 1994. The remaining 20% is held publicly and represents
3,616,864 shares of the outstanding shares of SCOR U.S. common stock.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements are presented
in conformity with generally accepted accounting principles ("GAAP").
The consolidated financial statements of SCOR U.S. Corporation and
subsidiaries (the "Company") include the accounts of SCOR U.S. and its
wholly owned subsidiaries, SCOR Re, Unity Fire, General Security
Indemnity Company ("GSIND") (formerly Southwest International
Reinsurance Company), Morgard, Inc. ("Morgard"), General Security
Insurance Company ("GSIC") (formerly The International Insurance
Company of Takoma Park, Maryland ("IIC")), SCOR Services, Inc., and
BIND, Inc., and its majority owned subsidiary, California Reinsurance
Management Corporation ("Cal Re") and its equity affiliate Commercial
Risk Partners Limited ("Commercial Risk"). The Company operates
primarily in one significant industry segment; property and casualty
reinsurance. Substantially all of the Company's gross premiums
written are assumed from domestic ceding companies. All significant
intercompany transactions have been eliminated in consolidation.
F-12<PAGE>
(b) Premium Income
Premium income is recognized as earned on a pro rata basis over
the terms of the policies. Unearned premiums are calculated primarily
on a pro rata basis on facultative business and as reported by ceding
reinsureds on treaty business.
(c) Policy Acquisition Costs
Costs applicable to the acquisition of new business, principally
commissions, are deferred when paid and expensed as the related
premiums are earned. Deferred policy acquisition costs considers
anticipated losses and loss expenses and maintenance expenses that
will be incurred as those premiums are earned. Deferred policy
acquisition costs are reviewed periodically to determine that they do
not exceed recoverable amounts after allowing for anticipated
investment income. Amortization of acquisition costs for 1994, 1993
and 1992 was $59,434,000, $61,324,000 and $55,960,000, respectively.
(d) Loss Reserves
The reserve for losses and loss expenses is based upon estimates
received from ceding reinsureds on treaty contracts, accumulation of
case estimates for losses and loss expenses on claims reported on
facultative contracts and estimates of losses and loss expenses
incurred but not reported ("IBNR") based upon the Company's
expectations of what may have been incurred. Such provisions are
necessarily based on estimates and, accordingly, there can be no
assurance that the ultimate liability will not exceed such estimates.
The reserves are reviewed continually during the year and changes in
estimates are reflected in operating results currently.
(e) Property and Equipment
Depreciation and amortization of property and equipment have been
provided principally on the straight-line method with estimated useful
lives of fifteen years for property and five to ten years for
equipment. Leasehold improvements are amortized on a straight-line
basis over the term of the corresponding lease. Depreciation and
amortization amounted to $1,651,000, $765,000 and $603,000 for the
years ended December 31, 1994, 1993 and 1992, respectively.
(f) Investments
The Company has categorized substantially all of its investments
in fixed maturities as securities "available for sale" and, in
conformity with Financial Accounting Standards Board Statement No. 115
"Accounting for Certain Investments in Debt and Equity Securities",
which was adopted December 31, 1993, carries such investments at fair
value. Fixed maturities purchased with the intent to hold to maturity
are categorized as securities "held to maturity" and are carried at
amortized cost. Equity securities are carried at fair value. Short-
term investments are carried at cost, which approximates fair value.
The Company's policy is to determine realized gains and losses on
investments sold on the specific identification method. The Company
includes unrealized gains and losses on equity securities and fixed
maturities categorized as available for sale in stockholders' equity,
F-13<PAGE>
net of any tax effect. For cash flows statement purposes, the Company
does not consider any of its investments to be cash equivalents.
(g) Earnings per Share
Primary earnings per share data are based on the weighted average
number of common shares outstanding during the period and, if
dilutive, common shares assumed to be outstanding which are issuable
under stock option plans. Fully diluted earnings per share are based
on the additional assumption that the Debentures (as defined in Note
6) are converted into common shares, if dilutive.
(h) Reclassification of Certain Amounts
Certain amounts from prior financial statements have been
reclassified to conform with current classifications.
(i) Intangibles
(1) Goodwill
The Company has classified as goodwill the cost in excess of net
assets of companies acquired in purchase transactions. Goodwill is
amortized on a straight-line basis over a period of 10 years.
Amortization charged to operations amounted to $596,000, $542,000 and
$499,000 for the years ended December 31, 1994, 1993 and 1992,
respectively.
(2) Insurance Licenses
In conjunction with its acquisition of IIC, the Company acquired
licenses for approximately $3,200,000, which are amortized on a
straight-line basis over 10 years. Amortization charged to operations
amounted to $317,000 and $343,000 for the years ended December 31,
1994 and 1993, respectively. No amount was charged to operations for
1992.
(j) Foreign Currency Transactions
Revenues and expenses denominated in foreign currencies are
translated at the rate of exchange at the transaction date. Assets and
liabilities denominated in foreign currencies are translated at the
rate of exchange at the end of a reporting period. Gains or losses
resulting from foreign currency transactions are included in the
Company's results from operations.
Net gains (losses) resulting from foreign currency transactions
during 1994, 1993 and 1992 were $(156,000), $(929,000) and $555,000,
respectively.
(k) Accounting Changes
In the first quarter of 1993, the Company adopted Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 113 "Accounting and Reporting for Reinsurance of Short-
Duration and Long-Duration Contracts" ("SFAS 113"). The adoption of
SFAS 113 did not have a material effect on the Company's financial
position or its results from operations.
F-14<PAGE>
The FASB's Emerging Issues Task Force ("EITF") reached a
consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting for
Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming
Enterprises" ("EITF 93-6"). EITF 93-6 had an impact on certain of the
Company's retrocessional agreements. As a result of the Company's
implementation of the change in accounting method, as of January 1,
1993, a charge of $2,600,000 (after an income tax benefit of
$1,400,000), or $0.14 per share, is included as a reduction to income
as a cumulative adjustment. The effect of this change, excluding the
cumulative adjustment, for the year ended December 31, 1993 was to
increase net income by $2,600,000, or $0.14 per share.
The pro-forma amounts shown in the statements of operations have
been adjusted for the effect of retroactive application of the
adoption of EITF 93-6, net of related income taxes.
Effective as of December 31, 1993, SCOR U.S. adopted Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
addresses the accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. The adoption of SFAS 115 did not have
any effect on the Company's financial position or its results of
operations.
During 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"), which changes the method of accounting for income taxes under
GAAP. As a result of adopting SFAS 109, the Company recognized a
cumulative benefit of the change in accounting principle of
$2,367,000, or $0.13 per share, as of January 1, 1992. The effect of
this change, excluding the cumulative benefit, for the year ended
December 31, 1992 was to decrease net income by $480,000.
During 1992, the Company also changed its accounting method for
deferred policy acquisition costs to consider anticipated investment
income in evaluating the recoverability of such costs. This new
method is preferable because it is the prevalent method used in the
insurance industry. The newly adopted accounting method also allows
for a more appropriate matching of the income statement amounts of
commissions expense with the related earned premiums and the balance
sheet amounts of deferred policy acquisition costs with the related
unearned premiums. This change resulted in the recognition of a
cumulative benefit of the change in accounting principle of $481,000
(after reduction for income taxes of $248,000), or $0.02 per share, as
of January 1, 1992. This change had no effect on net income,
excluding the cumulative benefit, for the year ended December 31,
1992.
(3) ACQUISITIONS
(a) Purchase of Morgard
On March 10, 1992, SCOR U.S. acquired 100% of the stock of
Morgard, a developer, marketer and administrator of an insurance
product that indemnifies monthly mortgage payments after involuntary
unemployment. The purchase price was approximately $2,549,000 and the
transaction was accounted for using the purchase method of accounting
F-15<PAGE>
and, accordingly, Morgard's purchased assets and liabilities have been
recorded at their estimated fair values at the date of acquisition.
The acquisition did not have a material pro forma impact on
operations. In March 1994, the Company issued 31,500 shares of its
common stock at an approximate market value of $360,000 as additional
consideration pursuant to the Morgard purchase agreements.
(b) Investment in Commercial Risk
During January 1992, SCOR U.S. acquired 19.8% of the stock of
Commercial Risk, a Bermuda holding company for two insurance
subsidiaries engaged in writing shared-risk products. The majority
shareholder of Commercial Risk is SCOR S.A. The purchase price was
approximately $9,900,000, which included equity and debt. As a result
of a recapitalization of Commercial Risk in 1994, all of SCOR U.S.'s
investment was converted to equity, with SCOR U.S. owning
approximately 13% of Commercial Risk. The investment in Commercial
Risk is accounted for using the equity method of accounting and,
accordingly, the accompanying consolidated financial statements
reflect the Company's proportionate share of Commercial Risk's
stockholders' equity and operating income. SCOR U.S. accounts for its
proportionate share of Commercial Risk's income in its statements of
operations under the caption "other expenses (income)". Income (loss)
from Commercial Risk amounted to $743,000, $678,000 and ($110,000) in
1994, 1993 and 1992, respectively.
(c) Purchase of The International Insurance Company of Takoma Park,
Maryland
On December 4, 1992, SCOR U.S. acquired 100% of the stock of IIC.
The purchase price was approximately $8,200,000 and the transaction
was accounted for using the purchase method of accounting and,
accordingly, IIC's purchased assets and liabilities have been recorded
at their estimated fair values at the date of acquisition. The
acquisition did not have a material pro forma impact on operations.
During 1993, IIC's name was changed to GSIC.
(4) REINSURANCE
SCOR U.S.'s operating subsidiaries assume reinsurance from SCOR
S.A. and other affiliated companies primarily on a quota share or
surplus share basis. Written premiums assumed from these companies
(and the percentage of gross written premiums) were approximately
$7,845,000 (2.6%), $8,375,000 (2.5%) and $6,699,000 (2.2%) for the
years ended December 31, 1994, 1993 and 1992, respectively. Of these
amounts, approximately $6,959,000, $7,925,000 and $6,278,000 for 1994,
1993 and 1992, respectively, were assumed from SCOR S.A.
SCOR U.S.'s operating subsidiaries also retrocede reinsurance to
SCOR S.A. and other affiliated companies, primarily on a quota share
or surplus share basis.
F-16<PAGE>
The effects of ceded reinsurance on the Statement of Operations
for the years ended December 31, 1994, 1993 and 1992 are as follows:
Loss
and Loss
Premiums Premiums Expenses
Written Earned Incurred
(in thousands)
December 31, 1994
Direct $13,667 $13,927 $ 9,554
Assumed 293,125 297,159 260,073
Ceded - affiliate (35,644) (39,718) (37,651)
Ceded - other (40,088) (43,124) (40,706)
------- ------- -------
Net $231,060 $228,244 $191,270
======= ======= =======
December 31, 1993
Direct $ 11,972 $ 8,677 $ 6,944
Assumed 322,547 316,292 206,603
Ceded - affiliate (51,453) (49,778) (37,986)
Ceded - other (37,653) (39,140) (19,269)
-------- ------- --------
Net $245,413 $236,051 $156,292
======== ======== ========
December 31, 1992
Direct $ 4,922 $ 2,682 $ 1,645
Assumed 299,906 280,136 335,954
Ceded - affiliate (43,523) (39,134) (59,473)
Ceded - other (55,762) (51,634) (117,581)
-------- -------- --------
Net $205,543 $192,050 $160,545
======== ======== ========
For the years ended December 31, 1994, 1993 and 1992 the
percentage of assumed premiums written to net premiums written was
126.9%, 131.4% and 145.9%, respectively.
Reinsurance does not discharge or diminish the primary liability
to insureds of the Company on risks reinsured; however, it does permit
the Company to recover the applicable portion of any loss from its
retrocessionaires. Retrocessionaires of SCOR U.S. are subject to an
initial review of financial condition before final acceptability is
confirmed and subsequent reviews on an annual basis. The Company, like
most reinsurance companies, enters into retrocession arrangements for
many of the same reasons primary insurers seek reinsurance, including
increasing their premium writing and risk capacity without requiring
additional capital and reducing the effect of individual or aggregate
losses. Historically, SCOR Re has retroceded risks to retro-
cessionaires on both a proportional and excess of loss basis. Under
its 1994 retrocessional program, SCOR Re retained a maximum of $2.0
million as to any one ceding company program for treaty business and a
F-17<PAGE>
maximum of $3.3 million and $1.1 million per risk for facultative
property and facultative casualty business, respectively.
Paid losses, outstanding losses and IBNR recoverable from
retrocessionaires which are determined to be uncollectible are charged
to operations. There were no such amounts charged to operations for
the years ended December 31, 1994, 1993 and 1992.
Pursuant to a Net Aggregate Excess of Loss Retrocessional
Agreement dated as of July 1, 1986 ("the 1986 Retrocessional
Agreement"), SCOR S.A. reinsured SCOR Re for adverse loss development
from pre-1986 business that exceeded the total of loss reserves
established as of June 30, 1986, and premiums earned after June 30,
1986, from such pre-1986 business. The 1986 Retrocessional Agreement
provided protection to the Company for business underwritten by SCOR
Re only and did not provide coverage for pre-1986 business
underwritten by any other subsidiary. However, business underwritten
by General Security and Unity Fire is protected against adverse
development by a separate net aggregate excess of loss retrocessional
agreement, as described below. The 1986 Retrocessional Agreement
terminated on December 31, 1993, at which time SCOR S.A.'s liability
to SCOR Re was $16,224,000. This amount is the actuarially determined
expected ultimate loss from the pre-1986 business in excess of the
"aggregate deductible" (which is defined as the total of net
outstanding loss and loss expense reserves, net incurred but not
reported loss reserves and net unearned premium reserves established
as of June 30, 1986 for the pre-1986 business, plus all net premiums
and future net premium adjustments earned after June 30, 1986 under
retrospectively rated treaties for such business). During the first
quarter of 1994, SCOR Re received $16,224,000 from SCOR S.A. in
settlement of its liability under this agreement.
SCOR Re and SCOR S.A. entered into a new Net Aggregate Excess of
Loss Agreement ("the 1994 Retrocessional Agreement") effective January
1, 1994, which protects the same business covered under the 1986
Retrocessional Agreement. Under this Agreement, SCOR Re is
responsible for any further adverse development up to $8,800,000, at
which point the 1994 Retrocessional Agreement attaches and provides
coverage for up to $10,000,000 of any additional adverse development.
SCOR Re paid a premium of $2,000,000 for this coverage, which expires
on December 31, 2004. At December 31, 1994, no recovery was recog-
nized under this agreement. In addition, based on the experience of
the 1994 Retrocessional Agreement, SCOR Re is eligible to receive a
contingent commission of up to 27.75% of the premium.
SCOR S.A. entered into a Net Aggregate Excess of Loss
Retrocessional Agreement ("the 1990 Retrocessional Agreement") with
each of Unity Fire and General Security, pursuant to which SCOR S.A.
agreed to reinsure those companies to the extent that their net
ultimate incurred losses (as defined in the agreements) arising in
1989 and prior accident years exceed an aggregate deductible. As a
result of the January 1, 1991 assumption by General Security of the
rights, liabilities and obligations of Unity Fire, the Net Aggregate
Excess of Loss Retrocessional Agreement with Unity Fire was terminated
and the Net Aggregate Excess of Loss Retrocessional Agreement with
General Security was amended (as so amended, the "Agreement") to
include the protection formerly provided to Unity Fire by its
retrocessional agreement with SCOR S.A. As a result of the merger of
F-18<PAGE>
General Security into SCOR Re, the protection under the Agreement is
now for the benefit of SCOR Re. The aggregate deductible is defined
as the sum of net outstanding loss and loss expense reserves and net
incurred but not reported loss reserves as of December 31, 1989, for
1989 and prior accident years, as documented in the 1989 statutory
financial statements of Unity Fire and General Security. This amount
has been established at a combined aggregate of $93,830,000. The
annual premium for this protection is $210,000 through 2004. The
Agreement continues in force until all covered losses are settled. At
December 31, 1994, SCOR S.A.'s estimated liability under the Agreement
was approximately $11,700,000.
SCOR S.A. provides letters of credit in amounts equal to its
estimated liability under its reinsurance agreements (as reestimated
on a quarterly basis). The amount of letters of credit provided by
SCOR S.A. at December 31, 1994 was approximately $134,500,000.
The amounts recoverable under the Net Aggregate Excess of Loss
Retrocessional Agreements are included in "Retrocessions to
Affiliates" above and have the effect of reducing the Company's net
losses and loss expenses incurred.
The Company withholds funds from retrocessionaires in accordance
with the retrocessional agreements. Under the terms of the
agreements, the Company pays interest on the principal sums of amounts
withheld at annual rates of 6% to 7.5% computed and rendered
quarterly. The Company incurred interest expense (income) of
$1,882,000, $2,191,000 and $1,755,000 in 1994, 1993 and 1992,
respectively, of which $(2,000), $1,161,000 and $1,003,000,
respectively, relates to SCOR S.A.
(5) INVESTMENTS
Net investment income of the Company, comprised primarily of
interest and dividends, was derived from the following sources:
Year Ended December 31,
1994 1993 1992
(in thousands)
Fixed maturities $38,555 $39,859 $41,736
Equity securities 776 999 1,036
Short-term investments 2,855 2,120 1,485
Other 175 428 196
------- ------- -------
42,361 43,406 44,453
Investment expense (1,371) (1,362) (1,573)
------ ------- -------
Net investment income $40,990 $42,044 $42,880
======= ======= =======
F-19<PAGE>
Net realized investment gains (losses) of the Company were
derived from the following sources:
Year Ended December 31,
1994 1993 1992
(in thousands)
Net realized investment gains (losses):
Fixed maturities $ (814) $10,921 $13,245
Equity securities 1,497 1,791 1,642
Other 301 218 161
----- ------- -------
$ 984 $12,930 $15,048
======= ======= =======
Proceeds from sales of available for sale securities during 1994,
1993 and 1992 were $260,902,000, $358,168,000 and $480,864,000,
respectively. Gross gains of $7,162,000, $14,722,000 and $19,212,000,
and gross losses of $6,479,000, $2,016,000 and $4,325,000 during 1994,
1993 and 1992, respectively, were realized on those sales.
The changes in net unrealized gains (losses) on investments of
the Company (including unrealized gains and losses on fixed maturities
held to maturity that are not reflected in stockholders' equity) are
derived from the following sources:
Year Ended December 31,
1994 1993 1992
(in thousands)
Decrease during period
in difference between fair value
and cost of investments in equity
securities $(3,529) $(722) $(651)
Deferred income tax benefit 1,235 212 221
------- ------- -------
Decrease in net unrealized
losses on equity securities (2,294) (510) (430)
------- ------- -------
Increase (decrease) during period
in difference between fair value
and cost of investments in fixed
maturities (58,187) 9,758 (15,165)
Deferred income tax benefit (expense) 20,365 (3,562) 5,156
------- ------- -------
Increase (decrease) in net
unrealized gains (losses)
on fixed maturities (1) (37,822) 6,196 (10,009)
------- ------- -------
Total increase (decrease) in
net unrealized gains (losses)
on equity securities and
fixed maturities $(40,116) $ 5,686 $(10,439)
======= ======= ========
(1) Includes changes in net unrealized gains (losses) of
($55,357,000), $9,017,000 and $9,118,000, and deferred tax expense
(benefit) of ($19,377,000), $3,288,000 and $3,100,000 on fixed
maturities carried at market value for 1994, 1993 and 1992,
respectively, which is reflected in stockholders' equity.
F-20<PAGE>
At December 31, 1994 and 1993, approximately $22,871,000 and
$24,876,000, respectively, of bonds carried at amortized cost were on
deposit with various regulatory authorities as required by law.
The following table presents gross unrealized gains and losses
and the related deferred taxes on equity securities and fixed
maturities carried at fair value.
Year Ended December 31,
1994 1993
(in thousands)
Equity securities:
Gross unrealized gains $251 $3,987
Gross unrealized losses (410) (617)
----- -------
Net unrealized gains (losses) (159) 3,370
----- -------
Fixed maturities, at fair value:
Gross unrealized gains 1,112 25,937
Gross unrealized losses (34,247) (3,715)
------- -------
Net unrealized gains (losses) (33,135) 22,222
------- -------
Total net unrealized gains (losses) (33,294) 25,592
Deferred tax asset (liability) 11,654 (8,958)
------- -------
Unrealized appreciation
(depreciation) of investments $(21,640) $16,634
======== =======
The amortized cost and estimated fair values of investments by major
security type at December 31, 1994 and 1993 are as follows:
F-21<PAGE>
Held to Maturity
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $14,199 $53 $(824) $13,428
Debt securities issued
by foreign governments 8,672 226 (52) 8,846
Total fixed maturities
held to maturity $22,871 $279 $(876) $22,274
======== ======= ======== ========
Available for Sale
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $96,097 $272 $(4,556) $91,813
Obligations of
states and political
subdivisions 254,196 135 (12,549) 241,782
Debt securities issued
by foreign governments 5,992 77 (106) 5,963
Corporate securities 114,321 474 (6,363) 108,432
Mortgage-backed
securities 91,439 148 (7,875) 83,712
Redeemable preferred
stocks 34,746 6 (2,798) 31,954
------- ------- ------- -------
Total fixed maturities
available for sale 596,791 1,112 (34,247) 563,656
Equity securities 1,897 251 (410) 1,738
------- ------- ------- -------
Total investments
carried at fair value $598,688 $1,363 $(34,657) $565,394
======= ======= ======= ========
F-22<PAGE>
Held to Maturity
December 31, 1993
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $15,792 $ 976 $ (6) $ 16,762
Obligations of
states and political
subdivisions 499 21 -0- 520
Debt securities issued
by foreign governments 8,459 1,242 -0- 9,701
Corporate securities 126 -0- -0- 126
------- ------- ------- -------
Total fixed maturities
held to maturity $ 24,876 $ 2,239 $ (6) $ 27,109
======== ======= ======= ========
Available for Sale
December 31, 1993
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government corpor-
ations and agencies $ 64,362 $ 3,780 $ (2,035) $ 66,107
Obligations of
states and political
subdivisions 265,111 12,677 (396) 277,392
Debt securities issued
by foreign governments 3,985 503 -0- 4,488
Corporate securities 132,494 7,243 (538) 139,199
Mortgage-backed
securities 59,353 1,116 (457) 60,012
Redeemable preferred
stocks 33,577 618 (289) 33,906
------- ------- ------- -------
Total fixed maturities
available for sale 558,882 25,937 (3,715) 581,104
Equity securities 15,581 3,987 (617) 18,951
------- ------- ------- -------
Total investments
carried at fair value $574,463 $ 29,924 $(4,332) $600,055
======== ======== ======== ========
F-23<PAGE>
The amortized cost and estimated fair value of fixed maturities at
December 31, 1994, by contractual maturity, are shown below (expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties):
Available for Sale Held to Maturity
----------------- -----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
(in thousands)
Due in one year or less $13,212 $13,126 $228 $222
Due after one year - five years 136,872 133,061 10,461 10,521
Due after five year - ten years 302,681 284,758 12,022 11,392
Due after ten years 17,841 17,045 160 139
------- ------- ------- -------
470,606 447,990 22,871 22,274
Mortgage-backed securities 91,439 83,712 -0- -0-
Redeemable preferred stocks 34,746 31,954 -0- -0-
------- ------- ------- -------
Total $596,791 $563,656 $22,871 $22,274
======== ======= ======== ========
(6) NOTES PAYABLE AND CREDIT ARRANGEMENTS
On March 29, 1993, SCOR U.S. sold at par $86,250,000 of 5.25%
Convertible Subordinated Debentures due April 1, 2000 ("Debentures")
through a private offering. The Debentures are not redeemable by the
Company prior to April 3, 1996 and are convertible into approximately
3.4 million shares of SCOR U.S. common stock at a conversion price of
$25.375 per share. Expenses incurred in the offering of approximately
$1,800,000 were deferred and are being amortized over the life of the
Debentures. The Company contributed $50,000,000 of the net proceeds
to SCOR Re. Interest expense incurred on the Debentures during 1994
and 1993 was $4,465,000 and $3,484,000, respectively.
On October 1, 1990 SCOR U.S. renewed a $20,000,000 note which was
payable on that date. The new note is due and payable on October 3,
1995 and bears interest at a fixed annual rate of 9.575%. On March
12, 1993, the Company entered into an intermediate-term interest rate
swap agreement with a commercial bank related to this note. The swap
agreement has a maturity date of October 1, 1995 and provides for the
Company to make floating rate payments in exchange for fixed rate
payments due on the loan. The floating rate, which is reset every six
months and is capped at 12.375%, was 11.068% as of December 31, 1994,
and 8.693% as of December 31, 1993. In addition, SCOR U.S. had an
$8,000,000 note at market interest rates which was repaid on May 10,
1993. Interest expense incurred for these notes, including the effect
of the interest rate swap, during 1994, 1993 and 1992 was $2,072,000,
$1,953,000 and $2,261,000, respectively.
In 1990, SCOR U.S. established a commercial paper program that
allows the Company to raise up to $50,000,000. The weighted average
interest rate of commercial paper outstanding at December 31, 1994 was
6.29%. The maximum outstanding at any month end during 1994 was
F-24<PAGE>
$11,310,000, and the average outstanding during 1994 was $10,269,000.
The weighted average interest rate during 1994 was 5.68%. Interest
expense incurred on commercial paper during 1994, 1993 and 1992 was
approximately $501,000, $378,000, $450,000, respectively.
Interest paid including interest paid on reinsurance funds
withheld, during 1994, 1993 and 1992 was $8,647,000, $6,928,000 and
$4,250,000, respectively.
(7) RETIREMENT OF DEBENTURES
During 1994 the Company repurchased in the open market $3.9
million in principal amount of the Debentures and recognized an
extraordinary gain of $351,000 (after deduction for income taxes of
$189,000), or $0.02 per share. Funding for the repurchased Debentures
which settled in January 1995, was achieved through the issuance of
the Company's commercial paper.
(8) FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk
On March 12, 1993, the Company entered into an interest rate swap
agreement to effectively convert underlying fixed-rate debt into
variable-rate debt based on LIBOR (See Note 6). The notional
principal amount of this agreement, which matures in October 1995, is
$20,000,000. The Company has entered into this agreement with a
creditworthy international financial institution and considers the
risk of nonperformance to be remote. The Company is exposed to market
risk due to the possibility of exchanging a lower interest rate for a
higher interest rate. The net interest effect of this swap
transaction is reported as an adjustment of interest income as
incurred.
Concentration of Credit Risk
At December 31, 1994 the Company did not have a material
concentration of financial instruments in any single investee,
industry or geographic location. All of the Company's investments in
fixed maturities are investment grade securities and virtually all are
rated A or better.
The Company's client base and their dispersion throughout the
United States limits the concentration of credit risk on amounts due
from clients.
At December 31, 1994, the Company had no significant
concentrations of credit risk.
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company to
estimate the fair value disclosures for its assets and liabilities as
of December 31, 1994 and 1993:
Fixed maturities and equity securities: Fair values are based on
quoted market prices or dealer quotes. If a quoted market price is
F-25<PAGE>
not available, fair value is estimated using quoted market prices for
similar securities.
Cash and short-term investments: The carrying amount is a reasonable
estimate of fair value.
Convertible subordinated debentures: Fair value is based on the
prevailing market bid.
Notes payable: Fair value is based on the discounted amount of future
cash flows using the Company's current estimated borrowing rate for a
similar liability.
Commercial paper: The carrying amount is a reasonable estimate of fair
value due to the short-term variable market rate nature of this
liability.
Interest rate swap: Fair value is based on the estimated amount that
the Company would pay or (receive) to terminate the swap agreement at
the reporting date, taking into account current interest rates and
current creditworthiness of the counterparty.
The estimated fair values of the Company's financial instruments are
as follows:
December 31,
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
Assets
Fixed maturities at fair value $563,656 $563,656 $581,104 $581,104
Fixed maturities at
amortized cost 22,871 22,274 24,876 27,109
Equity securities 1,738 1,738 18,951 18,951
Short-term investments 83,303 83,303 90,642 90,642
Cash 4,763 4,763 17,096 17,096
Liabilities
Convertible subordinated
debentures 82,350 69,998 86,250 81,075
Notes payable 20,000 20,000 20,000 21,897
Commercial paper 11,310 11,310 10,721 10,721
Interest rate swap -0- 341 -0- (266)
F-26<PAGE>
(9) FEDERAL INCOME TAXES
SCOR U.S. and its subsidiaries file a consolidated Federal income
tax return.
The components of the provision for Federal income taxes
attributed to income from operations were as follows:
Year Ended December 31,
1994 1993 1992
(in thousands)
Current tax expense (benefit) $ (9,171) $7,882 $(1,853)
Deferred tax benefit (2,091) (899) (1,918)
-------- ------- -------
$(11,262) $6,983 $(3,771)
======== ====== =======
Income taxes paid $ 1,800(1) $3,546(1) $8,001
======== ====== ======
(1) Excludes refunds received in 1994 and 1993 of $1,700,000 and
$7,782,000, respectively.
Total income tax expense (benefit) for the years ended December
31, 1994, 1993 and 1992 was allocated as follows:
Year Ended December 31,
1994 1993 1992
(in thousands)
Income (loss) from continuing
operations $(11,262) $6,983 $(3,771)
Extraordinary item 189 -0- -0-
Cummulative effect of accounting
changes -0- (1,400) 2,119
Stockholders' equity:
Unrealized appreciation (depre-
ciation) of investments (20,611) 3,077 2,877
Foreign currency translation (229) (125) (717)
------- ----- -----
$(31,913) $8,535 $508
======== ====== ====
F-27<PAGE>
The components of the net deferred Federal income tax benefits
recognized in the Company's consolidated balance sheet at December 31,
1994 and 1993 were as follows:
Deferred Tax
Asset (Liability)
(in thousands)
1994 1993
Deferred policy acquisition costs $(7,995) $(8,449)
Unearned premium reserve 6,354 6,157
Loss reserves 25,052 23,352
Other (469) (214)
------- -------
Tax effect of temporary differences 22,942 20,846
Unrealized (appreciation) depreciation
of investments 11,653 (8,958)
Foreign currency translation 223 6
------- -------
$34,818 $ 11,894
======= =======
SFAS 109 requires the establishment of a valuation allowance for
deferred income tax benefits where it is more likely than not that
some portion of the deferred income tax benefits will not be realized.
Management believes, based on the Company's historical record of
generating taxable income and its expectations of future earnings,
that the Company's taxable income in future years will be sufficient
to realize the net deferred income tax benefits which are reflected on
its consolidated balance sheet as of December 31, 1994. In addition,
management believes certain tax planning strategies exist, including
its ability to alter the mix of its investment portfolio to taxable
investments from tax-exempt investments, which could be implemented if
necessary to ensure sufficient taxable income to realize fully its net
deferred income tax benefits. Management also believes that the
Company's net deferred income tax benefits related to unrealized
depreciation of fixed maturity investments is recoverable through its
ability to hold these investments to maturity. Accordingly, SCOR U.S.
has not established a valuation allowance with respect to its net
deferred income tax benefits.
The Omnibus Budget Reconciliation Act of 1993 (the "Act")
was signed into law in August 1993. The Act provided for an increase
in the corporate tax rate to 35% from the previous 34% rate. As a
result of the revaluation of the Company's net deferred tax assets to
reflect the change in tax rates, the Company recognized a net benefit
of $472,000, or $0.03 per share, in 1993. This benefit is included in
the provision for Federal income taxes attributable to income from
operations.
F-28<PAGE>
A reconciliation of income tax expense (benefit) computed by
applying the United States Federal income tax rate of 35% in 1994 and
1993 and 34% in 1992 to income (loss) from operations before Federal
income taxes (benefit) to the provision for Federal income taxes
(benefit) is as follows:
Year Ended December 31,
1994 1993 1992
(in thousands)
Computed tax expense (benefit) at
U.S. Federal rate $(6,809) $12,219 $ 214
Tax-exempt interest (4,282) (4,262) (3,587)
Dividends received deduction (638) (672) (605)
Tax rate change -0- (472) -0-
Other 467 170 207
-------- ------- -------
$(11,262) $6,983 $(3,771)
======== ======= =======
(10) RESERVES FOR LOSSES AND LOSS EXPENSES
Changes in the Company's reserves for losses and loss expenses
for each year in the three year period ended December 31, 1994 is
summarized as follows:
December 31,
1994 1993 1992
(in thousands)
Reserve for losses and loss expenses
at beginning of year, net $340,366 $341,162 $324,117
-------- -------- --------
Provision for losses and loss expenses:
Occuring in current year 193,587 160,695 165,468
Occuring in prior years (2,317) (4,403) (4,923)
------- -------- -------
Total 191,270 156,292 160,545
------- ------- -------
Payment for losses and loss expenses,
net of amounts recoverable
Occuring in current year 55,155 36,018 51,514
Occuring in prior years 94,366 121,070 91,986
------ ------- -------
Total 149,521 157,088 143,500
------- ------- -------
Reserve for losses and loss expenses
at end of year, net 382,115 340,366 341,162
Reinsurance recoverable on
unpaid losses 222,672 221,843 220,651
-------- ------- -------
Reserve for losses and loss expenses
at end of year, gross $604,787 $562,209 $561,813
======== ======== ========
F-29<PAGE>
The operating companies of SCOR U.S. have not underwritten
significant amounts of business in those classes or with those
insurers that are known to be exposed to asbestos and environmental-
related claims. During the years ended December 31, 1994, 1993 and
1992, the Company has not experienced any significant amount of net
loss reporting or development on claims related to these exposures.
In addition, the Company is significantly protected from adverse
development under the SCOR S.A. Retrocessional Agreements (see Note
4). Any recoveries under such agreements are considered to be fully
realizable. Based on the above information, the Company believes that
its exposure to asbestos and environmental-related claims is not
material to the Company's financial position or results of operations.
(11) STATUTORY REQUIREMENTS
The Insurance Department of the State of New York ("Department"),
in which SCOR Re, GSIND and Unity Fire are domiciled, and the Maryland
Insurance Administration, in which GSIC is domiciled, recognizes as
net income and surplus (stockholder's equity) those amounts determined
in conformity with statutory accounting practices prescribed or
permitted by the respective jurisdiction, which differ in certain
respects from GAAP.
Reconciliations of statutory surplus and net income, as
determined using statutory accounting principles, to the amounts
included in the accompanying financial statements are as follows:
December 31,
1994 1993
(in thousands)
Statutory surplus
of insurance subsidiaries $243,416 $271,895
Deferred policy acquisition costs 22,844 24,140
Unauthorized reinsurance 12,931 7,076
Non-admitted assets 4,589 3,052
Unrealized appreciation (depreciation)
on fixed maturities carried
at fair value (33,135) 22,222
Deferred Federal income taxes 34,818 11,894
Parent company and non-insurance
subsidiaries' net assets 56,282 56,660
Long-term debt (102,350) (106,250)
--------- --------
GAAP stockholders' equity $239,395 $290,689
======== ========
F-30<PAGE>
Year Ended December 31,
1994 1993 1992
(in thousands)
Statutory net income (loss) of
insurance subsidiaries $(1,109) $ 34,735 $ 5,164
Deferred policy acquisition costs (1,296) 1,969 5,367
Deferred Federal income taxes 2,091 899 1,918
Cumulative effect of
accounting changes -0- -0- 2,848
Parent company operations (5,018) (8,128) (7,377)
Non-insurance subsidiary
operations (2,509) (4,147) (671)
------- ------- -------
GAAP net income (loss) $(7,841) $25,328 $7,249
======= ======= =======
Cash dividends of the Company's reinsurance subsidiaries may be
paid only out of their statutory earned surplus. For the operating
subsidiaries domiciled in New York (which represents approximately 89%
of the Company's statutory surplus), the payment of dividends is
subject to statutory restrictions imposed by New York insurance law.
Generally the maximum amount of dividends that may be paid in any
twelve-month period without the prior approval of the Department is
the lesser of net investment income or 10% of statutory surplus, as
such terms are defined in the New York insurance law. During the year
ending December 31, 1994, $11,900,000 of dividends were declared and
paid to SCOR U.S.
Based on 1994 year-end statutory surplus, the maximum dividend
distribution that may be made by the Company's reinsurance
subsidiaries during 1995 without prior approval is approximately
$24,342,000. The amount of the Company's reinsurance subsidiaries'
net assets (stockholders' equity) restricted from payment of dividends
to SCOR U.S. without prior approval is approximately $219,074,000,
which is 92% of total consolidated net assets.
SCOR Re Voting Trust
As a result of New York Insurance Department licensing
requirements regarding government financial control and ownership of
insurers, all of the capital stock of SCOR Re is held in an
irrevocable voting trust. The voting trust, which was to expire
during 1994, was renewed for an additional three years. The five
voting trustees, four of whom are directors of SCOR U.S., are entitled
to exercise all of the rights and powers of absolute owners of the
capital stock of SCOR Re, subject to certain limitations specified in
the voting trust agreement.
General Security Voting Trust
The Insurance Laws of the State of California generally prohibit
the issuance or renewal of a license to a company owned, operated or
controlled, in whole or in part, by a government. In connection with
F-31<PAGE>
the continuation of General Security's California license, on
February 1, 1993, with the approval of the New York Insurance
Department, a voting trust was established by SCOR U.S. for its
holdings of capital stock in General Security. This voting trust was
terminated upon the merger of General Security into SCOR Re, effective
January 1, 1994.
(12) EMPLOYEE BENEFITS
Pension Plans:
SCOR U.S. has a qualified defined benefit pension plan ("SCOR
U.S. Group Pension Plan") covering substantially all employees of SCOR
U.S. and its affiliates. Benefits under the SCOR U.S. Group Pension
Plan are based on an employee's years of service and compensation.
SCOR U.S.'s funding policy is to contribute at least the minimum
amount required by ERISA but not more than the maximum amount that can
be deducted for Federal income tax purposes. The SCOR U.S. Group
Pension Plan excludes expatriates who are temporarily assigned to the U.S.
and covered by other plans sponsored or funded by the Company or a member
of the SCOR S.A. Group. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be
earned in the future. In 1994, 1993 and 1992, there were no contributions
required.
The following table sets forth the SCOR U.S. Group Pension Plan funded
status and amounts recognized in the SCOR U.S. consolidated balance sheet
at December 31, 1994 and 1993 (in thousands):
1994 1993
Actuarial present value of
benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$2,892 and $2,391 in 1994 and 1993,
respectively $(3,295) $(3,312)
======= =======
Projected benefit obligation for service
rendered to date $(4,678) $(5,656)
Plan assets at fair value 5,912 5,560
------- -------
Plan assets in excess of projected benefit 1,234 (96)
obligation
Unrecognized transition asset (885) (1,033)
Unrecognized net loss from past experience 184 1,495
Unrecognized prior service costs (293) 150
------- ------
Prepaid pension cost included in other assets $ 240 $ 516
======= =======
F-32<PAGE>
Net pension expense for 1994, 1993 and 1992 included the following
components (in thousands):
1994 1993 1992
Service cost-benefits earned during the period $534 $592 $406
Interest cost on projected benefit obligation 325 333 230
Actual return on plan assets (413) (412) (250)
Net amortization and deferral (170) (100) (279)
---- ----- ------
Net pension expense $276 $413 $107
====== ===== ======
The weighted-average discount rate and the average rate of
compensation increase used in determining the actuarial present value
of the projected benefit obligation were 8% and 5.5% in 1994, 7.5% and
6.0% in 1993, 8.0% and 6.0% in 1992, respectively. The expected long-
term rate of return on assets was 7.5% in 1994 and 8% in 1993.
Savings Plans:
The SCOR U.S. Group Savings Plan ("SCOR U.S. Savings Plan") is
qualified under Sections 401 (a) and 401 (k) of the United States
Internal Revenue Code of 1986 as amended. Substantially all employees
of SCOR U.S. and affiliates are eligible to participate in the savings
plan. The SCOR U.S. Savings Plan excludes expatriates who are
temporarily assigned to the U.S. and covered by other plans sponsored
or funded by the Company or a member of the SCOR S.A. Group.
Contributions to the savings plan are determined by the Board of
Directors and are made from the net profits of the current taxable
year or the accumulated net profits of SCOR U.S. Contributions for
the years ended December 31, 1994, 1993 and 1992 were $575,000,
$585,000 and $556,000, respectively.
The pension and savings plans may be terminated at any time by
the Board of Directors of SCOR U.S.
Supplemental Retirement Plan:
SCOR U.S. also sponsors the SCOR U.S. Group Supplemental
Retirement Plan ("Supplemental Retirement Plan"), an unfunded
nonqualified plan established in 1989 which covers a select group of
management employees. This plan enables participants in the pension
plan and savings plan to earn pension benefits and tax-deferred
savings benefits on the same percentage of pay basis without regard to
current IRS restrictions. The Supplemental Retirement Plan incurred
expenses of approximately $226,000, $133,000 and $143,000 for the
years ended 1994, 1993 and 1992, respectively.
Employment Contracts:
The Company has entered into employment contracts that provide
minimum pension benefits to four executives. The benefits under these
contracts are unfunded, and expenses of approximately $70,000, $53,000
and $45,000 were accrued in 1994, 1993 and 1992, respectively.
F-33<PAGE>
(13) INCENTIVE AND STOCK OPTION PLANS
In July 1986, the Company adopted a Stock Incentive Plan for Key
Executives ("Incentive Plan"), pursuant to which 786,000 shares of the
common stock were reserved for issuance through options for all key
executives of the Company, defined to include officers and employees
of the Company and those employees of SCOR S.A. who serve on the
Executive Committee of the Board of Directors of SCOR U.S. In March
1994, the number of shares available for issuance under the Incentive
Plan was increased to 856,740. Nonqualified stock options, incentive
stock options, stock appreciation rights, restricted stock awards and
stock bonus awards were available under the Incentive Plan. Certain
of these awards may result in future compensation expense to the
Company. Incentive stock options were available to be granted at not
less than fair market value of the Company's common stock on the date
of grant. Non-qualified options were available to be granted at not
less than 85% of fair market value of the Company's common stock on
the date of grant. Options become exercisable as specified at the
date of grant and expire ten years and one month from the date of
grant.
On September 19, 1990 the shareholders of SCOR U.S. approved a
Stock Option Plan for Directors. Under this plan 220,000 shares of
the common stock of SCOR U.S. have been reserved for issuance. Grants
of options to purchase 3,000 shares will be made to each Director,
except Directors employed by the Company, three business days
following each SCOR U.S. Annual Meeting. Each option granted becomes
exercisable with respect to one-half the shares of SCOR U.S. common
stock covered thereby on the first anniversary of the date upon which
it was granted and with respect to the balance of the shares on the
second anniversary thereof.
Under the Stock Option Plan for Key Employees ("SOP") approved by
the shareholders of SCOR U.S. at the Annual Meeting in June 1991,
1,426,000 shares of common stock have been reserved for issuance
through options for all key employees of SCOR U.S. Corporation and its
subsidiaries. In March 1994, the number of shares available for
issuance under the SOP was increased to 1,554,340. The per share
option price shall never be less than 100% of the fair market value of
the shares at the time of the grant. Unless otherwise provided by the
Board of Directors, each option granted would become exercisable to
the extent of one-third of the total number of the shares of common
stock subject to the option on each anniversary of the grant and
expire ten years from the date the option is granted.
F-34<PAGE>
Information regarding the above option plans is summarized below:
Number of Option Price
Shares Per Share Range
--------- ---------------
Outstanding at December 31, 1991 1,045,605 $ 8.00 -- $15.50
Options granted 21,000 $16.75 -- $16.75
Options exercised (71,296) $ 8.00 -- $14.25
Options cancelled (19,535) $12.25 -- $14.25
--------- ----------------
Outstanding at December 31, 1992 975,774 $ 8.00 -- $16.75
Options granted 552,693 $15.50 -- $17.00
Options exercised (123,418) $ 8.00 -- $14.25
Options cancelled (30,284) $14.25 -- $17.00
--------- ----------------
Outstanding at December 31, 1993 1,374,765 $ 8.00 -- $17.00
Options granted 458,175 $ 9.00 -- $11.125
Options exercised (57,100) $ 8.00 -- $ 9.99
Options cancelled (198,889) $ 9.00 -- $17.00
--------- ---------------
Outstanding at December 31, 1994 1,576,951 $ 8.00 -- $17.00
=========== ===============
The number of options exercisable at December 31, 1994 was
856,000. The number of shares available for future grant at
December 31, 1994 was 552,000.
As indicated above, the Incentive Plan allows for the granting of
restricted stock awards. The following table summarizes information
regarding stock awards, for each year in the three-year period ended
December 31, 1994.
1994 1993 1992
Non vested restricted stock grants
at the beginning of the year 4,552 -0- 19,263
Restricted stock awards granted -0- 4,552 -0-
Restricted stock awards vested -0- -0- (19,263)
----- ------ ------
Non-vested restricted stock awards
at the end of the year 4,552 4,552 -0-
===== ===== ======
The Company recognized compensation expense of $11,000, $-0- and
$115,000 in 1994, 1993 and 1992, respectively, in connection with
these awards. At December 31, 1994, the amount of deferred
compensation relating to these grants which will be recognized over
the remaining vesting period is $47,000 which is included in
additional paid-in capital.
During 1993 and 1992 the Company issued 44,000 shares and 40,000
shares of its common stock in exchange for notes receivable from
various officers of $523,000 and $358,000, respectively. These shares
were issued as a result of stock options exercised under the Company's
stock option plans. The balance of unpaid stock options exercised at
F-35<PAGE>
December 31, 1994 and 1993 was $27,000 and $1,202,000, respectively,
and is recorded as a reduction to additional paid-in capital. The
Company has outstanding loans with various officers related to stock
options exercised and restricted stock grants. These loans bear
interest at rates ranging from 4% to 10%. The aggregate unpaid
principal balance at December 31, 1994 and 1993 was $27,000 and
$1,202,000, respectively.
(14) COMMITMENTS
The Company conducts its operations in leased premises. The
Company also leases data processing equipment and automobiles. Total
rental expense for the years ended December 31, 1994, 1993 and 1992,
amounted to $2,412,000, $2,438,000 and $2,088,000, respectively.
At December 31, 1994, future minimum rental commitments are as follows
(in thousands):
Year Ending December 31,
1995 $2,246
1996 1,437
1997 848
1998 776
1999 526
Thereafter 68
------
$5,901
======
(15) CONTINGENCIES
SCOR Re, GSIC, GSIND and Unity Fire are each party to various
lawsuits arising in the normal course of their business. SCOR U.S.
does not believe that any of the litigation to which SCOR Re, General
Security, GSIC, GSIND or Unity Fire is currently a party will have a
material adverse effect on the operating results or financial
condition of SCOR U.S. and its subsidiaries.
At December 31, 1994 and 1993, the Company's reinsurance
subsidiaries had letters of credit outstanding aggregating
approximately $1,731,000 and $16,352,000, respectively, in favor of
certain insurance companies under terms of reinsurance agreements.
The Company guarantees to a commercial bank payment when due of
three mortgage loans, with original principal amounts aggregating
approximately $2.8 million, issued to former excecutive officers of
the Company. The guarantees are secured by the residential premises.
(16) FOREIGN OPERATIONS
The Company conducts reinsurance business in Canada through
branches established for that purpose. The functional currency of
such branches is the Canadian dollar. The assets and liabilities of
such branches included herein have been translated into United States
dollars at exchange rates in effect at the balance sheet dates, and
F-36<PAGE>
operations at average exchange rates in effect during the relevant
periods.
Foreign currency translation adjustments have been recorded as
follows:
Translation Income
Adjustment Taxes Net
----------- ------ ----
(in thousands)
Balance, December 31, 1991 $2,494 $ 848 $1,646
Change during the year (2,109) (717) (1,392)
------- ------ -------
Balance, December 31, 1992 385 131 254
Change during the year (367) (125) (242)
------- ------ -------
Balance, December 31, 1993 18 6 12
Change during the year (655) (229) (426)
------- ------ -------
Balance, December 31, 1994 $(637) $(223) $ (414)
======= ====== =======
F-37<PAGE>
<TABLE>
<CAPTION>
(17) QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
Three Months Ended,
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net premiums earned $62,685 $54,983 $55,542 $55,034
Net investment income 9,998 10,208 10,157 10,627
Net realized investment gains (losses) 323 413 323 (75)
Total revenues 73,006 65,604 66,022 65,586
Total expenses 97,570 66,593 64,047 61,462
Income (loss) from operations (14,418) 603 2,447 3,176
Extraordinary gain on redemption of
debentures -0- -0- -0- 351
Net income (loss) $(14,418) $ 603 $2,447 $ 3,527
======= ======= ======= =======
Per share data:
Primary
Average common and common
equivalent shares outstanding 18,221 18,191 18,212 18,214
======= ======= ======= =======
Income (loss) from operations $(0.79) $0.03 $0.13 $0.17
Extraordinary item -0- -0- -0- 0.02
------- ------- ------- -------
Net income (loss) $(0.79) $0.03 $0.13 $0.19
======= ======= ======= =======
Fully diluted
Average common and common
equivalent shares outstanding 18,221 18,191 18,212 18,214
======= ======= ======= =======
Income (loss) from operations $(0.79) $ 0.03 $ 0.13 $ 0.17
Extraordinary item -0- -0- -0- 0.02
------- ------- ------- -------
Net income (loss) $(0.79) $ 0.03 $ 0.13 $ 0.19
======= ======= ======= =======
Dividends declared $ 0.09 $ 0.09 $ 0.09 $ 0.09
======= ======= ======= =======
Stock prices (a)
High $13 $12 1/4 $12 1/4 $11 3/8
Low 10 1/4 10 1/8 11 7 1/2
Close 10 3/8 11 11 1/4 8 3/8
F-38<PAGE>
<CAPTION>
Three Months Ended,
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Net premiums earned $ 53,760 $ 56,722 $ 59,847 $ 65,722
Net investment income 10,032 10,866 10,893 10,253
Net realized investment gains 3,328 2,029 2,068 5,505
Total revenues 67,120 69,617 72,808 81,480
Total expenses 55,516 62,452 66,428 71,718
Income from operations 8,773 5,873 5,808 7,474
Cumulative effect of accounting changes (2,600) -0- -0- -0-
Net income $ 6,173 $ 5,873 $ 5,808 $ 7,474
======= ======= ======= =======
Per share data:
Primary
Average common and common
equivalent shares outstanding 18,494 18,472 18,425 18,309
======= ======= ======= =======
Income from operations $ 0.47 $ 0.32 $ 0.32 $ 0.41
Cumulative effect of accounting changes (0.14) -0- -0- -0-
------- ------- ------- -------
Net income $ 0.33 $ 0.32 $ 0.32 $ 0.41
======= ======= ======= =======
Fully diluted
Average common and common
equivalent shares outstanding 18,494 18,472 21,819 21,679
======= ======= ======= =======
Income from operations $ 0.47 $ 0.32 $ 0.30 $ 0.38
Cumulative effect of accounting changes (0.14) -0- -0- -0-
------- ------- ------- -------
Net income $ 0.33 $ 0.32 $ 0.30 $ 0.38
======= ======= ======= =======
Dividends declared $ 0.08 $ 0.08 $ 0.08 $ 0.08
======= ======= ======= =======
Stock prices (a)
High $20 3/4 $19 3/4 $16 7/8 $16 3/4
Low 17 16 1/8 14 7/8 12 3/8
Close 19 3/4 16 3/4 16 3/4 13
(a) High, low and closing sales price per share per NYSE composite tape.
</TABLE>
F-39<PAGE>
(18) SUBSEQUENT EVENTS
The Company believes that its potential for losses from January
17, 1995 Nambu-Jishin earthquake in Kobe, Japan is limited since
foreign writings represent an insignificant portion of its portfolio.
On March 3, 1995 the Company entered into a lease for office
space for its New York headquarters. The term of the lease is
approximately 16 years with aggregate minimum rental payments of
approximately $30 million.
