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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION RULE 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SCOR U.S. CORPORATION
(Name of Subject Company)
SCOR U.S. CORPORATION
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $0.30 PER SHARE
(Title of Class of Securities)
784027104
(CUSIP Number of Class of Securities)
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JOHN T. ANDREWS, JR.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
2 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0178
TELEPHONE: (212) 390-5200
(Name, address (including zip code) and telephone number (including area code)
of person authorized to receive notices and communications on
behalf of the persons filing statement)
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COPY TO:
PHILLIP R. MILLS, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 450-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is SCOR U.S. Corporation (the "Company").
The address of the principal executive offices of the Company is Two World Trade
Center, New York, New York 10048-0178. The title of the class of equity
securities to which this Statement relates are the shares of the common stock,
par value $.30 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer made by SCOR S.A., societe
anonyme organized under the laws of The French Republic ("Parent"), to purchase
all outstanding Shares not currently beneficially owned directly or indirectly
by Parent at a price of $15.25 per Share (the "Offer Price") net to the seller
in cash, without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated November 9, 1995 (the "Offer to
Purchase") and the related Letter of Transmittal (which together constitute the
"Offer"), copies of which are filed as exhibits hereto and are incorporated
herein by reference. The Offer is disclosed in a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") filed with the Securities and Exchange
Commission (the "Commission") on November 9, 1995. The address of the principal
executive offices of Parent, as reported in the Schedule 14D-1, is 1 Avenue du
President Wilson, 92074 Paris La Defense Cedex, France.
The offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 2, 1995, as amended (the "Merger Agreement"), among Parent, the
Company and SCOR Merger Sub Corporation, a newly-formed Delaware corporation and
a wholly-owned subsidiary of Parent ("Purchaser"). The Merger Agreement
provides, among other things, that upon the terms and subject to the conditions
thereof, and in accordance with the provisions of the General Corporations Law
of the State of Delaware (the "DGCL") and the Restated Certificate of
Incorporation (the "Restated Certificate") and By-Laws of the Company, Purchaser
will be merged with and into the Company (the "Merger") as soon as practicable
following the consummation of the Offer and the satisfaction or waiver of
certain other conditions, with each Share issued and outstanding immediately
prior to the effective time of the Merger (other than Shares held in the
treasury of the Company or held by any wholly-owned subsidiary thereof and
Shares held by Parent or any of its subsidiaries, which shall be canceled and
extinguished without any conversion thereof and without any payment made with
respect thereunto, and other than Dissenting Shares (as defined below)) being,
by virtue of the Merger and without any action on the part of the holder
thereof, converted into the right to receive an amount in cash, without
interest, equal to the Offer Price.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement are set forth in Item 1 above.
(b) Except as described herein, to the knowledge of the Company, as of the
date hereof there are no material contracts, agreements or understandings (other
than in the ordinary course of business), or any potential or actual conflicts
of interest between the Company or its affiliates and (i) the Company, its
executive officers, directors or affiliates or (ii) Parent or its executive
officers, directors or affiliates.
Interests of Special Committee
On September 28, 1995, the Board of Directors of the Company (the "Board" or
"Board of Directors") created a special committee comprised of those directors
who are not officers of Parent or the Company or any affiliate of either of them
(the "Special Committee") to consider and make recommendations with respect to
the Proposal (as defined below). The members of the Special Committee are John
R. Cox, Raymond H. Deck, Michel J. Gudefin, Richard M. Murray, John
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W. Popp, David J. Sherwood and Ellen E. Thrower. Mr. Sherwood serves as Chairman
and Mr. Cox serves as Vice Chairman of the Special Committee.
Mr. Cox currently serves as a Director of the Company and has been Director
of the Company since 1994. Mr. Cox beneficially owns 1,000 Shares.
Mr. Deck currently serves as a Director of the Company and has been a
Director of the Company since 1986. Mr. Deck beneficially owns 7,100 Shares.
Mr. Gudefin currently serves as a Director of the Company and has been a
Director of the Company since 1990. Mr. Gudefin beneficially owns 18,000 Shares.
Mr. Murray currently serves as a Director of the Company and has been a
Director of the Company since 1990. Mr. Murray beneficially owns 3,000 Shares.
Mr. Popp currently serves as a Director of the Company and has been a
Director of the Company since 1990. Mr. Popp beneficially owns 1,000 Shares.
Mr. Sherwood currently serves as a Director of the Company and has been a
Director of the Company since 1987. Mr. Sherwood beneficially owns 1,100 Shares.
Ms. Thrower currently serves as a Director of the Company and has been a
Director of the Company since 1995. Ms. Thrower beneficially owns no Shares.
In consideration of the services rendered on the Special Committee, the
members of the Special Committee each received $1,000.00 for attendance at each
meeting of the Special Committee. Mr. Sherwood will be receiving an annual
retainer fee, which is to be determined, for serving as Chairman of the Special
Committee.
Interests of Certain Persons
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its directors, executive officers or
affiliates are described at pages 5 through 26 of the Company's Proxy Statement
dated April 28, 1995 relating to its 1995 Annual Meeting of Stockholders (the
"1995 Proxy Statement"). A copy of the 1995 Proxy Statement is attached as an
exhibit hereto and the portions thereof referred to herein are incorporated
herein by reference.(1)
The Company has granted options to purchase Shares to key executives,
directors and key employees under the Company's 1986 Stock Incentive Plan for
Key Executives, the Company's 1990 Stock Option Plan for Directors and the
Company's 1991 Stock Option Plan for Key Employees, respectively. See "The
Merger Agreement--Certain of the Covenants of the Company and Parent" under Item
3(b) below for a description of the treatment of employee stock options in the
Merger.
Jacques P. Blondeau has served as Chairman of the Board of Directors of the
Company since September 30, 1994 and as a Director of the Company since 1988.
Mr. Blondeau is also Chairman of SCOR Reinsurance Company ("SCOR Re"). Mr.
Blondeau serves as a Trustee of the Voting Trust as described below that holds
the stock of SCOR Re on behalf of the Company. Mr. Blondeau is Chairman of the
Board and Chief Executive Officer of Parent. Mr. Blondeau was President--
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(1) The following are corrections to information contained in the 1995 Proxy
Statement: (1) the bonus of Nolan E. Asch, Senior Vice President and Chief
Actuary of the Company, for 1992 as listed on page 11 of the 1995 Proxy
Statement was $20,000, not $0 as indicated therein; and (2) the expiration
date for the 9,071 options of Mr. Asch listed on page 13 of the 1995 Proxy
Statement is December 2, 2004, not November 30, 2004 as indicated therein.
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Operations of Societe Commercial de Reassurance ("SCOR Paris") from 1988 until
1990. Serge M.P. Osouf has served as Vice Chairman of the Board of Directors of
the Company and SCOR Re since September 30, 1994, and has been a Director of the
Company since September 1993, and of SCOR Re since December 1991. Mr. Osouf
serves as the General Manager of Parent and Chairman of SCOR Vie, a subsidiary
of Parent. Patrick Peugeot has served as a Director of the Company since 1983
and of SCOR Re since 1985. Mr. Peugeot is also a Voting Trustee of SCOR Re. Mr.
Peugeot had served as Chairman of the Board and Chief Executive Officer of
Parent from 1989 until 1994 and of SCOR Paris from 1983 until 1990. Francois
Reach has served as a Director of the Company since March 1989 and of SCOR Re
since June 1994. Mr. Reach has served as Chairman and Chief Executive Officer of
REAFIN, the finance company subsidiary of Parent since October 1994. Mr. Reach
has served as Deputy General Manager of Parent since October 1994.
As of October 31, 1995, all executive officers and directors of the Company
as a group beneficially owned an aggregate of 82,161 Shares and held stock
options to purchase 815,900 Shares. Together, such Shares and Shares purchasable
upon exercise of such stock options aggregate approximately 4.94% of the
18,170,971 Shares outstanding on October 31, 1995. If the transaction is
consummated, such persons will receive an aggregate of $1,252,955.25 in cash for
their Shares and, in addition, an aggregate of $2,728,528.375 in respect of the
cash-out of their stock options. See "The Merger Agreement" below for a
discussion of the treatment of stock options in the Merger.
The following table sets forth, as of October 31, 1995, the number of Shares
and stock options owned by, and the aggregate amounts to be received by, each
executive officer and director of the Company and Parent who owns any Shares or
stock options and all executive officers and directors as a group pursuant to
the transaction (after giving effect to the payments to be made in respect of
Shares and stock options, but without taking into account such individuals' cost
bases in their Shares, pursuant to the terms of the Merger Agreement). Other
than the individuals named below, no executive officer or director of the
Company or Parent owns any Shares.
TOTAL
SHARES CASH AMOUNT
BENEFICIALLY OUTSTANDING TO BE
NAME OWNED OPTIONS RECEIVED
- ---------------------------------- ------------ ----------- ------------
Louis Adanio...................... 10,409 36,480 $262,339.75
John T. Andrews, Jr............... -0- 109,000 284,750.00
Nolan E. Asch..................... 14,188 61,671 356,334.875
Jacques P. Blondeau............... -0- 102,000 328,278.00
John R. Cox....................... 1,000 6,000 45,250.00
Jeffrey D. Cropsey................ 4,552 13,000 150,668.00
Raymond H. Deck................... 7,100 18,000 160,400.00
John D. Dunn, Jr.................. -0- 25,000 126,250.00
Francis J. Fenwick................ -0- 7,800 48,750.00
Howard B. Fischer................. 4,412 31,760 156,743.00
Linda J. Grant.................... 100 15,300 53,650.00
Michel Gudefin.................... 18,000 18,000 326,625.00
Jerome Karter..................... -0- 166,000 560,300.00
Dominique LaVallee................ 1,400 19,000 83,850.00
Jean Masse........................ -0- 6,000 39,375.00
Richard M. Murray................. 3,000 18,000 97,875.00
Serge M.P. Osouf.................. -0- 13,000 74,500.00
Patrick Peugeot................... 15,900 95,789 584,395.00
John W. Popp...................... 1,000 18,000 67,375.00
Francois Reach.................... -0- 6,000 30,000.00
Robert D. Sawicki................. -0- 9,100 56,875.00
David J. Sherwood................. 1,100 18,000 68,900.00
Ellen E. Thrower.................. -0- 3,000 18,000.00
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The Merger Agreement provides for the indemnification of the current and
former directors and officers of the Company from and after the Effective Time
(as defined below), and the maintenance of a policy of directors' and officers'
liability insurance for a period of six years after the Effective Time. See "The
Merger Agreement--Certain of the Covenants of the Company and Parent" below. The
directors, officers and employees of the Company may be indemnified against
certain actions, claims and liabilities pursuant to the Company's By-Laws.
Indemnification
The Restated Certificate and the By-Laws contain provisions which state that
no director shall be personally liable to the Company or its stockholders for
monetary damages with respect to claims by the Company or the stockholders for
breaches of fiduciary duty as a director. The provisions do not limit director
liability for monetary damages (a) for any breach of the director's duty of
loyalty to the Company or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of Title 8 of the DGCL (i.e., unlawful dividends or
other unlawful payments) or (d) for any transaction from which the director
derived an improper personal benefit.
The By-Laws of the Company provide that each director and each officer or
former director or officer of the Company or each person who may have served at
the Company's request as a director or officer of another corporation in which
the Company owned shares of capital stock or of which the Company is a creditor,
may be indemnified by the Company against liabilities imposed upon such director
or officer and expenses reasonably incurred by such director or officer in
connection with any claim made against such director or officer, or any action,
suit or proceeding to which such director or officer may be a party by reason of
such person being, or having been, a director or officer of the Company, 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 such director or officer 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 policy. Such indemnification is in addition to any other
rights to which directors or officers may be entitled.
The Company, its directors and its officers are covered under a Directors
and Officers Insurance Including Company Reimbursement Policy (the "D&O
Insurance") effective for the period from June 22, 1995 to June 22, 1996.
Pursuant to the policy, the insurer agreed (1) to pay on behalf of the Company's
directors and officers loss from certain claims arising from such directors' or
officers' wrongful acts, except for any loss which the Company pays to or on
behalf of such directors or officers as indemnification and (2) to reimburse the
Company for loss from certain claims which the Company pays to or on behalf of
the directors or officers as indemnification.
Contracts and Transactions between the Company and Parent.
Ownership of the Company. Parent currently owns approximately 80% of the
outstanding Shares and therefore has the ability to control the Company through
the election of a majority of the Board and voting at meeting of stockholders.
Six of the thirteen members of the Board also serve as directors and/or officers
of Parent, its subsidiaries or affiliates or are officers of the Company
("Affiliated Directors").
Share Repurchases. On November 2, 1994, Parent acquired directly from
certain of the Company's Executive Officers 82,000 Shares at the then prevailing
market price of $11.125 per Share, specifically: 44,000 Shares from John T.
Andrews, Jr., Senior Vice President, General Counsel and Secretary; 9,071 Shares
from Nolan E. Asch, Senior Vice President and Chief Actuary;
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3,929 Shares from R. Daniel Brooks, Senior Vice President; and 25,000 Shares
from Jerome Karter, President and Chief Executive Officer. Each of these senior
officers had, at the request of the Company, voluntarily agreed not to sell any
Shares held by them in connection with the privately placed offering of
convertible subordinated debentures of the Company in 1993, and were prevented
from selling during certain other periods thereafter in accordance with Company
policy. The proceeds from these sales to Parent were applied exclusively to
reduce indebtedness of the sellers to the Company. In addition, on November 2,
1994, under the Company's Stock Incentive Plan for Key Employees, the Company
granted to each of such officers options to purchase a corresponding number of
Shares at an exercise price of $11.125 per Share, which was equal to the per
share market price on that date.
Loan Agreement. On October 2, 1995, the Company, as borrower, entered into a
Loan Agreement with Parent, as lender, which provides for a term loan to the
Company of a principal sum of $20 million from Parent. The term of the loan is
one year commencing on October 2, 1995 and is subject to renewal for an
additional term of one year at the option of the Company. The interest rate for
the loan during any three month interest period is the rate equal to 0.2% plus
the applicable three month London Interbank Offered Rate. Interest is payable
two days prior to the end of each three month interest period. The proceeds of
the loan are restricted to the repayment of, or the repayment of indebtedness
incurred in respect of the repayment of, a bank financing obtained by the
Company. In October 1995, the Company borrowed $20 million under this loan
agreement.
Credit Agreement. As of November 2, 1995, the Company had outstanding
$75,950,000 aggregate principal amount of 5 1/4% Convertible Subordinated
Debentures due April 1, 2000 (the "Debentures"), which were issued by the
Company on March 29, 1993 at a price equal to the principal amount thereof
through a private offering. The Debentures are not redeemable by the Company
prior to April 3, 1996, and outstanding Debentures are currently convertible
into approximately 2.99 million Shares at a conversion price of $25.375 per
Share. Under the terms of the indenture pursuant to which the Debentures were
issued (the "Indenture"), in the event that Parent beneficially owns, after
giving effect to the purchase of Shares pursuant to the Offer or the acquisition
of Shares pursuant to the Merger, in excess of 90% of the outstanding Shares (a
"Repurchase Event"), the holders of the Debentures shall have the right to
require the Company to repurchase the Debentures at a repurchase price equal to
100% of the principal amount thereof together with accrued and unpaid interest
to the date of such repurchase, which date shall be 45 days after the date on
which the Company notifies the holders of the Debentures of such Repurchase
Event.
On January 24, 1995, the Company, as borrower, entered into a Credit
Agreement (the "Credit Agreement") with Parent, as lender. The Credit Agreement
provides that during term of the Credit Agreement (the "Revolving Credit
Period"), which is five years, the Company may borrow amounts from time to time
from Parent, which amounts in the aggregate at any one time do not exceed $20
million. During the Revolving Credit Period, the Company may borrow, repay or
prepay any loans under the Credit Agreement subject to the terms thereof. The
interest rate on each loan during any three month interest period is the rate
equal 0.5% plus the applicable three month London Interbank Offered Rate.
Interest is payable at the end of each three month interest period unless added
to the outstanding principal balance of such loan at the option of the Company.
The proceeds of the Credit Agreement are restricted to the repurchase of the
Debentures in the market or the repayment of any debt incurred in order to
repurchase Debentures. In addition, Parent may provide or arrange financing
necessary for the Company to satisfy its obligation to repurchase Debentures in
accordance with the terms of the Indenture.
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
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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 to 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 the Company'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 Parent, 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 for
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 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. Parent 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"), Parent 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 Assurance Corporation of New
York ("General Security") and The Unity Fire and General Insurance Company
("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 Parent'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
Parent in settlement of its liability under this agreement.
On May 4, 1994, SCOR Re and Parent entered into a Second Net Aggregate
Excess of Loss Retrocessional Agreement ("the 1994 Retrocessional Agreement")
dated as of May 4, 1994 and effective as of 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
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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. 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
experience under the 1994 Retrocessional Agreement, SCOR Re is eligible to
receive a contingent commission of up to 27.75% of the premium.
SCOR Re is a party to two additional retrocession agreements providing for
significant premium payments to Parent. First, pursuant to the Catastrophe
Excess of Loss Reinsurance Contract for the 1994 year, SCOR Re paid Parent a
premium for that year of approximately $3.80 million for the coverage specified
under that reinsurance contract in respect of losses under policies covering
treaty and facultative reinsurance assumed by SCOR Re resulting from certain
property exposures. Losses arising from the earthquake in Northridge, California
in 1994 resulted in a restatement of the coverage under the contract for an
additional premium of approximately $3.5 million. Second, pursuant to the
Catastrophe Excess of Loss Reinsurance Contract for the 1995 year, SCOR Re is
required to pay each of Parent and one of its affiliates, SCOR Reassurance, by
way of quarterly installments, a premium of approximately $2.04 million for that
year for the coverage to be provided by each of them as specified under that
reinsurance contract in respect of losses under policies covering treaty and
facultative reinsurance assumed by SCOR Re resulting from certain casualty
occurrences.
Parent entered into a Net Aggregate Excess of Loss Retrocessional Agreement
with each of Unity Fire and General Security, pursuant to which Parent 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 an 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 Parent. As a result
of a 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.
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 of the Company, which includes SCOR Re, General
Security Insurance Company, Unity Fire and General Security Indemnity Company
(collectively, the "Operating Subsidiaries") would be required to pay the full
amount of the loss associated with the reinsured risk if for any reason Parent
or any other retrocessionaire 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 retrocessioinaire. 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
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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.
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. Unity Fire
was so owned or financially controlled prior to such effective date. Because
Parent, the controlling stockholder of the Company, was indirectly partially
owned by certain French insurance companies which were majority owned by the
French Government, the Company, 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
insurance license, the SCOR Reinsurance Company 1994 Voting Trust Agreement,
among SCOR Re, the Company and the Voting Trustees designated therein was
entered as of June 6, 1994, thereby renewing the voting trust 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 Parent. The voting trustees are required
to forward any dividends paid by SCOR Re to the Company 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 the Company, with the exception of
Mr. Chapin, who is a partner of Sullivan & Cromwell, United States legal counsel
of Parent.
Ownership of Commercial Risk. In January 1992, the Company acquired 19.8% of
the stock of Commercial Risk, a Bermuda holding company for two insurance
subsidiaries. The purchase price was approximately $9.9 million. As a result of
a recapitalization of Commercial Risk in 1994, the Company currently owns
approximately 12.87% of the outstanding stock of Commercial Risk. Parent owns
approximately 52.27% of the outstanding stock of Commercial Risk.
Services Agreement. Pursuant to an Amended Service Agreement dated as of
June 11, 1992 between the Company and Parent, the Company and Parent have agreed
to reimburse the other for services provided by various personnel. The amount of
the reimbursement for the services provided is determined by allocation of the
actual costs, including salary and related expenses.
Reinsurance. The Operating Subsidiaries assume reinsurance from Parent 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 $7.85 million (2.6%), $8.38 million (2.5%)
and $6.70 million (2.2%) for the years ended December 31, 1994, 1993 and 1992,
respectively. Of these amounts, approximately $6.96 million, $7.93 million and
$6.28 million for 1994, 1993 and 1992, respectively, were assumed from Parent.
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The Operating Subsidiaries also retrocede reinsurance to Parent and other
affiliated companies, primarily on a quota share or surplus share basis. The
total written premiums approximately ceded by the Company's subsidiaries under
retrocession agreements to affiliated companies in 1994 were approximately
$35.64 million.
Parent provides letters of credit in favor of the Operating Subsidiary in
amounts equal to its estimated liability under its reinsurance agreements with
such companies (as re-estimated on a quarterly basis). The amount of letters of
credit provided by Parent at December 31, 1994 was approximately $134.5 million
and at December 31, 1993 was approximately $123 million.
Software. The Company has agreed in principle with Parent for the purchase
by Parent of the Company's New Treaty System ("NTS"). The purchase price is
approximately $1.5 million. To date, the Company has expended approximately
$10.2 million in researching, developing and implementing NTS.
The Merger Agreement.
The following is a description of certain provisions of the Merger
Agreement. Such description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which is filed as
an exhibit hereto.
The Offer. Pursuant to the Merger Agreement, Purchaser is obligated to
commence the Offer no later than five business days following the date of the
Merger Agreement. The Merger Agreement provides that the obligation of Purchaser
to consummate the Offer and to accept for payment and purchase the Shares
tendered pursuant to the Offer shall be subject only to the conditions set forth
in the Merger Agreement, which are described below under the caption "The Merger
Agreement--Conditions to the Offer." Subject to the terms and conditions of the
Offer, Purchaser will promptly pay for all Shares duly tendered that it is
obligated to purchase thereunder. The Board of Directors and a majority of the
members of the Special Committee shall recommend acceptance of the Offer to its
stockholders in a Solicitation/Recommendation Statement on Schedule 14D-9, as
such statement may be amended or supplemented from time to time, to be filed
with the Commission upon commencement of the Offer; provided, however, that if
the Board of Directors determines that its fiduciary duties require it to amend
or withdraw its recommendation, such amendment or withdrawal shall not
constitute a breach of the Merger Agreement. Purchaser will not without the
prior written consent of the Company decrease the price per Share or change the
form of consideration payable in the Offer, decrease the number of Shares sought
or change the conditions to the Offer. Purchaser shall not terminate or withdraw
the Offer unless at the expiration date of the Offer the conditions to the Offer
set forth below have not been satisfied or waived.
Conditions to the Offer. The Merger Agreement provides that, notwithstanding
any other provision of the Offer, Purchaser shall not be obligated to accept for
payment any Shares or, subject to any applicable rules and regulations of the
Commission, including Rule 14e-1(c) (relating to Purchaser obligation to pay for
or return tendered Shares promptly after termination or withdrawal of the Offer)
or pay for, and may delay the acceptance for payment of or payment for, any
tendered Shares unless there have been validly tendered and not withdrawn prior
to the expiration date of the Offer a number of Shares that, together with any
Shares currently beneficially owned directly or indirectly by Parent,
constitutes at least 90% of the total Shares outstanding as of the date the
Shares are accepted for payment pursuant to the Offer (the "Minimum Tender
Condition"), or if on or after November 2, 1995, and at or before the time of
payment for any of such Shares
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(whether or not any Shares have theretofore been accepted for payment or paid
for pursuant to the Offer), any of the following events shall occur:
(a) there shall be any statute, rule, regulation, judgment, injunction
or other order, enacted, promulgated, entered, enforced or deemed applicable
to the Offer or the Merger or any other action shall have been taken by any
government, legislative body, court or governmental, regulatory or
administrative agency, authority, tribunal or commission, domestic,
supranational or foreign (each, a "Governmental Entity"), or any other
person, domestic, supranational or foreign (i) challenging the legality of
the acquisition by Purchaser of the Shares; (ii) restraining, delaying or
prohibiting the making or consummation of the Offer or the Merger or
obtaining from the Company, Parent or Purchaser any damages in connection
therewith; (iii) relating to assets of, or prohibiting or limiting the
ownership or operation by Parent or Purchaser of all or any portion of the
business or assets of, the Company, Parent or Purchaser (including the
business or assets of their respective affiliates and subsidiaries) or
imposing any limitation on the ability of Parent or Purchaser to conduct
such business or own such assets; (iv) imposing limitations on the ability
of Parent or Purchaser (or any affiliate of Parent or Purchaser) to acquire
or hold or to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by them on all
matters properly presented to the stockholders of the Company or (v) having
a substantial likelihood of any of the foregoing.
(b) there shall have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market in the United States
or France or (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or France (whether or not
mandatory);
(c) the Company shall have breached or failed to perform in any material
respect any of its covenants, obligations or agreements under the Merger
Agreement or any representation or warranty of the Company set forth in the
Merger Agreement shall have been inaccurate or incomplete in any material
respect when made or thereafter shall become inaccurate or incomplete in any
material respect;
(d) any change, including, without limitation, any change arising out of
or related to any natural disaster (including hurricanes and earthquakes),
shall have occurred or been threatened or become known (or any condition,
event or development shall have occurred or been threatened or become known
involving a prospective change) in the business, properties, assets,
liabilities, condition (financial or otherwise), or results of operations of
the Company or any of its subsidiaries that could reasonably be expected to
be materially adverse to the Company and its subsidiaries taken as a whole;
(e) all consents, registrations, approvals, permits, authorizations,
notices, reports or other filings required to be made or obtained by the
Company, Parent, Purchaser or any stockholder of Parent with or from any
Governmental Entity in connection with the Offer and the Merger shall not
have been made or obtained except where the failure to make or to obtain, as
the case may be, such consents, registrations, approvals, permits,
authorizations, notices, reports or other filings could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), properties, assets, liabilities, business or results of
operations of the Company and its subsidiaries taken as a whole;
(f) the Special Committee of the Board of Directors shall have adversely
amended or modified or shall have withdrawn its recommendation of the Offer
or the Merger, or shall have
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failed to reconfirm publicly such recommendation upon request by Parent or
Purchaser, or shall have resolved to do any of the foregoing; or
(g) the Agreement shall have been terminated in accordance with its
terms or Purchaser shall have reached an agreement or understanding with the
Special Committee providing for termination of the Offer;
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above, and regardless of the circumstances (including any
action or inaction by Purchaser, Parent or any affiliate of Parent) giving rise
to any such condition, makes it inadvisable to proceed with the Offer or with
such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances (including any action or
inaction by Purchaser, Parent or any affiliate of Parent) giving rise to any
such conditions or may be waived by Purchaser in whole or in part at any time
and from time to time in its sole discretion. The failure by Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by Purchaser
concerning the events described above will be final and binding on all holders
of the Shares.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the time at which the Company and Parent file a
certificate of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by the DGCL in connection with the
Merger, Purchaser shall merge with and into the Company in accordance with the
DGCL. The Merger shall become effective on the date on which the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware (the
"Effective Time"). As a result of the Merger, the separate corporate existence
of Purchaser will cease, and the Company will be the Surviving Corporation (as
defined in the Merger Agreement).
At the Effective Time, (i) each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Parent, Purchaser or any
other direct or indirect subsidiary of Parent (collectively, "Parent Companies")
or Shares that are owned by the Company or any direct or indirect subsidiary of
the Company or Shares ("Dissenting Shares") which are held by stockholders
("Dissenting Stockholders") properly exercising appraisal rights pursuant to
Section 262 of the DGCL (collectively, "Excluded Shares")) shall be converted
into the right to receive, without interest, an amount in cash (the "Merger
Consideration") equal to $15.25 and (ii) all Shares, by virtue of the Merger and
without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and returned and shall cease to exist, and
each holder of a certificate representing any such Shares (other than Excluded
Shares) shall thereafter cease to have any rights with respect to such Shares,
except the right to receive the Merger Consideration for such Shares upon the
surrender of such certificate in accordance with the Merger Agreement or the
right, if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Section 262 of the DGCL.
At the Effective Time, each Share issued and outstanding at the Effective Time
and owned by any of Parent Companies or held in the Company's treasury or owned
by the Company or any direct or indirect subsidiary of the Company shall cease
to be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
At the Effective Time each share of common stock, par value $1.00 per share,
of Purchaser issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and
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without any action on the part of Purchaser or the holders of such shares, be
converted into one share of common stock of the Surviving Corporation.
The Merger Agreement provides that the Dissenting Shares will not be
converted into or represent the right to receive the Merger Consideration.
Holders of such shares will be entitled to receive payment of the "fair value"
of such Shares held by them in accordance with the provisions of Section 262 of
the DGCL, except that all Dissenting Shares held by stockholders who fail to
perfect or who effectively withdraw or lose their rights to dissent will
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any interest thereon, the Merger Consideration, upon
surrender of the certificate or certificates that formerly evidenced such
Shares.
The Merger Agreement provides that, at the Effective Time, the Restated
Certificate and the By-Laws of the Company in effect at the Effective Time will
be the Certificate of Incorporation and By-Laws of the Surviving Corporation,
except that Article 4A of the Company's Restated Certificate shall be amended to
read in its entirety as follows: "The aggregate number of shares of stock which
the Corporation shall have the authority to issue is 1,000 shares of Common
Stock, par value $0.01 per share."
Agreements of Parent and the Company. The Merger Agreement provides that in
the event that Parent, Purchaser or any other subsidiary of Parent shall acquire
at least 90% of the outstanding Shares pursuant to the Offer or otherwise,
Parent, Purchaser and the Company have agreed, at the request of Parent or
Purchaser, to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after the acceptance for payment and
purchase of Shares by Purchaser pursuant to the Offer without a meeting of
stockholders of the Company in accordance with Section 253 of the DGCL.
The Merger Agreement provides that the directors and officers of the Company
as of the Effective Time shall be the directors and officers, respectively, of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until the earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
Certain of the Covenants of the Company and Parent. The Company has agreed
that, prior to the Effective Time (unless Parent shall otherwise agree in
writing and except as otherwise expressly contemplated by the Merger Agreement),
the business of the Company and its subsidiaries shall be conducted only in the
ordinary and usual course consistent with past practice and, to the extent
consistent therewith, each of the Company and its subsidiaries have agreed to
use its best efforts to preserve its business organization intact (including
maintaining all of its Permits (as defined in the Merger Agreement)) and to
maintain its existing relations with customers, suppliers, employees and
business associates and it shall take no action that would adversely affect the
ability of the parties to consummate promptly the transactions contemplated by
the Merger Agreement.
Pursuant to the Merger Agreement, if required following termination of the
Offer, the Company will take all action necessary to convene a meeting of
holders of Shares as promptly as practicable to consider and vote upon the
approval of the Merger Agreement and the Merger. The Company has agreed that the
Board, subject to their fiduciary requirements of applicable law, shall
recommend such approval and that the Company shall take all lawful action to
solicit such approval. Parent has agreed to vote all Shares then owned by Parent
Companies (including all Shares currently owned by Parent Companies) in favor of
the Merger Agreement.
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Parent and the Company have each agreed in the Merger Agreement, subject to
the terms and conditions provided therein, to make promptly their respective
Regulatory Filings and Purchaser Regulatory Filings (as each term is defined
therein) and thereafter to make any other required submissions with respect to
the Offer and the Merger and to use their respective best efforts to take
promptly, or cause to be taken promptly, all other action and do, or cause to be
done, all other things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the transactions contemplated
by the Merger Agreement as soon as practicable.
Prior to the Effective Time, the Company has agreed in the Merger Agreement
to take such actions as may be necessary such that at the Effective Time each
stock option outstanding, pursuant to the Company's stock and option plans (an
"Option"), whether or not then vested shall be canceled and only entitle the
holder thereof, upon surrender thereof, to receive an amount in cash equal to
the difference, if positive, between the Merger Consideration and the exercise
price per Share of such Option multiplied by the number of Shares previously
subject to such Option.
Parent and the Company have agreed that from and after the Effective Time,
the Surviving Corporation and Parent will indemnify and hold harmless each
present and former director and/or officer of the Company, determined as of the
Effective Time (the "Indemnified Parties"), that is made a party or threatened
to be made a party to any threatened, pending or completed, action, suit,
proceeding or claim, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she was a director or officer of the Company or
any subsidiary of the Company prior to the Effective Time and arising out of
actions or omissions of the Indemnified Party in any such capacity occurring at
or prior to the Effective Time (a "Claim") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amounts paid in
settlement pursuant to the Merger Agreement, losses, claims, damages or
liabilities (collectively, "Costs") reasonably incurred in connection with any
Claim, whether asserted or claimed prior to, at or after the Effective Time, to
the fullest extent that the Company would have been permitted under Delaware
law. The Surviving Corporation and Parent shall also advance expenses (including
attorneys' fees), as incurred by the Indemnified Party to the fullest extent
permitted under applicable law provided such Indemnified Party provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, shall promptly notify the Surviving
Corporation and Parent thereof, but the failure to so notify shall not relieve
the Surviving Corporation or Parent of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Parent or the
Surviving Corporation shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Parent or the
Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Parent or the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
Parent or the Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation and Parent shall be
obligated to pay for only one firm or counsel for all Indemnified Parties in any
jurisdiction unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest, (ii) the Indemnified Parties
will cooperate in the defense of any such matter and (iii) Parent shall not be
liable for any settlement effected without its prior written consent; and
provided further that the Surviving Corporation and Parent, respectively, shall
not
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have any obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. If such indemnity is not available with respect to any Indemnified Party,
then the Surviving Corporation and the Indemnified Party shall contribute to the
amount payable in such proportion as is appropriate to reflect relative faults
and benefits.
If a claim for indemnification or advancement is not paid in full by the
Surviving Corporation or Parent within thirty days after a written claim
therefor has been received by the Surviving Corporation or Parent, the
Indemnified Party may any time thereafter bring suit against the Surviving
Corporation or Parent to recover the unpaid amount of the claim and, if
successful in whole or in part, the Indemnified Party shall be entitled to be
paid also the expense of prosecuting such claims.
Neither the failure of the Surviving Corporation or Parent (including their
Boards of Directors, independent local counsel or shareholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnified Party is proper in the circumstances because he or she has met the
applicable standard of conduct, nor an actual determination by the Surviving
Corporation or Parent (including their Boards of Directors, independent legal
counsel, or shareholders) that the Indemnified Party has not met such applicable
standard of conduct, shall be a defense to the suit or create a presumption that
the Indemnified Party has not met the applicable standard of conduct.