F-40<PAGE>
SCHEDULE I
SCOR U.S. CORPORATION
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS
IN RELATED PARTIES
December 31, 1994
(in thousands)
Amount
at Which
Amortized Market Shown on
Cost Value Balance
Sheet
Type of investment
Fixed Maturities:
United States Government and
government agencies and
authorities $201,735 $188,953 $189,724
States, municipalities and
political subdivisions 254,196 241,782 241,782
Foreign Governments 14,664 14,809 14,635
Convertibles and bonds with
warrants attached -0- -0- -0-
All other corporate bonds 114,321 108,432 108,432
Redeemable preferred stocks 34,746 31,954 31,954
------- ------- -------
Total fixed maturities 619,662 585,930 586,527
------- ------- -------
Equity securities:
Common stocks 225 476 476
Non-redeemable preferred stocks 1,672 1,262 1,262
------- ------- -------
Total equity securities 1,897 1,738 1,738
------- ------- -------
Short-term investments 83,303 83,303 83,303
Other long-term investments 1,225 1,225 1,225
------- ------- -------
Total investments $706,087 $672,196 $672,793
======== ======== ========
S-1<PAGE>
SCHEDULE II
SCOR U.S. CORPORATION (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(In thousands)
December 31,
1994 1993
-----------------
ASSETS
Investment in subsidiaries and affiliates $297,772 $348,232
Fixed maturities, available for sale 20,156 18,811
Short-term investments, at cost 10,256 18,957
Other long-term investments 1,225 1,081
Cash 512 1,645
Receivables from subsidiaries and affiliates 8,847 6,335
Other assets 23,029 19,816
------- --------
$361,797 $414,877
======= ========
LIABILITIES
Convertible subordinated debentures $82,350 $86,250
Notes payable 20,000 20,000
Commercial paper 11,310 10,721
Other liabilities 8,742 7,217
------- --------
122,402 124,188
------- --------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000
shares authorized; no shares issued -0- -0-
Common stock, $.30 par value, 50,000
shares authorized; 18,356 and
18,299 shares issued 5,507 5,490
Additional paid-in capital 114,556 112,670
Unrealized appreciation (depreciation)
of investments, net of deferred tax effect (21,640) 16,634
Foreign currency translation adjustment (414) 12
Retained earnings 143,153 157,532
Treasury stock, at cost (192 and 190 shares) (1,767) (1,649)
------- --------
239,395 290,689
------- --------
$361,797 $414,877
======= ========
S-2<PAGE>
SCHEDULE II (CONTINUED)
SCOR U.S. CORPORATION (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS
(In thousands)
Year Ended December 31,
1994 1993 1992
Revenues:
Net investment income $1,682 $1,569 $ 753
Net realized investment
gains (losses) 324 236 (2)
------- ------- -------
2,006 1,805 751
------- ------- -------
Expenses:
Other operating expenses 2,977 8,495 8,824
Interest expense 7,038 5,815 2,824
------- ------- -------
10,015 14,310 11,648
------- ------- -------
Loss from operations before Federal
income tax benefits and equity in
income of subsidiaries and affiliate (8,009) (12,505) (10,897)
Federal income tax benefit (2,992) (4,377) (3,520)
------- ------- -------
(5,017) (8,128) (7,377)
Equity in income (loss) of subsidiaries
and affiliate (3,175) 36,056 11,778
------- ------- -------
Income (loss) from operations (8,192) 27,928 4,401
Extraordinary gain on redemption of
debentures, net of tax 351 -0- -0-
Cumulative effect of accounting changes -0- (2,600) 2,848
------- ------- -------
Net income (loss) ($7,841) $25,328 $7,249
======= ======= =======
S-3<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II (CONTINUED)
SCOR U.S. CORPORATION (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($7,841) $25,328 $ 7,249
Cumulative effect of accounting changes -0- 2,600 (2,848)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Equity in (income) loss of subsidiaries and affiliate 3,175 (36,056) (11,778)
Accrued investment income (136) (173) (79)
Dividends received from subsidiaries 11,900 23,650 12,000
Federal income taxes (1,156) (2,683) (208)
Other (7,851) 3,479 (971)
------- ------- -------
Net cash provided by (used in) operating activities (1,909) 16,145 3,365
------ ------ -------
Cash flows from investing activities:
Sales, maturities or redemptions of fixed maturities 3,655 2,841 999
Sales of equity securities -0- 30 -0-
Net sales (purchases) of short-term investments 9,078 (18,232) 9,961
Investments in fixed maturities (2,857) (15,343) (5,560)
Investments in equity securities -0- -0- (21)
Acquisitions, net of cash acquired -0- -0- (896)
Investment in affiliate -0- (50,000) (9,900)
Other (4,125) (9,371) (3,508)
------- ------- -------
Net cash provided by (used in) investing activities 5,751 (90,075) (8,925)
------- ------- -------
</TABLE>
S-4<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II (CONTINUED)
SCOR U.S. CORPORATION (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from financing activities:
Dividends paid (6,538) (5,798) (5,033)
Proceeds from issuance of convertible subordinated
debentures -0- 85,172 -0-
Proceeds from issuance of commercial paper - net 30 96 10,247
Repayment of notes payable -0- (8,000) -0-
Proceeds from stock options exercised 1,533 967 364
Other -0- -0- (4)
------- ------- -------
Net cash provided by (used in) financing activities (4,975) 72,437 5,574
------- ------- -------
Net increase (decrease) in cash (1,133) (1,493) 14
Cash at beginning of year 1,645 3,138 3,124
------- ------- -------
Cash at end of year $ 512 $ 1,645 $ 3,138
======= ======== ========
</TABLE>
S-5<PAGE>
<TABLE>
<CAPTION>
SCHEDULE IV
SCOR U.S. CORPORATION
REINSURANCE
(in thousands)
Percent
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
December 31, 1994
-----------------
Premiums written $13,667 $75,732 $293,125 $231,060 126.9%
December 31, 1993
-----------------
Premiums written $11,972 $89,106 $322,547 $245,413 131.4%
December 31, 1992
-----------------
Premiums written $4,922 $99,285 $299,906 $205,543 145.9%
</TABLE>
S-6<PAGE>
SCHEDULE VI
SCOR U.S. CORPORATION
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY
INSURANCE OPERATIONS
(In thousands)
Claims and Claims Expenses
Incurred Related to
--------------------------
Paid
Current Prior Claims
Year Years Net
------- ----- ------
Consolidated subsidiaries:
Year ended December 31, 1994 $193,587 $(2,317) $149,521
Year ended December 31, 1993 $160,695 $(4,403) $157,088
Year ended December 31, 1992 $165,468 $(4,923) $143,500
S-7<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------ -------
3(a) Certificate of Incorporation of SCOR U.S. (Incorporated by
reference to Exhibit 3(a) to Registration Statement on Form S-1,
File No. 33-7695).
3(b)* Bylaws of SCOR U.S. (Adopted September 6, 1986, as amended March
17, 1988, March 16, 1989, September 26, 1989, June 26, 1990,
June 11, 1992 and June 16, 1994)
4(a) Form of Common Stock Certificate (Incorporated by reference to
Exhibit 4 to Registration Statement on Form S-1, File No.
33-7695).
4(b) Indenture, dated as of March 15, 1993 between SCOR U.S.
Corporation and The Bank of New York, related to the 5.25%
Convertible Subordinated Debentures due April 1, 2000
(Incorporated by reference to Exhibit 4(b) to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1993).
9(a) SCOR Reinsurance Company 1994 Voting Trust Agreement, dated as
of June 6, 1994 among SCOR Reinsurance Company, SCOR U.S.
Corporation and the Voting Trustees designated therein.
(Incorporated by reference to Exhibit 9(c) to the Company's
Quarterly Report on Form 10-Q for the period ended June 30,
1993).
10(a)+ 1986 Stock Incentive Plan for Key Executives of SCOR U.S.
(adopted July 10, 1986, as amended March 25, 1994).
(Incorporated by reference to Exhibit 10(a) to the Company's
Annual Report on Form 10-K for the period ended December 31,
1993).
10(b) Amended Service Agreement dated as of June 11, 1992 between SCOR
U.S. and SCOR S.A. (Incorporated by reference to Exhibit 10(i)
to the Company's Annual Report on Form 10-K for the period ended
December 31, 1992).
10(c)+ Employment Agreement dated as of February 27, 1989 between
SCOR Re and Jerome Karter (amended March 14, 1991)(Incorporated
by reference to Exhibit 10(m) to the Company's Annual Report on
Form 10K for the year ended December 31, 1989).
10(d)+ Employment Agreement dated as of November 13, 1989 between SCOR
U.S. and John T. Andrews, Jr (Incorporated by reference to
Exhibit 10(n) to the Company's Annual Report on Form 10-K for
the year ended December 31,1989).
* Filed herewith.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
<PAGE>
EXHIBIT
NUMBER EXHIBIT
------- -------
10(e) Agreement and Plan of Merger dated as of March 6, 1990, among
SCOR U.S., Rockleigh Management Corporation, SCOR Paris, and UAP
Reassurances (Incorporated by reference to Exhibit 10(q) to the
Company's Annual Report on Form 10-K for the year ended December
31, 1990).
10(f)* Net Aggregate Excess of Loss Retrocessional Agreement, dated
July 3, 1990, between SCOR Re and SCOR S.A. (amended August 21,
1992 and May 6, 1994).
10(g)* Expense Allocation Agreement dated as of January 1, 1991, among
SCOR U.S., SCOR Re, and other named subsidiaries (as amended
December 10, 1992, May 5, 1994 and January 6, 1995).
10(h)* Amended Consolidated Federal Income Tax Liability Allocation
Agreement dated as of December 10, 1992, among SCOR U.S., SCOR
Re, and other named subsidiaries (amended May 5, 1994).
10(i) SCOR U.S. Performance Incentive Plan (Incorporated by reference
to Exhibit 10(r) to the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1991).
10(j)*+ SCOR U.S. 1991 Stock Option Plan for Key Employees (amended
March 25, 1994 and September 30, 1994).
10(k)+ SCOR U.S. 1990 Stock Option Plan for Directors (adopted
September 19, 1990 and amended June 16, 1994 by vote of the
stockholders). (Incorporated by reference from Exhibit 10(t) to
the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1994).
10(l) Pooling Agreement dated as of April 23, 1991 among SCOR Re,
General Security Insurance Corporation, General Security
Indemnity Company and The Unity Fire and General Insurance
Company, as amended by the Amendment to the Pooling Agreement
dated as of June 10, 1993, effective as of July 1, 1993.
(Incorporated by reference to Exhibit 10(w) to the Company's
Annual Report on Form 10-K for the period ended December 31,
1993).
10(m)+ SCOR U.S. Group Pension Plan. (Incorporated by reference from
Exhibit 10(x) to the Company's Annual Report on Form 10-K for
the period ended December 31, 1993).
10(n)+ SCOR U.S. Group Savings Plan.(Incorporated by reference from
Exhibit 10(y) to the Company's Annual Report on Form 10-K for
the period ended December 31, 1993).<PAGE>
* Filed herewith.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).
EXHIBIT
NUMBER EXHIBIT
------- -------
10(o)+ SCOR U.S. Group Supplemental Retirement Plan.(Incorporated by
reference from Exhibit 10(z) to the Company's Annual Report on
Form 10-K for the period ended December 31, 1993).
10(p)+ SCOR U.S. Annual Incentive Plan for 1994.(Incorporated by
reference from Exhibit (10aa) to the Company's Annual Report on
Form 10-K for the period ended December 31, 1993).
10(q) Second Net Aggregate Excess of Loss Retrocessional Agreement,
effective as of January 1, 1994, between SCOR Re and SCOR S.A.
(Incorporated by reference from Exhibit 10(bb) to the Company's
Annual Report on Form 10-K for the period ended December 31,
1993).
10(r)+ Special Severance and Pension Benefits Agreement dated as of
October 25, 1993 between SCOR U.S. and Jeffrey D. Cropsey.
(Incorporated by reference from Exhibit 10(cc) to the Company's
Annual Report on Form 10-K for the period ended December 31,
1993).
10(s)*+ Employment Agreement dated July 25, 1994 between SCOR Re and
John D. Dunn, Jr.
10(t)* Investment Advisory Agreement between New England Asset
Management Firm and SCOR Re dated March 1, 1995.
10(u)* Agreement of Lease between The Port Authority of New York and
New Jersey and SCOR U.S. dated January 10, 1995.
11* Statement on computation of per share earnings.
12* Computation of Ratio of Consolidated Earnings to Fixed Charges
18 Letter regarding Change in Accounting Principles (Incorporated
by reference to Exhibit 18 to the Company's Quarterly Report on
Form 10-Q for the period ended March 31, 1992).
21* Subsidiaries of SCOR U.S.
24* Consent of Independent Public Accountants.
25* Power of Attorney.
29* Information from reports furnished to state insurance
regulatory authorities (Schedule P) Submitted as a
paper filing under Form SE in accordance with rule
311(c) of Regulation S-T.
*Filed herewith.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c).<PAGE>
EXHIBIT 3(b)
Adopted: September 6, 1986
Amended: March 17, 1988
Amended: March 16, 1989
Amended: September 26, 1989
Amended: June 26, 1990
Amended: June 11, 1992
Amended: June 16, 1994
BY LAWS
OF
SCOR U.S. CORPORATION
ARTICLE I
Stockholders
SECTION 1. Annual Meeting. The annual meeting of the
stockholders of SCOR U.S. Corporation (the "Corporation") shall
be held on a day and at a place and time set by the Board of
Directors sometime during the calendar year or as to the Board of
Directors. Any business may be transacted at an annual meeting,
except as otherwise provided by law or by these by-laws.
SECTION 2. Special Meeting. A special meeting of
stockholders may be called upon the request of the Chairman of
the Board or the Board of Directors, who shall convene the
stockholders at a meeting to be held at the principal office of
the Corporation or such place and time as may be designated in
the notice of meeting.
SECTION 3. Notice. The President or Secretary of the
Corporation shall notify each stockholder of the date of the
annual or special meetings at least ten (10) days in advance
thereof by depositing in any post office in the United States,
such notice properly directed to the person for whom it is
intended at the last post office address shown on the
Corporation's record of stockholders.
Any stockholder who wishes to conduct business which
has not been brought before a stockholder's meeting by or at the
direction of the Board of Directors must give prior written
notice to the Secretary of the intention to bring such business
before the meeting. In all cases, to be timely, notice must be
received by the Corporation not less than 70 days nor more than
90 days prior to the meeting (or if fewer than 80 days' notice or
prior public disclosure of the meeting date is given or made to
stockholders, not later than the tenth day following the day on
which the notice of the date of the meeting was mailed or such
public disclosure was made).
Any stockholder who wishes to nominate any person for
the position of director shall provide notice in a similarly
timely manner. Such notice shall contain certain information
about that person, including age, business and residence
addresses, principal occupation, the class and number of shares
of the corporation beneficially owned and such other information<PAGE>
as would be required to be included in a proxy statement
soliciting proxies for the election of the proposed nominee, and
certain information about the stockholder proposing to nominate
that person.
SECTION 4. Quorum. Except as otherwise provided by
law, a quorum at all meetings of stockholders shall consist of
the holders of record of at least a majority in value of the
shares entitled to vote thereat, present in person or by proxy.
SECTION 5. Record Date. The record date for
determining stockholders qualified to vote at any annual or
special meeting of stockholders shall be the date on which the
notice of meeting is mailed to stockholders, except in those
cases where the Board of Directors shall (a) order the stock
transfer books be closed for a stated period preceding the
meeting, or (b) fix a date as the record date for such
determination of stockholders qualified.
SECTION 6. Proxies. At all meetings of stockholders,
a stockholder may vote either in person or by proxy executed in
writing by the stockholder or by his duly authorized attorney-in-
fact. Such proxies shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall
be valid after eleven (11) months from the date of its execution
unless otherwise provided in the proxy. Each proxy shall be
revocable unless expressly provided therein to be irrevocable and
in no event shall it remain irrevocable for a period of more than
eleven (11) months.
SECTION 7. Meetings. Stockholder meetings shall be
presided over by the Chairman of the Board, or, if he is not
present, a Vice Chairman, or, if a Vice Chairman is not present,
the President of the Corporation shall preside. In the absence
of such persons, the stockholders entitled to vote at the meeting
present in person or by proxy, shall elect a chairman to preside
at the meeting.
SECTION 8. Voting of Shares. Each outstanding share
entitled to vote upon a matter submitted to a vote at a meeting
of stockholders shall be entitled to one (1) vote on such matter,
except as may otherwise be specified in the Articles of
Incorporation of the Corporation. Cumulative voting by
stockholders for directors is prohibited.
ARTICLE II
Board of Directors
SECTION 1. Number and Term of Office. The business
and property of the Corporation shall be managed and controlled
by the Board of Directors, and subject to the restrictions
imposed by law, by the Certificate of Incorporation, or by these
by-laws, it may exercise all the powers of the Corporation.
The Board of Directors shall consist of not fewer than
three (3) members, and shall be divided into three classes, in
2<PAGE>
which membership shall be as equal in number as possible. The
number of directors may be increased or decreased (provided such
decrease does not shorten the term of any incumbent director)
from time to time by a majority vote of the Board of Directors.
Each director shall hold office for the term for which
he is elected and until his successor shall have been elected and
qualified. Terms of directors shall be staggered by class, with
classes being elected for successive terms, so that a different
class of directors shall be elected at each election. Directors
need not be stockholders, and they need not be residents of
Delaware. Any director may be removed from office by an
affirmative vote of two-thirds of the stockholders entitled to
vote for election of directors at any meeting at which a quorum
of stockholders is present.
Any vacancy occurring in the Board of Directors may be
filled by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office.
No individual shall be elected or re-elected as a
member of the Board of Directors subsequent to his/her attaining
the age of seventy-two (72).
SECTION 2. Meetings of Directors. The directors may
hold their meetings and have an office and keep books of the
Corporation, except as otherwise provided by statute, in such
place or places as the Board of Directors may from time to time
determine. The directors shall keep a full and correct record of
their transactions to be open during business hours to the
inspection of stockholders and others interested therein.
Directors may receive a fee for their service as
directors, and, in addition, by resolution of the Board, a fixed
fee and expense reimbursement may be allowed for attendance at
such regular or special meetings of the Board or any committee
thereof; provided that nothing contained herein shall be
construed to preclude any director from serving the Corporation
in any other capacity or receiving compensation therefor.
SECTION 3. Regular Meetings. In addition to the
annual meeting of the Board of Directors, at least three (3)
regular meetings shall be held in each year at the time and place
designated by the Chairman of the Board for the purpose of
transacting any business within the powers of the Board of
Directors. Notice of such regular meeting or meetings shall be
given as provided herein, but failure to give notice of any
regular meeting shall not invalidate the meeting or any of the
proceedings thereat.
SECTION 4. Special Meeting. Special meetings of the
Board of Directors shall be held whenever called by the Chairman
of the Board or the President, whenever he deems it necessary or
whenever requested to do so in writing or by a quorum of the
Board.
3<PAGE>
SECTION 5. Notice. The Secretary shall give notice of
each regular and special meeting upon giving at least five (5),
but no more than thirty (30) days notice before such meeting to
each director. In case of a special meeting the purpose of such
meeting shall be specified in the notice and only such specified
business shall be transacted at the meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of business on
the grounds that the meeting was not lawfully called or convened.
SECTION 6. Quorum. A majority of the directors in
office shall constitute a quorum for the transaction of business,
but if at any meeting of the Board of Directors there be less
than a quorum present, a majority of those present or any
directors solely present may adjourn the meeting from time to
time without further notice. The act of a majority of the
directors present at a meeting at which a quorum is in attendance
shall be the act of the Board of Directors, unless the act of a
greater the number is required by the articles of incorporation
or by these by-laws.
SECTION 7. Election of Officers. At each annual
meeting of the Board of Directors, said Board shall convene for
the purpose of organization and the transaction of business, if a
quorum be present, and shall proceed to electing such officers as
are provided for in Article 3, Section 1.
SECTION 8. Presiding Officers and Secretary. At
meetings of the Board of Directors, the Chairman of the Board
shall preside, and in the absence of the Chairman of the Board, a
Vice Chairman shall preside, and in the absence of all such
persons, a chairman shall be chosen by the Board from among the
directors present.
The Secretary of the Corporation shall act as secretary
of all meetings of the Board of Directors, but in the absence of
the Secretary, the Presiding Officer may appoint any person to
act as secretary of the meeting.
SECTION 9. Payment of Dividends. Subject always to
the provisions of law and the Certificate of Incorporation, the
Board of Directors shall have full power to determine whether
any, and if so, what part, of the funds legally available for the
payment of dividends shall be declared in dividends and paid to
the stockholders of the Corporation in cash or property. Record
dates for determining the eligibility of stock to participate in
any cash or stock dividend shall be set by the directors.
SECTION 10. Executive Committee. The Board of
Directors of the Corporation, by resolution passed by a majority
of the Board of Directors, may designate from among its members
three (3) or more directors to constitute an Executive Committee,
which Committee, except insofar as limited by law or further
limited by resolution of the Board of Directors, shall have and
may exercise all of the authority of the Board of Directors;
provided, however, that no person shall be elected a Senior
Officer of the Corporation by the Executive Committee unless such
4<PAGE>
person is first nominated for office by the Chairman or the
President.
Two (2) members of the Executive Committee shall
constitute a quorum. Regular meetings of the Executive Committee
shall be held at such times and places as the committee may
determine and no notice of such meetings shall be necessary.
Special meetings of the Executive Committee shall be called by
the Secretary whenever the Chairman of the Executive Committee
shall so request, and may be called at any time by any member of
the Committee. Reasonable notice shall be given of such
meetings, but the action of a majority of the Executive
Committee, at any meeting at which a quorum is present shall be
valid, notwithstanding any defect in the notice for such meeting.
SECTION 11. Finance Committee. The Board of Directors
of the Corporation, by resolution passed by a majority of the
Board of Directors, may elect three (3) or more Directors, among
whom shall be the Chairman of the Board of Directors and the
President to constitute a Finance Committee, which committee,
except insofar as further limited by the resolution of the Board
of Directors or by law, shall have and may exercise the following
powers:
(1) Supervise the investment program as directed by
the Board of Directors.
(2) Provide advice to the Board of Directors of Scor
Reinsurance Corporation concerning Scor Re's
investment decisions.
(3) Designate by appropriate resolution the officers
who shall be authorized and empowered to buy, sell
and/or exchange any stock and/or bonds and/or any
other securities or commercial paper now owned by
or that may hereafter be acquired by this
Corporation and to make, execute and deliver, in
the name of this Corporation as its act and deed
and under its corporate seal, any and all written
instruments necessary and proper to carry into
effect any and all such purchases, exchanges
and/or sales.
The Chairman of the Board of Directors shall be the ex-
officio Chairman of the Finance Committee; in case of his absence
from any meeting of the Committee, the President shall preside;
in case of the absence of the named Officers, a Chairman may be
chosen by the Committee to preside. Two (2) members of the
Finance Committee shall constitute a quorum. Regular meetings of
the Committee shall be held at such times and places as the
Committee shall determine and no notice of such meetings shall be
necessary. Special meetings shall be called by the Secretary
whenever the Chairman of the Finance Committee shall so request,
and may be called at any time by any member of the Committee.
Reasonable notice shall be given of such meetings, but the action
of a majority at any meeting at which a quorum is present shall
be valid, notwithstanding any defect in the notice for such
meeting.
5<PAGE>
SECTION 12. Audit Committee. The Board of Directors
of the Corporation, by resolution passed by a majority of the
Board of Directors, may elect three (3) or more directors to
constitute an Audit Committee, which committee, except insofar as
further limited by the resolution of the Board of Directors or by
law, shall have and may exercise the following powers:
(1) Supervise the audits to be conducted by the
Corporation's independent certified public
accounting firm.
(2) Periodically review the Corporation's policies and
practices and make recommendations to the Board of
Directors and the management of the Corporation.
Two (2) members of the Audit Committee shall constitute
a quorum. Regular meetings of the Audit Committee shall be held
at such times and places as the committee shall be held at such
times and places as the committee may determine and no notice of
such meetings shall be necessary. Special meetings of the Audit
Committee shall be called by the Secretary whenever the Chairman
of the Audit Committee shall so request, and may be called at any
time by any member of the Committee. Reasonable notice shall be
given of such meetings, but the action of a majority of the Audit
Committee at any meeting at which a quorum is present shall be
valid, notwithstanding any defect in the notice for such meeting.
SECTION 13. Compensation Committee. The Board of
Directors of the Corporation, by resolution passed by a majority
of the Board of Directors, may elect three (3) or more directors
to constitute a Compensation Committee, which committee, except
insofar as further limited by the resolution of the Board of
Directors or by law, shall have and may exercise the following
powers:
(1) Administer the Corporation's stock option plans,
including, but not limited to, the granting of
options and the entering into of option agreements
pursuant thereto.
(2) Review and approve the compensation of all
individuals at or to be elected to Vice President
rank or above and/or who have current or proposed
salary of $100,000 or above.
(3) Review the employee benefit programs of the
Corporation and its subsidiaries.
(4) Recommend to the Board of Directors of the
Corporation as to changes in, or establishment of,
incentive plans, thrift plans and retirement and
deferred compensation plans for the employees of
the Corporation and its subsidiaries.
(5) Recommend to the Board of Directors as to
reasonable compensation of Directors for service
to the Company.
6<PAGE>
Two (2) members of the Compensation Committee shall constitute a
quorum. Regular meetings of the Compensation Committee shall be
held at such times and places as the Committee may determine and
no notice of such meetings shall be necessary. Special meetings
of the Compensation Committee shall be called by the Secretary
whenever the Chairman of the Compensation Committee shall so
request, and may be called at any time by any member of the
Committee. Reasonable notice shall be given of such meetings,
but the action of a majority of the Compensation Committee at any
meeting at which a quorum is present shall be valid,
notwithstanding any defect in the notice for such meeting.
ARTICLE III
Officers
SECTION 1. Number, Titles and Term of Office. The
Officers of the Corporation shall be a Chairman of the Board, two
Vice Chairman of the Board, a President, and Executive Vice
President, a Secretary, a Treasurer, and such other officers as
the Board of Directors may from time to time elect or appoint
(such as Executive Vice Presidents, Senior Vice Presidents,
Assistant Secretaries, Assistant Treasurers, etc.). Each officer
shall hold office for the term for which he is elected and until
his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in
manner hereinafter provided. Any two (2) or more offices may be
held by the same person, except that the President shall not hold
the office of Secretary. The Chairman of the Board of Directors
and the President shall be directors, but none of the other
officers need be a Director.
SECTION 2. Removal. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board
of Directors whenever in its judgment and the best interest of
the Corporation will be served thereby; provided, however, that
no director can be removed from his position as a director except
as provided for in Article II, Section 1. Such removal shall be
without prejudice to the contract rights, if any, of the person
so removed. Election or appointment of an officer or agent shall
not of itself create contract rights.
SECTION 3. Vacancies. Any vacancy in the office of
any officer may be filled by vote of a majority of the Board of
Directors.
SECTION 4. Powers and Duties of the Chairman of the
Board. The Chairman of the Board shall preside at all meetings
of the stockholders and of the Board of Directors and have such
other powers and duties as may be assigned to him by the Board of
Directors.
SECTION 5. Powers and Duties of the Vice Chairmen of
the Board. Each Vice Chairman shall, in the absence of the
Chairman of the Board of Directors, or at the direction of the
Board of Directors or its Chairman, serve as the Chairman of the
7<PAGE>
Board of Directors, with all of the powers and duties that
attache thereto, a provided in Section 4.
SECTION 6. Powers and Duties of the President. The
President shall be the Chief Executive Officer of the corporation
and, subject to the guidance and direction of the Board of
Directors, shall be primarily responsible for determining
Corporation policy and shall have general charge of the business
of the Corporation and control of its affairs; in the absence of
the Chairman of the Board and a Vice Chairman he shall preside at
all meetings of the stockholders and of the Board of Directors;
shall have authority to execute all legal instruments necessary
for the transaction of the Corporation's business, he may sign
all certificates for shares of capital stock of the Corporation
make reports to the stockholders and the Board of Directors; act
as ex-officio member of all committees unless otherwise directed
by the Board of Directors; prescribe duties for officers and
employees which are not otherwise defined in the by-laws or by
the Board of Directors, including the power to employ and
discharge such employees as may be necessary for the proper
conduct of the business of the corporation, and may delegate such
powers with such restrictions as he may deem proper to the other
officers to the extent that such powers affect the performance of
the officers' duties in their respective departments. He shall
also have such other powers and duties as may be assigned to him
by the Board of Directors.
SECTION 7. Powers and Duties of the Vice President.
Each Vice President shall have such powers and duties as may be
assigned to him by the Board of Directors and shall exercise the
powers of the President during the officer's absence or inability
to act. Any action taken by a Vice President in the performance
of the duties of the President shall be conclusive evidence of
the absence or inability to act of the President at the time such
action was taken.
SECTION 8. Powers and Duties of the Treasurer. The
Treasurer shall have custody to all the funds and securities of
the corporation which come into his hands. When necessary or
proper he may endorse, on behalf of the Corporation, for
collection, checks, notes and other obligations and shall deposit
the same to the credit of the Corporation in such bank or banks
or depositories as shall be designated in the manner prescribed
by the Board of Directors; he may sign all receipts and vouchers
for payments made to the Corporation, either alone or jointly
with such other officer as is designated by the Board of
Directors. Whenever required by the Board of Directors, he shall
render a statement of his cash accounts; he shall enter all costs
to be entered regularly in the books of the Corporation to be
kept by him for that purpose for an accurate account of all
moneys received and paid on account of the Corporation; he shall
perform all acts incident to the position of Treasurer subject to
the control of the Board of Directors.
SECTION 9. Powers and Duties of the Secretary. The
Secretary shall attend all meetings of the stockholders, the
Board of Directors and the Executive Committee, and shall prepare
and maintain as permanent records the minutes of all such
8<PAGE>
meetings. he shall attend to the giving and serving of all
notices; he may sign with the President the name of the
Corporation on contracts of the corporation and affix the seal of
the Corporation thereto; he shall direct the issuance of
insurance policies and the collection of premiums thereon; he may
sign with the President all certificates for shares of the
capital stock of the Corporation; he shall have charge of the
certificate books, transfer books and stock ledgers, and such
other books and papers as the Board of Directors may direct all
of which shall at all reasonable times be open to inspection of
any Director upon application to the office of the Corporation
during business hours; and he shall in general perform all duties
incident to the office of Secretary, subject to the control of
the Board of Directors.
SECTION 10. Other Duties of Officers. The officers of
the Corporation shall perform such other and further duties in
addition to those specifically named as may from time to time be
required of them by the Chairman of the Board, President, Vice
President or Board of Directors.
SECTION 11. Absence or Disability of Officers. In
case of the absence or disability of any officer of the
Corporation and of any person hereby authorized to act in this
place during such period of absence or disability, the Board of
Directors may from time to time delegate the powers and the
duties of such officer to any other officer, or any director, or
any other person whom it may select.
SECTION 12. Compensation of Officers and Employees.
The compensation of all officers under contract with the
Corporation shall be fixed by the Board of Directors. Unless
otherwise provided by law, the compensation of all employees
shall be fixed by the President.
ARTICLE IV
Indemnification Provisions
SECTION 1. Indemnification. Each director and each
officer or former director or officer of this Corporation or each
person who may have served at its request as a director or
officer of another Corporation in which it owned shares of
capital stock or of which it is a creditor, may be indemnified by
the Corporation against liabilities imposed upon him and expenses
reasonably incurred by him in connection with any claim made
against him, or any action, suit or proceeding to which he may be
a party by reason of his being, or having been such director or
officer, and against such sums as independent counsel selected by
the Board of Directors shall deem reasonable payment made in
settlement of any such claim, action, suit or proceeding
primarily with a view of avoiding expenses of litigation;
provided, however, that no director or officer shall be
indemnified with respect to matters as to which he shaLl be
adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in performance of duty, or with respect
to any matters which such indemnification would be against public
9<PAGE>
policy. Such indemnification shall be in addition to any other
rights to which directors or officers may be entitled.
SECTION 2. Fiduciary Duty. No director shall be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except that this provision shaLl not eliminate the liability of a
director (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of Title 8 of
the Delaware code, or (iv) for any transaction from which the
director derived an improper personal benefit.
ARTICLE V
Capital Stock
SECTION 1. Certificate of Shares. The certificates
for shares of the capital stock of the Corporation shall be in
such form and shall be approved by the Board of Directors. The
certificates shall be signed by the President or any Vice
President and also by the Secretary or the Treasurer and may be
sealed with the seal of this Corporation or a facsimile thereof.
Where any such certificate is countersigned by a Transfer Agent
or registered by a Registrar, either of which is other than the
Corporation itself or an employee of the Corporation, the
signatures of any such President or Vice President and Secretary
or Treasurer may be facsimiles. They shall be consecutively
numbered and shall be entered in the books of the Corporation as
they are issued and shall exhibit the holder's name and the
number of shares.
SECTION 2. Transfer of Shares. The shares of stock of
the Corporation shall be transferable only on the books of the
Corp[oration by the holders thereof in person or by the duly
authorized attorneys or legal representatives, upon surrender and
cancellation of certificates for a like number of shares. The
person surrendering the said certificates, in the absence of
notice to the contrary, shall be conclusively presumed to be the
owner thereof; and after the transfer and delivery of new
certificate or certificates the title of the holder thereof shall
not be subject to question against the Corporation by any
previous holder thereof.
SECTION 3. Regulations. The Board of Directors shall
have power and authority to make all such rules and regulations
as it may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of the
capital stock of the Corporation.
ARTICLE VI
Miscellaneous Provisions
10<PAGE>
SECTION 1. Voting Securities Held by the Corporation.
Unless ordered by the Board of Directors, the President shall
have full power and authority on behalf of the Corporation to
attend, to act, and to vote for whatever management suggests is
its position in the proxy material at any meeting of security
holders of other corporations in which the Corporation may hold
securities, except in the case of securities of corporations
controlled by the Corporation, in which case the Board of
Directors shall exercise any and all rights and powers incident
to the ownership of such securities which the Corporation might
have possessed and exercised if it had been present. The Board
of Directors may, from time to time, confer like powers upon any
other person or persons.
SECTION 2. Appointment of Attorneys-In-Fact. The
President may, from time to time. appoint by written certificates
attorneys-in-fact to act on behalf of the Corporation in the
execution of policies of insurance, bonds, undertakings, and
other obligatory instruments of like nature. Such attorneys-in-
fact, subject to the limitations set forth in their respective
certificates of authority, shall have full power to bind the
Corporation by their signature and execution of any such
instruments and to attach the seal of the Corporation thereto.
The President, any Vice President or the Board of Directors may
at any time revoke all power and authority previously given to
any attorney-in-fact.
SECTION 3. Resolutions. Every resolution heretofore
or hereafter passed by the Board of Directors or stockholders of
this Corporation with reference to any of the several matters in
each respectively set forth, when to inconsistent with these by-
laws or subsequent resolution of the Board of Directors, shall
remain in full force and effect until repealed, modified,
amended, or changed by a subsequent resolution or a subsequent
amendment to these by-laws.
SECTION 4. Fiscal Year. The fiscal year of the
Corporation shall be from January 1 through December 31 of each
year.
SECTION 5. Seal. The seal of the Corporation shall be
such as from time to time may b approved by the Board of
Directors. The Secretary shall have custody of the corporate
seal and shall affix the same to all instruments requiring it.
SECTION 6. Notice and Waiver of Notice. Whenever any
notice whatever is required to be given under the provisions of
these by-laws, said notice shall be deemed to be sufficient if
given by depositing the same in a post office box in a sealed,
postpaid wrapper addressed to the person entitled thereto at this
post office address, as it appears on the books of the
Corporation, and such notice shall be deemed to have been given
on the day of such mailing. A waiver of notice, signed by the
person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent
thereto.
11<PAGE>
ARTICLE VII
Amendments
These by-laws may be altered, amended or repealed,
except as provided in Article II, Section 1, by the affirmative
vote of the holders of a majority of the outstanding stock at any
annual meeting, or at any special meeting if notice of the
proposed amendment be contained in the notice of such special
meeting, or by the affirmative vote of a quorum of Board of
Directors at any regular or special meeting, provided notice of
said proposed amendment be contained in the notice of meeting.
12<PAGE>
EXHIBIT 10(f)
NET AGGREGATE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
NO.
between
GENERAL SECURITY ASSURANCE CORPORATION
OF NEW YORK
New York, New York
(hereinafter referred to as General Security)
and
SCOR S.A.
Paris, France
(hereinafter referred to as the "Reinsurer")
Reinsurer's Reference No.
<PAGE>
RETROCESSIONAL AGREEMENT NO.
INDEX
ARTICLE SUBJECT PAGE
I SCOPE OF AGREEMENT 3
II DEFINITIONS 3
A. Aggregate Deductible 3
B. All Business Underwritten 3
C. Ultimate Net Losses 3
D. Net Ultimate Incurred Losses 4
E. Loss Adjustment Expenses 4
F. Extra Contractual Obligations 4
III REINSURANCE PROVIDED 5
IV CONDITIONS 5
A. Errors and Omissions
B. Right of Offset 5
C. Currency 5
D. Territory 6
E. Taxes 6
F. Access to Records 6
G. Federal Excise Tax 6
V PREMIUM AND COMMISSION 6
VI REPORTS AND REMITTANCES 6
VII LETTERS OF CREDIT 7
VIII LOSS SETTLEMENTS 8
IX ARBITRATION 9
X INSOLVENCY 10
XI SERVICE OF SUIT 11
XII COMMENCEMENT AND TERMINATION 11
XIII EXTENSION 11
B. <PAGE>
RETROCESSIONAL AGREEMENT
ARTICLE I - SCOPE OF AGREEMENT
General Security will cede to the Reinsurer and the Reinsurer
will accept as reinsurance from General Security all business
defined as "All Business Underwritten".
ARTICLE II - DEFINITIONS
A. Aggregate Deductible - The term "Aggregate Deductible"
shall mean Forty Seven Million, Four Hundred Ninety Two
Thousand, Six Hundred and Six Dollars ($47,492,606) which
is the sum of;
1. Twenty Million, Five Hundred Fifty One Thousand, Two
Hundred Seventy Eight Dollars ($20,551,278) which is
the amount of net outstanding loss and loss adjustment
expense reserves of General Security at December 31,
1989 for all accident years 1989 and prior as
documented in its 1989 Statutory Annual Statement; and
2. Twenty Six Million Nine Hundred Forty One Thousand,
Three Hundred Twenty Eight Dollars ($26,941,328), which
is the amount of net incurred but not reported losses
of General Security at December 31, 1989 for all
accident years 1989 and prior as documented in its 1989
Statutory Annual Statement.
B. All Business Underwritten - The term "All Business
Underwritten" shall mean all insurance and reinsurance
business underwritten by General Security for all accident
years 1989 and prior.
C. Ultimate Net Losses - The term "Ultimate Net Losses" shall
mean all payments made by General Security commencing
January 1, 1990 with respect to "All Business
Underwritten" in the settlement or satisfaction of claims,
losses, suits or proceedings within the terms and amounts
of the insurance policies issued by and agreements
covering reinsurance assumed by General Security after
making deductions for all salvages or reinsurances,
whether collectible or not. "Ultimate Net Losses" shall
include:
(i) interest accrued prior to judgement where such
interest is part of a judgement;
(ii) loss adjustment expenses as defined below in
Article II, subparagraph E; and
(iii) extra contractual expenses as defined below in
Article II, subparagraph F.<PAGE>
D. Net Ultimate Incurred Losses: The term "Net Ultimate
Incurred Losses" shall initially mean General
Security's:
(i) net losses including net "Loss Adjustment
Expenses"; plus
(ii) net incurred but not reported losses;
outstanding on January 1, 1990 with respect to "All
Business Underwritten," after making deductions for all
salvages and amounts paid or due from all other
insurances or reinsurances, whether collectible or not.
"Net Ultimate Incurred Losses" shall include "Ultimate
Net Losses." "Net Ultimate Incurred Losses" shall be
reestimated as of the last day of each calendar quarter
as provided in Article VI.
E. Loss Adjustment Expenses: The term "Loss Adjustment
Expenses" shall mean all net expenditures made by
General Security including without limit taxed court
costs, statutory penalties and interest accrued after
judgment which are incurred in connection with the
settlement, satisfaction, or defense of a claim, loss,
suit or proceeding, excluding General Security's office
expenses and salaries and expenses of its employees.
F. Extra Contractual Obligations: The term "Extra
Contractual Obligations" shall mean those liabilities
not covered under any other provision of this Agreement
and which arise from handling of any claim on business
covered hereunder, such liabilities arising because of,
but not limited to the following: failure by General
Security to settle within the policy or reinsurance
contract limit, or by reason of alleged or actual
negligence, in rejecting an offer of settlement or in
the preparation of the defense or in the trial of any
action against its insured or reinsured or in the
preparation or prosecution of any appeal consequent
upon such action.
The date on which any Extra Contractual Obligation is
incurred by General Security shall be deemed, in all
circumstances, to be the date of the original accident,
casualty, disaster or loss occurrence, giving rise to
such obligation.
ARTICLE III - REINSURANCE PROVIDED
This is a Net Aggregate Excess of Loss Agreement issued
to General Security by the Reinsurer covering the
"Ultimate Net Losses" and "Net Ultimate Incurred
Losses" arising from "All Business Underwritten" by
General Security.<PAGE>
The Reinsurer shall be liable, as provided below in
Article VI and VII, for the amount by which General
Security's "Net Ultimate Incurred Losses" or "Ultimate
Net Losses" from January 1, 1990 to termination or
extinction for "All Business Underwritten" exceed the
"Aggregate Deductible".
The amount of the Reinsurer's liability hereunder in
respect of any loss or losses shall not be increased by
reason of the inability of General Security to collect
from any other reinsurers, whether specific or general,
any amounts which may have become due from them,
whether such inability arises from the insolvency of
such other reinsurers or otherwise.
ARTICLE IV - CONDITIONS
A. Errors and Omissions: Inadvertent errors or omissions
made by General Security in reporting any claim or loss
under any business reinsured under this Agreement shall
neither increase nor reduce the liability of the
Reinsurer from what that liability would have been had
no such error or omission taken place, provided that as
soon as General Security has notice thereof General
Security shall correct such error or omission
retroactively to the time such error or omission
occurred and advise the Reinsurer.
B. Right of Offset: General Security or the Reinsurer may
offset any balance, whether on account of premium,
commission, claims or losses, adjustment expense,
salvages or any other amount due from one party to the
other under this Agreement or under any other agreement
heretofore or hereafter entered into between General
Security and the Reinsurer or its predecessor whether
acting as assuming reinsurer or as retrocessionaire.
If General Security becomes insolvent, this provision
shall be modified in accordance with the provisions of
ARTICLE X - INSOLVENCY and with Section 7427 of the New
York Insurance Laws.
C. Currency: Premiums or losses payable under this
Agreement shall be in United States Dollars.
D. Territory: This Agreement applies to all business of
General Security written worldwide.
E. Taxes: General Security shall not be liable for paying
any taxes that the Reinsurer would be obligated to pay
arising specifically from this Agreement.
F. Access to Records: The Reinsurer or its authorized
representative shall have the right to inspect at any<PAGE>
reasonable time, all papers, books, accounts,
documents, claims files and other records of General
Security relating to the business reinsured under this
Agreement. The Reinsurer's right of inspection shall
continue to exist after the termination of this
Agreement.
G. Federal Excise Tax: As the present treaty will be
retained on a pure net basis by the Reinsurer, no
Federal Excise Tax will be payable as French reinsurers
are exempt from Federal Excise Tax in accordance with
the Tax Treaty between France and the United States.
The Reinsurer will provide on demand any required proof
that the present treaty is not retroceded by the
Reinsurer.
ARTICLE V - PREMIUM AND COMMISSION
General Security shall pay to the Reinsurer an annual
flat premium of One Hundred Seven Thousand and One
Hundred Dollars (($107,100) commencing on January 1,
1990, and continuing annually through December 31,
2004. The annual premium shall be due in advance on
January 1 of each year.
The commission allowed by the Reinsurer to General
Security under this Agreement shall be NIL.
ARTICLE VI - REPORTS AND REMITTANCES
General Security shall furnish quarterly to the Reinsurer, in
such manner as is acceptable to General Security and the
Reinsurer as statement, within forty-five (45) days after the
close of each quarter showing, as of the last day of the quarter:
1. The amount of the "Aggregate Deductible";
2. The amount of the "Ultimate Net Losses" paid by General
Security during such quarter and a reestimation of "Net
Ultimate Incurred Losses" as of the last day of the
quarter and,
3. The change, if any, during the quarter in the "Ultimate
Net Losses" and "Net Ultimate Incurred Losses" since
the last quarterly report.
If the "Ultimate Net Losses" do not exceed the
"Aggregate Deductible", no payments are due under this
Agreement. If at the close of any quarter, the
"Ultimate Net Losses" exceed the "Aggregate Deductible"
for the first time, the Reinsurer will remit payment,
in cash of an amount equal to the excess of "Ultimate
Net Losses" over the "Aggregate Deductible". <PAGE>
Thereafter, the Reinsurer will remit payment, in cash,
for the increase, if any, in the "Ultimate Net Losses"
since the last report.
Any payments due under this paragraph will be made
within thirty (30) days after receipt of the quarterly
report.
At the Reinsurer's request, General Security's evaluation of
"Ultimate Net Losses" and/or "Net Ultimate Incurred Losses" will
be reviewed by an independent actuary mutually agreed upon the
parties, as soon as possible after the Reinsurer's request. If
such actuary disagrees with General Security's evaluation and
such disagreements are not promptly resolved with General
Security, the calculation of "Ultimate Net Losses" and/or "Net
Ultimate Incurred Losses" by such actuary shall be final and
binding on both General Security and the Reinsurer and not
subject to arbitration as provided in Article IX.
Remittance by General Security or the Reinsurer of any amounts
due based upon such analysis will be made within thirty (30) days
after the written determination of the independent actuary is
delivered to the parties.
ARTICLE VII - LETTERS OF CREDIT
If the "Net Ultimate Incurred Losses" exceed the "Aggregate
Deductible", at the end of any quarter, the Reinsurer shall
provide General Security with a Letter of Credit for the
difference between the "Net Ultimate Incurred Losses" and the
"Aggregate Deductible", less any payments made to General
Security by the Reinsurer for "Ultimate Net Losses" as provided
in Article VI. The Reinsurer shall provide and maintain such
Letter of Credit in any amount sufficient to allow General
Security in its quarterly and annual financial statements to take
full credit for reinsurance ceded under this Agreement in full
compliance with applicable laws and regulations. The Letter of
Credit fees shall be paid by the Reinsurer. At its option, the
Reinsurer may substitute for the Letter of Credit a trust
agreement or any cash or cash equivalent that satisfies
applicable credit for reinsurance laws and regulations.
Any Letter of Credit required under this paragraph will be issued
within thirty (30) days after the receipt of the quarterly
report.
Reinsurer and General Security agree that any letter of credit
provided by the Reinsurer may be drawn upon at any time,
notwithstanding any other provisions in the Reinsurance
Agreement, and be utilized by General Security or any successor
by operation of law of General Security including, without
limitation, any liquidator, rehabilitator, receiver or
conservator of General Security for the following purposes:<PAGE>
(i) to reimburse General Security for the Reinsurer's
share of premiums returned to the owners of policies
reinsured under this Agreement on account of
cancellations of such policies;
(ii) to reimburse General Security for the Reinsurer's
share of surrenders and benefits or losses paid by
General Security under the terms and provisions of the
policies reinsured under this Agreement;
(iii) to fund an account with General Security in an
amount at least equal to the deduction, for reinsurance
ceded, form General Security's liabilities for policies
ceded under this Agreement. Such amount shall include,
but not be limited to, amounts for policy reserves,
reserves for claims and losses incurred (including
losses incurred but not reported), loss adjustment
expenses, and unearned premiums; and
(iv) to pay any other amount General Security claims
are due under this Agreement:
All of the foregoing shall be applied without
diminution because of insolvency on the part of General
Security or the Reinsurer. Any Letter of Credit
required under this paragraph will be issued within
thirty (30) days after receipt of the quarterly report.
ARTICLE VIII - LOSS SETTLEMENTS
The Reinsurer agrees to abide by the loss settlements of General
Security, it being understood, however, that when so requested,
General Security will afford the Reinsurer an opportunity to be
associated with General Security, at the expense of the
Reinsurer, in the defense of any claim or suit or proceeding
involving this reinsurance, and that General Security will
cooperate in every respect in the defense or control of such
claim, suit, or proceeding.
ARTICLE IX - ARBITRATION
All unresolved differences of opinion between General Security
and the Reinsurer relating to this Agreement, including its
formation and validity, whether arising during or after the
period of this Agreement, shall be submitted to arbitration,
except any differences of opinion with respect to the calculation
of "Ultimate Net Losses" or "Net Ultimate Incurred Losses", which
shall be resolved by the independent actuary as provided in
Article VI and Article XIII.
The Board of Arbitration (hereinafter, the "Board") shall consist
of one arbitrator chosen by General Security, one arbitrator to
be chosen by the Reinsurer, and a third arbitrator to be chosen<PAGE>
as promptly as possible by the two arbitrators. The party
demanding arbitration shall communicate its demand therefor,
identifying the nature of the dispute and the name of the
arbitrator to the other, and the latter shall then be bound to
name its arbitrator within thirty days after receipt of the
demand. Failure or refusal to do so shall empower the demanding
party to name the second arbitrator as well. If the two
arbitrators are unable to agree upon a third arbitrator within
thirty days after the second arbitrator is named, each arbitrator
shall name three candidates within ten days thereafter, two of
whom shall be declined by the other arbitrator within fifteen
days after receiving their names, and the choice shall be made
immediately between the two remaining candidates by the party
demanding arbitration drawing lots. The arbitrators shall be
impartial and shall be present or former officials of insurance
or reinsurance companies.
The Board shall have the power to fix all procedural rules for
the holding of the arbitration, including discretionary power to
make orders as to any matters which it may consider proper in the
circumstances of the case with regard to pleading, discovery,
inspection of documents, examination of witnesses, and any other
matter whatsoever relating to the conduct of the arbitration.
The Board shall have the power to receive and act upon such
evidence, whether oral or written, strictly admissible or not, as
it shall in its discretion think fit. It is expressly agreed
that the jurisdiction of the Board to make or render any decision
or award shall be limited by the limits of liability expressly
set forth in this Agreement, and that the Board shall have no
jurisdiction to make any decision or render any award exceeding
such expressly stated liability limit of the parties under this
Agreement.
The decision of the majority of the Board shall be in writing and
shall be final and binding upon the parties. If either of the
parties fails to comply with this decision, the other party may
apply for its enforcement to a court of competent jurisdiction in
which the party in default is domiciled, or has assets, or
carries on business.
Each party shall bear the cost of its own arbitrator and shall
jointly and equally bear with the other party the expense of the
third arbitrator. The remaining costs of the arbitration
proceeding shall be allocated by the Board.
The arbitration shall be held in New York, New York at the times
and places agreed upon by the Board. The laws of the State of
New York shall govern the arbitration.
ARTICLE X - INSOLVENCY
In the event of the insolvency of General Security, claims under
this Agreement shall be payable by the Reinsurer directly to such<PAGE>
insolvent insured or its liquidator, receiver or statutory
successor without diminution because of such insolvency. The
Reinsurer shall be given written notice of the pendency of each
claim which may involve the reinsurance afforded by this
Agreement within a reasonable time after such claim is filed in
the insolvency proceeding.
The Reinsurer shall have the right to investigate each such claim
and interpose, at its own expense, in the proceeding where the
claim is to be adjudicated, any defense which it may deem
available to General Security or its liquidator, receiver or
statutory successor. A proportionate share of the expense thus
incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent General Security as part of the
expense of liquidation to the extent of the benefit accruing to
such insolvent insurer solely as a result of the defense
undertaken by Reinsurer.
The reinsurance shall be payable by the Reinsurer to General
Security or to its liquidator, receiver, conservator or statutory
successor, except as provided by Section 4118 (a) of the New York
Insurance Law or except (a) where the Agreement specifically
provides another payee of such reinsurance in the event of the
insolvency of General Security, and (b) where the Reinsurer with
the consent of the direct insured or insureds have assumed such
policy obligations of General Security as direct obligations of
the Reinsurer to the payee under such policies and in
substitution of the obligations of General Security to such
payees.
ARTICLE XI - SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount
claimed to be due hereunder, the Reinsurer at the request of
General Security will submit to the jurisdiction of any court of
competent jurisdiction within the United States and will comply
with all requirements necessary to give such court jurisdiction
and all matters arising hereunder shall be determined in
accordance with the law and practice of such court.
ARTICLE XII - COMMENCEMENT AND TERMINATION
This Agreement shall commence at 12:01 AM Eastern Standard Time
on January 1, 1990 and, subject to General Security's right to
extend this Agreement as provided in Article XIII - EXTENSION
below, shall expire at Midnight, December 31, 2004 unless, prior
to such date, this Agreement has terminated due to the ultimate
extinction, via final payment, of all "Ultimate Net Loss".
ARTICLE XIII - EXTENSION
General Security shall have the right, at its sole option, to
continue this Agreement beyond December 31, 2004 by requesting<PAGE>
same, in writing, prior to the termination of this Agreement.
Any such continuation of this Agreement shall be upon such terms
and conditions, including provisions for any additional premium,
or return premium, as General Security and the Reinsurer may
agree. Any dispute between General Security and the Reinsurer
with respect to the amount of the "Net Ultimate Incurred Losses"
or "Ultimate Net Losses" which serves as the basis of any
additional premium or return premium, shall be resolved by the
independent actuary, as provided in Article VI.
IN WITNESS, WHEREBY, the parties hereto have caused this
Agreement to be executed in duplicate by their duly authorized
representatives.
In New York, New York, this 3rd day of July, 1990
ATTEST: GENERAL SECURITY ASSURANCE
CORPORATION OF NEW YORK
John T. Andrews By: Rene Daniel Brooks
In Paris, France, this day of , 19
ATTEST: SCOR S.A.
Patrick Peugeot
<PAGE>
AMENDMENT NO. 1
TO
NET AGGREGATE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
NO.
between
GENERAL SECURITY ASSURANCE CORPORATION
OF NEW YORK
New York, New York
(hereinafter referred to as General Security)
and
SCOR S.A.
Paris, France
(hereinafter referred to as the "Reinsurer")
Reinsurer's Reference No.<PAGE>
This Amendment No. 1 to the Net Aggregate Excess of Loss
Retrocessional Agreement between General Security Assurance
Corporation of New York ("General Security") and SCOR S.A.
("Reinsurer"), dated July 3, 1990 ("Net XOL Agreement") is made
and entered into this day of , 1992.
WHEREAS, effective January 1, 1991 General Security assumed from
its wholly-owned subsidiary, The Unity Fire and General Insurance
Company ("Unity"), all of Unity's outstanding liabilities for
business written on or before December 31, 1990;
WHEREAS, Reinsurer reinsures Unity for business written on or
before January 1, 1990 under a Net Aggregate Excess of Loss
Retrocessional Agreement dated July 3rd, 1990 ("Unity
Agreement");
WHEREAS, Unity has assigned, and Reinsurer has consented to the
assignment, to General Security of all of Unity's rights,
benefits and obligations under the Unity Agreement;
WHEREAS, the New York State Department of Insurance
("Department") has directed General Security to amend the Net XOL
Agreement in order to comply with 11NYCRR Chapter IV-D Part 112;
and,
WHEREAS, General Security and Reinsurer intend to terminate the
Unity Agreement and desire to amend the Net XOL Agreement to
incorporate the coverage provided under the Unity Agreement and
to affect the changes required by the Department.
NOW, THEREFORE, in consideration for the covenants and promises
set forth herein, and other good and valuable consideration, the
parties hereto mutually agree as follows:
1. That Article II - Definitions, subparagraphs A. and B.
shall be amended to and shall read as follows:
"ARTICLE II" - DEFINITIONS
A. Aggregate Deductible - The term "Aggregate
Deductible shall mean Ninety Three Million, Eight
Hundred Twenty Nine Thousand Six Hundred and Six
Dollars ($93,829,606) which is the sum of:
1. Forty Nine Million, Six Hundred Eighteen
Thousand and Seventy Eight Dollars
($49,618,078) which is the amount of net
outstanding loss and loss adjustment expense
reserves of General Security and Unity at
December 31, 1989 for all accident years 1989
and prior as documented in the 1989 Statutory
Annual Statements of General Security and
Unity; and,<PAGE>
2. Forty Four Million, Two Hundred Eleven
Thousand Five Hundred and Twenty Eight
Dollars ($44,211,528) which is the amount of
net incurred but not reported losses of
General Security and Unity at December 31,
1989 for all accident years 1989 and prior as
documented in the 1989 Statutory Annual
Statements of General Security and Unity.
B. All Business Underwritten - The term "All Business
Underwritten" shall mean all business underwritten
by General Security for all accident years 1989
and prior, and all business assumed by General
Security from Unity which was underwritten by
Unity for all accident years 1989 and prior."