In addition, the Surviving Corporation agreed to maintain the Company's
existing officers' and directors' liability insurance or equivalent liability
insurance ("D&O Insurance") for a period of six years after the Effective Time
so long as the annual premium therefor is not in excess of the last annual
premium paid prior to the date of the Merger Agreement (the "Current Premium");
provided, however, if the existing D&O Insurance expires, is terminated or
canceled during such six-year period, the Surviving Corporation agreed to use
its best efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
200 percent of the Current Premium. In lieu of this insurance arrangement, the
Surviving Corporation may, on or before the expiration of the Offer, enter into
alternative insurance arrangements provided that such arrangements are approved
by the members of the Special Committee and Parent.
The Company has agreed in the Merger Agreement that if Purchaser or any
other Parent Company shall have purchased Shares pursuant to the Offer, to take
all necessary action to enter into a supplemental indenture prior to the
Effective Time with the Trustee (as defined in the Debentures) pursuant to the
indenture under which the Debentures were issued, to provide, among other
things, that on and after the Effective Time the Debentures will be convertible
only into the Merger Consideration.
If any takeover statute shall become applicable to the Merger, the Offer or
the other transactions contemplated pursuant to the Merger Agreement, the
Company has agreed in the Merger Agreement that the Company and the members of
the Board shall grant such approvals and take such actions as are necessary so
that the transactions contemplated pursuant to the Merger Agreement may be
consummated as promptly as practicable on the terms contemplated by the Merger
Agreement and otherwise act to eliminate or minimize the effects of such statute
or regulation on the transactions contemplated by the Merger Agreement.
The Company and Parent each have agreed in the Merger Agreement to use (and
cause its subsidiaries to use) its best efforts to cause the conditions set
forth in Article VII of the Merger Agreement to be satisfied and to consummate
the Merger and the other transactions contemplated
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by the Merger Agreement. The Company further agreed to use (and to cause its
subsidiaries to use) its best efforts (including providing information and
communication) to obtain all necessary waivers, consents and approvals from
other parties to material agreements, leases and other contracts and to obtain
as promptly as practicable all necessary approvals, authorizations and consents
of Governmental Entities (including applicable insurance regulators) required to
be obtained in order to consummate the transactions contemplated by the Merger
Agreement, and each of the parties to the Merger Agreement agree to cooperate
with the others in obtaining all such consents, waivers, approvals and
authorizations.
In the Merger Agreement, Parent agreed to vote (or consent with respect to)
or cause to be voted (or a consent to be given with respect to) any Shares
(including all Shares currently owned) and any shares of common stock of
Purchaser beneficially owned by it or any of its subsidiaries or with respect to
which it or any of its subsidiaries has the power (by agreement, proxy or
otherwise) to cause to be voted (or to provide a consent), in favor of the
adoption and approval of the Merger Agreement at any meeting of stockholders of
the Company or Purchaser, respectively, at which the Merger Agreement shall be
submitted for adoption and approval and at all adjournments or postponements
thereof (or, if applicable, by any action of stockholders of either the Company
or Purchaser by consent in lieu of a meeting).
In the Merger Agreement, Parent and the Company agreed that no amendment to
the Certificate of Incorporation or By-Laws of the Surviving Corporation shall
reduce in any way the elimination of personal liability of directors of the
Company contained therein or adversely affect any existing right of any director
or officer (or former director or officer) to be indemnified with respect to
acts, omissions or events occurring prior to the Effective Time.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including among
others, representations as to corporate organization and qualification,
capitalization, corporate authority, no violation of charter or by-laws, debt
instruments or material agreements of the Company or applicable law resulting
from the transaction, accuracy of the Company's public filings, including
financial statements, absence of any material adverse change in the Company's
business and absence of undisclosed liabilities.
Conditions to Certain Obligations. The respective obligations of the
Company, Parent and Purchaser to consummate the Merger are subject to the
fulfillment of the following conditions: (i) in the event of a Company
stockholder meeting upon termination of the Offer to vote for the approval of
the Merger Agreement and the Merger, the Merger Agreement shall have been duly
approved by the holders of a majority of the Shares, in accordance with
applicable law and the Restated Certificate and the Company's By-Laws; (ii)
Purchaser (or one of Parent Companies) shall have purchased Shares pursuant to
the Offer; and (iii) no court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the Merger.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned (i) at any time prior to the Effective Time, before or after the
approval by holders of Shares, by the mutual consent of Parent and the Company,
by action of their respective boards of directors; (ii) by action of the board
of directors of either Parent or the Company if (a) Purchaser or any Parent
Company, shall have terminated the Offer without purchasing any Shares pursuant
thereto, provided, in the case of termination of the Merger Agreement by Parent,
such termination of the Offer is not in violation of the terms of the Offer, or
(b) without fault of the terminating party, the Merger shall not have been
consummated by March 31, 1996, whether or not such date is before or after the
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approval by holders of Shares; (iii) at any time prior to the Effective Time,
before or after the approval by holders of Shares, by action of the board of
directors of Parent, if (a) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in the Merger
Agreement to be complied with or performed by the Company at or prior to such
date of termination, or (b) the Board of Directors or the Special Committee
shall have withdrawn or modified in a manner adverse to Parent or Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the Merger or
the Board of Directors or the Special Committee, upon request by Parent, shall
fail to reaffirm such approval or recommendation, or shall have resolved to do
any of the foregoing; (iv) at any time prior to the Effective Time, before or
after the approval by holders of Shares by action of the Board of Directors, if
Parent or Purchaser (a) shall have failed to comply in any material respect with
any of the covenants or agreements contained in the Merger Agreement to be
complied with or performed by Parent or Purchaser at or prior to such date of
termination or (b) shall have failed to commence the Offer within five days of
the execution of the Merger Agreement; provided however that no action taken by
the Board of Directors with respect to termination of the Merger Agreement and
the Merger shall be effective unless such action is approved by the affirmative
vote of at least a majority of the members of the Special Committee.
Payment of Expenses. Whether or not the Merger shall be consummated, the
Company, Parent and Purchaser shall pay its own expenses incident to preparing
for, entering into and carrying out the Merger Agreement and the consummation of
the Merger.
Modification or Amendment. Subject to the applicable provisions of the DGCL,
at any time prior to the Effective Time, Parent, the Company and Purchaser may
modify or amend the Merger Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
Waiver of Conditions. The conditions to each of the Company, Parent or
Purchaser's obligations to consummate the Merger are for the sole benefit of
such party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
The Letter Agreement
In a Letter Agreement dated as of November 8, 1995, among Parent, Purchaser
and the Company (the "Letter Agreement"), the parties agreed to modify the
Minimum Tender Condition to eliminate the consideration of options for purposes
of calculating whether Parent beneficially owned, directly or indirectly, at
least 90% of the Shares.
(c) Background of the Offer.
In a letter to the Board of Directors dated September 25, 1995, that was
delivered to the Board on September 26, 1995, from Jacques Blondeau on behalf of
Parent, Parent made a proposal to acquire in a negotiated transaction any and
all outstanding Shares not currently owned by Parent at a price of $14.00 per
Share in cash (the "Proposal"). In such letter and at a meeting of the Board of
Directors held on September 28, 1995, Parent described the Proposal.
On September 26, 1995, Parent issued a press release announcing the Proposal
and its terms.
On September 27, 1995, Sullivan & Cromwell, United States legal counsel to
Parent, met with the Company's General Counsel and other members of the
Company's legal department to discuss regulatory implications of the Company
becoming a wholly-owned subsidiary of Parent. Sullivan & Cromwell also requested
that Parent's financial advisor be given the opportunity to perform a due
diligence investigation on the Company.
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At the Board meeting on September 28, 1995, the Board established and
selected the Special Committee, among other things, to evaluate and make a
recommendation to the Board regarding the Proposal and to negotiate the terms of
the Proposal. The Board authorized the Special Committee to retain financial and
legal advisors. Thereafter, the Special Committee retained Davis Polk & Wardwell
("Davis Polk") as its legal advisor to assist in its consideration of, and
negotiations with respect to, the Proposal. Neither the Special Committee nor
any of its advisors were authorized to solicit any offers or proposals by any
third party for the acquisition of the Company.
In a meeting with the Special Committee held on September 28, 1995, a
representative of Parent advised the Special Committee that Parent would likely
commence a tender offer for the Shares in advance of entering into a merger
agreement, but that Parent would defer commencing the tender offer to give the
Special Committee time to retain legal and financial advisors and begin their
review of the Proposal. The Special Committee and Parent agreed that it was in
the best interests of the Company and its stockholders to resolve promptly
whether Parent would be acquiring the Shares not already owned by it and that
the Special Committee would endeavor to be in a position to respond to the
Proposal by October 26, 1995, the date of a previously scheduled meeting of the
Executive Committee of the Board of Directors.
On September 29, 1995, the Company issued a press release concerning the
terms of the Proposal and announcing that a special committee of independent
directors had been formed to consider the Proposal with the assistance of
independent legal and financial advisors.
On September 29 and October 3, 1995, Sullivan & Cromwell called Davis Polk
to discuss issues potentially associated with the possible commencement of a
tender offer and to inquire as to the timing for retention of a financial
advisor. During those conversations, Davis Polk expressed concern that a tender
offer might place the Special Committee under timing constraints in responding
to the Proposal. During the conversation on October 3, Davis Polk also indicated
that Goldman Sachs would be provided with access to confidential information
concerning the Company only after and to the extent that the Special Committee
and its financial advisor determined that such access was appropriate.
On October 2, 1995, a purported class action lawsuit relating to the
Proposal was filed in the Delaware Chancery Court, New Castle County, naming
Parent, the Company and certain directors of the Company as defendants. The
action alleges, among other things, that the defendants have breached or will
breach their fiduciary duties in connection with the offer from Parent and seeks
to enjoin the Proposal or to recover damages. See "Item 8(a)--Certain Legal
Proceedings" for a description of such action and similar actions.
On October 10, 1995, Sullivan & Cromwell called Davis Polk to discuss again
the timing of the retention by the Special Committee of its financial advisor
and the possibility of a tender offer by Parent for the Shares prior to entering
into a merger agreement. During the course of that telephone call, Davis Polk
reiterated concerns relating to the commencement of a tender offer before the
Special Committee had delivered its response to the Proposal.
At a meeting of the Special Committee on October 10, 1995, the Special
Committee retained Dillon, Read & Co. Inc. ("Dillon Read") as its financial
advisor to assist in its evaluation of, and negotiations with respect to, the
Proposal.
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During the weeks of October 9, October 16 and October 23, 1995, the Special
Committee's advisors conducted a detailed investigation of the Company and
review of the Proposal. As part of its due diligence investigation, Dillon Read,
among other things, interviewed senior management of the Company.
On September 29, October 4, October 10, October 11, October 20, twice on
October 24, October 26, October 30, October 31 and November 2, 1995, the Special
Committee met or participated in teleconferences with its financial and/or legal
advisors to discuss the terms of the Proposal, the Company's business, the
progress of Dillon Read's investigation of the Company and its business and the
legal responsibilities of the Special Committee.
On October 19, 1995, Sullivan & Cromwell, legal advisors to Parent,
delivered to Davis Polk a proposed form of the Merger Agreement. During the next
week and thereafter, Davis Polk reviewed the terms and conditions of the Merger
Agreement and negotiated such terms and conditions with Sullivan & Cromwell.
At a meeting of the Special Committee and its financial and legal advisors
held on October 20, 1995, Dillon Read made an oral presentation to the Special
Committee with respect to the Company and the Proposal. Dillon Read discussed
with the Special Committee, among other things, a preliminary valuation analysis
of the Company, which included a comparable company trading analysis, a
comparable company acquisition analysis, an economic book value analysis, a
discounted cash flow analysis and a close out acquisition premium analysis.
Davis Polk also discussed with the Special Committee provisions of the Merger
Agreement.
At a meeting of the Special Committee held in the morning of October 24,
1995, Dillon Read made another oral presentation to the Special Committee. At
the meeting on October 24, 1995, based on the reports and advice of its
advisors, the Special Committee determined that it should seek an increase in
the price proposed by Parent. Later that day, Parent's and the Special
Committee's respective financial advisors had two separate conversations to
discuss the status of the Special Committee's evaluation of the Proposal. In
such discussions, the Special Committee's advisors conveyed to Parent's advisors
the Special Committee's view that Parent should increase its proposed price.
At a meeting of the Special Committee and its financial and legal advisors
held on October 26, 1995, Dillon Read updated the Special Committee with respect
to its valuation analysis. On that day, Parent's representatives and legal
advisors had several meetings and conversations with members of the Special
Committee and the Special Committee's legal advisors.
At meetings among Parent and the Special Committee and their respective
legal advisors on October 26, 1995, Parent and the Special Committee and their
respective advisors explored the possibility of an acceptable revised Proposal
at a price in excess of $14.00 per Share in cash. Following numerous
discussions, Jacques P. Blondeau, Chairman and Chief Executive Officer of
Parent, informed David J. Sherwood, Chairman of the Special Committee, that
Parent was not prepared to offer a price in excess of $15.00 per Share. Mr.
Sherwood responded that he believed that the Special Committee would insist on
more than $15.00 per Share but that he would consult with the Special Committee
and Dillon Read. After discussions with Dillon Read and Davis Polk, the Special
Committee instructed Davis Polk to contact Sullivan & Cromwell and indicate that
the Special Committee was not prepared to endorse an offer of $15.00 per Share.
On October 27, 1995, Dillon Read and Goldman Sachs again discussed their
respective views on the value of the Company. During that discussion, Goldman
Sachs discussed Parent's reasons for having made an offer to purchase the Shares
that it did not already own at a price of $14.00 per Share, including Goldman
Sachs' analyses contained in a presentation to management of Parent. In response
to that discussion by Goldman Sachs, Dillon Read indicated that the Special
Committee
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would probably not accept a price per Share that did not represent at least a
moderate premium over the book value.
On October 30, 1995, Davis Polk communicated to Sullivan & Cromwell that the
Special Committee would not support an offer at $15.00 per Share but would
likely consider a price that represented a premium over the book value.
On October 31, 1995, Sullivan & Cromwell informed Davis Polk that Parent
would agree to a transaction at $15.25 if such transaction were supported by the
Special Committee, was the subject of a favorable fairness opinion of Dillon
Read, was approved by counsel for the various plaintiffs in pending shareholder
actions filed following Parent's initial proposal and was effected pursuant to a
mutually acceptable merger agreement. Davis Polk confirmed that $15.25 would
satisfy the criteria of the Special Committee and would likely be considered
favorably by the Special Committee.
During the course of the day and evening on November 1, 1995, Sullivan &
Cromwell and Davis Polk continued their negotiations of the terms of the Merger
Agreement.
On November 1, 1995, representatives of counsel to plaintiffs in the
shareholder actions agreed with Sullivan & Cromwell that they were prepared to
negotiate a settlement if a price per share of $15.25 were offered to the
Company's stockholders.
At a meeting of the Special Committee held on November 2, 1995, the Special
Committee and its advisors reviewed and considered the recent discussions
concerning the Proposal and the terms of the draft Merger Agreement. Following
such review, the Special Committee and its advisors reviewed the revised
Proposal to acquire the Shares at a price of $15.25 per Share in cash. Dillon
Read then presented its opinion that the consideration of $15.25 per Share in
cash to be paid in the Offer and Merger pursuant to the revised Proposal would
be fair to the Company's public stockholders from a financial point of view.
(See "Item 4(b)--Reasons for the Board's Recommendation; Opinion of Financial
Advisor"). The Special Committee unanimously determined that, in light of Dillon
Read's opinion and the other factors considered by the Special Committee, the
Offer and the Merger pursuant to the revised Proposal would be fair to and in
the best interests of the Company's public stockholders and that it would
recommend that, subject to the satisfactory resolution of certain provisions of
the Merger Agreement, the Board approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and
recommend to the Company's stockholders that they accept the Offer and tender
their Shares pursuant to the Offer. (See "Item 4(a)--Recommendation of the
Special Committee and the Board" for a description of the determinations and
recommendations made by the Special Committee and the factors considered in
connection therewith.)
The Board then met and received the recommendation of the Special Committee
concerning the revised Proposal. At such meeting, the Special Committee reviewed
with the Board their investigation of the Proposal, the course of their
discussions and negotiations with Parent's advisors and the factors considered
by the Special Committee in reaching its determinations and recommendations
concerning the revised Proposal. The Board (including the Affiliated Directors),
based upon, among other things, the recommendation of the Special Committee,
unanimously approved and adopted the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and authorized the
execution and delivery of the Merger Agreement. (See "Item 4(a)--Recommendation
of the Special Committee and the Board".)
Thereafter, on November 2, 1995, Sullivan & Cromwell and Davis Polk
completed their negotiation of the Merger Agreement. The Company and Parent
executed and delivered the Merger Agreement and issued a press release
announcing the transaction on November 3, 1995.
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On November 8, 1995, Purchaser, Parent and the Company agreed to modify the
Minimum Tender Condition pursuant to the Letter Agreement.
On November 9, 1995, pursuant to the Merger Agreement, the Parent commenced
the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Special Committee and the Board.
On November 2, 1995, the Special Committee determined that each of the Offer
and the Merger is fair to, and in the best interests of, the stockholders of the
Company (other than Parent) and determined to recommend that the Board approve
and adopt the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and to recommend to the Company's
stockholders that they accept the Offer and tender their Shares pursuant to the
Offer. At a meeting held on November 2, 1995, the Board (including six Parent
designees) unanimously determined that each of the Offer and the Merger is fair
to, and in the best interests of, the stockholders of the Company (other than
Parent), approved and adopted the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and determined to
recommend that the Company's stockholders accept the Offer, tender their Shares
pursuant to the Offer and approve and adopt the Merger Agreement.
Copies of a letter to stockholders communicating the Board's determination
and recommendation and of a press release relating thereto are filed as exhibits
hereto and are incorporated herein by reference.
(b) Reasons for the Board's Recommendation; Opinion of Financial Advisor.
Reasons for Recommendation.
See Item 3(b) for a description of certain events preceding the Board of
Director's consideration of the Offer and the Merger.
The Special Committee received presentations from, and reviewed the Offer
and the Merger with, senior management of the Company as well as the Special
Committee's financial advisor, Dillon Read. The Special Committee, in
determining whether to recommend the approval of the Merger Agreement and the
transactions contemplated thereby to the full Board of Directors, considered a
number of factors, including, but not limited to, the following:
(i) The belief, based on its familiarity with the Company's business,
its current financial condition and results of operations and its future
prospects, and the current and anticipated developments in the Company's
industry, that the consideration to be received by the Company's
stockholders in the Offer and Merger reflects fairly the Company's intrinsic
value.
(ii) The presentations made by the Company's management and Dillon Read
at the meeting held on October 20, 1995 as to various financial and other
considerations deemed relevant to the evaluation of the Offer and the
Merger, including, but not limited to, a review of (A) the business
prospects and financial condition of the Company, (B) historical business
information and financial results of the Company, (C) nonpublic financial
and operating results of the Company, (D) financial projections and budget
prepared by the Company's management, (E) information obtained from meetings
with senior management of the Company, (F) the trading range and volume
history of the Shares, (G) public financial information of comparable
companies and (H) public information of comparable acquisitions.
(iii) The opinion of Dillon Read that the consideration to be received
by the Company's stockholders pursuant to the Merger Agreement is fair to
such stockholders (other than Parent) from a financial point of view. In
considering Dillon Read's opinion, the Board was
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aware that Dillon Read is entitled to the fee described in Item 5 in
accordance with the terms of its engagement.
(iv) The relationship between the consideration to be received by
stockholders as a result of the Offer and the Merger and the historical
market prices and recent trading activity of the Shares.
(v) The recognition that, following consummation of the Offer and the
Merger, the current Stockholders of the Company will no longer be able to
participate in any increases or decreases in the value of the Company's
business and properties. The Board and the Special Committee concluded,
however, that this consideration did not justify foregoing the opportunity
for stockholders to receive an immediate and substantial cash purchase price
for their Shares.
(vi) The fact that the terms of the Offer, and the increase in the
consideration offered to the public stockholders from $14.00 per Share to
$15.25 per Share, were determined through arm's-length negotiations with
Parent by the Special Committee and its financial and legal advisors, all of
whom are unaffiliated with Parent, and the judgment of the Special Committee
and Dillon Read that, based upon the negotiations that transpired, a price
higher than $15.25 per Share could not likely be obtained and that further
negotiations with Parent could cause Parent to abandon the Offer, with the
resulting possibility that the market price for the Shares could fall
substantially below $15.25, and possibly $14.00, per Share, or to commence a
tender offer without the involvement of the Special Committee at a price
less than $15.25 per Share.
(vii) Parent's ownership of approximately 80% of the currently
outstanding Shares and the effects of such ownership on the alternatives
available to the Company and the fact that, as a practical matter, no
strategic alternative could be effected without the support of Parent; and
the consequences of continuing to operate the Company as a majority-owned
subsidiary of Parent.
(viii) The terms and conditions of the Merger Agreement, the fact that
there are no unusual requirements or conditions to the Offer and the Merger,
and the fact that Parent has the financial resources to consummate the Offer
and the Merger expeditiously.
(ix) The fact that the consideration to be paid to the Company's public
stockholders in the transaction is all cash.
(x) The fact that the transaction has been structured to include a
first-step cash tender offer for any and all outstanding Shares, thereby
enabling stockholders who tender their Shares to receive promptly $15.25 per
Share in cash, and the fact that any public stockholders who do not tender
their Shares or properly exercise appraisal rights will receive the same
price per Share in the subsequent Merger.
(xi) The possible conflicts of interest of certain directors and members
of management of both the Company and Parent discussed above under "Item
3(b)--Interests of Special Committee" and "Item 3(b)--Interests of Certain
Persons."
(xii) The fact that, while no appraisal rights are available to
stockholders as a result of the Offer, stockholders who do not tender
pursuant to the Offer will have the right to dissent from the Merger and to
demand appraisal of the fair value of their Shares under the DGCL. See "Item
3(b)--The Merger Agreement."
The Special Committee considered each of the factors listed above during the
course of its deliberations prior to recommending that the Company enter into
the Merger Agreement. In light of its knowledge of the business and operations
of the Company and its business judgment, the Special Committee believed that
each of these factors supported its conclusions. In view of the
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wide variety of factors considered, the Special Committee did not find it
practicable to, and did not, quantify the specific factors considered in making
its determination, although the Special Committee did place a special emphasis
on the opinion and analysis of Dillon Read which in turn did place a special
emphasis on a valuation range determined using an analysis of trading values of
comparable companies and an economic book value analysis (as described below
under "Opinion of Financial Advisor").
The Board of Directors of the Company, a majority of the members of which
were members of the Special Committee, approved the Merger Agreement and the
transactions contemplated thereby after receiving a report from the Special
Committee on its deliberations and recommendation. In reaching this decision,
the Board of Directors principally considered the recommendation of the Special
Committee and its familiarity with the Company's business, its current financial
condition and results of operations and future prospects, and current and
anticipated developments in the Company's industry.
(b) Opinion of Financial Advisor
On November 2, 1995, Dillon Read delivered its opinion to the Special
Committee to the effect that the consideration to be paid to the holders of
Stock and certain of the Company's stock options pursuant to the Merger
Agreement is fair to such holders (other than Parent) from a financial point of
view as of the date thereof. A copy of Dillon Read's opinion is attached hereto
as Exhibit 7. The summary of the opinion set forth herein is qualified in its
entirety by Exhibit 7 which is incorporated herein by reference. Stockholders
are urged to read the opinion in its entirety for a description of the
assumptions made, matters considered and procedures followed by Dillon Read. The
consideration to be paid pursuant to the Offer and Merger was determined by
negotiations on behalf of the Company and Parent and was not determined by
Dillon Read. In arriving at its opinion, Dillon Read, among other things, (1)
reviewed certain publicly available business and financial information relating
to the Company; (2) reviewed the reported price and trading activity for the
Shares; (3) reviewed certain internal financial information and other data
provided to us by the Company relating to the business and prospects of the
Company, including financial projections prepared by the management; (4)
conducted discussions with members of the senior management of the Company; (5)
reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions which Dillon Read considered relevant; (6) reviewed
publicly available financial and securities market data pertaining to certain
publicly-held companies in lines of business generally comparable to those of
the Company; and (7) conducted such other financial studies, analyses and
investigations, and considered such other information as Dillon Read deemed
necessary and appropriate. In reaching its opinion and conducting its analysis,
Dillon Read did not assume any responsibility for independent verification of
any of the foregoing information and relied upon it being complete and accurate
in all material respects. Dillon Read was not requested to and did not make an
independent evaluation or appraisal of any assets or liabilities (contingent or
otherwise) of the Company or any of its subsidiaries, nor were they furnished
with any such evaluation or appraisal. Dillon Read also assumed that all of the
information, including the projections, provided to Dillon Read by the Company's
management was prepared on a basis reflecting the best currently available
estimates and judgments of the Company's management as to the future of the
financial performance of the Company and was based upon the historical
performance and certain estimates and assumptions which were reasonable at the
time made. In addition, Dillon Read was not asked to and did not express any
opinion as to the after-tax consequences of the sale of such Shares by the
stockholders. Dillon Read's opinion is based on economic, monetary and market
conditions existing on the date thereof. In rendering its opinion, Dillon Read
did not render any opinion as to the value of the Company and did not make any
recommendation to the stockholders with respect to the advisability of voting in
favor of the transaction. No limitations were imposed by the Special Committee,
the Company or Parent upon Dillon Read with respect to the investigations made
or the procedures followed by Dillon Read in
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rendering its opinion, and the Company and the members of its management
cooperated fully with Dillon Read in connection with its investigation.
In delivering its opinion and making its presentation to the Board and the
Special Committee, Dillon Read discussed certain financial and comparative
analyses and other matters it deemed relevant. Among the various financial
analyses that Dillon Read discussed were:
(i) Comparable Trading Analysis. Dillon Read undertook a comparable
public company analysis. In conducting this analysis, Dillon Read reviewed
certain financial results of seven companies in the reinsurance industry
which Dillon Read believed to be comparable to the Company. Dillon Read
calculated trading multiples of (1) 1996 expected earnings per share (based
on median estimates supplied by Institutional Brokers Estimate System
database), (2) book value as of June 30, 1995 and (3) surplus as of June 30,
1995. Such multiples ranged between 11.0x and 15.0x, 1.0x and 1.3x, and
1.1x and 1.4x, respectively. Based on such multiples, Dillon Read estimated
a reference range of $14.49 to $18.98 per Share.
(ii) Comparable Acquisition Analysis. Dillon Read reviewed 32
acquisitions of property/ casualty reinsurance companies in the United
States and Europe, which had occurred between 1987 and 1995 and summarized
financial ratios and statistics for the nine most comparable transactions in
the United States. The values of certain multiples (i.e., net income, book
value, net premiums and market value) for all nine transactions were
derived, as available. Such multiples ranged between 8.9x and 24.6x, 0.8x
and 1.8x, 0.6x and 1.7x, and 1.3x and 1.6x, respectively. The multiples were
then applied (1) to the Company's net premiums for the twelve month period
ending September 30, 1995 and (2) to the Company's book value as of
September 30, 1995. On this basis, Dillon Read estimated an average
reference range of between $14.70 to $20.32 per Share.
(iii) Economic Book Value Analysis. Dillon Read calculated the economic
book value of the Company as of September 30, 1995. In calculating the
economic book value of the Company, Dillon Read took into consideration the
following factors, among others: (1) good will of the Company, (2)
mark-to-market of the investment portfolio, (3) adjustments for the market
value of the electronic data processing system and leasehold improvements,
(4) adjustments for the valuation of the deferred income tax benefits and
publicly traded debt, (5) ranges of differences between the stated amounts
and net present value of the prepaid reinsurance, loss reserves and unearned
premiums and (6) a range of value for any reserve deficiency. Based on such
information, Dillon Read estimated a reference range of $15.24 to $17.08 per
Share.
(iv) Discounted Cash Flow Analysis. Dillon Read calculated the present
value of future cash flows that the Company could be expected to generate
over the next five years (the "Discounted Cash Flow Analysis"). In preparing
the Discounted Cash Flow Analysis, Dillon Read took into consideration the
following: (1) the Company's recent operating and financial performance
including, (a) management's business plan for fiscal year 1995 and (b) the
historical operating results for the three most recently completed fiscal
years, (2) management's business plan for fiscal 1996 and 1997 and (3)
projections, reports and other materials prepared by the Company and its
managements or representatives that were provided to Dillon Read. In
addition, representatives of Dillon Read met with representatives of the
Company's management to discuss the Company's current and projected
operations. In developing its Discounted Cash Flow Analysis for each case,
Dillon Read took the "free cash flow" that the Company was expected to
generate from fiscal year 1995 to 2000 and discounted these cash flows to
present values. Dillon Read applied discount rates ranging from 11% to 13%
determined as the most appropriate range for the Company. Dillon Read
arrived at this range of appropriate discount rates by determining the
weighted average cost of capital for publicly
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traded companies in businesses similar to the Company. To approximate the
residual value of the Company after this five-year period, Dillon Read
applied multiples of operating income ranging from 10.5x to 12.5x. Dillon
Read's determination of the most appropriate range of multiples was based on
an assessment of the multiples of operating income which have been paid in
recent publicly announced acquisitions of similar businesses. These residual
value estimates were then discounted to present value using each of the
above range discount rates. Dillon Read summed the discounted cash flows and
residual value for each multiple of operating income described above, which
indicated a matrix of present values for the Company of $14.48 to $19.05 per
Share.
(v) Premium Analysis. Dillon Read reviewed 29 transactions involving the
close-out of minority shareholder positions, which had occurred between 1990
and 1995. Dillon Read considered only those transactions in which between
10% and 45% of all outstanding shares of a target corporation were acquired
in the close-out transaction and in which the acquiring company owned
approximately 100% of the target corporation stock upon completion of the
transaction. For each company, Dillon Read calculated for each target
corporation the premium paid for each share over the trading value of such
share (1) one day prior to the transaction, (2) one week prior to the
transaction and (3) four weeks prior to the transaction. Dillon Read then
calculated the average of all premiums paid over the target corporation's
trading price at each valuation date (calculated as a percentage of such
share price). Applying such average premiums to the Company's trading value
at each such valuation date, Dillon Read estimated a reference range of
$14.37 to $15.63 per Share.
The summary set forth above does not purport to be a complete description of
either Dillon Read's analyses or presentations to the Special Committee. Dillon
Read believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete view of the
processes underlying its opinion. The preparation of a fairness opinion is a
complex process and not necessarily susceptible to partial analyses or summary
description. In its analyses, Dillon Read made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Any estimates contained
therein are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of the Company, Parent, Dillon Read and
any other person assumes responsibility for their accuracy.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Dillon Read as the Special Committee's financial
advisor in connection with the Merger, the Offer and other matters arising in
connection therewith pursuant to an engagement letter dated October 10, 1995
(the "Engagement Letter") between the Company and Dillon Read. The Engagement
Letter provides, among other things, that the Company will pay to Dillon Read a
fee equal to $500,000. In addition, the Company has agreed to reimburse Dillon
Read for its reasonable out-of-pocket expenses, including reasonable legal
expenses, and to indemnify Dillon Read against certain liabilities.
The Special Committee selected Dillon Read as its financial advisor because
Dillon Read is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Neither the Company nor any person acting on its behalf intends currently to
employ, retain or compensate any other person to make solicitations or
recommendations to stockholders in connection with the Offer.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by an executive
officer, directors, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, except for Shares the sale of
which may trigger liability for the holder(s) under Section 16(b) of the
Exchange Act, each executive officer, director and affiliate of the Company
currently intends to tender all Shares over which he or she has sole dispositive
power to Parent.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTION BY THE SUBJECT COMPANY.
(a) Except as described in Item 3(b), no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company, (iii) a tender offer for or other acquisition of securities by or of
the Company or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described under Item 3 and Item 4, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Certain Legal Proceedings.
Between September 27 and October 2, 1995, Parent, the Company and the
Company's directors were named as defendants in five actions (the "Underlying
Actions") commenced in the Court of Chancery of the State of Delaware in and for
New Castle County. The complaints in the Underlying Actions alleged, among other
things, that (i) Parent's proposal was the product of unfair dealing inasmuch as
defendants possess non-public information concerning the financial condition and
prospects of the Company, (ii) Parent's proposed offer price of $14.00 cash per
Share to be paid to the putative class members was inadequate and unfair and
(iii) the conduct of defendants constituted self-dealing in violation of their
fiduciary duties to the putative class members.
On October 24, 1995, an order was entered in each of the Underlying Actions
(1) consolidating the Underlying Actions for all purposes in one action (the
"Consolidated Action"), (2) designating the complaint in action No. 14577 as the
complaint in the Consolidated Action and (3) designating the law firms of
Bernstein Litowitz Berger & Grossman; Wechsler Harwood Halebian & Feffer LLP;
and Wolf Popper Ross Wolf & Jones, L.L.P. as plaintiffs' co-lead counsel and the
law firms of Chimicles, Jacobsen & Tikellis and Rosenthal, Monhait, Gross &
Goddess, P.A. as plaintiffs' Delaware co-liaison counsel.
On November 1, 1995, plaintiffs' counsel agreed with Sullivan & Cromwell
that such plaintiffs' counsel were prepared to negotiate a settlement if a price
per Share of $15.25 were offered to the Company's stockholders.
An agreement in principle has been reached with plaintiffs' counsel to
settle the litigation based on Parent's increase of the Offer Price to $15.25.
This settlement is subject to approval of the Court and confirmatory discovery.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 --Offer to Purchase, dated November 9, 1995.
Exhibit 2 --Letter of Transmittal.
Exhibit 3 --Proxy Statement dated April 28, 1995 relating to SCOR U.S.
Corporation's 1995 Annual Meeting of Stockholders.
Exhibit 4** --Agreement and Plan of Merger, dated as of November 2, 1995
between SCOR U.S. Corporation, SCOR S.A. and SCOR Merger
Sub Corporation.
Exhibit 5* --Letter to Stockholders of SCOR U.S. Corporation dated
November 9, 1995.
Exhibit 6 --Press Release issued by SCOR S.A. and SCOR U.S. Corporation
on November 3, 1995.
Exhibit 7* --Opinion of Dillon, Read & Co. Inc. dated November 2, 1995.
Exhibit 8 --Engagement Letter, dated October 10, 1995, between Dillon,
Read & Co. Inc. and SCOR U.S. Corporation.
Exhibit 9 --Report of Dillion, Read & Co. Inc. to the Special
Committee of the Board of Directors of SCOR U.S. Corporation
dated November 2, 1995.
Exhibit 10 --Letter Agreement dated as of November 8, 1995 among
SCOR S.A., SCOR U.S. Corporation and SCOR Merger Sub
Corporation.