2. That Article V - Premium and Commission be amended to and
shall read as follows:
"ARTICLE V - PREMIUM AND COMMISSION
As premium for the reinsurance provided hereunder
General Security shall pay to the Reinsurer an annual
flat premium of Two Hundred and Ten Thousand Dollars
($210,000), payable on January 1 of each year until and
including January 1, 2004.
The commission allowed by the Reinsurer to General
Security under this Agreement shall be NIL."
3. That ARTICLE XII - COMMENCEMENT AND TERMINATION be amended to
and shall read as follows:
"ARTICLE XII - COMMENCEMENT AND TERMINATION
This Agreement shall commence at 12:01 AM Eastern
Standard Time on January 1, 1990 and shall terminate at
the ultimate extinction via final payment of all
"Ultimate Net Losses," unless commuted as provided in
Article XIII or, in the event of the insolvency of
General Security, unless cancelled by the
Superintendent of Insurance, acting as its
rehabilitator, liquidator, receiver, conservator or
statutory successor."
4. That Article XIII - Extension be deleted in its
entirety and be replaced with a new Article XIII - Commutation
which shall read as follows:
"ARTICLE XIII - COMMUTATION
In the event General Security desires to terminate this
Net XOL Agreement at December 31 of any year and<PAGE>
finally determine and settle all liabilities and
obligations of Reinsurer hereunder, General Security
shall submit to Reinsurer on or before November 15 of
that year a notice of its intent to terminate and a
statement showing the "Net Ultimate Incurred Losses"
for "All Business Underwritten" as the end of the
immediately preceding calendar quarter; such statement
shall show the elements considered reasonable to
establish the "Net Ultimate Incurred Losses"
("Preliminary Statement"). Reinsurer shall indicate in
writing its acceptance of the Preliminary Statement
within thirty (30) days from the date of the
Preliminary Statement. If Reinsurer accepts the
Preliminary Statement, General Security shall submit to
Reinsurer within sixty (60) days from the end of the
calendar year a final statement showing the "Net
Ultimate Incurred Losses" as of December 31 ("Final
Statement") and the Reinsurer shall pay the amount set
forth in the Final Statement.
If Reinsurer does not agree with the calculation set
forth in the Preliminary Statement, Reinsurer shall
have the right to have the "Net Ultimate Incurred
Losses" determined by an independent actuary or
appraiser. Within fifteen (15) days from the date of
the Preliminary Statement Reinsurer shall notify
General Security of its rejection of the Preliminary
Statement and its request for an independent actuarial
determination of the "Net Ultimate Incurred Losses"
("Rejection Notice"). Upon receipt of the Rejection
Notice General Security and the Reinsurer shall
mutually appoint any independent actuary or appraiser
to investigate and determine such losses as of December
31. The determination in writing of the actuary shall
be filed with the parties hereto on or before the
immediately succeeding March 1 and shall be final and
binding on both parties. The Reinsurer shall pay the
amount so determined to be the value of such losses
within fifteen (15) days from the date of the final
actuarial determination.
The actuary shall be regularly engaged in the valuation
of casualty claims and shall be a Fellow of the
Casualty Actuarial Society or of the American Academy
of Actuaries, and shall not be under the control or be
an affiliate of either party to this Net XOL Agreement.
The expense of the actuary shall be equally divided
between the two parties."
IN WITNESS WHEREBY, the parties hereto have caused this Amendment
No. 1 to be executed in duplicate by their duly authorized
representatives.<PAGE>
In New York, New York, this 21st day of August, 1992
ATTEST: GENERAL SECURITY ASSURANCE
CORPORATION OF NEW YORK
BY:
Maxine H. Verne John T. Andrews, Jr.
In Paris, France, this 18th day of September, 1992
ATTEST: SCOR S.A.
BY:
---------------- Jacques Blondeau
<PAGE>
AMENDMENT NO. 2
TO
NET AGGREGATE EXCESS OF LOSS
RETROCESSIONAL AGREEMENT
NO.
between
GENERAL SECURITY ASSURANCE CORPORATION
OF NEW YORK
New York, New York
(hereinafter referred to as General Security)
and
SCOR S.A.
Paris, France
(hereinafter referred to as the "Reinsurer")
Reinsurer's Reference No.<PAGE>
This Amendment No. 2 to the Net Aggregate Excess of Loss
Retrocessional Agreement between General Security Assurance
Corporation of New York ("General Security") and SCOR S.A.
("Reinsurer"), dated July 3, 1990 ("Net XOL Agreement") is made
and entered into this 6th day of May, 1994.
WHEREAS, effective January 1, 1994 General Security was merged
with and into SCOR Re;
WHEREAS, pursuant to the terms of the Plan and Agreement of
Merger between General Security and SCOR Re, dated January 8,
1993 ("Merger Agreement"), SCOR Re assumed all of General
Security's outstanding obligations and liabilities, including
liabilities for business written on or before December 31, 1990;
WHEREAS, Reinsurer reinsures General Security for business
written on or before January 1, 1990 under a Net Aggregate Excess
of Loss Retrocessional Agreement dated July 3, 1990 (" GS
Agreement");
WHEREAS, by operation of law, all of General Security's rights,
benefits and obligations under the GS Agreement were transferred
to and assumed by SCOR Re;
WHEREAS, the parties desire to amend the GS Agreement to reflect
the merger of General Security into SCOR Re and to properly
identify the parties.
NOW, THEREFORE, in consideration for the covenants and promises
set forth herein, and other good and valuable consideration, the
parties hereto mutually agree as follows:
1. That any and all references in the Agreement to General
Security Assurance Corporation of New York shall be amended to
SCOR Reinsurance Company.
2. That any and all references to the defined term
"General Security" shall be amended to "SCOR Re".
3. That Article XIII - Commutation be deleted in its
entirety.
IN WITNESS WHEREBY, the parties hereto have caused this Amendment
No. 2 to be executed in duplicate by their duly authorized
representatives.<PAGE>
In New York, New York, this 6th day of May, 1994
ATTEST: GENERAL SECURITY ASSURANCE
CORPORATION OF NEW YORK
Maxine H. Verne BY: Sylvain R. Boueil
In New York, New York, this 5th day of May, 1994
ATTEST: SCOR S.A.
--------------------- BY: Jacques Blondeau<PAGE>
EXHIBIT 10(g)
EXPENSE ALLOCATION AGREEMENT
Agreement entered into as of the 1st day of January 1991
by and between SCOR U.S. Corporation, a Delaware corporation ("SCOR
U.S."), Scor Reinsurance Company, a New York domestic reinsurer ("Scor
Re"), Scor Services, Inc., a Delaware corporation, ("SSI"), Bind,
Inc., a Texas domestic reinsurance intermediary ("Bind"), The Unity
Fire and General Insurance Company, a New York domestic reinsurer
("Unity"), and General Security Assurance Corporation of New York, a
New York domestic reinsurer ("General Security").
WHEREAS, on July 3, 1990, Rockleigh Management
Corporation ("Rockleigh") was merged into SCOR U.S.; and
WHEREAS, prior to such merger, Rockleigh owned 100% of
the stock of Unity and General Security; and
WHEREAS, prior to such merger, SCOR U.S. owned 100% of
the stock of Scor Re; and
WHEREAS, as a result of such merger, SCOR U.S. now owns
100% of the stock of each of Scor Re, Unity and General Security; and
WHEREAS, SSI is a wholly-owned subsidiary of SCOR U.S.
and Bind is a wholly-owned subsidiary of SSI; and
WHEREAS, there is currently an Expense Allocation
Agreement between SCOR U.S. and Scor Re, and
WHEREAS, SCOR U.S. now desires to include SSI and Bind
under its Expense Allocation Agreement; and
WHEREAS, there is currently an Expense Allocation
Agreement between SCOR U.S., (as successor to Rockleigh) and Unity and
General Security; and
WHEREAS, SCOR U.S., Scor Re, SSI, Bind, Unity and General
Security (collectively referred to as the "Companies") desire to enter
into one agreement providing for the exchange of services between each
other; and WHEREAS, the Companies are willing to reimburse each other
for their allocated share of such services;
NOW, THEREFORE, the Companies in consideration of the
mutual premises contained herein, hereby agree as follows:
1.a. The Companies agree that their personnel, including officers,
will act for and on behalf of the other parties on an as needed basis
in the same capacity as they act for and on behalf of each such
company, subject to the supervision, standards, and guidelines
established by the Board of Directors of the respective parties to
this Agreement.
b. SCOR U.S., Scor Re, and Unity (Bind, General Security and SSI
having no employees of their own) agree to make their employees
available to each other to act for and on behalf of the Companies
subject to the supervision, standards, and guidelines established by
the Board of Directors of the respective parties to this Agreement.<PAGE>
c. Services to be provided by such personnel and employees will
include those indicated on Exhibit I annexed hereto and made a part
hereof and such other services as may be necessary and proper to
conduct the business and operations of the Companies.
2. The Companies each mutually agree to reimburse the other for the
costs and expenses incurred in providing all services rendered
pursuant to this Agreement and in accordance with Section 1505(a) of
the New York Insurance Law.
3. The total costs and expenses for the services provided will be
allocated to the Companies based on actual costs and utilizing the
applicable bases. Such bases will include, but are not limited to,
time records, base compensation, head count, direct costs for
compensation and benefits of employees of each of the Companies, rent,
leasehold improvements, floor space, fixed assets, property taxes,
disk storage space and the actual number of terminals and
workstations. Such costs and expense shall be allocatedon an
equitable basis in conformity with customary insurance accounting
practices, however, in no event will such allocations exceed the costs
and expenses each of the Companies would have incurred in providing
the services individually.
4. Specifically, compensation for services rendered by the
Companies shall be based on the following:
a. for personnel - such personnel's monthly compensation, including
salary, payroll taxes, social security taxes and fringe benefits based
on the time spent rendering such services.
b. for office space - the pro rata share of the actual monthly
charges for the space based on actual square footage, property taxes,
fixed assets and utilities usage.
c. for data processing - actual costs based on the number of
workstations and terminals and disc storage space.
5. SCOR U.S. will prepare and deliver to each of the Companies
within 30 days from the end of each month a monthly statement of the
services provided, the allocation of costs and expenses related
thereto for each of the Companies and the amounts due from any of the
Companies to another, and the companies will remit any amounts due not
later than 45 days after the end of the month. All statements
rendered to the Companies shall be accompanied by sufficient
documentation to meet the requirements of Section 1217 of the New York
Insurance Law.
The basis for such cost expense reimbursement shall be reviewed on a
quarterly basis in accordance with review procedures established by
the audit committees of the Board of Directors of the Companies, and
the results of such reviews shall be reported to the Board of
Directors.
6.a. The parties hereto agree to keep records, in such format as is in
compliance with new York Insurance Department Regulation No. 30 (11
NYCRR Parts 105-109) and as may be mutually agreed upon, of all time
spent and actual costs and expenses incurred in providing the services
pursuant to this Agreement.<PAGE>
b. The separate books, accounts and records of each party to this
Agreement shall be so maintained as to clearly and accurately disclose
the nature and details of each transaction undertaken, including such
accounting information as is necessary to support the reasonableness
of the reimbursements made hereunder, and shall be sufficient detail
to meet the requirements of statutory examinations conducted by the
New York Insurance Department.
c. The Companies will have the right to audit and review such books,
accounts and records at any time upon reasonable notice and during
regular business hours. Upon completion of such review, the
allocations may, if necessary, be revised to satisfy the requirements
of Section 1505(a) of the New York Insurance Law and New York
Insurance Department Regulation No.30 (11 NYCRR Parts 105-109).
7. All books and records established by the Companies in connection
with the providing of services and office space, as provided for under
this Agreement shall at all times, remain the property of the company
establishing such records.
8. The parties agree that each may, at any time, demand and receive
copies of any and all documents, materials, papers, books and records
of any kind, pertaining to the services pursuant to this Agreement.
If any regulatory body shall request any records or data of any kind
relating to either of the parties under this Agreement, the parties
agree that such shall be made available.
9. All books, records, files, securities and other documents of the
Companies shall be separately kept and maintained for each individual
company; and each company shall be managed as to maintain their
separate operating identities.
10. Any controversy or claim arising out of or relating to this
Agreement or the breach thereof, shall be settled by arbitration in
New York City in accordance with the rules then obtaining of the
American Arbitration Association, and judgment upon the award rendered
may be entered in any court having competent jurisdiction.
11. This Agreement shall remain in effect with respect to each party
until terminated by any party by giving at least 30 days prior written
notice mailed to the other parties by certified or registered mail,
return receipt requested, upon expiration of such notice period this
Agreement will terminate with respect to the party giving such notice.
12. This Agreement may not be assigned by any party without the prior
written consent of the other parties hereto and the Superintendent of
Insurance of the State of New York.
13. Any amendment or modification of this Agreement shall be in
writing, signed by the parties and no such amendment or modification
shall be executed without the prior approval of the Superintendent of
Insurance of the State of New York.
14. All of the terms of this Agreement, whether so expressed or not,
shall be binding upon the respective personal representatives,
successors and assigns of the parties hereof and shall inure to the
benefit of and be enforceable by the parties hereto and their
respective personal representatives, successors and assigns.<PAGE>
15. All of the terms, provisions and conditions of this Agreement
shall be construed according to the laws of the State of New York.
16. If any provision of this Agreement shall be held invalid or in
conflict with the laws of any state, this Agreement shall be deemed
amended to comply with the minimum requirements of such laws without
affecting the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and their respective corporate seals to be affixed
hereto on the dates executed as indicated below.
SCOR U.S. CORPORATION
By:
Jerome Karter
Executive Vice President
Date:
ATTEST:
Maxine H. Verne
Vice President, Associate General
Counsel and Assistant Secretary
(SEAL)
SCOR REINSURANCE COMPANY
By:
John T. Andrews, Jr.
Senior Vice President, General
Counsel and Secretary
Date:
ATTEST:
Maxine H. Verne
Vice President, Associate General
Counsel and Assistant Secretary
(SEAL)
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
By:
John T. Andrews, Jr.
Senior Vice President, General
Counsel and Secretary
Date:
ATTEST:
Maxine H. Verne
Vice President, Associate General
Counsel and Assistant Secretary
(SEAL)
GENERAL SECURITY ASSURANCE CORPORATION OF NEW YORK
By:
John T. Andrews, Jr.
Senior Vice President, General
Counsel and Secretary<PAGE>
Date:
ATTEST:
Maxine H. Verne
Vice President, Associate General
Counsel and Assistant Secretary
(SEAL)
BIND, INC.
By:
John T. Andrews, Jr.
Senior Vice President, General
Counsel and Secretary
Date:
ATTEST:
Maxine H. Verne
Vice President, Associate General
Counsel and Assistant Secretary
(SEAL)
SCOR SERVICES, INC.
By:
John T. Andrews, Jr.
Senior Vice President, General
Counsel and Secretary
Date:
ATTEST:
Maxine H. Verne
Vice President, Associate General
Counsel and Assistant Secretary
(SEAL)<PAGE>
Exhibit I
Services
Services Provided by To
---------------------------------------------------------
Accounting/ SCOR U.S. Bind
Financial Management General Security
Scor Re
SSI
Unity
Scor Re General Security
Unity
Unity Scor Re
--------------------------------------------------------
Actuarial SCOR U.S. General Security
Scor Re
Unity
--------------------------------------------------------
Claims Scor Re General Security
Unity
Unity Scor Re
Data Processing Scor Re Bind
General Security
SCOR U.S.
SSI
Unity
Unity Scor Re
------------------------------------------------------------
Human Resources SCOR U.S. Bind
General Security
Scor Re
SSI
Unity
------------------------------------------------------------
Investment Management SCOR U.S. Bind
General Security
Scor Re
SSI
Unity
Services Provided by To
--------------------------------------------------------------------
Legal SCOR U.S. Bind
General Security
Scor Re
SSI
Unity
------------------------------------------------------------------<PAGE>
Services Provided by To
---------------------------------------------------------
Marketing SCOR U.S. Bind
General Security
Scor Re
SSI
Unity
------------------------------------------------------------------
Office Space Scor Re SCOR U.S.
Treasury SCOR U.S. Bind
General Security
Scor Re
SSI
Unity<PAGE>
EXHIBIT 10(g)
AMENDMENT TO EXPENSE AGREEMENT
This Amendment to Agreement made this 11th day of December,
1992, by and between SCOR U.S. Corporation ("SCOR U.S."); SCOR
Reinsurance Company; SCOR Services, Inc.; Bind, Inc.; General
Assurance Corporation of New York; The Unity Fire and General
Insurance Company , NARG, Inc. (collectively, the "Companies") is
intended to amend the Expense Allocation Agreement dated January 1,
1991, (" Agreement") between the above-named parties.
WHEREAS, subsequent to the date of the Agreement, SCOR U.S.
acquired all of the capital stock of Morgard, Inc. ("Morgard"),
effective as of February 21, 1992; and
WHEREAS, all of the oustanding capital stock of the
International Insurance Company of Takoma Park, Maryland ("IIC"), was
acquired by SCOR Reinsurance Company, a wholly-owned subsidiary of
SCOR U.S., effective December 4, 1992; and
WHEREAS, SCOR U.S., on the one hand, and Morgard and IIC, on the
other hand, desire that Morgard and IIC each become a party to the
Agreement, effective as of the respective dates of acquisition; and
WHEREAS, SCOR U.S. on the one hand, and Southwest International
Reinsurance Company ("SIRCO") a subsidiary of SCOR U.S., on the other
hand, desire that SIRCO become a party to this Agreement effective
January 1, 1993; and
WHEREAS, the parties desire to amend the Agreement to reflect
the aforesaid and to include Morgard, IIC and SIRCO as parties to
the Agreement.
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein, the parties hereto agree that the Agreement shall
be amended as follows:
1. That, for the purposes of this Amendment to Agreement,
the term "Companies" shall include Morgard, IIC and SIRCO effective
as of February 21, 1992, December 4, 1992 and January 1, 1993
respectively.
2. That, for the purposes of this Amendment to Agreement,
Section 1.b of the Agreement is hereby amended in its entirety to
read as follows:
"b. SCOR U.S., SCOR Re, General Security and Morgard, Inc.
(Bind, Unity, SSI, IIC and SIRCO having no employees of their own),
agree to make their employees available to each other to act for and
on behalf of the Companies subject to the supervision, standards, and
guidelines established by the Board of Directors of the respective
parties to this Agreement."
3. That, for the purposes of this Amendment to Agreement,
Exhibit I to the Agreement is hereby amended in its entirety to be
substantially in the form attached hereto as Exhibit A.<PAGE>
4. That, aside from the foregoing, the Agreement shall
continue to be binding upon the parties with regard to all the
provisions contained therein.
IN WITNESS WHEREOF, the Parties hereto have caused this
Amendment to Expense Agreement to be executed the day and year first-
above written.
SCOR U.S. CORPORATION
Maxine H. Verne William K. Lowry, Jr.
Assistant Secretary Senior Vice President
SCOR REINSURANCE COMPANY
Maxine H. Verne William K. Lowry, Jr.
Assistant Secretary Senior Vice President
SCOR SERVICES, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
BIND, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
NARG, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
MORGARD, INC.
Mark A. Welshons Phillip L. Chapman
Assistant Secretary President
THE INTERNATIONAL INSURANCE COMPANY OF TAKOMA PARK, MARYLAND
Mark A. Welshons John T. Andrews, Jr.
Assistant Secretary Senior Vice President
SOUTHWEST INTERNATIONAL REINSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President<PAGE>
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
GENERAL SECURITY ASSURANCE CORPORATION OF NEW YORK
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
NARG, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
MORGARD, INC.
Maxine H. Verne Richard T. Harris
Assistant Secretary President<PAGE>
Exhibit I
Services
Services Provided by To
-----------------------------------------------------------
Investment Management SCOR U.S. Bind
General Security
SCOR Re
SSI
Unity
Morgard
IIC
SIRCO
------------------------------------------------------------
Legal SCOR U.S. Bind
General Security
SCOR Re
SSI
Unity
` Morgard
IIC
SIRCO
------------------------------------------------------------
Marketing SCOR U.S. Bind
General Security
SCOR Re
SSI
Unity
Morgard
IIC
SIRCO
------------------------------------------------------------
Office Space SCOR Re SCOR U.S.
------------------------------------------------------------
Treasury SCOR U.S. Bind
General Security
SCOR Re
SSI
Unity
Morgard
IIC
SIRCO<PAGE>
EXHIBIT 10(g)
AMENDMENT NO. 2 TO EXPENSE AGREEMENT
This Amendment No. 2 to Expense Allocation Agreement made this
5th day of May, 1994, by and between SCOR U.S. Corporation ("SCOR
U.S."); SCOR Reinsurance Company; SCOR Services, Inc.; Bind, Inc.;
California Reinsurance Management Corporation; The International
Insurance Company of Takoma Park, Maryland, now known as General
Security Insurance Company; Southwest International Reinsurance
Company, now known as General Security Indemnity Company; The Unity
Fire and General Insurance Company and NARG, Inc.(collectively, the
"Companies") is intended to amend the Expense Allocation Agreement
dated January 1, 1991, as amended December 11th, 1992 ("Amended
Agreement") between the above-named parties.
WHEREAS, effective January 1, 1994 General Security Assurance
Corporation of New York ("GSANY"), an original party to the Amended
Agreement, was merged with and into SCOR Reinsurance Company; and,
WHEREAS, effective January 12, 1993 the charter of the
International Insurance Company of Takoma Park, Maryland was amended
to change the name of the company to General Security Insurance
Company and such amendment was approved by and filed with the
Commissioner of Insurance of the State of Maryland; and,
WHEREAS, effective August 30, 1993 the charter of Southwest
International Reinsurance Company was amended to change the name of
the company to General Security Indemnity Company, which amendment
was approved by and filed with the Superintendent of Insurance of the
State of New York; and
WHEREAS, SCOR U.S. and its subsidiary, California Reinsurance
Management Corporation ("Cal Re"), each desire that Cal Re become a
party to the Amended Agreement effective April 1, 1994; and
WHEREAS, the parties now desire to amend the Amended Agreement
to reflect the aforesaid and to include Cal Re, as a party to the
Amended Agreement.
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein, the parties hereto agree that the Amended Agreement
shall be amended as follows:
4. That any and all references in the Amended Agreement
to GSANY shall be deleted in their entirety; and, that any all
references to International Insurance Company of Takoma Park,
Maryland ("IIC") shall be changed to and shall read as General
Security Insurance Company ("GSIC"); and that any and all references
to Southwest International Reinsurance Company ("SIRCO") shall be
changed to and shall read as General Security Indemnity Company
("GSInd").
2. That effective April 1, 1994 the term "Companies"
shall include Cal Re.
3. That Section 1.b. of the Amended Agreement is hereby
amended in its entirety to read as follows:<PAGE>
"b. SCOR U.S., SCOR Re, Cal Re and Morgard, Inc. (Bind,
Unity, SSI, GSIC and GSInd having no employees of their
own), agree to make their employees available to each other
to act for and on behalf of the Companies subject to the
supervision, standards, and guidelines established by the
Board of Directors of the respective parties to this
Agreement."
5. That Exhibit I to the Amended Agreement is hereby
amended in its entirety to be substantially in the form attached
hereto as Exhibit A.
6. That, aside from the foregoing, the Amended Agreement
shall continue to be binding upon the parties with regard to all the
provisions contained therein.
IN WITNESS WHEREOF, the Parties hereto have caused this
Amendment No. to Expense Agreement to be executed the day and year
first-above written.
SCOR U.S. CORPORATION
Maxine H. Verne Jeffrey D. Cropsey
Assistant Secretary Senior Vice President
SCOR REINSURANCE COMPANY
Maxine H. Verne Jeffrey D. Cropsey
Assistant Secretary Senior Vice President
SCOR SERVICES, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
BIND, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President<PAGE>
NARG, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
MORGARD, INC.
Mark A. Welshons Phillip L. Chapman
Assistant Secretary President
GENERAL SECURITY INSURANCE COMPANY
Mark A. Welshons John T. Andrews, Jr.
Assistant Secretary Senior Vice President
GENERAL SECURITY INDEMNITY COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President<PAGE>
Exhibit I
Services
Services Provided by To
------------------------------------------------------------
Accounting/ SCOR U.S. Bind
Financial Management Cal Re
GSIC
Morgard
GSInd
SCOR Re
SSI
UCA
Unity
------------------------------------------------------------
Actuarial SCOR U.S. GSIC
GSInd
SCOR Re
Unity
------------------------------------------------------------
Claims SCOR Re Cal Re
GSIC
GSInd
Unity
------------------------------------------------------------
Data Processing SCOR Re Bind
GSIC
GSInd
SCOR U.S.
SSI
Unity
------------------------------------------------------------
Human Resources SCOR Re Bind
Cal Re
GSIC
GSInd
Morgard
SCOR Re
SSI
------------------------------------------------------------
Investment Management SCOR U.S. Bind
Cal Re
GSIC
GSInd
Morgard
SCOR Re
SSI
Unity<PAGE>
Services
Services Provided by To
------------------------------------------------------------
Legal SCOR U.S. Bind
Cal Re
GSIC
GSInd
Morgard
SCOR Re
SSI
Unity
------------------------------------------------------------
Marketing SCOR U.S. Bind
GSIC
GSInd
Morgard
SCOR Re
SSI
Unity
------------------------------------------------------------
Office Space SCOR Re SCOR U.S.
------------------------------------------------------------
Treasury SCOR U.S. Bind
GSIC
GSInd
SCOR U.S.
SSI
Unity
------------------------------------------------------------<PAGE>
EXHIBIT 10(g)
AMENDMENT NO. 3 TO EXPENSE AGREEMENT
This Amendment No. 3 to Expense Allocation Agreement made this
6th day of January, 1995, by and between SCOR U.S. Corporation ("SCOR
U.S."); SCOR Reinsurance Company; SCOR Services, Inc.; Bind, Inc.;
California Reinsurance Management Corporation; The International
Insurance Company of Takoma Park, Maryland, now known as General
Security Insurance Company; Southwest International Reinsurance
Company, now known as General Security Indemnity Company; The Unity
Fire and General Insurance Company , NARG, Inc. and Unistrat
Corporation of America (collectively, the "Companies") is intended to
amend the Expense Allocation Agreement dated January 1, 1991, as
amended December 11th, 1992 and May 5, 1994 ("Amended Agreement").
WHEREAS, effective January 1, 1995 SCOR U.S. intends to transfer
all of its employees to SCOR Reinsurance Company and shall thereafter
have no employees of its own; and,
WHEREAS, Unistrat Corporation of America ("UCA") is an affiliate
of SCOR U.S.; and,
WHEREAS UCA is a managing general agent for certain subsidiaries
of SCOR U.S.; and,
WHEREAS, SCOR U.S. and UCA each desire that SCOR U.S. and its
subsidiaries provide certain services to UCA pursuant to the Amended
Agreement effective January 1, 1995; and
WHEREAS, the parties now desire to amend the Amended Agreement to
reflect the aforesaid and to include UCA, as a party to the Amended
Agreement.
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein, the parties hereto agree that the Amended Agreement
shall be amended as follows:
1. That effective January 1, 1995 the term "Companies"
shall include UCA.
3. That Section 1.b. of the Amended Agreement is hereby
amended in its entirety to read as follows:
"b. SCOR Re, Cal Re and Morgard, Inc. (SCOR U.S.
Bind, Unity, SSI, GSIC and GSInd having no
employees of their own), agree to make their
employees available to each other to act for and
on behalf of the Companies subject to the
supervision, standards, and guidelines established
by the Board of Directors of the respective
parties; and agree to make clerical and
administrative employees available to UCA, subject
to the supervision, standards, and guidelines
established by the Board of Directors of the
respective parties hereto."<PAGE>
2. That Exhibit I to the Amended Agreement is hereby
amended in its entirety to be substantially in the form attached
hereto as Exhibit A.
3. That, aside from the foregoing, the Amended Agreement
shall continue to be binding upon the parties with regard to all the
provisions contained therein.
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment
No. 3 to Expense Agreement to be executed the day and year first-above
written.
SCOR U.S. CORPORATION
Maxine H. Verne Jeffrey D. Cropsey
Assistant Secretary Senior Vice President
SCOR REINSURANCE COMPANY
Maxine H. Verne Jeffrey D. Cropsey
Assistant Secretary Senior Vice President
SCOR SERVICES, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
BIND, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
NARG, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President<PAGE>
MORGARD, INC.
Mark A. Welshons Phillip L. Chapman
Assistant Secretary President
GENERAL SECURITY INSURANCE COMPANY
Mark A. Welshons John T. Andrews, Jr.
Assistant Secretary Senior Vice President
GENERAL SECURITY INDEMNITY COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
UNISTRAT CORPORATION OF AMERICA
Secretary Senior Vice President<PAGE>
Exhibit I
Services
Services Provided by To
------------------------------------------------------------
Accounting/ SCOR Re Bind
Financial Management Cal Re
GSIC
Morgard
GSInd
SCOR U.S.
SSI
UCA
Unity
------------------------------------------------------------
Actuarial SCOR Re GSIC
GSInd
Scor U.S.
UCA
Unity
------------------------------------------------------------
Claims SCOR Re Cal Re
GSIC
GSInd
UCA
Unity
------------------------------------------------------------
Data Processing SCOR Re Bind
GSIC
GSInd
SCOR U.S.
SSI
UCA
Unity
------------------------------------------------------------
Human Resources SCOR Re Bind
Cal Re
GSIC
GSInd
Morgard
SCOR U.S.
SSI
UCA
------------------------------------------------------------
Investment Management SCOR Re Bind
Cal Re
GSIC
GSInd
Morgard
SCOR U.S.
SSI
Unity
UCA<PAGE>
Services
Services Provided by To
------------------------------------------------------------
Legal SCOR Re Bind
Cal Re
GSIC
GSInd
Morgard
SCOR U.S.
SSI
Unity
UCA
------------------------------------------------------------
Marketing SCOR Re Bind
GSIC
GSInd
Morgard
SCOR U.S.
SSI
Unity
UCA
------------------------------------------------------------
Office Space SCOR U.S. Cal Re
Morgard
SCOR Re
UCA
------------------------------------------------------------
Treasury SCOR Re Bind
GSIC
GSInd
SCOR U.S.
SSI
UCA
Unity
------------------------------------------------------------<PAGE>
EXHIBIT 10(h)
AMENDED CONSOLIDATED FEDERAL INCOME
TAX LIABILITY ALLOCATION AGREEMENT
between
SCOR U.S. CORPORATION
hereinafter call the "Parent Company," on the one part
and
SCOR REINSURANCE COMPANY,
SCOR SERVICES, INC.
BIND, INC.
THE UNITY FIRE AND GENERAL INSURANCE COMPANY,
GENERAL SECURITY ASSURANCE CORPORATION OF NEW YORK,
NARG, INC.
All six being subsidiaries of the Parent Company, hereinafter called
individually the "Subsidiary" and collectively the "Subsidiaries," on
the other part,
WHEREAS, it appears that certain benefits might be derived jointly by
the Parent Company and its Subsidiaries from the filing of
consolidated federal income tax returns, as legally permitted under
the Internal Revenue Code; and
WHEREAS, each of the Subsidiaries agrees to be a party to the
consolidated federal income tax agreement, and the Parent Company
agrees to file the consolidated federal income tax return on behalf of
the participating affiliated Group;
NOW, THEREFORE, the parties upon their individual participation and
effective with tax year 1990, hereto agree as follows:
1. Each Subsidiary will furnish all necessary information and
data to the Parent Company so as to enable it to prepare and file
consolidated federal income tax returns, as required under the
Internal Revenue Code and the regulations of the Internal Revenue
Service.
2. Each Subsidiary will provide the Parent Company with
sufficient funds corresponding to its individual federal income
tax liability, so as to enable the Parent Company to proceed to
the payment of the consolidated income taxes as required under
the Federal Tax Laws and Regulations. All settlements under this
Agreement shall be made within 30 days of the filing of the
applicable estimated or actual consolidated federal corporate
income tax return with the Internal Revenue Service, except
where a refund is due to Parent Company, in which case, it may
defer payment to the Subsidiary to within 30 days of receipt of
such refund.
3. The tax charge to any Subsidiary under this Agreement shall<PAGE>
not be more than it would have paid if it had filed on a separate
return basis. The Subsidiary shall be "paid" for any foreign tax
credits, investment credits, losses or nay loss carry over
(collectively herein referred to as "credits") generated by it,
to the extent actually used in the consolidated return. Payment
shall be equal to the "savings" generated by its credits. All
payments shall be recorded on the Subsidiary's books as
contributed surplus.
4. To help assure any Subsidiary's enforceable right to recoup
federal income taxes in the event of future net losses an escrow
consisting of assets eligible as an investment for such
Subsidiary shall be established and maintained by the Parent
Company in an amount equal to the excess of the amount paid by
such Subsidiary to the Parent Company for federal taxes over the
actual payment made by the Parent Company to the Internal Revenue
Service. The escrow account shall be established at such time as
the amount any Subsidiary pays the Parent Company for federal
income taxes exceeds the actual amount of income taxes ICNA
Holding pays to the Internal Revenue Service. Escrow Assets may
be released to the Parent Company from the escrow account at such
time as the permissible period for loss carrybacks has elapsed.
The terms of the escrow account will be those set forth in the
proposed Escrow Agreement attached hereto as Exhibit A.
5. Tax losses carried forward shall be treated in accordance
with Generally Accepted Accounting Principles.
6. Adjustments shall be made if taxable income, special
deductions or credits reported in a consolidated return are
revised by the Internal Revenue Service, or other appropriate
authority.
7. The Agreement may be terminated if:
a. The parties hereto agree in writing to such
termination; or
b. membership in the affiliated Group ceases or is
terminated for any reason whatsoever; or
c. the affiliated Group fails to file a consolidated
return for any taxable year.
8. Notwithstanding the termination of this Agreement, its
provisions will remain in effect, with respect to any period of
time during the tax year in which termination occurs, for which
the income of the terminating party must be included in the
consolidated return.
9. The Agreement shall not be assignable to any party without
the prior written consent of the others.
10. Should any difference of opinion arise between or among any
of the parties to this Agreement which cannot be resolved in the
normal course of business with respect to the interpretation of
this Agreement or the implementation of performance of the
respective obligation of the parties under this Agreement, the
difference shall be submitted to standard arbitration.
11. Notwithstanding the termination of this Agreement, all
materials including, but not limited to, returns, supporting<PAGE>
schedules, workpapers, correspondence and other documents
relating to the consolidated return shall be made available to
any party to the agreement during regular business hours.
IN WITNESS THEREOF, the parties hereto, by their respective duly
authorized officers, have executed this Agreement in quintuplicate at:
New York, New York, this 19th day of September, 1990
SCOR U.S. CORPORATION
Maxine H. Verne William K. Lowry, Jr.
Assistant Secretary Sr. Vice President
SCOR REINSURANCE COMPANY
Maxine H. Verne William K. Lowry, Jr.
Assistant Secretary Sr. Vice President
SCOR SERVICES, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Sr. Vice President
BIND, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Sr. Vice President
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Sr. Vice President
GENERAL SECURITY ASSURANCE CORPORATION OF NEW YORK
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Sr. Vice President
NARG, INC.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Sr. Vice President<PAGE>
EXHIBIT 10(h)
AMENDMENT No. 2 TO TAX AGREEMENT
This Amendment No. 2 to Tax Agreement made this 5th day of May,
1994, by and between SCOR U.S. Corporation ("Parent Company") and SCOR
Reinsurance Company; SCOR Services, Inc.; Bind, Inc.; California
Reinsurance Management Company; General Security Insurance Company,
formerly known as International Insurance Company of Takoma Park,
Maryland; General Security Indemnity Company, formerly known as
Southwest International Reinsurance Company; Morgard, Inc.; and The
Unity Fire and General Insurance Company and NARG, Inc. (individually,
a "Subsidiary" and collectively, the "Subsidiaries") is intended to
amend an Amended Consolidated Federal Income Tax Liability Allocation
Agreement dated May 2, 1991, ("Agreement") between the above-named
parties.
WHEREAS, effective August 30, 1993, the charter of Southwest
International Reinsurance Company was amended to change the name of
the company to General Security Indemnity Company ("GSInd");
WHEREAS, effective January 12, 1993, the charter of International
Insurance Company of Takoma Park, Maryland was amended to change the
name of the company to General Security Insurance Company ("GSIC");
and
WHEREAS, effective January 1, 1994 General Security Assurance
Corporation of New York ("GSANY"), an original party to the Agreement,
was merged with and into SCOR Reinsurance Company; and
WHEREAS, the parties desire to amend the Agreement to reflect the
aforesaid events.
NOW, THEREFORE, in consideration of the premises and covenants
set forth herein, the parties hereto agree that the Agreement shall be
amended as follows:
i. That, the terms "Subsidiary" or "Subsidiaries" as
defined in the Agreement shall not include GSANY and
all references to GSANY shall be deleted in their
entirety, effective as of January 1, 1994.
ii. That, any and all references in the Agreement to
(a) Southwest International Reinsurance Company
("SIRCO") shall be deleted and General Security
Indemnity Company ("GSInd") shall be substituted in
lieu thereof, and to (b) International Insurance
Company of Takoma Park, Maryland shall be deleted and
General Security Insurance Company ("GSIC") shall be
substituted in lieu thereof.
3. That aside from the foregoing, the Agreement shall
continue to be binding upon the parties with regard to all the
provisions contained therein.<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Amendment
No. 2 to Tax Agreement to be executed the day and year first-above
written.
SCOR U.S. CORPORATION
Maxine H. Verne Jeffrey D. Cropsey
Maxine H. Verne Jeffrey D. Cropsey
Assistant Secretary Senior Vice President
SCOR REINSURANCE COMPANY
Maxine H. Verne Jeffrey D. Cropsey
Maxine H. Verne Jeffrey D. Cropsey
Assistant Secretary Senior Vice President
SCOR SERVICES, INC.
Maxine H. Verne John T. Andrews, Jr.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
BIND, INC.
Maxine H. Verne John T. Andrews, Jr.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
THE UNITY FIRE AND GENERAL INSURANCE COMPANY
Maxine H. Verne John T. Andrews, Jr.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
NARG, INC.
Maxine H. Verne John T. Andrews, Jr.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President
GENERAL SECURITY INDEMNITY COMPANY
Maxine H. Verne John T. Andrews, Jr.
Maxine H. Verne John T. Andrews, Jr.
Assistant Secretary Senior Vice President<PAGE>
CALIFORNIA REINSURANCE MANAGEMENT CORPORATION
Maxine H. Verne R. Daniel Brooks
Maxine H. Verne R. Daniel Brooks
Secretary President
MORGARD, INC.
Mark A. Welshons Phillip L. Chapman
Mark A. Welshons Phillip L. Chapman
Assistant Secretary President
GENERAL SECURITY INSURANCE COMPANY
Mark A. Welshons John T. Andrews, Jr.
Mark A. Welshons John T. Andrews, Jr.
Assistant Secretary Senior Vice President<PAGE>
EXHIBIT 10(j)
Board Approval: March 14, 1991
Stockholder Approval: June 6, 1991
Amended: June 6, 1991
Amended: December 11, 1991
Amended: March 25, 1994
Amended: September 30, 1994
SCOR U.S. CORPORATION
STOCK OPTION PLAN FOR KEY EMPLOYEES
1. Purpose of the Plan.
The purpose of this Stock Option Plan (the "Plan") is to
provide certain key employees of SCOR U.S. Corporation (the "Company")
and its subsidiaries with an additional incentive to contribute to the
success of the Company by enabling them to acquire an ownership stake
in the Company.
2. Stock Subject to the Plan.
The stock subject to the options and other provisions of the
Plan shall be shares of the Company's common stock, par value .$30 per
share (the "Common Stock"), which are authorized and unissued or
issued shares of Common Stock which have been reacquired and held in
its treasury. Except as provided in Section 9 hereof, the aggregate
number of shares of Common Stock that may be purchased pursuant to
stock options granted under the Plan shall not exceed in the aggregate
1,554,340 shares.
3. Administration.
The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the "Committee").
Subject to the provisions of the Plan, the Committee shall have sole
authority, in its absolute discretion, to determine which of the
employees of the Company and its subsidiaries shall receive stock
options, the time and frequency when stock options shall be granted,
the terms of such options, and the number of shares for which options
shall be granted; provided that the number of shares of common stock
that may be purchased pursuant to stock options granted under the Plan
to an employee of a subsidiary of the Company, which is an insurance
company domiciled in the State of New York ("New York Subsidiary"),
shall not exceed ten percent of the total number of shares of common
stock that may be purchased pursuant to stock options granted under
the Plan. The Committee shall have the authority to do everything
necessary and appropriate to administer the Plan, including, without
limitation, interpreting the Plan. All decisions, determinations and
interpretations of the Committee shall be final and binding on all
optionees, and upon their successors and assigns, and upon all other
persons claiming under or through any of them.
Each member of the Committee or the Board, when acting in
connection with the Plan, shall be considered to be acting in his
1<PAGE>
capacity as a director of the Company. Members of the Committee or
the Board acting under the Plan shall be fully protected in relying in
good faith upon the advice of counsel and shall incur no liability
except for willful misconduct in the performance of their duties. The
fact that a member of the Board is, or shall theretofore have been or
thereafter may be, a person who has received or is eligible to receive
an option under this Plan shall not disqualify him from taking part in
and voting at any time as a member of the Board in favor of or against
any amendment or repeal of the Plan.
4. Eligibility.
Subject to the provisions of Section 3 hereof, the Committee
may grant stock options to any key employee of the Company or its
subsidiaries.
5. Terms and Conditions of Options.
All stock options granted pursuant to the Plan shall be in
such form as the Committee shall from time to time determine and shall
be subject to such terms, conditions, restrictions and limitations as
deemed appropriate by the Committee and, in addition, to the following
terms and conditions:
(a) Option Price
The option price per share with respect to each option
shall be determined by the Committee but shall in no event be
less than 100% of the fair market value of the Company's Common
Stock at the time the option is granted as determined by
reference to the Fair Market Value of the Common Stock on the
Trading Day immediately preceding the date of such grant;
provided that in no event shall such option price be less than
the par value of the Common Stock at the time the option is
granted. "Fair Market Value" of the Common Stock shall be the
closing sale price of the Common Stock as reported on the New
York Stock Exchange Composite Tape and published in the Wall
Street Journal and "Trading Day" shall mean any day on which
shares of the Common Stock are traded on the New York Stock
Exchange or, if the Common Stock is no longer traded on the New
York Stock Exchange, any other exchange on which the Common Stock
is traded;
(b) Term of Option
Each stock option shall expire no later than ten years
from the date the option is granted.
(c) Exercise of Stock Option
Except as provided in Section 8 hereof, any stock option
issued under the Plan may not be exercised for one year after the
date on which the stock option is granted, and thereafter may be
exercised in such installments as shall be determined by the
Committee at the time the stock option is granted. Unless
2<PAGE>
otherwise provided by the Committee at the time of grant of an
option, an option shall be exercisable to the extent of (i) on
the first anniversary of the date of grant, one-third (1/3) of
the total number of shares of Common Stock subject to the option;
(ii) on the second anniversary of the date of grant, two-thirds
(2/3) of the total number of shares of Common Stock subject to
the option; and (iii) on the third anniversary of the date of
grant, all of the shares of Common Stock subject to the option.
Any shares under an exercisable option not purchased on the
applicable installment date may be purchased thereafter at any
time prior to the final expiration of the stock option; provided,
however, that an option may not be exercised for less than 100
shares of Common Stock unless such exercise is for all the shares
then remaining subject to the option.
Each stock option granted under the Plan shall be subject
to the requirement that if at any time the Committee shall
determine that the listing, registration or qualification of the
shares subject thereto upon any securities exchange or under any
state or federal law, or the consent or approval of any
governmental regulatory body, are necessary or desirable in
connection with the issue or purchase of the shares subject
thereto, no such option may be exercised in whole or in part
unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any
conditions not acceptable to the Committee. If an optionee so
requests, shares purchased may be issued in the name of the
optionee and another jointly with the right of survivorship.
(d) Payment for Shares
To exercise a stock option, the optionee shall give irrevocable
written notice to the Company, which notice shall specify the
number of shares to be purchased and the date of payment therefor
which shall be at least one business day after delivery of such
notice. On the date fixed for payment, the optionee shall
deliver the option to be exercised accompanied by payment either
(i) in cash, (ii) through the delivery of shares of Common Stock
with a Fair Market Value (as defined in paragraph (a)) on the
immediately preceding Trading Day equal to the total option price
or (iii) by a combination of the methods described in (i) and
(ii) for the full purchase price therefor; provided that, in the
case of payment pursuant to methods described in (ii) or (iii)
above, the shares of Common Stock delivered to the Company shall
have been held by the optionee for at least six months and shall
not secure any obligation of the optionee to the Company. Any
person exercising a stock option shall make such representations
and agreements and furnish such information as the Committee may
in its discretion deem necessary or desirable to assure
compliance by the Company, on terms acceptable to the Company,
with the provisions of the Securities Act of 1933 and any other
applicable legal requirements.
If so provided under the terms of a stock option, the Committee
may, at its sole discretion, permit an optionee, in lieu of the
methods of payment set forth in the immediately preceding
paragraph, to pay for any portion of the purchase price of the
shares of Common Stock to be issued or transferred that exceeds
3<PAGE>
the par value of such shares, by delivery of a full recourse
promissory note of the optionee in such form as the Committee may
approve. Any such promissory note shall be secured by shares of
Common Stock having a Fair Market value on the Trading Day
immediately prior to the date of delivery of the note equal to at
least two times the principal amount of the note. The promissory
note shall have a maturity of five years or less, as the
Committee may determine in its sole discretion, and shall be
payable in equal installments of principal and interest at least
annually, or more frequently as the Committee may determine in
its sole discretion. The Committee shall determine in its sole
discretion the interest rate to be charged by the Company with
respect to the loan evidenced by the promissory note, but such
rate shall in no event cause the loan to be considered a below-
market loan to which Section 7872 of the Internal Revenue Code of
1986, as amended (the "Code"), applies.
6. Terms and Conditions of Incentive Stock Options.
At the time of grant of any stock option pursuant to the
Plan, the Committee may designate the stock option as an incentive
stock option. Any stock option designated as an incentive stock
option shall be subject to the requirements of Section 422 of the Code
in addition to the requirements set forth in Section 5 of the Plan.
7. Non-Transferability.
Stock options under the Plan may not be sold, pledged,
assigned or transferred in any manner otherwise than by will or the
laws of descent or distribution, and, subject to the provisions of
this Plan, may be exercised during the lifetime of a holder of a stock
option only by such holder.
8. Termination or Forfeiture of Option.
(a) Any option granted to an optionee under the Plan shall be
forfeited unless each of the following conditions with respect to the
optionee is met:
(i) The optionee shall not, directly or indirectly, except as
required in the course of his or her employment by the
Company, furnish, divulge, or use at any time any
information of a proprietary nature owned by the Company
which is in the nature of confidential information or trade
secrets.
(ii) The optionee's employment by the Company shall not have
terminated as a result of gross negligence or willful
misconduct and he or she shall not, while employed by the
company, have engaged in conduct which, had it been known at
the time, would have resulted in the termination of his or
her employment by the Company on the grounds of gross
negligence or willful misconduct.
If in the judgment of the Committee, reasonably exercised,
4<PAGE>
an optionee shall have failed at any time to comply with any of the
foregoing conditions, any option held by such optionee shall be
automatically forfeited.
(b) No stock option granted under the Plan may be exercised at
any time after termination of employment of a holder with the Company,
except that
(i) if such termination of employment is at retirement (which
shall mean and include "Early Retirement Date" and "Normal
Retirement Date" as defined in the SCOR U.S. Group Pension
Plan) or due to death or disability (as defined in the
Company's long-term disability insurance plan), any portion
of an option exercisable at the time of such retirement,
death or disability may be exercised by the holder or the
holder's estate within twelve months after such retirement,
death or disability, as the case may be; provided that, in
no event shall the option be exercisable after the
expiration of ten years from the date the options is
granted; and
(ii) if such termination of employment is involuntary and without
cause, and is for any reason other than retirement, death,
or disability, any portion of an option exercisable at the
time of such termination may be exercised by the holder
within such period as determined by the Committee.
(c) Notwithstanding this Section 8, in no event shall any
stock option be exercisable more than ten years from the date the
option is granted.
9. Adjustments upon Changes in Capitalization.
The aggregate number of shares of Common Stock provided by
Section 2 hereof which may be purchased pursuant to the options
granted under the Plan, and the number of shares of Common Stock
covered by each outstanding option or the price per share in each such
option, as the Committee shall determine, shall be proportionately
adjusted for any increase or decrease in the number of issued and
outstanding shares of Common Stock resulting from a division or
consolidation of shares or other capital adjustment, or the payment of
a stock dividend or other increase or decrease in such shares,
effected without receipt of consideration by the Company; provided,
however, that any fractional shares resulting from any such adjustment
shall be eliminated.
Subject to any required action by the shareholders, if the
Company shall be the surviving or resulting corporation in any merger
or consolidation, any option granted hereunder shall pertain to and
apply to the securities or rights to which a holder of the number of
shares of Common Stock subject to the option would have been entitled.
10. Change in Control; Merger or Consolidation into Another
Corporation.
5<PAGE>
In the event of Change in Control of the Company (as defined
below) or a merger or consolidation of the Company into another
corporation after which the Company shall not be the surviving
corporation:
(a) All outstanding stock options on the date of such
Change in Control or, in the case of such merger or
consolidation, on the day immediately prior to the date on which
shareholders of record of the Company entitled to
receive any consideration in such merger or consolidation is
determined, shall become fully and immediately exercisable,
notwithstanding any provision in Section 5(c) of this Plan to the
contrary, and such options shall not be subject to termination
except as provided in Section 5(b) or Section 8 of this Plan;
provided, however, that any stock option held by an optionee who
is subject to Section 16(b) of the Securities and Exchange Act of
1934 (the "Exchange Act") with respect to shares of Common Stock
covered by such option shall not be exercisable until six months
after the date of grant of such option.
(b) Notwithstanding any provision of this Plan to the
contrary, neither the Board nor the Committee shall, at any time
following a Change in Control, impose any conditions upon the
exercise of an option that have not been previously imposed as of
the date of such Change in Control, unless, in the written
opinion of independent counsel to the Company, such condition is
necessary to comply with any federal, state or local securities
or other law or regulation, or the rules of any applicable
securities exchange, and compliance with such law, regulation or
rule without the imposition of such condition would, in the good
faith opinion of the Board, be impracticable.
(c) For purposes of the Plan, Change in Control shall
mean (i) any person, corporation or group which is not a
beneficial owner of the Company's Common Stock on the date this
Plan is approved by shareholders of the Company acquiring 35% or
more of the outstanding voting shares of the Company or any
beneficial owner of the Common Stock of the Company on such date
increases its beneficial ownership of the outstanding voting
shares of the Company by 35 percentage points or more (or by such
lesser percentage required to beneficially own all of the
outstanding shares of the Company), (ii) a change in a majority
of the members of the Board of Directors, excluding new directors
approved by the incumbent Board, over any three-year period, or
(iii) sale of substantially all the assets of the Company,
unless, in the case of (i), a majority of the disinterested
Directors of the Board of Directors of the Company determines, in
good faith, that no Change in Control has occurred.
11. Rights as a Stockholder.
A holder of a stock option granted under this Plan shall
have no rights as a stockholder with respect to any shares of Common
Stock covered by such option until the date of issuance of a stock
certificate for such shares.
6<PAGE>
12. Withholding Taxes.
Whenever shares of the Common Stock are to be issued in
satisfaction of stock options granted under this Plan, the Company
shall have the right to require the optionee to remit to the Company
an amount sufficient to satisfy all applicable withholding obligations
of the Company prior to the delivery of any certificate or
certificates for such shares. The optionee may satisfy the
requirement to remit such amount to the Company in the same manner and
subject to the same limitations as the methods of payment (but not
including payment by promissory note) set forth in Section 5(d)
hereof.
13. Term of the Plan.
The Plan was adopted by the Board on March 14, 1991 and
shall become effective upon its adoption and approval by a vote of the
shareholders of the Company. Any option granted prior to the approval
of this Plan by the shareholders shall be subject to the approval of
the shareholders. The Plan shall terminate on December 31, 1995,
after which date no option shall be granted under the Plan.
14. Amendment or Termination of the Plan.
(a) The Board may amend the Plan from time to time in such
respects as the Board may deem advisable, provided that no change may
be made in any option theretofore granted which would impair the
rights of a holder without consent of the holder, and further, that
without the approval of stockholders, no alteration or amendment may
be made which would (i) materially increase the benefits accruing to
participants under the Plan, (ii) materially increase the number of
shares of Common Stock which may be issued under the Plan (except by
operation of Section 9), or (iii) materially modify the requirements
as to eligibility for participation in the Plan.
(b) The Board may at any time terminate the Plan. Any such
termination of the Plan shall not affect options already granted and
such options shall remain in full force and effect as if the Plan had
not been terminated.
7<PAGE>
EXHIBIT 10(s)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, made this 25th day of July 1994, by
and between SCOR Reinsurance Company, a New York corporation
having its principal place of business at 110 William Street, New
York, New York (the "Company") and John D. Dunn, Jr., an
individual residing at 94 Susan Drive Chatham, New Jersey 07928
(the "Employee").
WHEREAS, Company desires to employ Employee in connection
with its insurance business and operations and Employee desires
to accept such employment on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, upon the premises and conditions set forth
herein the parties hereto mutually agree as follows:
1. Employment.
The Company agrees to employ Employee to serve the Company
as a Senior Vice President, and as manager of its treaty
department, or in such other capacities as the Board of Directors
or executive management of the Company may from time to time
determine, and to perform such services and duties for the
Company and/or its subsidiaries and affiliates as the Company may
determine. Employee agrees to serve the Company in such capacity
and to perform said duties and services faithfully and the best
of his ability; and to devote his full business time and
attention to the performance of his duties hereunder, to the
exclusion of any other business, except charitable, educational
or other public interest purposes.
2. Employment Period.
Employee's employment hereunder shall commence on July 25,
1994 ("Commencement Date"), and shall continue for a period of
two (2) years until July 25, 1996 ("Employment Period"), unless
terminated sooner pursuant to Paragraph 3 below, or extended as
provided herein. At the conclusion of the initial term of the
Employment Period and each period thereafter, the Employment
Period shall be automatically extended for periods of one (1)
year each unless terminated by either party giving written notice
to the other party of its intention to so terminate not less than
three (3) months prior to the expiration of the then-current
Employment Period, whereupon, upon the expiration of such
Employment Period the Employee's employment hereunder and this
Agreement shall terminate.
3. Termination.
(a) If Employee should die during the Employment Period,
the Employment Period and Employee's employment hereunder shall
terminate as of the date of death.
(b) In the event that Employee, by reason of illness or
physical or mental disability shall be unable to perform the
1<PAGE>
services required of him hereunder for more than one hundred and
eighty (180) calendar days in the aggregate (excluding infrequent
and temporary absences due to ordinary transitory illness) during
any twelve (12) month period, Employee's employment by Company
shall be terminable by Company and shall terminate at the end of
the month following the month in which Company has given written
notice to Employee of its intention to so terminate because of
disability, but without prejudice to any payments due Employee in
respect of disability. The term "disability" for the purposes of
this Agreement shall have the same meaning as under the short
term disability benefit plan of the Company as in effect at the
time of the Employee's disability.
(c) If Employee's employment hereunder is terminated by the
Company prior to July 25, 1996 for any reason other than pursuant
to subparagraphs (a), (b) and (d) hereof, (subject to compliance
by the Employee with the provisions of Paragraphs 8, 9 and 10
below), as liquidated damages, and/or severance pay, and as
additional consideration for the Employee's undertakings under
Paragraphs 8, 9 and 10 below, the Company shall (i) for the
longer of a period of one (1) year from the date of termination
or the remaining term of the Employment Period, make bi-weekly
payments to the Employee, in an amount equal to the bi-weekly
salary payable to the Employee immediately prior to such
termination, and (ii) use its best efforts to provide for
Employee's continued participation, for the longer of a period of
one (1) year or the remaining term of the Employment Period, but
in no event to exceed eighteen (18) months, in all death, medical
and dental benefit plans of the Company as if Employee were still
employed under this Agreement during such period; provided that
Employee shall continue to pay for participation in such plans
such amounts as would have been payable if his employment had not
been terminated. The payments under this subparagraph 3(c) shall
be in lieu of any compensation or benefits under Paragraph 4
below accruing after the date of such termination or under any
severance plan of the Company.
(d) Employee's employment hereunder may be terminated by
the Company for "good cause" on not less than five (5) days'
prior written notice of termination to Employee. The term "good
cause" shall mean and include: (i) Employee's failure to
substantially perform his duties hereunder for any reason or
failure to devote his full business time to the affairs of the
Company and such failure is not discontinued within a reasonable
period of time, in no event to exceed thirty (30) days, after
Employee recieves written notice from the Company of such
failure; or (ii) Employee's commission of an act or acts of
dishonesty resulting or intended to result directly or indirectly
in gain or personal enrichment at the expense of the Company; or
(iii) if Employee is grossly negligent or engages in misconduct
or insubordination in the performance of his duties hereunder; or
(iv) Employee's breach of his obligations under paragraph 9
below, relating to confidential information; or (v) if Employee
engages in or commits any other serious dereliction of duty not
specified above; or (vi) the willful violation by Employee of any
law or regulation thereunder governing his activities affecting
the performance of his duties hereunder or the violation of any
law or regulation thereunder by the Company by willful action or
2<PAGE>
omission for which the Employee is responsible.
(e) If, during the Employment Period, the Employee's
employment by the Company is terminated by the Company pursuant
to Paragraphs 3(a), (b) or (d) above, or is terminated by the
Employee for any reason, the Employee shall not be entitled to
receive any compensation under Paragraph 4 accruing after the
date of such termination or any payment under subparagraph 3(c)
above, and the Employment Period and this Agreement shall
terminate forthwith upon such termination of employment.
4. Compensation and Benefits.
As compensation for the performance by Employee of his
duties under this Agreement during the Employment Period
including the undertakings set forth in Paragraphs 8 and 9 below,
Company agrees as follows:
(a) The Company shall pay to Employee a salary at the
annual rate of not less than $215,000 payable in equal bi-weekly
installments, subject to periodic review and adjustments to be in
the Company's discretion in accordance with the Company's
customary practices for executive salaries. It is further agreed
that if any change in the Employee's salary occurs during the
term of employment under this Agreement, such change shall not be
construed as a cancellation, amendment or rescission of this
Agreement, and this Agreement shall nevertheless continue in full
force and effect, in accordance with its terms and provisions,
for the full term thereof.
(b) The Company shall, within fifteen (15) days from the
Commencement Date, pay to Employee a one-time bonus of twenty-
five thousand ($25,000) dollars. In addition, commencing as of
January 1, 1995 Employee shall participate in the Company's
current bonus plan in accordance with current practice or, upon
adoption by the Company, in any new bonus plan in accordance with
its terms.
(c) Employee shall participate during the Employment Period
in the Company's Stock Option Plan for Key Employees. At the
first stock option grant date after the commencement of the
Employment Period Employee shall be awarded, subject to approval
of the Compensation Committee of the Board of Directors of the
Company ("Compensation Committee"), a stock option grant of
fifteen thousand (15,000) shares. Nothing in this subparagraph
(c) shall preclude the Company from amending or terminating any
such plan at any time.
(d) As performance based incentive compensation for 1994,
and if Employee achieves certain performance objectives for 1994
as established by the Executive Management of the Company and to
be annexed hereto within 60 days from the Commencement Date,
Employee shall be granted an award which shall not be less than
Fifty Thousand ($50,000) Dollars. Such award shall be payable on
or about March of 1995.
3<PAGE>
(e) Employee shall participate in all Company health,
welfare, pension and other employee benefit plans, fringe benefit
plans (including insurance plans and vacation plans or policies)
and all incentive plans in which all other officers of the
Company are eligible to participate during the Employment Period,
subject in all events to the terms and conditions of such plans
as in effect from time to time. Nothing in this subparagraph (e)
shall preclude the Company from amending or terminating any such
plans at any time.
(f) Employee shall be entitled to an automobile to be
leased by the Company for a period of three (3) years for
Employee's business and personal use during the Employment
Period, such lease expense not to exceed $550.00 per month; and
payment or reimbursement for automobile insurance expenses for
such three (3) year period; and to payment or reimbursement of
the annual fees and dues for one country club membership, such
fees and dues not to exceed $3,600 or such other amount as is
specifically approved from time to time by the President of the
Company, and payment or reimbursement of a non-negotiable
proprietary certificate currently in the amount of $4,500
relating to such country club membership and subject to periodic
adjustment as requested by the club; provided that the Company
shall hold such certificate and, in the event of termination of
Employee's employment hereunder, for any reason, Employee will
reimburse the Company for the entire amount of such certificate
and, upon recipt of such reimbursement, the Company shall release
the certificate to Employee.
All compensation payable under this Paragraph 4 will be subject
to such deductions and imputed income as may from time to time be
legally required.
5. Supplemental Retirement Benefit.
In addition to the other compensation and benefits Employee
shall receive pursuant to Paragraph 4 above, the Company shall
provide Employee with a supplemental retirement benefit to be
paid at the earlier of termination of Employee's employment with
or retirement from the Company.
(a) When expressed as a single life annuity commencing on
Employee's Normal Retirement Date, as such term is defined in the
SCOR U.S. Group Pension Plan (the "Qualified Plan"), the
supplemental retirement benefit shall equal the amount in excess
of (x) minus (y) where:
(x) is the aggregate retirement benefits that, when
expressed as a single life annuity commencing on Employee's
Normal Retirement Date, the Employee would have been
entitled to receive under the Qualified Plan, the SCOR U.S.
Group Supplemental Retirement Plan (the "SRP") and under any
and all other defined benefit, target benefit or money
purchase pension plans of the Company, its subsidiaries and
affiliates that may hereafter be applicable to the Employee
4<PAGE>
during the Employment Period (collectively, with the
Qualified Plan and the SRP, the "Retirement Plans") if
Employee's employment had commenced on July 25, 1989 (and
had continued without interruption until termination of his
employment hereunder) and the Company had paid him
compensation for the five year period prior to the
Employment Period at an annual rate equal to a total of
$265,000; and,
(y) is the aggregate retirement benefits that, when
expressed as a single life annuity commencing on Employee's
Normal Retirement Date, the Employee in fact is or becomes
entitled to receive under the Retirement Plans.
For purposes of this Agreement, the value of any benefit paid
under the Retirement Plans commencing at a time other than the
Employee's Normal Retirement Date or in a form other than a
single life annuity shall be calculated using the mortality and
interest rate assumptions then in use for calculating optional
forms of benefits under the Qualified Plan.
(b) The supplemental retirement benefit provided herein
shall not be forfeitable for any reason other than a termination
of Employee's employment by the Company for "good cause" pursuant
to Paragraph 3(d) above. The Company's obligation to provide
such supplemental retirement benefit shall survive the
termination of this Agreement. No provision of this Paragraph 5
shall prevent the Company from amending or terminating any of the
Retirement Plans at any time.
6. Placement of Insurance.
During the Employment Period, Employee agrees that all
policies of insurance, reinsurance and other related business
solicited by the Employee shall be placed by the Employee only
through such facilities of the Company and its affiliates, as may
be made available by the Company in its discretion. Employee
agrees to comply with Company's manuals, rules, restrictions and
specific underwriting instructions relative thereto. Employee
further agrees not to solicit any other insurance, reinsurance or
related business except for the benefit of the Company. During
the Employment Period, Employee shall not, directly or
indirectly, in any manner solicit, accept or service for or on
behalf of himself or any third party, or divert or cause to be
diverted to any third party, any insurance, reinsurance or
related business. Employee further agrees that, during the
Employment Period, Employee shall not act for the benefit of any
competitor of Company or in any way inconsistent with Company's
best interests.
5<PAGE>
7. Ownership of Accounts.
All insurance, reinsurance and related business accounts
produced by Employee during the period of the employment
relationship with Company shall be for the account of Company or
other third parties designated by Company and Employee shall not
acquire nor retain any right, title or interest in said accounts.
All renewals and expirations on all such insurance, reinsurance
business produced, as well as all correspondence, reports, files
and other data relating thereto, shall be and remain the absolute
and exclusive property of Company.
8. Non-Solicitation.
Employee agrees that for a period of one (1) year following
the date of termination of Employee's employment relationship
with Company, by Employee for any reason or by Company pursuant
to Paragraph 3 above, Employee will not, directly or indirectly,
in any capacity whatsoever (either as an employee, officer,
director, shareholder, proprietor, partner, joint venturer,
consultant or otherwise), in any way seek to induce, bring about,
promote, facilitate, or encourage the discontinuance of, or in
any way solicit, sell to, divert, serve, quote rates on, given
proposals on, or accept or receive any insurance or reinsurance
business which Employee personally, alone or in combination with
others, handled, serviced or solicited at any time during the one
(1) year period immediately preceding termination of the
employment relationship. The provisions of this paragraph 8
shall survive the termination of this Agreement.
9. Confidential Information.
Employee acknowledges and recognizes that in the course of
his employment he has had and will continue to have access to
confidential accounts or information of Company relating to
persons, firms and corporations which are customers of Company
during the term of the employment relationship, such confidential
information includes but is not limited to insurance and
reinsurance contract expiration dates, terms, conditions and
rates, and familiarity with customer's risk characteristics.
Employee agrees that he will not, without prior written consent
of Company during the term of employment and for one (1) year
thereafter, except as may be required during the course of his
employment hereunder, directly or indirectly disclose,
communicate, divulge, copy, or make use of any such confidential
information. The provisions of this paragraph 9 shall survive
the termination of this Agreement.
10. Non-Piracy.
Employee agrees that, for a period of one (1) year following
the date of termination of Employee's employment relationship
with Company, by Employee for any reason or by Company pursuant
to Paragraph 3 above, he will not employ, or engage, or seek to
employ, or engage for himself or for others any person who has
6<PAGE>
worked for Company during the one (1) year period immediately
preceding the date of any such termination, nor shall he have an
interest in, directly or indirectly, any business entity in any
insurance or related business which shall, with Employee's direct
or indirect participation, employ, or engage or seek to employ
any person who has worked for Company as aforesaid, nor shall he
directly or indirectly urge or attempt to urge, request, advise,
entice or attract any employee of Company to terminate their
employment with Company for any reason or purpose whatsoever.
(a) Employee shall be deemed to have an interest in a
business entity if he owns, directly or indirectly, more than
FIVE PERCENT (5%) of any class of stock of such business entity,
or if he manages, operates, controls, participates in or is
connected, directly or indirectly, with such business entity in
any manner, including without limitation, as a director, officer,
employee, owner, partner, agent, advisor, or consultant.
The provisions of this Paragraph 10 shall survive the
termination of this Agreement.
11. Remedies.
Employee acknowledges that a breach of the agreements set
forth in Paragraphs 7, 8, 9 and 10 hereof would result in
irreparable and continuing damage to Company for which there will
be no adequate remedy at law, and Employee agrees that any
violation or threatened violation of such agreements may be
enjoined through proper action filed in a court of competent
jurisdiction, and that any such injunction shall be in addition
to any other remedies available to the Company. In addition to
and not in lieu of any other remedies to which Company may be
entitled, in the event of a failure to comply with any of the
provisions of Paragraphs 7, 8, 9 and 10 hereof, Employee agrees
to pay, or to cause his new employer or affiliate or other
business entity in which he has an interest to pay, promptly to
Company an amount equal to 50% of any premiums, commissions, fees
or other monies received or derived by reason of such breach,
violation or failure to comply during the one (1) year period
following such breach, violation or failure to comply, together
with all sums expended or costs incurred by Company to enforce
such provisions.
12. Copy of Agreement.
In the event of the termination of the Employee's employment
relationship with Company, Employee agrees, prior to the
commencement of any new employment, to advise any new employer in
the insurance or related business of the terms of this Agreement,
and to furnish (and to consent to furnishing by Company) such new
employer with a copy of this Agreement.
13. Waiver of Breach.
7<PAGE>
The waiver by Company of a breach of any provision of this
Agreement by Employee shall not operate or be construed as a
waiver of any subsequent breach of Employee.
14. Entire Agreement.
The Agreement and attached addendum, if any, constitutes the
entire agreement of the parties with respect to the subject
matter hereof and supersedes any previous communications,
representations, arrangements or agreements, whether oral and
written.
15. Notice.
Any notices or other communications to be given under this
Agreement shall be in writing and shall be given by delivering
personally or by mailing, by certified or registered mail, return
receipt requested, addressed as follows:
To Company: SCOR Reinsurance Company
110 William Street
New York, NY 10038
Attn: General Counsel
To Employee: John D, Dunn, Jr.
94 Susan Drive
Chatham, NJ 07928
or to such other address as either party may give to the other by
written notice given in the manner herein provided.
16. Severability.
The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as
if the invalid or unenforceable provision had been omitted.
17. Assignment.
This Agreement shall be binding upon and inure to the
benefit of Company, its successor and assigns and to the benefit
of Employee, his heirs and legal representatives. This Agreement
is not assignable by Employee and the right of Employee to
receive payment for his services is hereby expressly agreed to be
non-assignable and non-transferrable, except as otherwise
specifically provided herein.
18. Governing Law.
This Agreement shall be governed by and interpreted under
the laws of the State of New York.
8<PAGE>
19. Captions.
The headings and captions contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
20. Amendment.
This Agreement may only be amended by a written document
signed by the parties.
IN WITNESS WHEREOF, the parties have executed this
Agreement, as of the day and year first above written.
SCOR Reinsurance Company
By: Jerome Karter
President
John D. Dunn, Jr., Employee
9<PAGE>
EXHIBIT 10(t)
NEW ENGLAND ASSET MANAGEMENT
INVESTMENT ADVISORY
SCOR Reinsurance Company AGREEMENT
Name of Account ("Account") (for Institutional and
Fiduciary Accounts)
The undersigned ("Client") by its duly authorized representative
("Client Representative"), hereby agrees to employ New England Asset
Management ("Firm"), and the Firm agrees to serve as the adviser for
the Account named above as of 3/1/95, upon the following terms and
conditions:
1. Discretionary Authority of the Firm. The Firm shall supervise
and direct the investments of and for the Account without prior
consultation with Client; subject, however, to the Investments
Guidelines, attached and incorporated herein, and further subject to
such limitations and restrictions as Client may have imposed, or may
hereafter impose by notice in writing to the Firm. This discretionary
authority makes the Firm agent and attorney-in-fact with full power
and authority on behalf of the Account (a) to buy, sell, exchange,
convert and otherwise trade in any and all stocks, bonds, mutual
funds, options and futures, and other securities as the Firm may
select, and (b) to establish and deal through accounts with one or
more securities brokerage firms, dealers or banks. This discretionary
Authority shall remain in full force and effect until the Firm
receives written notice from the Client of its termination.
2. Reports to Client. The firm shall send an inventory and
appraisal of the securities in the Account to Client at the beginning
of each monthly period unless otherwise specified. Also, the Firm
shall send advices to the Client regarding purchases and sales by the
Firm for the Account at the time of execution.
3. Custody of Assets. The Firm shall not act as custodian for
assets of the Account, or take or have possession of any assets of the
Account. Client is responsible for all costs incurred by Custodial
Account.
4. Documents and Authorities. Client represents and warrants that
the appointment of the Firm on the basis set forth in this agreement
is authorized by and has been accomplished in accordance with
procedures specified in the charter, by-laws, certificate, trust
agreement, or other document(s) governing the Account, and shall
furnish the Firm with true copies of all resolutions, notices, and
consents as may be required to be taken or made pursuant to such
procedures. Client agrees to indemnify and hold harmless the Firm
from all liability and costs (including costs of defense) which may be
asserted or incurred by reason of any defect in the Client's authority
to appoint the Firm on the basis set forth in this agreement, or any
defect in conduct of the Client, in making such appointment
notwithstanding the fact that the Firm may give notice of any such
defect. The Firm represents and warrants that it is registered as an
investment adviser with the Securities and Exchange Commission<PAGE>
pursuant to the Investment Advisers Act of 1940 as amended, and that
such registration is currently effective.
5. Brokerage. Client may, by written instrument delivered to the
Firm, direct that transactions for the Account be placed with specific
brokers, dealers or banks. The Client hereby represents and warrants
that any such direction shall be properly authorized pursuant to the
by-laws, charter, certificate, trust agreement, or other document(s)
governing the Account, and within applicable standards of fiduciary
conduct. Client hereby agrees to indemnify and hold harmless the Firm
from all liability and costs (including costs of defense) which may
asserted or incurred by reason of the Firm's good faith compliance
with any such direction. Client recognizes that any such direction
may result in the Account paying higher brokerage commissions or
receiving less favorable prices than might otherwise be possible.
6. Voting Rights of Portfolio Securities. The Firm shall be
responsible for the voting of proxies at its discretion unless
specifically directed by Client as to positions on particular issues.
7. Compensation of the Firm. The compensation of the Firm shall be
paid quarterly in arrears in accordance with the Schedule of Fees
attached here-to as Exhibit A, and hereby incorporated herein. The
schedule of fees set forth in Exhibit A shall be applied to the net
asset value of the assets of the Account as reasonably determined by
the Firm as of the last business day of each month and the cumulative
amounts will be charged quarterly in arrears.
8. Confidential Relationship. All information and recommendations
furnished by either party to the other shall at all times be treated
in strictest confidence, and shall not be disclosed to third persons
except as may be required by law, or except upon the prior written
approval of the other party to this agreement or except when
information is available to general public.
9. Non-Exclusive Contract. It is understood that the Firm renders
investment advisory services for clients and customers other than the
Account. Client recognizes that transactions in a specific security
may not be accomplished for all client accounts at the same time or at
the same price. Neither the Firm's acceptance of investment
objectives, nor any other provision of this agreement shall be
considered a guarantee that any specific result will be achieved.
10. Agreement not Assignable. This agreement is not assignable by
either party without the written consent of the other. The Firm shall
notify the Client of any changes in its principals within a reasonable
time after such change.
11. Notices. Any notice, direction, instruction, acknowledgement, or
other communication required or contemplated by this agreement shall
be in writing, delivered in person by fax or mail, and addressed as
follows:
2<PAGE>
To the Client:
SCOR Reinsurance Company
110 William Street, 18th Floor
New York, NY 10038
Attention: Linda Grant, Vice President and Treasurer
To the Firm:
New England Asset Management, Inc.
30 Waterside Drive
Farmington, CT 06032
Attention: Gerard T. Lynch, President
Any party hereto by notice hereunder to the other may designate a
different address.
12. Governing Law. The validity of this Agreement and the rights and
liabilities of the parties hereunder shall be determined in accordance
with the laws of the State of New York.
13. Termination. This agreement may be terminated as of the end of
any quarterly inventory period upon 30 days prior written notice by
either party.
14. Acknowledgement of Disclosure. Termination by Client: Client
hereby acknowledges receipt of the Firm's Disclosure Statement as
required pursuant to Rule 204-3 (17 CFR 275.204-3) under the
Investment Advisers Act of 1940 prior to or on the date (shown below)
of the Client's signing of this agreement. Client shall have the
option to terminate this agreement in its entirety, exercisable at
Client's sole option, and without penalty, for five days from the date
(shown below) of the Client's signing of this Agreement; provided,
however, that any investment action taken by the Firm with respect to
the Account during such five day period in reliance upon this
agreement and prior to receipt of actual notice of the Client's
exercise of this right of termination, shall be at the sole risk of
the client.
Agreed and accepted by:
NEW ENGLAND ASSET MANAGEMENT, INC. CLIENT:
Authorized signatory SCOR Reinsurance Company
by its authorized
Representative(s):
Gerard T. Lynch Linda Grant
Date: 2/24/95 Date: 2/23/95
Taxpayer Identification Number
75-1444207
3<PAGE>
Exhibit A
INVESTMENT ADVISORY CONTRACT
SCHEDULE
SCOR Reinsurance Company
(Name of Account)
Billing will commence 3/1/95 on the basis of the following schedule:
Annual fee of .20 of 1% on first $50,000,000 of market value of
invested assets and .15 of 1% on remaining market value of invested
assets. Such fee is calculated and payable in accordance with Section
7 of the Investment Advisory Agreement.
4<PAGE>
SCOR REINSURANCE COMPANY
Investment guidelines for the management of the tax-exempt
municipal bond portfolio ("Portfolio") of SCOR Reinsurance Company
(the "Company") by New England Asset Management Corporation.
General
The Company's Portfolio is to be managed to maximize after-tax
investment total return, consistent with the preservation of capital
and New York State law regarding investments of property and casualty
insurance companies. The performance of the Portfolio will be
measured on a total return basis consistent with AIMR standards.
Issuers
The Portfolio is to be invested entirely in U.S. dollar
denominated fixed income securities which are in compliance with the
New York State Insurance Department law.
Permitted investments include:
1. Obligations, not in default, issued, assumed, guaranteed or
insured by
a. any state, territory or possession and political
subdivisions of states, territories and possessions within
the United States of America.
b. any agency or instrumentality of any governmental unit
referred to in item (a).
provided that such obligations are by law payable, as both
principal and interest, from taxes levied or by law required to
be levied or from adequate special revenues pledged or otherwise
appropriated or by law required to be provided for the purpose of
such payment. In no event shall obligations be eligible for
investment under this paragraph if payable solely out of special
assessments on properties benefitted by local improvements.
Insured issues and pre-refunded issues are permitted.
Investment Limitations
Rating - All securities held in the Portfolio are to be rated A
or better by at least one of the major rating agencies. The Portfolio
should be maintained so that the average rating for the Portfolio is
not less than AA.
Maturity - No security shall be purchased with an expected
maturity date more than 12 years from the date of purchase unless
there is a put option within 12 years.
Duration - The duration of the Portfolio should be maintained in
the range of 3 to 7 years.
5<PAGE>
Hedging - Hedging is not permitted as the company does not have a
plan filed with and approved by the New York State Insurance
Department.
Leverage - In no way will the Portfolio employ leverage, directly
or indirectly through securities using leverage.
Capital Gains/Losses - The Portfolio shall be managed as to
minimize the net realized capital loss.
Size Limit - For any new securities purchased, the Portfolio will
not own more than 10% of the total issue.
Issue Limit - No one security should represent more than 5% of
the Portfolio.
Issuer Limit - No one issuer should represent more than 10% of
the Portfolio.
Securities with returns that are linked to or derived from non-
U.S. dollar interest or exchange rates are not permitted.
"Inverse Floaters" whose rates move counter to market rates are
not permitted.
These guidelines can be amended by the Company's Finance
Committee.
6<PAGE>
EXHIBIT 10(u)
THE PORT AUTHORITY
OF NEW YORK AND NEW JERSEY
WORLD TRADE CENTER
--------------
AGREEMENT OF LEASE
between
THE PORT AUTHORITY OF
NEW YORK AND NEW JERSEY
and
SCOR U.S. CORPORATION<PAGE>
TABLE OF CONTENTS
Section 1. Letting 1
Section 2. Term 1
Section 3. Rights of User by the Lessee 2
Section 4. Basic Rental 3
Section 5. Governmental Requirements 4
Section 6. Rules and Regulations 5
Section 7. Responsibilities of the Lessee 5
Section 8. Maintenance and Repair 8
Section 9. Casualty 9
Section 10. Indemnity 11
Section 11. Ingress and Egress 12
Section 12. Construction by the Lessee 12
Section 13. Signs 21
Section 14. Injury and Damage to Person or Property 21
Section 15. Additional Rent and Charges 21
Section 16. Rights of Entry Reserved 22
Section 17. Condemnation 24
Section 18. Abatement of Rental 25
Section 19. Assignment and Sublease 26
Section 20. Termination 33
Section 21. Right of Re-entry 35
Section 22. Survival of the Obligations of the Lessee 36
Section 23. Reletting by the Port Authority 37
Section 24. Waiver of Redemption 38
Section 25. Remedies and Suits Against the Lessee 38
Section 26. Surrender 38
Section 27. Acceptance of Surrender of Lease 39<PAGE>
Section 28. Brokerage 39
Section 29. Notices 39
Section 30. Payments 40
Section 31. Late Charges; Monetary and Non-Monetary
Disputes 41
Section 32. Quiet Enjoyment 44
Section 33. Non-Liability of Individuals 44
Section 34. Headings 44
Section 35. Construction and Application of Terms 44
Section 36. Definitions 45
Section 37. Force Majeure 46
Section 38. Premises 47
Section 39. Governmental Compliance 47
Section 40. Services and Utilities 48
Section 41. Liability Insurance 52
Section 42. Port Authority Work; Additional Lessee Work 56
Section 43. Additional Space 60
Section 44. Lessee's Right to Extend the Letting 68
Section 45. No Gifts, Gratuities, Offers of Employment, etc. 70
Section 46. Security Deposit or Letter of Credit 71
Section 47. Additional Services 73
Section 48. Entire Agreement 75<PAGE>
THIS AGREEMENT, made as of the 10th day of January, 1995, by
and between THE PORT AUTHORITY OF NEW YORK AND NEW JERSEY (hereinafter
called the "Port Authority"), a body corporate and politic, created by
Compact between the States of New Jersey and New York, with the
consent of the Congress of the United States of America, having an
office at One World Trade Center, in the Borough of Manhattan, City,
County, and State of New York, and SCOR U.S. CORPORATION, a
corporation organized and existing under the laws of the State of
Delaware, having an office and place of business at 2 World Trade
Center, New York, New York 10048 (hereinafter called the "Lessee"),
whose representative is Ann Sue Mushnick,
WITNESSETH, That:
The Port Authority and the Lessee, for and in consideration
of the rents, covenants and agreements hereinafter contained, mutually
covenant and agree as follows:
Section 1. Letting
The Port Authority hereby lets to the Lessee and the Lessee
hereby hires and takes from the Port Authority, at the World Trade
Center (sometimes hereinafter referred to as the "Facility") in the
Borough of Manhattan, City, County and State of New York, the space as
shown in diagonal hatching, vertical hatching, horizontal hatching,
diagonal crosshatching, crosshatching and stipple on the sketch
annexed hereto, made a part hereof and marked "Exhibit A", together
with the fixtures, improvements and other property of the Port
Authority located or to be located therein or thereon, and the space
as shown in diagonal hatching on the sketch annexed hereto, made a
part hereof and marked "Exhibit A-1", together with the fixtures,
improvements and other property of the Port Authority located or to be
located therein or thereon, the spaces, fixtures, improvements and
other property of the Port Authority shown on Exhibit A and Exhibit A-
1 being hereinafter collectively referred to as the "premises". The
Port Authority and the Lessee hereby acknowledge that the aforesaid
premises constitutes non-residential real property.
Section 2. Term
(a) The term of the letting of the premises under this
Agreement shall commence at 12:01 o'clock A.M. on the earlier of the
following dates: (i) the two hundred fourteenth (214th) day following
the Prior Entry Date, as such term is defined in paragraph (c) of this
Section, or (ii) such date as the Lessee commences business operations
in the premises. The term of the letting shall expire, unless sooner
terminated, or unless extended, at 11:59 o'clock P.M., on the day
preceding the fifteenth (15th) anniversary of the Rent Commencement
Date, as such term is defined in the Section of this Agreement
entitled "Basic Rental".
(b) If on March 22, 1995 the premises are not
available or ready for the commencement therein by the Lessee of its
proposed construction and finishing work pursuant to and in accordance
with the provisions of the Section of this Agreement entitled
"Lessee's Finishing Work" by reason of the fact that the Port
Authority has not then completed those provisions of the "Port
1<PAGE>
Authority Work", as such term is defined in the Section of this
Agreement entitled "Port Authority Work", which are required to be
completed on or prior to the Prior Entry Date or by reason of a
casualty of the type described in the Section of this Agreement
entitled "Casualty", then the Port Authority may postpone the Prior
Entry Date for the premises and the Port Authority shall not be
subject to any liability for such postponement or failure to give
possession of the premises on such date except as provided in
paragraph (d) below. No such postponement or failure to give
possession of the premises on March 22, 1995 shall affect the validity
of this Agreement or the obligations of the Lessee hereunder.
However, in such event, the Prior Entry Date shall not occur until
possession thereof is tendered by the Port Authority to the Lessee;
tender shall be made by notice given at least five (5) days prior to
the effective date of the tender. In the event that notice of tender
of the premises is not given for possession thereof to commence on or
prior to March 21, 1996 for the reasons set forth in this paragraph
(b), then the letting of the premises under this Agreement shall be
deemed cancelled, and each party does release and discharge the other
from any and all claims and demands in any way related to the letting
of the premises based on this Agreement, or a breach or alleged breach
thereof.
(c) For purposes of this Agreement "Prior Entry Date"
shall mean March 22, 1995, as such date may be postponed pursuant to
the provisions of paragraph (b) above of this Section. The Lessee
shall be permitted entry into the premises on the Prior Entry Date for
the purpose of performing its construction and installation work and
the Lessee's use of the premises during the period commencing with the
Prior Entry Date and continuing up to the day preceding the
commencement date of the term of the letting shall be subject to and
in accordance with all the terms and conditions of this Agreement
except those relating to payment of rental and rights of user.
(d) In the event that the Prior Entry Date does not
occur on or before April 1, 1995 due to the Port Authority's inability
to complete those portions of the Port Authority Work which the Port
Authority has agreed to complete prior to the Prior Entry Date, then
the two hundred seventy-one (271) day period from the commencement
date of the term of the letting used to determine the Rent
Commencement Date shall be increased by the sum of the following: (i)
one (1) day for each of the first sixty (60) excess days plus (ii) one
and three quarter days (1 ) for each excess day, if any, after the
first sixty (60) excess days. For purposes of this paragraph (d)
"excess days" shall be the number of days in the period commencing
April 2, 1995 and ending on the day preceding the Prior Entry Date
less the number of days in the period subsequent to execution of this
Agreement by the parties hereto that the Port Authority or its
contractor is prevented from performing such portions of such Port
Authority Work by forces and conditions beyond the control of the Port
Authority.
Section 3. Rights of User by the Lessee
The Lessee shall use the premises for the following
purposes only and purposes incidental thereto and for no other purpose
whatsoever: as clerical, executive and administrative offices for the
Lessee's business of providing reinsurance services to firms providing
2<PAGE>
insurance services to entities engaged in world trade and commerce and
such other type or types of business or operations engaged in or
previously engaged by other office tenants at the World Trade Center
whose eligibility and qualifications are determined by the Port
Authority under the provisions of Chapter 5 of Title 17 of the
Unconsolidated Law of the State of New York strictly on the basis of
their functions, activities and services in world trade and commerce.
In the event the Port Authority transfers fee title to the World Trade
Center or to the building in which the premises are located to other
than a governmental or quasi governmental entity, then notwithstanding
the foregoing sentence the Lessee from and effective the effective
date of such transfer may use the premises for general office purposes
consistent with the operation of a first class office building.
Section 4. Basic Rental
(a) The Lessee agrees to pay to the Port Authority a
basic rental for the premises as follows:
(i) During the period from and after
the Rent Commencement Date through the day
preceding the fifth anniversary of the Rent
Commencement Date at the rate of One Million Eight
Hundred Twenty-two Thousand Two Hundred Seventy-
two Dollars and No Cents ($1,822,272.00) per
annum, in advance in monthly installments of One
Hundred Fifty-one Thousand Eight Hundred Fifty-six
Dollars and No Cents ($151,856.00) each, on the
Rent Commencement Date and on the first day of
each calendar month thereafter throughout such
period.
(ii) During the period from and after
the fifth anniversary of the Rent Commencement
Date through and including the day preceding the
tenth (10th) anniversary of the Rent Commencement
Date, at the rate of One Million Nine Hundred
Eighty-three Thousand Nine Hundred Twenty-four
Dollars and No Cents ($1,983,924.00) per annum, in
advance in monthly installments of One Hundred
Sixty-five Thousand Three Hundred Twenty-seven
Dollars and No Cents ($165,327.00) each, on the
fifth (5th) anniversary of the Rent Commencement
Date and on the first day of each calendar month
thereafter throughout such period.
(iii)During the period from and after
the tenth (10th) anniversary of the Rent
Commencement Date through the balance of the term
of the letting under this Agreement, at the rate
of Two Million One Hundred Forty-five Thousand
Five Hundred Seventy-six Dollars and No Cents
($2,145,576.00) per annum, in advance in monthly
installments of One Hundred Seventy-eight Thousand
Seven Hundred Ninety-eight Dollars and No Cents
($178,798.00) each, on the tenth (10th)
anniversary of the Rent Commencement Date and on
the first day of each calendar month thereafter
3<PAGE>
through the balance of the term of the letting
under this Agreement.
(b) If the Rent Commencement Date shall be other than
the first day of a calendar month, the installment of basic rental
payable on the Rent Commencement Date shall be the amount of the
monthly installment stated in subparagraph (a)(i), above, multiplied
by a fraction the numerator of which shall be the number of days the
letting was in effect in the calendar month in which the Rent
Commencement Date fell and the denominator of which shall be the
number of days in that calendar month and if the expiration or
termination date of the letting is other than the last day of a month,
the basic rental for the portion of the month during which the letting
is effective shall be the amount of the applicable monthly installment
similarly prorated. If any basic rental increase is effective on a
day other than the first day of a calendar month there shall be
payable in advance on the effective date of the rental increase an
installment of rental equal to one-twelfth of the annual rental
increase multiplied by a fraction, the numerator of which shall be the
number of days from and including the effective date of the rental
increase to the end of the month in which the rental increase was
effective and the denominator of which shall be the number of days in
that month.
(c) For purposes of this Agreement "Rent Commencement
Date" shall mean the two hundred seventy first (271st) day from the
commencement date of the term of the letting as such two hundred
seventy-one (271) day period may be increased by the provisions of
paragraph (d) of the Section of this Agreement entitled "Term" and the
provisions of the Section of this Agreement entitled "Construction by
the Lessee".
(d) The basic rental for the premises set forth above
in this Section shall be subject to adjustment during the term of the
letting of the premises in accordance with the provisions of Schedule
A attached to this Agreement and hereby made a part hereof.
Section 5. Governmental Requirements
The Lessee shall procure all licenses, certificates,
permits or other authorization from all governmental authorities
having jurisdiction over the operations of the Lessee at the premises
or at the World Trade Center which may be necessary for the conduct of
its operations. The Lessee shall promptly observe, comply with and
execute the provisions of any and all present and future governmental
laws, rules and regulations, requirements, orders and directions which
may pertain or apply to the operations of the Lessee on the premises
or at the World Trade Center or its occupancy of the premises which
are applicable or which would be applicable if the Port Authority were
a private corporation, and the Lessee shall, in accordance with and
subject to the provisions of the Section of this Agreement entitled
"Construction by the Lessee", make any and all improvements,
alterations or repairs of the premises that may be required at any
time hereafter by any such present or future law, rule, regulation,
requirement, order or direction, provided such improvements,
alterations or repairs are not required generally throughout the
building in which the premises are located unless such general
requirement results from the Lessee's particular manner of use of or
4<PAGE>
its particular operations in the premises which are not common to
other tenants in the building in which the premises are located. The
provisions of this Section are not to be construed as a submission by
the Port Authority to the application to itself of such requirements,
or any of them.
Section 6. Rules and Regulations
The Lessee covenants and agrees to observe and obey
(and to compel its officers, members, employees, agents,
representatives, contractors, customers, guests, invitees and those
doing business with it to observe and obey) the Rules and Regulations
of the Port Authority (a copy of which is attached hereto, hereby made
a part hereof and marked "Exhibit R") for the government of the
conduct and operations of the Lessee, and such further reasonable
rules and regulations (including amendments and supplements thereto)
as may from time to time and throughout the letting be promulgated by
the Port Authority for reasons of safety, health or preservation of
property, or for the maintenance of the good and orderly appearance of
the premises and the World Trade Center or for the safe or efficient
operation of the World Trade Center, provided, however, that in case
of any conflict or inconsistency between the provisions of this
Agreement and any of the Rules and Regulations, the provisions of this
Agreement shall control. The Port Authority agrees that, except in
cases of emergency, it will give notice to the Lessee of every such
further rule or regulation adopted by it at least fifteen (15) days
before the Lessee shall be required to comply therewith. The Port
Authority shall not enforce any of the Rules and Regulations in such
manner as to discriminate against the Lessee.
Section 7. Responsibilities of the Lessee
(a) The Lessee shall conduct its operations in an
orderly and proper manner and so as not to annoy, disturb or be
offensive to others at the World Trade Center, and the Lessee shall
control the conduct of its officers, members, employees, agents,
representatives, contractors, customers, guests, invitees and those
doing business with it. Upon objection from the Port Authority
concerning the conduct of any such the Lessee shall immediately take
all steps necessary to cure or remove the cause of the objection.
(b) The Lessee shall not knowingly commit or knowingly
continue any nuisance on the premises, or do or permit to be done
anything which may result in the creation or commission of a nuisance
on the premises, and the Lessee shall not knowingly cause or knowingly
permit or continue to be caused or produced upon the premises, to
permeate the same or to emanate therefrom, any unusual, noxious or
objectionable smokes, gases, vapors, odors or objectionable noises.
(c) The Lessee shall not use or connect any equipment
or engage in any activity or operation in the premises which will
cause or tend to cause an overloading of the capacity of any existing
or future utility, mechanical, electrical, communication or other
systems, or portion thereof, serving the premises, nor shall the
Lessee do or permit to be done anything which may interfere with the
effectiveness or accessibility of existing and future utility,
mechanical, electrical, communication or other systems or portions
5<PAGE>
thereof on the premises or elsewhere at the World Trade Center.
Nothing in this paragraph (c) shall be construed to impose any
liability on the Lessee for unknowingly overloading the electrical
system, which such overloading results from the Port Authority's
failure to supply electricity in accordance with the specifications
set forth in Schedule D.
(d) The Lessee shall not overload any floor, roadway,
passageway, pavement or other surface or any wall, partition, column
or other supporting member, or any elevator or other conveyance, in
the premises or at the World Trade Center and without limiting any
other provision of this Agreement, the Lessee shall repair, replace or
rebuild any such damaged by overloading. The Port Authority hereby
represents that the floor load for the premises is as stated in
Schedule D, attached hereto and hereby made a part hereof. Subject to
the provisions of the Section of this Agreement entitled "Construction
by the Lessee", the Lessee at its cost and expense may perform the
work necessary to reinforce the existing floor load in the premises.
(e) Except as hereinafter provided in this paragraph
(e), the Lessee shall not install, maintain or operate or permit the
installation, maintenance or operation on the premises of any vending
machine or service designed to dispense or sell food, beverages,
tobacco products or merchandise of any kind, whether or not included
in the above categories, or any restaurant, cafeteria, kitchen, stand
or other establishment for the preparation, dispensing or sale of
food, beverages, tobacco or tobacco products, or merchandise of any
kind or any equipment or device for the furnishing to the public of a
service of any kind, including without limitation thereto any
telephone pay-stations. Subject to all the terms and provisions of
this Agreement, and notwithstanding the provisions of the preceding
sentence of this paragraph (e) and Rule 20, the Lessee may install an
eating facility in the premises pursuant to an approved construction
application as provided in the Section of this Agreement entitled
"Construction by the Lessee" and may operate such eating facility with
its own employees, or arrange for the operation thereof by an
independent contractor or operator selected by the Lessee unless the
Port Authority reasonably determines that the said contractor or
operator will adversely affect or interfere with operations at the
Facility or will cause or contribute to the causing of labor problems
or disturbances thereat, and the Lessee may install food and non-
alcoholic beverage vending machines or arrange for the installation
and operation of such machines, subject to the Port Authority's
reasonable approval of the type and method of installation thereof,
and the Lessee may use an independent contractor, operator or supplier
for such machines selected by the Lessee unless the Port Authority
reasonably determines that said contractor, operator or supplier will
adversely affect or interfere with operations at the Facility or will
cause or contribute to the causing of labor problems or disturbances
thereat, provided that such eating facility and vending machines shall
be installed and operated solely for use by the Lessee's officers,
members, employees, contractors, customers, guests, and invitees. The
Lessee's agreement with any contractor, operator or supplier of eating
facilities or vending machines shall permit cancellation by the Lessee
on short term notice in the event the Port Authority notifies the
Lessee that such contractor, operator or supplier fails to meet the
standards described in this paragraph. In the event any of the
aforesaid installations shall require modifications or alterations to
6<PAGE>
building systems or equipment (including heating, ventilating or air-
conditioning systems), and whether such modifications or installation
thereof are performed by the Lessee or by the Port Authority, the
Lessee shall be responsible for the cost of any such modifications or
alterations, and no such alteration or modification shall be commenced
until the Lessee has received an approved construction application
therefor. The Port Authority reserves the right from time to time to
make additional reasonable charges to the Lessee for any and all
utilities or other building services used in connection with any
eating facilities or any of the aforesaid machines, provided, however
that the provisions of this sentence shall not be applicable to
utilities and building services for which a charge or fee is
specifically provided for in this Agreement or for which this
Agreement specifically states that there will be no charge or fee.
The Lessee covenants and agrees that upon notification from the Port
Authority that objectionable odors emanate from the premises as the
result of the operation of any eating facility equipment or food
vending machines in the premises (whether through the building
heating, ventilating or air-conditioning systems or otherwise), the
Lessee will immediately take all necessary steps to eliminate such
odors, or if such odors cannot be so eliminated, the Lessee will
discontinue use of such eating facility or food vending machines and
shall not resume the use or operation thereof until written consent
therefor has been obtained from the Port Authority. Nothing herein
shall be deemed to permit the operation on the premises of any public
food or other merchandise or vending operation or service of any kind.
(f) The Lessee shall not use or make any reference, by
advertising or otherwise, to the names "World Trade Center" (except to
designate the Lessee's business address and then only in a
conventional manner and without emphasis or display and except in
connection with any contemplated subletting or assignment), "The Port
Authority of New York and New Jersey", "Port Authority" or any
simulation or abbreviation of any such names, or any emblem, picture
or reproduction of the World Trade Center, for any purpose whatsoever.
Upon notice from the Port Authority the Lessee shall immediately
discontinue any such use or reference.
(g) The Lessee recognizes that the Port Authority has
undertaken the planning, construction and operation of the World Trade
Center as a facility of commerce pursuant to concurrent legislation of
the State of New York, Chapter 209, Laws of New York, 1962 and the
State of New Jersey, Chapter 8, Laws of New Jersey, 1962. The
purpose, character and scope of the Lessee's occupancy, operation and
usage of the premises as described in the Section of this Agreement
entitled "Rights of User by the Lessee" are of primary importance and
inducement to the Port Authority in entering into this Agreement of
lease with the Lessee. The Lessee has represented to the Port
Authority that all its occupancy, operation and usage, throughout the
term of the letting hereunder, will be in strict accordance with and
subject to the provisions and requirements of the Section of this
Agreement entitled "Rights of User by the Lessee" and the Port
Authority has relied on such representations in entering into this
Agreement. Without affecting the Lessee's liability for any breach of
this representation and its obligations hereunder, in the event that
the Lessee has not complied with all the requirements of this Section
and the Section of this Agreement entitled "Rights of User by the
Lessee", within a period of ten (10) days after notice from the Port
7<PAGE>
Authority of such non-compliance, the Port Authority may by five (5)
days' notice terminate this Agreement and the letting hereunder and
the same shall be and operate as a conditional limitation and have the
same effect as if it were specifically included as a ground for
termination under paragraph (a) of the Section of this Agreement
entitled "Termination".
Section 8. Maintenance and Repair
(a) Except to the extent of such items of cleaning
service as may be supplied by the Port Authority as stated in the
Section of this Agreement entitled "Services and Utilities", the
Lessee shall at all times keep the premises in a clean and orderly
condition and appearance, together with all fixtures, equipment and
personal property of the Lessee located in or on the premises,
including without limitation thereto the interior surface of windows
and both sides of all entrance doors.
(b) The Lessee shall repair, replace, rebuild and
paint all or any part of the premises which may be damaged or
destroyed by the acts or omissions of the Lessee's contractors,
customers, guests, invitees or other persons who are doing business
with the Lessee or who are on or at the premises or the World Trade
Center with the consent of the Lessee (such damage or destruction
occurring while such contractors, customers, guests, invitees or other
persons are at the premises or the World Trade Center in connection
with business being transacted with the Lessee or are at the premises
or the World Trade Center with the consent of the Lessee) and the
Lessee shall repair, replace, rebuild and paint all or any part of the
World Trade Center, including the premises which may be damaged or
destroyed by the acts or omissions of the Lessee, its officers,
members, employees, agents and representatives.
(c) The Lessee shall take good care of the premises,
including therein, without limitation thereto, walls, partitions,
floors, ceilings, doors and exteriors of columns, and all parts
thereof, and all equipment and fixtures, and shall do all non-
structural preventive maintenance and make all necessary non-
structural repairs, replacements, rebuilding and painting necessary to
keep the premises in good condition befitting office space in a first
class office building and to keep any improvements, additions and
fixtures made or installed during the term of the letting in good
condition befitting office space in a first class office building.
(d) In the event the Lessee fails to commence so to
make or do any repair, replacements, rebuilding or painting required
by this Agreement within a period of ten (10) days after notice from
the Port Authority so to do, or fails diligently to continue to
completion the repair, replacement, rebuilding or painting of all of
the premises required to be repaired, replaced, rebuilt or painted by
the Lessee under the terms of this Agreement, the Port Authority may,
at its option, and in addition to any other remedies which may be
available to it, repair, replace, rebuild or paint all or any part of
the premises included in the said notice, the Port Authority's
reasonable cost thereof to be paid by the Lessee on demand. This
option or the exercise thereof shall not be deemed to create or imply
any obligation or duty to the Lessee or others.
8<PAGE>
(e) The Port Authority agrees that during the term of
the letting hereunder it will maintain and operate those portions of
the Facility affecting the premises and those portions of the Facility
utilized by the Lessee for access to the premises and will provide
services to the premises and will maintain the systems providing such
services to the premises all substantially in the manner and at the
level existing on the date of this Agreement. The Port Authority
further agrees to maintain the public areas in the building of which
the premises are a part, to clean the exterior of windows in the
premises and to make structural repairs to the exterior walls, floor
slab and structural building supporting members in the premises to the
extent necessary to keep the premises in a reasonably good condition
for the operations of the Lessee under this Agreement, provided that
nothing herein shall relieve the Lessee from the requirements of the
Section of this Agreement entitled "Governmental Requirements".
Section 9. Casualty
(a) In the event that, as a result of a casualty
insurable under the New York standard form of fire insurance policy
and extended coverage endorsement, the premises or areas at the World
Trade Center other than the premises are damaged (such areas other
than the premises as may be damaged hereinafter in this Section called
the "damaged areas") without the fault of the Lessee, its officers,
members, employees, customers, guests, invitees or other persons who
are doing business with the Lessee or who are on the premises with the
Lessee's consent, so as to render the premises untenantable in whole
or part, then
(1) if the Port Authority finds that the
necessary repairs or rebuilding can be completed within two
hundred seventy (270) days after the occurrence of the
damage, the Port Authority shall repair or rebuild with due
diligence, and the rental hereunder shall be abated, as
hereinafter provided in the Section of this Agreement
entitled "Abatement of Rental", only for the period from the
occurrence of the damage to the earlier of (i) fifteen (15)
days from the notification of the completion of the repairs
or rebuilding or (ii) the commencement of business
operations by the Lessee in the damaged areas of the
premises; or
(2) if the Port Authority finds that such repairs
or rebuilding cannot be completed within two hundred seventy
(270) days after the occurrence of the damage, then the Port
Authority shall have options: (i) to proceed with due
diligence to repair or to rebuild the premises or damaged
areas as necessary in which event the rental hereunder shall
be abated as provided in the Section of this Agreement
entitled "Abatement of Rental" only for the period from the
occurrence of the damage to the earlier of (x) fifteen (15)
days from notification of the completion of the repairs or
rebuilding or (y) the commencement of business operations by
the Lessee in the damaged areas of the premises; or (ii) to
terminate the letting as to the entire premises.
(b) In the event of damage to the premises or damaged
areas under circumstances described in paragraph (a) of this Section
9<PAGE>
9, the Port Authority within thirty (30) days after the occurrence of
the damage will furnish to the Lessee in writing a good faith estimate
of the time required to complete the repairs or rebuilding, such good
faith estimate to be arrived at by the Port Authority after consulting
with its Chief Engineer. In the event the Port Authority estimates
that the repairs or rebuilding cannot be completed within two hundred
seventy (270) days after the occurrence of the damage, then, upon
written notice to the Port Authority within twenty (20) days following
its receipt of the Port Authority's estimate, the Lessee shall have
the right to terminate the letting as to the entire premises under
this Agreement, provided that prior to or contemporaneously with the
exercise of such right to terminate this Agreement and the letting
hereunder, a responsible officer of the Lessee shall certify to the
Port Authority that on an economic and operational basis the premises
cannot be used by the Lessee for the operations described in Section 3
of this Agreement prior to the substantial completion of the repairs
or rebuilding and provided further that the Lessee is not under a
notice of termination from the Port Authority either on the date of
the giving of its notice to the Port Authority or on the effective
date thereof. Termination pursuant to this paragraph (b) shall have
the same force and effect as if the termination date were the original
expiration date provided in this Agreement.
(c) If damage to the premises or damaged areas under
circumstances described in paragraph (a) of Section 9 occurs during
the period which constitutes the last two (2) years of the term of the
letting, the provisions of this Section 9 shall be applicable, except
that for the purpose of applying such provisions the two hundred
seventy (270) day periods referred to in paragraphs (a) and (b) above
of this Section 9 shall in each instance be deemed changed to ninety
(90) days.
(d) The parties do hereby stipulate that neither the
provisions of Section 227 of the Real Property Law of the State of New
York nor those of any other similar statute shall extend or apply to
this Agreement.
(e) The Lessee shall give the Port Authority immediate
notice in case of any fire, accident or casualty in the premises or
elsewhere in the World Trade Center if the occurrence elsewhere in the
World Trade Center is known to and involves the Lessee, its officers,
members, employees, agents, representatives, contractors, or is known
to any of them and involves customers, guests or invitees of the
Lessee.
(f) In the event of a partial or total destruction of
the premises, the Lessee shall as soon as practicable remove any and
all of its property and all debris from the premises or the portion
thereof destroyed and if the Lessee does not promptly so remove, the
Port Authority may discard the same after giving the Lessee five (5)
days' prior notice of such or may remove the Lessee's property to a
public warehouse for deposit or retain the same in its own possession
and at its discretion may sell the same at either public auction or
private sale, the proceeds of which shall be applied first to the
expenses of removal, storage and sale, second to any sums owed by the
Lessee to the Port Authority, with any balance remaining to be paid to
the Lessee; if the expenses of such removal, storage and sale shall
exceed the proceeds of sale, the Lessee shall pay such excess to the
10<PAGE>
Port Authority upon demand. Notwithstanding anything in this
Agreement to the contrary, the Lessee's restoration obligations under
this Agreement which would otherwise apply upon expiration or
termination of this Agreement shall not be applicable upon termination
of this Agreement pursuant to this Section 9 to the portion or
portions of the premises damaged under the circumstances described in
paragraph (a) above except to the extent that the Lessee shall be
required to remove all of its trade fixtures, equipment and any other
personalty from such damaged portion or portions of the premises.
(g) The provisions of paragraph (a) of this Section 9
shall also be applicable to damage to the premises and the damaged
areas caused by the fault of the Lessee, its officers, members,
employees, customers, guests, invitees and other persons who are doing
business with the Lessee, or who are on the premises with the Lessee's
consent, but notwithstanding such application or any action taken by
the Port Authority or the Lessee pursuant to paragraph (a) of this
Section 9, including without limitation, termination of the letting,
the Lessee's obligation to repair and rebuild under paragraph (b) of
Section 8 shall continue in full force and effect except to the extent
released pursuant to the provisions of the Section of this Agreement
entitled "Liability Insurance". In connection with damage to the
premises or the damaged areas which is due to the fault of the Lessee,
its officers, employees, customers, invitees or other persons doing
business with the Lessee, the Lessee shall not be entitled to an
abatement of rentals unless and only to the extent that the Port
Authority actually receives proceeds of rental insurance in connection
with such damage, it being understood that the Port Authority shall
not be obligated to maintain or procure such insurance.