------------
* Included in copies of this Schedule 14D-9 mailed to stockholders.
** Incorporated by reference from the Company's Report on Form 8-K, dated
November 6, 1995.
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SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
SCOR U.S. CORPORATION
Dated: November 9, 1995
By: /s/ JEROME KARTER
---------------------------------------
JEROME KARTER
President and Chief Executive Officer
27
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EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------------ ----------------------------------------------------- ----
Exhibit 1 --Offer to Purchase, dated November 9, 1995.
Exhibit 2 --Letter of Transmittal.
Exhibit 3 --Proxy Statement dated April 28, 1995 relating
to SCOR U.S. Corporation's 1995 Annual Meeting
of Stockholders.
Exhibit 4** --Agreement and Plan of Merger, dated as of
November 2, 1995 between SCOR U.S. Corporation,
SCOR S.A. and SCOR Merger Sub Corporation.
Exhibit 5* --Letter to Stockholders of SCOR U.S. Corporation
dated November 9, 1995.
Exhibit 6 --Press Release issued by SCOR S.A. and SCOR U.S.
Corporation on November 3, 1995.
Exhibit 7* --Opinion of Dillon, Read & Co. Inc. dated
November 2, 1995.
Exhibit 8 --Engagement Letter, dated October 10, 1995, between
Dillon, Read & Co. Inc. and SCOR U.S. Corporation.
Exhibit 9 --Report of Dillion, Read & Co. Inc. to the Special
Committee of the Board of Directors of SCOR U.S.
Corporation dated November 2, 1995.
Exhibit 10 --Letter Agreement dated as of November 8, 1995
among SCOR S.A., SCOR U.S. Corporation and SCOR
Merger Sub Corporation.
- ------------
* Included in copies of this Schedule 14D-9 mailed to stockholders.
** Incorporated by reference from the Company's Report on Form 8-K, dated
November 6, 1995.
Exhibit 1
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
OF
SCOR U.S. CORPORATION
AT
$15.25 NET PER SHARE
BY
SCOR MERGER SUB CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
SCOR S.A.
- --------------------------------------------------------------------------------
THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 8, 1995, UNLESS THE
OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES (AS DEFINED HEREIN) WHICH, TOGETHER WITH ANY SHARES CURRENTLY
BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY PARENT (AS DEFINED HEREIN), WILL
CONSTITUTE AT LEAST 90% OF THE TOTAL SHARES OUTSTANDING AS OF THE DATE THE
SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER. THE OFFER IS ALSO SUBJECT
TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE "THE
OFFER -- 1. TERMS OF THE OFFER" AND "THE OFFER -- 13. CERTAIN CONDITIONS OF THE
OFFER."
-------------------
THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE (AS DEFINED
HEREIN) HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER (AS DEFINED
HEREIN) ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE
COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER.
-------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
shares of common stock (the "Shares") of the Company should either (1) complete
and sign the Letter of Transmittal accompanying this Offer to Purchase (the
"Letter of Transmittal"), or a facsimile thereof, in accordance with the
instructions in the Letter of Transmittal, have such stockholder's signature
thereon guaranteed if required by Instruction 1 to the Letter of Transmittal,
mail or deliver the Letter of Transmittal (or such facsimile) or, in the case of
a book-entry transfer of Shares effected pursuant to the procedure set forth in
"THE OFFER -- 3. Procedure for Tendering Shares", an Agent's Message (as defined
herein) in lieu of the Letter of Transmittal, and any other required documents
to the Depositary (as defined herein) and either deliver the Letter of
Transmittal (or such facsimile) together with the certificate(s) representing
the tendered Shares or deliver such Shares pursuant to the procedure for
book-entry transfer set forth in "THE OFFER -- 3. Procedure for Tendering
Shares", or (2) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder.
Stockholders having Shares registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are urged to contact such
broker, dealer, commercial bank, trust company or other nominee if they desire
to tender Shares so registered.
A stockholder who desires to tender Shares and whose certificates for such
Shares are not immediately available, or who cannot comply with the procedure
for book-entry transfer on a timely basis, or who cannot deliver all required
documents to the Depositary prior to the expiration of the Offer, may tender
such Shares by following the procedures for guaranteed delivery set forth in
"THE OFFER -- 3. Procedure for Tendering Shares".
The Purchaser makes no recommendation to any stockholder as to whether to
tender or refrain from tendering Shares. Stockholders must make their own
decisions whether to tender Shares and, if so, how many Shares to tender.
Questions and requests for assistance may be directed to the Information
Agent (as defined herein) or to the Dealer Managers (as defined herein) at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase. Requests for additional copies of this Offer to Purchase, the
Letter of Transmittal and other tender offer materials may be directed to the
Information Agent, the Dealer Managers or to brokers, dealers, commercial banks
or trust companies, and copies will be furnished promptly at the Purchaser's
expense.
-------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR THE MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
-------------------
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
-------------------
The date of this Offer to Purchase is November 9, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
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<C> <S> <C>
INTRODUCTION........................................................................... 1
SPECIAL FACTORS........................................................................ 3
1. History of Company........................................................... 3
2. Reasons for the Offer and the Merger......................................... 4
3. Fairness of the Offer and the Merger......................................... 6
4. Interests of Certain Persons in the Offer and the Merger; Potential
Conflicts of Interests..................................................... 7
5. Background of the Offer and the Merger....................................... 8
6. Recommendation of the Company's Board of Directors and the Special
Committee.................................................................... 19
THE OFFER.............................................................................. 24
1. Terms of the Offer........................................................... 24
2. Acceptance for Payment and Payment for Shares................................ 26
3. Procedure for Tendering Shares............................................... 27
4. Rights of Withdrawal......................................................... 30
5. Certain Federal Income Tax Consequences of the Offer and the Merger.......... 31
6. Price Range of Shares; Dividends............................................. 31
7. Effect of the Offer on Market for the Shares, Stock Exchange Listing,
and Exchange Act Registration.............................................. 32
8. Certain Information Concerning the Company................................... 33
9. Certain Information Concerning Parent and the Purchaser...................... 41
10. Contacts with the Company.................................................... 42
11. The Merger Agreement; Appraisal Rights; Effect on the Debentures............. 49
12. Source and Amount of Funds................................................... 54
13. Certain Conditions of the Offer.............................................. 54
14. Dividends and Distributions.................................................. 55
15. Certain Legal Matters........................................................ 56
16. Fees and Expenses............................................................ 58
17. Miscellaneous................................................................ 60
</TABLE>
<TABLE>
<S> <C> <C>
SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser........ I-1
SCHEDULE II -- Appraisal Rights of Dissenting Stockholders under Delaware Law...... II-1
SCHEDULE III -- Opinion of Dillon, Read & Co. Inc................................... III-1
Appendix A -- Financial Statements from the Company's Annual Report on Form 10-K
for the Year Ended December 31, 1994................................ A-1
Appendix B -- Financial Results for the Quarterly Period Ended September 30, 1995
as Reported in the Company's Press Release, dated October 24,
1995................................................................ B-1
</TABLE>
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To the Holders of Common Stock of SCOR U.S. Corporation:
INTRODUCTION
SCOR Merger Sub Corporation, a newly organized Delaware corporation (the
"Purchaser") and a wholly owned subsidiary of SCOR S.A., a societe anonyme
organized under the laws of The French Republic ("Parent"), hereby offers to
purchase all of the outstanding shares of Common Stock, par value $0.30 per
share (the "Shares"), of SCOR U.S. Corporation, a Delaware corporation (the
"Company"), not currently directly or indirectly owned by Parent, at a price of
$15.25 per Share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in this Offer to Purchase and in
the Letter of Transmittal (which together constitute the "Offer").
Tendering stockholders will not be obligated to pay brokerage fees or
commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer
taxes on the purchase of Shares by the Purchaser. The Purchaser will pay all
charges and expenses of Goldman, Sachs & Co. (in such capacity, the "Dealer
Managers"), The Bank of New York, as depositary (the "Depositary"), and D.F.
King & Co., Inc. (the "Information Agent").
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF
SHARES WHICH, TOGETHER WITH ANY SHARES CURRENTLY BENEFICIALLY OWNED DIRECTLY OR
INDIRECTLY BY PARENT, WILL CONSTITUTE AT LEAST 90% OF THE TOTAL SHARES
OUTSTANDING AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE
OFFER (THE "MINIMUM TENDER CONDITION"). SUBJECT TO APPLICABLE RULES AND
REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE
PURCHASER RESERVES THE RIGHT, WHICH IT PRESENTLY HAS NO INTENTION OF EXERCISING,
TO WAIVE OR REDUCE THE MINIMUM TENDER CONDITION AND TO ELECT TO PURCHASE,
PURSUANT TO THE OFFER, LESS THAN THE MINIMUM NUMBER OF SHARES NECESSARY TO
SATISFY THE MINIMUM TENDER CONDITION. THE OFFER IS ALSO SUBJECT TO OTHER TERMS
AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE "THE OFFER -- 1. TERMS
OF THE OFFER" AND "THE OFFER -- 13. CERTAIN CONDITIONS OF THE OFFER".
THE BOARD OF DIRECTORS OF THE COMPANY AND THE COMMITTEE OF THE BOARD OF
DIRECTORS OF THE COMPANY COMPRISED OF ALL DIRECTORS OF THE COMPANY WHO ARE
NEITHER OFFICERS OR DIRECTORS OF THE PURCHASER OR PARENT NOR OFFICERS OF THE
COMPANY (THE "SPECIAL COMMITTEE") HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND
THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE
COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE
OFFER. SEE "SPECIAL FACTORS--6. RECOMMENDATION OF THE COMPANY'S BOARD OF
DIRECTORS AND THE SPECIAL COMMITTEE".
The Special Committee's financial advisor, Dillon, Read & Co. Inc. ("Dillon
Read"), has delivered to the Special Committee its written opinion, dated as of
November 2, 1995, that as of such date the $15.25 per Share cash consideration
to be received by the holders of Shares (other than Parent) pursuant to the
Offer and the Merger is fair to such holders from a financial point of view. A
copy of the opinion of Dillon Read is set forth as Schedule III hereto and is
contained in the Company's Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders together
with this Offer to Purchase. See "SPECIAL FACTORS--6. Recommendation of the
Company's Board of Directors and the Special Committee".
The Company has advised the Purchaser and Parent that, as of November 2,
1995, there were 18,170,971 Shares outstanding. Parent owned 14,547,756 Shares,
or approximately 80% of the outstanding Shares, as of such date. According to
the Company's Annual Report on Form 10-K for the year ended December 31, 1994
(the "1994 Annual Report"), there were approximately 140 recordholders of the
Shares as of March 28, 1995. The Company has also advised the Purchaser and
Parent that, as of November 2, 1995, the Company had outstanding $75,950,000
aggregate
<PAGE>
principal amount of 5 1/4% Convertible Subordinated Debentures due April 1, 2000
(the "Debentures"), which were issued by the Company on March 29, 1993 at a
price equal to the principal amount thereof through a private offering. The
Debentures are not redeemable by the Company prior to April 3, 1996, and
outstanding Debentures are currently convertible into approximately 2.99 million
Shares at a conversion price of $25.375 per Share. The Company has advised the
Purchaser and Parent that during 1994 the Company repurchased in the open market
$3,900,000 in principal amount of the Debentures and between January 1, 1995 and
June 30, 1995 the Company repurchased in the open market $6,400,000 in principal
amount of the Debentures. Under the terms of the indenture pursuant to which the
Debentures were issued (the "Indenture"), in the event that Parent beneficially
owns, after giving effect to the purchase of Shares pursuant to the Offer or the
acquisition of Shares pursuant to the Merger, in excess of 90% of the
outstanding Shares (a "Repurchase Event"), the holders of the Debentures shall
have the right to require the Company to repurchase the Debentures at a
repurchase price equal to 100% of the principal amount thereof together with
accrued and unpaid interest to the date of such repurchase, which date shall be
45 days after the date on which the Company notifies the holders of the
Debentures of such Repurchase Event.
The Company has advised the Purchaser and Parent that under the Company's
1986 Stock Incentive Plan for Key Executives, the Company's 1990 Stock Option
Plan for Directors and the Company's 1991 Stock Option Plan for Key Employees
(collectively, the "Company Stock and Option Plans") there were, as of November
2, 1995, vested options outstanding for a total of 982,013 Shares, exercisable
at prices ranging from $9.00 to $17.00, and, as of November 2, 1995, unvested
options outstanding for a total of 455,003 Shares. According to the 1994 Annual
Report, the number of Shares available for future grant at December 31, 1994 was
552,000.
Based on the foregoing, assuming that no additional Shares are issued after
November 2, 1995, the Minimum Tender Condition would be satisfied if at least
1,806,118 Shares are validly tendered prior to the expiration of the Offer and
not withdrawn.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 2, 1995 (the "Merger Agreement"), among Parent, the Purchaser and
the Company. The Merger Agreement provides that, among other things, promptly
after the purchase of Shares pursuant to the Offer and the receipt of any
required approval of the Merger Agreement by the Company's stockholders and the
satisfaction or waiver of certain other conditions, the Purchaser will be merged
(the "Merger") into the Company. Following consummation of the Merger, the
Company will continue as the surviving corporation and will become a wholly
owned subsidiary of Parent. Upon consummation of the Merger (the "Effective
Time"), each then outstanding Share not owned by Parent or any subsidiary of
Parent (other than Shares held by stockholders of the Company who have properly
exercised their appraisal rights in accordance with Section 262 of the DGCL)
will be converted into the right to receive an amount in cash equal to the per
Share price paid pursuant to the Offer (the "Offer Price"). Pursuant to the
Merger Agreement, at the Effective Time each option to purchase Shares under the
Company Stock and Option Plans, whether or not then vested, will be cancelled
and each holder thereof will be thereafter entitled to receive only the
difference, if positive, between the Offer Price and the exercise price of such
options, multiplied by the number of Shares subject to such options. In
addition, in the event the Merger is consummated, the holders of the Debentures
will be entitled to convert the Debentures into the right to receive the
consideration receivable upon the Merger by a holder of the number of Shares
into which such Debentures could have been converted immediately prior to the
Merger. The Merger Agreement is more fully described in "THE OFFER -- 11. The
Merger Agreement; Appraisal Rights; Effect on the Debentures".
If the Minimum Tender Condition is satisfied, Parent will hold, directly or
indirectly, 90% or more of the outstanding Shares, and Parent intends to
contribute its Shares to the Purchaser and cause
2
<PAGE>
the Purchaser to effect the Merger without a vote of the Company's stockholders
pursuant to the short-form merger provisions of the Delaware General Corporation
Law (the "DGCL"). The Merger Agreement provides that, if the Minimum Tender
Condition is satisfied, the Company, the Purchaser and Parent will take all
necessary and appropriate action, at the request of Parent or the Purchaser, to
cause the Merger to become effective as soon as practicable after the acceptance
for payment and purchase of Shares by the Purchaser pursuant to the Offer
without a meeting of stockholders of the Company pursuant to such short-form
merger provisions of the DGCL. If the Purchaser were to waive the Minimum Tender
Condition and the number of outstanding Shares validly tendered and purchased
pursuant to the Offer results in Parent and the Purchaser holding less than 90%
of the outstanding Shares, then the Merger, which has already been approved by
the Company's Board of Directors, would have to be approved by the Company's
stockholders. Under the DGCL, the vote of the holders of a majority of the
outstanding Shares would be required to approve the Merger under such
circumstances. Since Parent currently owns approximately 80% of the Shares
outstanding, Parent would have sufficient voting power to, and intends to, cause
the approval of the Merger without the affirmative vote of any other
stockholders of the Company. However, it is a condition to the parties'
obligation to complete the Merger that the Purchaser have purchased Shares
pursuant to the Offer. Accordingly, if the Minimum Tender Condition or any other
condition to the Offer is not satisfied and Parent and the Purchaser elect not
to waive any such condition, none of Parent, the Purchaser or the Company will
be obligated to effect the Merger.
No appraisal rights are available in connection with the Offer. Stockholders
will have appraisal rights in connection with the Merger, subject to compliance
with the requirements of the DGCL, even if the Merger is consummated pursuant to
the short-form merger provisions of the DGCL. See "THE OFFER -- 11. The Merger
Agreement; Appraisal Rights; Effect on the Debentures".
By accepting the Offer through the tender of Shares and upon receipt of
payment for Shares, a tendering stockholder will be (under Parent's view of
applicable law) barred from thereafter attacking in any legal proceeding the
fairness of the consideration received by stockholders in the Offer. For this
reason, the Letter of Transmittal to be executed by tendering stockholders
includes a release of any such claims, which will be effective upon receipt of
payment for tendered Shares.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
SPECIAL FACTORS
1. HISTORY OF THE COMPANY.
The Company 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 at
a price of $14.50 per Share, the Company 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 Parent. In December 1990, SCOR Paris and another subsidiary
of Parent, UAP Reassurances ("UAP Re") were merged into Parent.
In June 1990, Rockleigh Management Corporation ("Rockleigh"), a wholly owned
subsidiary of UAP Re, was merged into the Company. 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. 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. On
January 1, 1994, General Security
3
<PAGE>
was merged into SCOR Reinsurance Company ("SCOR Re"), the Company's principal
operating subsidiary, to form a single operating entity for the Company's
assumed reinsurance business.
In March 1993, the Company issued $86,250,000 aggregate principal amount of
5.25% Debentures, of which $10,300,000 aggregate principal amount had, as of
November 2, 1995, been repurchased by the Company in the open market. During
1994 the Company repurchased in the open market $3,900,000 in principal amount
of the Debentures and between January 1, 1995 and June 30, 1995 the Company
repurchased in the open market $6,400,000 in principal amount of the outstanding
Debentures. The outstanding Debentures are currently convertible into
approximately 2.99 million Shares at a conversion price of $25.375 per Share.
As a result of the issuance of common shares of the Company to UAP Re in the
Rockleigh merger, SCOR Paris' participation in the Company's stock repurchase
programs and various other purchases, as well as SCOR Paris' purchase of a
portion of CCR's shares of the Company, Parent owned approximately 80% of the
outstanding common stock of the Company at November 2, 1995. The remaining
3,623,215 outstanding Shares are held publicly and represent approximately 20%
of the outstanding Shares.
The Company is a holding company, the principal operating subsidiary of
which is SCOR Re. The Company also operates through SCOR Re's wholly owned
subsidiaries, General Security Insurance Company ("GSIC"), Unity Fire and
General Security Indemnity Company ("GSIND") (SCOR Re, GSIC, Unity Fire and
GSIND are collectively referred to as the "Operating Subsidiaries").
2. REASONS FOR THE OFFER AND THE MERGER.
The purpose of the Offer is to enable the Purchaser to acquire for cash as
many outstanding Shares as possible as a first step in acquiring the entire
equity interest in the Company, subject to satisfaction of the Minimum Tender
Condition and the other conditions of the Offer. See "THE OFFER -- 13. Certain
Conditions of the Offer". If the Minimum Tender Condition is satisfied, Parent
and the Purchaser will hold 90% or more of the outstanding Shares and, as soon
as practicable following the consummation of the Offer, Parent intends to
contribute its Shares to the Purchaser. The Merger Agreement provides that,
promptly after the purchase of Shares pursuant to the Offer and subject to the
satisfaction or waiver of the terms and conditions of the Merger, the Purchaser
will be merged into the Company. If the Minimum Tender Condition is satisfied,
such Merger would be effected without a vote of the Company's stockholders
pursuant to the short-form merger provisions of the DGCL. In the Merger, each
Share not owned by Parent or any subsidiary of Parent (other than Shares held by
stockholders of the Company who have properly exercised their appraisal rights
under Section 262 of the DGCL) at the Effective Time will be converted into the
right to receive an amount in cash equal to the Offer Price. The purpose of the
Merger is to enable Parent to acquire any remaining Shares not acquired pursuant
to the Offer. Following consummation of the Merger, the Company will continue as
the surviving corporation and will become a wholly owned subsidiary of Parent.
THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE HAVE UNANIMOUSLY
DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS
OF THE COMPANY AND ITS STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND
RECOMMEND THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER. In determining to seek the purchase of the
outstanding Shares and effect the Merger at this time, Parent focused on a
number of factors, including those set forth below.
The primary reason for the Offer and the Merger is that the listing of the
Shares on the New York Stock Exchange, Inc. ("NYSE") has not achieved the
benefits hoped for by Parent in 1986 at the time of the offering of Shares to
the public, and, in Parent's view, the costs associated with such listing now
outweigh any resulting benefits. The Shares have attracted limited interest from
4
<PAGE>
institutional investors and generally have low trading volumes. This
illiquidity, together with the Company's financial results, have caused the
Shares to trade only occasionally at or above their net book value per Share
since 1993. Also, the Company's ability to utilize Shares for acquisitions or
capital-raising has not been as great as had been hoped for in 1986. The present
requirement to maintain the listing of the Shares on the NYSE and registration
of the Shares under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), imposes on the Company significant direct and indirect
compliance costs. In addition, compliance with such ongoing requirements imposes
an administrative burden on the Company, resulting in the diversion of
management time and resources. The Purchaser intends to seek the delisting of
the Shares from the NYSE and termination of registration of the Shares under the
Exchange Act as soon as possible after consummation of the Offer or the Merger,
if the requirements for the delisting and termination of registration are met.
The Company's businesses are complementary with Parent's businesses, and
Parent intends to integrate some of the Company's operations into those of
Parent in order to obtain certain operating benefits and achieve certain cost
savings, as well as to incorporate the Company's strategy into Parent's
worldwide strategic planning. In particular, Parent will be able to avail itself
of the Company's demonstrated skills and technical expertise in evaluating and
underwriting certain types of risks, and enhance its ability to achieve its
global strategic plans. The increasing globalization of world economies presents
opportunities for Parent to pool the resources of the group and to invest on a
group-wide basis in the human and technical resources necessary to improve
productivity, develop and provide a broader range of international products
grounded on global expertise and to build consistent, company-wide service
standards to better meet customer needs. Parent's ability to achieve the
foregoing objectives under the present ownership structure is complicated by
legal obligations of the Board of Directors of the Company to manage the Company
in the best interests of all stockholders. Accordingly, each decision made by
Parent which could affect the Company must be made with a view to its effect on
the Company's minority stockholders, with the result that Parent's flexibility
in dealing with its significant investment in the insurance and reinsurance
industry in the United States is limited.
In addition, Parent believes that the interest of the public stockholders of
the Company in its near-term earnings results may sometimes be inconsistent with
the Company's long-term business strategy to solidify and enhance its position
in the United States' insurance and reinsurance industry. 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 the Company have been influenced
by these cycles and events. Many of the factors that have contributed to the
Company's volatile earnings results and reduced surplus in recent years
continue, and Parent cannot predict if, when or to what extent general market
conditions will improve for the insurance and reinsurance industry. Parent
believes that acquiring the entire equity interest in the Company will
facilitate the realization of productivity gains necessary to achieve a
sustainable improvement in the Company's profitability, to achieve consistent
earnings growth in all its product offerings, to enhance its credit strength and
to improve its return on equity. The Company's long-term business strategy will
also require significant capital investments in technology, including investment
as part of Parent's worldwide systems development project, which will provide
additional systems availability for the Company over the next two years. In
Parent's opinion, these strategies could adversely affect the Company's
near-term earnings and the trading price of the Shares.
Other factors that Parent considered in determining to proceed with the
Offer and the Merger at this time included a stronger French Franc/U.S. Dollar
exchange rate than has existed in recent years and a cash reserve of U.S.
dollars generated by Parent's group that can be used for the acquisition of
Shares tendered in the Offer. In addition, Parent considered the improvement of
the
5
<PAGE>
Company's results in 1995 over its 1994 results, the fact that the additional
investment that would be made by Parent to increase its percentage ownership in
the Company pursuant to the Offer and the Merger would not dilute the earnings
of Parent, projections as to future results of the Company (see "THE OFFER -- 8.
Certain Information Concerning the Company") and the fact that the Company's
stock price has generally traded below its net book value since 1993.
Parent also considered certain information provided to it by its financial
advisor, Goldman Sachs International ("Goldman Sachs"), including information
with respect to other businesses similar in some respects to the Company and
with respect to premiums paid in other acquisitions of minority interests. Such
information is contained in Goldman Sachs' analyses that have been filed by
Parent and Purchaser as an Exhibit to their Rule 13e-3 Transaction Statement on
Schedule 13E-3 filed with the Commission in connection with the Offer (the
"Schedule 13E-3") and may be examined and copied at the office of the Commission
in Washington, D.C. as set forth below under "THE OFFER -- 8. Certain
Information Concerning the Company". In addition, such analyses are described
below in "SPECIAL FACTORS -- 5. Background of the Offer and the Merger" and are
available for inspection and copying at the principal offices of the Purchaser
and Parent during their respective regular business hours by any interested
holder of Shares or his representative who has been so designated in writing.
In making the decision to proceed with the Offer and the Merger, Parent also
took into account the state of the insurance and reinsurance industry in
general, including the industry's volatility over the past few years and
expected future volatility. Parent believes that the industry's volatility can
be better managed by the Company once the Offer and Merger are completed. The
trend toward consolidation in the insurance and reinsurance industry has forced
smaller companies out of the market and shifted business to larger, better
capitalized reinsurers. By acquiring the Shares it does not presently own,
Parent's ability to combine the capacity of Parent's group as a whole with that
of the Company in the United States will be enhanced, better enabling the
Company to benefit from the trend toward consolidation being experienced in the
industry and to pool the group's resources to develop particular lines of
business in order to capitalize opportunistically on price increases achievable
in particular sectors of the industry.
3. FAIRNESS OF THE OFFER AND THE MERGER.
Parent believes that the $15.25 cash consideration proposed to be paid in
the Offer and pursuant to the Merger is fair to the minority stockholders of the
Company. It provides a substantial premium over pre-announcement market prices
to holders of the Shares and enables the Company's stockholders to receive cash
for their stockholdings now at a premium per share price. The $15.25 offer price
represents a premium of 73.7% over the weighted average of the market price of
the Company's Common Stock during the period from January 1, 1995 to September
15, 1995, a premium of 37.1% over the market price of the Company's Common Stock
as of September 25, 1995 of $11.125 per Share, a multiple of 15.9 times the
latest twelve months' income for the period ended September 30, 1995 and a
multiple of 17.3 times publicly forecasted earnings per Share for 1995. Based on
the foregoing and in light of the Company's historical results and the fact that
the Shares have since 1993 traded below the Company's net book value per Share
value, which as of September 30, 1995 was $15.27 per Share, Parent believes the
consideration proposed to be paid in the Offer and the Merger is fair to the
minority stockholders of the Company.
As a result of the Minimum Tender Condition, the tender of slightly less
than a majority of the outstanding Shares not owned directly or indirectly by
Parent is a condition to the obligation of the Purchaser to accept Shares for
payment. Such condition, however, may be waived at the sole discretion of Parent
or Purchaser.
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None of the Purchaser, Parent or Goldman Sachs solicited other offers for
the Company or its assets, and there can be no assurance that the terms of the
Offer are as favorable to the public stockholders of the Company as could be
obtained in a transaction, or one or more transactions, with an unaffiliated
party or parties. Neither Parent nor any of its affiliates has received any firm
offers or inquiries with respect to the business and assets of the Company or
its investment therein from any unaffiliated party during the period from
January 1, 1993 to the date of this Offer to Purchase.
Goldman Sachs was not asked to render, and has not rendered, any opinion as
to the fairness of the Offer or the Merger to either the Company or the public
stockholders of the Company. Neither Parent nor the Purchaser has obtained any
opinions as to the fairness of the Offer or the Merger to the public
stockholders of the Company or any valuation or appraisal of the Company's
assets from any independent party in connection with the Offer or the Merger.
Representatives of Parent have had access to certain non-public information
concerning the Company, including the projections which are summarized elsewhere
in this Offer to Purchase. See "THE OFFER -- 8. Certain Information Concerning
the Company".
Following the delivery by Parent of the letter, dated September 25, 1995,
described under "SPECIAL FACTORS--5. Background of the Offer and the Merger"
below, the Company announced that the proposal contained in such letter was
being referred to the Special Committee, which would consider the proposal. The
Special Committee is composed of all of the directors of the Company who are
neither officers or directors of the Purchaser or Parent nor officers of the
Company. The Special Committee retained Dillon Read as its financial advisor to
analyze the terms of the Offer and the Merger. Dillon Read has provided the
Board of Directors with its written opinion that, as of November 2, 1995, the
$15.25 cash consideration to be received by the holders of Shares (other than
Parent) pursuant to the Offer and the Merger is fair to such holders from a
financial point of view. The Board of Directors of the Company and the Special
Committee have unanimously determined that the Offer and the Merger are fair to
and in the best interests of the Company and its stockholders, have approved the
Offer and the Merger and recommend that the Company's stockholders accept the
Offer and tender their Shares pursuant to the Offer. See "SPECIAL FACTORS -- 6.
Recommendation of the Company's Board of Directors and the Special Committee."
4. INTERESTS OF CERTAIN PERSONS IN THE OFFER; POTENTIAL CONFLICTS OF INTERESTS.
Stockholders should be aware that members of the Board of Directors of the
Company (collectively, the "Board" and each a "Director"), other than the
members of the Special Committee, have certain interests which are referred to
below, and which may present them with actual or potential conflicts of interest
in connection with the Offer. Among other things, Parent already owns
approximately 80% of the outstanding Shares and, after the consummation of the
Offer, it is expected that the Chairman of the Board of the Company will
continue to serve on the board of directors of the Company and that the
President and Chief Executive Officer of the Company will continue to be
employed by the Company and serve as a member of the board of directors of the
Company. In addition, the Merger Agreement provides that the directors of the
Company will continue as directors of the Company after consummation of the
Merger.
Five of the thirteen members of the Board are also members of the Board of
Directors of the Parent or are officers of Parent. Allan M. Chapin, who is a
voting trustee of the SCOR U.S. Voting Trust (See "THE OFFER -- 10. Contacts
with the Company"), is a partner in the law firm of Sullivan & Cromwell, which
has provided legal services on an on-going basis to Parent and the Company.
Sullivan & Cromwell are acting as United States legal counsel to the Parent and
the Purchaser in connection with the Offer, the Merger and the other
transactions contemplated herein.
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5. BACKGROUND OF THE OFFER AND THE MERGER.
Parent has from time to time in recent years considered acquiring all of the
Shares not owned by Parent and began such considerations again during July,
1995. During July, management of Parent began to consult with representatives of
its outside United States legal counsel and financial advisors concerning the
manner in which the minority interest in the Company could be acquired. In
mid-September of 1995, management of Parent determined they were prepared to
recommend to Parent's Board of Directors the acquisition by Parent of the
minority interest in the Company and on September 21, 1995, representatives of
Sullivan & Cromwell, the United States legal counsel to Parent, and Goldman
Sachs, the financial advisor to Parent, met with management of Parent to discuss
the legal alternatives available to effect the acquisition of the minority
interest in the Company and certain financial information relevant to a
determination of an appropriate price to propose for acquisition of the minority
Shares. During the September 21, 1995 meeting, Goldman Sachs provided Parent
with certain financial analyses. Those analyses are described below and are
filed as an exhibit to the Schedule 13E-3 filed with the Commission in
connection with the Offer, and such analyses shall be made available for
inspection and copying at the principal executive offices of Parent and the
Purchaser during their respective regular business hours by any interested
holder of Shares or his representitive who has been so designated in writing.
The description below is qualified by reference to text of such analyses.
Goldman Sachs has not been requested to, and has not, given any opinion to
Parent, the Purchaser or any other person with respect to the fairness of the
consideration proposed to be paid for the Shares in the Offer and the Merger.
Neither Parent nor the Purchaser has obtained any opinions as to the fairness of
the Offer or the Merger to the holders of Shares or any valuation or appraisal
of the Company's assets from any independent party in connection with the Offer
or the Merger. During the September 21, 1995 meeting, management determined to
recommend a price of $14.00 per Share to the Board of Directors of Parent. On
October 24, 1995, the Company provided Goldman Sachs with updated financial
information, including earnings and other financial information for the third
fiscal quarter and the nine months ended September 30, 1995 that were publicly
reported on October 24, 1995 and financial projections, and, subsequently,
Goldman Sachs prepared and provided to Parent updates, reflecting the more
current information, to certain of its analyses. These updated analyses are also
filed as an exhibit to the Schedule 13E-3 and are available in the same manner
as that described above for the original analyses. The description of the
analyses set forth below is qualified by reference to the text of such analyses.
GOLDMAN SACHS' ANALYSES. The following is a summary of certain of the
financial analyses used by Goldman Sachs in connection with its discussions with
the management of Parent on September 21, 1995. The presentations of Goldman
Sachs containing, among other things, the financial analyses and updated
financial analyses summarized below, have been filed as exhibits to the Schedule
13E-3.
Historical Stock Trading Analysis. Goldman Sachs reviewed the historical
trading prices and volumes for the Shares. Such review included, among other
things, Goldman Sachs' analysis of the weighted average market prices of the
Shares and the total volume of Shares traded as a percentage of Shares
outstanding during the period from January 1, 1992 to September 15, 1995 and
during the period from January 1, 1995 to September 15, 1995. Such analysis
indicated a weighted average market price of $12.07 per share (based on
closing prices for the Shares from January 1, 1992 to September 15, 1995)
with 44.3% of the total outstanding Shares traded in such period and a
weighted average market price of $8.78 per Share (based on closing prices
for the Shares from January 1, 1995 to September 15, 1995) with 5.3% of the
total outstanding Shares traded in such period. Such review also included
Goldman Sachs' analysis of the indexed historical trading prices of the
Shares during the period from December 27, 1991 to August 31, 1995 as
compared to the Standard & Poor's 500 Index and a composite index comprised
of seven other publicly traded corporations in the
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reinsurance industry: General Re Corporation, American Re Corporation,
Transatlantic Holdings, Inc., NAC Re Corp., National Re Corporation,
Trenwick Group Inc. and Zurich Centre Re Holdings (the "Selected
Companies"). Representatives of Goldman Sachs advised the management of
Parent that there are no publicly traded companies directly comparable to
the Company and that the analysis had to be considered in light of that
qualification. The analysis of such indexed historical share trading prices
indicated that the Shares underperformed both the Standard & Poor's 500
Index and the comparable composite index during that period. During such
period, the Standard & Poor's 500 Index increased approximately 50%, the
comparable composite index increased approximately 78%, and the value of the
Shares decreased approximately 29%.
Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash
flow analysis based on estimated cash flow per Share, consisting of
projected dividends per Share for the period from December 31, 1995 through
December 31, 1999, and a projected terminal value at December 31, 1999.
Goldman Sachs calculated present value per Share of such estimated cash
flows using discount rates of 12.5% and 15% for three scenarios for the
compound annual growth rate ("CAGR") for earnings per share ("EPS") for the
Company of 5%, 10% and 15%. In each such scenario, IBES median EPS estimates
for 1995-1996 were used and the scenario growth rate was applied to estimate
EPS thereafter. Goldman Sachs calculated dividends per Share assuming a 34%
payout ratio to EPS and calculated the Company's terminal value based on
multiples of projected net income for calendar year 1999 ranging from 8x to
15x. Those calculations indicated present value per Share values based on
the 5% EPS CAGR scenario ranging from $6 per Share at a 15.0% discount rate
to $12 per Share at a 12.5% discount rate, implied per Share values based on
the 10% EPS CAGR scenario ranging from $7 per Share at a 15.0% discount rate
to $13 per Share at a 12.5% discount rate and implied per Share values based
on the 15% EPS CAGR scenario ranging from $8 per Share at a 15.0% discount
rate to $15 per Share at a 12.5% discount rate. Goldman Sachs' updated
"Discounted Cash Flow Analysis" is discussed below.
Selected Companies Analysis. Goldman Sachs reviewed and compared certain
financial information relating to the Company to corresponding financial
information, ratios and public market multiples for the following direct
reinsurance companies: American Re Corporation, General Re Corporation and
National Re Corporation (the "Direct Reinsurance Companies"), and for the
following broker reinsurance companies: NAC Re Corp., Transatlantic
Holdings, Inc. and Trenwick Inc. (the "Broker Reinsurance Companies"). The
public market multiples of the Company were calculated using the price of
$11.25 per Share, representing the closing price of the Shares on the NYSE
on September 19, 1995. The multiples and ratios for the Company and for each
of the Direct Reinsurance Companies and the Broker Reinsurance Companies
(together, the "Analyzed Companies") were based on generally accepted
accounting principles ("GAAP") financial data as of June 30, 1995, IBES
median estimates as of September 7, 1995 and other recent publicly available
information. Representatives of Goldman Sachs advised the management of
Parent that there are no companies directly comparable to the Company and
that the analysis had to be considered in light of that qualification. The
review indicated that the percentage of the 52-week high trading prices
ranged from 97.1% to 99.8%, compared to 93.8% at $11.25 per Share for the
Company, that the current dividend yield for the Analyzed Companies ranged
from 0.5% to 2.2%, with a mean of 0.8% for the Direct Reinsurance Companies
and 1.1% for the Broker Reinsurance Companies, compared to 1.8% at $11.25
per Share for the Company, and that the calendar year 1994 return on equity
for the Analyzed Companies ranged from 7.2% to 12.9%, with a mean of 10.8%
for the Direct Reinsurance Companies and 10.9% for the Broker Reinsurance
Companies, compared to negative return on equity for the Company. Goldman
Sachs also considered for the Analyzed Companies: estimated calendar year
1995 and 1996 price/earnings ratios, which ranged from 12.2x to 16.4x for
estimated calendar year 1995, with a mean of 14.2x for the Direct
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Reinsurance Companies and 14.3x for the Broker Reinsurance Companies, and
10.8x to 14.7x for estimated calendar year 1996, with a mean of 12.4x for
the Analyzed Companies as a group, compared to 12.8x and 11.8x at $11.25 per
Share, respectively, for the Company; statutory combined ratios for calendar
years 1992, 1993 and 1994, which ranged from 102.8% to 126.9% for calendar
year 1992, with a mean of 104.8% for the Direct Reinsurance Companies and
117.5% for the Broker Reinsurance Companies, 99.5% to 110.9% for calendar
year 1993, with a mean of 100.3% for the Direct Reinsurance Companies and
106.8% for the Broker Reinsurance Companies, and 98.4% to 105.7% for
calendar year 1994, with a mean of 101.2% for the Direct Reinsurance
Companies and 104.8% for the Broker Reinsurance Companies, compared to
123.3%, 103.7% and 118.8%, respectively, for the Company; and estimated EPS
(based on IBES median estimates as of September 7, 1995) for calendar years
1995 and 1996, which ranged from $2.40 to $9.25 per share for estimated
calendar year 1995, compared to $0.88 per Share for the Company, and ranged
from $2.80 to $10.35 per share for estimated calendar year 1996, compared to
$0.95 per Share for the Company. Goldman Sachs also compared for the
Analyzed Companies the book value per share and the price to book value per
share ratios, which book value per share ranged from $2.80 to $69.59 for the
Analyzed Companies, compared to $15.02 per Share for the Company, and which
price to book value per share ratios ranged from 1.51x to 2.18x for the
Analyzed Companies, with a mean of 1.97x for the Direct Reinsurance
Companies and 1.64x for the Broker Reinsurance Companies, compared to 0.75x
per Share for the Company.
Analysis at Various Prices. Goldman Sachs calculated alternative values
for the aggregate consideration (including the price of the outstanding
Debentures) based upon nine price per Share values ranging from $11.25 to
$16.00 per Share. Those calculations yielded aggregate consideration values
ranging from $117 million to $134 million for the outstanding Shares not
beneficially owned directly or indirectly by Parent and the outstanding
Debentures, excluding any severance obligations and transaction costs.
Goldman Sachs considered the consideration per Share as a premium over the
market price quoted on the NYSE on September 19, 1995 for the Shares of
$11.25, as a multiple of actual twelve months ended June 30, 1995 ("LTM")
EPS of $0.75 and IBES estimates for calendar year 1995 and 1996 EPS of $0.88
and $0.95, respectively, and as a multiple of stated book value per Share of
$15.01 as of June 30, 1995 and tangible book value per Share of $14.74 as of
June 30, 1995. Goldman Sachs' analyses indicated consideration per Share
premiums over market ranging from 0.0% to 42.2%, with a premium of 24.4%
based on the consideration per Share of $14.00 initially proposed by Parent
on September 25, 1995; consideration per Share multiples of LTM EPS ranging
from 15.0x to 21.3x, with a multiple of 18.7x based on the consideration per
Share of $14.00 initially proposed by Parent on September 25, 1995, of
estimated calendar year 1995 EPS ranging from 12.8x to 18.2x, with a
multiple of 15.9x based on the consideration per Share of $14.00 initially
proposed by Parent on September 25, 1995, and of estimated calendar year
1996 EPS ranging from 11.8x to 16.8x, with a multiple of 14.7x based on the
consideration per Share of $14.00 initially proposed by Parent on September
25, 1995; and consideration per Share multiples of stated book value per
Share ranging from 0.75x to 1.07x, with a multiple of 0.93x based on the
consideration per Share of $14.00 initially proposed by Parent on September
25, 1995, and of tangible book value per Share ranging from 0.76x to 1.09x,
with a multiple of 0.95x based on the consideration per Share of $14.00
initially proposed by Parent on September 25, 1995. Goldman Sachs' updated
"Analysis at Various Prices" is discussed below.
Selected Transactions Analysis. Goldman Sachs analyzed certain
information relating to recent acquisitions of U.S. property/casualty
reinsurance companies since 1987 (the "Selected Transactions"). Such
analysis indicated that for the Selected Transactions: (A) based on GAAP,
aggregate consideration as a multiple of (x) net written premiums for the
twelve month period ending prior to announcement of each selected
transaction ranged from
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0.48x to 1.80x, with a mean and median of 1.17x, (y) net income for the
twelve month period ending prior to announcement of each selected
transaction ranged from 6.72x to 21.40x, with a mean of 12.88x and median of
9.91x, and (z) tangible book value ranged from 0.82x to 3.10x, with a mean
of 1.37x and median of 1.17x; and (B) based on statutory accounting
principles, aggregate consideration as a multiple of (x) net income for the
twelve month period ended prior to the announcement of each selected
transaction ranged from 7.69x to 27.90x, with a mean of 12.83x and median of
10.32x, and (y) book value ranged from 0.91x to 1.94x, with a mean of 1.26x
and median of 1.13x.
Selected Buyouts Analysis. Goldman Sachs analyzed certain information
relating to selected buyouts by significant existing stockholders since 1989
(the "Selected Buyouts"). Such analysis indicated that for the Selected
Buyouts: (A) as an average for all buyouts, (i) pre-announcement stock price
as a percentage of the 52-week high closing price per share was 80.9%, (ii)
the initial offer premium to the closing price one NYSE trading day prior to
the public announcement of the parents' proposals was 23.4% and the discount
to the 52-week high closing price was 1.6%, (iii) the increase in the offer
price paid was 9.3% and (iv) the final offer price premium to the closing
price one NYSE trading day prior to the public announcement of the
significant existing stockholders' proposals was 35.0% and to the 52-week
high closing price was 8.0%; (B) as an average for all U.S. buyouts by a
European parent, (i) pre-announcement stock price as a percentage of the
52-week high closing price per share was 82.3%, (ii) the initial offer
premium to the closing price one NYSE trading day prior to the public
announcement of the parents' proposals was 19.1% and the discount to the
52-week high closing price was 2.6%, (iii) the increase in the offer price
paid was 6.9% and (iv) the final offer price premium to the closing price
one NYSE trading day prior to the public announcement of the significant
existing stockholders' proposals was 26.6% and to the 52-week high closing
price was 4.1%; and (C) as an average for all buyouts of an approximate 20
percent minority stake, (i) pre-announcement stock price as a percentage of
the 52-week high closing price per share was 82.1%, (ii) the initial offer
premium to the closing price one NYSE trading day prior to the public
announcement of the significant existing stockholders' proposals was 16.9%
and the discount to the 52-week high closing price was 5.1%, (iii) the
increase in the offer price paid was 6.6% and (iv) the final offer price
premium to the closing price one NYSE trading day prior to the public
announcement of the parents' proposals was 23.2% and to the 52-week high
closing price was 0.8%.
As described above, Goldman Sachs has updated its "Discounted Cash Flow
Analysis" and "Analysis at Various Prices" set forth in its earlier presentation
to take into account the September 30,1995 updated financial information. The
updated "Discounted Cash Flow Analysis" was based on management projections for
1995-1997 EPS and indicated present value per Share values for the scenario
assuming 5% EPS CAGR after 1997 ranging from $9 per Share at a 15.0% discount
rate to $17 per Share at a 12.5% discount rate, present value per Share values
for the scenario assuming 10% EPS CAGR after 1997 ranging from $10 per Share at
a 15.0% discount rate to $18 per Share at a 12.5% discount rate and present
value per Share values for the scenario assuming 15% EPS CAGR after 1997 ranging
from $11 per Share at a 15.0% discount rate to $20 per Share at a 12.5% discount
rate.
In the updated "Analysis at Various Prices", Goldman Sachs calculated
alternative values for the aggregate consideration (including the price of the
oustanding Debentures) based upon nine price per Share values ranging from
$11.25 to $16.00, and considered the consideration per Share as a multiple of
the twelve months ended September 30, 1995 EPS of $0.96 and management
projections for calendar year 1995 and 1996 EPS of $1.01 and $1.19,
respectively, and as a multiple of reported book value per Share of $15.10 as of
September 30, 1995 and tangible book value per Share of $14.83 as of September
30, 1995. These calculations indicated consideration per Share multiples of EPS
for the twelve months period ended September 30, 1995 ranging from 11.7x to
16.7x, with a multiple of 14.6x based on the consideration per Share of $14.00
initially
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proposed by Parent on September 25, 1995, of projected calendar year 1995 EPS
ranging from 11.1x to 15.8x, with a multiple of 13.9x based on the consideration
per Share of $14.00 initially proposed by Parent on September 25, 1995, of
projected calendar year 1996 EPS ranging from 9.5x to 13.4x, with a multiple of
11.8x based on the consideration per Share of $14.00 initially proposed by
Parent on September 25, 1995, of reported book value per Share ranging from
0.74x to 1.06x, with a multiple of 0.93x based on the consideration per Share of
$14.00 initially proposed by Parent on September 25, 1995, and of tangible book
value per Share ranging from 0.76x to 1.08x, with a multiple of 0.94x based on
the consideration per Share of $14.00 initially proposed by Parent on September
25, 1995.
Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors and events beyond the
control of the parties or their respective advisors, none of Parent, the
Purchaser, the Company, Goldman Sachs or any other person assumes responsibility
if future results are materially different from those forecast.
As described above, Goldman Sachs' presentation to the management of Parent
was one of many factors taken into consideration by Parent in making its
determination to propose the Offer and the Merger. The foregoing summary does
not purport to be a complete description of the analyses performed by Goldman
Sachs and is qualified by reference to the presentations containing Goldman
Sachs' analyses filed as exhibits to the Schedule 13E-3.
COMMUNICATIONS REGARDING PARENT'S PROPOSAL. On September 25, 1995, the Board
of Parent met and approved making a proposal to the Company to acquire the
Shares not owned by Parent at a price of $14.00 per Share and authorized the
management of Parent to cause Parent to take such action as the management
deemed necessary or advisable to acquire all Shares not already owned by Parent.
On September 25, 1995, Parent sent the following letter to the Board of the
Company:
September 25, 1995
Board of Directors
SCOR U.S. Corporation
Two World Trade Center, 23rd Floor
New York, NY 10048-0178
Dear Sirs,
On behalf of SCOR S.A. ("Parent"), I am pleased to make a proposal to
acquire all of the outstanding shares of common stock, par value $0.30 per
share (the "Common Stock"), of SCOR U.S. Corporation (the "Company") not
currently owned by Parent at a price of $14 per share in cash.
As you know, Parent has owned a substantial majority of the outstanding
shares of Common Stock since before the public offering by the Company of
its Common Stock in 1986, and Parent currently owns approximately 80% of the
Company's outstanding Common Stock. Parent believes it would be in the
mutual best interest of Parent, the Company and the shareholders of the
Company for Parent to acquire the shares of Common Stock that it does not
already own on the terms and conditions set forth in this letter.
Accordingly, Parent hereby submits for your consideration the following
proposal.
Parent is prepared to enter into a merger agreement pursuant to which a
newly organized United States subsidiary of Parent would acquire all issued
and outstanding shares of Common Stock that are not currently directly or
indirectly owned by Parent at a price of $14 per share in
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cash. The merger agreement could be in a form customary for transactions of
this type. Our proposal presumes that there has been no material adverse
change since June 30, 1995 in the results of operations, business or
financial condition of the Company and its subsidiaries taken together.
The transactions contemplated by this proposal would also give the
holders of the Company's outstanding 5 1/4% Convertible Subordinated
Debentures due April 1, 2000 (the "Debentures") the right to require the
Company to repurchase the Debentures at a repurchase price equal to 100% of
the principal amount thereof together with accrued and unpaid interest to
the date of such repurchase.
We believe that this proposal is fair to the minority stockholders of
the Company. It provides a substantial premium to current market prices to
holders of the Company's Common Stock and enables the Company's shareholders
to receive cash for their shareholdings now at a premium per share price
which they are unable to recognize in the market.
The $14 offer price represents a premium of 59.5% over the weighted
average of the market price of the Company's Common Stock during the period
from January 1, 1995 to September 15, 1995, a premium of 24.4% over the
market price of the Company's Common Stock as of September 19, 1995, a
multiple of 18.7 times the latest twelve months' income and a multiple of
15.9 times publicly forecasted earnings per share for 1995.
We are in a position to proceed on an expedited basis and urge that the
Company act responsibly and, in order to minimize uncertainty, as quickly as
possible, in considering our proposal. We expect that the directors of the
Company who are not affiliated with Parent may wish to engage independent
legal and financial advisors. If that is so, we would request that they do
so quickly.
We would like to make it clear that Parent's interest in the Company is
not for sale and thus this proposal is not made in view of the sale of the
Company to a third party.
We welcome the opportunity to meet with the Directors and further
outline our proposal at Director's meetings to be held on September 28 and
29.
Sincerely yours,
/s/ Jacques Blondeau
Jacques Blondeau
On September 26, 1995, Parent issued a press release announcing its proposal
to the Board of a merger at a price of U.S. dollars 14.00 per Share in cash.
On September 27, 1995, representatives of the United States legal counsel to
Parent met with the General Counsel and other members of the legal department of
the Company to discuss regulatory implications of the Company becoming a
wholly-owned subsidiary of Parent. Counsel to Parent also requested that
Parent's financial advisor be given the opportunity to perform a due diligence
investigation on the Company.
At a September 28, 1995 meeting of the members of the Board of the Directors
of the Company who are neither officers of the Company nor officers or directors
of the Purchaser or Parent (the "Unaffiliated Directors"), those directors
determined to form the Special Committee to review Parent's proposal and its
fairness to the minority stockholders of the Company and to negotiate the
proposal with the Parent. The Special Committee was formed on September 28,
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1995. The members of the Special Committee were John R. Cox, Raymond H. Deck,
Michel J. Gudefin, Richard M. Murray, John W. Popp, David J. Sherwood and Ellen
E. Thrower. The Special Committee was granted authority to retain legal and
financial advisors to assist it in evaluating the interest expressed by Parent
in acquiring the outstanding Shares. Subsequently, the Special Committee hired
Davis Polk & Wardwell as its outside legal counsel and Dillon Read to act as
financial advisor to the Special Committee.
In a meeting with the Special Committee held on September 28, 1995, a
representative of Parent discussed Parent's proposal contained in its September
26, 1995 letter and advised the Special Committee that Parent would likely
commence a tender offer for the Shares in advance of entering into a Merger
Agreement, but that Parent would defer commencing the tender offer to give the
Special Committee time to retain legal and financial advisors and begin their
review of the $14.00 proposal. The Special Committee and the representatives of
Parent agreed that it was in the best interests of the Company and its
stockholders to resolve promptly whether Parent would be acquiring the Shares
not already owned by it and that the Special Committee would endeavor to be in a
position to respond to Parent's proposal by October 26, 1995, the date of a
previously scheduled meeting of the Executive Committee of the Board of
Directors of the Company.
On September 29, 1995, the Company issued a press release concerning
Parent's September 25, 1995 proposal.
On September 29 and October 3, 1995, representatives of the United States
legal counsel to Parent called a representative of counsel for the Special
Committee to discuss issues potentially associated with the possible
commencement of a tender offer and to inquire as to the timing for retention of
a financial advisor. During those calls, counsel to the Special Committee
expressed concern that a tender offer might place the Special Committee under
timing constraints in responding to Parent's proposal. United States legal
counsel to Parent indicated that consummation of any tender offer would likely
be conditioned upon prior approval of the Special Committee. During the October
3rd call, counsel to the Special Committee also indicated that Goldman Sachs
would be provided with access to confidential information concerning the Company
only after and to the extent that the Special Committee and its financial
advisor determined that such access was appropriate.
On October 10, 1995, representatives of United States legal counsel to
Parent called a representative of counsel to the Special Committee to discuss
again the timing of the retention by the Special Committee of its financial
advisor and the possibility of a tender offer by Parent for the Shares prior to
entering into a merger agreement. During the course of that telephone call, the
representative of counsel to the Special Committee reiterated concerns relating
to the commencement of a tender offer before the Special Committee had delivered
its response to Parent's proposal contained in its September 25, 1995 letter. In
response to a question raised by counsel to the Special Committee, the
representatives of United States legal counsel to Parent indicated they planned
to forward a draft of a Merger Agreement to counsel to the Special Committee
promptly.
On October 10, 1995, the Special Committee retained Dillon Read as its
financial advisor to assist in its evaluation of, and negotiations with respect
to, Parent's proposal.
On October 10, 1995, the Company provided to Parent's United States legal
advisors certain initial documents relating to the Company for review. On
October 12, 1995, representatives of Parent's United States legal advisors sent
a preliminary due diligence request list to the Company outlining the types of
documents sought for review. On October 16, 1995, representatives of Parent's
United States legal advisors spoke with representatives of the Company to
schedule the due diligence process. During the period from October 16 to October
26, 1995, representatives of Parent's financial and United States legal advisors
performed due diligence at the Company's
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offices, were provided with due diligence materials relating to the Company and
engaged in conversations with management of the Company. Additional due
diligence materials were provided to representatives of Parent's United States
legal advisors by the Company on November 2, 1995.
On October 13, 1995, representatives of Goldman Sachs, Dillon Read and legal
counsel to the Special Committee met with members of the senior management of
the Company to discuss the Company's business, historical financial results and
projected financial results.
During the course of the October 13 meeting, the Company's management
indicated that it then expected the Company to achieve operating earnings of no
less than $.86 per share in 1995 compared to several then current Wall Street
analysts' projections of earnings of $.88 per share for 1995. The Company's
management indicated that the projected financial results for 1995 were based on
expectations that gross underwriting premiums for 1995 will be less than
previous estimates prepared by the Company, but that the net income results
would not be materially different from previously forecasted results because of
a reduction in the amount of anticipated losses. The Company's management
indicated that it then believed the Company has avoided any material losses that
might arise from most of the catastrophes that have occurred during the course
of 1995. Management noted that most of the loss incurred by the Company in 1994
was the result of losses arising from the Northridge, California earthquake. The
Company's management also indicated that it then expected to achieve earnings of
$1.12 per share in 1996 compared to several then current Wall Street analysts'
projections of earnings of $.95 per share for that year and that it then
expected the Company to record earnings per share of $1.42 in 1997. The
Company's management indicated that the significant assumptions used in the
preparation of such projections included: (i) an assumption that the reinsurance
market will not improve significantly over the next two years; (ii) the
Company's exposure to property catastrophe loss will be less in the future
because of increased management of aggregate exposures to losses arising out of
that line of business; (iii) an anticipated reduction in the premiums that the
Company will be able to charge and (iv) the possibility that the Company could
become less competitive in the future because of higher capital bases for some
of the Company's competitors.
The Company management indicated at the October 13 meeting that they were in
the process of updating the projected financial results of the Company. Certain
of those updated financial projections, which were delivered to Parent's United
States legal and financial advisors on October 23, 1995, are described in "THE
OFFER -- 8. Certain Information Concerning the Company".
In addition to the general review of the Company's business and results of
operations discussed above, during the October 13 meeting, the Company's
management discussed a number of specific matters relating to the Company's
various lines of business. In the course of those discussions, the Company noted
that Parent has provided 33-40% of the Company's catastrophe retrocession
program and has been the Company's largest retrocessionaire by a significant
margin. The Company's management indicated that it expects that all catastrophe
retrocession will be provided by Parent by January 1, 1996. This increase is
part of Parent's world-wide plan to provide all retrocession capacity for its
subsidiaries' catastrophe reinsurance and then to retrocede such exposure to
other companies. The Company indicated that the increase in Parent's position
leading to Parent becoming the sole retrocessionaire of the Company's
catastrophe program was decided upon prior to Parent's proposal to acquire the
minority interest in the Company. The Company's management indicated its
confidence in Parent's ability to satisfy its retrocession obligations. The
Company's management also indicated that the Company's broker relationship is
extremely concentrated. Forty percent of the brokered premiums written by the
Company are sourced from two brokers. Such brokers account for 23% and 16.5%,
respectively, of the total brokered premiums and single treaties account for 50%
of each of those amounts. Such treaties have been in effect since 1992 and 1987,
respectively.
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During the course of the October 13 meetings with Goldman Sachs and Dillon
Read, the Company's management discussed the historical price of the Company's
stock. Management pointed out that the stock has in recent years traded at
levels that are below the Company's net asset value. Reasons given by the
Company's management for the price level of the Company's stock included: (i)
low liquidity and trading volumes, (ii) depressed earnings history and return on
equity and (iii) the "overhang" in the market caused by Parent's 80% ownership
of the common stock.
On October 19, 1995, United States legal counsel to Parent forwarded a draft
of a Merger Agreement to the Special Committee's legal counsel.
On October 20 and 23, 1995, the Special Committee met with its legal and
financial advisors to discuss the proposal and the draft of the Merger
Agreement. During such period, the Special Committee's legal and financial
advisors continued their due diligence investigation of the Company.
On October 24, 1995, the Company announced its financial results for the
third fiscal quarter of 1995 and for the nine months ended September 30, 1995.
The text of the press release announcing such results (excluding the financial
statements, which are attached hereto as Appendix B) is set forth below:
SCOR U.S. REPORTS THIRD QUARTER AND NINE MONTH RESULTS
New York, N.Y., October 24, 1995--SCOR U.S. Corporation (NYSE:SUR)
reported today that income from operations for the three months ended
September 30, 1995, excluding net realized investment gains, was $4.7
million, or $.26 per share. This compares with $2.2 million or $.12 per
share, for the third quarter of 1994. During the 1995 third quarter, the
Company experienced $230,000, or less than $.01 per share after-tax, of
net favorable development on pre-1995 property catastrophe events. The
Company's 1994 third quarter results include pretax charges for
catastrophes of $2.1 million, or $.08 per share after-tax.
Net income for the three months ended September 30, 1995 was $4.8
million, or $.26 per share, including after-tax realized investment gains
of $79,000, or less than $.01 per share. In the year earlier period, the
Company reported net income of $2.4 million, or $.13 per share, including
after-tax realized investment gains of $210,000, or $.01 per share.
For the 1995 nine month period, excluding net realized investment
gains, the Company reported income from operations of $13.0 million, or
$.71 per share, compared with an operating loss of $12.1 million, or $.67
per share, for the nine month period of 1994. The Company's 1995 year to
date results include pretax charges for pre-1995 catastrophe events of
$4.3 million, or $.15 per share after tax, of which $3.4 million relates
to the Northridge earthquake. Results for the 1994 nine month period
include pretax charges of $38.7 million, or $1.39 per share on an
after-tax basis, for catastrophe events, principally related to the
Northridge earthquake.
Net income for the 1995 nine month period was $14.1 million, or $.77
per share, including after-tax realized investment gains of $463,000, or
$.03 per share, and an extraordinary gain of $552,000, or $.03 per share,
resulting from the Company's repurchase of its debentures.
Comparatively, the Company reported a net loss of $11.4 million, or
$.63 per share, in the year earlier period, including after-tax realized
investment gains of $688,000, or $.04 per share.
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In the 1995 third quarter, net premiums written were $54.6 million,
compared with $55.8 million for the 1994 third quarter. For the 1995 nine
month period, net premiums written were $181.6 million, compared with
$184.7 million for the corresponding 1994 period.
The Company's 1995 third quarter and nine month statutory combined
ratios were 100.7% and 104.2%, respectively, compared with 107.2% and
122.8%, respectively, for the third quarter and nine months of 1994.
Net investment income for the 1995 nine month period increased to
$31.8 million from $30.4 million in the corresponding 1994 period.
Net cash provided by operating activities for the nine months ended
September 30, 1995 was $3.0 million, compared with cash used in
operations of $8.5 million for the corresponding 1994 period.
At September 30, 1995, the statutory capital and surplus of the
Company's operating subsidiaries stood at an estimated $256.8 million.
Based upon preliminary available information concerning the recent
hurricane activity, the Company does not expect any material adverse
impact from losses arising out of those hurricanes.
As previously announced, the Company's Board of Directors has
received a proposal from its majority shareholder, SCOR S.A., to
repurchase the Company's outstanding publicly held shares. A committee
consisting of all independent directors is evaluating that proposal.
SCOR U.S. Corporation, a holding company, provides property and
casualty insurance and reinsurance in the treaty and facultative markets
through its operating subsidiaries. All of the SCOR U.S. Corporation's
operating insurance and reinsurance subsidiaries are rated "A"
(excellent) by A.M. Best Company.
On October 24, 1995, representatives of Dillon Read telephoned
representatives of Goldman Sachs and informed Goldman Sachs that the Special
Committee would recommend an offer at a price of $18.00 per Share.
Representatives of Goldman Sachs then informed Dillon Read that Goldman Sachs
would communicate that information to Parent. On the same day and shortly
thereafter, Goldman Sachs communicated to Parent that representatives of Dillon
Read had stated that the Special Committee would recommend a proposed offer by
Parent at $18.00 per Share. Management of Parent then indicated to Goldman Sachs
that Parent would not proceed at an $18.00 per Share price and requested Goldman
Sachs to communicate that fact to Dillon Read. On the same day and shortly after
the telephone call with Parent's management, representatives of Goldman Sachs
telephoned Dillon Read and informed its representatives that Parent believed the
$18.00 price was unsupportable and that Parent continued to believe $14.00 was
an appropriate and fair price for the Shares.
On October 26, 1995, representatives of Parent met with representatives of
the Special Committee and informed them that Parent was not willing to pay the
$18.00 per Share that had been requested by the Special Committee and that
Parent would be willing to pay a maximum of $15.00 per Share. Representatives of
the Special Committee then indicated that they believed they could obtain
Special Committee support for a transaction at $16.00 per Share. Representatives
of the Special Committee and Parent were unable to narrow further their
disagreement over the appropriate price for a transaction and ended discussions
on that day by agreeing to have their respective financial advisors discuss
their views on the per Share consideration proposed to be paid.
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On October 27, 1995, representatives of the financial advisors to the
Special Committee telephoned financial advisors to Parent to discuss their views
on the per Share consideration proposed to be paid. During the course of that
meeting, representatives of Goldman Sachs discussed with representatives of
Dillon Read Parent's reasons for having made an offer to purchase the Shares
that it did not already own at a price of $14.00 per Share, including certain of
the Goldman Sachs analyses contained in Goldman Sachs' presentation to
management of Parent on September 21, 1995. In response to that discussion by
representatives of Goldman Sachs, the representatives of Dillon Read indicated
that the Special Committee would not accept a price per Share that did not
represent a moderate premium over the book value. Although a net book value, of
$15.10 per Share had been publicly announced by the Company, Dillon Read's
representatives indicated to representatives of Goldman Sachs that Dillon Read
believed the net book value of the Company to be in the range of $15.05 to
$15.50 per Share based on information that had been made available to Dillon
Read.
On October 30, 1995, the legal counsel to the Special Committee communicated
to legal counsel to Parent that the Special Committee would not support a
transaction at $15.00 but would likely consider a price that represented a
premium over the book value.
On October 31, 1995, legal counsel to Parent responded to legal counsel to
the Special Committee that Parent would agree to a transaction at $15.25 if such
transaction were supported by the Special Committee, was the subject of a
favorable fairness opinion of the financial advisor to the Special Committee,
was approved by counsel for the various plaintiffs in pending shareholder claims
made following Parent's initial proposal, and was effected pursuant to a
mutually agreeable merger agreement. Legal counsel to the Special Committee
confirmed that a price per Share of $15.25 would satisfy the criteria of the
Special Committee and would likely be considered favorably by the Special
Committee. See "THE OFFER -- 15. Certain Legal Matters".
Also on October 31, 1995, representatives of the Special Committee's legal
advisors forwarded to representatives of Parent's United States legal counsel
their and the Special Committee's comments on the draft of the Merger Agreement.
On November 1, 1995, representatives of Parent's United States legal counsel
discussed with the Special Committee's legal advisors and Arter & Hadden,
special counsel to the Special Committee for directors' and officers' liability
and insurance matters, various provisions of the draft of the Merger Agreement
and the comments of the Special Committee and the Special Committee's legal
advisors on the draft of the Merger Agreement. On November 2, 1995,
representatives of the Special Committee's legal counsel sought to narrow the
representations and warranties and conditions to the Offer proposed by Parent in
the draft Merger Agreement, and Arter & Hadden sought to modify the obligation
of the Company and Parent to purchase directors and officers' liability
insurance. On November 2, 1995, representatives of Parent's and the Special
Committee's legal advisors again discussed various provisions of the Merger
Agreement. After that conversation, the remaining unresolved issues were
whether, as requested by Parent, the tender offer would be subject to the
Minimum Tender Condition and the timing of the purchase by the Company of
directors' and officers' liability insurance and the amount of such insurance
that would be purchased by the Company.
On November 1, 1995, representatives of counsel to the plaintiffs in the
shareholder actions agreed with representatives of Parent's United States legal
counsel that they were prepared to negotiate a settlement if a price per Share
of $15.25 were offered to the Company's stockholders. See "THE OFFER -- 15.
Certain Legal Matters".
On the afternoon of November 2, 1995, the Special Committee and its legal
and financial advisors met to discuss the Offer and the Merger. At that meeting,
the Special Committee agreed to resolve the remaining outstanding issues on the
draft Merger Agreement in the manner reflected in the Merger Agreement. A copy
of the Merger Agreement has been filed as an exhibit to the
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Schedule 14D-1 and the Schedule 13E-3, and the Merger Agreement is summarized in
"THE OFFER -- 11. The Merger Agreement; Appraisal Rights; Effect on the
Debentures". The Special Committee unanimously approved each of the Merger
Agreement, the Offer and the Merger and determined that the terms of the Offer
and the Merger are fair to, and in the best interest of, the stockholders of the
Company and recommended that the stockholders of the Company tender their Shares
and that the Board of Directors of the Company approve the same. At that meeting
of the Special Committee, Dillon Read orally advised the Special Committee that
it was Dillon Read's opinion that the consideration to be received by the
holders of Shares (other than Parent) is fair to such holders from a financial
point of view as of such date. See "SPECIAL FACTORS -- 6. Recommendation of the
Company's Board of Directors and the Special Committee". After the meeting of
the Special Committee referred to in the preceding sentence, the Board of
Directors of the Company met. After receiving a report from the Special
Committee on its deliberations and a recommendation from the Special Committee
that the Board of Directors approve the Merger Agreement, the Offer and the
Merger, the Board of Directors unanimously approved the Merger Agreement, the
Offer and the Merger, determined that the Offer and the Merger are fair to, and
in the best interest of, the stockholders of the Company and recommended that
all stockholders of the Company accept the Offer and tender their Shares
pursuant to the Offer.
The Merger Agreement was executed and delivered by the parties thereto on
November 2, 1995, and the transaction was announced on the morning of November
3, 1995.
On November 8, 1995, the Purchaser and the Company agreed to modify the
Minimum Tender Condition to the form set forth herein. The modification
eliminated all options from the denominator for purposes of calculating whether
Parent beneficially owns, directly or indirectly, 90% of the Shares.
6. RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE.
At the November 2, 1995 meeting of the Board of Directors of the Company,
the Board of Directors of the Company, including those members of the Board of
Directors of the Company constituting the Special Committee, acting upon the
unanimous recommendation of the Special Committee, unanimously approved the
Merger Agreement, the Offer and the Merger, determined that the terms of the
Offer and the Merger are fair to, and in the best interest of, the stockholders
of the Company and recommended that all stockholders of the Company accept the
Offer and tender their Shares pursuant to the Offer.
Reasons for Recommendation.