Section 10. Indemnity
(a) The Lessee shall indemnify and hold harmless the
Port Authority, its Commissioners, officers, agents and employees from
(and shall reimburse the Port Authority for the Port Authority's costs
or expenses including reasonable legal expenses and the costs to the
Port Authority of its in-house legal counsel incurred in connection
with the defense of) all claims and demands of third persons including
but not limited to those for death, for personal injuries, or for
property damages, arising out of any default of the Lessee in
performing or observing any term or provision of this Agreement, or
out of the use or occupancy of the premises by the Lessee or by others
with its consent, or out of any of the acts or omissions of the
Lessee, its officers, members, employees, agents, representatives,
contractors, customers, guests, invitees and other persons who are
doing business with the Lessee or who are at the premises with the
Lessee's consent where such acts or omissions are on the premises, or
arising out of any acts or omissions of the Lessee, its officers,
members, employees, agents and representatives where such acts or
omissions are elsewhere at the World Trade Center.
(b) If so directed, the Lessee shall at its own
expense defend any suit based upon any such claim or demand (even if
such suit, claim or demand is groundless, false or fraudulent), and in
handling such it shall not, without obtaining express advance
permission from the General Counsel of the Port Authority, raise any
defense involving in any way the jurisdiction of the tribunal over the
person of the Port Authority, the immunity of the Port Authority, its
11<PAGE>
Commissioners, officers, agents or employees, the governmental nature
of the Port Authority or the provision of any statutes respecting
suits against the Port Authority.
Section 11. Ingress and Egress
The Lessee solely for itself, its officers, employees
and such business invitees as are at the premises in connection with
the transaction of the regular business of the Lessee, shall have the
right of ingress and egress between the premises and the City streets
outside the World Trade Center. Such right shall be exercised by
means of such corridors, lobbies, public areas and pedestrian or
vehicular ways, and by means of such elevators, escalators or other
facilities for movement of persons or property, to be used subject to
all the provisions of this Agreement and in common with others having
rights of passage and movement within the World Trade Center, as may
from time to time be designated by the Port Authority for the use of
the public. The use of any such facility, way or other area shall be
subject to the rules and regulations of the Port Authority which are
now in effect or which may hereafter be promulgated for the safe and
efficient operation of the World Trade Center. The Port Authority
may, at any time, temporarily or permanently close, move, change or
limit the use of, or consent to or request the closing, moving,
changing or limitation of the use of, any such facility, way or any
other area at or near the World Trade Center presently or hereafter
used as such, so long as a reasonably comparable means of ingress and
egress as provided above remains available to the Lessee. The Lessee
shall not do or permit anything to be done which will interfere with
the free access and passage of others to space adjacent to the
premises or in any areas, streets, ways, facilities and walks near the
premises.
Section 12. Construction by the Lessee
(a) Except as expressly provided in this Section 12,
the Lessee shall not erect any structures, make any modifications,
alterations, additions, improvements, repairs or replacements or do
any construction work on or to the premises, or install any fixtures
in or on the premises (other than trade fixtures, removable without
injury to the premises and other than purely decorative changes such
as painting, the Lessee to notify the Port Authority not less than
five (5) business days prior to making any decorative changes and the
Lessee shall not commence or continue such changes if the Port
Authority advises the Lessee that such changes are not decorative and
require the prior approval of the Port Authority) without the prior
consent of the Port Authority, and in the event any construction,
improvement, alteration, modification, addition, repair or replacement
is made or done with or without such consent and unless the consent of
the Port Authority shall expressly provide otherwise, the same shall
immediately become the property of the Port Authority and any change
or removal of same by the Lessee, except for trade fixtures removable
without injury to the premises, either during the term or at the
expiration thereof shall be in accordance with and pursuant to the
terms of this Section. Notwithstanding the foregoing, immediately
upon notice from the Port Authority given at any time during the
letting, the Lessee shall remove or change any of the same made or
done by it without the Port Authority's consent, and in the case of
any of the same made or done with the Port Authority's consent, the
12<PAGE>
Lessee if so required by notice from the Port Authority, shall remove
and restore the following improvements and installations made or
installed by the Lessee in the premises immediately upon the
expiration or termination of the letting, or immediately upon receipt
of such notice as may be given within thirty (30) days after such
expiration or termination: modular furniture, computer and
telecommunications equipment and wiring, all standard office
equipment, inventories, removable fixtures and other personal property
of the Lessee or for which the Lessee is responsible, and the Lessee
shall repair any damage caused by any of such removal work. In
addition, immediately upon expiration or termination of the letting or
immediately upon receipt of notice from the Port Authority as may be
given within thirty (30) days after such expiration or termination,
the Lessee shall be required to restore all floor slabs or other
vertical penetrations and to restore all other structural work
performed by the Lessee to the condition existing at the time the
premises were made available to the Lessee, including the removal of
all stairwells installed in the premises by the Lessee. In the event
the Lessee removes electrical or plumbing fixtures, the Lessee shall
be required to cap all altered electrical and plumbing lines flush
with walls, floors and ceilings but nothing in this sentence shall be
construed as an obligation of the Lessee to remove electrical or
plumbing fixtures unless such obligation is imposed elsewhere in this
Section. Nothing herein shall be deemed to affect or impair the
Lessee's maintenance and repair obligations set forth elsewhere in
this Agreement. With respect to any modifications, additions,
alterations, improvements, installations or construction made or done
by the Port Authority at the request of the Lessee either prior to or
during the term of the letting, the Lessee shall have the same
obligations as provided above with respect to that made or done by the
Lessee with the Port Authority's consent.
(b) The Lessee has thoroughly examined and inspected
the premises and agrees, except for the work described in the Section
of this Agreement entitled "Port Authority Work", to take the premises
in its "as is" condition on the date of this Agreement, provided,
however that if there is a latent condition existing in the premises
on the Prior Entry Date requiring structural work, which condition was
not known by the Lessee at the time of its execution of this
Agreement, then the Lessee shall notify the Port Authority
expeditiously upon its discovery of such condition and the Port
Authority, at its cost and expense, will correct same. The Lessee
acknowledges that it has not relied upon any representation or
statement of the Port Authority or of its Commissioners, officers,
agents or employees as to the suitability of the premises for the
operations permitted thereon by this Agreement. The Port Authority,
except for the work described in the Section of this Agreement
entitled "Port Authority Work", shall have no obligation hereunder for
finishing work or preparation of the premises for the Lessee's use.
The Lessee, subject to the provisions of paragraph (g) of this Section
12, agrees to perform at its sole cost and expense all construction
and installation work that it may require to finish off and decorate
the premises. Without limiting the generality of the foregoing, the
Lessee acknowledges that facilities for heat, ventilation and air
cooling have heretofore been installed in the premises pursuant to a
certain design configuration and the Port Authority makes no
representations that such heat, ventilation and air-cooling shall be
adequate for the Lessee's needs and in the event any alteration to
13<PAGE>
such facilities shall be required the cost of the same shall be borne
by the Lessee. Nothing in the preceding sentence shall be construed
to relieve the Port Authority from providing heat, ventilation and air
cooling in accordance with the specifications set forth in Schedule D
attached hereto.
(c) With respect to all modifications, alterations,
additions, improvements, repairs, replacements or other construction
or installation work proposed to be performed in or on the premises
(hereinafter referred to as the "construction and installation work")
the Lessee shall submit to the Port Authority for its approval a
construction application for the premises in the form attached hereto
as Exhibit TAA setting forth in detail and by appropriate plans and
specifications the construction and installation work proposed by the
Lessee to finish off and decorate the premises and the manner of and
time periods for performing the same. No construction and
installation work shall be commenced by the Lessee in the premises
until the construction application and plans and specifications have
been approved by the Port Authority. In the event of any incon-
sistency between the provisions of this Agreement and the construction
application, the provisions of this Agreement shall control. The data
to be supplied by the Lessee shall describe in detail the fixtures,
equipment and systems, if any, to be installed by the Lessee or, if
already installed, to be modified by the Lessee including those for
the emission, handling and distribution of heat, air conditioning,
domestic hot and cold water and electrical and other systems and shall
show the proposed method of tying in the same to the utility lines or
connections provided by the Port Authority either on or off the
premises. The Lessee shall install all electrical distribution equip-
ment required, including but not limited to, service switches,
excluding the disconnect switches, current transformer cabinets and,
if the consumption and demand for electricity by the Lessee is to be
metered, meter pans suitable for the installation by the Port
Authority of an electric meter or meters, the Port Authority to
provide and install such meter or meters at its sole cost and expense.
The Lessee shall be responsible at its sole expense for retaining all
architectural, engineering and other technical consultants and
services as may be reasonably required by the Port Authority and for
developing, completing and submitting detailed plans and specifi-
cations for the work. The plans and specifications to be submitted by
the Lessee to the Port Authority shall bear the seal of a qualified
architect or professional engineer and shall be in sufficient detail
for a contractor to perform the work. If the Lessee's plans and
specifications shall satisfy and be in conformance with the applicable
requirements of the Port Authority's Tenant Construction Review Manual
issued by the Port Authority Engineering Department dated March, 1984,
revised March, 1990, together with Amendment No. 1 dated October,
1990, (and as the same may be further amended prior to the date the
Lessee submits its plans and specifications) the Port Authority will
approve same. In the event the Lessee disputes an interpretation or
application by the Port Authority of any of the provisions of the
Construction Manual with respect to any work to be performed by the
Lessee pursuant to this Section 12, then and in such event such
dispute shall be diligently resolved by the Port Authority's Chief
Engineer. In the event that the Lessee in connection with the
performance of the initial construction and finishing work in the
premises shall give to the Port Authority not less than twenty (20)
business days' notice of the date that the Lessee intends to deliver
14<PAGE>
its construction application and plans and specifications to the Port
Authority and the Lessee shall actually deliver such construction
application and plans and specifications to the Port Authority on such
date and such construction application and plans and specifications
shall cover all of the initial construction and installation work
necessary to finish off and decorate the premises (hereinafter called
the "Pre-Appointment Process"), then the Port Authority will review
the same and forward its comments thereon to the Lessee within seven
(7) business days after the Port Authority's receipt of such
construction application and plans and specifications and the Port
Authority will review and comment on any resubmission of corrected,
modified or amended plans and specifications within seven (7) business
days after the Port Authority's receipt thereof. All comments made by
the Port Authority to the Lessee pursuant to this Section shall be
made in writing and all comments by the Port Authority with respect to
the Lessee's plans and specifications shall be made with specificity.
If the total of the number of business days actually required by the
Port Authority for review of all submissions and resubmissions of the
Lessee's construction application and plans and specifications for the
initial construction and finishing work during the Pre-Appointment
Process should be in excess of the total of the number of business
days allocated for the Pre-Appointment Process to all such reviews of
the Lessee's submissions and resubmissions of its plans and
specifications as provided above, then the two hundred seventy-one
(271) day period from the commencement date of the term of the letting
used to determine the Rent Commencement Date shall be increased by one
(1) day for each of such excess business days. The Lessee hereby
agrees that such increase in the number of days from the commencement
date of the letting to the Rent Commencement Date shall be the sole
remedy available to the Lessee in the event the Port Authority fails,
within the time provided herein for the Port Authority to respond to
the Lessee's submission or resubmission of its construction
application and plans and specifications during the Pre-Appointment
Process. In the event the Lessee does not elect to use the "Pre-
Appointment Process", then the Port Authority shall review the
construction application and all plans and specifications submitted by
the Lessee for the initial work and will forward its comments on same
within fifteen (15) business days after its receipt of the aforesaid
submission, provided such construction application and plans and
specifications cover all of the initial construction and installation
work necessary to finish off and decorate the premises (unless the
estimated amount of the work to be performed by the Lessee as shown on
the construction application is in excess of $3,000,000.00, in which
case the Port Authority will so respond within twenty (20) business
days after such submission by the Lessee) and will review and comment
on any resubmissions within twelve (12) business days (unless the
estimated amount of the work to be performed by the Lessee as shown on
the construction application is greater than $3,000,000.00, in which
case the Port Authority will so respond in 14 business days). If the
total of the number of business days actually required by the Port
Authority for the review of all submissions and resubmissions of the
Lessee's plans and specifications for the initial work shall be in
excess of the total of the number of business days allocated to all
reviews of the Lessee's submissions and resubmissions as provided in
the preceding sentence, then the two hundred seventy-one (271) day
period from the commencement date of the term of the letting used to
determine the Rent Commencement Date shall be increased by one (1) day
for each of such excess business days. The Lessee hereby agrees that
15<PAGE>
such increase in the number of days from the commencement date of the
letting to the Rent Commencement Date shall be the sole remedy
available to the Lessee in the event the Port Authority fails within
the time provided for above in this paragraph to respond to the
Lessee's submission or resubmission. The Lessee shall not engage any
contractor or permit the use of any subcontractor unless and until
each such contractor or subcontractor shall have been approved by the
Port Authority. The Port Authority hereby approves the AJ Contracting
Company, Inc. as the Lessee's general contractor. The Port Authority
further agrees that within five (5) business days after a request is
made by the Lessee, it will notify the Lessee as to whether it
approves or disapproves any contractor or subcontractor as to which
the Lessee seeks Port Authority approval. If the Port Authority shall
fail to notify the Lessee in writing within such five (5) business day
period that such contractor or subcontractor is approved or
disapproved, such contractor or subcontractor shall be deemed to have
been approved by the Port Authority for performance of the work for
which such contractor or subcontractor was submitted. The Lessee
shall include in each such contract or subcontract such provisions as
the Port Authority may reasonably approve or reasonably require
including, without limitation thereto, provisions regarding labor
harmony. The Lessee hereby assumes the risk of loss or damage to all
of the construction and installation work prior to the completion
thereof. If such loss or damage shall occur prior to the delivery by
the Port Authority's Assistant Director Physical Facilities, World
Trade Department, of the certificate of substantial completion to the
Lessee and the Port Authority as hereinafter provided in this
paragraph (c), the Lessee, subject to the provisions of paragraph (f)
of the Section of this Agreement entitled "Liability Insurance", shall
forthwith repair, replace and make good the construction and
installation work and the property of the Port Authority without cost
or expense to the Port Authority. If such loss or damage shall occur
subsequent to delivery of such certificate, the provisions of the
Section of this Agreement entitled "Casualty" shall be applicable.
The Lessee shall itself and shall also require its contractors to
indemnify and hold harmless the Port Authority, its Commissioners,
officers, agents and employees from and against all claims and
demands, just or unjust, of third persons (including employees, offi-
cers, and agents of the Port Authority) arising or alleged to arise
out of the performance of the construction and installation work and
for all expenses, including without limitation thereto legal expenses
(including the costs to the Port Authority of its in-house legal
counsel), incurred by it and by them in the defense, settlement or
satisfaction thereof, including without limitation thereto, claims and
demands for death, for personal injury or for property damage, direct
or consequential, whether they arise from the acts or omissions of the
Lessee, of any contractors of the Lessee, of the Port Authority, or of
third persons, or from acts of God or of the public enemy, or
otherwise, excepting only claims and demands which result from
affirmative willful acts done by the Port Authority, its
Commissioners, officers, agents and employees with respect to the
construction and installation work, provided, however, that the Lessee
shall not be required to indemnify the Port Authority where such
indemnity would be precluded pursuant to the provisions of Section 5-
322.1 of the General Obligations Law of the State of New York.
Notwithstanding the provisions of the foregoing sentence, with respect
to the Additional Lessee Work, as such term is defined in the Section
of this Agreement entitled "Port Authority Work; Additional Lessee
16<PAGE>
Work", the Lessee's indemnification obligations therein shall be
limited to claims and demands arising or alleged to arise out of the
negligent acts of the Lessee, its officers and employees, but nothing
herein shall limit the indemnification obligations of the Lessee's
contractor as stated aforesaid. The Lessee shall, and shall cause
each of its contractors and subcontractors to, obtain and maintain in
force such insurance coverage, including without limitation a
contractual liability endorsement covering the obligations assumed by
the Lessee in the three preceding sentences. All work to be performed
by the Lessee hereunder shall be in accordance with the said
construction application and final plans and specifications approved
by the Port Authority, except that all aspects of the construction and
installation work which affect life safety shall be performed strictly
in accordance with the construction application and final plans and
specifications approved by the Port Authority, shall be subject to
inspection by the Port Authority during the progress of the work and
after the completion thereof and the Lessee shall redo or replace at
its own expense any work not done in accordance therewith. In
connection therewith the Lessee agrees not to install ceiling tiles in
the premises or otherwise cover up the ceiling until the Port
Authority has inspected any ceiling work performed by the Lessee in
the premises and the Port Authority agrees to inspect any ceiling work
performed by the Lessee within five (5) business days after such
request is made by the Lessee. Upon substantial completion of the
initial construction and installation work to be performed by the
Lessee pursuant to the construction application the Lessee shall
deliver to the Port Authority a certificate by an authorized officer
of the Lessee and a certificate by the Lessee's qualified architect
and/or professional engineer, each certifying that the initial con-
struction and installation work has been performed in accordance with
the construction application and the final plans and specifications
approved by the Port Authority (or strictly in accordance with the
plans and specifications approved by the Port Authority in the case of
life-safety matters) and the provisions of this Agreement and in
compliance with the Port Authority's Tenant Construction Review Manual
and all applicable governmental laws, ordinances, enactments,
resolutions, rules, regulations and orders. Notwithstanding the
foregoing, with respect to the certification set forth in the
preceding sentence, the Lessee may notify the Port Authority in
writing that the certification of the Lessee's architect or
professional engineer shall also be deemed to be the certification of
the Lessee with the same force and effect as if given directly by the
Lessee. The Port Authority shall inspect the initial construction and
installation work and within fifteen (15) business days after receipt
of such certification (or within ten (10) business days after receipt
of a resubmission of such certification), the Port Authority's
Assistant Director, Physical Facilities, World Trade Department, shall
do either of the following (i) if the initial construction and
installation work has been substantially completed as certified by the
Lessee and such architect and/or engineer, the Assistant Director
shall so certify to the Port Authority and to the Lessee, subject to
the condition that all risks thereafter with respect to the
construction and installation work covered by such construction
application and any liability therefor for negligence or other reason
shall be borne by the Lessee, or (ii) notify the Lessee and the Port
Authority that the work has not been substantially completed as so
certified by the Lessee and its architect or professional engineer,
such notification to specifically state the objections with respect to
17<PAGE>
such certification. For purposes of this Section "substantial
completion" shall mean completion of all non life-safety working in
accordance with the approved plans and specifications except for
minor, insubstantial "punch list" items and completion of all work
relating to life-safety strictly in accordance with the approved plans
and specifications. If the total of the number of business days
actually required by the Port Authority's Assistant Director, Physical
Facilities, World Trade Department, to respond to all certifications
and recertifications of the Lessee and its architect or professional
engineer with respect to the initial work should be in excess of the
total of the number of business days allocated, then the two hundred
seventy-one (271) day period from the commencement date of the letting
used to determine the Rent Commencement Date shall be increased by the
number of such excess business days. The Lessee shall not use or
permit the use of any portion of the premises in which the
construction and installation work is being performed for conducting
its business operations until such certification is received from said
Assistant Director, Physical Facilities, and the Lessee shall not use
or permit the use of such portion of the premises even if such
certification is received with respect to a portion of the
construction and installation work if said Assistant Director,
Physical Facilities, states in any such certification that such
portion of the premises cannot be used until other specified portions
of the construction and installation work are completed. Upon
completion of the initial work the Lessee shall supply the Port
Authority with "as built" drawings in form and number requested by the
Port Authority.
(d) The Lessee shall be solely responsible for the
plans and specifications used by it, except for the plans and
specifications prepared by the Port Authority and furnished to the
Lessee for the performance of the Lessee's Additional Work, and for
the adequacy and sufficiency of such plans and specifications and all
the improvements depicted thereon or covered thereby, regardless of
the consent thereto or approval thereof by the Port Authority or the
incorporation therein of any Port Authority requirements or
recommendations. The Port Authority shall have no obligations or
liabilities in connection with the performance of the work performed
by the Lessee or on its behalf or the contracts for the performance
thereof entered into by the Lessee. Any warranties extended or
available to the Lessee in connection with the aforesaid work shall be
for the benefit of the Port Authority as well as the Lessee.
(e) Title to and property in the construction and
installation work and to all fixtures, equipment and systems installed
pursuant to this Section and any replacements thereof shall vest in
the Port Authority upon the construction, installation or replacement
thereof and the Lessee shall execute such necessary documents
confirming the same as the Port Authority may require.
(f) Without limiting or affecting any other term or
provision of this Agreement, the Lessee shall be solely responsible
for the design, adequacy and operation of all utility, mechanical,
electrical, communications and other systems made or installed by the
Lessee in the premises and shall do all preventive maintenance and
make all repairs, replacements and rebuilding necessary to keep such
systems and all other improvements, additions and fixtures, finishes
and decorations made or installed by the Lessee (whether the same
18<PAGE>
involves structural or non-structural work) in good condition
befitting a tenancy in a first class office building. The Lessee has
advised the Port Authority that it may elect as part of its
construction and finishing work to reinforce the floor located in the
portion of the premises shown on Exhibit A attached to this Agreement
and to perform poke throughs and install drains therein. The Port
Authority will cooperate with the Lessee to gain access to space
located on the 22nd floor of the South Tower Building for the purpose
of enabling the Lessee to perform such reinforcement work, but the
Lessee understands that the Port Authority is offering no assurances
that such tenant currently in occupancy on said 22nd floor will grant
access to the Lessee or on what terms and conditions such access will
be granted and the Lessee further understands and agrees that there
will be no liability to the Port Authority if such tenant refuses to
grant access. If such access is so granted the Lessee hereby agrees
to indemnify the Port Authority from and against all claims made
against the Port Authority arising or resulting from performance of
such reinforcement work by the Lessee. In the event that during
performance of such work the Lessee discovers the presence of asbestos
or asbestos-containing materials in the ceiling of the said 22nd floor
space, then the Lessee shall immediately notify the Port Authority who
will diligently remove same at its cost and expense and will
refireproof, if necessary, the ceiling area containing asbestos or
asbestos-containing materials, provided that such asbestos or
asbestos-containing materials were not placed therein by the Lessee or
its contractor. The Lessee shall not commence performance of any
reinforcement work unless and until the Port Authority has approved
the Lessee's construction application and plans and specification with
respect to same.
(g) The Port Authority in connection with the Lessee's
initial construction and installation work performed in the premises
will pay to the Lessee an amount equal to the lesser of (1) the cost
of such initial construction and installation work performed in the
premises or (2) the sum of Three Million Six Hundred Forty-four
Thousand Five Hundred Forty-six Dollars and No Cents ($3,644,546.00),
such lesser amount being hereinafter referred to as the "Lessee's
Finishing Allowance." "Cost" as used herein shall mean the sum of (i)
direct labor and material costs and contract costs for the purchase
and installation of fixtures, equipment, mill work and other finishing
and decorating work, including the cost of purchase and installation
of modular partition systems and other employee work stations,
telecommunications equipment and wiring, to the extent all of same are
actually installed in, affixed or annexed to the premises, (ii)
construction management, engineering, architectural, project
consulting, planning and design and similar professional fees and
expenses which, taken together, do not exceed thirty percent (30%) of
the total of the aforesaid costs set forth in clause (i) above, (iii)
moving and relocation expenses incurred by the Lessee in connection
with the relocation to the premises of its property and equipment from
its current space at 110 William Street, New York, New York and from
the space currently leased by Unity Fire and General Insurance Company
(a wholly owned subsidiary of the Lessee) from the Port Authority on
the 29th floor of the South Tower Building at the World Trade Center
and (iv) utility, freight elevator and standby labor charges incurred
during construction, inspection, filing, sign off and all other
charges and fees imposed by the Port Authority in connection with such
work. In no event whatsoever shall "cost", as defined and computed in
19<PAGE>
this paragraph, include any expenses, outlays or charges whatsoever by
or for the account of the Lessee for or in connection with any work
performed by the Lessee pursuant to paragraphs (c), (d) and (e) of the
Section of the Agreement entitled "Port Authority Work; Additional
Lessee Work", or in connection with equipment or fixtures or the
making of any finishing or decorating work unless such are actually
and completely installed in and or made to the premises, nor shall
"cost" include the cost of any equipment, fixtures or improvement
which is secured by liens, mortgages, other encumbrances or
conditional bills of sale, nor shall "cost" include any payment made
to organizations which are owned by or in common ownership with the
Lessee. The Lessee's Finishing Allowance will be paid to the Lessee
as follows: not more than once each calendar month following the
calendar month in which the Lessee commences the construction and
installation work in the premises pursuant to the provisions of this
Section 12, the Lessee shall deliver a certificate to the Port
Authority signed by a designated representative of the Lessee which
shall certify the amount of the payments made by the Lessee which are
properly includible in the Lessee's cost of performing the
construction and installation work during the preceding calendar
month, each such certificate to set forth the total cumulative
payments constituting the Lessee's cost made by the Lessee from the
commencement of the construction and installation work to the date of
the certificate and each such certificate also to contain a
certification by the Lessee or at the Lessee's option, the Lessee's
architect or professional engineer (provided that if such
certification is made by such architect or engineer, then it shall be
with the same force and effect as if such certification had been made
directly by the Lessee itself) that the portion of the Lessee's
construction and installation work performed by the Lessee since the
last such certificate and covered by such certificate has been
performed in accordance with the terms of this Agreement and the
Construction Application. Within 30 days after the delivery of each
such certificate by the Lessee, the Port Authority shall pay to the
Lessee the amount constituting the Lessee's cost of performing the
construction and installation work and paid by the Lessee during the
preceding calendar month, less ten percent (10%) of the portion of
such cost attributable to clause (i) above (but only less five percent
(5%) thereof subsequent to the date that the Lessee's architect or
engineer certifies to the Port Authority that at least fifty percent
(50%) of the entire finishing and installation work proposed to be
performed by the Lessee has been installed in the premises), provided
that the total of such periodic payments made by the Port Authority
shall not exceed the Lessee's Finishing Allowance. Upon substantial
completion of the construction and installation work in the premises
to the satisfaction of the Port Authority's Assistant Director,
Physical Facilities, World Trade Department, and his certification
thereof to the Port Authority and to the Lessee, the Port Authority
will pay to the Lessee the amount so certified by the Lessee which
shall equal the total of the ten percent (10%) and five percent (5%)
deductions made in connection with all previous periodic payments less
the amount of the Port Authority's periodic payments which a
preliminary determination of the Lessee's cost discloses exceeds the
Lessee's Finishing Allowance and less a retainage amount, such
retainage amount to be equal to one hundred fifty percent (150%) of
the amount reasonably established by the Port Authority as the cost of
fully completing such work but nothing herein shall be construed to
relieve the Lessee of its obligation to expeditiously complete such
20<PAGE>
work, such payment to be made within 30 days after such certification.
Also, upon full completion of all the construction and installation
work to be performed by the Lessee pursuant to the provisions of this
Section 12, the Lessee shall supply to the Port Authority a full
statement of the cost thereof, certified by a designated
representative of the Lessee. After examination and approval of such
certified statement and after such further examination of the records
and books of account of the Lessee relating to the costs of the
construction and installation work as the Port Authority may deem
reasonable, the Port Authority to promptly examine such certified
statement and such books and records, the Port Authority will promptly
finally determine the cost of the construction and installation work
performed in the premises and if such final determination discloses
that a part of the Lessee's Finishing Allowance remains unpaid, the
Port Authority will pay the same to the Lessee within fifteen (15)
days after such final determination, and if the final determination
discloses that the payments previously made exceed the Lessee's
Finishing Allowance, the Lessee shall repay to the Port Authority the
amount of such excess within fifteen (15) days after notice from the
Port Authority of the amount thereof. The Lessee prior to a final
determination of cost shall permit the Port Authority, by its agents,
employees and representatives at all reasonable times and upon
reasonable prior notice, to examine and audit the records and other
documentation of the Lessee which pertain to and will substantiate the
cost. The Port Authority agrees that it will not impose a fee upon
the Lessee during the Lessee's initial move into the premises for the
use of freight elevators solely to relocate the Lessee's furniture,
equipment, trade fixtures and other items of personalty into the
premises from its current space at 110 William Street and from the
Unity space at the Facility.
Section 13. Signs
Except with the prior consent of the Port Authority,
the Lessee shall not erect, maintain or display any signs,
advertising, posters or similar devices at or on the exterior parts of
the premises or in the premises so as to be visible through the
windows, glass walls or exterior doors thereof. The Port Authority
hereby agrees that it will not withhold its approval to any sign
submitted to it for approval by the Lessee to the extent such sign is
in accordance with the Tenant Construction Review Manual. Upon the
expiration or termination of the letting, the Lessee shall remove,
obliterate or paint out, as the Port Authority may direct, any and all
signs and advertising, posters or similar devices, and in connection
therewith shall repair any damage resulting from such removal.
Section 14. Injury and Damage to Person or Property
The Port Authority shall not be liable to the Lessee or
others for any personal injury, death or property damage from falling
material, water, rain, hail, snow, gas, steam, dampness, explosion,
smoke, radiation, and/or electricity, whether the same may leak into
or fall, issue, or flow from any part of the premises or of the World
Trade Center, including without limitation thereto any utility,
mechanical, electrical, communication or other systems therein, or
from any other place or quarter unless said damage, injury or death
shall be due to the negligent acts or willful misconduct of the Port
Authority, its employees or agents. Notwithstanding the foregoing
21<PAGE>
provisions of this Section, the Lessee covenants and agrees that (a)
any rights of the Lessee to make a claim against the Port Authority as
contemplated herein shall be subject to the waiver of subrogation
provisions set forth in the Section of this Agreement entitled
"Liability Insurance" and (b) in no event shall the Lessee be entitled
to make a claim for consequential, indirect or special damages
pursuant to this Section.
Section 15. Additional Rent and Charges
(a) If the Lessee shall fail or refuse to perform any
of its obligations under this Agreement, the Port Authority, in
addition to all other remedies available to it, shall have the right
(but shall not be obligated to) to perform any of the same after five
(5) days' notice to the Lessee of its intention to perform the same,
and the expiration of any applicable grace period and the Lessee shall
pay the Port Authority's cost thereof on demand. Notwithstanding the
foregoing the Port Authority need not give prior notice of its
intention to perform any of the same in case of emergency. If the
Port Authority has paid any sum or sums or has incurred any
obligations, expense or cost which the Lessee has agreed to pay or
reimburse the Port Authority for, or if the Port Authority is required
or elects to pay any sum or sums or incurs any obligations, expense or
cost by reason of the failure, neglect or refusal of the Lessee to
perform or fulfill any one or more of the conditions, covenants or
agreements contained in this Agreement, or as a result of an act or
omission of the Lessee contrary to the said conditions, covenants and
agreements, including any legal expense or cost in connection with any
actions or proceeding brought by the Port Authority against the Lessee
or by third parties against the Port Authority, the Lessee agrees to
pay the sum or sums so paid or the expense and the Port Authority's
reasonable cost so incurred, including all interest costs, damages and
penalties, and the same may be added to any installment of rent
thereafter due hereunder and each and every part of the same shall be
and become additional rent, recoverable by the Port Authority in the
same manner and with like remedies as if it were originally a part of
the basic rental as set forth in the Section of this Agreement
entitled "Basic Rental".
(b) "Cost" or "costs" of the Port Authority in this
Agreement shall mean and include (1) payroll costs including but not
limited to contributions to the retirement system, or the cost of
participation in other pension plans or systems, insurance costs, sick
leave pay, holiday, vacation, authorized absence pay or other fringe
benefits; (2) cost of materials, supplies and equipment used
(including rental thereof); (3) reasonable payments to contractors;
and (4) any other reasonable direct costs.
Section 16. Rights of Entry Reserved
(a) The Port Authority, by its officers, employees,
agents, representatives and contractors shall have the right at all
times and without notice during an emergency and during normal
business hours and upon reasonable oral notice in non-emergency
situations to enter upon the premises for the purpose of inspecting
the same, for observing the performance by the Lessee of its
obligations under this Agreement, and for the doing of any act or
22<PAGE>
thing which the Port Authority may be obligated or have the right to
do under this Agreement or otherwise.
(b) Without limiting the generality of the foregoing,
the Port Authority, by its officers, employees, representatives and
contractors, shall have the right, for its own benefit, for the
benefit of the Lessee or for the benefit of others at the World Trade
Center, to maintain initially existing and future utility, mechanical,
electrical, communication and other systems or portions thereof on the
premises, and to enter upon the premises at all times without prior
notice during emergency situations and at all reasonable times upon
reasonable oral notice to make such repairs, alterations and
replacements as may, in the opinion of the Port Authority, be deemed
necessary or advisable and, from time to time, to construct or install
over, in, under or through the premises new lines, pipes, mains,
wires, conduits, equipment and other such provided that to the extent
feasible same are placed within the then existing interior walls,
floors, existing columns or ceilings or else alongside thereof and
boxed in, and the finish thereof to be consistent with that existing
before such work and the Port Authority agrees to consult with the
Lessee as to the most appropriate or feasible place for construction
or installation of any item, provided, however, the actual location of
same shall be as reasonably determined by the Port Authority and
provided further that the Port Authority during performance of such
work makes reasonable efforts to minimize disruption to the Lessee's
operations; and to use the premises for access to other portions of
the World Trade Center not otherwise conveniently accessible; and to
take all material into and upon the premises that may be required for
such repairs, alterations and replacements; provided, however, that
such repair, alteration, replacement, construction or access shall not
unreasonably interfere with the use of the premises by the Lessee.
The Port Authority agrees to store only those materials in the
premises as are necessary to perform the work described in this
paragraph (b) and the Port Authority further agrees to clean up the
premises to the Lessee's reasonable satisfaction subsequent to
completion of the work and to repair any damage resulting from such
work. The Port Authority agrees, unless there is no practical
alternative, or unless required by law, to perform such maintenance,
repair, alteration, replacement, installation or construction so as
not to effectuate a permanent material reduction of the usable footage
in the premises. A material reduction of the usable square footage
shall have occurred if the usable square footage is reduced by more
than twenty (20) usable square feet, and in the event of such
permanent material reduction, the basic rental and additional basic
rental shall be abated as provided in the Section of this Agreement
entitled "Abatement of Rental".
(c) In the event that any property of the Lessee shall
obstruct the access of the Port Authority, its employees, agents or
contractors to any of the existing or future utility, mechanical,
electrical, communication and other systems and thus shall interfere
with the inspection, maintenance, repair or modification of any such
system, the Lessee shall move such property as requested by the Port
Authority, in order that the access may be had to the system or part
thereof for its inspection, maintenance, repair or modification.
(d) Nothing in this Section shall or shall be
construed to impose upon the Port Authority any obligations so to
23<PAGE>
construct or maintain or to make repairs, replacements, alterations or
additions, or shall create any liability for any failure so to do, but
nothing herein shall be construed to relieve the Port Authority from
performance of obligations specifically imposed elsewhere in this
Agreement. The Lessee is and shall be in exclusive control and
possession of the premises and the Port Authority shall not in any
event be liable for any injury or damage to any property or to any
person happening on or about the premises nor for any injury or damage
to the premises nor to any property of the Lessee or of any other
person located therein or thereon (other than those occasioned by the
negligent acts or willful misconduct of the Port Authority).
(e) At any time and from time to time during normal
business hours within the six (6) months next preceding the expiration
of the letting, the Port Authority, by its agents and employees,
whether or not accompanied by prospective lessees, occupiers or users
of the premises, shall have the right, upon reasonable advance notice,
to enter thereon for the purpose of exhibiting and viewing all parts
of the same. The Lessee shall have the right to accompany the Port
Authority at all such times and the Port Authority agrees to use
reasonable efforts to minimize disruption to the Lessee's business.
(f) The exercise of any or all of the foregoing rights
by the Port Authority or others shall not be or be construed to be an
eviction of the Lessee nor be made the grounds for any abatement of
rental or any claim or demand for damages, consequential or otherwise.
Section 17. Condemnation
(a) In any action or proceeding instituted by any
governmental or other authorized agency or agencies for the taking for
a public use of any interest in all or any part of the premises, or in
case of any deed, lease or other conveyance in lieu thereof (all of
which are in this Section referred to as "taking or conveyance") the
Lessee shall not be entitled to assert any claim to any compensation,
award or part thereof made or to be made therein or therefor or any
claim to any consideration or rental or any part thereof paid
therefor, or to institute any action or proceeding or to assert any
claim against such agency or agencies or against the Port Authority
for or on account of any such taking or conveyance, except for a
possible claim to an award for moving expenses or for trade fixtures
owned and installed by the Lessee, provided that such claim is
independent of and in addition to any claim of the Port Authority and
provided further that the Port Authority's award is not thereby
reduced or otherwise adversely affected, it being understood and
agreed between the Port Authority and the Lessee that except for such
claims the Port Authority shall be entitled to all the compensation or
awards made or to be made or paid and all such consideration or
rentals, free of any claim or right of the Lessee. No taking by or
delivery to any governmental authority under this paragraph (a) shall
be or be construed to be an eviction of the Lessee or be the basis for
any claim by the Lessee for damages, consequential or otherwise.
(b) In the event of a taking or conveyance of the
entire premises by any governmental or other authorized agency or
agencies, then the letting under this Agreement shall, as of the date
possession is taken from the Port Authority by such agency or
24<PAGE>
agencies, cease and determine in the same manner and with the same
effect as if the term of the letting had on that date expired.
(c) In the event of a taking or conveyance by any
governmental or other authorized agency or agencies of a part of the
premises then the letting as to such part only shall, as of the date
possession thereof is taken from the Port Authority by such agency or
agencies, cease and determine, and the rental thereafter to be paid by
the Lessee to the Port Authority shall be abated as provided in the
Section of this Agreement entitled "Abatement of Rental" from and
after the date of such taking or conveyance.
(d) In the event that the taking or conveyance or the
delivery by the Lessee or taking by the Port Authority pursuant to the
Section of this Agreement entitled "Governmental Compliance" covers
fifty percent (50%) or more of the total usable area of the premises,
then the Lessee and the Port Authority shall each have an option
exercisable by notice given within thirty (30) days after such taking
or conveyance, to terminate the letting hereunder, as of the date of
such taking, and such termination shall be effective as if the date of
such taking were the original date of expiration hereof.
(e) In the event that the taking or conveyance or the
delivery by the Lessee or taking by the Port Authority pursuant to the
Section of this Agreement entitled "Governmental Compliance" covers
ten percent (10%) or more of the total usable area of the premises but
less than fifty percent (50%) of the total usable area of the
premises, the Lessee shall have the option exercisable by notice given
to the Port Authority within thirty (30) days after such taking or
delivery to terminate this Agreement and the letting hereunder with
respect to the balance of the premises provided, however, that the
Lessee's notice to the Port Authority be accompanied by a statement
from a responsible officer of the Lessee acting in good faith that on
an economic and operational basis the remaining portion of the
premises cannot be used by the Lessee or is inadequate for use by the
Lessee for the operations described in the Section of this Agreement
entitled "Rights of User by the Lessee", and provided, further that
the Lessee shall not be in default under any term or provision of this
Agreement beyond any applicable cure period, or under notice of
termination from the Port Authority either on the date of its giving
of notice to the Port Authority, or on the effective date.
Section 18. Abatement of Rental
(a) In the event that the Lessee shall at any time
become entitled to an abatement of rent, the basic rental set forth in
the Section of this Agreement entitled "Basic Rental" and the
additional basic rental set forth in Schedule A attached to this
Agreement shall be abated for the period the abatement is in effect by
the same percentage that the area of the part of the premises the use
of which is denied to the Lessee is of the total area of the premises.
(b) For the purposes of this Section, the number of
square feet contained in the premises or parts thereof shall be
computed as follows: By measuring from the inside surface of outer
building walls to the surface of the public area side, or of the non-
exclusive area side, as the case may require, of all partitions
separating the space measured from adjoining areas designated for the
25<PAGE>
use of the public or for use by the Lessee in common with others, and
to the center of partitions separating the space measured from
adjoining space exclusively used by others; no deduction will be made
for columns, partitions, pilasters or projections necessary to the
building and contained within the space measured. Permanent
partitions enclosing elevator shafts, stairs, fire-towers, vents,
pipe-shafts, meter-closets, flues, stacks and any vertical shafts have
the same relation to the space measured as do outer building walls.
(c) In the event that during the term of the letting
under this Agreement the Lessee shall be partially evicted and shall
remain in possession of the premises or the balance thereof, the
Lessee agrees that notwithstanding it might have the right to suspend
payment of the rent in the absence of this provision, it agrees to pay
and will pay at the times and in the manner herein provided, the full
rent reserved less only an abatement thereof computed in accordance
with the above.
Section 19. Assignment and Sublease
(a) Subject to the provisions of this Section 19, the
Lessee expressly covenants that it shall not assign, mortgage or
encumber this Agreement nor sublet, or suffer or permit the premises
or any part thereof to be used by others, without the prior written
consent of the Port Authority in each instance. A merger or
consolidation shall not be deemed a violation of this paragraph (a)
provided the conditions set forth in paragraph (a)(5) of the Section
of this Agreement entitled "Termination" are met.
(b) Notwithstanding the provisions of paragraph (a) of
this Section 19, the Lessee shall have the right to assign this
agreement and the letting hereunder in its entirety to, or to sublet
to or to permit the use of desk space by a Related Entity; such
assignment, subletting or desk space use to continue only as long as
the proposed assignee maintains the relationship of Related Entity to
the Lessee provided that any such assignee, sublessee or desk space
user of the premises shall use the premises solely for the purposes
set forth in the Section of this Agreement entitled "Rights of User by
the Lessee" and for no other purpose whatsoever. Any such assignment
pursuant to this paragraph (b) shall not be effective until an
agreement in the form attached hereto as Exhibit Y has been executed
by the Port Authority, the Lessee and the proposed assignee and no
such subleasing pursuant to this paragraph (b) shall be effective
until an agreement in the form attached hereto as Exhibit X has been
executed by the Port Authority, the Lessee and the proposed subtenant.
The Lessee, and the assignee, subtenant, or the desk-space user, as
the case may be, shall furnish to the Port Authority such information,
data and documents as may be requested by the Port Authority from time
to time to substantiate the relationship between the Lessee and such
assignee, subtenant or desk-space user. The Port Authority agrees to
execute the said agreement annexed hereto as Exhibit Y within ten (10)
business days after receipt of (i) such agreement duly executed by the
Lessee and the proposed assignee and (ii) the documents, information
and other data referred to in the immediately preceding sentence
establishing the requisite relationship between the Lessee and
proposed assignee. The Port Authority with respect to a proposed
subletting pursuant to this paragraph (b) shall execute the Consent to
26<PAGE>
Sublease Agreement, or shall specify to the Lessee its reasons for
refusing to do so, within a period of fifteen (15) business days
following receipt by the Port Authority of (i) a written sublease
agreement fully executed by the Lessee and a proposed subtenant and
(ii) any other documents, information and data reasonably required by
the Port Authority with respect to such subletting. In addition to
the foregoing, the Lessee, subject to the provisions of this paragraph
(b) shall have the right to assign this Agreement and the letting
hereunder to a corporation into which the Lessee is merged or
consolidated, provided the requirements of paragraph (a)(5) of the
Section of this Agreement entitled "Termination" are met and the
Lessee shall also have the right, subject to the provisions of this
paragraph (b) to assign this Agreement and the letting hereunder to an
entity to which all or substantially all of the Lessee's assets have
been transferred. "Related Entity" as used herein shall mean a
corporation, partnership or limited liability company which shall
control, is controlled by or is under common control with the Lessee.
"Control", as used herein, shall mean, in the case of a corporation,
legal or beneficial ownership by one person, firm or corporation, or
by a group acting in concert, of a majority of the capital stock and
voting rights (with power to exercise such rights) of the corporation
(provided, however that in connection with the proposed use of desk
space by a single corporate entity not to exceed 3,000 usable square
feet, control shall mean ownership of not less than thirty-five
percent (35%) of the capital stock and voting rights (with power to
exercise such rights) of the corporation by the Lessee or by a
corporation which directly or indirectly controls or is directly or
indirectly controlled by the Lessee or by a corporation which is
directly or indirectly controlled by a corporation which directly
controls the Lessee, and in the case of such indirect control, each of
the entities in the chain between the Lessee and proposed desk space
user shall directly control or be directly controlled by the
immediately adjacent entity in such chain), and in the case of a
partnership or limited liability company it shall mean the power to
direct the management and policies of such entity, whether by legal or
beneficial ownership, or otherwise. The Port Authority hereby
consents to the use of desk space in the premises by Unistrat
Corporation of America, a New York corporation, such use not to exceed
1,000 usable square feet.
(c) Notwithstanding the provisions of paragraph (a) of
this Section 19 and in addition to the rights contained in paragraph
(b) of this Section, the Lessee may, after the commencement of the
letting, sublet a part or all of the premises (but under no
circumstances shall there be more subtenants in the premises at any
one time pursuant to the provisions of paragraph (b) of this Section
and this paragraph (c), collectively then the whole number obtained by
dividing 9,000 into the total number of rentable square feet in the
premises) provided that all of the following conditions precedent and
requirements have been met or satisfied: (1) Each proposed subtenant
shall, in the opinion of the Port Authority, be eligible, suitable and
qualified as a World Trade Center tenant, it being understood that the
Port Authority in exercising such opinion will not declare a proposed
subtenant to be ineligible unsuitable or unqualified to be a World
Trade Center tenant if such proposed subtenant engages in a type or
types of business or operations engaged in or previously engaged in by
other office tenants at the World Trade Center whose eligibility and
qualifications were determined by the Port Authority under the
27<PAGE>
provisions of Chapter 5 of Title 17 of the Unconsolidated Law of the
State of New York strictly on the basis of their functions, activities
and services in world trade and commerce; (2) The rental payable by
the subtenant to the Lessee for or in connection with its use or
occupancy of the subleased space shall be not less than the rental
charged by the Port Authority for comparable space for a comparable
term on the date of such subletting; (3) If the rental rate (taking
into account all concessions given by the Lessee and all consideration
payable by the subtenant to the Lessee for or in connection with its
use or occupancy of the subleased space) shall be in excess of the
rental rate (taking into account all concessions given by the Port
Authority) provided for in this Agreement for the term of the proposed
subletting, the Lessee shall so notify the Port Authority and the
Lessee subject to the deductions set forth in paragraph (f) of this
Section 19, shall pay fifty percent (50%) of such excess to the Port
Authority as received; (4) The proposed subtenant is not a current
occupant of the World Trade Center and has not been in discussion with
the Port Authority toward its current or future occupancy of space in
the World Trade Center within six (6) months prior to the Lessee's
request to the Port Authority to enter into the Consent to Sublease
Agreement provided the restrictions in this subdivision (4) shall not
be applicable if the proposed subtenant has been notified by the Port
Authority that it does not have available at the World Trade Center
for the term sought by the proposed subtenant space comparable in size
to that being sought by such proposed subtenant; and (5) The Lessee,
the subtenant and the Port Authority have executed the form of
agreement entitled "Consent to Sublease Agreement", annexed to this
Agreement and marked "Exhibit X".
(d) Execution of the Consent to Sublease Agreement
referred to in paragraph (c) above by the Port Authority and return
thereof to the Lessee shall constitute the determination referred to
in subdivision (1) of paragraph (c) above. The Lessee and subtenant
shall present in advance all documents, information and other data
which the Port Authority may reasonably require relating to the
matters covered in subdivisions (1), (2), (3) and (4) of paragraph (c)
above and the subtenant shall supply during the continuance of any
approved subletting such additional or current documents, information
or other data as the Port Authority may from time to time reasonably
require. The Port Authority with respect to a proposed subletting
pursuant to paragraph (c) above shall execute the Consent to Sublease
Agreement or shall specify to the Lessee its reasons for failing to do
so, within a period of fifteen (15) business days following receipt by
the Port Authority of (i) a written sublease agreement duly executed
by the Lessee and a proposed subtenant and (ii) any other documents,
information and data reasonably required by the Port Authority with
respect to such proposed subletting.
(e) If the Lessee assigns, sells, conveys, transfers,
mortgages, pledges or sublets or permits the use of desk space in the
premises in violation of paragraphs (a), (b) or (c) of this Section or
if the premises are occupied by anybody other than the Lessee, the
Port Authority may upon Lessee's default collect rent from any
assignee, sublessee, desk-space user or anyone who claims a right to
this Agreement or letting or who occupies the premises, and shall
apply the net amount collected to the basic rental herein reserved;
and no such collection shall be deemed a waiver by the Port Authority
of the covenants contained in paragraphs (a), (b) or (c) of this
28<PAGE>
Section nor an acceptance by the Port Authority of any such assignee,
sublessee, desk-space user, claimant or occupant as Lessee, nor a
release of the Lessee by the Port Authority from further performance
by the Lessee of the covenants contained herein. The granting of
consent by the Port Authority to any assignment or subletting shall
not be deemed to operate as a waiver of the requirement for obtaining
the express prior written consent of the Port Authority to any other
or subsequent assignment or subletting.
(f) If, in connection with any subletting pursuant to
the provisions of paragraph (c) hereof consented to by the Port
Authority as provided herein, the Lessee (1) has paid a brokerage
commission or commissions (at the customary and usual rates prevailing
in the City of New York) to a real estate broker or brokers licensed
to do business in the State of New York, which brokerage commission or
commissions are not reimbursed to the Lessee by the subtenant,
provided such brokerage commission or commissions are actually paid
for services and are incurred solely in connection with such
subletting and would not have been required to have been paid except
for such subletting; or (2) has incurred any cost for finishing such
sublet space to prepare the same for such subtenant which is not
reimbursed to the Lessee by the subtenant; or (3) has granted to a
subtenant a basic rental concession for or in connection with its use
or occupancy of the sublease space; or (4) has incurred a legal fee
solely in connection with the negotiation, preparation and execution
of a sublease in connection with subletting; or (5) has incurred
advertising and marketing expenses solely in connection with such
subletting or (6) has actually incurred an interest expense in
connection with such subletting, such interest expense to be allowed
solely to the extent that the Lessee has actually borrowed funds from
a third party lender and has actually used such funds solely for the
expenses incurred in items (1) through (5) herein; (the total of items
(1), (2), (3), (4), (5) and (6) being hereinafter referred to as the
"subleasing expenses"), then the Lessee shall divide the subleasing
expenses by the number of calendar months and the proportionate part
of any partial calendar month comprising the term of such sublease,
and the amount resulting from such division shall be deducted from the
amount of the rental or other consideration payable by the subtenant
to the Lessee each month which is in excess of the rental rate payable
by the Lessee to the Port Authority applicable to the subleased space
for that month, and fifty percent (50%) of the balance of such excess
of the rental and other consideration shall be payable by the Lessee
to the Port Authority for that month. If requested by the Port
Authority, the Lessee shall make available from time to time for
examination by the Port Authority the Lessee's books and records
relating to the receipt of sublease rental and to the subleasing
expenses.
(g) In the event the Lessee intends to sublet all or a
portion of the premises pursuant to the provisions of paragraph (c) of
this Section 19, and the rental which the Lessee proposes to obtain in
connection with the proposed subletting is less than the rental being
then charged by the Port Authority for comparable space for a
comparable term, then notwithstanding the provisions of subdivision
(2) of paragraph (c) of this Section, the Lessee shall have the right
to submit to the Port Authority a statement of its Intention to
Sublet. The Intention to Sublet shall be a written statement executed
by an authorized officer of the Lessee setting forth the following
29<PAGE>
information with respect to any future subletting then contemplated by
the Lessee:
(1) A description of the portion or
portions of the premises which the Lessee intends
to sublet, including the number of rentable square
feet contained therein and the proposed effective
date of such subletting;
(2) The amount of any finishing
allowance, payments to contractors or the cost of
any other work to be offered by the Lessee to
prepare the sublet premises for a subtenant;
(3) Rent concessions, if any;
(4) Relocation contributions per
rentable square foot which the Lessee intends to
offer a subtenant;
(5) If the Lessee intends to utilize a
real estate broker in connection with any proposed
subletting, then the Lessee's good faith estimate
of the amount of brokerage commissions which would
be payable by the Lessee in connection with any
proposed subletting;
(6) Legal fees, advertising and
marketing expenses and interest expenses which the
Lessee estimates in good faith it will incur in
connection with the proposed subletting;
(7) The term of the proposed
subletting, it being understood that the term of
any proposed subletting shall not exceed the
remaining balance of the term of the letting under
this Agreement less one (1) day.
(h) In the event the proposed term of the subletting
set forth in the Intention to Sublet is for the entire balance of the
term of the letting less one (1) day, then the Port Authority may, by
notice to the Lessee within twenty (20) business days after receipt of
such Intention to Sublet, terminate this Agreement as to the portion
of the premises which the Lessee intends to sublet as set forth in
such Intention to Sublet, such termination being hereinafter referred
to as the "Port Authority Termination". Such Port Authority
Termination shall be effective as of the proposed effective date of
the subletting as set forth in the Intention to Sublet and from and
after the effective date of such termination there shall be a
reduction of the annual basic rental and additional basic rental
payable, such reduction to be determined as follows: the annual basic
rental for each period set forth in paragraph (a) of the Section of
this Agreement entitled "Rental" shall be reduced by an amount equal
to the product obtained by multiplying the annual basic rental for
that period by a fraction, the numerator of which shall be the
aggregate number of rentable square feet contained in such portion of
the premises (the letting of which has been terminated) and the
denominator of which shall be 58,783 rentable square feet, and
30<PAGE>
rentable square feet in the premises used in calculating additional
basic rental pursuant to Schedule A shall be reduced by the amount of
rentable square feet in such portion of the premises (the letting of
which shall have been terminated). In the event the Port Authority is
entitled to exercise a right of termination with respect to a proposed
subletting set forth in an Intention to Sublet pursuant to this
paragraph (h), but fails to exercise such right of termination, then
the provisions of subdivision (2) of paragraph (c) of this Section 19
shall not be applicable with respect to such proposed subletting set
forth in such Intention to Sublet unless the actual proposed
subletting is in violation of paragraph (k) below of this Section 19
in which case the provisions of said subdivision (2) of said paragraph
(c) shall remain applicable.