See "SPECIAL FACTORS -- Background of the Offer and the Merger" for a
description of certain events preceding the Board of Director's consideration of
the Offer and the Merger.
The Special Committee received presentations from, and reviewed the Offer
and the Merger with, senior management of the Company as well as the Special
Committee's financial advisor, Dillon Read. The Special Committee, in
determining whether to recommend the approval of the Merger Agreement and the
transactions contemplated thereby to the full Board of Directors, considered a
number of factors, including, but not limited to, the following:
(i) The belief, based on its familiarity with the Company's business,
its current financial condition and results of operations and its future
prospects, and the current and anticipated developments in the Company's
industry, that the consideration to be received by the Company's
stockholders in the Offer and Merger fairly reflects the Company's intrinsic
value.
(ii) The oral and written presentations made by the Company's management
and Dillon Read at a meeting held on October 20, 1995 as to various
financial and other considerations deemed relevant to the evaluation of the
Offer and the Merger, including, but not limited to, a review of (A) the
business prospects and financial condition of the Company, (B) historical
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business information and financial results of the Company, (C) nonpublic
financial and operating results of the Company, (D) financial projections
and budgets prepared by the Company's management, (E) information obtained
from meetings with senior management of the Company, (F) the trading range
and volume history of the Shares, (G) public financial information of
comparable companies and (H) public information of comparable acquisitions.
(iii) The opinion of Dillon Read that the consideration to be received
by the Company's stockholders pursuant to the Merger Agreement is fair to
such stockholders (other than Purchaser) from a financial point of view. In
considering Dillon Read's opinion, the Board was aware that Dillon Read is
entitled to a fee in accordance with the terms of its engagement described
below.
(iv) The relationship between the consideration to be received by
stockholders as a result of the Offer and the Merger and the historical
market prices and recent trading activity of the Shares.
(v) The recognition that, following consummation of the Offer and the
Merger, the current Stockholders of the Company will no longer be able to
participate in any increases or decreases in the value of the Company's
business and properties. The Board and the Special Committee concluded,
however, that this consideration did not justify foregoing the opportunity
for stockholders to receive an immediate and substantial cash purchase price
for their Shares.
(vi) The fact that the terms of the Offer, and the increase in the
consideration offered to the public stockholders from $14.00 per Share to
$15.25 per Share, were determined through arm's-length negotiations with
Parent by the Special Committee and its financial and legal advisors, all of
whom are unaffiliated with Parent, and the judgment of the Special Committee
and Dillon Read that, based upon the negotiations that transpired, a price
higher than $15.25 per Share could not likely be obtained and that further
negotiations with Parent could cause Parent to abandon the Offer, with the
resulting possibility that the market price for the Shares could fall
substantially below $15.25, and possibly $14.00, per Share, or to commence a
tender offer without the involvement of the Special Committee at a price
less than $15.25 per Share.
(vii) Parent's ownership of approximately 80% of the currently
outstanding Shares and the effects of such ownership on the alternatives
available to the Company and the fact that, as a practical matter, no
strategic alternative could be effected without the support of Parent; and
the consequences of continuing to operate the Company as a majority-owned
subsidiary of Parent.
(viii) The terms and conditions of the Merger Agreement, the fact that
there are no unusual requirements or conditions to the Offer and the Merger,
and the fact that Parent has the financial resources to consummate the Offer
and the Merger expeditiously.
(ix) The fact that the consideration to be paid to the Company's public
stockholders in the Offer and the Merger is all cash.
(x) The fact that the Offer and the Merger have been structured to
include a first-step cash tender offer for any and all outstanding Shares,
thereby enabling stockholders who tender their Shares to promptly receive
$15.25 per Share in cash, and the fact that any public stockholders who do
not tender their Shares or properly exercise appraisal rights will receive
the same price per Share in the subsequent Merger.
(xi) The possible conflicts of interest of certain directors and members
of management of both the Company and Parent discussed in "Item
3(b) -- Interests of Certain Persons" of the Company's Schedule 14D-9.
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(xii) The fact that, while no appraisal rights are available to
stockholders as a result of the Offer, stockholders who do not tender
pursuant to the Offer will have the right to dissent from the Merger and to
demand appraisal of the fair value of their Shares under the DGCL. See "THE
OFFER -- 11. The Merger Agreement; Appraisal Rights; Effect on the
Debentures."
The Special Committee considered each of the factors listed above during the
course of its deliberations prior to recommending that the Company enter into
the Merger Agreement. In light of its knowledge of the business and operations
of the Company and its business judgment, the Special Committee believed that
each of these factors supported its respective conclusions. In view of the wide
variety of factors considered, the Special Committee did not find it practicable
to, and did not, quantify the specific factors considered in making its
determination, although the Special Committee did place a special emphasis on
the opinion and analysis of Dillon Read which in turn did place a special
emphasis on a valuation range determined using an analysis of trading values of
comparable companies and an economic book value analysis as described below
under "Opinion of Financial Advisor".
The Board of Directors of the Company, a majority of the members of which
were members of the Special Committee, approved the Merger Agreement and the
transactions contemplated thereby after receiving a report from the Special
Committee on its deliberations and recommendation. In reaching this decision,
the Board of Directors principally considered the recommendation of the Special
Committee and its familiarity with the Company's business, its current financial
condition and results of operations and future prospects, and current and
anticipated developments in the Company's industry.
Opinion of Financial Advisor
On November 2, 1995, Dillon Read delivered its opinion to the Special
Committee to the effect that the consideration to be paid to the holders of
Shares and certain of the Company's stock options pursuant to the Merger
Agreement is fair to such holders (other than Parent) from a financial point of
view as of the date thereof. A copy of Dillon Read's opinion is attached as
Schedule III hereto. The summary of the opinion set forth herein is qualified in
its entirety by such Schedule III which is incorporated herein by reference.
Stockholders are urged to read the opinion in its entirety for a description of
the assumptions made, matters considered and procedures followed by Dillon Read.
The consideration to be paid pursuant to the Offer and Merger was determined by
negotiations on behalf of the Company and Parent and was not determined by
Dillon Read. In arriving at its opinion, Dillon Read, among other things, (1)
reviewed certain publicly available business and financial information relating
to the Company; (2) reviewed the reported price and trading activity for the
Shares; (3) reviewed certain internal financial information and other data
provided to Dillon Reed by the Company relating to the business and prospects of
the Company, including financial projections prepared by the management; (4)
conducted discussions with members of the senior management of the Company; (5)
reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions which Dillon Read considered relevant; (6) reviewed
publicly available financial and securities market data pertaining to certain
publicly-held companies in lines of business generally comparable to those of
the Company; and (7) conducted such other financial studies, analyses and
investigations, and considered such other information as Dillon Read deemed
necessary and appropriate. In reaching its opinion and conducting its analysis,
Dillon Read did not assume any responsibility for independent verification of
any of the foregoing information and relied upon it being complete and accurate
in all material respects. Dillon Read was not requested to and did not make an
independent evaluation or appraisal of any assets or liabilities (contingent or
otherwise) of the Company or any of its subsidiaries, nor were they furnished
with any such evaluation or appraisal. Dillon Read also assumed that all of the
information, including the projections, provided to Dillon Read by the Company's
management was prepared on a basis reflecting the best currently available
estimates and judgments of the Company's management as to the future of the
financial performance of the
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Company and was based upon the historical performance and certain estimates and
assumptions which were reasonable at the time made. In addition, Dillon Read was
not asked to and did not express any opinion as to the after-tax consequences of
the sale of such Shares by the stockholders. Dillon Read's opinion is based on
economic, monetary and market conditions existing on the date thereof. In
rendering their opinion, Dillon Read did not render any opinion as to the value
of the Company and did not make any recommendation to the shareholders with
respect to the advisability of voting in favor of the transaction. No
limitations were imposed by the Special Committee, the Company or Parent upon
Dillon Read with respect to the investigations made or the procedures followed
by Dillon Read in rendering its opinion, and the Company and the members of its
management cooperated fully with Dillon Read in connection with its
investigation.
In delivering its opinion and making its presentation to the Board and the
Special Committee, Dillon Read discussed certain financial and comparative
analyses and other matters it deemed relevant. Among the various financial
analyses that Dillon Read discussed were:
(i) Comparable Trading Analysis. Dillon Read undertook a comparable
public company analysis. In conducting this analysis, Dillon Read reviewed
certain financial results of seven companies in the reinsurance industry
which Dillon Read believed to be comparable to the Company. Dillon Read
calculated trading multiples of (1) 1996 expected earnings per share (based
on median estimates supplied by Institutional Brokers Estimate System
database), (2) book value as of June 30, 1995 and (3) surplus as of June 30,
1995. Such multiples ranged between 11.0x and 15.0x, 1.0x and 1.3x, and 1.1x
and 1.4x, respectively. Based on such multiples, Dillon Read estimated a
reference range of $14.49 to $18.98 per Share.
(ii) Comparable Acquisition Analysis. Dillon Read reviewed 32
acquisitions of property/ casualty reinsurance companies in the United
States and Europe, which had occurred between 1987 and 1995 and summarized
financial ratios and statistics for the nine most comparable transactions in
the United States. The values of certain multiples (i.e., net income, book
value, net premiums and market value) for all nine transactions were
derived, as available. Such multiples ranged between 8.9x and 24.6x, 0.8x
and 1.8x, 0.6x and 1.7x, and 1.3x and 1.6x, respectively. The multiples were
then applied (1) to the Company's Net Premiums for the twelve month period
ending September 30, 1995 and (2) to the Company's book value as of
September 30, 1995. On this basis, Dillon Read estimated an average
reference range of between $14.70 to $20.32 per Share.
(iii) Economic Book Value Analysis. Dillon Read calculated the economic
book value of the Company as of September 30, 1995. In calculating the
economic book value of the Company, Dillon Read took into consideration the
following factors, among others: (1) good will of the Company, (2)
mark-to-market of the investment portfolio, (3) adjustments for the market
value of the electronic data processing system and leasehold improvements,
(4) adjustments for the valuation of the deferred income tax benefits and
publicly traded debt, (5) ranges of differences between the stated amounts
and net present value of the prepaid reinsurance, loss reserves and unearned
premiums and (6) a range of value for any reserve deficiency. On this basis,
Dillon Read calculated a reference range of the Company between $15.24 and
$17.08.
(iv) Discounted Cash Flow Analysis. Dillon Read calculated the present
value of future cash flows that the Company could be expected to generate
over the next five years (the "Discounted Cash Flow Analysis"). In preparing
the Discounted Cash Flow Analysis, Dillon Read took into consideration the
following: (1) the Company's recent operating and financial performance
including, (a) management's business plan for fiscal year 1995 and (b) the
historical operating results for the three most recently completed fiscal
years, (2) management's business plan for fiscal 1996 and 1997 and (3)
projections, reports and other materials prepared by the Company and its
management or representatives that were provided to Dillon
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Read. In addition, representatives of Dillon Read met with representatives
of the Company's management to discuss the Company's current and projected
operations. In developing its Discounted Cash Flow Analysis for each case,
Dillon Read took the "free cash flow" that the Company was expected to
generate from fiscal year 1995 to 2000 and discounted these cash flows to
present values. Dillon Read applied discount rates ranging from 11% to 13%
determined as the most appropriate range for the Company. Dillon Read
arrived at this range of appropriate discount rates by determining the
weighted average cost of capital for publicly traded companies in businesses
similar to the Company. To approximate the residual value of the Company
after this five-year period, Dillon Read applied multiples of operating
income ranging from 10.5x to 12.5x. Dillon Read's determination of the most
appropriate range of multiples was based on an assessment of the multiples
of operating income which have been paid in recent publicly announced
acquisitions of similar businesses. These residual value estimates were then
discounted to present value using each of the above range discount rates.
Dillon Read summed the discounted cash flows and residual value for each
multiple of operating income described above, which indicated a matrix of
present values for the Company of $14.48 to $19.05 per Share.
(v) Premium Analysis. Dillon Read reviewed 29 transactions involving the
close-out of minority shareholder positions, which had occurred between 1990
and 1995. Dillon Read considered only those transactions in which between
10% and 45% of all outstanding shares of a target corporation were acquired
in the close-out transaction and in which the acquiring company owned
approximately 100% of the target corporation stock upon completion of the
transaction. For each company, Dillon Read calculated for each target
corporation the premium paid for each share over the trading value of such
share (A) one day prior to the transaction, (B) one week prior to the
transaction and (C) four weeks prior to the transaction. Dillon Read then
calculated the average of all premiums paid over the target corporation's
trading price at each valuation date (calculated as a percentage of such
share price). Applying such average premiums to the Company's trading value
at each such valuation date, Dillon Read calculated a reference range of the
Company between $14.37 and $15.63.
The summary set forth above does not purport to be a complete description of
either Dillon Read's analyses or presentations to the Special Committee. Dillon
Read believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete view of the
processes underlying its opinion. The preparation of a fairness opinion is a
complex process and not necessarily susceptible to partial analyses or summary
description. In its analyses, Dillon Read made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Any estimates contained
therein are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of the Company, Parent, the Purchaser,
Dillon Read and any other person assumes responsibility for their accuracy.
The Company has retained Dillon Read as the Special Committee's financial
advisor in connection with the Merger, the Offer and other matters arising in
connection therewith pursuant to an engagement letter dated October 10, 1995
(the "Engagement Letter") between the Company and Dillon Read. The Engagement
Letter provides, among other things, that the Company will pay to Dillon Read a
fee equal to $500,000. In addition, the Company has agreed to reimburse Dillon
Read for its reasonable out-of-pocket expenses, including reasonable legal
expenses, and to indemnify Dillon Read against certain liabilities.
The Special Committee selected Dillon Read as its financial advisor because
Dillon Read is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions.
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THE OFFER
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions set forth in the Offer
(including, if the Offer is extended or amended, the terms and conditions of
such extension or amendment), the Purchaser will accept for payment, and pay
for, all Shares validly tendered on or prior to the Expiration Date (as herein
defined) and not withdrawn as permitted by "THE OFFER -- 4. Rights of
Withdrawal". The term "Expiration Date" means 12:00 Midnight, New York City
time, on Friday, December 8, 1995, unless and until the Purchaser shall, in its
sole discretion, have extended the period for which the Offer is open, in which
event the term "Expiration Date" shall mean the latest time and date on which
the Offer, as so extended by the Purchaser, shall expire.
This Offer is subject to various terms and conditions described herein. See
"THE OFFER -- 13. Certain Conditions of the Offer".
Subject to the applicable rules and regulations of the Commission, the
Purchaser expressly reserves the right, in its sole discretion, at any time and
from time to time, and regardless of whether or not any of the events set forth
in "THE OFFER -- 13. Certain Conditions of the Offer" shall have occurred or
shall have been determined by the Purchaser to have occurred, to (i) extend the
period of time during which the Offer is open, and thereby delay acceptance for
payment of, regardless of whether such Shares were theretofore accepted for
payment, and the payment for, any Shares, by giving oral or written notice of
such extension to the Depositary and (ii) amend the Offer in any other respect
by giving oral or written notice of such amendment. The Purchaser shall not have
any obligation to pay interest on the purchase price for tendered Shares,
whether or not the Purchaser exercises its right to extend the Offer. The rights
reserved by the Purchaser in this paragraph are in addition to the Purchaser's
right to terminate the Offer pursuant to the provisions of "THE OFFER -- 13.
Certain Conditions of the Offer".
If by the Expiration Date, any or all conditions to the Offer have not been
satisfied or waived, the Purchaser reserves the right (but shall not be
obligated), in its sole discretion subject to the applicable rules and
regulations of the Commission, to (i) terminate the Offer and not accept for
payment any Shares and return all tendered Shares, (ii) waive all the
unsatisfied conditions and, subject to the applicable rules and regulations of
the Commission, accept for payment and pay for all Shares validly tendered prior
to the Expiration Date and not theretofore withdrawn, (iii) extend the Offer
and, subject to the right of stockholders to withdraw Shares until the
Expiration Date, retain the Shares that have been tendered during the period or
periods for which the Offer is extended, or (iv) amend the Offer in any respect
by giving oral and written notice of such termination, waiver, extension, delay
or amendment to the Depositary or by making public announcement thereof.
There can be no assurance that the Purchaser will exercise its right to
extend the Offer. See "THE OFFER -- 13. Certain Conditions to the Offer". Any
extension, delay, amendment, waiver or termination will be followed as promptly
as practicable by public announcement. In the case of an extension, Rule
14e-1(d) under the Exchange Act requires that the announcement be made no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date in accordance with the public announcement
requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require
that any material change in the information published, sent or given to
stockholders in connection with the Offer be promptly disseminated to
stockholders in a manner reasonably designed to inform stockholders of such
change), and without limiting the manner in which the Purchaser may choose to
make any public announcements, the Purchaser will not have any obligations to
publish, advertise or otherwise communicate any such public announcement other
than by issuing a press release to the Dow Jones News Service.
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If the Purchaser extends the Offer or if the Purchaser (whether before or
after its acceptance for payment of the tendered Shares) is delayed in its
acceptance for payment of or payment for the Shares or if the Purchaser is
unable to accept for payment or pay for the Shares pursuant to the Offer for any
reason, then, without prejudice to the Purchaser's rights under the Offer, the
Depositary may retain tendered Shares on behalf of the Purchaser, and such
Shares may not be withdrawn except to the extent tendering stockholders are
entitled to withdrawal right as described in "THE OFFER -- 4. Rights of
Withdrawal". However, the ability of the Purchaser to delay the payment for the
Shares that the Purchaser has accepted for payment is limited by Rule 14e-1(c)
under the Exchange Act, which requires that a bidder pay the consideration
offered or return the securities deposited by or on behalf of holders of
securities promptly after the termination or withdrawal of such bidder's offer.
Consummation of the Offer is conditioned upon satisfaction of the Minimum
Tender Condition and the other conditions set forth in "THE OFFER -- 13. Certain
Conditions of the Offer". The Purchaser reserves the right (but shall not be
obligated) to waive any or all such conditions and to waive the Minimum Tender
Condition and to accept for payment pursuant to the Offer less than the minimum
number of Shares necessary to satisfy the Minimum Tender Condition, to the
extent permitted under applicable law.
If the Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer
(including a waiver or reduction of the Minimum Tender Condition), the Purchaser
will disseminate additional tender offer materials and extend the Offer to the
extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act.
The minimum period during which an offer must remain open following material
changes in the terms of the offer or information concerning the offer, other
than a change in price or a change in the percentage of securities sought, or a
change in the dealer's advisory fee, will depend upon the facts and
circumstances then existing, including the relative materiality of the changed
terms or information. In the Commission's view, an offer should remain open for
a minimum of five business days from the date a material change is first
published, sent or given to security holders, and, if material changes are made
with respect to information that approaches the significance of price and share
levels, a minimum of ten business days may be required to allow for adequate
dissemination and investor response. With respect to a change in price or,
subject to certain limitations, a change in the percentage of securities sought
or a change in a dealer's solicitation fee, a minimum period of ten business
days from the date of such change is generally required under the applicable
rules and regulations of the Commission to allow for adequate dissemination to
stockholders and investor response. Accordingly, if prior to the Expiration
Date, the Purchaser should decrease the number of Shares being sought, or
increase or decrease the consideration offered pursuant to the Offer, or change
the dealer's solicitation fee, and if the Offer is scheduled to expire at any
time earlier than the period ending on the tenth business day from and including
the date that notice of such change is first published, sent or given to holders
of Shares, the Offer will be extended at least until the expiration of such
ten-business day period. As used herein, a "business day" means any day other
than a Saturday, Sunday or federal holiday and consists of the time period from
12:01 a.m. through midnight, New York City time.
The Company has provided to the Purchaser the Company's stockholder list and
security position lists for the purpose of disseminating the Offer to holders of
Shares. This Offer to Purchase, the Letter of Transmittal and other relevant
materials will be mailed to recordholders of the Shares whose names appear on
the Company's stockholder list and will be mailed to brokers, dealers, banks,
trust companies and similar persons whose names, or the names of whose nominees,
appear on such stockholder list or, if applicable, who are listed as
participants in a clearing agency's security position listing, for subsequent
transmittal to beneficial owners of Shares.
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2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), the Purchaser will purchase, by accepting for payment, and will pay
for, Shares validly tendered on or prior to the Expiration Date and not properly
withdrawn in accordance with "THE OFFER -- 4. Rights of Withdrawal" as promptly
as practicable after the later to occur of (i) the Expiration Date and (ii) the
satisfaction or waiver of the terms and conditions set forth in "THE OFFER --
13. Certain Conditions of the Offer". Any determination concerning the
satisfaction or waiver of the terms and conditions will be within the sole
discretion of the Purchaser, and such determination will be final and binding on
all holders of Shares. See "THE OFFER -- 1. Terms of the Offer" and "THE OFFER
- -- 13. Certain Conditions of the Offer". The Purchaser expressly reserves the
right, in its sole discretion, to delay acceptance for payment of or payment for
Shares in order to comply in whole or in part with any applicable law. Any such
delays will be effected in compliance with the Purchaser's obligation under Rule
14e-1(c) under the Exchange Act to pay for or return tendered Shares promptly
after the termination or withdrawal of the Offer.
If, prior to the Expiration Date, the Purchaser increases the consideration
offered to the holders of Shares pursuant to the Offer, the Purchaser will pay
such increased consideration for all Shares purchased pursuant to the Offer,
whether or not such Shares were tendered prior to such increase in the
consideration.
For purposes of the Offer, the Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares validly tendered to the Purchaser and not
withdrawn if and when the Purchaser gives oral or written notice to the
Depositary of the Purchaser's acceptance of such Shares for payment. Upon the
terms and subject to the conditions of the Offer, payment for Shares accepted
for payment pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which shall act as agent for tendering
stockholders for the purpose of receiving payment from the Purchaser and
transmitting payment to the tendering stockholders whose shares have been
received for payment. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE
PURCHASER ON THE PURCHASE PRICE OF THE SHARES TENDERED PURSUANT TO THE OFFER,
REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN ACCEPTING FOR PAYMENT
OR MAKING SUCH PAYMENT.
In all cases, payment for Shares accepted for payment pursuant to the Offer
will be made only after timely receipt by the Depositary of (i) certificates for
such Shares (or timely Book-Entry Confirmation (as defined herein) of the
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility (as defined herein) pursuant to the procedures set
forth in "THE OFFER -- 3. Procedure for Tendering Shares"), (ii) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed, with
any required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message (as defined herein) in lieu of the Letter of Transmittal) and
(iii) any other documents required by such Letter of Transmittal.
If the Purchaser is delayed in its acceptance for payment of, or payment
for, Shares or is unable to accept for payment or pay for Shares pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's rights under
the Offer (but subject to the Purchaser's obligations under Rule 14e-1(c) under
the Exchange Act to pay for or return the Shares promptly after the termination
or withdrawal of the Offer), the Depositary may, nevertheless, on behalf of the
Purchaser, retain tendered Shares, and such Shares may not be withdrawn except
to the extent tendering stockholders are entitled to exercise, and duly
exercise, withdrawal rights as described in "THE OFFER -- 4. Rights of
Withdrawal".
If any tendered Shares are not purchased pursuant to the Offer because of an
invalid tender or otherwise, certificates for any such Shares will be returned,
without expense, to the tendering stockholder (or, in the case of Shares
delivered by book-entry transfer of such Shares into the
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Depositary's account at the Book-Entry Transfer Facility pursuant to the
procedures set forth in "THE OFFER -- 3. Procedure for Tendering Shares", such
Shares will be credited to an account maintained at the Book-Entry Transfer
Facility), as promptly as practicable after the expiration, termination or
withdrawal of the Offer.
The Purchaser reserves the right to transfer or assign in whole or in part
from time to time to one or more direct or indirect subsidiaries of the
Purchaser the right to purchase all or any portion of the Shares tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Purchaser of its obligations under the Offer and will in no way prejudice the
rights of tendering stockholders to receive payment for Shares validly tendered
and accepted for payment pursuant to the Offer.
By accepting the benefits of the Offer through the tender of Shares and the
receipt of payment for Shares, a tendering stockholder is (under the Purchaser's
view of applicable law) barred from thereafter attacking in any legal proceeding
the fairness of the consideration received by stockholders in the Offer. For
this reason, the Letter of Transmittal to be executed by tendering stockholders
includes a release of any such claims, which will be effective upon receipt of
payment for tendered shares.
3. PROCEDURE FOR TENDERING SHARES.
Valid Tender. To tender Shares pursuant to the Offer, either (a) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) or, in
the case of a book-entry transfer, an Agent's Message in lieu of the Letter of
Transmittal, and any other documents required by the Letter of Transmittal, must
be received by the Depositary at one of its addresses set forth on the back
cover of this Offer to Purchase and either (i) certificates for the Shares to be
tendered must be received by the Depositary at one of such addresses or (ii)
Shares must be delivered pursuant to the procedures for book-entry transfer
described below (and a confirmation of such delivery received by the Depositary,
including an Agent's Message if the tendering stockholder has not delivered a
Letter of Transmittal), in each case by the Expiration Date, or (b) the
guaranteed delivery procedure described below must be complied with. The term
"Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility
to and received by the Depositary and forming a part of a book-entry
confirmation, which states that such Book-Entry Transfer Facility has received
an express acknowledgement from the participant in such Book-Entry Transfer
Facility tendering the Shares which are the subject of such book-entry
confirmation, that such participant has received and agrees to be bound by the
Letter of Transmittal and that the Purchaser may enforce such agreement against
such participant.
Book-Entry Delivery. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company, Midwest Securities Trust Company
and Philadelphia Depository Trust Company (collectively referred to as the
"Book-Entry Transfer Facilities") for purposes of the Offer within two business
days after the date of this Offer to Purchase, and any financial institution
that is a participant in the system of any Book-Entry Transfer Facility may make
delivery of Shares by causing such Book-Entry Transfer Facility to transfer such
Shares in the Depositary's account in accordance with the procedures of such
Book-Entry Transfer Facility. However, although delivery of Shares may be
effected through book-entry transfer, either the Letter of Transmittal (or
facsimile thereof) properly completed and duly executed together with any
required signature guarantees (or, in the case of book-entry transfer, an
Agent's Message in lieu of the Letter of Transmittal), and any other required
documents must, in any case, be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase by the
Expiration Date, or the guaranteed delivery procedure described below must be
complied with. The confirmation of a book-entry transfer of Shares into the
Depositary's account at a Book-Entry Transfer Facility as described above is
referred to herein as a "Book-Entry Confirmation". DELIVERY OF THE LETTER OF
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TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
Signature Guarantee. Except as otherwise provided below, all signatures on a
Letter of Transmittal must be guaranteed by a financial institution (including
most banks, savings and loan associations and brokerage houses) which is a
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion
Program (an "Eligible Institution"). Signatures on a Letter of Transmittal need
not be guaranteed (a) if the Letter of Transmittal is signed by the registered
holder of the Shares tendered therewith and such holder has not completed the
box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instructions 1 and 5 of
the Letter of Transmittal. If the certificates are registered in the name of a
person other than the signer of the Letter of Transmittal or if payment is to be
made or certificates for Shares not accepted for payment or not tendered are to
be returned to a person other than the registered holder, then the tendered
certificates must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered owner or
owners appears on the certificates, with the signatures on the certificates or
stock power guaranteed as described above. See Instructions 1 and 5 to the
Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and cannot deliver such Shares and all other required documents to the
Depositary by the Expiration Date, or such stockholder cannot complete the
procedure for delivery by book-entry transfer on a timely basis, such Shares may
nevertheless be tendered if all of the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery substantially in the form provided by the Purchaser is received by
the Depositary (as provided below) prior to the Expiration Date; and
(iii) the certificates for such tendered Shares (or a Book-Entry
Confirmation with respect to such Shares), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof)
with any required signature guarantee (or, in the case of book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal), and any
other documents required by the Letter of Transmittal, are received by the
Depositary within three trading days on the NYSE after the date of execution
of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, telex, facsimile transmission or mail to the Depositary and must
include a guarantee by an Eligible Institution in the form set forth in such
Notice.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING
THROUGH BOOK-ENTRY TRANSFER FACILITIES, IS AT THE OPTION AND RISK OF THE
TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Other Requirements. Notwithstanding any other provision hereof, in all
cases, payment for Shares tendered and accepted for payment pursuant to the
Offer will be made only after timely receipt by the Depositary of certificates
for such Shares (or a timely Book-Entry Confirmation with respect to such
Shares), properly completed and duly executed Letter(s) of Transmittal (or
facsimile(s) thereof) for such Shares together with any required signature
guarantees (or, in the case of book-entry transfer, an Agent's Message in lieu
of the Letter of Transmittal), and any other
28
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required documents. Accordingly, tendering stockholders may be paid at different
times depending upon when certificates for Shares or Book-Entry Confirmations of
such Shares and such other documents are actually received by the Depositary.
Under no circumstances will interest be paid by the Purchaser on the purchase
price of the Shares to any tendering stockholders, regardless of any extension
of the Offer or any delay in accepting for payment or making such payment.
Tender Constitutes an Agreement. The tender of Shares pursuant to any of the
procedures described above will constitute a binding agreement between the
tendering stockholder and the Purchaser upon the terms and subject to the
conditions of the Offer.
Appointment of Proxy After Acceptance for Payment. By executing a Letter of
Transmittal as set forth above, the tendering stockholder irrevocably appoints
the designees of the Purchaser, and each of them, the attorneys-in-fact and
proxies of such stockholder, each with full power of substitution, to the full
extent of such stockholder's rights with respect to the Shares tendered by such
stockholder and accepted for payment by the Purchaser and with respect to any
and all cash dividends, distributions, rights, other Shares and other securities
issued or issuable in respect of such Shares on or after the date of this Offer
to Purchase ("Distributions"). Such appointment is effective when, and only to
the extent that, the Purchaser deposits the payment for such Shares with the
Depositary. All such proxies and powers of attorney shall be irrevocable and
coupled with an interest in the tendered Shares. Upon the effectiveness of such
appointment, without further action, all prior proxies with respect to the
Shares (and any associated Distributions) given by such stockholder will be
revoked, and no subsequent proxies may be given nor subsequent written consents
executed (and, if given or executed, will not be deemed to be effective) with
respect thereto by the Stockholder. The Purchaser's designees will, with respect
to the Shares (and any associated Distributions) for which the appointment is
effective, be empowered to exercise all voting and other rights of such
stockholder as they, in their sole discretion, may deem proper at any annual,
special or adjourned meeting of the stockholders of the Company, by written
consent in lieu of any such meeting or otherwise. The Purchaser reserves the
right to require that, in order for Shares to be deemed validly tendered,
immediately upon the Purchaser's payment for such Shares, the Purchaser must be
able to exercise full voting rights with respect to such Shares (and any
associated Distributions) (including voting at any meeting then scheduled or
actions by written consent). See "THE OFFER -- 6. Price Range of Shares;
Dividends."
Release of Claims. By accepting the Offer through the tender of Shares
pursuant to the Offer, the tendering stockholder agrees to release, and
releases, all claims with respect to or in respect of the Shares other than the
right to receive payment for the tendered Shares expressly provided herein and
that, upon payment for the Shares, to waive any right to attack (and agrees to
be barred from thereafter attacking) in any legal proceeding the fairness of the
consideration paid in the Offer.
Determination of Validity; Rejection of Shares; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by the Purchaser, in its sole discretion, which
determination shall be final and binding. The Purchaser reserves the absolute
right to reject any and all tenders determined by it not to be in proper form or
the acceptance for payment of which may, in the opinion of its counsel, be
unlawful. The Purchaser also reserves the absolute right to waive any of the
conditions of the Offer or any defect or irregularity in the tender of any
Shares. No tender of Shares will be deemed to have been validly made until all
defects and irregularities have been cured or waived. Neither the Purchaser, the
Depositary, the Information Agent or the Dealer Managers nor any other person
will be under any duty to give notification of any defects or irregularities in
tenders or will incur any liability for failure to give any such notification.
The Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and Instructions thereto) will be final and
binding.
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<PAGE>
Backup Withholding. In order to avoid backup withholding of federal income
tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares
in the Offer must provide the Depositary with such stockholder's correct
taxpayer identification number ("TIN") on a Substitute Form W-9 and certify
under penalties of perjury that such TIN is correct and that such stockholder is
not subject to backup withholding. Certain stockholders (including, among
others, all corporations and certain foreign individuals and entities) are not
subject to backup withholding. If a stockholder does not provide its correct TIN
or fails to provide the certifications described above, under federal income tax
laws, the Depositary will be required to withhold 31% of the amount of any
payment made to certain stockholders pursuant to the Offer. All stockholders
tendering Shares pursuant to the Offer should complete and sign the main
signature form and Substitute Form W-9 included as part of the Letter of
Transmittal to provide the information and certification necessary to avoid
backup withholding (unless an applicable exemption exists and is provided in a
manner satisfactory to the Purchaser and the Depositary). Non-corporate foreign
stockholders should complete and sign the main signature form and a Form W-8,
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See Instruction 10 to the
Letter of Transmittal.
4. RIGHTS OF WITHDRAWAL.
Except as otherwise provided in this Section 4, tenders of Shares made
pursuant to the Offer are irrevocable except that Shares tendered pursuant to
the Offer may be withdrawn at any time prior to the Expiration Date and, unless
theretofore accepted for payment by the Purchaser pursuant to the Offer, may
also be withdrawn at any time after January 8, 1996.
For a withdrawal to be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person having tendered
the Shares to be withdrawn, the number of Shares to be withdrawn and the name of
the registered holder, if different from that of the person who tendered such
Shares. If certificates for Shares to be withdrawn have been delivered or
otherwise identified to the Depositary, then prior to the physical release of
such certificates, the name of the registered holder and the serial numbers
shown on such certificates must also be submitted to the Depositary and, unless
such Shares have been tendered for the account of any Eligible Institution, the
signature on the notice of withdrawal must be guaranteed by an Eligible
Institution. If Shares have been tendered pursuant to the procedures for
book-entry tender as set forth in "THE OFFER -- 3. Procedure for Tendering
Shares", any notice of withdrawal must specify the name and number of the
account at the Book-Entry Transfer Facility to be credited with the withdrawn
Shares and otherwise comply with such Book-Entry Transfer Facility's procedures
for such withdrawal, in which case a notice of withdrawal will be effective if
delivered to the Depositary by any method of delivery described in the first
sentence of this paragraph. Withdrawals of tenders of Shares may not be
rescinded, and any Share properly withdrawn will thereafter be deemed not
validly tendered for the purposes of the Offer. However, withdrawn Shares may be
retendered by again following one of the procedures described above in "THE
OFFER -- 3. Procedure for Tendering Shares" at any time on or prior to the
Expiration Date.
All questions as to the form and validity (including time of receipt) of any
notice of withdrawal will be determined by the Purchaser, in its sole
discretion, which determination shall be final and binding. None of the
Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent,
or any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or incur any liability for failure
to give such notification.
If the Purchaser extends the Offer, is delayed in its acceptance for payment
of Shares, or is unable to accept for payment Shares pursuant to the Offer, for
any reason, then, without prejudice
30
<PAGE>
to the Purchaser's rights under this Offer, the Depositary may, nevertheless, on
behalf of the Purchaser, retain tendered Shares, and such Shares may not be
withdrawn except to the extent that tendering stockholders are entitled to
withdrawal rights as set forth in this Section 4. Under no circumstances will
interest be paid by the Purchaser on the purchase price of the Shares tendered
pursuant to the Offer, regardless of any extension of the Offer or any delay in
making payment.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER AND THE MERGER.
Sales of Shares pursuant to the Offer will be taxable transactions for
Federal income tax purposes and may also be taxable under applicable state,
local and other tax laws. For Federal income tax purposes, a stockholder whose
Shares are purchased pursuant to the Offer, or who receives cash as a result of
the Merger, will realize gain or loss equal to the difference between the
adjusted basis of the Shares sold or exchanged and the amount of cash received
therefor. Such gain or loss will be capital gain or loss if the Shares are held
as capital assets by the stockholder. Under current Federal income tax law, net
capital gain of an individual or other non-corporate taxpayer may be subject to
tax at a preferential tax rate. In addition, a taxpayer's ability to deduct
capital losses may be limited.
THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS IN SPECIAL SITUATIONS
SUCH AS STOCKHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF EMPLOYEE
STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND STOCKHOLDERS WHO ARE NOT UNITED
STATES PERSONS. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE MERGER, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are listed on the NYSE under the symbol "SUR". The following
table sets forth, for the calendar quarters indicated, the high and low sales
prices for the Shares on the NYSE Composite Tape and the amount of cash
dividends paid per Share, based upon public sources:
<TABLE>
<CAPTION>
SHARES
-----------------------------------------------------
CASH DIVIDENDS
CALENDAR YEAR HIGH LOW PAID
- --------------------------------------------------------- ----------------- -------------- --------------
<S> <C> <C> <C>
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
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
1995:
First Quarter........................................ $ 8 3/4 $ 7 3/4 $ .05
Second Quarter....................................... 9 1/4 7 1/2 .05
Third Quarter........................................ 15 1/2 9 .05
Fourth Quarter (through November 8, 1995)............ 15 3/4 15 N/A
</TABLE>
On September 25, 1995, the last full trading day prior to the public
announcement of Parent's intention to seek to cause the Company to become a
wholly-owned subsidiary of Parent in a transaction in which holders of Shares
would receive $14.00 in cash per share, the reported
31
<PAGE>
closing price on the NYSE Composite Tape was $11 1/8 per Share. On November 2,
1995, the last full NYSE trading day prior to the public announcement of
execution of the Merger Agreement and the Purchaser's agreement to commence the
Offer, the reported closing price on the NYSE Composite Tape was $15 1/4 per
Share. Stockholders are urged to obtain a current market quotation for the
Shares.
At its regular December meetings, the Board of Directors of the Company
historically has declared a regularly quarterly dividend payable on or about
December 31 of each year to stockholders of record on approximately the twelfth
day preceding such dividend payment date. Declarations of dividends are within
the discretion of the Board of Directors of the Company, and there can be no
assurance that the Board of Directors will declare a dividend payable in
December 1995.
7. EFFECT OF THE OFFER ON MARKET FOR THE SHARES, STOCK EXCHANGE LISTING, AND
EXCHANGE ACT REGISTRATION.
The purchase of Shares by the Purchaser pursuant to the Offer will reduce
the number of Shares that might otherwise trade publicly and would reduce the
number of holders of Shares, which could adversely affect the liquidity and
market value of the remaining Shares held by the public.
The Shares are currently listed on the NYSE. According to the NYSE's
published guidelines, the NYSE would consider delisting the Shares if, among
other things, the number of holders of at least 100 Shares (exclusive of NYSE
"Excluded Holdings") should fall below 1,200, the number of publicly held Shares
(exclusive of holdings of officers and directors of the Company and their
immediate families and other concentrated holdings of 10% or more) should fall
below 600,000, or the aggregate market value of the publicly held Shares
(exclusive of NYSE "Excluded Holdings") should fall below $5,000,000. According
to the 1994 Annual Report, there were approximately 140 holders of record of
Shares on March 28, 1995, and the Company has advised the Purchaser and Parent
that, as of November 2, 1995, there were 18,170,971 Shares outstanding. Parent
owned 14,547,756 Shares as of such date.
If such exchange were to delist the Shares, the market therefor could be
adversely affected. It is possible that the Shares would be traded on other
securities exchanges or in the over-the-counter market, and that price
quotations would be reported by such exchanges, or through the National
Association of Securities Dealers Automated Quotation System, Inc. ("NASDAQ") or
other sources. The extent of the public market for the Shares and the
availability of such quotations would, however, depend upon the number of
stockholders and/or the aggregate market value of the Shares remaining at such
time, the interest in maintaining a market in the Shares on the part of
securities firms, the possible termination of registration of the Shares under
the Exchange Act and other factors. The Purchaser cannot predict whether the
reduction in the number of Shares that might otherwise trade, or the termination
of registration of outstanding Shares under the Exchange Act, would have an
adverse effect on the market price for or the marketability of Shares.
The Shares are currently registered under the Exchange Act. Such
registration may be terminated by the Company upon application to the Commission
if the outstanding Shares are not listed on a national securities exchange and
if there are fewer than 300 holders of record of Shares. Termination of
registration of the Shares under the Exchange Act would reduce the information
required to be furnished by the Company to its stockholders and to the
Commission and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement in connection with stockholders' meetings pursuant
to Section 14(a), the related requirement of furnishing annual and
32
<PAGE>
transition reports to stockholders pursuant to Section 15(d) of the Exchange Act
and the requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable with respect to the Shares.
Furthermore, the ability of "affiliates" of the Company and persons holding
"restricted securities" of the Company to dispose of such securities pursuant to
Rule 144 under the Securities Act of 1933, as amended, may be impaired or
eliminated. If registration of the Shares under the Exchange Act were
terminated, the Shares would no longer be eligible for NYSE reporting.
The Purchaser intends to seek delisting of the Shares from the NYSE and
termination of registration of the Shares as soon as possible after consummation
of the Offer or the Merger if, and as soon as, the requirements for delisting
and termination of registration are met.
The Shares are currently "margin securities" under the regulations of the
Board of Governors of the Federal Reserve System (the "Federal Reserve Board"),
which has the effect, among other things, of allowing brokers to extend credit
on the collateral of such Shares for the purpose of buying, carrying or trading
in securities ("Purpose Loans"). Depending upon factors similar to those
described above regarding the continued listing, public trading and market
quotations of the Shares, it is possible that, following the purchase of the
shares pursuant to the Offer, the Shares would no longer constitute "margin
securities" for the purposes of the margin regulations of the Federal Reserve
Board and therefore could no longer be used as collateral for Purpose Loans made
by brokers. In addition, if registration of the Shares under the Exchange Act
were terminated, the Shares would no longer be "margin securities" or be
eligible for NYSE reporting.
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
The Company is a Delaware corporation with its principal executive offices
located at Two World Trade Center, New York, New York 10048-0178. The following
description of the Company's business has been taken from the 1994 Annual Report
at page I-3:
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.
FINANCIAL INFORMATION. Set forth below is certain summary consolidated
financial information for the Company's last three fiscal years as contained in
the 1994 Annual Report and for the six months ended June 30, 1995 and June 30,
1994 as contained in the Company's Quarterly Reports on Form 10-Q for the
quarters ended June 30, 1995 and June 30, 1994. More comprehensive financial
information is included in such reports (including management's discussion and
analysis of financial condition and results of operation) and other documents
filed by the Company with the Commission, and the following summary is qualified
in its entirety by reference to such reports and other documents and all of the
financial information and notes contained therein. Copies of such reports and
other documents may be examined at or obtained from the Commission or from the
NYSE in the manner set forth below. Copies of the financial statements (and the
notes thereto) of the Company contained in the 1994 Annual Report and copies of
the financial results for the three and nine months ended September 30, 1995, as
set forth in the Company's October 24, 1995 press release, are attached to this
Offer to Purchase as Appendices A and B, respectively. The book value per Share
set forth in Appendix B has been revised since the October 24, 1995 press
release (which reported a $15.10 per Share book value), and the revised book
value per Share as of September 30, 1995 has been set forth in Appendix B.
33
<PAGE>
SCOR U.S. CORPORATION
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
(UNAUDITED)
-------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
OPERATING DATA:
Net premiums earned................. $ 128,804 $ 117,668 $ 228,244 $ 236,051 $ 192,050
Net investment income............... 21,072 20,206 40,990 42,044 42,880
Net realized investment gains....... 592 736 984 12,930 15,048
---------- ---------- ---------- ---------- ----------
Total revenue....................... 150,468 138,610 270,218 291,025 249,978
Losses and expenses, net............ 85,500 113,498 191,270 156,292 160,545
Commissions, net.................... 36,551 31,875 59,434 61,324 55,960
Other underwriting and
administration expenses........... 13,167 12,787 26,009 26,420 23,918
Other expenses...................... 24 1,475 4,039 4,073 4,346
Interest expense.................... 4,310 4,528 8,920 8,005 4,579
---------- ---------- ---------- ---------- ----------
Total expenses...................... 139,552 164,163 289,672 256,114 249,348
Income (loss) from operations before
income taxes...................... 10,916 (25,553) (19,454) 34,911 630
Income taxes (benefit).............. 2,241 (11,738) (11,262) 6,983 (3,771)
---------- ---------- ---------- ---------- ----------
Income (loss) from operations....... 8,675 (13,815) (8,192) 27,928 4,401
Extraordinary gain on redemption of
debentures, net of tax............ 552 -0- 351 -0- -0-
Cumulative effect of accounting
changes, net of tax............... -0- -0- -0- (2,600) 2,848
---------- ---------- ---------- ---------- ----------
Net income (loss)................... $ 9,227 $ (13,815) $ (7,841) $ 25,328 $ 7,249
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income (loss) per fully diluted
Share............................. $ 0.50 $ (0.76) $ (0.43) $ 1.33 $ 0.40
Cash dividends declared per Share... $ 0.10 $ 0.18 $ 0.36 $ 0.32 $ 0.28
CERTAIN GAAP FINANCIAL RATIOS:
Loss ratio.......................... 66.4% 96.5% 83.8% 66.2% 83.6%
Commission ratio.................... 28.4 27.1 26.0 26.0 29.1
U/W, administration and other
expense ratio..................... 10.2 12.1 13.2 12.9 14.7
Expense ratio....................... 38.6 39.2 39.2 38.9 43.8
Combined ratio...................... 105.0 135.7 123.0 105.1 127.4
SAP COMBINED RATIO (A):............. 105.6 130.1 118.8 103.7 123.3
Ratio of Earnings to Fixed
Charges........................... 3.13x (b) (b) 4.89x 1.14x
</TABLE>
- ------------
(a) Operating subsidiaries only.
(b) Earnings were inadequate to cover fixed charges by $25,812,000 for the six
months ended June 30, 1994 and by $20,197,000 for the year ended December
31, 1994.
34
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ --------------------------------------
<S> <C> <C> <C> <C> <C>
1995 1994 1994 1993 1992
---------- ---------- ---------- ---------- ----------
ASSETS:
Investments................... $ 709,427 $ 660,671 $ 672,793 $ 716,654 $ 600,598
Cash.......................... 11,512 13,994 4,763 17,096 20,378
Accrued investment income..... 10,146 10,275 110,339 10,169 10,572
Premiums receivable........... 90,728 109,975 72,018 80,319 61,793
Reinsurance recoverable on
paid losses
Affiliates.................. 10,589 12,216 4,399 9,498 15,777
Other....................... 1,232 43,672 19,356 27,329 26,578
Reinsurance recoverable on
unpaid losses
Affiliates.................. 142,093 125,463 127,096 134,154 112,797
Other....................... 94,967 98,605 95,576 87,689 107,854
Prepaid reinsurance premiums
Affiliates.................. 6,629 10,407 10,504 14,578 12,903
Other....................... 4,510 12,033 8,803 11,839 13,326
Deferred policy acquisition
costs....................... 22,728 25,609 22,844 24,140 22,171
Deferred Federal income tax
benefits.................... 24,423 38,280 34,818 11,894 13,939
Investment in affiliates...... 12,555 11,048 11,532 10,789 10,111
Other assets.................. 46,089 42,455 48,874 37,963 40,424
---------- ---------- ---------- ---------- ----------
$1,187,628 $1,214,703 $1,143,715 $1,194,111 $1,069,221
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
LIABILITIES:
Losses and loss expenses...... $ 633,315 $ 622,829 $ 604,787 $ 562,209 $ 561,813
Unearned premiums............. 100,134 121,633 110,082 114,376 104,824
Funds held under reinsurance
treaties
Affiliates.................. 1,435 3,719 3,654 21,777 23,478
Other....................... 16,422 19,485 17,104 17,825 15,157
Reinsurance balances payable
Affiliates.................. 13,003 9,898 15,328 18,196 32,951
Other....................... 16,860 59,825 28,357 42,037 18,488
Convertible subordinated
debentures.................. 75,950 86,250 82,350 86,250 0
Notes payable................. 25,000 20,000 20,000 20,000 28,000
Commercial paper.............. 20,321 10,954 11,310 10,721 10,247
Other liabilities............. 12,460 13,309 11,348 10,031 8,147
---------- ---------- ---------- ---------- ----------
914,900 967,902 904,320 903,422 803,105
---------- ---------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value,
5,000,000 shares authorized;
no shares issued............ 0 0 0 0 0
Common stock, $0.30 par value,
50,000,000 Shares
authorized; 18,356,000
Shares issued.................. 5,507 5,490 5,507 5,490 5,453
Additional paid-in capital.... 114,568 112,894 114,556 112,670 112,068
Unrealized appreciation
(depreciation) of
investments, net of deferred
tax effect................ 3,671 (10,299) (21,640) 16,634 11,416
Foreign currency translation
adjustment.................. 197 (269) (414) 12 254
Retained earnings............. 150,564 140,452 143,153 157,532 138,002
Treasury stock, at cost....... (1,774) (1,467) (1,767) (1,649) (1,077)
---------- ---------- ---------- ---------- ----------
272,733 246,801 239,395 290,689 266,116
---------- ---------- ---------- ---------- ----------
$1,187,628 $1,214,703 $1,143,715 $1,194,111 $1,069,221
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
BOOK VALUE PER SHARE........... $ 15.02 $ 13.60 $ 13.18 $ 16.05 $ 14.77
</TABLE>
35
<PAGE>
Except as otherwise set forth herein, the information concerning the Company
contained in this Offer to Purchase has been taken from or based upon publicly
available documents and records on file with the Commission and other public
sources and is qualified in its entirety by reference thereto. Although neither
the Purchaser nor Parent has any knowledge that would indicate that any
statements contained herein based on such documents and records are untrue,
neither the Purchaser nor Parent can take responsibility for the accuracy or
completeness of the information contained in such documents and records, or for
any failure by the Company to disclose events which may have occurred or may
affect the significance or accuracy of any such information but which are
unknown to the Purchaser or Parent.
The Company is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is obligated to file reports and other
information with the Commission relating to its business, financial condition
and other matters. Information, as of particular dates, concerning the Company's
directors and officers, their remuneration, stock options granted to them, the
principal holders of the Company's securities, any material interests of such
persons in transactions with the Company and other matters is required to be
disclosed in proxy statements distributed to the Company's stockholders and
filed with the Commission. Such reports, proxy statements and other information
should be available for inspection at the public reference facilities of the
Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located in
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and in Seven World Trade Center, Suite 1300, New York, New York.
Copies may be obtained, by mail, upon payment of the Commission's customary
charges, by writing to its principal office at Room 1024, Judiciary Plaza,
Washington, D.C. 20549. The Shares are listed on the NYSE and such material,
reports, proxy statements and other information can also be available for
inspection at the NYSE, 20 Broad Street, New York, New York.
CERTAIN PROJECTIONS. Parent and its representatives from time to time
receive projections of financial results prepared by the management of the
Company in the ordinary course of business as a part of its financial planning
process. Although the Company does not as a matter of course publicly disclose
projections as to future revenues or earnings, because they were received by
Parent, the Purchaser is making these projections available to all stockholders.
THE "SUMMARY PROJECTIONS" WERE PREPARED AS PART OF THE COMPANY'S STRATEGIC
PLANNING PROCESS AT DECEMBER 1994, MARCH 1995 AND OCTOBER 1995. NONE OF THE
PROJECTIONS SET FORTH BELOW IS TO BE REGARDED AS FACT AND SUCH PROJECTIONS
SHOULD NOT BE RELIED UPON AS ACCURATE REPRESENTATIONS OF FUTURE RESULTS. IN
ADDITION, BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING THE SUMMARY
PROJECTIONS, AS TO FUTURE RESULTS, ARE BASED UPON EVENTS AND CIRCUMSTANCES THAT
HAVE NOT TAKEN PLACE AND ARE INHERENTLY SUBJECT TO SIGNIFICANT FINANCIAL,
MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES WHICH ARE
DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE BEYOND PARENT'S, THE
PURCHASER'S AND THE COMPANY'S CONTROL, THEY ARE INHERENTLY IMPRECISE AND THERE
CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS CAN BE REALIZED. THEREFORE, IT IS
EXPECTED THAT THERE WILL BE DIFFERENCES BETWEEN THE ACTUAL AND PROJECTED RESULTS
AND THAT THE ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE
PROJECTED.
THE INCLUSION OF THE SUMMARY PROJECTIONS SHOULD NOT BE REGARDED AS A
REPRESENTATION BY PARENT, THE PURCHASER, OR THE COMPANY, OR ANY OF THEIR
RESPECTIVE AFFILIATES OR REPRESENTATIVES, THAT THE PROJECTED RESULTS WILL BE
ACHIEVED. THE SUMMARY PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS PUBLIC
DISCLOSURE OR COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR
GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC
ACCOUNTANTS. NONE OF THE PURCHASER, PARENT, THE COMPANY, OR ANY OF THEIR
RESPECTIVE AFFILIATES, REPRESENTATIVES, FINANCIAL ADVISORS, INDEPENDENT AUDITORS
OR DIRECTORS OR OFFICERS, ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE
SUMMARY PROJECTIONS. THE SUMMARY PROJECTIONS HAVE NOT BEEN
36
<PAGE>
EXAMINED, REVIEWED OR COMPILED BY THE COMPANY'S INDEPENDENT AUDITORS, AND
ACCORDINGLY THEY HAVE NOT EXPRESSED AN OPINION OR ANY OTHER ASSURANCE ON THEM.
The Summary Projections were based on numerous global assumptions, including
the following: (i) that there will be no significant change in market
conditions; (ii) that the Company's staff levels will be adequate to implement
the Company's proposed strategies; (iii) that, in general, historical
retrocession patterns will not change; and (iv) that the Company will remain in
the brokered treaty distribution channel (although the projections are based on
the implementation of new business strategies for the brokered treaty
distribution channel).
According to representatives of the Company, the premium growth included in
The Summary Projections was based on the professional judgment of the Company
after giving careful consideration to the Company's premium growth for each line
of business and the expected impact of any underwriting changes that have been
or will be implemented. The loss ratios and combined ratios included in The
Summary Projections were also based on the professional judgment of the
management group after giving consideration to the Company's historical ratios
for each line of business and the expected impact of any underwriting changes
that have been or are projected to be implemented. The assumed payout patterns
have also been based on historical data, with adjustments for the projected
change in mix of the Company's business.
The Summary Projections were also based on numerous operational assumptions,
including the following: (i) the Company will continue to engage in transactions
with its affiliates; (ii) new products (which contribute to the projected
increase in premiums written) will be accepted in the marketplace; (iii) the
Company will incur increases in operating expenses during 1995 relating to
technological changes, offset by a reduction in operating expenses resulting
from implementation of such new technologies thereafter and (iv) the Company
will continue to maintain approximately the same number of branch operations
that it currently maintains.
The Summary Projections were also based on numerous specific assumptions and
factors relating to each of the Company's lines of business, including the
following: (i) With respect to property underwritings, incurred losses on earned
premiums are reserved at underwriting year ultimate ratios; (ii) With respect to
casualty underwritings, incurred losses on earned premiums are reserved by
underwriting year, utilizing actuarial department formulas; (iii) With respect
to net investment income, (a) the projections are based on the June 30, 1994
portfolio plus income on 50% of projected cash flow (however, 1995 is reduced by
a proposed $20 million repayment of a bank financing) and (b) new money and
reinvestment of bond maturities are invested at 8%, which is assumed to be the
yield on 7 to 10-year investment grade taxable securities; (iv) Realized gains
are assumed to be zero; (v) Other operating expenses are expected to increase by
1% per year, plus an estimated overall 1% increase adjustment for staffing
changes and increased New Treaty System amortization of $900,000 in 1995 and
thereafter; (vi) With respect to interest expense, (a) all years include $1.1
million of interest on funds held, $4.8 million of interest and amortization on
the Debentures and $450,000 of commercial paper interest and (b) 1995 includes
$1.2 million of interest for three quarters of a year until the bank financing
is repaid.
The March 1995 update to The Summary Projections reflected updated views on
market trends and a reduction of $1.5 million in annual operating expenses. The
October 1995 update of The Summary Projections assumed (i) an increase of $40
million in net invested assets in each of 1996 and 1997 at a taxable interest
rate of 6% and (ii) the refinancing, rather than repayment, of a $20 million
bank loan. The October 1995 update of The Summary Projections generally
extrapolated nine months actual results for the full year 1995 and included $1
million in expenses projected to be incurred in connection with Parent's
proposal. 1995 projections exclude the effect of a $552,000 extraordinary gain
on the repurchase of Debentures realized in the first half of 1995.
None of the assumptions or factors used is susceptible to accurate
prediction and there is no assurance that The Summary Projections will be
realized or that the Company's actual results will not be substantially less or
substantially more than those projected. The Summary Projections do not include
any benefits relating to the acquisition of the Shares by the Purchaser pursuant
to the Offer or the Merger.
37
<PAGE>
THE SUMMARY PROJECTIONS
PROJECTED STATEMENT OF OPERATIONS FOR FISCAL YEAR ENDED
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
MONTH WHEN PROJECTIONS WERE
PREPARED
--------------------------------
DECEMBER MARCH OCTOBER
1994 1995 1995
-------- -------- --------
<S> <C> <C> <C>
Gross written premium..................................... $363,143 $332,900 $314,531
Net written premium....................................... 293,365 269,745 256,820
Net earned premium........................................ 297,602 273,167 259,304
Net investment income..................................... 43,056 42,611 42,430
Net investment gain....................................... 0 0 713
-------- -------- --------
TOTAL REVENUES:........................................... 340,658 315,778 302,447
Losses.................................................... 207,242 187,010 174,410
Commissions............................................... 79,195 74,288 69,125
Expenses.................................................. 29,542 28,004 29,004
Other..................................................... 422 (116) 617
Interest.................................................. 7,528 7,528 8,994
-------- -------- --------
TOTAL EXPENSES:........................................... 323,929 296,714 282,150
Income before taxes....................................... 16,729 19,064 20,297
Income taxes.............................................. 813 1,681 1,838
-------- -------- --------
NET INCOME:............................................... $ 15,916 $ 17,383 $ 18,459
-------- -------- --------
-------- -------- --------
Average Shares outstanding................................ 18,546 18,546 18,196
Net income per Share...................................... $ 0.86 $ 0.94 $ 1.01
Combined ratio (SAP)...................................... 105.8% 105.9% 104.8%
Average stockholders equity............................... $251,697 $250,378 $263,434
Return on equity.......................................... 6.3% 6.9% 7.0%
</TABLE>
The foregoing table sets forth the projected Statement of Operations for the
fiscal year ended December 31, 1995, which projections were prepared during the
months indicated above. Because management of the Company periodically updates
the projections, they may vary, and in fact have varied, depending on the time
such projections are made.
38
<PAGE>
THE SUMMARY PROJECTIONS
PROJECTED STATEMENTS OF OPERATIONS FOR FISCAL YEARS ENDED
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 PROJECTIONS 1997 PROJECTIONS
-------------------- --------------------
MONTH WHEN MONTH WHEN
PROJECTIONS WERE PROJECTIONS WERE
PREPARED PREPARED
-------------------- --------------------
DECEMBER OCTOBER DECEMBER OCTOBER
1994 1995 1994 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross written premium....................... $413,644 $367,680 $482,810 $430,417
Net written premium......................... 328,224 284,749 382,130 341,779
Net earned premium.......................... 325,841 279,501 372,419 329,182
Net investment income....................... 47,349 44,830 53,473 47,230
Net investment gains........................ 0 0 0 0
-------- -------- -------- --------
TOTAL REVENUES:............................. 373,190 324,331 425,892 376,412
Losses...................................... 227,879 187,708 260,208 216,777
Commissions................................. 84,329 74,087 95,459 89,509
Expenses.................................... 30,634 29,000 31,170 30,000
Other....................................... (852) (190) (1,576) (1,569)
Interest.................................... 6,328 7,912 6,328 7,912
-------- -------- -------- --------
TOTAL EXPENSES:............................. 348,318 298,517 391,589 342,629
Income before taxes......................... 24,872 25,814 34,303 33,783
Income taxes................................ 4.034 4,140 7,894 7,489
-------- -------- -------- --------
NET INCOME:................................. $ 20,838 $ 21,674 $ 26,409 $ 26,294
-------- -------- -------- --------
-------- -------- -------- --------
Average primary shares outstanding.......... 18,596 18,196 18,648 18,196
Earnings per Share.......................... $ 1.12 $ 1.19 $ 1.42 $ 1.45
Combined ratio (SAP)........................ 105.1% 103.9% 103.6% 102.0%
Average equity.............................. 263,524 286,233 280,233 304,689
Return on equity............................ 7.9% 7.6% 9.4% 8.6%
</TABLE>
The foregoing table sets forth the projected Statements of Operations for
the fiscal years ended December 31, 1996 and 1997, which projections were
prepared during the months indicated above. Because management of the Company
periodically updates the projections, they may vary, and in fact have varied,
depending on the time such projections are made.
39
<PAGE>
SHARE OWNERSHIP INFORMATION. The following table sets forth the information
provided to the Purchaser and Parent by the Company regarding the Share
ownership by directors and officers of the Company as of November 1, 1995 unless
otherwise noted. To Parent's and the Purchaser's knowledge, each of the
following listed persons currently intends to tender his Shares in the Offer.
<TABLE>
<CAPTION>
NUMBER OF OPTION NUMBER OF
NUMBER OF SHARES OPTION SHARES
REGISTERED EXERCISABLE AS UNEXERCISABLE
DIRECTORS SHARES HELD OF 11/1/95 AS OF 11/1/95
- ------------------------------------------------ ----------- ---------------- -------------
<S> <C> <C> <C>
Jacques P. Blondeau............................. 0 83,998 18,002
John R. Cox..................................... 1,000 1,500 4,500
Raymond H. Deck................................. 7,100 13,500 4,500
Michel Gudefin.................................. 18,000 13,500 4,500
Jerome Karter................................... 0 166,997 24,003
Jean Masse...................................... 0 0 6,000
Richard M. Murray............................... 3,000 13,500 4,500
Serge M.P. Osouf................................ 0 1,500 11,500
Patrick Peugeot................................. 15,900 122,809 4,500
John W. Popp.................................... 1,000 13,500 4,500
Francois Reach.................................. 0 1,500 4,500
David J. Sherwood............................... 1,100 13,500 4,500
Ellen E. Thrower................................ 0 0 3,000
<CAPTION>
NON-DIRECTOR EXECUTIVE OFFICERS
- ------------------------------------------------
<S> <C> <C> <C>
Louis Adanio.................................... 10,409 33,121 13,668
John T. Andrews, Jr. ........................... 0 129,998 23,002
Nolan E. Asch................................... 14,188 79,081 12,668
Jeffrey D. Cropsey.............................. 4,552 0 13,000
John D. Dunn, Jr. .............................. 0 4,999 20,001
Francis J. Fenwick.............................. 0 0 7,800
Howard B. Fischer............................... 4,412 25,204 10,968
Linda J. Grant.................................. 100 11,508 9,301
Dominique Lavallee.............................. 1,400 5,999 13,001
Robert D. Sawicki............................... 0 0 9,100
Total (All Directors and Executive Officers
as a group)................................... 82,161 735,714* 231,014
</TABLE>
- ------------
* Represents approximately 3.22 percent of the Shares outstanding.
40
<PAGE>
9. CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER.
PARENT AND THE PURCHASER. The Purchaser is a Delaware corporation
incorporated on October 12, 1995 and organized on November 2, 1995 as a
wholly-owned subsidiary of Parent solely for the purposes of entering into the
Merger Agreement, purchasing the Shares pursuant to this Offer and effecting the
Merger. The Purchaser has conducted no business. Its registered office is CT
Corporation Service, 1209 Orange Street, Wilmington, Delaware.
Parent is organized under the laws of The French Republic and its principal
executive offices are located at Immeuble SCOR-Cedex 39, 92074 Paris La Defense,
France. Parent operates principally as a reinsurance company. Together with its
subsidiaries, it ranks as the largest professional reinsurer in France and among
the largest in the world. For the year ended December 31, 1994 and for the six
months ended June 30, 1995, Parent had consolidated net income of FRF 282
million and FRF 206 million, in each case calculated in accordance with French
generally accepted accounting principles. At December 31, 1994, Parent had total
assets of approximately FRF 34.8 billion and total shareholders equity of
approximately FRF 5.4 billion, calculated in accordance with French generally
accepted accounting principles. As of November 7, 1995, the rate of exchange of
FFr into U.S. dollars, based on the noon buying rate in New York City for cable
transactions in foreign currencies as certified for customers purposes by the
Federal Reserve Bank of New York was $4.880 FFr per U.S. dollar.
The name, citizenship, business address, present principal occupation, and
material positions held during the past five years of each of the directors and
executive officers of Parent and the Purchaser are set forth in "SCHEDULE
I -- Directors and Executive Officers of Parent and the Purchaser" to this Offer
to Purchase.
Neither Parent nor the Purchaser is subject to the information requirements
of the Exchange Act and, accordingly, neither files reports or other information
with the Commission under the Exchange Act relating to its business, financial
position, results of operations or other matters.
SHARE OWNERSHIP INFORMATION. Parent currently owns 14,547,756 Shares, or
approximately 80% of the issued and outstanding Shares. In addition, the
following table sets forth the number of Shares beneficially owned as of
November 2, 1995 by the persons listed in "SCHEDULE I -- Directors and Executive
Officers of Parent and the Purchaser" to this Offer to Purchase and any other
associate or majority-owned subsidiary of Parent or any of the persons so
listed. To Parent's and the Purchaser's knowledge only Mr. Peugeot owns Shares
other than through unexercised stock options. Mr. Peugeot has indicated that he
intends to tender such Shares into the Offer. Parent and the Purchaser do not
believe any of such persons intends to exercise options for the purpose of
tendering into the Offer.
AMOUNT
BENEFICIALLY
NAME OF INDIVIDUAL OWNED
- ------------------------------------------------------- ------------
Patrick Peugeot........................................ 138,709
Jacques Blondeau....................................... 83,998
Serge Osouf............................................ 1,500
Francois Reach......................................... 1,500
Except as elsewhere set forth in this Offer to Purchase: (i) neither Parent
nor the Purchaser nor, to the knowledge of Parent or the Purchaser, any of the
persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent and
the Purchaser" hereto nor any associate or majority-owned subsidiary of any of
the foregoing, beneficially owns or has a right to acquire any equity securities
of the Company; (ii) neither Parent nor the Purchaser nor, to the best knowledge
41
<PAGE>
of Parent or the Purchaser, any of the persons or entities referred to above,
nor any director, executive officer or subsidiary of any of the foregoing, has
effected any transaction in such equity securities during the past 60 days;
(iii) neither Parent nor the Purchaser nor, to the knowledge of Parent or the
Purchaser, any of the persons listed in "SCHEDULE I -- Directors and Executive
Officers of Parent and the Purchaser" hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any
securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any such securities, joint ventures, loan or option arrangements, puts or
calls, guaranties of loans, guaranties against loss or the giving or withholding
of proxies, consents or authorizations; (iv) there have been no contacts,
negotiations or transactions since January 1, 1993 between Parent or the
Purchaser, or, to the knowledge of Parent or the Purchaser, any of the persons
listed in "SCHEDULE I -- Directors and Executive Officers of Parent and the
Purchaser" hereto, on the one hand, and the Company or its affiliates, on the
other hand, concerning a merger, consolidation or acquisition, a tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of asset of the Company; and (v) neither Parent
nor the Purchaser, nor, to the best knowledge of Parent or the Purchaser, any of
the persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent
and the Purchaser" hereto, has since January 1, 1992 had any transaction with
the Company or any of its executive officers, directors or affiliates that would
require disclosure under the rules and regulations of the Commission applicable
to the Offer. References herein to the subsidiaries or affiliates of Parent or
the Purchaser do not include the Company and its subsidiaries.
SHARE REPURCHASES. On November 2, 1994, Parent acquired directly from
certain of the Company's executive officers, 82,000 Shares at the then
prevailing market price of $11.125 per Share, specifically: 44,000 Shares from
John T. Andrews, Jr., Senior Vice President, General Counsel and Secretary of
the Company; 9,071 Shares from Nolan E. Asch, Senior Vice President and Chief
Actuary of the Company; 3,929 Shares from R. Daniel Brooks, Senior Vice
President of the Company; and 25,000 Shares from Jerome Karter, President and
Chief Executive Officer of the Company. Each of these senior officers had, at
the request of the Company, voluntarily agreed not to sell any Shares held by
them in connection with the privately placed offering of convertible
subordinated debentures of the Company in 1993, and were prevented from selling
during certain other periods thereafter in accordance with Company policy. The
proceeds from these sales to Parent were applied exclusively to reduce
indebtedness of the sellers to the Company. In addition, on November 2, 1994,
under the Company's Stock Incentive Plan for Key Employees, the Company granted
to each of such officers options to purchase a corresponding number of Shares at
an exercise price of $11.125 per Share, which was equal to the per Share market
price on that date.