(i) In the event that the proposed term of the
subletting set forth in the Intention to Sublet is for a period less
than the entire balance of the term of the letting under this
Agreement less one (1) day, then the Port Authority may, by notice to
the Lessee within twenty (20) business days after receipt of such
Intention to Sublet, sublet from the Lessee for the term set forth in
the Intention to Sublet the portion of the premises which the Lessee
intends to sublet as set forth in such Intention to Sublet, such
subletting being hereinafter referred to as the "Port Authority
Subletting". Such Port Authority Subletting shall be effective as of
the proposed effective date of the subletting as set forth in the
Intention to Sublet and shall expire on the expiration date set forth
in such Intention to Sublet or such earlier date as this Agreement and
the letting hereunder shall terminate, (such subletting to be
effectuated by the Port Authority's notice without any further
document or agreement required to be executed by the parties hereto)
and from and after the effective date of such subletting there shall
be a reduction of the annual basic rental and additional basic rental
payable, such reduction to be determined as follows: the annual basic
rental for each period set forth in paragraph (a) of the Section of
this Agreement entitled "Rental" shall be reduced by an amount equal
to the product obtained by multiplying the annual basic rental for
that period by a fraction, the numerator of which shall be the
aggregate number of rentable square feet contained in such sublet
portion of the premises and the denominator of which shall be 58,783
rentable square feet, and rentable square feet in the premises used in
calculating additional basic rental pursuant to Schedule A shall be
reduced by the amount of rentable square feet in such portion of the
sublet premises. In the event the Port Authority is entitled to
exercise a right to sublet with respect to a proposed subletting set
forth in an Intention to Sublet pursuant to this paragraph (i), but
fails to exercise such right to sublet, then the provisions of
subdivision (2) of paragraph (c) of this Section 19 shall not be
applicable with respect to such proposed subletting set forth in such
Intention to Sublet unless the actual proposed subletting is in
violation of paragraph (k) below of this Section 19 in which case the
provisions of said subdivision (2) of said paragraph (c) shall remain
applicable. The Lessee shall have no rights whatsoever to the sublet
premises during the term of any subleasing hereunder and shall be
released from all lease obligations with respect to any portion of the
premises sublet to the Port Authority hereunder by the Lessee during
the term of such subletting but nothing herein shall be construed to
relieve the Lessee from any obligations under this Agreement with
respect to such sublet space which has accrued prior to the effective
31<PAGE>
date of such subletting. Upon the expiration date of such subletting
all of the Lessee's obligations under this Agreement with respect to
such sublet space shall be applicable, including the payment of basic
and additional basic rental, with the same force and effect as if such
subletting had never occurred. In the event that the term of the
subletting hereunder is for a term of five (5) years or less the
subleased space shall be made available to the Lessee at the
expiration of the term of the sublease in substantially the same
condition, except for reasonable wear and tear, as it was made
available to the Port Authority on the commencement of the sublease to
the Port Authority. In the event that the term of the subletting to
the Port Authority is in excess of five (5) years, then the Lessee
hereby agrees to accept such sublet space on the expiration of the
sublease in its then "as is" condition except that the Port Authority
will remove any structural improvements made during the term of the
sublease, will remove all personalty therefrom and will remove all
telecommunications wiring and cabling installed during the term of the
sublease. The Port Authority during the term of any subletting
hereunder shall have the exclusive right to use the sublet space and
without limiting the foregoing may use the sublet space for its own
benefit or may lease the same to third parties, the terms and
conditions of any third party arrangement to be in the sole discretion
of the Port Authority. The Lessee agrees to vacate the sublet
premises and to remove all of its trade fixtures, equipment and all
other personalty from the premises on or before the effective date of
any subletting hereunder. The Port Authority will not be obligated to
provide any utilities or services to the sublet premises during the
period of the subletting hereunder and will not be obligated to pay
the Lessee any basic rental or additional basic rental in connection
with the portion or portions of the premises sublet to the Port
Authority hereunder.
(j) In the event the Port Authority exercises its Port
Authority Termination option pursuant to paragraph (h) above, or in
the event the Port Authority exercises its Port Authority Subletting
option pursuant to paragraph (i) above, the Lessee shall pay to the
Port Authority upon the effective date of such Port Authority
Termination or the effective date of such Port Authority Subletting,
as the case may be, the following amounts: (i) an amount equal to the
then present value of the difference between (x) the amount obtained
by multiplying the amount of basic rental payable by the Lessee to the
Port Authority under this Agreement for the premises during the period
from the effective date of the Port Authority Termination or Port
Authority Subletting, as the case may be, through the balance of the
term of the letting under this Agreement in the case of Port Authority
Termination or through the balance of the term of the Port Authority
Subletting in the event of a Port Authority Subletting, by a fraction,
the numerator of which shall be the number of rentable square feet
contained in the portion of the premises proposed to be subleased as
set forth in the Intention to Sublet and the denominator of which
shall be the total number of rentable square feet contained in the
premises and (y) the "Total Sublease Basic Rental Amount"; the Total
Sublease Basic Rental Amount shall be the product obtained by
multiplying the number of months from the effective date of the Port
Authority Termination or the effective date of the Port Authority
Subletting through the balance of the term of the letting under this
Agreement in the case of Port Authority Termination or through the
balance of the term of the Port Authority Subletting, as the case may
32<PAGE>
be, by the average monthly basic rental amount payable under the
proposed sublease described in the Intention to Sublet, such amount to
be obtained by dividing the number of months in the proposed sublease
term described in the Intention to Sublet into the total basic rental
payable under the proposed sublease for the entire term of such
sublease, and (ii) an amount equal to the sum of the expenses set
forth in subdivisions (2), (3), (4), (5) and (6) of paragraph (g)
above of this Section 19 which have been or which would have been
incurred by the Lessee in connection with such subletting. In
determining the present value of basic rental for purposes of this
paragraph (j), an interest rate per annum equal to the prime rate
established by Citibank, N.A. at the time of the determination shall
be used.
(k) In the event that the Port Authority shall fail to
exercise its right to terminate or sublet pursuant to paragraphs (h)
or (i) above of this Section 19, as the case may be, within twenty
(20) business days after the Port Authority's receipt of an Intention
to Sublet from the Lessee, then the Lessee, notwithstanding the
provisions of subdivision (2) of paragraph (c) of this Section 19, but
subject to the provisions of this paragraph (k), shall have the right
to sublet the premises or the portions thereof described in said
Intention to Sublet pursuant to and in accordance with said paragraph
(c) provided, however, that if the Lessee thereafter requests the Port
Authority to enter into a Consent to Sublease Agreement covering a
proposed sublease and the number of rentable square feet proposed to
be sublet is more than ten percent (10%) larger or smaller than the
number of rentable square feet described in the Intention to Sublet or
that the term of the subletting is six (6) months greater or shorter
than the term set forth in the Intention to Sublet or that on a per
rentable square foot basis the present value of the rental and all
other consideration payable by the proposed subtenant over the term
for the proposed subletting less the present value of any free rent
period and any credits, allowances or payments payable to such
proposed subtenant is less than eighty-nine percent (89%) of the
present value on a per rentable square foot basis of the rental and
all other consideration which would have been payable in connection
with the subletting covered by the Intention to Sublet, then the
provisions of subdivision (2) of said paragraph (c) shall be deemed
applicable and the Port Authority without any liability on its part
may refuse to enter into such Consent to Sublease Agreement with
respect to such proposed subletting. In determining present value for
purposes of this paragraph (k), an interest rate per annum equal to
the prime rate of Citibank, N.A. in effect on the date of such
determination shall be used. Notwithstanding anything herein to the
contrary, if the Lessee with respect to an Intention to Sublet fails
to request the Port Authority to enter into a Consent to Sublease
within two hundred seventy (270) days after such Intention to Sublet
was submitted to the Port Authority, then it shall be with the same
force and effect as if such Intention to Sublet were never submitted
to the Port Authority and the provisions of subdivision (2) of
paragraph (c) of this Section 19 shall remain in full force and
effect.
Section 20. Termination
(a) If any one or more of the following events shall
occur, that is to say:
33<PAGE>
(1) The Lessee shall become insolvent, or shall
take the benefit of any present or future insolvency
statute, or shall make a general assignment for the benefit
of creditors, or file a voluntary petition in bankruptcy or
a petition or answer seeking an arrangement or its
reorganization or the readjustment of its indebtedness under
the federal bankruptcy laws or under any other law or
statute of the United States or of any State thereof, or
consent to the appointment of a receiver, trustee, or
liquidator of all or substantially all its property; or
(2) By order or decree of a court the Lessee
shall be adjudged bankrupt or an order shall be made
approving a petition filed by any of the creditors or, if
the Lessee is a corporation, by any of the stockholders of
the Lessee, seeking its reorganization or the readjustment
of its indebtedness under the federal bankruptcy laws or
under any law or statute of the United States or of any
State thereof; or
(3) A petition under any part of the federal
bankruptcy laws or an action under any present or future
insolvency law or statute shall be filed against the Lessee
and shall not be dismissed within ninety (90) days after the
filing thereof; or
(4) Except as specifically permitted in the
Section of this Agreement entitled "Assignment and
Sublease", the letting hereunder or the interest or estate
of the Lessee under this Agreement shall be transferred to,
pass to or devolve upon, by operation of law or otherwise,
any other person, firm or corporation; or
(5) The Lessee, if a corporation, shall, without
the prior consent of the Port Authority, become a possessor
or merged corporation in a merger, a constituent corporation
in a consolidation, or a corporation in dissolution, unless
the corporation resulting from such merger or consolidation
has a financial standing as of the date of the merger or
consolidation at least as good as that of the Lessee, by
which is meant that its ratio of current assets to current
liabilities and its net worth shall each be at least as
favorable as that of the Lessee; or
(6) The Lessee is a partnership, and the said
partnership shall be dissolved as the result of any act or
omission of its partners or any of them, or by operation of
law or the order or decree of any court having jurisdiction,
or for any other reason whatsoever; or
(7) By or pursuant to, or under authority of any
legislative act, resolution or rule, or any order or decree
of any court or governmental board, agency or officer, a
receiver, trustee, or liquidator shall take possession or
control of all or substantially all the property of the
Lessee, or any execution or attachment shall be issued
against the Lessee or any of its property, whereupon
possession of the premises shall be taken by someone other
34<PAGE>
than the Lessee, and any such possession or control shall
continue in effect for a period of sixty (60) days; or
(8) Any lien is filed against the premises
because of any act or omission of the Lessee and is not
removed or bonded within forty-five (45) days after notice
thereof from the Port Authority; or
(9) If this Agreement shall require a guarantor
of one or more of the Lessee's obligations under this
Agreement and any of the events described in subparagraphs
(1), (2), (3) or (7) above shall occur to or with respect to
the guarantor (whether or not they shall also occur to or
with respect to the Lessee); or
(10) The Lessee shall fail duly and punctually to
pay the rentals or to make any other payment required
hereunder when due to the Port Authority and such failure
shall continue for a period of ten (10) days after the Port
Authority shall have given the Lessee a statement therefor;
or
(11) The Lessee shall fail to keep, perform and
observe each and every other promise, covenant and agreement
set forth in this Agreement on its part to be kept,
performed, or observed, within thirty (30) days after
receipt of notice of default thereunder from the Port
Authority (except where fulfillment of its obligation
requires activity over a period of time, and the Lessee
shall have commenced to perform whatever may be required for
fulfillment within thirty (30) days after receipt of notice
and continues diligently such performance without
interruption except for causes beyond its control);
then upon the occurrence of any such event or at any time thereafter
during the continuance thereof, the Port Authority may by five (5)
days' notice terminate the letting, such termination to be effective
upon the date specified in such notice. Such right of termination and
the exercise thereof shall be and operate as a conditional limitation.
(b) If any of the events enumerated in paragraph (a)
of this Section shall occur prior to the Prior Entry Date, the Lessee
shall not be entitled to enter into possession of the premises and the
Port Authority upon the occurrence of any such event or at any time
thereafter during the continuance thereof by twenty-four (24) hours'
notice may cancel the interest of the Lessee under this Agreement,
such cancellation to be effective upon the date specified in such
notice.
(c) No acceptance by the Port Authority of rentals,
fees, charges or other payments in whole or in part for any period or
periods after a default in any of the terms, covenants and conditions
to be performed, kept or observed by the Lessee shall be deemed a
waiver of any right on the part of the Port Authority to terminate the
letting.
(d) No waiver by the Port Authority or the Lessee of
any default on the part of the other party to this Agreement in
35<PAGE>
performance of any of the terms, covenants or conditions hereof to be
performed, kept or observed by such party shall be or be construed to
be a waiver by the Port Authority or the Lessee of any other or
subsequent default in performance of any of the said terms, covenants
and conditions.
(e) The rights of termination described above shall be
in addition to any other rights of termination provided in this
Agreement and in addition to any rights and remedies that the Port
Authority would have at law or in equity consequent upon any breach of
this Agreement by the Lessee, and the exercise by the Port Authority
of any right of termination shall be without prejudice to any other
such rights and remedies.
(f) The Lessee hereby waives its right to trial by
jury in any summary proceeding or action that may hereafter be
instituted by the Port Authority against the Lessee in respect of the
premises or in any action that may be brought by the Port Authority to
recover rent, damages, or other sums payable hereunder. The Lessee
shall not interpose any claims as counterclaims in any summary
proceeding or action for non-payment of rental which may be brought by
the Port Authority unless such claims would be deemed waived if not so
interposed.
Section 21. Right of Re-entry
The Port Authority shall, as an additional remedy upon
the giving of a notice of termination as provided in the Section of
this Agreement entitled "Termination", have the right to re-enter the
premises and every part thereof upon the effective date of termination
without further notice of any kind, and may regain and resume
possession either with or without the institution of summary or any
other legal proceedings or otherwise. Such re-entry, or regaining or
resumption of possession, however, shall not in any manner affect,
alter or diminish any of the obligations of the Lessee under this
Agreement, and shall in no event constitute an acceptance of
surrender.
Section 22. Survival of the Obligations of the Lessee
(a) In the event that the letting shall have been
terminated in accordance with a notice of termination as provided in
the Section of this Agreement entitled "Termination", or the interest
of the Lessee cancelled pursuant thereto, or in the event that the
Port Authority has re-entered, regained or resumed possession of the
premises in accordance with the provisions of the Section of this
Agreement entitled "Right of Re-entry", all the obligations of the
Lessee under this Agreement shall survive such termination or
cancellation, re-entry, regaining or resumption of possession and
shall remain in full force and effect for the full term of this
Agreement, and the amount or amounts of damages or deficiency shall
become due and payable, as more specifically stated in paragraph (b)
below, to the Port Authority to the same extent, at the same time or
times and in the same manner as if no termination, cancellation, re-
entry, regaining or resumption of possession had taken place.
(b) Immediately upon any termination or cancellation
pursuant to the Section of this Agreement entitled "Termination", or
36<PAGE>
upon any re-entry, regaining or resumption of possession in accordance
with the Section of this Agreement entitled "Right of Re-entry", there
shall become due and payable by the Lessee to the Port Authority, in
addition to rental accrued prior to the effective date of termination,
without notice or demand and as damages, the sum of the following:
(1) subject to the provisions of paragraph (c) below,
an amount equal to the then present value of all basic
rental provided for in this Agreement for the entire term,
following the effective date of termination, as originally
fixed in the Section of this Agreement entitled "Term" less
the amount thereof which may have been actually paid by the
Lessee;
(2) the amount of all other unfulfilled monetary
obligations of the Lessee under this Agreement, including
without limitation thereto, all sums constituting additional
rental hereunder and the cost to and expenses of the Port
Authority for fulfilling all other obligations of the Lessee
which would have accrued or matured during the balance of
the term or on the expiration date originally fixed or
within a stated time after expiration or termination; and
(3) an amount equal to the cost to and the expenses
of the Port Authority in connection with the termination,
cancellation, regaining possession and restoring and
reletting the premises (provided that as to any costs which
would have been customarily incurred by the Port Authority
upon the original expiration date of the letting with
respect to any reletting, such as brokerage commissions,
finishing allowances and rent concessions the portion of
such costs to be included herein shall be equivalent to the
product obtained by multiplying such costs by a fraction the
numerator of which shall be the number of months in the
letting hereunder subsequent to termination and up to the
original expiration date and the denominator shall be the
number of months in the term of any such reletting), the
Port Authority's legal expenses and costs including the
costs to the Port Authority of its in-house counsel, and the
Port Authority's cost and expenses for the care and
maintenance of the premises during any period of vacancy,
and any brokerage fees and commissions in connection with
any reletting.
(c) The Port Authority may at any time bring an action
to recover all the damages as set forth above not previously recovered
in separate actions, or it may bring separate actions to recover the
items of damages set forth in subparagraphs (2) and (3) of paragraph
(b) above and separate actions periodically to recover from time to
time only such portion of the damages set forth in subparagraph (1) of
paragraph (b) above as would have accrued as rental up to the time of
the action if there had been no termination or cancellation. In any
such action the Lessee shall be allowed a credit against its survived
damages obligations equal to the amounts which the Port Authority
shall have actually received from any tenant, licensee, permittee or
other occupier of the premises or a part thereof during the period for
which damages are sought, and if recovery is sought for a period
subsequent to the date of suit a credit equal to the market rental
37<PAGE>
value of the premises during such period (discounted to reflect the
then present value thereof). If at the time of such action the Port
Authority pursuant to an arms length transaction has relet the
premises, the rental for the premises obtained through such reletting
shall be deemed to be the market rental value of the premises or be
deemed to be the basis for computing such market rental value if less
than the entire premises were relet. In no event shall any credit
allowed to the Lessee against its damages for any period exceed the
then present value of the basic rental which would have been payable
under this Agreement during such period if a termination or
cancellation had not taken place. In determining present value of
rental an interest rate of 6% per annum shall be used.
Section 23. Reletting by the Port Authority
The Port Authority, upon termination or cancellation
pursuant to the Section of this Agreement entitled "Termination", or
upon any re-entry, regaining or resumption of possession pursuant to
the Section of this Agreement entitled "Right of Re-entry", may occupy
the premises or may relet the premises, and shall have the right to
permit any person, firm or corporation to enter upon the premises and
use the same. The Port Authority may grant free rental or other
concessions and such reletting may be of part only of the premises or
of the premises or a part thereof together with other space, and for a
period of time the same as or different from the balance of the term
hereunder remaining, and on terms and conditions and for purposes the
same as or different from those set forth in this Agreement. The Port
Authority shall also, upon termination or cancellation pursuant to the
Section of this Agreement entitled "Termination", or upon its re-
entry, regaining or resumption of possession pursuant to the Section
of this Agreement entitled "Right of Re-entry", have the right to
repair or to make structural or other changes in the premises,
including changes which alter the character of the premises and the
suitability thereof for the purposes of the Lessee under this
Agreement, without affecting, altering or diminishing the obligations
of the Lessee hereunder. In the event either of any reletting or of
any actual use and occupancy by the Port Authority or a third party
whose occupancy is not pursuant to an arms-length transaction (the
mere right to use and occupy not being sufficient however) there shall
be credited to the account of the Lessee against its survived
obligations hereunder any net amount remaining after deducting from
the amount actually received from any lessee, licensee, permittee or
other occupier as the rental or fee for the use of the said premises
or portion thereof during the balance of the letting as the same is
originally stated in this Agreement (it being understood, however,
that in computing such net amount remaining to the Port Authority any
rent concessions or finishing allowances granted by the Port Authority
or brokerage commissions paid by the Port Authority in connection with
any reletting shall be amortized on a straight-line basis over the
entire term of the reletting), or from the market value of the
occupancy of such portion of the premises as the Port Authority or a
third party occupying not pursuant to an arms-length transaction may
during such period actually use and occupy, all expenses, costs and
disbursements incurred or paid by the Port Authority in connection
therewith. No such reletting or such use and occupancy shall be or be
construed to be an acceptance of a surrender.
38<PAGE>
Section 24. Waiver of Redemption
The Lessee hereby waives any and all rights of
redemption, granted by or under any present or future law, arising in
the event it is evicted or dispossessed for any cause, or in the event
the Port Authority obtains or retains possession of the premises in
any lawful manner.
Section 25. Remedies and Suits Against the Lessee
All remedies provided in this Agreement shall be deemed
cumulative and additional and not in lieu of or exclusive of each
other or of any other remedy available to the Port Authority at law or
in equity. In the event of a breach or threatened breach by the
Lessee of any term, covenant, condition or provision of this
Agreement, the Port Authority shall have the right of injunction and
the right to invoke any other remedy allowed by law or in equity as if
termination, re-entry, summary proceedings and any other specific
remedies including without limitation thereto, indemnity and
reimbursement, were not mentioned herein, and neither the mention
thereof nor the pursuance or exercise or failure to pursue or exercise
any right or remedy shall preclude the pursuance or exercise of any
other right or remedy.
Section 26. Surrender
(a) The Lessee covenants and agrees to yield and
deliver peaceably to the Port Authority possession of the premises on
the date of the cessation of the letting, whether such cessation be by
termination, expiration or otherwise, promptly and in the condition
required by paragraph (a) of the Section of this Agreement entitled
"Construction by the Lessee".
(b) Unless the same are required for the performance
by the Lessee of its obligations hereunder, the Lessee shall have the
right at any time during the letting to remove from the premises, and,
on or before the expiration or earlier termination of the letting,
shall so remove its equipment, removable fixtures and other personal
property, and all property of third persons for which it is
responsible, repairing all damages caused by such removal. If the
Lessee shall fail to remove such property on or before the termination
or expiration of the letting, the Port Authority shall have the same
rights with respect to such property as it has in the event of
casualty under paragraph (d) of the Section of this Agreement entitled
"Casualty".
Section 27. Acceptance of Surrender of Lease
No agreement of surrender or to accept a surrender
shall be valid unless and until the same shall have been reduced to
writing and signed by the duly authorized representatives of the Port
Authority and of the Lessee. Except as expressly provided in this
Section, neither the doing of, nor any omission to do, any act or
thing, by any of the officers, agents or employees of the Port
Authority, shall be deemed an acceptance of a surrender of the letting
or of this Agreement. Without limiting the foregoing, no employee or
officer of the Port Authority shall be authorized to accept the keys
39<PAGE>
of the premises prior to the expiration date of the letting as fixed
in the Section of this Agreement entitled "Term" and no delivery of
the keys by the Lessee shall constitute a termination of this
Agreement or acceptance of surrender.
Section 28. Brokerage
The Lessee represents and warrants that it has not
dealt or had any contacts or dealings with any broker in connection
with the negotiation and execution of this Agreement or the letting
hereunder except Edward S. Gordon Company, Inc., a New York
corporation having an office and place of business at 111 Broadway,
New York, New York 10006, and that there is no broker with whom the
Lessee has dealt or had contacts or dealings with who is or may be
entitled to be paid a commission or fee in connection with the
negotiation and execution of this Agreement or the letting hereunder
except Edward S. Gordon Company, Inc. The Lessee shall indemnify and
save harmless the Port Authority of and from any and all claims for
commission, brokerage or fees which have been or which may be made by
any and all persons, firms or corporations whatsoever for services in
connection with the negotiation and execution of this Agreement or the
letting hereunder with whom the Lessee has dealt or had contacts or
dealings with except for a claim of Edward S. Gordon Company, Inc. if
the said claim is made in accordance with the terms of the agreement
between the Port Authority and Edward S. Gordon Company, Inc. dated as
of January 10, 1995.
Section 29. Notices
(a) Notices, requests, permissions, consents and
approvals given or required to be given to or by either party under
this Agreement, shall not be effective unless they are given in
writing, and all such notices and requests shall be (i) personally
delivered to the party or a duly designated officer or representative
of such party; or (ii) delivered to the office of such party, officer
or representative during regular business hours; or (iii) if directed
to the Lessee, delivered at the premises at any time from and after
the date the Lessee commences business operations in the premises; or
(iv) forwarded to such party, officer or representative at the office
or residence address by registered or certified mail. The Lessee
shall designate an office within the Port of New York District and an
officer or representative whose regular place of business is at such
office. Except as may be specifically provided elsewhere in this
Agreement, the Port Authority hereby designates its Executive
Director, and the Lessee designates the person named as representative
on the first page hereof as their respective officers or
representatives upon whom notices and requests may be served. The
Port Authority designates its office at One World Trade Center, New
York, New York 10048 as its office where notice and requests may be
served. The Lessee up until the date it commences business operations
in the premises designates its office at 110 William Street, New York,
New York 10038 and from and after the date it commences business
operations in the premises designates its office at the address stated
on the first page hereof, as its respective offices where notices and
requests may be served. It is hereby understood and agreed that the
Port Authority and the Lessee by prior notice to the other from time
to time may designate officers and representatives and offices
40<PAGE>
different than those named herein for the purposes of receiving
notices and requests.
(b) If any notice is delivered, such notice shall be
deemed to have been given or made on the date delivered and if any
notice is mailed, such notice shall be deemed to have been given or
made on the second day after the day the notice is so mailed.
Section 30. Payments
(a) All payments required of the Lessee by this
Agreement shall be mailed to the Port Authority of New York and New
Jersey, P. O. Box 17309, Newark, New Jersey 07194, or to such office
or address as may be substituted therefor.
(b) No payment by the Lessee or receipt by the Port
Authority of a lesser rental amount than that which is due and payable
under the provisions of this Agreement at the time of such payment
shall be deemed to be other than a payment on account of the earliest
rental then due, nor shall any endorsement or statement on any check
or in any letter accompanying any check or payment be deemed an accord
and satisfaction, and the Port Authority may accept such check or
payment without prejudicing in any way its right to recover the
balance of such rental or to pursue any other remedy provided in this
Agreement or by law. No payment by the Port Authority or receipt by
the Lessee of a lesser amount than that which is due and payable under
the provisions of this Agreement at the time of such payment shall be
or be deemed to be other than a payment on account, nor shall any
endorsement or statement or any check or in any letter accompanying
any check or payment be deemed an accord and satisfaction, and the
Lessee may accept such check or payment without prejudicing in any way
its right to recover the balance of any such amount or to pursue any
other remedy provided in this Agreement or by law.
Section 31. Late Charges; Monetary and Non-Monetary Disputes
(a) If the Lessee should fail to pay any amount
required under this Agreement when due to the Port Authority,
including without limitation any payment of basic or other rental or
any payment of utility or other charges, then, in such event, the Port
Authority may impose (by statement, bill or otherwise) a late charge
with respect to each such unpaid amount for each late charge period
(hereinbelow described) during the entirety of which such amount
remains unpaid, each such late charge not to exceed an amount equal to
eight-tenths of one percent of such unpaid amount for each late charge
period. There shall be twenty-four late charge periods on a calendar
year basis; each late charge period shall be for a period of at least
fifteen (15) calendar days except one late charge period each calendar
year may be for a period of less than fifteen (but not less than
thirteen) calendar days. Each late charge shall be payable
immediately upon demand made at any time therefor by the Port
Authority. No acceptance by the Port Authority of payment of any
unpaid amount or of any unpaid late charge amount shall be deemed a
waiver of the right of the Port Authority to payment of any late
charge or late charges payable under the provisions of this Section
with respect to such unpaid amount. Each late charge shall be and
41<PAGE>
become additional rent, recoverable by the Port Authority in the same
manner and with like remedies as if it were originally a part of the
rental as set forth in the Section of this Agreement entitled "Basic
Rental". Nothing in this Section is intended to, or shall be deemed
to, affect, alter, modify or diminish in any way (i) any rights of the
Port Authority under this Agreement, including without limitation the
Port Authority's rights set forth in the Section of this Agreement
entitled "Termination" or (ii) any obligations of the Lessee under
this Agreement. If the precise amount of any payment required to be
made by the Lessee under this Agreement cannot be known to the Lessee,
such payment shall not be deemed due to the Port Authority until ten
(10) days after the Port Authority notifies the Lessee of the amount
of such payment. In the event that any late charge imposed pursuant
to this Section shall exceed a legal maximum applicable to such late
charge, then, in such event, each such late charge payable under this
Agreement shall be payable instead at such legal maximum.
(b) In the event that the Lessee shall in good faith
dispute the amount of any charge or other amount claimed by the Port
Authority as due and payable to it by the Lessee under this Agreement,
and the Lessee within fifteen (15) days after notice from the Port
Authority that such amount is due and payable notifies the Port
Authority of the amount it is disputing and the reason it is disputing
same, then the Lessee may withhold solely the portion of such charge
or amount in dispute (and shall pay the remainder of such charge or
amount to the Port Authority) and for a period of thirty (30) days
following such notice, the failure of the Lessee to pay such withheld
amount shall not constitute a default, an event of default or ground
for termination giving the Port Authority the right to terminate this
Agreement and the letting hereunder pursuant to paragraph (a) of the
Section of this Agreement entitled "Termination" or exercise any other
rights or remedies under this Agreement, nor shall a late charge be
imposed on any such withheld amount pursuant to the provisions of
paragraph (a) of this Section, in each case so long as the withheld
amount shall be the subject of a bona fide dispute between the Lessee
and the Port Authority, provided, that nothing in this paragraph (b)
shall permit or be deemed to permit the Lessee to dispute and withhold
any payment of basic rental or any portion thereof or all or part of
any other charge or amount, the amount of which is specified in this
Agreement. The Lessee and the Port Authority will promptly meet and
make good faith efforts to resolve any such dispute, and from and
after the resolution of such dispute, if any amount shall be due and
owing to the Port Authority, the provisions of paragraph (a) of this
Section (including, without limitation, the fifteen (15) day grace
period permitted to the Lessee prior to the imposition of a late
charge) shall be applicable thereto. If the Lessee and the Port
Authority shall be unable to resolve such dispute within thirty (30)
days after the Lessee notifies the Port Authority of the reason for
the dispute, the Port Authority shall have the right to terminate this
Agreement and the letting hereunder or exercise any other remedy
available to it under this Agreement or otherwise, whether in law or
in equity. The Port Authority covenants that if the Lessee should
serve an effective and timely Notice of Claim upon the Port Authority
with respect to such dispute pursuant to and in accordance with the
provisions of Section 7101 et. seq. of the Unconsolidated Laws of the
State of New York, within ten (10) business days after the Port
Authority shall have served upon the Lessee a notice terminating this
Agreement and the letting hereunder, then and subject to the
42<PAGE>
provisions of paragraph (c) below, the effective date set forth in the
Port Authority's Notice of Termination shall be deemed postponed until
five (5) business days after the claim set forth in such Notice of
Claim or any ensuing legal action with respect to that dispute is
resolved, and if such resolution determines that the Lessee is in
default of the monetary obligation disputed by the Lessee under this
Agreement, the Port Authority shall not commence a "holdover"
proceeding or any other proceeding to evict the Lessee on the basis of
such dispute until on or after the day following such postponed
effective date of termination. If such resolution should determine
that the Lessee is not in default of said disputed monetary obligation
under this Agreement, or if the Lessee shall have paid the disputed
monetary obligation within such five (5) business day period, then in
either case such Notice of Termination shall be deemed withdrawn with
the same force and effect as if it had never been served. It is
expressly understood that nothing contained herein shall be deemed to
waive any rights of the Port Authority under the provisions of Section
7101 et. seq. of the Unconsolidated Laws of the State of New York.
Any such Notice of Claim shall be served and prosecuted solely in
accordance with the provisions of Section 7101 et. seq. of the
Unconsolidated Laws of the State of New York, and the Lessee hereby
covenants and agrees that it shall diligently prosecute the Notice of
Claim and any ensuing legal action with respect to that dispute to
resolution.
(c) If the Lessee should serve an effective and timely
Notice of Claim upon the Port Authority with respect to a monetary
dispute referred to in paragraph (b) above of this Section 31, the
Port Authority notwithstanding service of such Notice of Claim shall
have the right to request by notice to the Lessee within thirty (30)
days after service of such notice of claim that such monetary dispute
be resolved in accordance with the Expedited Procedures provision
(Rules 53 through 57 in the May 1, 1992 edition) of the Commercial
Arbitration Rules of the American Arbitration Association and if the
Port Authority does so request arbitration, then simultaneously upon
receipt by the Lessee of the Port Authority's notice, the said Notice
of Claim shall be deemed withdrawn by the Lessee with the same force
and effect as if it had never been served by the Lessee on the Port
Authority, but the effective date set forth in the Port Authority's
Notice of Termination referred to in paragraph (b) above shall be
deemed postponed until five (5) business days after the dispute is
resolved by arbitration. If such resolution by arbitration determines
that the Lessee is in default of the monetary obligation disputed by
the Lessee hereunder, the Port Authority shall not commence a
"holdover" proceeding or any other proceeding to evict the Lessee on
the basis of such dispute until on or after the day following such
postponed effective date of termination. If such resolution should
determine that the Lessee is not in default of such described monetary
obligation under this Agreement, or if the Lessee within such five (5)
business day period shall have paid the disputed monetary obligation,
then in each case such Notice of Termination shall be deemed withdrawn
with the same force and effect as if it had never been served. All
costs of arbitration pursuant to this paragraph (c) shall be borne by
the unsuccessful party (and if both parties are partially successful,
such costs shall be apportioned between the Port Authority and the
Lessee in inverse proportion to the amount by which such decision is
favorable to each party).
43<PAGE>
(d) In the event that the Port Authority shall send a
notice to the Lessee claiming that it is in default of any of its non-
monetary obligations under this Agreement, other than any default
which (i) affects life and safety, or (ii) affects any building system
which directly affects other tenants in the Building, or (iii) affects
the ability of the Port Authority to provide essential services to
other tenants of the Building, and the Lessee, in good faith, disputes
that it is in default of such obligations, then, provided the Lessee
shall notify the Port Authority of the basis for the dispute within
ten (10) business days after its receipt of the notice, and, if
applicable and feasible, shall comply with or perform any non-disputed
portions or aspects of such disputed obligation, then, for a period of
twenty-five (25) days following such notice, the failure of the Lessee
to comply with or perform the disputed obligation shall not constitute
a default, an event of default or ground for termination giving the
Port Authority the right to terminate this Agreement and the letting
hereunder pursuant to paragraph (a) of the Section of this Agreement
entitled "Termination" or exercise any other rights or remedies under
this Agreement. The Lessee and the Port Authority will promptly meet
and make good faith efforts to resolve any such dispute, and if the
Lessee and the Port Authority shall be unable to resolve such dispute
within twenty-five (25) days after the Lessee notifies the Port
Authority of the basis for the dispute, the Port Authority shall have
the right to terminate this Agreement and the letting hereunder or
exercise any other right or remedy available to it under this
Agreement, or otherwise, whether in law or in equity. The Port
Authority covenants that if the Lessee should serve an effective and
timely Notice of Claim upon the Port Authority with respect to such
dispute pursuant to and in accordance with the provisions of Section
7101 et. seq. of the Unconsolidated Laws of the State of New York,
within ten (10) business days after the Port Authority shall have
served upon the Lessee a notice terminating this Agreement and the
letting hereunder, the effective date set forth in the Port
Authority's Notice of Termination shall be deemed postponed until ten
(10) business days after the claim set forth in such Notice of Claim
or any ensuing legal action with respect to that dispute is resolved,
and if such resolution determines that the Lessee is in default of the
obligation disputed by the Lessee under this Agreement, the Port
Authority shall not commence a "holdover" proceeding or any other
proceeding to evict the Lessee on the basis of such dispute until on
or after the day following such postponed effective date of
termination, and the postponement of such effective date of
termination shall continue as long as the Lessee commences to cure the
default giving rise to the dispute within said ten (10) business day
period and diligently prosecutes said cure to completion. If such
resolution should determine that the Lessee is not in default of said
disputed obligation under this Agreement, or if the Lessee shall have
commenced to cure the default giving rise to the dispute within such
ten (10) business day period and shall thereafter have diligently
prosecuted such cure to completion, then in either case such Notice of
Termination shall be deemed withdrawn with the same force and effect
as if it had never been served. It is expressly understood that
nothing contained herein shall be deemed to waive any rights of the
Port Authority under the provisions of Section 7101 et. seq. of the
Unconsolidated Laws of the State of New York, and the Lessee hereby
covenants and agrees that it shall diligently prosecute the Notice of
Claim and any ensuing legal action with respect to that dispute to
resolution.
44<PAGE>
Section 32. Quiet Enjoyment
The Lessee, upon paying all rentals hereunder and
performing all the covenants, conditions and provisions of this
Agreement on its part to be performed, shall and may peaceably and
quietly have, hold and enjoy the premises free of any act or acts of
the Port Authority or any successor landlord or anyone claiming
superior title through the Port Authority or such successor landlord
except as expressly provided in this Agreement, if at all, it being
understood and agreed that the Port Authority's liability hereunder
shall obtain only so long as it remains the owner of the portion of
the Facility of which the premises are a part, provided the successor
owner shall assume such liability.
Section 33. Non-Liability of Individuals
Neither the Commissioners of the Port Authority nor any
of them, nor any officer, agent or employee thereof, shall be charged
personally by the Lessee with any liability or held liable to it under
any term or provision of this Agreement, or because of its execution
or attempted execution, or because of any breach or attempted or
alleged breach thereof.
Section 34. Headings
The section headings and the paragraph headings, if
any, are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope or intent of any
provision hereof.
Section 35. Construction and Application of Terms
(a) Wherever in this Agreement a third person singular
neuter pronoun or adjective is used referring to the Lessee, the same
shall be taken and understood to refer to the Lessee, regardless of
the actual gender or number thereof.
(b) If more than one individual or other legal entity
is the Lessee under this Agreement, each and every obligation hereof
shall be the joint and several obligation of each such individual or
other legal entity.
(c) This Agreement does not constitute the Lessee, the
agent or representative of the Port Authority for any purpose
whatsoever.
(d) All designations of time herein contained shall
refer to the time-system then officially in effect in the municipality
wherein the premises are located.
(e) No greater rights or privileges with respect to
the use of the premises or any part thereof or with respect to the
World Trade Center are granted or intended to be granted to the Lessee
by this Agreement, or by any provision thereof, than the rights and
privileges expressly granted hereby.
Section 36. Definitions
45<PAGE>
The following terms, when used in this Agreement, shall
have the respective meanings given below:
(a) "Letting" shall mean the letting under this
Agreement for the original term stated herein, and shall include any
extensions thereof which may be made pursuant to the provisions of
this Agreement, or otherwise.
(b) "World Trade Center" shall mean the building
complex constructed by the Port Authority within the area in the
Borough of Manhattan, City, County and State of New York, bounded
generally by the east side of Church Street on the east, the south
side of Liberty Street and the south side of Liberty Street extended
on the south, the Hudson River on the west, and on the north by a line
beginning at the point of intersection of the Hudson River and the
north side of Vesey Street extended, running along the north side of
Vesey Street extended and the north side of Vesey Street to the west
side of Washington Street, then along the west side of Washington
Street to the north side of Barclay Street, then along the north side
of Barclay Street to the east side of West Broadway, then along the
east side of West Broadway to the north side of Vesey Street, then
along the north side of Vesey Street to the east side of Church
Street, together with such additional contiguous area as may be agreed
upon from time to time between the Port Authority and the said City of
New York.
(c) The phrase "utility, mechanical, electrical,
communication and other systems" shall mean and include (without
limitation thereto) the following: machinery, engines, dynamos,
boilers, elevators, escalators, incinerators and incinerator flues,
systems for the supply of fuel, electricity, water, gas and steam,
plumbing, heating, sewerage, drainage, ventilating, air conditioning,
communications, fire-alarm, fire-protection, sprinkler, telephone,
telegraph and other systems, fire hydrants, fire hoses, and their
respective wires, mains, conduits, lines, tubes, pipes, equipment,
motors, cables, fixtures and other equipment.
(d) "Causes or conditions beyond the control of the
Port Authority", shall mean and include acts of God, the elements,
weather conditions, tides, earthquakes, settlements, fire, acts of
governmental authority, other than the Port Authority, war, shortage
of labor or materials, acts of third parties for which the Port
Authority is not responsible, injunctions, strikes, boycotts,
picketing, slowdowns, work stoppages, labor troubles or disputes of
every kind (including all those affecting the Port Authority, its
contractors, suppliers or subcontractors) or any other condition or
circumstances, whether similar to or different from the foregoing (it
being agreed that the foregoing enumeration shall not limit or be
characteristic of such conditions or circumstances) which is beyond
the control of the Port Authority or which could not be prevented or
remedied by reasonable effort and at reasonable expense.
(e) "Normal business hours" shall mean 8:00 o'clock
A.M. to 6:00 o'clock P.M. Mondays to Fridays inclusive, legal holidays
as defined in Exhibit R excepted.
Section 37. Force Majeure
46<PAGE>
(a) The Port Authority shall not be liable for any
failure, delay or interruption in performing its obligations hereunder
due to causes or conditions beyond the control of the Port Authority.
Further, the Port Authority shall not be liable unless the failure,
delay or interruption shall result from failure on the part of the
Port Authority to use reasonable care to prevent or reasonable efforts
to cure such failure, delay or interruption.
(b) Subject to the provisions of paragraph (c) below,
no abatement, diminution or reduction of the rent or other charges
payable by the Lessee, shall be claimed by or allowed to the Lessee
for any inconvenience, interruption, cessation or loss of business or
other loss caused, directly or indirectly, by any present or future
laws, rules, requirements, orders, directions, ordinances or
regulations of the United States of America, or of the state, county
or city governments, or of any other municipal, governmental or lawful
authority whatsoever, or by priorities, rationing or curtailment of
labor or materials, or by war or any matter or thing resulting
therefrom, or by any other cause or condition beyond the control of
the Port Authority, nor shall this Agreement be affected by any such
causes or conditions.
(c) In the event that any failure to provide the
Lessee with access to the premises in accordance with the Section of
this Agreement entitled "Ingress and Egress", or to supply elevator
service to the premises, or to supply other services which the Port
Authority has agreed to supply pursuant to the Section of this
Agreement entitled "Services and Utilities" or the Section of this
Agreement entitled "Additional Services" (whether or not excused by
this Section 37, paragraph (h) of the Section of this Agreement
entitled "Services and Utilities" or other provisions hereof), renders
uninhabitable one or more portions of the premises so that the
Lessee's operations under the Section of this Agreement entitled
"Rights of User by the Lessee" cannot reasonably be conducted therein
and such failure of service is not the result of the fault of the
Lessee, its officers, employees, agents or contractors, and the Lessee
shall give notice to the Port Authority of such fact and shall
thereafter vacate and not use the said portion of the premises for the
Lessee's operations permitted by the Section of this Agreement
entitled "Rights of User by the Lessee" for five (5) consecutive
business days, then thereafter, while such vacant and uninhabitable
condition and non use shall continue, the Lessee shall be entitled to
an abatement of the basic rental and the additional basic rental
hereunder (as provided for in the Section of this Agreement entitled
"Abatement of Rental") solely as to the portion of the premises so
rendered vacant, uninhabitable and which is unused provided that if
such vacant and uninhabitable condition and non-use shall as to
fifteen percent (15%) or more of the rentable square feet in the
premises continue for two hundred seventy (270) consecutive days, then
the Lessee shall have the right to terminate this agreement and the
letting hereunder in its entirety by giving thirty (30) days' prior
notice to the Port Authority provided such notice is given to the Port
Authority no later than the thirtieth (30th) day from the end of such
two hundred seventy (270) consecutive day period and provided further
that such non-use, vacant and uninhabitable condition does not end
prior to the date the Lessee gives the Port Authority such notice of
termination. Termination by the Lessee pursuant to the provisions of
this paragraph (c) shall be with the same force and effect as if the
47<PAGE>
effective date of termination stated in the Lessee's notice were the
date set forth in this Agreement as the expiration date of the letting
hereunder.
Section 38. Premises
The Lessee acknowledges that it has not relied upon any
representation or statement of the Port Authority or its
Commissioners, officers, employees or agents as to the suitability of
the premises for the operations permitted on the premises by this
Agreement. The Lessee agrees that no portion of the premises will be
used initially or at any time during the letting which is in a
condition unsafe or improper for the conduct of the Lessee's
operations hereunder so that there is possibility of injury or damage
to life or property. For all purposes of this Agreement the premises
hereunder (notwithstanding any statement elsewhere in this Agreement
of any rule for the measurement of the area thereof) shall be deemed
to include all of the enclosing partitions, and the interior of the
adjacent exterior building walls including glass therein.
Section 39. Governmental Compliance
In the event that all or any portion of the premises is
required by the Port Authority to comply with any present or future
governmental law, rule, regulation, requirement, order or direction,
the Port Authority shall give the Lessee notice that all or any such
portion of the premises is so required and the Lessee shall deliver
all or any such portion of the premises so required on the date
specified in such notice and, if the Lessee does not so deliver, the
Port Authority may take the same. No such taking or delivery shall be
or be construed to be an eviction of the Lessee or a breach of this
Agreement. In the event that the Lessee has received a notice
hereunder it shall deliver all or any such portion of the premises so
required in the same condition as that required hereunder for the
delivery of the premises on the cessation of the letting. In the
event of the taking or delivery of all the premises, this Agreement
and the letting hereunder shall on the day of such taking or delivery
cease and expire as if that day were the date originally stated herein
for the expiration of this Agreement; and, in the event of the taking
or delivery of any portion of the premises, then, from and after such
taking or delivery, such portion of the premises shall cease to be a
part of the premises hereunder. There shall be an abatement of the
rental in the event of any such taking or delivery of a portion of the
premises as provided in the Section of this Agreement entitled
"Abatement of Rental".
Section 40. Services and Utilities
(a) Subject to all the terms and provisions of this
Agreement, the Port Authority will furnish without additional charge
to the Lessee the following:
(1) During normal business hours heat,
ventilation and air cooling in accordance with the
specifications set forth in Schedule D attached hereto,
subject to the provisions of paragraph (b) of the Section of
this Agreement entitled "Construction by the Lessee";
48<PAGE>
(2) Cleaning services in the portion of the
premises shown on Exhibit A as described in Schedule B
attached hereto and hereby made a part hereof and cleaning
services in the portion of the premises shown on Exhibit A-1
as described in Schedule B-1 attached hereto and hereby made
a part hereof.
(3) Passenger elevator service to the
premises on business days during normal business
hours, which service shall consist of not less
than three (3) elevator cars available from the
lobby of the South Tower Building to each floor of
the premises and one passenger elevator car
available from the lobby of the South Tower
Building to each floor of the premises during all
other times; one freight elevator serving the
premises and the entire Building in which the
premises are located on call on a "first come,
first served" basis on business days during normal
business hours and on a reservation "first come,
first served" basis during hours other than normal
business hours;
(4) Access to the premises 24 hours per
day, 365 days per year throughout the term of this
Agreement, subject to the Lessee's compliance with
the Rules and Regulations, and with such other
reasonable rules, regulations and procedures which
may be imposed by the Port Authority, including,
without limitation, regulations and procedures
establishing reasonable security checks.
(b) Unless the premises contain toilet and washroom
facilities, the Port Authority shall, without additional charge,
furnish non-exclusive toilet and washroom facilities for the employees
of the Lessee. The Port Authority agrees to furnish hot and potable
cold water for sanitary purposes in the public bathrooms located in
the Lessee's premises or located of multitenanted floors on which
portions of the Lessee's premises are located.
(c) Subject to all the terms, provisions and
conditions of paragraphs (f), (g), (h) and (i) of this Section 40 and
to the extent that the Lessee's consumption does not exceed the
capacity of feeders, risers or wiring in the building of which the
premises is a part (it being the Lessee's sole responsibility for
designing and constructing distribution systems for the premises), the
Port Authority will supply to the existing electric closets serving
the premises on each floor of the premises for use by the Lessee 7
watts per rentable square foot of electrical capacity (exclusive of
electricity required for HVAC and core facilities) as follows: 3
watts at 120/208 and 4 watts at 277/465 provided that if the Port
Authority pursuant to its comprehensive plan for the World Trade
Center increases the electrical capacity to 10 watts per rentable
square foot in the first zone of the South Tower Building, then the
Port Authority upon written request from the Lessee will provide 10
watts per rentable square foot of electrical capacity to the Lessee
but nothing herein shall in any way be construed to in any way
obligate the Port Authority to increase the electrical capacity in the
49<PAGE>
first zone of the South Tower Building or elsewhere at the World Trade
Center. Electricity furnished to the Lessee shall be used solely for
illumination by which is meant the energizing of fluorescent and
incandescent bulbs (to be supplied, paid for and installed by the
Lessee) and for the operation of such office machines and equipment
(including computers) as are customarily utilized in an office of the
type described in the Section of this Agreement entitled "Rights of
User by the Lessee", and the Lessee shall pay for the same in
accordance with the following provisions of this paragraph (c). The
quantity of all electricity supplied to the Lessee shall be measured
by a meter or meters to be furnished and installed by the Port
Authority at its cost and expense for that purpose (it being
understood that the wiring and all other electrical work in connection
with such metering shall be performed by the Lessee at its cost and
expense), and in the event any such meter fails to record such, the
quantity of electricity so supplied during any period that a meter is
out of service will be considered to be the same as the quantity
supplied during a like period immediately before such interruption and
if there is no like period immediately before such interruption, then
it shall be a like period immediately after such disruption. The
quantity of such electricity shall be paid for by the Lessee in an
amount equal to 100% of the rates (including the fuel or other
adjustment factor, if any) which the Lessee, under the service
classification then applicable to the Lessee, would be required to pay
for the same quantity of electricity to be used for the same purpose
under the same conditions if the Lessee had purchased such electricity
directly from the public utility company supplying the same to
commercial buildings in the vicinity of the World Trade Center. The
Lessee shall pay the cost of such consumption and demand for each such
billing period to the Port Authority upon demand therefor (billing
period hereunder to be the same as that established by the public
utility company supplying electricity to commercial buildings in the
vicinity of the World Trade Center), and the same shall be deemed
additional rental collectible in the same manner and with like
remedies as if it were a part of the basic rental reserved hereunder.
Notwithstanding that the Port Authority has agreed to supply
electricity to the Lessee, the Port Authority shall be under no
obligation to provide or continue such service if the Port Authority
is prevented by law, agreement or otherwise from submetering
electricity as hereinabove set forth or elects not to so submeter the
same, provided that unless prevented by law the Port Authority will
not discontinue the supply of electricity to the Lessee unless it
discontinues such supply to all non-governmental entities at the World
Trade Center whose premises are in excess of one hundred thousand
(100,000) rentable square feet. In the event the Port Authority does
so discontinue the supply of electricity, the Lessee shall make all
arrangements and conversions necessary to obtain electricity directly
from the public utility company supplying electricity in the vicinity.
Also, in such event, the Lessee shall perform the construction
necessary for such conversion, and if despite such discontinuance the
Port Authority was not prevented by law from submetering electricity
as hereinabove set forth, then the Port Authority shall grant to the
Lessee a credit against its rental payments next becoming due in an
amount equal to the Lessee's reasonable cost of performing such
necessary construction provided, however that if the term of the
letting expires prior to full application of such credit, then the
Port Authority will promptly pay the Lessee such portion of the credit
as has not been applied against rental. If any lines or equipment of
50<PAGE>
the Port Authority are with the consent of the Port Authority used
subsequent to such conversion, the Port Authority may make an
appropriate charge therefor to the Lessee based on its costs and
expenses for the said lines and equipment.
(d) If the Lessee, in accordance with the Section of
this Agreement entitled "Construction by the Lessee" or otherwise,
erects any partitions or makes any improvements which stop, hinder,
obstruct or interfere with the cooling of the air or the heating of
the premises, or if the Lessee shall fail to close and keep closed the
window coverings when the sun is shining on the windows of the
premises, then no such action by the Lessee shall impose any
obligations on the Port Authority to install facilities, fixtures or
equipment for air-cooling or for heating additional to those existing
or presently contemplated or to increase the capacity or output of
initially existing facilities, equipment or fixtures and the Lessee
shall not in any such event be relieved of any of its obligations
hereunder because a comfortable temperature is not maintained but
nothing herein shall be construed to relieve the Port Authority of its
obligation to provide heating, ventilation and air cooling in
accordance with the specifications set forth in Schedule D. No
consent given by the Port Authority to the erection of partitions or
the making of any improvements shall be or be deemed to be a
representation that the work consented to will not stop, hinder,
obstruct or interfere with either the cooling of the air or heating of
the premises or any portion thereof. It is hereby understood further
that the installation by the Lessee of any equipment which itself
requires air cooling or which requires additional quantities of air
cooling at the portion of the premises where such equipment is
installed or the concentration in any portion of the premises of such
a number of people so as to require additional quantities of air
cooling, shall not impose any obligation on the Port Authority to
install facilities, fixtures and equipment for air cooling additional
to those initially existing, or to increase the capacity or output of
initially existing facilities, equipment or fixtures and the Lessee
shall not in any such event be relieved of any of its obligations
hereunder.
(e) The Lessee shall keep closed all entrance doors
and all windows in the premises except that doors may be opened when
required for ingress or egress. The Lessee shall not otherwise waste
or dissipate the air cooling or heating services.
(f) If any federal, state, municipal or other
governmental body, authority or agency or any public utility assesses,
levies, imposes, makes or increases any charge, fee or rent on the
Port Authority for any service, system or utility now or in the future
supplied to or available to the premises or to any occupants or users
thereof or to the structure or building of which the premises form a
part (including but not limited to any sewer rent or charge for the
use of sewer systems), the Lessee shall, at the option of the Port
Authority exercised at any time and from time to time by notice to the
Lessee, pay, in accordance with said notice, such charge, fee or rent
or increase thereof (or the portion thereof allocated by the Port
Authority to the premises or the Lessee's operations hereunder) either
directly to the governmental body, authority or agency or to the
public utility or directly to the Port Authority. No charge, fee, or
rent or increase shall be imposed upon the Lessee pursuant to this
51<PAGE>
paragraph (f) to the extent any such is included as an Operating
Expense for purposes of Schedule A.
(g) The Port Authority shall have the right to
discontinue temporarily the supply of any of the above services when
necessary or desirable in the reasonable opinion of the Port Authority
in order to make any repairs, alterations, changes or improvements in
the premises or elsewhere in the World Trade Center including but not
limited to all systems for the supply of services. The Port Authority
will give reasonable advance notice, when practicable, of the
anticipated commencement, duration and notice of any such
interruption. The Port Authority will proceed with reasonable
diligence to eliminate the interruption.
(h) Subject to the provisions of paragraph (c) of the
Section of this Agreement entitled "Force Majeure", no failure, delay,
interruption or reduction in any service or services shall be or shall
be construed to be an eviction of the Lessee, shall be grounds for any
diminution or abatement of the rentals payable hereunder, or shall
constitute grounds for any claim by the Lessee for damages,
consequential or otherwise, unless due to the negligent acts of the
Port Authority, its employees or agents.
(i) The Port Authority shall be under no obligation to
supply any service or services if and to the extent and during any
period that the supplying of any such service or services or the use
of any component necessary therefor shall be prohibited or rationed by
any federal, state or municipal law, rule, regulation, requirement,
order or direction and if the Port Authority deems it in the public
interest to comply therewith, even though such law, rule, regulation,
requirement, order or direction may not be mandatory on the Port
Authority as a public agency.