10. CONTACTS WITH THE COMPANY.
DIRECTORS OF THE COMPANY. The Board of Directors of the Company currently
consists of thirteen members, five of whom are officers and/or directors of the
Purchaser or officers of the Company. The Purchaser currently has, and following
the Offer and the Merger will continue to have, the ability to elect the entire
Board of Directors of the Company.
The members of the Company's Board of Directors are as follows:
Jacques P. Blondeau has served as Chairman of the Board of the Company since
September 30, 1994 and as a Director since 1988. Mr. Blondeau is also Chairman
of SCOR Reinsurance Company ("SCOR Re"), the Company's principal operating
subsidiary. Mr. Blondeau serves as a Trustee of the Voting Trust that holds the
stock of SCOR Re on behalf of the Company. From November, 1988 to September 30,
1994, Mr. Blondeau had been Vice Chairman and President of the Company and Vice
Chairman of the Board of SCOR Re. He also served as Chief Operating
42
<PAGE>
Officer of the Company from November, 1988 to June, 1994. From June 16, 1994 to
September 30, 1994, he served as Chief Executive Officer of the Company. He is
Chairman of the Board and Chief Executive Officer of Parent. Prior to being
elected to these positions in Parent, he served as the President and Chief
Operating Officer. Mr. Blondeau was President-Operations of SCOR Paris from 1988
until 1990, when SCOR Paris was merged into Parent. From 1984 to 1988, Mr.
Blondeau was Chairman and President of Pechiney Australia and President of
Howmet Resources, Inc. (U.S.), a subsidiary of Pechiney Corporation. From
1980-1984, he held various top-level positions with the Pechiney Corporation.
Mr. Blondeau's business address is that of Parent.
Serge M.P. Osouf has served as Vice Chairman of the Board of Directors of
the Company and SCOR Re since September 30, 1994, and has been a Director of the
Company since September, 1993, and of SCOR Re since December, 1991. Mr. Osouf
serves as the General Manager of Parent and prior to taking this position in
September, 1994, had been the President-Reinsurance Operations of Parent since
1993. He is currently Chairman of SCOR Vie and from 1987 to 1993 was General
Manager of SCOR Reassurance, two subsidiaries of Parent. Mr. Osouf's business
address is that of Parent.
Jerome Karter has served as a Director of the Company since February, 1989,
and as its President and Chief Executive Officer since September 30, 1994. Prior
to September, 1994, he had served as Executive Vice President of the Company
since December, 1989. Mr. Karter has also served as a Director, President and
Chief Executive Officer of SCOR Re since February, 1989. Prior to his employment
at SCOR, he held various management positions both in the United States and
Europe with major domestic and multinational insurance companies since 1961. He
held senior management positions for Factory Mutual International in London and
Affiliated F.M. Insurance Company in Paris from 1969 to 1978. He subsequently
served as General Manager-Europe for the Insurance Company of North America (now
CIGNA Corporation) and INA Reinsurance Company S.A. in Brussels from 1978 to
1984. Immediately prior to joining the Company, Mr. Karter was a Senior Vice
President and Manager of the International Department of Johnson & Higgins in
New York from 1984 to 1989. Mr. Karter's business address is that of the
Company.
John R. Cox has served as a Director of the Company and SCOR Re since June,
1994. Mr. Cox has also served as a Director of Firemark Global Insurance Fund
since 1993. From 1985 to 1991 he was Chairman of the Board and Chief Executive
Officer of ACE Limited ("ACE"). Until February 3, 1995, he was a Director and a
Member of the Audit Committee of ACE and its subsidiary companies. From 1990 to
1993 he was a Director of Bankers Insurance Company Limited. From 1983 to 1985,
he was Executive Vice President of American Can Company, subsequently known as
Primerica Corporation and now The Travelers Corporation, and Chairman and Chief
Executive Officer of Associated Madison Companies, Inc., its financial services
holding company subsidiary. From 1975 to 1983 Mr. Cox held various key executive
positions in CIGNA Corporation. Mr. Cox's business address is 44 Herbert
Terrace, West Orange, New Jersey.
Raymond H. Deck has served as a Director of the Company since 1986 and of
SCOR Re since 1985. He has been President of Chase Insurance Enterprises, Inc.,
a division of Chase Enterprises, a private company with investments in real
estate, communications and the insurance industry, since 1986. He has also been
a Director of Accel International Corporation since 1990. Prior to 1986, he was
a Director and Executive Vice President of the Hartford Insurance Group. Mr.
Deck's business address is that of Chase Insurance Enterprises, Inc., One
Commercial Plaza, Hartford, Connecticut 06103.
Michel J. Gudefin has served as a Director of the Company since 1989 and of
SCOR Re since June 1990 and is a Voting Trustee of SCOR Re. Mr. Gudefin is
retired. From 1988 to 1989 he was Vice Chairman of Howmet Corporation, the
principal operating subsidiary of Pechiney Corporation. From 1976 to 1988, Mr.
Gudefin was President and Chief Executive Officer of Pechiney Corporation.
43
<PAGE>
Until December 31, 1993, he was a Director of Pechiney Corporation and Howmet
Corporation. He is currently a Director of Southwire Corporation and a Vice
President and Director of Intrend Corporation. Mr. Gudefin's business address is
that of the Company.
Jean P. Masse has served as a Director of the Company and SCOR Re since
March 1995. From June 16, 1994 until March 1995, he was Director Emeritus of
SCOR Re after having served as a Director of SCOR Re from 1990 to 1994. He
served as a Director and President of The Unity Fire and General Insurance
Company from December 1982 until 1990, and during that time also served as
President and Treasurer of the Rockleigh Management Corporation, which was
merged with and into the Company in 1990. Mr. Masse's business address is Tour
Voltaire, 1 place Des Dgres, Cedex 58, 92059 Paris La Defense, France.
Richard M. Murray has served as a Director of the Company and SCOR Re since
1990. He was Chairman and executive advisor of The Nippon Management Corporation
from 1987 to 1991. Since 1990, he has been Vice Chairman of La Prov Corporation,
a wholly-owned U.S. subsidiary and liaison office of Grupo Nacional Provincial
S.A., a leading Mexican insurance company. He was a Vice President of The
Travelers Corporation from 1967 to 1987. Mr. Murray's business address is that
of La Prov Corporation, 80 Broad Street, New York, New York 10004-2203.
Patrick Peugeot has served as a Director of the Company since 1983 and of
SCOR Re since 1985. Mr. Peugeot is also a Voting Trustee of SCOR Re. He served
as Chairman of the Board of the Company from 1983 until September 30, 1994, and
as Chief Executive Officer of the Company from December 1988 until June 16,
1994. He was also Chairman of the Board of SCOR Re until September 1994. Mr.
Peugeot had served as Chairman of the Board and Chief Executive Officer of
Parent from 1989 until 1994 and of SCOR Paris from 1983 until 1990. Mr. Peugeot
was Chairman of CCR from 1983 to 1985. He is Honorary Chairman of CCR and has
served as Honorary Chairman of Parent since August 30, 1994. He is now Vice
Chairman and President of La Mondiale, a French mutual life insurance company.
He is also Vice Chairman of Partner Europe. Mr. Peugeot's business address is
that of La Mondiale, located at 22 boulevard Malesherbes 75008 Paris.
John W. Popp, has served as a Director of the Company since March 1990 and
SCOR Re since 1989. Mr. Popp also is a business consultant. He was a Partner of
Peat, Marwick, Mitchell & Co. (now KPMG Peat Marwick LLP) from 1955 to 1982. Mr.
Popp has been a Director of Old Republic International Corporation since 1993.
Mr. Popp's business address is that of the Company.
Francois Reach has served as a Director of the Company since March 1989 and
of SCOR Re since June 1994. Mr. Reach has served as Chairman and CEO of REAFIN,
the finance company subsidiary of Parent since October 1994. He was Chief
Investment Officer and Treasurer of Parent from 1983 until October, 1994, when
he became Deputy General Manager of Parent. From 1986 to 1994, he was President
of REAFIN. He is also Managing Director of Finimosa (Spain) and of Finimo Kft
(Hungary). Mr. Reach's business address is that of Parent.
David J. Sherwood has served as a Director of the Company and of SCOR Re
since 1987. He is also a Voting Trustee of SCOR Re. Mr. Sherwood has served as
Chairman of the Board of Governors of the New York Insurance Exchange since
1985. He was President of The Prudential Insurance Company of America from 1978
to 1984. Mr. Sherwood's business address is that of the New York Insurance
Exchange, c/o Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022.
Ellen E. Thrower has served as a director of the Company since July 1995.
She has served as President and Chief Executive Officer of The College of
Insurance and Chief Executive Officer of its parent organization, The Insurance
Society of New York since 1988. She has been a director of the Insurance
Education Foundation since 1988; the New York City Council on Economic
Education,
44
<PAGE>
Inc., since 1992; the Pennsylvania National Mutual Casualty Insurance Co. since
1990; and the United Educators Insurance Risk Retention Group, Inc., since 1994.
Ms. Thrower's business address is that of The College of Insurance, 101 Murray
Street, New York, New York 10007.
CONTRACTS AND AGREEMENTS. The Company and Parent have a number of financial,
operating and other arrangements and have engaged in certain intercompany
transactions believed to be mutually beneficial. These arrangements include
those set forth below. Copies of the Agreements referred to below required to be
filed as exhibits to the Schedule 13E-3 and the Schedule 14D-1 are so filed and
are available in the same manner as that described in "SPECIAL FACTORS--5.
Background of the Offer and the Merger", and the following summaries are
qualified in their entirety by reference to the copies of such agreements.
(i) 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 to
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 the Company'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 Parent, 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 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. Parent 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 ("1986 Retrocessional Agreement"), Parent 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, Parent's
45
<PAGE>
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
Parent 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 Parent
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 "attachment 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 settlements 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 Re is a party to two additional retrocession agreements providing for
significant premium payments to Parent. First, pursuant to the Catastrophe
Excess of Loss Reinsurance Contract for the 1994 year, SCOR Re paid Parent a
premium for that year of $3,797,984 for the coverage specified under that
reinsurance contract in respect of losses under policies covering treaty and
facultative reinsurance assumed by SCOR Re resulting from certain property
exposures. Losses arising out of the Northridge earthquake resulted in the
reinstatement of coverage under the contract for an additional premium from SCOR
Re to Parent of approximately $3.5 million. Second, pursuant to the Catastrophe
Excess of Loss Reinsurance Contract for the 1995 year, SCOR Re is required to
pay to each of Parent and one of its affiliates, SCOR Reassurance, by way of
quarterly installments, a premium of $2,041,110 for that year for the coverage
to be provided by each of them as specified under that reinsurance contract in
respect of losses under policies covering treaty and facultative reinsurance
assumed by SCOR Re resulting from certain property exposures.
Parent entered into a Net Aggregate Excess of Loss Retrocessional Agreement
with each of Unity Fire and General Security, pursuant to which Parent 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 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
Parent. 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
46
<PAGE>
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, Parent'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 Parent or any other
retrocessionaire 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.
(ii) Reinsurance: The Company's operating subsidiaries assume reinsurance
from Parent 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 Parent.
The Company's operating subsidiaries also retrocede reinsurance to Parent
and other affiliated companies, primarily on a quota share or surplus share
basis.
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 the Company are subject to an initial review of financial
condition before final acceptability is confirmed and subsequent reviews on an
annual basis.
Parent provides letters of credit in favor of the Company's Operating
Subsidiaries in amounts equal to its estimated liability under its reinsurance
agreements with such companies (as re-estimated on a quarterly basis). The
amount of letters of credit provided by Parent at December 31, 1994 was
approximately $134,500,000.
(iii) 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
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such statute. Unity Fire was so owned or financially controlled prior to such
effective date. Because Parent, the controlling stockholder of the Company, was
indirectly partially owned by certain French insurance companies which were
majority owned by the French Government, the Company, 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 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 the Purchasers. The voting trustees are required to
forward any dividends paid by SCOR Re to the Company 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 the Company with the exception of
Mr. Chapin, who is a partner of Sullivan & Cromwell, legal counsel to Parent.
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.
(iv) Credit Agreement: In 1995, the Company established a $20 million credit
agreement with Parent, the proceeds of which are restricted to the repurchase of
the Debentures in the market or the repayment of any debt incurred to repurchase
Debentures. In addition, Parent may provide the funds or arrange financing
necessary for the Company to satisfy its obligation to repurchase Debentures in
accordance with the terms of the Indenture
(v) Loan Agreement: In 1995, the Company has established a $20 million loan
agreement with Parent, the proceeds of which are restricted to the repayment of,
or the repayment of indebtedness incurred in respect of the repayment of a bank
financing obtained by the Company. In October 1995, the Company borrowed $20
million under this loan agreement
(vi) Software: The Company has agreed in principle with Parent for the
purchase by Parent of the Company's New Treaty System ("NTS"), at a purchase
price of $1.5 million. To date, the Company has expended approximately $10.2
million in researching, developing and implementing NTS.
In January 1992, the Company acquired 19.8% of the stock of Commercial Risk,
a Bermuda holding company for two insurance subsidiaries. The purchase price was
approximately $9.9 million. As a result of a recapitalization of Commercial Risk
in 1994, the Company currently owns approximately 12.87% of the outstanding
stock of Commercial Risk. Parent owns approximately 52.27% of the outstanding
stock of Commercial Risk.
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11. THE MERGER AGREEMENT; APPRAISAL RIGHTS; EFFECT ON THE DEBENTURES.
The Merger. The Merger Agreement provides that, promptly after the purchase
of Shares pursuant to the Offer and the receipt of any required approval of the
Merger Agreement by the Company's stockholders and the satisfaction or waiver of
certain other conditions, the Purchaser will be merged into the Company. Because
Parent currently owns a majority of the outstanding Shares, parent will have the
vote necessary under Delaware law to approve the Merger. Under Delaware law, if
the Purchaser owns at least 90% of the outstanding Shares, which would be the
case if the Minimum Tender Condition is satisfied, the Merger may be effected
without the vote of the Company's stockholders. Following consummation of the
Merger, the Company will continue as the surviving corporation in the Merger
(the "Surviving Corporation") and will become a wholly owned subsidiary of
Parent.
At the Effective Time, each Share outstanding immediately prior to the
Effective Time (other than Shares owned by Parent, the Purchaser, the Company or
any direct or indirect subsidiary of Parent or the Company or Shares
("Dissenting Shares") held by stockholders of the Company who have properly
exercised their appraisal rights in accordance with Section 262 of the DGCL)
will be converted into the right to receive, without interest, an amount in cash
(the "Merger Consideration") equal to the Offer Price.
At the Effective Time each share of common stock, par value $1.00 per share,
of Purchaser, issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of Purchaser
or the holders of such shares, be converted into one share of common stock of
the Surviving Corporation.
The Merger Agreement provides that the Dissenting Shares will not be
converted into or represent the right to receive the Merger Consideration.
Holders of such Shares will be entitled to receive payment of the "fair value"
of such Shares held by them in accordance with the provisions of Section 262 of
the DGCL, except that all Dissenting Shares held by stockholders who fail to
perfect or who effectively withdraw or lose their rights to dissent will
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any interest thereon, the Merger Consideration, upon
surrender of the certificate or certificates that formerly evidenced such
Shares.
The Merger Agreement contemplates that the certificate of incorporation of
the Surviving Corporation, which will be the Restated Certificate of
Incorporation of the Company, shall be amended to provide that the authorized
capital of the Surviving Corporation shall be 1,000 shares of common stock, par
value $.01 per share.
The Merger Agreement provides that Purchaser shall make available or cause
to be made available to the paying agent appointed by Purchaser with the
Company's prior approval (the "Paying Agent") amounts sufficient in the
aggregate to provide all funds necessary for the Paying Agent to make payments
described above to holders of Shares issued and outstanding immediately prior to
the Effective Time. Promptly after the Effective Time, the Paying Agent shall,
pursuant to irrevocable instructions, make the payments provided for in the
preceding sentence out of the funds deposited with the Paying Agent for such
purpose. One hundred and eighty days following the Effective Time, the Surviving
Corporation shall be entitled to cause the Paying Agent to deliver to it any
funds (including any interest received with respect thereto) made available to
the Paying Agent which have not been disbursed to holders of certificates
formerly representing Shares outstanding at the Effective Time, and thereafter
such holders shall be entitled to look to the Surviving Corporation only as
general creditors thereof with respect to the cash payable under due surrender
of their certificates. The Surviving Corporation shall pay all charges and
expenses, including those of the Paying Agent, in connection with the exchange
of cash for Shares and Purchaser shall reimburse the Surviving Corporation for
such charges and expenses.
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Conditions to Certain Obligations. The obligations of the Company, the
Purchaser and Parent to effect the Merger are subject to the satisfaction of
certain conditions set forth in the Merger Agreement, including (i) the purchase
by the Purchaser (or one or more affiliates of the Purchaser) of Shares pursuant
to the Offer, (ii) to the extent required by applicable law, the receipt of
stockholder approval of the Merger and the Merger Agreement and (iii) there
being no statute, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) enacted, issued, promulgated,
enforced or entered by any governmental, regulatory or administrative authority,
agency, tribunal commission or other entity, domestic, international or foreign,
including any state insurance governmental or regulatory body and
non-governmental self-regulatory organization (a "Governmental Entity"), or any
court which is in effect and prohibits consummation of the Merger.
Termination. According to its terms, the Merger Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time, whether
before or after any approval by the stockholders of the Company, by the mutual
consent of Parent and the Company, by action of their respective Boards and
Directors. In addition, the Merger Agreement may be terminated by action of the
Board of Directors of either Parent or the Company if (i) the Purchaser shall
have terminated the Offer without purchasing any Shares pursuant thereto;
provided, in the case of termination of the Merger Agreement by Parent, such
termination of the Offer is not in violation of the terms of the Offer or (ii)
without fault of the terminating party, the Merger shall not have been
consummated by March 31, 1996, whether or not such date is before or after any
approval by the stockholders of the Company of the Merger and the Merger
Agreement. The Merger Agreement may be terminated by Parent at any time prior to
the Effective Time, whether before or after any approval by the stockholders of
the Company, by the action of the board of directors of the Parent, if (i) the
Company shall have failed to comply in any material respect with any of the
covenants and agreements contained in the Merger Agreement to be complied with
or performed by the Company at or prior to such date of termination or (ii) the
Board of Directors of the Company or those directors of the Company who are not
officers of Parent or the Company or any affiliate of either of them (the
"Independent Directors") shall have withdrawn or modified in a manner adverse to
Parent or the Purchaser its approval or recommendation of the Offer, the Merger
Agreement or the Merger or the Board of Directors of the Company or the
Independent Directors, upon request by Parent, shall fail to reaffirm such
approval or recommendation, or shall have resolved to do any of the foregoing.
The Merger Agreement may be terminated at any time prior to the Effective Time,
before or after any approval by the stockholders of the Company, by action of
the Board of Directors of the Company, if Parent or the Purchaser shall (i) have
failed to comply in any material respect with any of the covenants or agreements
contained in the Merger Agreement to be complied with or performed by Parent or
the Purchaser at or prior to such date of termination or (ii) shall have failed
to commence the Offer within the time required by the Merger Agreement.
Subject to the applicable provisions of the DGCL, the Merger Agreement may
be amended by action taken by the Company, Parent and the Purchaser at any time
prior to the Effective Time.
Certain Covenants of the Parties. The Purchaser has agreed in the Merger
Agreement that it will not, without the prior written consent of the Company,
decrease the price per Share or change the form of consideration payable in the
Offer, decrease the number of Shares sought or change the conditions to the
Offer. Also, the Purchaser shall not terminate or withdraw the Offer or extend
the Expiration Date unless at the Expiration Date the conditions set forth in
"THE OFFER -- 13. Certain Conditions of the Offer" have not been satisfied or
waived.
If the Purchaser or Parent or any direct or indirect subsidiary of Parent
shall have purchased any Shares pursuant to the Offer, the Merger Agreement
provides that the Company shall take all necessary action to enter into a
supplemental indenture prior to the Effective Time with the Trustee (as defined
in the Debentures) pursuant to the Indenture, to provide, among other things,
that on
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and after the Effective Time the Debentures will be convertible only into the
right to receive an amount of cash, without interest, equal to the Offer Price.
The Merger Agreement also provides that prior to the Effective Time, the
Company shall take such actions as may be necessary such that at the Effective
Time each stock option outstanding pursuant to the Company Stock and Option
Plans (an "Option"), whether or not then vested, shall be cancelled and only
entitle the holder thereof, upon surrender thereof, to receive an amount in cash
equal to the difference between the Offer Price and the exercise price per Share
of such Option, multiplied by the number of Shares previously subject to such
Option.
The Merger Agreement provides that for six years after the Effective Time,
the Surviving Corporation shall maintain the Company's existing directors' and
officers' liability insurance or equivalent liability insurance ("D&O
Insurance") so long as the annual premium therefor is not in excess of the last
annual premium paid prior to the date of the Merger Agreement (the "Current
Premium"); provided, however, if the existing D&O Insurance expires, is
terminated or canceled during such six-year period, the Surviving Corporation
will use its best efforts to obtain as much D&O Insurance as can be obtained for
the remainder of such period for a premium not in excess (on an annualized
basis) of 200 percent of the Current Premium. In lieu of the insurance
arrangement described above, the Company may, on or before the expiration of the
Offer, enter into alternative insurance arrangements, provided that such
arrangements are approved by the Independent Directors and Parent. The Merger
Agreement also provides that, from and after the Effective Time, Parent and the
Surviving Corporation will indemnify and hold harmless each present and former
director and/or officer of the Company, determined as of the Effective Time (the
"Indemnified Parties") that is made a party or threatened to be made a party to
any threatened, pending or completed, action, suit, proceeding or claim, whether
civil, criminal, administrative or investigative, by reason of the fact that he
or she was a director or officer of the Company or any subsidiary of the Company
prior to the Effective Time and arising out of actions or omissions of the
Indemnified Party in any such capacity occurring at or prior to the Effective
Time (a "Claim") against any costs or expenses (including reasonable attorneys'
fees), judgments, fines, amounts paid in settlement pursuant to the provisions
of the Merger Agreement described in the next succeeding paragraph, losses,
claims, damages or liabilities (collectively, "Costs") reasonably incurred in
connection with any Claim, whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent that the Company would have been permitted
under Delaware law. The Merger Agreement further provides that the Surviving
Corporation and Purchaser shall also advance expenses (including attorneys'
fees), as incurred by the Indemnified Party to the fullest extent permitted
under applicable law provided such Indemnified Party provides an undertaking to
repay such advances if it is ultimately determined that such Indemnified Party
is not entitled to indemnification.
Pursuant to the Merger Agreement, upon learning of any Claim described in
the preceding paragraph, such Indemnified Party shall promptly notify the
Surviving Corporation and Parent thereof. In the event of any such Claim
(whether arising before or after the Effective Time), (i) Parent or the
Surviving Corporation shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Parent or the
Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Parent or the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
Parent or the Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation and Parent shall be
obligated pursuant to the Merger Agreement (b) to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a conflict
of interest, (ii) the Indemnified Parties will cooperate in
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the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent; and provided further that
the Surviving Corporation and Parent, respectively, shall not have any
obligation under the Merger Agreement to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and non-appealable, that the
indemnification of such Indemnified Party in the manner contemplated by the
Merger Agreement is prohibited by applicable law. If such indemnity is not
available with respect to any Indemnified Party, then the Surviving Corporation
and the Indemnified Party shall contribute to the amount payable in such
proportion as is appropriate to reflect relative faults and benefits.
The Merger Agreement further provides that if a claim for indemnification or
advancement under the Merger Agreement is not paid in full by the Surviving
Corporation or Parent within thirty days after a written claim therefor has been
received by the Surviving Corporation or Parent, the Indemnified Party may any
time thereafter bring suit against the Surviving Corporation or Purchaser to
recover the unpaid amount of the claim and, if successful in whole or in part,
the Indemnified Party shall be entitled to be paid also the expense of
prosecuting such claims. Under the terms of the Merger Agreement, neither the
failure of the Surviving Corporation or Purchaser (including their Boards of
Directors, independent legal counsel or shareholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnified Party is proper in the circumstances because he or she has met the
applicable standard of conduct, nor an actual determination by the Surviving
Corporation or Parent (including their boards of directors, independent legal
counsel, or shareholders) that the Indemnified Party has not met such applicable
standard of conduct, shall be a defense to the suit or create a presumption that
the Indemnified Party has not met the applicable standard of conduct.
The Merger Agreement also provides that no amendment to the Certificate of
Incorporation or By-laws of the Surviving Corporation shall reduce in any way
the elimination of personal liability of the directors of the Company contained
therein or adversely affect any then existing right of any director or officer
(or former director or officer) to be indemnified with respect to acts,
omissions or events occurring prior to the Effective Time.
In the Merger Agreement, the Company has agreed that its Board of Directors
and a majority of the Independent Directors will recommend acceptance of the
Offer to the Company's stockholders and will file with the Commission
contemporaneously with the commencement of the Offer, and mail to its
stockholders, a Solicitation/Recommendation Statement on Schedule 14D-9
containing the unanimous recommendation of the Company's Board of Directors and
the Independent Directors that the Company's stockholders accept the Offer. The
Merger Agreement also provides that if the Company's Board of Directors
determines that its fiduciary duties require it to amend or withdraw its
recommendation, such amendment or withdrawal shall not constitute a breach of
the Merger Agreement.
The Merger Agreement also contains certain other restrictions as to the
conduct of business by the Company pending the Merger, as well as
representations and warranties of each of the parties customary in transactions
of this kind.
The foregoing description of the Merger Agreement is qualified in its
entirety by reference to the text of the Merger Agreement, a copy of which has
been filed as an exhibit to the Schedule 14D-1 and to the Schedule 13E-3 and may
be obtained in the manner described in "THE OFFER -- 8. Certain Information
Concerning the Company". The foregoing description of the Merger Agreement is
qualified in its entirety by reference to that document.
If the Minimum Tender Condition is satisfied, Parent directly or indirectly
will hold 90% or more of the outstanding Shares, and Parent intends to
contribute its Shares to the Purchaser and cause the Purchaser to effect the
Merger without a vote of the Company's stockholders pursuant to the
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"short-form" merger provisions of the DGCL. As the Purchaser already owns
14,547,756 of the 18,170,971 total outstanding Shares, assuming no additional
Shares are issued after November 2, 1995, the Purchaser will need to purchase
pursuant to its Offer a minimum of 1,806,118 of the Shares in order to satisfy
the Minimum Tender Condition. However, if the Purchaser were to waive the
Minimum Tender Condition, resulting in the Purchaser and Parent holding less
than 90% of the outstanding Shares, then the Merger would have to be approved by
the Company's Board of Directors and by the Company's stockholders. Under the
DGCL, the vote of the holders of a majority of the outstanding Shares would be
required to approve the Merger under such circumstances. Since Parent currently
owns more than a majority of the outstanding Shares, Parent will have sufficient
voting power to approve the Merger without the affirmative vote of any other
stockholders of the Company, and Parent intends to do so.
APPRAISAL RIGHTS. Holders of Shares do not have appraisal rights as a result
of the Offer. After the Offer is consummated, the Purchaser anticipates that the
Shares will cease to be listed or traded on the NYSE. In connection with the
Merger, even if the Merger is consummated pursuant to the short-form merger
provisions discussed above, holders of the Shares will have certain rights under
the DGCL to dissent and demand appraisal of, and payment in cash for the fair
value of, their Shares. Such rights, if the statutory procedures are complied
with, could lead to a judicial determination of the fair value (excluding any
element of value arising from accomplishment or expectation of the Merger)
required to be paid in cash, plus a payment in cash of a fair rate of interest
from the date of consummation of the Merger, to such dissenting holders for
their Shares. Any such judicial determination of the fair value of Shares would
take into account all relevant factors and could, accordingly, be based upon
considerations other than or in addition to the price paid in the Offer and the
Merger and the market value of the Shares, asset values, earning capacity and
the investment value of the Shares. The value so determined could be more or
less than the purchase price per Share pursuant to the Offer or the
consideration per Share to be paid in the Merger. The costs of appraisal
litigation (including fees of counsel and experts retained by the parties) will
be taxed upon the parties, or either of them, in such manner as appears
equitable to the court. See "SCHEDULE II -- Appraisal Rights of Dissenting
Stockholders under Delaware Law" attached hereto for a summary of appraisal
rights under the DGCL.
The Purchaser does not intend to object, assuming the proper procedures are
followed, to the exercise by any other stockholder of such stockholder's
appraisal rights and who demands appraisal of, and payment in cash for the fair
value of, such stockholder's Shares, even if the Shares are not delisted prior
to the consummation of the Merger. However, Parent intends to cause the Company,
as the surviving corporation in the Merger, to argue in any appraisal proceeding
that, for the purposes of such a proceeding, the fair value of the Shares is
less than the price paid in the Offer and the Merger.
THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT
PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY
STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE
PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF DELAWARE LAW.
Effect on the Debentures. Under the terms of the Indenture, in the event of
a Repurchase Event (which would occur in the event that Parent directly or
indirectly owns, after giving effect to the purchase of Shares pursuant to the
Offer or the acquisition of Shares pursuant to the Merger, in excess of 90% of
the outstanding Shares), the holders of the Debentures shall have the right to
require the Company to repurchase the Debentures at a repurchase price equal to
100% of the principal amount thereof together with accrued and unpaid interest
to the date of such repurchase (the "Repurchase Price"), which date shall be 45
days after the date on which the Company notifies the holders of the Debentures
of such Repurchase Event. In addition, in the event the Merger is consummated,
the holders of the Debentures will be entitled to convert the Debentures
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into the right to receive the consideration receivable upon the Merger by a
holder of the number of Shares into which such Debentures could have been
converted immediately prior to the Merger. In light of the current conversion
price at which the Debentures may be converted into Shares, holders of
Debentures would receive a greater cash amount in the event they elected to
require the Company to repurchase their Debentures at the Repurchase Price than
they would if they elected to convert their Debentures into the right to receive
the merger consideration in respect of the Shares into which such Debentures
could have been converted immediately prior to the Merger. Therefore, the
Purchaser expects that substantially all of the holders of the Debentures would
elect to require the Company to repurchase their Debentures at the Repurchase
Price.
Plans for the Company. Except as otherwise set forth in this Offer to
Purchase, it is expected that, initially following the Merger, the business and
operations of the Company will be continued substantially as they are currently
being conducted.
12. SOURCE AND AMOUNT OF FUNDS.
The Purchaser estimates that the total amount of funds required to purchase
100% of the outstanding Shares pursuant to the Offer and the Merger and to pay
related fees and expenses will be approximately $61,500,000. See "THE
OFFER -- 16. Fees and Expenses" for additional information as to the fees and
expenses payable by the Purchaser. The Purchaser will obtain these funds as
capital contributions from Parent's existing working capital.
13. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Purchaser shall not be
obligated to accept for payment any Shares or, subject to any applicable rules
and regulations of the Commission, including Rule 14e-1(c) (relating to the
Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or payment for, any tendered Shares unless the Minimum Tender
Condition shall have been satisfied or waived or, if on or after November 2,
1995, and at or before the time of payment for any of such Shares (whether or
not any Shares have theretofore been accepted for payment or paid for pursuant
to the Offer), any of the following events shall occur:
(a) there shall be any statute, rule, regulation, judgment, injunction
or other order, enacted, promulgated, entered, enforced or deemed applicable
to the Offer or the Merger or any other action shall have been taken by any
Governmental Entity, or any other person, domestic, supranational or foreign
(i) challenging the legality of the acquisition by the Purchaser of the
Shares; (ii) restraining, delaying or prohibiting the making or consummation
of the Offer or the Merger or obtaining from the Company, Parent or the
Purchaser any damages in connection therewith; (iii) relating to assets of,
or prohibiting or limiting the ownership or operation by Parent or the
Purchaser of all or any portion of the business or assets of, the Company,
Parent or the Purchaser (including the business or assets of their
respective affiliates and subsidiaries) or imposing any limitation on the
ability of Parent or the Purchaser to conduct such business or own such
assets; (iv) imposing limitations on the ability of Parent or the Purchaser
(or any affiliate of Parent or the Purchaser) to acquire or hold or to
exercise full rights of ownership of the Shares, including, without
limitation, the right to vote the Shares purchased by them on all matters
properly presented to the stockholders of the Company or (v) having a
substantial likelihood of any of the foregoing;
(b) there shall have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market in the United States
or France or (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or France (whether or not
mandatory);
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(c) the Company shall have breached or failed to perform in any material
respect any of its covenants, obligations or agreements under the Merger
Agreement or any representation or warranty of the Company set forth in the
Merger Agreement shall have been inaccurate or incomplete in any material
respect when made or thereafter shall become inaccurate or incomplete in any
material respect;
(d) any change, including, without limitation, any change arising out of
or related to any natural disaster (including hurricanes and earthquakes),
shall have occurred or been threatened or become known (or any condition,
event or development shall have occurred or been threatened or become known
involving a prospective change) in the business, properties, assets,
liabilities, condition (financial or otherwise), or results of operations of
the Company or any of its subsidiaries that could reasonably be expected to
be materially adverse to the Company and its subsidiaries taken as a whole;
(e) all consents, registrations, approvals, permits, authorizations,
notices, reports or other filings required to be made or obtained by the
Company, Parent, the Purchaser or any stockholder of Parent with or from any
Governmental Entity in connection with the Offer and the Merger shall not
have been made or obtained except where the failure to make or to obtain, as
the case may be, such consents, registrations, approvals, permits,
authorizations, notices, reports or other filings could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), properties, assets, liabilities, business or results of
operations of the Company and its subsidiaries taken as a whole;
(f) the Special Committee shall have adversely amended or modified or
shall have withdrawn its recommendation of the Offer or the Merger, or shall
have failed to publicly reconfirm such recommendation upon request by Parent
or the Purchaser, or shall have resolved to do any of the foregoing; or
(g) the Merger Agreement shall have been terminated in accordance with
its terms or the Purchaser shall have reached an agreement or understanding
with the Special Committee providing for termination of the Offer
which, in the reasonable judgment of the Purchaser with respect to each and
every matter referred to above, and regardless of the circumstances (including
any action or inaction by the Purchaser, Parent or any affiliate of Parent)
giving rise to any such condition, makes it inadvisable to proceed with the
Offer or with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances (including any
action or inaction by the Purchaser, Parent or any affiliate of Parent) giving
rise to any such conditions or may be waived by the Purchaser in whole or in
part at any time and from time to time in its sole discretion. The failure by
the Purchaser at any time to exercise any of the foregoing rights shall not be
deemed a waiver of any such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time. Any determination
by the Purchaser concerning the events described above will be final and binding
on all holders of the Shares.