(j) (i) In such kitchen facilities as may be referred
to in paragraph (e) of the Section of this Agreement entitled
"Responsibilities of the Lessee" and as are approved by the Port
Authority for installation in the premises pursuant to the provisions
of the Section of this Agreement entitled "Construction by the Lessee"
and subject to the provisions of paragraphs (f), (g), (h) and (i) of
this Section 41, the Port Authority will supply to the Lessee cold
water, of the character furnished by the municipality or utility
company supplying the same in the vicinity and hot water, at a
temperature of approximately 140 F, both in reasonable quantities for
use by the Lessee through such fixtures and outlets as may be
installed by the Lessee pursuant to the provisions of the Section of
this Agreement entitled "Construction by the Lessee". The Port
Authority will measure the quantities of such cold water and hot water
supplied to the Lessee by meters to be installed by the Port Authority
for the purpose. The Lessee shall pay to the Port Authority for the
cold and hot water as billed by the Port Authority from time to time
at the following rates: (1) cold water, at the rate of Thirty-six
Dollars and Sixty-eight Cents ($36.68) per thousand cubic feet and (2)
hot water at the rate of Sixty-two Dollars and Seventy-one Cents
($62.71) per thousand cubic feet; the charges to be subject to
increase in rates charged the Port Authority as provided in paragraph
(f) of this Section 40 and with respect to the charge for metered hot
water the same shall also be subject to increase as provided in
subparagraph (ii) of this paragraph (j) below. Notwithstanding the
52<PAGE>
foregoing, the Port Authority will not impose a charge upon the Lessee
for cold and hot water used in conjunction with drinking fountains,
dryer units, dishwashers, kitchen sinks, kitchen ice makers and
existing public restrooms located in the premises.
(ii) The charge for metered hot water provided for
in subparagraph (i) above of this paragraph (j) shall be subject to
increase from time to time as follows: "Wage rate' as used in this
paragraph shall mean the hourly straight time wage rate for Engineers
as that wage rate is established from time to time by collective
bargaining agreement between the Realty Advisory Board on Labor
Relations, Incorporated, acting on behalf of various building owners
and Local 94 of the International Union of Operating Engineers, AFL-
CIO, and "basic wage rate" shall mean the wage rate in effect on
January 1, 1994. From and after each wage rate established from and
after the commencement date of the letting, the Lessee shall pay a
charge for metered hot water in addition to the charge set forth in
subparagraph (i) above, such additional charge to be an amount
computed by multiplying the charge for metered hot water stated in
that subparagraph by the percentage increase in the wage rate so
established over the basic wage rate. If either the Realty Advisory
Board on Labor Relations, Incorporated, or Local 94 of the
International Union of Operating Engineers, AFL-CIO, shall cease to
exist or a collective bargaining agreement shall cease to be
negotiated between the Realty Advisory Board on Labor Relations,
Incorporated, and Local 94 of the International Union of Operating
Engineers, AFL-CIO, then the wage rate to be used for computing
increases in the said charge shall be the wage rate for Engineers
established under such collective bargaining agreements as the Port
Authority shall select. If the job classification "Engineers" shall
be renamed or abolished, then the Port Authority will select the job
classification performing substantially the same labor function as
Engineers and the wage rate of the job classification so selected
shall be used in computing increases in the charge provided herein.
(k) The Port Authority shall have no obligations or
responsibility with respect to the performance of any services or
providing, supplying or furnishing to the Lessee of any utilities or
services whatsoever except as expressly provided in this Agreement.
Section 41. Liability Insurance
(a) The Lessee shall not do or permit to be done any
act or thing upon the premises or at the World Trade Center which will
invalidate or conflict with any insurance policies covering the
premises or any part thereof, or the World Trade Center, or any part
thereof, which, in the reasonable opinion of the Port Authority, may
constitute an extra-hazardous condition, so as to increase the risks
normally attendant upon the operations contemplated by the Section of
this Agreement entitled "Rights of User by the Lessee", and the Lessee
shall promptly observe, comply with and execute the provisions of any
and all present and future rules and regulations, requirements, orders
and directions of the National Fire Protection Association and the
Insurance Services Office, Inc. and of any other board or organization
exercising or which may exercise similar functions, which may pertain
or apply to the operations of the Lessee on the premises, and the
Lessee shall, subject to and in accordance with the provisions of the
Section of this Agreement entitled "Construction by the Lessee", make
53<PAGE>
any and all improvements, alterations or repairs of the premises that
may be required at any time hereafter by any such present or future
rule, regulation, requirement, order or direction, provided such
improvements, alterations or repairs are not required generally
throughout the building in which the premises are located unless such
general requirement results from the Lessee's particular manner of use
of or its particular operations in the premises which are not common
to other tenants in the building in which the premises are located,
and if by reason of any failure on the part of the Lessee to comply
with the provisions of this Agreement any insurance rate on the
premises or any part thereof or on the World Trade Center or any part
thereof, shall at any time be higher than it otherwise would be, then
the Lessee shall pay to the Port Authority, as an item of additional
rental, that part of all insurance premiums paid by the Port Authority
which shall have been charged because of such violation or failure by
the Lessee, but no such payment shall relieve the Lessee of its other
obligations under this paragraph.
(b) (i) The Lessee in its own name as assured shall
secure and keep in full force and effect throughout the term of the
letting under this Agreement, at Lessee's sole cost and expense, (a) a
policy of comprehensive general liability insurance including a
contractual liability endorsement for such coverage as may reasonably
be stipulated from time to time by the Port Authority covering the
Lessee's operations hereunder which shall be effective throughout the
letting under this Agreement and shall initially be in a combined
single limit of not less than $2,000,000 for liability for bodily
injury, for wrongful death and for property damage arising from any
one occurrence; and (b) a fire or other casualty policy insuring the
full replacement value of all construction, installation and finishing
work performed by the Lessee in the premises and the Lessee's
furniture, trade fixtures, equipment and other personal property, such
insurance to include a replacement cost endorsement, with a deductible
of no more than $1,000 against loss or damage by fire and theft and
such other risks or hazards as are insurable under present or future
forms of "All Risk" insurance policies.
(ii) The Port Authority shall be included as an
additional insured in any policy of liability insurance required by
this Section. The Lessee shall have the right to insure and maintain
the insurance coverages set forth in this Section under blanket
insurance policies covering the premises and other space occupied by
Lessee, if any, so long as such blanket policies comply in all
respects with the insurance provisions set forth in this Agreement;
provided that upon request, Lessee shall deliver to the Port Authority
a certificate of Lessee's insurer evidencing the portion of such
blanket policy of insurance allocated to the premises.
(iii)As to any insurance required by this Section,
a certified copy of each of the policies or a certificate or
certificates evidencing the existence thereof (including all required
endorsements and evidence of the waivers of subrogation required by
paragraph (c) of this Section), or binders, shall be delivered to the
Port Authority within twenty (20) days prior to the commencement date
of the letting hereunder. In the event any binder is delivered, it
shall be replaced within thirty (30) days by a certificate including
said endorsements and such waiver of subrogation. Within thirty (30)
days after request of the Port Authority made at any time during the
54<PAGE>
term of the letting under this Agreement the Lessee shall deliver a
certified copy of the policy to the Port Authority. Each such copy or
certificate shall contain endorsements that (a) the policy may not be
cancelled, terminated, changed or modified without giving at least ten
(10) days written advance notice thereof to the Port Authority; (b)
the insurer shall not, without obtaining express advance permission
from the General Counsel of the Port Authority, raise any defense
involving in any way the jurisdiction of the tribunal over the person
of the Port Authority, the immunity of the Port Authority, its
Commissioners, officers, agents or employees, the governmental nature
of the Port Authority or the provisions of any statutes respecting
suits against the Port Authority; and (c) Lessee shall be solely
responsible for the payment of premiums therefor notwithstanding that
the Port Authority is named as an additional insured. A renewal
certificate shall be delivered to the Port Authority at least fifteen
(15) days prior to the expiration date of each expiring policy, except
for any policy expiring after the date of expiration of the letting,
provided that within thirty (30) days after request by the Port
Authority the Lessee shall deliver a certified copy of such renewal
policy to the Port Authority. If at any time any of the policies
shall be or become unsatisfactory to the Port Authority as to form or
substance, or if any of the carriers issuing such policies shall be or
become unsatisfactory to the Port Authority, the Lessee shall promptly
obtain a new and satisfactory policy in replacement. A carrier shall
be deemed satisfactory to the Port Authority if it has and maintains a
rating by Best's Insurance Reports or any successor publication of
comparable standing of "A" or better or the then equivalent of such
rating. The Port Authority will not find a policy issued by a
satisfactory carrier to be unsatisfactory as to form or substance
unless it contains an exclusion not generally included in
Comprehensive General Liability policies which landlords in the City
of New York owning comparable first class office buildings at the time
of such determination require to be maintained by tenants conducting
operations similar to those conducted by the Lessee in the premises.
(c) Each party shall include in each of its insurance
policies covering loss, damage or destruction by fire or other
casualty (insuring the World Trade Center and the Port Authority's
property therein in the case of the Port Authority, and insuring the
Lessee's property required to be insured by Lessee under paragraph (b)
above in the case of the Lessee) a waiver of the insurer's right of
subrogation against the other party or, if such waiver should be
unobtainable or unenforceable, (i) an express agreement that such
policy shall not be invalidated if the insured waives before the
casualty the right of recovery against any party responsible for a
casualty covered by such policies, or (ii) any other form of
permission for the release of the other party. If any party hereto is
unable to obtain such waiver, agreement or permission without
additional charge, then such party shall be relieved from providing
such waiver, agreement or permission unless the other party shall so
elect and shall pay the carrier's additional charge therefor.
(d) Each party hereby releases the other party with
respect to any claim (including a claim for negligence) which it might
otherwise have against the other party for loss, damage or destruction
with respect to its property (including business interruption)
occurring during the term of the letting under this Agreement and with
respect and to the extent to which it is insured under a policy or
55<PAGE>
policies containing a waiver of subrogation or permission to release
liability as provided in paragraph (c) above.
(e) Nothing contained in said paragraphs (c) or (d)
above of this Section shall be deemed to impose upon either party any
duty to procure or maintain any of the kinds of insurance referred to
therein except as otherwise required in this Section. If the Lessee
shall fail to maintain insurance in effect as required in this
Section, the release by the Lessee set forth in paragraph (d) above of
this Section shall be in full force and effect to the same extent as
if such required insurance (containing a waiver of subrogation) were
in effect. Notwithstanding anything to the contrary contained in this
Agreement, the carrying of insurance by the Lessee in compliance with
this Section shall not modify, reduce, limit or impair the Lessee's
obligations and liability under the Section of this Agreement entitled
"Indemnity".
(f) At the time of the execution of this Agreement,
there is in effect a policy of insurance under which the Port
Authority is the insured covering damage to the premises and the
Facility having a deductible of One Hundred Thousand Dollars and No
Cents ($100,000.00) and containing an endorsement permitting the
release described in paragraph (c) above of this Section 41. The Port
Authority does not represent or warrant that it will continue to
maintain such insurance, provided, however, that in the event that the
Port Authority shall no longer maintain insurance covering damage to
the premises or the Facility, or shall maintain such insurance having
a higher deductible amount, in each case so long as the release
described in said paragraph (c) above shall remain available on
commercially reasonable terms to owners of first-class office
buildings in the City of New York with more than 1,000,000 rentable
square feet, the obligation of the Lessee set forth in paragraphs (b)
and (c) of the Section of this Agreement entitled "Maintenance and
Repair" shall be released to the extent that such loss exceeds One
Hundred Thousand Dollars and No Cents ($100,000.00), it being
expressly understood and agreed that the maximum liability of the
Lessee under such circumstances in the event of damage or destruction
to the Facility, or any portion thereof, shall be $100,000 with
respect to any single occurrence. Nothing herein shall limit or
affect the Lessee's liability with respect to such $100,000 portion of
such loss, and with respect to such $100,000 portion of such loss, the
provisions of paragraph (b) of the Section of this Agreement entitled
"Maintenance and Repair" and of this paragraph (f) shall control, and
nothing in this paragraph (f) shall limit or affect the Lessee's
liability which it may otherwise have under this Agreement with
respect to damage not insurable under the New York standard form of
fire insurance policy or the New York standard form of extended
coverage endorsement.
Section 42. Port Authority Work; Additional Lessee Work
(a) Subject to all of the provisions of this Agreement
(including but not limited to the Section of this Agreement entitled
"Force Majeure"), the Port Authority, through its employees, agents,
representatives, contractors and subcontractors shall perform the
following work (hereinafter collectively referred to as the "Port
Authority Work") in the areas indicated, which work, except as
otherwise indicated below will be performed prior to the Prior Entry
56<PAGE>
Date, as such term is defined in paragraph (c) of the Section of this
Agreement entitled "Term":
(i) No later than August 15, 1995,
repair and/or replace all cracked or damaged
floor, wall and ceiling tiles, all broken
partitions and damaged fixtures in the public
bathroom areas on the 23rd floor of the Lessee's
premises and on the 24th floor of the South Tower
Building at the World Trade Center and perform
such other work therein to put such bathrooms in
compliance with the applicable provisions and
implementing regulations of the Americans With
Disabilities Act of 1990 (42 U.S.C. 12101 et
seq.) (hereinafter, the "ADA"), all of such
bathroom work being as described on Schedule E
attached hereto and hereby made a part hereof and
referred to in this Agreement as the "Public
Bathroom Work";
(ii) Remove, collect and properly
dispose of all vinyl asbestos tile from the floors
in the premises and flash patch the areas where
such vinyl asbestos tile was removed and where any
adhesive or glue remains;
(iii)Install ADA compliant elevator call
buttons and indicator lights in the public
elevator lobbies on the 23rd and 24th floors in
the South Tower Building; such work referred to in
this subdivision (iii) being referred to in this
Agreement as the "Elevator Work"; the Lessee
understands that such Elevator Work will be
performed by the Port Authority in conjunction
with its capital improvement program for the
Building and that such work may not be completed
prior to the date the Lessee commences public
operations in the premises;
(iv) No later than August 15, 1995 (1)
refinish or renovate the public corridors on the
24th floor of the South Tower Building, including
installation of building standard wall coverings,
ceilings and floor coverings, such work to provide
for multiple tenancies on such floor and perform
such other work therein to put such public
corridor in compliance with the applicable
provisions of the ADA (including ADA compliant
hardware on all core doors but excluding the
Elevator Work); and (2) install ADA compliant
hardware on all core doors in the public corridor
areas on the Lessee's premises on the 23rd floor
of the South Tower Building; all of such corridor
work referred to in this subdivision (iv) being as
described on Schedule F attached hereto and hereby
made a part hereof and referred to in this
Agreement as the "Public Corridor Work";
57<PAGE>
(v) Perform such demolition work and
other work in the premises, including the removal
of all cabling from existing underground floor
ducts in the premises, as is shown or described in
the Schedule I attached hereto and hereby made a
part hereof and in the Plans and Specifications
dated December 15, 1994 and December 19, 1994 and
identified by Port Authority Contract No. WTC-
702.182. It is understood that notwithstanding
such Plans and Specifications the work shown
therein shall be performed in all of Area A-1.
All such work described in the preceding sentence
being referred to in this Agreement as the
"Demolition Work" which Demolition Work shall be
completed prior to the Prior Entry Date unless
indicated otherwise in Schedule I;
(b) Nothing set forth above in this Section shall be
construed as a submission by the Port Authority to the application to
itself of the Americans with Disabilities Act except and solely to the
extent specifically provided above in this Section.
(c) Notwithstanding the provisions of subdivision (i)
of paragraph (a) above, the Port Authority on or before January 5,
1995 will provide Contract Drawings to the Lessee for performance of
the Public Bathroom Work. The Lessee no later than February 23, 1995
will submit to the Port Authority in writing a fixed price
(hereinafter called the "Public Bathroom Price") for which the Lessee
will agree to perform such Public Bathroom Work. The Port Authority
within ten (10) business days after receipt of such price from the
Lessee will advise the Lessee whether or not it accepts the Lessee's
price. If the Port Authority does not accept the Lessee's price, the
Port Authority will remain obligated to perform the Public Bathroom
Work in accordance with subdivision (i) of paragraph (a) above. If
the Port Authority accepts the Lessee's price, then the Lessee shall
thereafter and in accordance with the applicable provisions of the
Section of this Agreement entitled "Construction by the Lessee"
diligently perform the Public Bathroom Work in accordance with the
Contract Drawings previously provided by the Port Authority and the
Port Authority will pay the Lessee the Public Bathroom Price as
hereinafter provided in paragraph (f) below.
(d) Notwithstanding the provisions of subdivision (iv)
of paragraph (a) above, the Port Authority on or prior to January 5,
1995 will provide Contract Drawings to the Lessee for performance of
the Public Corridor Work. The Lessee no later than February 23, 1995
will submit to the Port Authority in writing a fixed price
(hereinafter called the "Public Corridor Price") for which the Lessee
will agree to perform such Public Corridor Work. The Port Authority
within ten (10) business days after receipt of such price will advise
the Lessee whether or not it accepts the Lessee's price. If the Port
Authority does not accept the Lessee's price, the Port Authority will
remain obligated to perform the Public Corridor Work in accordance
with the provisions of subdivision (iv) of paragraph (a) above. If
the Port Authority accepts the Lessee's price, then the Lessee shall
thereafter and in accordance with the applicable provisions of the
Section of this Agreement entitled "Construction by the Lessee"
diligently perform the Public Corridor Work in accordance with said
58<PAGE>
Contract Drawings previously provided by the Port Authority, and the
Port Authority will pay the Lessee the Public Corridor Price as
hereinafter provided in paragraph (f) below.
(e) The Lessee hereby agrees to paint all convector
covers in the premises. The Port Authority will pay the Lessee Five
Thousand Nine Hundred Seventy-six Dollars and No Cents ($5,976.00) for
the work described in this paragraph (e), such payment to be made in
accordance with paragraph (f) below.
(f) Upon completion of the work by the Lessee
described in paragraphs (c), (d) and (e) above, the Lessee shall
deliver to the Port Authority a certificate signed by an authorized
officer of the Lessee and a certificate signed by the Lessee's
architect or professional engineer, each certifying that the
construction and installation work has been completed and in the case
of the Public Bathroom Work and Public Corridor Work that it has been
performed strictly in accordance with the Contract Drawings provided
by the Port Authority to the Lessee covering such work. The Port
Authority, within five (5) business days thereafter shall inspect the
particular work as to which the certification has been given and if
the same has been completed as certified by the Lessee and such
architect or engineer, the Port Authority's Assistant Director,
Physical Facilities, World Trade Department, shall so certify to the
Port Authority and the Lessee subject to the condition that all risks
thereafter with respect to the construction and installation work and
any liability therefor for negligence or other reason shall be borne
by Lessee. The Port Authority within thirty (30) days after such
certification by such Assistant Director, Physical Facilities, will
pay the Lessee the applicable price pertaining to such particular
work. In addition thereto and solely in connection with the work
which the Lessee is to perform pursuant to paragraphs (c) and (d) of
this Section 42, in the event there are unforeseen conditions actually
encountered by the Lessee in performance of such work, which
conditions were unknown to the Lessee at the time of its execution of
this Agreement and which could not have been reasonably anticipated by
the Lessee, and such unforeseen conditions increase the cost of the
performance of such work, then in addition to the fixed price the Port
Authority is to pay for such work, the Port Authority will pay the
Lessee the Lessee's reasonable additional cost directly resulting from
such unforeseen condition. Notwithstanding anything in this paragraph
(f) to the contrary, with respect to the certification set forth in
this paragraph (f), the Lessee may notify the Port Authority in
writing that the certification of the Lessee's architect or engineer
shall also be deemed to be the certification of the Lessee with the
same force and effect as if given directly by the Lessee.
(g) For purposes of this Agreement the work described
in subdivisions (ii) and (v) of paragraph (a) and paragraphs (e) and
(i) of this Section are collectively called the "Landlord Work". It
is hereby understood and agreed that except for the work which the
Lessee is to perform pursuant to paragraphs (c) and (d) of this
Section, the Lessee shall not be required to perform any ADA required
work outside the Lessee's premises.
(h) The Port Authority hereby agrees that it will not
impose upon the Lessee any utility or freight elevator charges or
inspection, filing, sign-off or other fees or charges in connection
59<PAGE>
with the Lessee's performance of the Additional Lessee Work. For
purposes of this Agreement "Additional Lessee Work" shall mean that
work which the Lessee is to perform pursuant to paragraphs (c), (d)
and (e) of this Section 42.
(i) Except for vinyl asbestos tiles and asbestos or
asbestos-containing materials located within or behind the mullions on
the interior of the exterior walls of the premises, the Port Authority
hereby represents that to the best of its knowledge there are no
asbestos and asbestos-containing materials located in the premises.
"Asbestos" or "asbestos containing-materials" as used herein shall be
as defined in the guidelines established by the United States
Environmental Protection Agency ("USEPA") as set forth in the USEPA
publication entitled "Guidance for Controlling Asbestos-Containing
Materials in Building" (EPA 560/5-85-024, June 1985). Notwithstanding
the foregoing, in the event that the asbestos or asbestos-containing
materials are discovered in the premises prior to the Prior Entry
Date, then the Port Authority will remove or cause same to be removed
from the premises prior to the Prior Entry Date. In the event that
asbestos or asbestos-containing materials are discovered in the
premises subsequent to the Prior Entry Date, the Lessee will
expeditiously notify the Port Authority of their existence and if such
asbestos or asbestos-containing materials were not installed therein
by the Lessee or its contractor, the Port Authority will diligently
remove or cause same to be removed and will make reasonable efforts to
minimize disruption to the Lessee's operations. The Lessee will not
be entitled to any rental abatement during performance of such removal
work occurring subsequent to the commencement date of the term of the
letting hereunder unless the Lessee is unable to use such portion of
the premises during performance of such work in which case the basic
rental and additional basic rental for such portion of the premises
shall be abated in accordance with the provisions of the Section of
this Agreement entitled "Abatement of Rental" during the period of
such non use due to such removal work. In the event that the Lessee
prior to the commencement date of the term of the letting is unable to
perform construction work in all or a substantial portion of the
premises during performance of such asbestos removal work by the Port
Authority, then the two hundred fourteen (214) day period in clause
(i) of paragraph (a) of the Section of this Agreement entitled "Term"
shall be extended by one day for each day that the Lessee is unable to
perform its construction work in all or a substantial portion of the
premises due to the asbestos removal work being performed by the Port
Authority. The Port Authority hereby agrees to refireproof any area
in the premises, including any structural steel members located in the
ceiling area of the Lessee's premises necessitated by such asbestos
removal work. The Port Authority upon completion of the removal of
asbestos or asbestos-containing materials from the premises will
furnish written certification of same to the Lessee from the Port
Authority's Assistant Director, Physical Facilities, World Trade
Department. In no event will the Port Authority be required to remove
asbestos or any asbestos-containing materials located within or behind
the mullions on the interior of the exterior walls of the premises.
Section 43. Additional Space
60<PAGE>
(a) If the Lessee no later than September 1, 1997
shall notify the Port Authority in writing that it desires to lease a
single block of additional space on the 24th floor of the South Tower
Building contiguous to the Lessee's initial premises on said floor
(hereinafter referred to as the "Additional Space I"), and provided
that the Lessee is not then in default under any of the terms,
provisions, covenants and conditions of this Agreement beyond the
applicable cure period therefor and this Agreement is then in full
force and effect, the Port Authority within twenty (20) days following
the date of the Lessee's notice will notify the Lessee in writing of
the location and configuration of the Additional Space I (such
configuration to be commercially reasonable) setting forth the
commencement date of the letting thereof (June 1, 1998, subject to
postponement due to causes or conditions beyond the control of the
Port Authority), the exact number of rentable square feet contained
therein (such number of rentable square feet to be no less than 5,000
nor more than 7,000 rentable square feet as determined by the Port
Authority, such determination of the number of rentable square feet to
be determined by the Port Authority in the same manner as the Port
Authority determined the rentable square footage for the initial
premises) and the annual basic rental rate therefore. The letting of
the Additional Space I shall be on an "as is" basis with no finishing
allowance provided that the Port Authority prior to the commencement
date of the letting of same will provide in such Additional Space I
the Landlord Work, as such term is defined in the Section of this
Agreement entitled "Port Authority Work; Additional Lessee Work". In
addition rental for the Additional Space I shall commence on the
ninetieth (90th) day from the commencement date of the letting of the
Additional Space I, as such commencement date may be postponed due to
causes or conditions beyond the control of the Port Authority.
Thereupon, the Lessee shall have the right, by notice to the Port
Authority subscribed by an authorized officer of the Lessee and
delivered to the Port Authority within ten (10) days after its receipt
of the Port Authority's notice:
(i) to accept the Additional Space I
unconditionally for the balance of the term of the
letting hereunder at the basic rental rate set
forth in the Port Authority's notice; or
(ii) to accept the Additional Space I
unconditionally for the balance of the term of the
letting hereunder but advising the Port Authority
that the Lessee has concluded that the annual
basic rental rate specified by the Port Authority
in its notice is not the fair market rental for
the Additional Space I.
Within thirty (30) days after the later of the date the Lessee
notifies the Port Authority that it unconditionally accepts the
Additional Space I in accordance with subdivision (i), above, or, in
the event that the annual basic rental for the Additional Space I is
determined by arbitration in accordance with the provisions of
paragraph (e) of this Section, the date that the arbitrators render
their determination of fair market rental, the Port Authority will
prepare and tender to the Lessee for its execution an agreement
supplementing this Agreement and providing for the letting of the
Additional Space I. The agreement tendered by the Port Authority
61<PAGE>
shall contain an exhibit depicting the Additional Space I, shall set
forth the annual basic rental payable for the Additional Space I and
shall include the effective date of the letting of the Additional
Space I. The Lessee shall execute, acknowledge and deliver the
aforesaid agreement to the Port Authority within thirty (30) days
after delivery of same to it. The Supplemental Agreement prepared by
the Port Authority pursuant to the provisions of this paragraph (a)
shall provide for the letting of the Additional Space I upon all the
terms and conditions set forth in this Agreement except as modified by
the provisions of this paragraph (a) and paragraph (e) below. If the
Lessee shall fail to execute, acknowledge and deliver the agreement
tendered to it by the Port Authority within the aforesaid time period,
then the Lessee shall have no further right to or interest in the
Additional Space I the letting of which is covered by the said
agreement, and the Port Authority shall have the right to lease the
same to a third party on terms and conditions more or less favorable
than the terms and conditions which would have governed the letting to
the Lessee, all as the Port Authority in its discretion shall
determine. The Lessee shall have a single option only to include
additional space in the premises pursuant to this paragraph (a).
(b) If the Lessee not later than June 1, 2005 shall
notify the Port Authority in writing that it desires to lease all of
the space shown in diagonal hatching on the sketch annexed hereto,
made a part hereof and marked "Exhibit A-3" (hereinafter referred to
as the "Additional Space II"), and provided that the Lessee is not
then in default under any of the terms, provisions, covenants and
conditions of this Agreement beyond the applicable cure period
therefor and this Agreement is then in full force and effect, the Port
Authority within twenty (20) days following the date of the Lessee's
notice will notify the Lessee in writing of the exact number of
rentable square feet contained therein and the annual basic rental
rate therefore. The letting of the Additional Space II shall commence
on March 1, 2006, subject to postponement due to causes or conditions
beyond the control of the Port Authority, and such letting shall be on
an "as is" basis with no finishing allowance provided that the Port
Authority prior to the commencement date of the letting of same will
provide in such Additional Space II the Landlord Work, as such term is
defined in the Section of this Agreement entitled "Port Authority
Work; Additional Lessee Work". In addition rental for the Additional
Space II will commence on the ninetieth (90th) day from the
commencement date of the letting of such space, as such commencement
date may be postponed due to causes or conditions beyond the control
of the Port Authority. Thereupon, the Lessee shall have the right, by
notice to the Port Authority subscribed by an authorized officer of
the Lessee and delivered to the Port Authority within ten (10) days
after its receipt of the Port Authority's notice:
(i) to accept the Additional Space II
unconditionally for the balance of the term of the
letting at the basic rental rate set forth in the
Port Authority's notice; or
(ii) to accept the Additional Space II
unconditionally for the balance of the term of the
letting hereunder but advising the Port Authority
that the Lessee has concluded that the annual
basic rental rate specified by the Port Authority
62<PAGE>
in its notice is not the fair market rental for
the Additional Space II.
Within thirty (30) days after the later of the date the Lessee
notifies the Port Authority that it unconditionally accepts the
Additional Space II in accordance with subdivision (i), above, or, in
the event that the annual basic rental for the Additional Space II is
determined by arbitration in accordance with the provisions of
paragraph (e) of this Section, the date that the arbitrators render
their determination of fair market rental, the Port Authority will
prepare and tender to the Lessee for its execution an agreement
supplementing this Agreement and providing for the letting of the
Additional Space II. The agreement tendered by the Port Authority
shall contain Exhibit A-3 depicting the Additional Space II, shall set
forth the annual basic rental payable for the Additional Space II and
shall include the effective date of the letting of the Additional
Space II. Any Supplemental Agreement prepared by the Port Authority
pursuant to the provisions of this paragraph (b) shall provide for the
letting of the Additional Space II upon all the terms and conditions
set forth in this Agreement except as modified by the provisions of
this paragraph (a) and paragraph (e) below. The Lessee shall execute,
acknowledge and deliver the aforesaid agreement to the Port Authority
within thirty (30) days after delivery of same to it. If the Lessee
shall fail to execute, acknowledge and deliver the agreement tendered
to it by the Port Authority within the aforesaid time period, then the
Lessee shall have no further right to or interest in the Additional
Space II the letting of which is covered by the said agreement, and
the Port Authority shall have the right to lease the same to a third
party on terms and conditions more or less favorable than the terms
and conditions which would have governed the letting to the Lessee,
all as the Port Authority in its discretion shall determine, but such
failure to execute and acknowledge such agreement within the time
period provided covering the Additional Space II shall not diminish or
affect the Lessee's rights under paragraph (a) above to include
Additional Space I in the premises. The Lessee shall have a single
option only to include additional space in the premises pursuant to
this paragraph (b).
(c) If any time during the term of the letting
hereunder the Lessee shall notify the Port Authority in writing that
it desires to lease a single block of space contiguous to its premises
on the 24th floor of the South Tower Building or located on the 22nd
or 25th floors of the South Tower Building and provided that the Port
Authority acting in good faith determines that such space will become
available for leasing within two hundred seventy (270) days from the
date of the Lessee's notice (hereinafter referred to as Additional
Space III) and provided, further that the Lessee is not then in
default under any of the terms, provisions, covenants and conditions
of this Agreement beyond the applicable cure period therefor and this
Agreement is then in full force and effect, the Port Authority within
twenty (20) business days after receipt of such notice from the Lessee
will notify the Lessee in writing of the availability for letting of
the Additional Space III setting forth the date the Port Authority
expects the Additional Space III to be ready for occupancy, the
location and configuration thereof (such configuration to be
commercially reasonable), the exact number of rentable square feet
contained therein and the annual basic rental rate therefore. The
letting of the Additional Space III shall be on an "as is" basis with
63<PAGE>
no finishing allowance to be provided by the Port Authority provided
that the Port Authority prior to the commencement date of the letting
of such space will provide in such Additional Space III the Landlord
Work, as such term is defined in the Section of this Agreement
entitled "Port Authority Work; Additional Lessee Work". Payment of
rental for the Additional Space III will commence on the ninetieth
(90th) day from the commencement date of the letting of same, as such
commencement date may be postponed due to causes or conditions beyond
the control of the Port Authority. Thereupon, the Lessee shall have
the right, by notice to the Port Authority subscribed by an authorized
officer of the Lessee and delivered to the Port Authority within ten
(10) days after its receipt of the Port Authority's notice:
(i) to accept the Additional Space III
unconditionally for the balance of the term of the
letting hereunder at the basic rental rate set
forth in the Port Authority's notice; or
(ii) to accept the Additional Space III
unconditionally for the balance of the term of the
letting hereunder but advising the Port Authority
that the Lessee has concluded that the annual
basic rental rate specified by the Port Authority
is not the fair market rental for the Additional
Space III.
Within thirty (30) days after the later of the date the Lessee
notifies the Port Authority that it unconditionally accepts the
Additional Space III in accordance with subdivision (i), above, or, in
the event that the annual basic rental for the Additional Space III is
determined by arbitration in accordance with the provisions of
subdivision (ii), above, and of paragraph (e) of this Section, the
date that the arbitrators render their determination of fair market
rental, the Port Authority will prepare and tender to the Lessee for
its execution an agreement supplementing this Agreement and providing
for the letting of the Additional Space III. The agreement tendered
by the Port Authority shall contain an exhibit depicting the
Additional Space III, shall set forth the annual basic rental payable
for the Additional Space III and shall include the effective date of
the letting of the Additional Space III. Any Supplemental Agreement
prepared by the Port Authority pursuant to the provisions of this
paragraph (c) shall provide for the letting of the Additional Space
III upon all the terms and conditions set forth in this Agreement
except as modified by the provisions of this paragraph (c) and
paragraph (e) below. The Lessee shall execute, acknowledge and
deliver the aforesaid agreement to the Port Authority within thirty
(30) days after delivery of same to it. If the Lessee shall fail to
execute, acknowledge and deliver the agreement tendered to it by the
Port Authority within the aforesaid time period, then the Lessee shall
have no further right to or interest in the Additional Space III the
letting of which is covered by the said agreement, and the Port
Authority shall have the right to lease the same to a third party on
terms and conditions more or less favorable than the terms and
conditions which would have governed the letting to the Lessee, all as
the Port Authority in its discretion shall determine. The Lessee
expressly understands and agrees that the Port Authority in its
discretion exercised in good faith shall determine when any Additional
Space III is available for leasing, and nothing contained herein shall
64<PAGE>
obligate or be construed to obligate the Port Authority to offer any
space to the Lessee other than in its existing configuration nor to
terminate the letting or otherwise end the occupancy of a tenant
currently in possession of any space, including the Additional Space
III, prior to the scheduled expiration date of such letting, nor shall
anything herein be deemed to prevent the Port Authority, without
liability of any kind to the Lessee, from renewing or extending any
lease covering any space on any of the designated floors or from
otherwise continuing in occupancy a tenant of any space located on any
of the designated floors, nor shall anything herein be deemed to limit
the Port Authority's right to freely discuss and negotiate with third
parties for the leasing of any space, including the Additional Space
III. The Lessee's right to notify the Port Authority that it desires
to lease Additional Space III shall continue throughout the entire
term of the letting hereinabove described irrespective of whether the
Lessee shall have added Additional Space III to the premises or of the
number of times the Lessee shall have notified the Port Authority
during such period provided however that the Lessee shall not have the
right to notify the Port Authority of its desire to let any Additional
Space III within three hundred sixty-five (365) days subsequent to the
last prior such notice sent by the Lessee with respect to any
Additional Space III unless (i) the Port Authority in response to such
last prior notice determined that the additional space requested by
the Lessee was not available for leasing or (ii) the Lessee and the
Port Authority pursuant to the last such prior notice entered into an
agreement providing for the inclusion of Additional Space III in the
premises and in either said case the said three hundred sixty-five
(365)-day period shall be reduced to ninety (90) days. In the event
that prior to exercising its right to include Additional Space II in
the premises pursuant to paragraph (b), above, the Lessee includes
Additional Space III in the premises pursuant to the provisions of
this paragraph (c), and such Additional Space III includes all or a
portion of Additional Space II, then for purposes of paragraph (b) of
this Section 43 Additional Space II as defined therein shall be
reduced by all or such portion thereof which may have become a part of
the premises as Additional Space III pursuant to the provision of this
paragraph (c).
(d) The Lessee at any time during the period
commencing with the Prior Entry Date and continuing for 547 days
thereafter (hereinafter in this paragraph (d) called the "Option
Period") shall have the right to notify the Port Authority in writing
that it desires to lease all or any portion (such portion to be as
designated by the Lessee but such portion to be contiguous to the
Lessee's then existing premises, to be no less than 3,500 rentable
square feet and the balance of the Additional Space IV not taken by
the Lessee to be a marketable configuration) of the space shown in
diagonal hatching on the sketch attached hereto as Exhibit A-2 (all or
any portion of such space being hereinafter called Additional Space
IV), provided that the Lessee at the time of such notice is not in
default under any term, provision or covenant of this Agreement beyond
the applicable grace period therefor and provided further that this
Agreement and the letting hereunder are then in full force and effect.
In the event that the Lessee during the Option Period has not notified
the Port Authority pursuant to the immediately preceding sentence that
it desires to lease Additional Space IV and in the further event that
during the Option Period the Port Authority receives a non-binding
bona fide proposal from a third party to lease all or a portion of the
65<PAGE>
Additional Space IV (such portion to be no less than 3,500 rentable
square feet), then prior to entering into an agreement with a third
party covering the letting of all or a portion of the Additional Space
IV, the Port Authority shall offer the Additional Space IV to the
Lessee by notice in writing (it being understood that from and after
the date of such notice the Lessee shall have no further right to add
Additional Space IV to the premises pursuant to the first sentence of
this paragraph (d)) and the Lessee shall have the right to be
exercised within thirty (30) days after the date of such notice, to
advise the Port Authority whether it wishes to include the Additional
Space IV in the premises. If the Lessee shall timely indicate its
desire to add the Additional Space IV to the premises under this
Agreement either pursuant to the first or second sentence of this
paragraph (d), as the case may be, the Port Authority shall prepare
and tender to the Lessee for its execution an agreement further
supplementing this Agreement and providing for the letting of the
Additional Space IV hereunder. The agreement shall provide for the
letting of Additional Space IV on the terms and conditions set forth
in this Agreement, except as provided otherwise in this paragraph (d).
The Supplemental Agreement tendered by the Port Authority shall
contain an exhibit depicting the Additional Space IV and a statement
of the number of rentable square feet comprising the Additional Space
IV, such calculation of the number of rentable square feet to be
determined by the Port Authority in the same manner as the Port
Authority determined the rentable square footage for the initial
premises. Such Supplemental Agreement for the letting of Additional
Space IV shall provide for a commencement date occurring two hundred
ten (210) days from the date the premises are made available to the
Lessee for construction purposes (provided that if the period,
hereinafter called the "Additional Space IV period", from the date the
Additional Space IV is made available for construction by the Lessee
through the expiration date of the term of the letting, as determined
in accordance with the provisions of the Section of this Agreement
entitled "Term", contains less than one hundred ninety-six (196) whole
calendar months, then the aforesaid two hundred ten (210) day amount
shall be replaced by the product obtained by multiplying 210 by a
fraction the numerator of which shall be the number of whole calendar
months in the Additional Space IV period and the denominator of which
shall be 196) or such earlier date as the Lessee commences business
operations therein. The rent commencement date for the Additional
Space IV will be two hundred seventy (270) days from the commencement
date but if the period between the commencement date of the letting of
the Additional Space IV and the expiration date of the letting of the
entire premises as set forth in the Section of this Agreement entitled
"Term" is less than 189 whole calendar months, then the rent
commencement date for Additional Space IV shall be the following
number of days from the commencement date of the letting of same, such
number of days to be obtained by multiplying two hundred seventy (270)
by a fraction the numerator of which shall be the number of whole
calendar months in the period from the commencement date of the
letting of the Additional Space IV to the aforesaid expiration date of
the letting and the denominator of which shall be 189. The Port
Authority will provide the Lessee a finishing allowance equivalent to
the product obtained by multiplying $62.00 by the number of rentable
square feet in the Additional Space IV provided that if the term of
the letting of Additional Space IV is less than 189 whole calendar
months, then for purposes of determining the finishing allowance the
said $62.00 shall be replaced by the product obtained by multiplying
66<PAGE>
$62.00 by a fraction the numerator of which shall be the number of
whole calendar months in the period from the commencement date of the
letting of Additional Space IV to the expiration date of the letting
of same and the denominator of which shall be 189. The Lessee will
accept the Additional Space IV in its "as is" condition, but the Port
Authority will provide prior to the date the Additional Space IV is
made available to the Lessee the Landlord Work, as such term is
defined in the Section of this Agreement entitled "Port Authority
Work; Additional Lessee Work". The basic rental for the Additional
Space shall be at the following annual per rentable square foot rates
for the following periods: for the period commencing with the payment
of basic rental for Additional Space IV and continuing up to and
including the day preceding the fifth anniversary of the Rent
Commencement Date (as such term is defined in paragraph (c) of the
Section of this Agreement entitled "Basic Rental") the Lessee shall
pay basic rental for the Additional Space IV at the annual rate of
$31.00 per rentable square foot; for the period commencing with the
fifth anniversary of the Rent Commencement Date up to and including
the day preceding the tenth (10th) anniversary of the Rent
Commencement Date, the Lessee shall pay basic rental for the
Additional Space IV at the annual rate of $33.75 per rentable square
foot; and for the period commencing with the tenth (10th) anniversary
of the Rent Commencement Date through the balance of the term of the
letting, the Lessee shall pay basic rental for the Additional Space IV
at the annual rate of $36.50 per rentable square foot. In addition to
the basic rental, the Lessee commencing with the rent commencement
date shall pay additional basic rental for the Additional Space IV in
accordance with the provisions of Schedule A attached hereto, the base
dates and amounts set forth in said Schedule A to remain unchanged.
In the event the Lessee does not so advise the Port Authority of its
desire to add Additional Space IV within the time period hereinabove
specified or shall fail to execute, acknowledge and deliver the
agreement to the Port Authority within the time period hereinabove set
forth, then the Lessee shall have no further right or interest in the
Additional Space IV pursuant to this paragraph (d), and the Port
Authority shall have the right to lease the same to any third party on
terms and conditions more or less favorable than the terms and
conditions which would have governed the letting to the Lessee, all as
the Port Authority in its discretion may determine. If Additional
Space IV shall become a part of the premises under this Agreement
pursuant to and in accordance with the provisions of this paragraph
(d), then at such time the Lessee shall have no right to add
Additional Space I to the premises pursuant to paragraph (a) of this
Section 43 and all rights and obligations of the Port Authority and
the Lessee with respect to Additional Space I shall be null and void
and of no further force or effect.
(e) In the event the Lessee concludes that the annual
basic rental for the Additional Space I specified by the Port
Authority pursuant to paragraph (a), above, for the Additional Space
II specified by the Port Authority pursuant to paragraph (b) above, or
the Additional Space III pursuant to paragraph (c) above, is greater
than the fair market rental for any such space, the Lessee shall so
advise the Port Authority and shall request arbitration with respect
thereto. Such arbitration shall be by three arbitrators, one to be
appointed by the Port Authority, one to be appointed by the Lessee and
the third to be appointed by the arbitrators so appointed. The
arbitration shall be pursuant to the then rules of the American
67<PAGE>
Arbitration Association or any successor organization and the question
to be answered by the arbitrators shall be:
"Is the annual basic rental
established by the Port Authority
greater than the fair market rental for
the Additional Space I or the Additional
Space II or the Additional Space III (as
the case may be) for the balance of the
term of the letting under the Lease?"
If the arbitrators' decision is in the negative (or if the Lessee does
not contest the rental rate after specification thereof by the Port
Authority) then from and after the first day for payment of rental for
the Additional Space I or the Additional Space II, or the Additional
Space III, as the case may be, the Lessee shall pay to the Port
Authority such annual basic rental in advance in equal monthly
installments throughout the balance of the term of the letting under
this Agreement. If the decision of the arbitrators is that the annual
basic rental specified by the Port Authority is greater than the fair
market rental for the Additional Space I, the Additional Space II or
the Additional Space III, as the case may be, the arbitrators shall
thereupon determine the fair market rental for the applicable space,
and in such event from and after the first day for payment of basic
rental for the Additional Space I, the Additional Space II or the
Additional Space III, as the case may be, the Lessee shall pay to the
Port Authority in advance in equal monthly installments an annual
basic rental equal to the fair market rental as determined by the
arbitrators. In the event the annual basic rental for the Additional
Space I, the Additional Space II or the Additional Space III, as the
case may be, has not been determined as herein provided prior to the
commencement date for payment thereof, the Lessee shall pay monthly
installments of annual basic rental for the Additional Space I, the
Additional Space II or the Additional Space III, as the case may be,
at the annual per rentable square foot rate then in effect for the
initial premises, and upon determination of the annual basic rental
pursuant to the provisions of this Section, the Lessee shall, within
thirty (30) days thereafter, pay any amount due to the Port Authority
arising out of the excess (if any) of the monthly installments of
annual basic rental as so determined over the monthly installments
thereof actually paid by the Lessee for such period, provided however
that if the sum of the monthly installments of annual basic rental
actually paid by the Lessee for such period are in excess of the sum
of the monthly installments determined by arbitration to be payable by
the Lessee for such period, the Port Authority shall within thirty
(30) days thereafter, pay such excess to the Lessee and if such excess
is not so paid within thirty (30) days, then the Lessee shall be
entitled to a credit for such excess to be applied against its rental
obligations next becoming due for any such space. The Port Authority
and the Lessee shall each bear the cost of the arbitrator appointed by
them. All other costs of such arbitration, including but not limited
to the cost of the third arbitrator, shall be borne equally by the
Port Authority and the Lessee.
(f) In addition to the payment of basic rental for any
Additional Space I, Additional Space II or Additional Space III as
provided herein, the Lessee shall, from and after the commencement
date for payment of rental therefor and continuing for the balance of
68<PAGE>
the term of the letting under this Agreement, pay additional basic
rental for the Additional Space I, Additional Space II and the
Additional Space III, as the case may be, in accordance with the
provisions of Schedule A attached hereto, the base amounts and dates
set forth in said Schedule A to remain as provided therein. From and
after the commencement of the term of the letting of the Additional
Space I, Additional Space II and the Additional Space III, paragraph
(n) of Section 1 of Schedule A shall be amended to set forth the
number of rentable square feet constituting the Additional Space I,
Additional Space II or the Additional Space III, as the case may be,
in addition to the number of rentable square feet constituting the
balance of the premises, and the "Lessee's Proportionate Share" as set
forth in paragraph (j) of Section 1 of said Schedule A shall be
adjusted as provided in said paragraph.
(g) For purposes of this Section 43, the term "fair
market rental" shall mean the rent that a willing tenant would pay and
a willing landlord would accept for comparable space in the World
Trade Center (or if there is no comparable space available for
comparison at such time then such other comparable space in first
class office buildings in the vicinity of the World Trade Center)
taking into account all relevant factors in connection therewith,
including, but not limited to, landlord work, if any, rent
concessions, if any, and finishing allowances, if any, then being
given by the Port Authority for space of comparable size, location and
term in the building in which the premises are located (and if there
is no comparable space in the building available at such time, then
the rent concessions, if any, landlord work, if any, and finishing
allowances, if any, then being given by landlords for comparable space
in first class buildings in the vicinity of the World Trade Center)
and the fact that the Port Authority will pay a brokerage commission
in connection with the letting of such space, perform the Landlord
Work in the premises, will not offer a finishing allowance but will
give a ninety (90) day rent concession. Such determination of fair
market rental shall also take into account the fact that for any
additional space hereunder the base dates and base years set forth in
Schedule A will remain unchanged as provided in paragraph (f) above.
(h) Failure of the Lessee to exercise any of its
options pursuant to any one of paragraphs (a), (b), (c) or (d) of this
Section shall not affect the Lessee's right to add additional space to
the premises pursuant to the other said paragraphs.
Section 44. Lessee's Right to Extend the Letting
(a) The Lessee shall have the right to extend this
Agreement and the term of the letting of the premises hereunder solely
in its entirety (including any Additional Space I, Additional Space
II, Additional Space III and Additional Space IV) for a five (5) year
period effective upon the expiration date of the term of the letting
hereunder, provided that the Lessee shall give unconditional written
notice to the Port Authority of its election to do so not later than
three hundred sixty-five (365) days prior to the expiration date of
the term of the letting, and provided further that on the date of the
giving of the said notice and on the effective date thereof the Lessee
is not in default in the performance or observance of any term,
69<PAGE>
provision or condition of this Agreement and that the Lessee has not
been served with a notice of termination of this Agreement by the Port
Authority and this Agreement is then in full force and effect.
(b) In the event the Lessee shall give to the Port
Authority the notice referred to in paragraph (a) above, the Port
Authority shall, not later than thirty (30) days subsequent to its
receipt of such notice from the Lessee, advise the Lessee in writing
of the Port Authority's determination of the annual basic rental to be
payable by the Lessee during the five (5)-year extension period which
shall be equal to ninety-five percent (95%) of the fair market rental,
as determined by the Port Authority, subject to the provisions of this
paragraph (b). In the event the Lessee concludes that the annual
basic rental so stated in the Port Authority's notice is greater than
ninety-five percent (95%) of the fair market rental for the premises
for the extension period, the Lessee shall, within fifteen (15) days
after the date of the Port Authority's said notice, advise the Port
Authority in writing that it has so concluded and request arbitration
with respect thereto. Such arbitration shall be by three arbitrators,
one to be appointed by the Port Authority, one to be appointed by the
Lessee and the third to be appointed by the arbitrators so appointed.
The arbitration shall be pursuant to the then-rules of the American
Arbitration Association or by any successor organization, and the
question to be answered by the arbitrators shall be:
"Is the annual basic rental established
by the Port Authority greater than ninety-five
percent (95%) of the fair market rental for the
premises for the extension period?"
If the arbitrators' decision is in the negative
(or if the Lessee does not contest the rental rate after specification
thereof by the Port Authority) then, from and after the first day of
the extended term of the letting hereunder, the Lessee shall pay to
the Port Authority such annual basic rental for the premises in
advance in equal monthly installments throughout the extension period.
If the decision of the arbitrators is that the annual basic rental
specified by the Port Authority is greater than ninety-five percent
(95%) of the fair market rental for the extension period, the
arbitrators shall thereupon determine the fair market rental for the
extension period, and in such event, from and after the first day of
the extended term of the letting the Lessee shall pay to the Port
Authority in advance in equal monthly installments an annual basic
rental equal to the product of the fair market rental as determined by
the arbitrators multiplied by ninety-five percent (95%). In the event
the annual basic rental has not been determined as herein provided
prior to the commencement of the extended term of the letting
hereunder, the Lessee shall continue to pay the monthly installments
of basic rental at the rate theretofore in effect, and upon
determination of the annual basic rental pursuant to the provisions of
this Section, the Lessee shall, within thirty (30) days thereafter,
pay any amounts due to the Port Authority arising out of the excess
(if any) of the monthly installments of the annual basic rental as so
determined over the monthly installments thereof actually paid by the
Lessee for such period, provided however, that if the sum of the
monthly installments of the annual basic rental actually paid by the
Lessee for such period are in excess of the sum of the monthly
installments as determined by arbitration to be payable by the Lessee
70<PAGE>
for such period, the Port Authority, within thirty (30) days
thereafter, shall pay the amount of such excess to the Lessee and if
the Port Authority fails to make such payment within such period the
Lessee shall be entitled to a credit for such excess to be applied
against its rental obligations next becoming due under this Agreement.
In addition to the basic rental payable as provided in this paragraph
(b), the Lessee shall, from and after the commencement of the extended
term of the letting hereunder, continue to pay additional basic rental
in accordance with the provisions of Schedule A attached hereto, the
base amounts and dates set forth in said Schedule A to remain
unchanged. The cost of the aforesaid arbitration shall be borne
equally by the Port Authority and the Lessee.
(c) For purposes of this Section 44, the term "fair
market rental" shall mean the rent that a willing tenant would pay and
a willing landlord would accept for comparable space in the World
Trade Center (or if there is no comparable space available for
comparison at such time, then such other comparable space in first
class office buildings in the vicinity of the World Trade Center)
taking into account all relevant factors in connection therewith,
including, but not limited to, landlord work, if any, rent
concessions, if any, and finishing allowances, if any, then being
given by the Port Authority for space of comparable size, location and
term in the building in which the premises are located (and if there
is no comparable space in the building available at such time, then
the rent concessions, if any, landlord work, if any, and finishing
allowances, if any, then being given by landlords for comparable space
in first class buildings in the vicinity of the World Trade Center)
and the fact that the Port Authority will pay a brokerage commission
in connection with such renewal but will not perform any work in the
premises nor give a finishing allowance or rent concession during the
renewal period, but such determination shall not take into
consideration the fact that the Port Authority will not incur a period
during which the premises will be vacant, such factor having been
taken into consideration in specifying ninety-five percent (95%) of
the fair market rental as the rental; the determination of fair market
rental shall also take into account the fact that the base date and
base years set forth in Schedule A will remain unchanged as provided
in paragraph (b) above.
Section 45. No Gifts, Gratuities, Offers of Employment, etc.
(a) During the term of the letting under this
Agreement, the Lessee shall not offer, give or agree to give anything
of value either to a Port Authority employee, agent, job shopper,
consultant, construction manager or other person or firm representing
the Port Authority, or to a member of the immediate family (i.e., a
spouse, child, parent, brother or sister) of any of the foregoing, in
connection with the performance of duties involving transactions with
the Lessee on behalf of the Port Authority by such employee, agent,
job shopper, consultant, construction manager or other person or firm
representing the Port Authority, whether or not such duties are
related to this Agreement or any other Port Authority lease, contract
71<PAGE>
or matter. Any such conduct shall be deemed a material breach of this
Agreement.
(b) As used herein, "anything of value" shall include
but not be limited to any (1) favors, such as meals, entertainment,
transportation (other than that contemplated by this Agreement or any
other Port Authority lease or contract), etc., which might tend to
obligate the Port Authority employee to the Lessee, and (2) gift,
gratuity, money, goods, equipment, services, lodging, discounts not
available to the general public, offers or promises of employment,
loans or the cancellation thereof, preferential treatment or business
opportunity. Such term shall not include compensation contemplated by
this Agreement or any other Port Authority lease or contract.
(c) In addition, during the term of the letting under
this Agreement, the Lessee shall not make an offer of employment or
use confidential information in a manner proscribed by the Code of
Ethics and Financial Disclosure dated as of July 18, 1994 (a copy of
which is available upon request to the Office of the Secretary of the
Port Authority).
(d) The Lessee shall include the provisions of this
Section in each sublease, contract or subcontract entered into under
and pursuant to the provisions of this Agreement.
(e) The Lessee certifies that it has not made any
offers or agreements, or given, or agreed to give, anything of value
(as defined in paragraph (b) of this Section) or taken any other
action with respect to any Port Authority employee or former employee
or immediate family member of either which would constitute a breach
of ethical standards under the Code of Ethics and Financial Disclosure
dated as of July 18, 1994, referred to in paragraph (c) of this
Section, nor does the Lessee have any knowledge of any act on the part
of a Port Authority employee or former Port Authority employee
relating either directly or indirectly to the Lessee which constitutes
a breach of the ethical standards set forth in said Code.
Section 46. Security Deposit or Letter of Credit
(a) Upon the execution of this Agreement by the Lessee
and delivery thereof to the Port Authority, the Lessee shall deposit
with the Port Authority (and shall keep deposited throughout the
letting under this Agreement) the sum of One Hundred Fifty Thousand
Dollars and No Cents ($150,000.00) either in cash, or bonds of the
United States of America, or of the State of New Jersey, or of the
State of New York, or of The Port Authority of New York and New
Jersey, having a market value of that amount, as security for the
full, faithful and prompt performance of and compliance with, on the
part of the Lessee, all of the terms, provisions, covenants and
conditions of this Agreement on its part to be fulfilled, kept,
performed or observed. Bonds qualifying for deposit hereunder shall
be in bearer form but if bonds of that issue were offered only in
registered form, then the Lessee may deposit such bond or bonds in
registered form, provided, however, that the Port Authority shall be
under no obligation to accept such deposit of a bond in registered
form unless such bond has been re-registered in the name of the Port
Authority (the expense of such re-registration to be borne by the
Lessee) in a manner satisfactory to the Port Authority. The Lessee
72<PAGE>
may request the Port Authority to accept a registered bond in the
Lessee's name and if acceptable to the Port Authority the Lessee shall
deposit such bond together with a bond power (and such other instru-
ments or other documents as the Port Authority may require) in form
and substance satisfactory to the Port Authority. In the event the
deposit is returned to the Lessee any expenses incurred by the Port
Authority in re-registering a bond to the name of the Lessee shall be
borne by the Lessee. In addition to any and all other remedies
available to it, the Port Authority shall have the right, at its
option, at any time and from time to time, with or without notice, to
use the deposit or any part thereof in whole or partial satisfaction
of any of its claims or demands against the Lessee. There shall be no
obligation on the Port Authority to exercise such right and neither
the existence of such right nor the holding of the deposit itself
shall cure any default or breach of this Agreement on the part of the
Lessee. With respect to any bonds deposited by the Lessee, the Port
Authority shall have the right, in order to satisfy any of its claims
or demands against the Lessee, to sell the same in whole or in part,
at any time and from time to time, with or without prior notice at
public or private sale, all as determined by the Port Authority,
together with the right to purchase the same at such sale free of all
claims, equities or rights of redemption of the Lessee. The Lessee
hereby waives all right to participate therein and all right to prior
notice or demand of the amount or amounts of the claims or demands of
the Port Authority against the Lessee. The proceeds of every such
sale shall be applied by the Port Authority first to the costs and
expenses of the sale (including but not limited to advertising or
commission expenses) and then to the amounts due the Port Authority
from the Lessee. Any balance remaining shall be retained in cash
toward bringing the deposit to the sum specified above. In the event
that the Port Authority shall at any time or times so use the deposit,
or any part thereof, or if bonds shall have been deposited and the
market value thereof shall have declined below the above-mentioned
amount, the Lessee shall, on demand of the Port Authority and within
two (2) days thereafter, deposit with the Port Authority additional
cash or bonds so as to maintain the deposit at all times to the full
amount stated above in this paragraph (a), and such additional
deposits shall be subject to all the conditions of this Section.
After the expiration or earlier termination of the letting under this
Agreement as the said letting may have been extended, and upon
condition that the Lessee shall then be in no wise in default under
any part of this Agreement, as this Agreement may have been amended or
extended (or both), and upon written request therefor by the Lessee,
the Port Authority will return the deposit to the Lessee less the
amount of any and all unpaid claims and demands (including estimated
damages) of the Port Authority by reason of any default or breach by
the Lessee of this Agreement or any part thereof. The Lessee agrees
that it will not assign or encumber the deposit. The Lessee may
collect or receive any interest or income earned on bonds and interest
paid on cash deposited in interest-bearing bank accounts, less any
part thereof or amount which the Port Authority has paid or applied
against the Lessee's obligations under this Agreement or which the
Port Authority is or may hereafter be entitled or authorized by law to
retain or to charge, whether as or in lieu of an administrative
expense, or custodial charge, or otherwise; provided, however, that
the Port Authority shall not be obligated by this provision to place
or to keep cash deposited hereunder in interest-bearing bank accounts.
73<PAGE>
(b) In lieu of the security deposit required pursuant
to paragraph (a) of this Section the Lessee may deliver to the Port
Authority, as security for all obligations of the Lessee under this
Agreement, a clean irrevocable letter of credit issued by a banking
institution satisfactory to the Port Authority and having its main
office within the Port of New York District, in favor of the Port
Authority in the amount of One Hundred Fifty Thousand Dollars and No
Cents ($150,000.00). The form and terms of such letter of credit, as
well as the institution issuing it, shall be subject to the prior and
continuing approval of the Port Authority. Such letter of credit
shall provide that it shall continue throughout the term of the
letting under this Agreement and for a period of not less than six (6)
months thereafter; such continuance may be by provision for automatic
renewal or by substitution of a subsequent satisfactory letter. Upon
notice of cancellation of a letter of credit the Lessee agrees that
unless, by a date twenty (20) days prior to the effective date of
cancellation, the letter of credit is replaced by security in the
amount required in accordance with paragraph (a) of this Section or
another letter of credit satisfactory to the Port Authority, the Port
Authority may draw down the full amount thereof and thereafter the
Port Authority will hold the same as security under paragraph (a) of
this Section. Failure to provide such letter of credit at any time
during the term of the letting which is valid and available to the
Port Authority, including any failure of any banking institution
issuing any such letter of credit previously accepted by the Port
Authority to make one or more payments as may be provided in such
letter of credit shall be deemed to be a breach of this Agreement on
the part of the Lessee. Upon acceptance of such letter of credit by
the Port Authority, and upon request by the Lessee made thereafter,
the Port Authority will return any security deposit theretofore made
under and in accordance with the provisions of paragraph (a) of this
Section. The Lessee shall have the same rights to receive such
deposit during the existence of a valid letter of credit as it would
have to receive such deposit upon expiration of the letting and
fulfillment of the obligations of the Lessee under this Agreement. If
the Port Authority shall make any drawing under a letter of credit
held by the Port Authority hereunder, the Lessee on demand of the Port
Authority and within two (2) days thereafter, shall bring the letter
of credit back up to its full amount.
(c) No action by the Port Authority pursuant to the
terms of any letter of credit, or receipt by the Port Authority of
funds from any bank issuing any such letter of credit, shall be or be
deemed to be a waiver of any default by the Lessee under the terms of
this Agreement and all remedies under this Agreement of the Port
Authority consequent upon such default shall not be affected by the
existence of or a recourse to any such letter of credit.
Section 47. Additional Services
(a) From and after the commencement date of the term
of the letting, the Port Authority will furnish to the Lessee in the
premises, for operation of the equipment comprising special air
cooling facilities installed by the Lessee, condenser water sufficient
for a rated capacity of twenty-five tons, and the Lessee agrees to pay
to the Port Authority for such condenser water an annual charge at the
rate of One Thousand Ninety-one Dollars and Ninety-seven Cents
($1,091.97) per ton of the rated cooling capacity of the Lessee's
74<PAGE>
equipment as determined by the Port Authority. If the Lessee requires
additional quantities of condenser water for use in its air cooling
equipment, and provided the Port Authority has additional quantities
available to furnish to the Lessee, the Port Authority will furnish
the same and the Lessee shall pay to the Port Authority for such
additional condenser water an annual charge at the rate of One
Thousand Ninety-one Dollars and Ninety-seven Cents ($1,091.97) per ton
of the rated cooling capacity of the Lessee's equipment requiring such
additional condenser water as determined by the Port Authority. In
the event of any changes made in the Lessee's air cooling equipment or
the installation thereof, the Lessee shall supply to the Port
Authority such certifications of rated capacity as the Port Authority
shall reasonably request, including certifications of third parties.
The annual charge for condenser water, together with the annual charge
for additional condenser water, shall be payable by the Lessee in
advance in equal monthly installments and shall be payable at the same
time, in the same manner and shall be recoverable with like remedies
as if it were a part of the basic rental reserved under this
Agreement.
(b) The charges for condenser water stated in
paragraph (a), above, shall be subject to increase from time to time
as follows: "Wage rate" as used in this paragraph shall mean the
hourly straight time wage rate for Engineers as that wage rate is
established from time to time by collective bargaining agreement
between the Realty Advisory Board on Labor Relations, Incorporated,
acting on behalf of various building owners and Local 94 of the
International Union of Operating Engineers, AFL-CIO, and "basic wage
rate" shall mean the wage rate in effect on January 1, 1994. From and
after each wage rate established from and after January 1, 1994, the
Lessee shall pay annual charges in addition to the charges for
condenser water and additional condenser water stated in paragraph
(a), above, such additional charges for condenser water and additional
condenser water to be at an annual rate per ton equal to Two Dollars
and Fifty Cents ($2.50) for each one percent (1%), or major fraction
thereof, that the wage rate so established exceeds the basic wage
rate. If either the Realty Advisory Board on Labor Relations,
Incorporated, or Local 94 of the International Union of Operating
Engineers, AFL-CIO, shall cease to exist or a collective bargaining
agreement shall cease to be negotiated between the Realty Advisory
Board on Labor Relations, Incorporated and Local 94 of the
International Union of Operating Engineers, AFL-CIO, then the wage
rate to be used for computing increases in the said charges shall be
the wage rate for Engineers established under such collective
bargaining agreements as the Port Authority shall select. If the job
classification "Engineers" shall be renamed or abolished, then the
Port Authority will select the job classification performing
substantially the same labor functions as Engineers and the wage rate
of the job classification so selected shall be used in computing
increases in the charges provided for herein.
(c) The furnishing of condenser water and additional
condenser water by the Port Authority as provided for herein shall be
subject to all of the terms, provisions and conditions of the Section
of this Agreement entitled "Services and Utilities". The Port
Authority's sole obligation under this Section 47 is to provide
condenser water at a temperature not exceeding eighty-five (85)
degrees Fahrenheit at a rate flow of approximately three (3) gallons
75<PAGE>
per minute for each ton of the actual rated capacity of the Lessee's
air-cooling equipment. Notwithstanding that the Port Authority is
obligated to furnish condenser water as provided in paragraph (a)
hereof, the Port Authority shall have no responsibility whatsoever for
conditioning or cooling the air in that area of the premises served by
the air cooling equipment installed by the Lessee nor for the
maintenance therein of any specified temperature or comfort level.
The Lessee shall and does hereby release the Port Authority from any
and all liability to the Lessee arising out of the Port Authority's
failure to provide condenser water which meets the aforesaid
specifications except that the Port Authority shall remain fully
liable for all damage to equipment and other property owned or leased
by the Lessee, or any subtenants or desk-space users of the premises
(excluding, however, loss of data and any loss of business or business
interruption losses resulting from such equipment or property damage
or data loss) and all personal injury arising as a result of the
condenser water which the Port Authority provides to the point of
connection to the Lessee's equipment being contaminated. The Lessee
shall indemnify the Port Authority against any and all claims and
demands, losses or damages made by third parties for loss of data,
loss of business and business interruption losses resulting from any
failure to provide condenser water meeting the aforesaid
specifications. Nothing herein shall be construed to relieve the Port
Authority from supplying heat, ventilation and air cooling in
accordance with the provisions of the Section of this Agreement
entitled "Services and Utilities" and the specifications set forth in
Schedule D.
Section 48. Entire Agreement
This Agreement consists of the following: pages 1
through 75, inclusive, plus Exhibits A, A-1, A-2, A-3, R, TAA, X and Y
and Schedules A, B, B-1, D, E, F and I.
It constitutes the entire agreement of the parties on
the subject matter hereof and may not be changed, modified, discharged
or extended except by written instrument duly executed by the Port
Authority and the Lessee. The Lessee agrees that no representations
or warranties shall be binding upon the Port Authority unless
expressed in writing in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed
these presents as of the day and year first above written.
T H E
PORT AUTHORITY OF NEW YORK
AND NEW JERSEY
ATTEST:
------------- By ------------------------
(SEAL)
SCOR U.S. CORPORATION
76<PAGE>
ATTEST:
------------- By -------------------------
Secretary
(Title) President
(CORPORATE SEAL)
EXHIBIT A
DRAWING NO. WT-3091-823
FLOOR PLAN FOR SOUTH TOWER BUILDING, FLOOR 23
Dated September 21, 1994
This drawing highlights the following six (6) areas:
1.Office Area
2.Passenger Elevator Lobby
1<PAGE>
3.Freight Elevator Lobby
4.Corridor Area
5.Toilet Area
6.Janitor Closets
EXHIBIT A
EXHIBIT A-1
DRAWING NO. W.T. 3091-B23
DATE: Jan. 26, 1995
This floor plan indicates the approximate dimensions for the office
space.
Floor 24
Approximate square footage:
<PAGE>
60'1" x 100' 1"; 100' 1" x 36' 6"
EXHIBIT A-1
EXHIBIT A-2
DRAWING NO. W.T. 3091-B23
DATE: Jan. 26, 1995
This floor plan indicates the approximate dimensions for the office
space.
24th Floor
70' 1" x 46' 9"; 16' 8" x 60' 1"
<PAGE>
EXHIBIT A-2
EXHIBIT A-3
DRAWING NO. W.T.-3091-B24
DATE: Dec. 5, 1994
This floor plan indicates the square footage for the office space:
Floor 24
60' 1" x 106' 9"
15' 8" x 36' 6"
31' 0" x 52' 4"
<PAGE>
EXHIBIT A-3
SCHEDULE A
1. For the purposes of this Schedule, the following terms
shall have the respective meanings provided below:
(a) The "annual per rentable square foot factor"
referred to in this Schedule was initially fixed at $1.25 in the City
Agreement (as hereinafter defined) and provision was made in paragraph
7(3) of the City Agreement for changes therein from time to time to
reflect changes in the tax rate and changes in assessed valuations.
(b) "Amortized Expenses" shall mean the annual
amortization of expenditures incurred by the Port Authority during the
term of the letting under the Lease (as hereinafter defined) on a
straight-line basis over a depreciable life in accordance with
generally accepted accounting principles, consistently applied by the
Port Authority, (with interest calculated at an annual rate (the
"Applicable Rate") equal to two (2) percentage points above the last
twelve (12) month average of the twenty-five (25) bond Revenue Bond
Index as published each Friday in the "Bond Buyer" at the time the
Port Authority makes such expenditure) for any equipment, device or
capital improvement (i) which may be required by the insurance
carriers providing insurance coverage on the Facility (as hereinafter
defined) or on any part thereof, (ii) the use or presence of which
<PAGE>
equipment, device or capital improvement at the Facility will reduce
the premiums charged by the insurance carriers providing such
insurance coverage, (iii) which is required by law which first takes
effect after the execution of the Lease by the parties thereto or
(iv) which is reasonably designed as a cost-saving measure (and the
annual amortization in respect of which bears a reasonable
relationship to the amount of actual savings) in the operation or
maintenance of the Facility. Notwithstanding the foregoing, Amortized
Expenses shall exclude expenditures for any equipment, device or
capital improvement made as part of the planned capital upgrade
program for the electrical, HVAC and elevator systems in the Facility.
(c) "Base Operating Year" shall mean the calendar
year 1995.
(d) "City Agreement" shall mean that certain
agreement between the Port Authority and the City of New York dated
1967, as it may have been or may hereafter be supplemented or amended.
(e) "Escalation Year" shall mean each calendar year
subsequent to the Base Operating Year which shall include any part of
the term of the letting under the Lease.
(f) "Estimate Statement" shall mean, with respect to
any Escalation Year, a written statement setting forth in reasonable
detail the Port Authority's estimates of Operating Expenses (as
hereinafter defined) and additional basic rental under Paragraph 3 of
this Schedule for such Escalation Year.
Page 1 of Schedule A
(g) "Facility" for the purposes of this Schedule
only, shall have the meaning set forth in paragraph (b) of Section 36
of the Lease, except that there shall be excluded therefrom the
following buildings commonly known as Three World Trade Center (Vista
Hotel International), Six World Trade Center (U.S. Customs House) and
Seven World Trade Center.
(h) "Lease" shall mean the agreement of lease to
which this Schedule is attached.
(i) "Lessee's Proportionate Share" shall mean that
fraction, the numerator of which is the number of Rentable Square Feet
in the Premises and the denominator of which is the number of rentable
square feet in the Facility, exclusive of the subgrade space and all
retail space, which fraction may be expressed as a percentage. The
Lessee and the Port Authority agree that the number of rentable square
feet in the Facility, exclusive of the subgrade space and all retail
space, is 10,173,368 rentable square feet. Accordingly, as of the
date hereof, the Lessee's Proportionate Share is Five Hundred Seventy-
seven Thousandths of One percent (.577%), which Share consists of Four
Hundred Forty-two Thousandths of One percent (.442%) for the portion
of the premises shown on Exhibit "A", and One Hundred Thirty-five
Thousandths of One percent (.135%) for the portion of the premises
shown in diagonal hatching on Exhibit "A-1". The Port Authority and
<PAGE>
the Lessee hereby expressly acknowledge and agree that the Lessee's
Proportionate Share as set forth above is the percentage as agreed by
the Port Authority and the Lessee and shall not be subject to change,
redetermination or remeasurement whatsoever for any reason, except
that such percentage shall be subject to change by reason of an
alteration or improvement made to the Facility which physically
increases or decreases the total number of rentable square feet in the
Facility, exclusive of the subgrade space and all retail space. If
the number of Rentable Square Feet in the Premises shall be increased
or decreased, the Lessee's Proportionate Share shall be increased or
decreased to take into account such change in the number of Rentable
Square Feet in the Premises, measured on a consistent basis with the
manner in which the number of Rentable Square Feet in the Premises
have been measured as of the date hereof. In no event shall the
Lessee's Proportionate Share be increased by reason of the leasing by
the Lessee of any subgrade space in the Facility.
(j) "Operating Expenses" shall mean the total of
Amortized Expenses and all other costs and expenses (and taxes
thereon, if any), without duplication, paid or incurred by or on
behalf of the Port Authority with respect to the operation,
maintenance, repair, marketing, promoting, servicing, cleaning and
policing of the entire Facility, including but not limited to all
buildings and structures, equipment, systems, elevators, escalators,
bridges, truck docks, generators, fuel tanks, common areas, public
areas, passageways, lobbies and mezzanines, sidewalks, curbs, plazas,
concourses and other areas adjacent to the Facility, and with respect
to the utilities and services provided Tenants (as hereinafter
defined), sewer and water rents, rates and charges and annual
management fees equal to three percent (3%) of the total of basic
rental, additional basic rental and other charges paid to the Port
Authority by Tenants of the Facility, computed in
Page 2 of Schedule A
accordance with Port Authority accounting principles consistently
applied, provided, however, that Operating Expenses shall exclude:
(1) the compensation to executives above the grade
of building manager (including labor costs and fringe
benefits);
(2) expenditures for capital improvements or capital
equipment, other than those included in Amortized
Expenses;
(3) amounts received by or reimbursed to the Port
Authority through insurance proceeds, warranties or
service contracts or from any other third parties,
including Tenants, to the extent such amounts are
compensation for sums previously included in Operating
Expenses hereunder;
(4) depreciation, except as the same may be included
in Amortized Expenses;
(5) taxes or payments in lieu of taxes, as defined
in and payable in accordance with this Schedule;
<PAGE>
(6) the cost of electricity or condenser water
furnished to the premises or to any other space leased to
Tenants and the cost of services furnished to space leased
to other Tenants but not furnished to the Lessee;
(7) interest on and amortization of mortgages, and
any finance charges, points and closing costs incurred by
the Port Authority in connection with any mortgages which
may hereafter be placed on the Facility;
(8) the cost of alterations, additions, changes or
decorations (including leasehold improvements) made for
any Tenant of the Facility at such Tenant's cost or made
in order to prepare space in the Facility for occupancy by
a new Tenant;
(9) financing costs, except as the same may be
included in Amortized Expenses;
(10) the cost of repairs in or to a Tenant's
premises incurred by reason of breach by a Tenant of its
lease for space in the Facility except that such costs
shall be included in Operating Expenses if the repairs for
which such costs are incurred generally benefit Tenants at
the Facility or affect fire safety or are intended to
remedy or correct any conditions which are or may be of a
life-threatening nature to occupants of the Facility
(other than solely the defaulting Tenant);
(11) the cost of any work or services performed or
other expenses incurred in connection with installing,
operating and maintaining any specialty service or
facility, such as an observation deck or broadcasting
facility or any
Page 3 of Schedule A
luncheon, athletic or recreational club, provided, however, that the
cost of any work or services performed in any public or common area of
the Facility shall not be excluded from Operating Expenses;
(12) payments for rented equipment the cost of
which would constitute a capital expenditure if the
equipment were purchased, except to the extent same would
be included in Amortized Expenses;
(13) any cost or expense of furnishing heating,
ventilating, air cooling, cleaning or other services to
retail space located in the Facility; and
(14) the portion of the cost of any work or
service performed for the Port Authority which is
performed for any Port Authority facility other than the
Facility.
If, during all or part of the Base Operating Year or any Escalation
Year, the Port Authority shall not furnish any particular items of
work or services (the cost of which would otherwise constitute an
<PAGE>
Operating Expense hereunder) to portions of the Facility due to the
fact that: (X) such portions are not occupied or leased, (Y) such
item of work or service is not required or desired by the Tenant of
such portion or (Z) such Tenant is itself obtaining and providing
such item of work or service without cost to the Port Authority, then,
for the purposes of computing Operating Expenses, the additional costs
and expenses for such items of work or services which would reasonably
have been incurred during such Base Operating Year or Escalation Year,
as the case may be, by the Port Authority, calculated on a reasonable
basis by the Port Authority, shall be included as Operating Expenses
as if the Port Authority had at its own expense furnished such items
of work or services to such portion of the Facility or to such Tenant.
In the event the Port Authority "grosses up" any item as provided in
the preceding sentence, the Estimated Statement and Port Authority
Statement (as hereinafter defined) shall include the "grossed-up"
figures.
(k) "Payments in lieu of taxes" shall mean such
payments as the Port Authority has agreed to pay The City of New York
under the City Agreement.
(l) "Port Authority Statement" shall mean an
instrument containing a computation of additional basic rental due
pursuant to the provisions of Paragraph 3 of this Schedule furnished
by the Port Authority to the Lessee, certified by the Manager, Finance
and Business Planning, World Trade Department, and accompanied by a
statement of Operating Expenses for the Facility from which the Port
Authority shall make the computations of Operating Expenses and
additional basic rental set forth in such Port Authority Statement.
(m) "Rentable Square Feet in the Premises" shall be
d e e m e d t o m e a n
58,783 square feet, and shall be deemed to consist of 44,973 square
feet as shown on Exhibit A and 13,810 square feet as shown on Exhibit
A-1.
Page 4 of Schedule A
(n) "Tax Base" shall mean the annual per rentable
square foot factor finally established to be the annual per rentable
square foot factor to be used in computing payments in lieu of taxes
for the tax year beginning July 1, 1994, provided that "tax base"
shall initially mean $3.76, as same may be adjusted pursuant to the
City Agreement.
(o) "Tax Year" shall mean the twelve-month period
established by The City of New York as a tax year for real estate tax
purposes.
(p) "Tax Statement" shall mean a statement furnished
by the Port Authority to the Lessee and prepared in accordance with
the applicable provisions of this Schedule A containing a computation
of additional basic rental due pursuant to Paragraph 2 of this
Schedule for the applicable tax year.
(q) "Taxes" shall mean real estate taxes and
assessments which may be imposed from time to time by the United
<PAGE>
States of America, the State of New York or any municipality or other
governmental authority upon the Port Authority with respect to the
buildings, structures, facilities or land at the World Trade Center or
with respect to the rentals or income therefrom in lieu of or in
addition to any tax or assessment which would otherwise be a real
estate tax or assessment, and "Taxes" shall include any payments in
lieu of real estate taxes or assessments which may be agreed upon
between the Port Authority and any of the foregoing governmental
authorities, other than payments in lieu of taxes described in
subparagraph (k) of this paragraph. The Port Authority hereby
represents that as of the date of the Lease there are no real estate
taxes imposed on the World Trade Center.
(r) "Tenants" shall mean all lessees, permittees,
licensees and all other Port Authority-approved users and occupiers of
space in the Facility.
2. From and after each July 1 following the commencement
date of the letting under the Lease, the Lessee shall pay an
additional basic rental under the Lease at the annual rate computed by
multiplying the rentable square feet in the premises by the excess
over the Tax Base of the total of: (a) the annual per rentable square
foot amount of Taxes for the Tax Year beginning on that July 1; and
(b) the annual per rentable square foot factor used in computing
payments in lieu of taxes for the Tax Year beginning on that July 1.
If Taxes become payable on a basis other than an annual amount per
rentable square foot, the Port Authority shall equitably allocate
those Taxes to the rentable square feet of space in the World Trade
Center and will notify the Lessee of the amount of such allocation.
3. (a) In addition to the additional basic rental
payable by the Lessee under Paragraph 2 of this Schedule, for each
Escalation
Page 5 of Schedule A
Year following the commencement date of the letting under the Lease,
the Lessee shall pay to the Port Authority additional basic rental
which shall be equal to the Lessee's Proportionate Share of the
amount, if any, by which Operating Expenses for that Escalation Year
exceed the Operating Expenses for the Base Operating Year.
(b) The Port Authority shall furnish to the Lessee:
(1) a statement certified by the Manager, Finance and Business
Planning, World Trade Department, setting forth in detail all
Operating Expenses for the Base Operating Year (separately stating any
"grossed-up" figures included therein) not later than June 30
following the end of the Base Operating Year, (2) with respect to each
Escalation Year following the Base Operating Year, an Estimate
Statement for such Escalation Year and (3) within 180 days after the
end of each Escalation Year, a Port Authority Statement for such
Escalation Year.
(c) The Port Authority's failure to render a Tax
Statement with respect to any Tax Year or an Estimate Statement or a
Port Authority Statement with respect to any Escalation Year shall not
prejudice the Port Authority's right thereafter to render a Tax
Statement, an Estimate Statement or a Port Authority Statement, as the
<PAGE>
case may be, with respect thereto or with respect to any subsequent
Tax Year or Escalation Year, nor shall the rendering of a Tax
Statement for any Tax Year or a Port Authority Statement for any
Escalation Year prejudice the Port Authority's right thereafter to
render a corrected Tax Statement or Port Authority Statement for that
Escalation Year. Notwithstanding the foregoing, except as provided in
the immediately succeeding sentence, the Port Authority shall not have
the right to deliver a Tax Statement with respect to any Tax Year or
an Estimate Statement or a Port Authority Statement with respect to
any Escalation Year, or to make any corrections to a previously
delivered Tax Statement, Estimate Statement or Port Authority
Statement, which, in any event, shall increase the amount of
additional basic rental which is payable by the Lessee pursuant to
Paragraph 2 or 3 hereof, after the date which is the second (2nd)
anniversary of the expiration of the Tax Year or Escalation Year in
question. In the event that any Tax Statement shall be incorrect
based upon an error or omission made by the taxing authority, which
error or omission is subsequently corrected or discovered (e.g., an
underbilling by the taxing authority which is subsequently corrected)
or based on a change in the facts used to calculate Taxes or the
annual per rentable square foot factor (such as a change in the
assessment of the Facility or of the other buildings used to determine
the annual per rentable square foot factor), the Port Authority may
deliver a revised or corrected Tax Statement beyond the expiration of
such two (2) year period. Except as set forth in the immediately
preceding sentence, if the Port Authority shall deliver any Tax
Statement, Estimate Statement or Port Authority Statement or any
correction to a Tax Statement, Estimate Statement or Port Authority
Statement after the expiration of such two (2) year period, the Lessee
shall have no obligation to pay any increased amount which would
otherwise be due in accordance with such Statement and the Port
Authority shall have no obligation to refund any amount which the
Lessee
Page 6 of Schedule A
may have paid in excess of that which would otherwise be due in
accordance with such Statement. Nothing herein contained shall
restrict the Port Authority from issuing a revised Estimate Statement
from time to time and at any time there is an increase in Operating
Expenses during any Escalation Year (each such revised Estimate
Statement to identify the same categories of Operating Expenses as the
initial Estimate Statement for that Escalation Year).
4. If the imposition or allocation of Taxes or the
establishment of an annual per rentable square foot factor to be used
in computing payments in lieu of taxes for any Tax Year or the
delivery to the Lessee of an Estimate Statement for any Escalation
Year is delayed for any reason whatsoever, the Lessee shall
nevertheless continue to pay the additional basic rental at the annual
rate then in effect subject to retroactive adjustments at such time as
the Taxes are imposed or allocated, the said per rentable square foot
factor shall have been established or such Estimate Statement shall
have been delivered, provided, that in the event that no Estimate
Statement for an Escalation Year is delivered prior to the delivery of
the Port Authority Statement for the prior Escalation Year, the Lessee
shall pay additional basic rental under Paragraph 3 of this Schedule
at the annual rate determined in accordance with the Port Authority
<PAGE>
Statement for such prior Escalation Year subject to retroactive
adjustment at the time the earliest of the Estimate Statement or Port
Authority Statement for such Escalation Year shall be delivered
subject to the provisions of Paragraph 3 above. If the sum of the
payments made by the Lessee pursuant to an Estimate Statement or the
Port Authority Statement for the prior Escalation Year shall have
exceeded the amount which is ultimately determined to be payable based
upon the Port Authority Statement for the Escalation Year in question,
the Port Authority shall refund such excess amount to the Lessee and
if such excess amount to be refunded is greater than ten percent (10%)
of the amount which is ultimately determined to be payable pursuant to
this Schedule A for the Escalation Year in question, then the Port
Authority within twenty (20) days after such excess amount is
determined shall refund such excess amount together with interest
thereon at the Applicable Rate, calculated from the date each payment
was made by the Lessee until the date such amount is actually paid by
the Port Authority or credited, as the case may be. If the Port
Authority shall fail to make such payment to the Lessee within twenty
(20) days after such amount shall have been determined to be due
hereunder, the Lessee shall be entitled to receive a credit against
its ensuing installments of basic rental and additional basic rental
equal to such unpaid amount.
5. After imposition and allocation of Taxes for any Tax
Year and the establishment for each Tax Year of the annual per
rentable square foot factor used in computing payments in lieu of
taxes and at the time of the delivery to the Lessee of the Estimate
Statement or Port Authority Statement, as the case may be, for any
Escalation Year, the Port Authority will set forth the annual rate or
rates of additional basic rental payable by the Lessee under Paragraph
2 or 3, above, and will notify the Lessee of the amounts thereof in
the Estimate Statement
Page 7 of Schedule A
or Port Authority Statement, as the case may be. Additional basic
rental accruing under Paragraphs 2 and 3, above, shall be computed
separately and shall be payable by the Lessee to the Port Authority in
advance in monthly installments, each installment being equal to 1/12
of the annual rate set forth in the Estimate Statement, or Port
Authority Statement, as the case may be, except that if at the time
the Port Authority gives notice to the Lessee under this Paragraph,
additional basic rental shall have accrued for a period prior to the
notice, the Lessee shall pay such additional basic rental in full for
such period, within ten days after such notice. If the additional
basic rental ultimately determined to be payable pursuant to
Paragraphs 2 and 3 of this Schedule and set forth in the Port
Authority Statement for any Escalation Year shall exceed the
additional basic rental actually paid pursuant to this Paragraph 5 for
that Escalation Year, then the Lessee shall pay such excess within ten
days after delivery of such Port Authority Statement, and if the
amounts of such additional basic rental actually paid by the Lessee
during such Escalation Year exceed the annual amounts set forth in
such Port Authority Statement as payable pursuant to Paragraphs 2 and
3 of this Schedule, the Port Authority will pay the Lessee such excess
amount within twenty (20) days after delivery of such Port Authority
Statement and if such amount is not paid within such twenty (20) day
period the Lessee shall be entitled to a credit in such amount against
<PAGE>
its rental obligations next falling due under the Lease and this
Schedule A.
6. If after an amount of additional basic rental shall
have been fixed under Paragraphs 2 or 3, above, for any period, Taxes
are imposed or the amount of Taxes or the annual per rentable square
foot factor in regard to payments in lieu of taxes used for computing
such additional basic rental or the Operating Expenses set forth in
the Port Authority Statement for that period shall be changed or
adjusted, then the additional basic rental payable for that period
shall be recomputed and from and after notification of the imposition,
change or adjustment, the Lessee shall make payments based upon the
recomputed additional basic rental and upon demand the Lessee shall
pay any excess in additional basic rental as recomputed over amounts
of additional basic rental theretofore actually paid. If such change
or adjustment results in a reduction in the amount of additional basic
rental for any period prior to notification, the Port Authority will
within twenty (20) days of determination of such reduction pay the
Lessee the excess of the amounts of additional basic rental
theretofore actually paid over the additional basic rental as
recomputed for that period and if such amount is not paid to the
Lessee within such period the Lessee shall be entitled to a credit in
such amount to be applied against its rental obligations next falling
due under the Lease and this Schedule A.
7. If any Escalation Year begins prior to the commencement
of, or ends after the expiration or earlier termination of, the term
of the letting under the Lease, the additional basic rental under
Paragraph 3 of this Schedule with respect to such Escalation Year
shall be apportioned by multiplying the additional basic rental
determined under said Paragraph 3 for the entire Escalation Year by a
fraction the
Page 8 of Schedule A
numerator of which shall be the number of days in the term of the
letting which fall within such Escalation Year and the denominator of
which shall be the total number of days in such Escalation Year. In
the event of a termination of the Lease and the term of the letting
thereunder, if the additional basic rental set forth in the Port
Authority Statement for the Escalation Year in which such termination
shall be effective, as so apportioned, shall exceed the additional
basic rental theretofore actually paid by the Lessee pursuant to
Paragraph 3 of this Schedule for that Escalation Year, then the Lessee
shall pay such excess within ten days after delivery of such Port
Authority Statement and if the amounts of such additional basic rental
actually paid by the Lessee during such Escalation Year exceed the
annual amount set forth in such Port Authority Statement, as so
apportioned, the Port Authority shall pay such excess to the Lessee
with ten days after the delivery of such Port Authority Statement,
provided that such excess shall be reduced by any other amount owed to
the Port Authority by the Lessee. Notwithstanding the foregoing, in
the event that letting under the Lease shall have been terminated as
provided in the Section of the Lease entitled "Termination" or the
interest of the Lessee cancelled pursuant thereto, or in the event
that the Port Authority has re-entered, regained or resumed possession
of the premises in accordance with the provisions of the Section of
the Lease entitled "Right of Re-entry", the rights and obligations of
<PAGE>
the Port Authority and the Lessee under the provisions of this
Schedule with respect to additional basic rental shall survive the
termination of the Lease in accordance with the terms and provisions
of the Section of the Lease entitled "Survival of the Obligations of
the Lessee" except that for the purpose of calculating damages under
such Section the additional basic rental under Paragraph 3 of this
Schedule for the balance of the term of the letting under the Lease
shall be deemed to be payable at the annual rate at which such
additional basic rental was payable during the Escalation Year during
which such termination, cancellation, re-entry, regaining or
resumption of possession occurred.
8. Any Port Authority Statement sent to the Lessee shall
be conclusively binding upon the Lessee unless, within twenty-four
(24) months after such Statement is sent, the Lessee shall send a
written notice to the Port Authority objecting to such Statement. If
the Lessee within said twenty-four (24) month period does not object
to such Statement but requests additional information with respect to
such Statement, the Port Authority will make reasonable efforts to
furnish such information and the Lessee will pay the reasonable costs
of the Port Authority in furnishing such information to the Lessee.
If such notice objecting to an item or items in the Port Authority
Statement is sent within such twenty-four (24) month period, the
Lessee (together with its accountants), may examine the Port
Authority's books and records relating to the costs of operating,
maintaining, repairing, servicing, cleaning and policing of the
Facility to determine the accuracy of the Port Authority Statement.
The Lessee recognizes the confidential nature of such books and
records and agrees to use good faith efforts to maintain the
information obtained from such examination in strict confidence. If
after such examination, the Lessee still
Page 9 of Schedule A
disputes such Port Authority Statement, either party may refer the
decision of the issues raised to a reputable firm of certified public
accountants which shall have no business relationship with either the
Port Authority or the Lessee, selected by the Port Authority and
acceptable to the Lessee, and the decision of the accountants shall be
conclusively binding upon the parties. The fees and expenses involved
in such decision shall be borne by the unsuccessful party (and if both
parties are partially successful, such fees and expenses shall be
apportioned between the Port Authority and the Lessee in inverse
proportion to the amount by which such decision is favorable to each
party).
For the Port Authority
For the Lessee
<PAGE>
Page 10 of Schedule A
SCHEDULE B
Routine Cleaning in Office Areas shown on Exhibit A
Daily (Five Days each week except Saturdays, Sundays, and Holidays)
1. Empty and damp wipe ash trays, empty waste baskets.
Transport collected waste to trash handling areas and removal of
building. Collection and removal of waste different from or in excess
of that from normal daily office operations is not included and shall
be deemed additional cleaning services and requested by the Lessee in
advance in accordance with the provisions of this Schedule.
2. Dust horizontal surfaces of office furniture,
equipment, ledges, and sills.
3. Dust sweep vinyl asbestos floor and/or spot vacuum
carpeted surfaces.
4. Clean and sanitize water fountains.
5. Damp wipe fingerprints, smears, smudges, etc., on door,
wall and partition surfaces.
Weekly (Once a week)<PAGE>
6. Dust vertical surfaces of office furniture and
equipment.
7. Vacuum entire carpeted floor surfaces.
Quarterly (Once every three months)
8. Wash interior surfaces of window glass.
9. Dust all pictures, frames, charts, graphs, and similar
wall hangings, plus partitions, doors, and door frame surfaces.
Routine Cleaning in Corridor Areas as shown on Exhibit A
Daily (Five days a week except Saturdays, Sundays, and Holidays)
1. Dust sweep corridor floor surfaces once each day.
2. Damp wipe fingerprints, smudges, smears, etc., on
corridor door and wall surfaces.
Page 1 of Schedule B
Once each year
6. Shampoo carpet surfaces.
7. Clean and polish wood panel wall surfaces.
Routine Cleaning in Freight Elevator Lobbies shown on Exhibit A
Daily (Five days each week except Saturdays, Sundays, and Holidays)
1. Dust sweep vinyl asbestos floors.
2. Damp wipe fingerprints, smears, smudges, etc., on door
and wall surfaces.
Once each week
3. Mop and rinse floor surfaces.
Once each month
4. Machine scrub and refinish floor surfaces.
Once each year
5. Wash door and wall surfaces.
Routine Cleaning in Janitor closets shown on Exhibit A
<PAGE>
1. Maintain in a clean and orderly condition and
appearance.
For the Port Authority
Initialled:
For the Lessee
Page 2 of Schedule B
SCHEDULE B-1
Routine Office Cleaning
Daily (Five days each week except Saturdays, Sundays, and Holidays
1. Empty and damp wipe ash trays, empty waste baskets.
Transport collected waste from normal daily office operations only to
trash handling areas and removal from the building. Collection and
removal of waste different from or in excess of that from normal daily
office operations is not included and shall be deemed additional
cleaning services and requested in accordance with the provisions of
this Schedule.
2. Dust horizontal surfaces of office furniture,
equipment, ledges,and sills.
3. Dust sweep vinyl asbestos floor and/or spot vacuum
carpeted surfaces, if any.
4. Clean and sanitize water fountains.
5. Damp wipe fingerprints, smears, smudges, etc., on door,
wall and partition surfaces.
Weekly (Once a week)
<PAGE>
6. Dust vertical surfaces of office furniture and
equipment.
7. Vacuum entire carpeted floor surfaces.
8. Wash interior surfaces of exterior window glass.
9. Dust all pictures, frames, charts, graphs, and similar
wall hangings, plus partitions, doors, and door frame surfaces.
For the Port Authority
Initialled:
For the Lessee
Schedule B-1
SCHEDULE D
HEATING VENTILATION AND AIR CONDITIONING SYSTEM
This HVAC system is a dual system design incorporating a peripheral
induction unit system which supplies air within fifteen feet (15) distance
measured inboard from the exterior glass, and an interior system which
conditions the balance of the floor area. Each of the systems is designed
to deliver the following quantities to a 10% variance.
HVAC AIR SUPPLY QUANTITIES - PERIPHERAL SYSTEM
FLOOR B-23
SOUTH WEST
UNIT TYPE #4 #5 UNIT TYPE #1 #2
NO. OF UNITS 28 2 NO. OF UNITS 28 2
CFM 60 40 CFM 50 35
NORTH EAST
UNIT TYPE #3 #2 UNIT TYPE #4 #5
NO. OF UNITS 28 2 NO. OF UNITS 28 2
CFM 50 35 CFM 60 40
Induction units are spaced at the rate of one (1) unit per two (2) windows
average, subject to verification of actual conditions. Each unit delivers
air of approximately 60 deg. F. utilizing water which in winter ranges
<PAGE>
between 80 deg. F. to 130 deg. F. as needed, and in summer at 69 deg. F.
avearge. Supply air to induction units is a constant with variable water
temperature and rate of flow.
HVAC AIR SUPPLY QUANTITIES - INTERIOR SYSTEM
AVERAGE SUPPLY
AIR TEMP QUADRANT N.E. N.W. S.E. S.W.
SUMMER-WINTER CFM CFM CFM CFM
60 deg. F. 4375 4145 4050 4050
Interior supply air is .84 CFM per square foot. Air temperature is
controlled by zone thermostat at central air handling unit. Design is
based on one (1) person per 100 square foot and six watts per square foot.
Floor load design criteria is 100 lbs. per square foot.
FOR THE PORT AUTHORITY
FOR THE LESSEE
Page 1 of Schedule D
SCHEDULE D
HEATING VENTILATION AND AIR CONDITIONING SYSTEM
This HVAC system is a dual system design incorporating a peripheral
induction unit system which supplies air within fifteen feet (15) distance
measured inboard from the exterior glass, and an interior system which
conditions the balance of the floor area. Each of the systems is designed
to deliver the following quantities to a 10% variance.
HVAC AIR SUPPLY QUANTITIES - PERIPHERAL SYSTEM
FLOOR B-24
SOUTH WEST
UNIT TYPE UNIT TYPE #1 #2
NO. OF UNITS NO. OF UNITS 20 1
CFM CFM 50 35
NORTH EAST
UNIT TYPE #3 #2 UNIT TYPE
NO. OF UNITS 17 1 NO. OF UNITS
CFM 50 35 CFM
Induction units are spaced at the rate of one (1) unit per two (2) windows
average, subject to verification of actual conditions. Each unit delivers
air of approximately 60 deg. F. utilizing water which in winter ranges
between 80 deg. F. to 130 deg. F. as needed, and in summer at 69 deg. F.
avearge. Supply air to induction units is a constant with variable water
temperature and rate of flow.
<PAGE>
HVAC AIR SUPPLY QUANTITIES - INTERIOR SYSTEM
AVERAGE SUPPLY
AIR TEMP QUADRANT N.E. N.W. S.E. S.W.
SUMMER-WINTER CFM CFM CFM CFM
60 deg. F. 4375 4145 4050 4050
Interior supply air is .84 CFM per square foot. Air temperature is
controlled by zone thermostat at central air handling unit. Design is
based on one (1) person per 100 square foot and six watts per square foot.
Floor load design criteria is 100 lbs. per square foot.
FOR THE PORT AUTHORITY
FOR THE LESSEE
Page 2 of Schedule D
SCHEDULE E
Drawing Title Date Drawing No. Revisions
Title Sheet 12/30/94 T-1 2/15/95
Toilet Room Floor Plans 12/30/94 A-1 2/16/95
Toilet Elevations 12/30/94 A-2 2/15/95
Plumbing Specifications 10/05/94 P-1 2/15/95
and Notes
Plumbing Floor Plans 10/5/94 P-2 2/15/95
Plumbing Riser Diagrams 10/5/94 P-3 2/15/95
For the Port Authority
Initialled:
For the Lessee
<PAGE>
Schedule E
SCHEDULE F
24th Floor Public Corridor
Port Authority Job # W2-702.214
Drawing Title Date Drawing No. Revisions
Title Sheet 12/30/94 T-1 2/15/95
Floor Plan, Schedules
and Notes 12/30/94 A-1 2/15/95
Reflected Ceiling Plan 12/30/94 A-2 2/15/95
Details 12/30/94 A-3 2/15/95
Electrical Specifications 1/3/95 E-24-1 2/15/95
& Symbol List
24th Fl. Lighting and
Power Plan 1/3/95 E-24-2 2/15/95
HVAC Specifications,
Schedules 1/3/95 H-24-1 -
& Notes
24th Floor HVAC Par. Plan 1/3/95 H-24-2 -
& Details
Fire Protection
Specifications, 1/3/95 FP-24-1 2/15/95
Symbol List & Notes
Fire Protection Plan
and Details 1/3/95 FP-24-2 -
<PAGE>
For the Port Authority
Initialled:
For the Lessee
Schedule F
SCHEDULE I
1) Demolition shall include: interior partitions, suspended ceilings and
support systems, lighting fixtures, floor tile, carpeting and padding,
unused conduits, cables, plumbing lines, miscellaneous steel and duct
work on the Tenant's floors. Space shall be delivered in broom clean
condition. (Demolition shall not include, except as required for
Landlord's work, bathrooms, sprinkler loop and branches).
2) Pull all cabling from any existing underfloor duct systems.
3) By no later than August 15, 1995, all Public area bease building fire
and safety systems, including alarms, speakers, communications, etc.
required by code, will be in full service and available on all
Tenant's floors.
4) Submeters, electric panels, disconnect switches and transformers will
be left in place in good condition on all Tenant's floors. The
induction units will be cleaned and vacuumed and delivered in good
working order, including all piping, valves and thermostats.
5) Refurbished (or new if substantially damaged) radiator covers and
grilles will be provided on all Tenant floors. The induction units
will be cleaned and vacuumed and delivered in good working order,
including all piping, valves and thermostats.
6) All core area walls and columns throughout the floors will be
laminated with sheetrock and will be ready for wall covering. Core
demising walls will be 2-hour fire-rated with all associated code
complaint fire dampers for a multi-tenanted floor.
7) All required base building firestopping/fireproofing on walls, floors,
ceilings and structural steel wll be provided.
8) All exposed base building piping will be enclosed and insulated to
meet World Trade Center specifications, including all sprinkler lines
and all existing 17" x 8" duct work.
9) All interior window mullions will be repaired to a "like-new"
condition.
10) All windows will be made weathertight with all broken and chipped
glass replaced.<PAGE>
11) Landlord shall supply .1 gpm per square foot of sprinkler capacity and
reserve to the premises.
12) All exit stairs will be enclosed with 2-hour fire-rated material.
EXHIBIT TAA
TENANT CONSTRUCTION OR ALTERATION APPLICATION
RIDER "A"
TENANT CONSTRUCTION OR ALTERATION APPLICATION
Additional Terms and Conditions
RIDER "B"
CLAIMS OF THIRD PERSONS
RIDER "C"
TENANT ALTERATION APPLICATION
General requirements
RIDER "F"
GENERAL REQUIREMENTS
EXHIBIT X
CONSENT TO SUBLEASE AGREEMENT
EXHIBIT Y
ASSIGNMENT OF LEASE WITH ASSUMPTION AND CONSENT AGREEMENT
EXHIBIT R
RULES AND REGULATIONS FOR THE WORLD TRADE CENTER
FORM XLD - LEGAL FORM
Affidavit by Port Authority of New Yorkk and New Jersey. Individual is
attesting to position in corporation, residence, and acknowledgment of
corporate seal.
Affidavit by SCOR U.S. Corporation. Individual is attesting to position in
corporation, residence and acknowledgment of corporate seal.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
SCOR U.S. CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share data)
Year Ended December 31,
1994 1993 1992
<S> <C> <C> <C>
PRIMARY:
Net income (loss) applicable to common stock $(7,841) $25,328 $ 7,249
======= ======= ======
Average number of common shares outstanding 18,166 18,184 17,960
Add:
Assumed exercise of stock options -0- 211 296
------- ------- -------
Common and common equivalent shares outstanding 18,166 18,395 18,256
======= ======= =======
Net income (loss) per share assuming exercise
of common stock equivalents $ (0.43) $ 1.38 $ 0.40
======= ======= =======
FULLY DILUTED:
Net income (loss) applicable to common stock $(7,841) $27,718 $7,249
======= ======= =======
Average number of common shares outstanding 18,166 18,121 17,960
Add:
Assumed exercise of stock options -0- 209 296
Assumed exercise of convertible bonds -0- 2,586 -0-
------- ------- -------
Common and common equivalent shares outstanding
assuming full dilution 18,166 20,916 18,256
======= ======= =======
Net income (loss) per share assuming full dilution $ (0.43) $ 1.33 $ 0.40
======= ======= =======<PAGE>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12
SCOR U.S. CORPORATION
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED CHARGES
(in thousands, except ratios)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing
operations before taxes
and cumulative effect of
accounting changes ($19,454) $34,911 $630 $38,000 $31,306
Adjustments:
Equity (income) loss in
unconsolidated subsidiaries (743) (678) 110 -0- (468)
Fixed charges 9,716 8,810 5,268 4,459 4,139
----- ------ ----- ------ ------
Adjusted earnings (10,481) 43,043 6,008 42,459 34,977
------- ------ ----- ------ ------
Fixed charges:
Interest expense 8,920 8,005 4,579 3,833 3,500
Appropriate portion
(1/3) of rentals 796 805 689 626 639
----- ----- ----- ----- -----
Total fixed charges 9,716 8,810 5,268 4,459 4,139
Ratio of earnings to
fixed charges --- (1) 4.89 1.14 9.52 8.45
(1) Earnings were inadequate to cover fixed charges by $20,197,000 for the year ended
December 31, 1994.<PAGE>
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF SCOR U.S. CORPORATION
SCOR U.S. Corporation
SCOR Reinsurance Company (New York)
General Security Indemnity Company (New York)
General Security Insurance Company (Maryland)
SCOR Services International, Ltd. (Hong Kong)1
The Unity Fire and General Insurance Company (New York)
NARG, Inc. (New York)
SCOR Services, Inc. (Delaware)
BIND, Inc. (Texas)
Morgard, Inc. (Pennsylvania)
California Reinsurance Management Corporation (California)2
Commercial Risk Partners Limited (Bermuda)3
1 20% Ownership
2 92% Ownership
3 12.87% Ownership (as of January 10, 1995)<PAGE>
EXHIBIT 24
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
SCOR U.S. Corporation:
We hereby consent to the incorporation by reference in
Registration Statements (Nos. 33-12604, 33-44577 and 33-46753) on
Form S-8 of SCOR U.S. Corporation of our report dated February 2,
1995, relating to the consolidated financial statements of SCOR
U.S. Corporation and the related financial statement schedules as
of December 31, 1994 and 1993 and for each of the years in the
three-year period ended December 31, 1994, which report is
included in the December 31, 1994 Annual Report on Form 10-K of
SCOR U.S. Corporation. Our report refers to the adoption of the
provisions of the Statement of Financial Accounting Standards
("SFAS") No. 113, "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," and the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and also the adoption of the consensus opinion
regarding the Financial Accounting Standards Board's Emerging
Issues Task Force regarding Issue No. 93-6, "Accounting for
Multiple-Year Retrospectively Rated Contracts by Ceding and
Assuming Enterprises" in 1993. In 1992, the Company adopted the
provisions of SFAS No. 109, "Accounting for Income Taxes", and
changed its method of accounting for deferred policy acquisition
costs.
KPMG Peat Marwick LLP
New York, New York
March 28, 1995<PAGE>
EXHIBIT 25
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned
officers and/or Directors of SCOR U.S. Corporation constitutes
and appoints Jacques P. Blondeau, John T. Andrews, Jr. and Howard
B. Fischer and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution for
him and in his name, place and stead, in any and all capacities,
to sign the 10-K for the calendar year ending December 31, 1994,
and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in and about the premises, as fully to all intents and
purposes and he might or could in person, hereby ratifying and
confirming that all said attorneys-in-fact and agents or any of
them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand as
of the 24th day of March, 1995.
Jacques P. Blondeau Jean P. Masse
Serge M.P. Osouf Richard M. Murray
John R. Cox Patrick Peugeot
Raymond H. Deck John W. Popp
Michel J. Gudefin Francois Reach
Jerome Karter David J. Sherwood<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000798363
<NAME> SCOR U.S. CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 22,871
<DEBT-MARKET-VALUE> 563,656
<EQUITIES> 1,738
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 672,793
<CASH> 4,763
<RECOVER-REINSURE> 23,755
<DEFERRED-ACQUISITION> 22,844
<TOTAL-ASSETS> 1,143,715
<POLICY-LOSSES> 382,115<F1>
<UNEARNED-PREMIUMS> 90,775<F2>
<POLICY-OTHER> 43,685
<POLICY-HOLDER-FUNDS> 20,758
<NOTES-PAYABLE> 113,660
<COMMON> 5,507
0
0
<OTHER-SE> 233,888
<TOTAL-LIABILITY-AND-EQUITY> 1,143,715
228,244
<INVESTMENT-INCOME> 40,990
<INVESTMENT-GAINS> 984
<OTHER-INCOME> 0
<BENEFITS> 191,270
<UNDERWRITING-AMORTIZATION> 59,434
<UNDERWRITING-OTHER> 30,048
<INCOME-PRETAX> (19,454)
<INCOME-TAX> (11,262)
<INCOME-CONTINUING> (8,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 351
<CHANGES> 0
<NET-INCOME> (7,841)
<EPS-PRIMARY> (0.43)
<EPS-DILUTED> (0.43)
<RESERVE-OPEN> 340,366<F3>
<PROVISION-CURRENT> 193,587
<PROVISION-PRIOR> (2,317)
<PAYMENTS-CURRENT> 55,155
<PAYMENTS-PRIOR> 94,366
<RESERVE-CLOSE> 382,115<F1>
<CUMULATIVE-DEFICIENCY> (2,317)
<FN>
<F1>Reserve for losses and loss expenses at December 31, 1994 is presented
net of reinsurance recoverable on unpaid losses of $222,672.
<F2>Unearned premiums at December 31, 1994 is presented net of ceded unearned
premiums of $19,307.
<F3>Reserve for losses and loss expenses at December 31, 1993 is presented
net of reinsurance recoverable on unpaid losses of $221,843.
</FN>
</TABLE>