14. DIVIDENDS AND DISTRIBUTIONS.
If, on or after the date hereof, the Company should (a) split, combine or
otherwise change the Shares or its capitalization, (b) acquire Shares or
otherwise cause a reduction in the number of outstanding Shares, (c) issue or
sell additional Shares (other than the issuance of Shares reserved for issuance
as of the date of this Offer to Purchase under employee stock option and
restricted stock option plans in accordance with their terms, in effect and
publicly disclosed as of the date of this Offer to Purchase), shares of any
other class of capital stock, other voting securities or any
55
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securities convertible into or exchangeable for, or rights, warrants or options,
conditional or otherwise, to acquire, any of the foregoing or (d) disclose that
it has taken any such action, then without prejudice to the Purchaser's rights
under the provisions of "THE OFFER -- 13. Certain Conditions of the Offer", the
Purchaser, in its sole discretion, may make such adjustments as it deems
appropriate in the Offer and Merger consideration and other terms of the Offer
and Merger, including, without limitation, the number or type of securities
offered to be purchased.
If, on or after the date hereof, the Company should declare or pay any cash
dividend on the Shares or make any other distribution on the Shares (other than
regular quarterly cash dividends on the Shares), or issue with respect to the
Shares any additional Shares, shares of any other class of capital stock, other
voting securities or any securities convertible into, or rights, warrants or
options, conditional or otherwise, to acquire, any of the foregoing, payable or
distributable to stockholders of record on a date prior to the transfer of the
Shares purchased pursuant to the Offer to the name of the Purchaser or its
nominees or transferees on the Company's stock transfer records, then, subject
to the provisions of "THE OFFER -- 13. Certain Conditions of the Offer" below,
(a) the price payable by the Purchaser pursuant to the Offer and Merger may, in
the sole discretion of the Purchaser, be reduced by the amount of any such cash
dividend or distribution and (b) the whole of any such non-cash dividend,
distribution or issuance to be received by the tendering stockholders will (i)
be received and held by the tendering stockholders for the account of the
Purchaser and will be required to be promptly remitted and transferred by each
tendering stockholder to the Depositary for the account of the Purchaser,
accompanied by appropriate documentation of transfer, or (ii) at the direction
of the Purchaser, be exercised for the benefit of the Purchaser, in which case
the proceeds of such exercise will promptly be remitted to the Purchaser.
Pending such remittance and subject to applicable law, the Purchaser will be
entitled to all rights and privileges as owner of any such non-cash dividend,
distribution, issuance proceeds or rights and may withhold the entire purchase
price or deduct from the purchase price the amount or value thereof, as
determined by the Purchaser in its sole discretion.
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, at December 31, 1994, represented 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 relevant authorities is the lesser of net investment income and 10% of
statutory surplus, as such terms are defined for the purposes of New York
insurance law.
15. CERTAIN LEGAL MATTERS.
GENERAL. Except as otherwise disclosed herein, based upon an examination of
publicly available filings with respect to the Company, neither the Purchaser
nor Parent is aware of any licenses or other regulatory permits which appear to
be material to the business of the Company and which might be adversely affected
by the acquisition of Shares by the Purchaser pursuant to the Offer or by the
Merger or of any approval or other action by any governmental, administrative or
regulatory agency or authority which would be required for the acquisition or
ownership of Shares by the Purchaser pursuant to the Offer or by the Merger.
Should any such approval or other action be required, it is currently
contemplated that such approval or action would be sought or taken. There can be
no assurance that any such approval or action, if needed, would be obtained or,
if obtained, that it will be obtained without substantial conditions or that
adverse consequences might not result to the Company's, Parent's or Purchaser's
business or that certain parts of the Company's, Parent's or Purchaser's
business might not have to be disposed of in the event that such approvals were
not obtained or such other actions were not taken, any of which could cause the
Purchaser to elect to terminate the Offer without the purchase of the Shares
thereunder. The
56
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Purchaser's obligation under the Offer to accept for payment and pay for Shares
is subject to certain conditions. See "THE OFFER -- 13. Certain Conditions of
the Offer".
STATE TAKEOVER LAWS. A number of states have adopted laws and regulations
applicable to offers to acquire securities of corporations which are
incorporated in such states and/or which have substantial assets, stockholders,
principal executive offices or principal places of business therein. In Edgar v.
MITE Corporation, the Supreme Court of the United States held that the Illinois
Business Takeover Statute, which made the takeover of certain corporations more
difficult, imposed a substantial burden on interstate commerce and was therefore
unconstitutional. In CTS Corporation v. Dynamics Corporation of America, the
Supreme Court held that as a matter of corporate law, and in particular, those
laws concerning corporate governance, a state may constitutionally disqualify an
acquiror of "Control Shares" (ones representing ownership in excess of certain
voting power thresholds e.g. 20%, 33 1/3% or 50%) of a corporation incorporated
in its state and meeting certain other jurisdictional requirements from
exercising voting power with respect to those shares without the approval of a
majority of the disinterested stockholders.
The Purchaser has not currently complied with any state takeover laws. The
Purchaser reserves the right to challenge the applicability or validity of any
state law purportedly applicable to the Offer or the Merger and nothing in this
Offer to Purchase or any action taken in connection with the Offer or the Merger
is intended as a waiver of such right. If it is asserted that one or more state
takeover laws applies to the Offer or the Merger and it is not determined by an
appropriate court that such act or acts do not apply or are invalid as applied
to the Offer or the Merger, the Purchaser might be required to file certain
information with, or receive approvals from, the relevant state authorities. In
addition, if enjoined, the Purchaser might be unable to accept for payment any
Shares tendered pursuant to the Offer, or be delayed in consummating the Offer
or the Merger. In such case, the Purchaser may not be obligated to accept for
payment any Shares tendered.
INSURANCE REGULATORY REQUIREMENTS AND APPROVALS. The Company's Operating
Subsidiaries are domiciled or "commercially domiciled" for insurance regulatory
purposes in the States of New York, Maryland and California and are accordingly
subject to the insurance laws and regulations of such states. The Company also
has an indirect minority interest in a reinsurance company domiciled in the
State of Vermont (together with New York, Maryland and California, the
"Domiciliary States"). Under the insurance laws and regulations of the
Domiciliary States, transactions involving the acquisition of control of a
domestic insurer, as well as certain transactions involving an insurance holding
company such as the Company, are generally subject to the prior approval of
insurance regulators in each such state. In particular, the acquisition of
outstanding Shares of the Company sufficient to satisfy the Minimum Tender
Condition, as well as the consummation of the Merger, may be subject to such
prior approvals. In light of the fact that Parent already owns approximately 80%
of the Company's outstanding common stock and accordingly already "controls" the
Company and its insurance company Subsidiaries for purposes of applicable
insurance laws. However, Parent has sought confirmation from insurance
regulators in the Domiciliary States to the effect that no additional insurance
regulatory filings, notifications or approvals would be required in connection
with the acquisition of additional Shares or the consummation of the Merger.
Based on discussions with such regulators to date, Parent believes that no such
filings, notifications or approvals will be required, although there can be no
assurances in this regard.
CERTAIN LITIGATION. Between September 27 and October 2, 1995 the following
actions (the "Underlying Actions") were commenced in the Court of Chancery of
the State of Delaware in and for New Castle County (the "Court"):
Howard Sande Feldman, Custodian for Jan
Sharona Feldman, UGMA v. Jacques P.
Blandeau [sic], et al.,
C.A. No. 14577
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<PAGE>
Crandon Capital Partners v. Jacques P.
Blondeau, et al.,
C.A. No. 14579
Daniel Bruno v. Scor U.S. Corporation,
et al., C.A. No. 14582
Jay Baxt v. Jacques P. Blandeau [sic],
et al.,
C.A. No. 14585
Kalter and Kaplan Profit Sharing Plan--
Keogh F/B/O Ivan Kalter v. Jacques
P. Blondeau, et al.,
C.A. No. 14589.
The complaints in the Underlying Actions alleged, among other things, (i)
Parent's proposal was the product of unfair dealing inasmuch as defendants
possess non-public information concerning the financial condition and prospects
of the Company, (ii) Parent's proposed offer price of $14.00 cash per Share to
be paid to the putative class members was inadequate and unfair, and (iii) the
conduct of defendants constituted self-dealing in violation of their fiduciary
duties to the putative class members.
On October 25, 1995, a motion was served in each of the Underlying Actions,
seeking an order (1) consolidating the Underlying Actions for all purposes, (2)
designating the complaint in action No. 14577 as the complaint in the
Consolidated Action, and (3) designating the law firms of Bernstein Litowitz
Berger & Grossmann; Wechsler Harwood Halebian & Feffer LLP; and Wolf Popper Ross
Wolf & Jones, L.L.P. as plaintiffs' co-lead counsel and the law firms of
Chimicles, Jacobsen & Tikellis and Rosenthal, Monhait, Gross & Goddess, P.A. as
plaintiffs' Delaware co-liaison counsel.
Copies of the complaints filed in the Underlying Actions are filed as
exhibits to the Schedule 14D-1 and the Schedule 13E-3, may be obtained in the
manner described in "THE OFFER -- 8. Certain Information Concerning the Company"
and are incorporated herein by reference.
The foregoing description of the action is qualified in its entirety by
reference to such exhibit.
On November 1, 1995, representatives of counsel to the plaintiffs in the
shareholder actions agreed with representatives of Parent's United States legal
counsel that they were prepared to negotiate a setlement if a price per Share of
$15.25 were offered to the Company's stockholders.
An agreement in principle has been reached with plaintiffs' counsel to
settle the litigation based on Purchaser's increase of the Offer Price to
$15.25. This settlement is subject to approval of the Court and confirmatory
discovery.
The defendants have denied, and continue to deny, that they have committed
or have threatened to commit any violation of law or breaches of duty to the
plaintiffs or the putative class. The defendants have agreed to the proposed
settlement because such settlement would eliminate the burden and expense of
further litigation and would facilitate the consummation of a transaction that
they believe to be in the best interests of the Company and its stockholders.
16. FEES AND EXPENSES.
Goldman, Sachs & Co. are acting as Dealer Managers in connection with the
Offer and Goldman Sachs has provided certain financial advisory services to
Parent in connection with the Offer and the Merger. Neither Parent nor the
Purchaser is paying the Dealer Managers a solicitation fee for acting as Dealer
Managers.
58
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Pursuant to a letter agreement dated September 22, 1995 (the "Engagement
Letter"), Parent engaged Goldman Sachs to act as its financial advisor in
connection with the possible acquisition of the outstanding Shares not currently
beneficially owned directly or indirectly by Parent. Pursuant to the terms of
the Engagement Letter, Parent has agreed to pay Goldman Sachs a fee of $540,000
upon execution of the Engagement Letter and, if at least 90% of the outstanding
Shares, including the Shares currently beneficially owned directly or indirectly
by Parent, are acquired by Parent in one or more transactions, a transaction fee
of $900,000, less any fees already paid pursuant to the Engagement Letter.
Parent has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket
expenses, including attorney's fees and disbursements, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
The Purchaser and Parent have agreed to reimburse the Dealer Managers for
their reasonable out-of-pocket expenses, including the fees and expenses of its
counsel, for acting as Dealer Managers, and have agreed to indemnify the Dealer
Managers against certain liabilities and expenses in connection with acting as
Dealer Managers, including liabilities under the federal securities laws.
Goldman Sachs and the Dealer Managers, as part of their investment banking
businesses, are continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes. In selecting Goldman Sachs as its financial advisor
(including Goldman, Sachs & Co. as Dealer Managers), Parent considered primarily
the reputation of Goldman Sachs and its affiliates as an internationally
recognized investment banking firm that has substantial experience in
transactions similar to the Merger.
In addition to acting as financial advisor to Parent in connection with the
Offer and the Merger, Goldman Sachs and the Dealer Managers have provided
certain investment banking services to the Company and Parent from time to time,
including the Dealer Managers having acted as financial advisor to the Company
in connection with its acquisition of Rockleigh in 1990, acting as dealer in the
Company's commercial paper program since 1991 and having acted as lead manager
in the placement of the Debentures in 1993, and may provide investment banking
services to the Company, the Purchaser and/or Parent in the future.
Goldman Sachs provides a full range of financial, advisory and brokerage
services and in the course of its normal trading activities may from time to
time effect transactions and hold positions in the securities or options on
securities of the Company and/or Parent for its own account and for the account
of customers. As of the date hereof, Goldman Sachs holds for its own account
$90,000 in principal amount of the Debentures.
The Purchaser has also retained D.F. King & Co., Inc. to act as the
Information Agent in connection with the Offer and the Merger. The Information
Agent may contact holders of Shares by mail, telephone, telex, telegraph and
personal interviews and may request brokers, dealers and other nominee
stockholders to forward materials relating to the Offer and the Merger to
beneficial owners of Shares. The Information Agent will receive $7,000 for such
services, plus, in the event the Purchaser extends the term of the Offer, an
additional fee of $1,000 for each such extension, plus reimbursement of
out-of-pocket expenses and the Purchaser will indemnify the Information Agent
against certain liabilities and expenses in connection with the Offer and the
Merger, including liabilities under the federal securities laws.
The Purchaser will pay the Depositary reasonable and customary compensation
for its services in connection with the Offer and the Merger, plus reimbursement
for out-of-pocket expenses, and will indemnify the Depositary against certain
liabilities and expenses in connection therewith, including liabilities under
the federal securities laws. Brokers, dealers, commercial
59
<PAGE>
banks and trust companies will be reimbursed by the Purchaser for customary
mailing and handling expenses incurred by them in forwarding material to their
customers.
In addition to the fees set forth above, the Purchaser has paid, or will be
responsible for paying, the following fees and expenses: filing fees $14,000;
legal fees and expenses $250,000; and printing and miscellaneous $175,000.
17. MISCELLANEOUS.
The Offer is made solely by the Offer to Purchase and the Letter of
Transmittal and any amendments or supplements thereto. The Purchaser is not
aware of any state where the making of the Offer is prohibited by the
administrative or judicial action pursuant to any valid state statute. If the
Purchaser becomes aware of any valid state statute prohibiting the making of the
Offer or the acceptance of the Shares pursuant thereto, the Purchaser will make
a good faith effort to comply with such statute. If, after such good faith
effort, the Purchaser cannot comply with such statute, the Offer will not be
made to (nor will tenders be accepted from or on behalf of) the holders of
Shares in such state.
To the extent the Purchaser becomes aware of any law that would limit the
class of offerees in the Offer, the Purchaser will amend the Offer and,
depending on the timing of such amendment, if any, will extend the Offer to
provide adequate dissemination of such information to holders of Shares prior to
the expiration of the Offer.
In those jurisdictions where the securities, blue sky or other laws require
the Offer to be made by a licensed broker or dealer, the Offer shall be deemed
to be made on behalf of the Purchaser by the Dealer Managers or one or more
registered brokers or dealers licensed under the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Purchaser not contained in this Offer to
Purchase or in the Letter of Transmittal and, if given or made, such information
or representation must not be relied upon as having been authorized.
The Purchaser has filed with the Commission a Schedule 14D-1, together with
exhibits, pursuant to Rule 14d-3 under the Exchange Act and a Schedule 13E-3,
together with exhibits, pursuant to Rule 13e-3 under the Exchange Act,
furnishing certain additional information with respect to the Offer. Such
Schedules and any amendments thereto, including exhibits, may be inspected and
copies may be obtained from the Commission in the manner set forth in "THE
OFFER -- 8. Certain Information Concerning the Company" (except that they will
not be available at the regional offices of the Commission).
SCOR Merger Sub Corporation
November 9, 1995.
60
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years of each director and executive officer of Parent and the
Purchaser. Each such person is a citizen of France, unless otherwise indicated.
Unless otherwise indicated, the address of each such person is Immeuble SCOR, 1,
Avenue du President Wilson, Puteaux, 92074 Paris La Defense Cedex, France.
PARENT
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION AND
(IF REQUIRED) FIVE YEAR EMPLOYMENT HISTORY
------------------------- ----------------------------
<S> <C>
1. DIRECTORS OF PARENT:
Jacques Blondeau............................. CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Blondeau was President and Chief
Operating Officer of Parent from 1991 through
1992. In January 1993, Mr. Blondeau became
General Manager of Parent and in September
1994, he became Chairman and Chief Executive
Officer of Parent.
Didier Pfeiffer.............................. VICE CHAIRMAN; VICE CHAIRMAN AND
9, Place Vendome PRESIDENT, UNION DES ASSURANCES DE PARIS
75001 Paris, France Mr. Pfeiffer has been Vice Chairman and
President of Union des Assurances de Paris
since 1984.
Jean-Jacques Bonnaud......................... DIRECTOR; CHAIRMAN AND CHIEF EXECUTIVE
2, rue Pillet-Will OFFICER, GROUPE DES ASSURANCES
75448 Paris Cedex 09, France NATIONALES
From 1991 to June 1994 Mr. Bonnaud was
President of Groupe des Assurances Nationales
and since July 1994 he has been Chairman and
Chief Executive Officer of Groupe des
Assurances Nationales.
Regis Bouche................................. DIRECTOR; CHAIRMAN, CAISSE CENTRALE DES
8-10 rue d'Astorg MUTUELLES AGRICOLE
75008 Paris, France From 1991 to September 12, 1994, Mr. Bouche
was Vice Chairman of Caisse Centrale des
Mutuelles Agricole and on September 12, 1994
he became Chairman of Centrale des Mutuelles
Agricole.
Louis Chodron de Courcel..................... DIRECTOR; SENIOR VICE PRESIDENT,
1-3 rue Laffitte BANQUE NATIONALE DE PARIS
75009 Paris, France From 1991 to 1993 Mr. Chodron de Courcel was
Directeur Central of Banque Nationale de
Paris and since then has been Senior Vice
President of Banque Nationale de Paris.
Pierre Florin................................ DIRECTOR; SENIOR VICE PRESIDENT,
La Grande Arche-Cedex 41 AXA FRANCE
92044 Paris La Defense, France From 1990 to 1991 Mr. Florin was a Manager at
AXA France. From 1992 to 1994 Mr. Florin was
Senior Vice President of Union Europe. Mr.
Florin became Senior Vice President of AXA
France at the beginning of 1995.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION AND
(IF REQUIRED) FIVE YEAR EMPLOYMENT HISTORY
------------------------- ----------------------------
<S> <C>
Thierry Fouquet.............................. DIRECTOR
Mr. Fouquet has occupied the position of
Executive with Parent since 1990.
Pierre Labadie............................... DIRECTOR; CHAIRMAN OF THE MANAGEMENT
Tour Voltaire-Cedex 58 BOARD, UAP INTERNATIONAL
1 Place des Degres From 1991 to September 1993 Mr. Labadie was a
92059 Paris La Defense, France Member of the Management Board of UAP
International and since October 1993 he has
been Chairman of the Management Board of UAP
International.
Jean Louis Meunier........................... DIRECTOR; CHAIRMAN OF THE MANAGEMENT
Tour Assur-Cedex 14 BOARDS OF UNION DES ASSURANCES DE PARIS
92038 Paris La Defense, France AND UAP INCENDIE ACCIDENTS ET UAP VIE
From 1991 to 1994 Mr. Meunier General Manager
in charge of life and non-life insurance at
Union dex Assurances de Paris and UAP
Incendie Accidents et UAP Vie. Since May 1994
Mr. Meunier has been Chairman of the
Management Boards of Union des Assurances de
Paris and UAP Incendie Accidents et UAP Vie.
Roger Papaz.................................. DIRECTOR; DIRECTOR, ASSURANCES GENERALES
87, rue de Richelieu DE FRANCE
75002 Paris, France Mr. Papaz has been a Director and Honorary
General Manager of Assurances Generales de
France since 1991.
Patrick Peugeot.............................. DIRECTOR; HONORARY CHAIRMAN AND
22, Boulevard Malesherbes PRESIDENT LA MONDIALE
75008 Paris, France From 1991 to August Mr. Peugeot was Chairman
and Chief Executive Officer of Parent. In
September 1994 Mr. Peugeot became Vice
Chairman and President of La Mondiale.
Luc Rouge.................................... DIRECTOR
Mr. Rouge has occupied the position of
Executive with SCOR Reassurances since 1973.
Alexis Ruset................................. DIRECTOR; CHAIRMAN AND CHIEF EXECUTIVE
31, rue de Courcelles OFFICER, CAISSE CENTRALE DE REASSURANCE
75008 Paris, France Mr. Ruset has been Chairman and Chief
Executive Officer of Caisse Centrale de
Reassurance since 1991.
Jacques Vandier.............................. DIRECTOR; CHAIRMAN, M.A.C.I.F.
2-4 rue de Pied de Fond Mr. Vandier has been Chairman of M.A.C.I.F.
79037 Niort Cedex, France since 1991.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION AND
(IF REQUIRED) FIVE YEAR EMPLOYMENT HISTORY
------------------------- ----------------------------
<S> <C>
2. EXECUTIVE OFFICERS OF PARENT:
Serge Osouf.................................. GROUP GENERAL MANAGER
From 1991 to March 1993, Mr. Osouf was
General Manager of Parent. In April 1993 Mr.
Osouf became Parent's Managing Director and
President-Reinsurance Operations and since
September 1994 he has been Group General
Manager of Parent.
Francois Reach............................... DEPUTY GROUP GENERAL MANAGER;
CHAIRMAN AND CHIEF EXECUTIVE OFFICER,
REAFIN
From 1991 to September 1994, Mr. Reach was
President of REAFIN and in October 1994 he
became Chairman and Chief Executive Officer
of REAFIN. Since September 1994, Mr. Reach
has also occupied the position of Deputy
Group General Manager with Parent.
Pierre-Denis Champvillard.................... DEPUTY GROUP GENERAL MANAGER;
GENERAL MANAGER, SCOR REASSURANCE
From 1991 to February 1993 Mr. Champvillard
was General Manager of SCOR Vie. In March
1993 Mr. Champvillard became General Manager
of SCOR Reassurance and since September 1994
he has also occupied the position of Deputy
Group General Manager with Parent.
Michel Laparra............................... GROUP GENERAL CONTROLLER
From 1991 to 1992 Mr. Laparra was Vice
Chairman of Abeille Reassurances and from
1992 to August 1995 he was Chairman of
Abeille Reassurances. In September 1995 Mr.
Laparra became Group General Controller of
Parent.
DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND
NAME FIVE YEAR EMPLOYMENT HISTORY
---- ----------------------------
<S> <C>
Jacques Blondeau............................. PRESIDENT AND DIRECTOR
Mr. Blondeau was President and Chief
Operating Officer of Parent from 1991 through
1992. In January 1993, Mr. Blondeau became
General Manager of Parent and in September
1994, he became Chairman and Chief Executive
Officer of Parent.
Serge Osouf.................................. VICE PRESIDENT--TREASURER AND DIRECTOR
From 1991 to March 1993, Mr. Osouf was
General Manager of Parent. In April 1993 Mr.
Osouf became Parent's Managing Director and
President-Reinsurance Operations and since
September 1994 he has been Group General
Manager of Parent.
Jean Alisse.................................. VICE PRESIDENT--SECRETARY AND DIRECTOR
Mr. Alisse has been Vice President and
General Counsel of Parent since 1991.
</TABLE>
I-3
<PAGE>
SCHEDULE II
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
UNDER DELAWARE LAW
In connection with the Merger, a stockholder may have the right to dissent
from the Merger and, in lieu of receiving $15.25 net in cash per Share, to seek
the "fair value" of all of such stockholder's Shares, as determined in
accordance with the applicable provisions of the Delaware General Corporation
Law ("DGCL"). In order to perfect such appraisal rights, a stock is required to
follow the procedures set forth in Section 262 of the DGCL, as summarized below.
The following discussion of the provisions of Section 262 is not intended to be
a complete statement of its provisions and is qualified in its entirety by
reference to the full text of that section. THE PROCEDURES SET FORTH IN SECTION
262 SHOULD BE STRICTLY COMPLIED WITH. FAILURE TO FOLLOW ANY SUCH PROCEDURES MAY
RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262.
Any stockholder of the Company may elect to dissent from the Merger with
respect to all of the Shares registered in such stockholder's name. If the
Merger is consummated pursuant to a stockholder vote, a stockholder who votes in
favor of the Merger, whether in person or by proxy, shall waive such
stockholder's appraisal rights. However, a stockholder is not required to vote
against the Merger in order to qualify to exercise appraisal rights.
If the Merger is to be consummated pursuant to a stockholder vote, the
Company, not less than 20 days prior to the meeting of stockholders, shall
notify each of its stockholders who was such on the record date for such meeting
that appraisal rights are available. Any stockholder electing to exercise the
appraisal rights must deliver to the Company, before the taking of the vote on
the proposed Merger, a written demand for appraisal of such stockholder's
Shares. Such demand must reasonably inform the Company of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such stockholder's Shares. Within ten (10) days after the effective date of such
Merger, the surviving or resulting corporation must notify each stockholder of
each constituent corporation who has complied with Section 262(d)(1) and has not
voted in favor of or consented to the Merger of the date that the Merger has
become effective.
FAILURE TO MAKE SUCH WRITTEN DEMAND SHALL CONSTITUTE A WAIVER OF THE
STOCKHOLDER'S APPRAISAL RIGHTS.
If the Merger is to be consummated pursuant to Section 228 or 253 of the
DGCL, the surviving or resulting corporation, either before the effective date
of such Merger or within ten (10) days thereafter, shall notify each of the
stockholders entitled to appraisal rights of the effective date of such Merger
and that appraisal rights are available for any or all of the Shares of the
Company. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder, at such stockholder's address
as it appears on the records of the Company. Any stockholder entitled to
appraisal rights may, within twenty (20) days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of such stockholder's Shares. Such demand must reasonably inform the
Company of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such stockholder's Shares.
FAILURE TO MAKE SUCH WRITTEN DEMAND SHALL CONSTITUTE A WAIVER OF THE
STOCKHOLDER'S APPRAISAL RIGHTS.
The written demand for appraisal must be made by or for the holder of record
of Shares registered in such holder's name. Accordingly, such demand should be
executed by or for such
II-1
<PAGE>
stockholder of record, fully and correctly, as such stockholder's name appears
on such stockholder's stock certificates. If the stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, execution of
the demand should be made in such capacity and if the stock is owned of record
by more than one person as in a joint tenancy or tenancy in common, such demand
should be executed by or for all joint owners. An authorized agent, including
one or two or more joint owners, may execute the demand for appraisal for a
stockholder of record. However, the agent must identify the record owner or
owners and expressly disclose the fact that in executing the demand he is acting
as agent for the record owner.
Within 120 days after the day of the effective date of the Merger, any
stockholder who has satisfied the foregoing conditions and who is otherwise
entitled to appraisal rights under Section 262, may file a petition in the
Delaware court of Chancery demanding a determination of the value of the Shares
held by all stockholders entitled to appraisal rights. If no such petition is
filed, appraisal rights will be lost for all stockholders who had previously
demanded appraisal of their shares. Stockholders seeking to exercise appraisal
rights should not assume that the surviving or resulting corporation will file a
petition with respect to the appraisal of the value of their shares or that the
surviving or resulting corporation will initiate any negotiations with respect
to the "fair value" of such shares. ACCORDINGLY, STOCKHOLDERS WHO WISH TO
EXERCISE THEIR APPRAISAL RIGHTS SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL
STEPS NECESSARY TO PERFECT THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN
SECTION 262.
Within 120 days after the day of the effective date of the merger, any
stockholder who has complied with the provisions of Section 262 is entitled,
upon written request, to receive from the surviving or resulting corporation a
statement setting forth the aggregate number of Shares not voted in favor of the
Merger and with respect to which demands for appraisal have been received by the
surviving or resulting corporation and the aggregate number of holders of such
Shares. Such statement must be mailed to the stockholder within 10 days after
the written request therefor is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under Section 262, whichever is later.
If a stockholder files the petition for appraisal in a timely manner, the
surviving or resulting corporation must file, within 20 days of service of the
stockholders' petition, a verified list of the names and addresses of all
stockholders who have demanded appraisal for their shares and with whom the
surviving or resulting corporation has not reached an agreement regarding value.
If the surviving or resulting corporation files a petition, it must be
accompanied by a similar list. If so ordered by the Court, the Register of
Chancery is required to provide notice by registered or certified mail of the
hearing to stockholders shown on the list and to provide notice by publication.
If a petition for an appraisal is timely filed, at the hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the value of the Shares owned by
such stockholders, determining its "fair value" exclusive of any element of
value arising from the accomplishment or expectation of the Merger. The Court
will direct payment of the fair value of such shares together with a fair rate
of interest, if any, on such fair value to stockholders entitled thereto upon
surrender to the surviving or resulting corporation of share certificates. Upon
application of a stockholder, the Court may, in its discretion, order that all
or a portion of the expenses incurred by any stockholder in connection with an
appraisal proceeding, including without limitation, reasonable attorneys' fees
and the fees and expenses of experts, be charged pro rata against the value of
all the shares entitled to appraisal.
Although the Purchaser believes that the price per Share set out in the
offer is fair, it cannot make any representation as to the outcome of the
appraisal of fair value as determined by the Delaware Court of Chancery, and
stockholders should recognize that such an appraisal could result in a
determination of a lower, higher or equivalent value.
II-2
<PAGE>
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective date of the Merger, be entitled to
vote such stockholder's Shares for any purpose nor be entitled to the payment of
any dividends or other distributions on such stockholder's Shares (other than
those payable to stockholders of record as of a date prior to the effective date
of the Merger).
If no petition for an appraisal is filed within the time provided, or if a
stockholder delivers to the surviving or resulting corporation a written
withdrawal of such stockholder's demand for an appraisal and an acceptance of
the Merger, either within 60 days or after the effective date of the Merger or,
with the written approval of the surviving or resulting corporation, thereafter,
then the right of such stockholder to an appraisal will cease and such
stockholder shall be entitled to receive in cash, without interest, the amount
to which he would have been entitled had he not demanded appraisal of such
stockholder's Shares. No appraisal proceeding in the Court of Chancery will be
dismissed as to any stockholder without the approval of the Court, which
approval may be conditioned on such terms as the Court deems just.
Any notice, objection, demand or other written communication required to be
given to the Company by a dissenting stockholder should be delivered to the
Secretary of such respective corporation at the address set forth in the
Schedule 13e-3 or should be delivered as otherwise permitted by law. Although
not specifically required, it is recommended that such written communications be
sent by registered or certified mail, return receipt requested.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY
STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT SUCH
STOCKHOLDER'S LEGAL ADVISOR.
II-3
<PAGE>
[ Dillon, Read & Co. Inc. Letterhead ]
November 2, 1995
SCOR U.S. Corporation
Two World Trade Center, 23rd Floor
New York, New York 10048-0178
Attention: Special Committee of the Board of Directors
Gentlemen:
You have advised us that SCOR S.A. ("SCOR S.A.") proposes to acquire all of the
publicly held outstanding common stock, par value $0.30 per share, (the
"Shares") of SCOR U.S. Corporation (the "Company") not currently held by SCOR
S.A. from the holders thereof (the "Selling Shareholders") at a purchase price
of $15.25 per share (the "Transaction"). You have requested our opinion as to
whether the consideration to be paid pursuant to the Transaction is fair to the
Selling Shareholders, from a financial point of view, as of the date hereof.
In arriving at our opinion, we have, among other things: (i) reviewed certain
publicly available business and financial information relating to the Company;
(ii) reviewed the reported price and trading activity for the Shares of the
Company; (iii) reviewed certain internal financial information and other data
provided to us by the Company relating to the business and prospects of the
Company, including financial projections prepared by the management of the
Company; (iv) conducted discussions with members of the senior management of
the Company; (v) reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which we considered relevant;
(vi) reviewed publicly available financial and securities market data pertaining
to certain publicly-held companies in lines of business generally comparable
to those of the Company; and (vii) conducted such other financial studies,
analyses and investigations, and considered such other information as we deemed
necessary and appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
and have relied upon it being complete and accurate in all material respects.
We have not been requested to and have not made an independent evaluation
or appraisal of any assets or
<PAGE>
liabilities (contingent or otherwise) of the Company or any of its subsidiaries,
nor have we been furnished with any such evaluation or appraisal. Further, we
have assumed, with your consent, that all of the information, including the
projections provided to us by the Company's management, was prepared in good
faith and was reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company, and was based upon the historical
performance and certain estimates and assumptions which were reasonable at the
time made. In addition we have not been asked to, and do not express any opinion
as to the after-tax consequences of the Transaction to any Selling Shareholder.
In addition, our opinion is based on economic, monetary and market conditions
existing on the date hereof.
In rendering this opinion, we are not rendering any opinion as to the value of
the Company or making any recommendation to the Selling Shareholders with
respect to the advisability of voting in favor of the Transaction.
Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwriting, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations of estate, corporate and other purposes. Dillon Read
has received a fee for rendering this opinion.
This opinion is being rendered solely to the Special Committee of the Board of
Directors of the Company for its use in evaluating the Transaction and is not
for the benefit of, nor being rendered to, the Selling Shareholders or any
other person.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received in the Transaction by the Selling Shareholders is
fair to the Selling Shareholders, from a financial point of view, as of the date
hereof.
Very truly yours,
DILLON, READ & CO. INC.
/s/William P. Powell
By: William P. Powell
Managing Director
III-2
<PAGE>
APPENDIX A
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 acquisition costs.
New York, New York
February 2, 1995
A-1
<PAGE>
<TABLE><CAPTION>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands)
Year Ended December 31,
1994 1993
<S> <C> <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
========= =========
</TABLE>
See notes to consolidated financial statements.
A-2
<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
========= =========
</TABLE>
See notes to consolidated financial statements.
A-3
<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> <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
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
A-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> <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>
A-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>
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
======= ======
</TABLE>
See notes to consolidated financial statements.
A-6
<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
------- ------- --------
</TABLE>
See notes to consolidated financial statements.
A-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>
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
======= ======= =======
</TABLE>
A-8
See notes to consolidated financial statements.
<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)
------- ------- -------
</TABLE>
See notes to consolidated financial statements.
A-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 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
======== ======= =======
</TABLE>
A-10
See notes to consolidated financial statements.
<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.
A-11
<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,
A-12
<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.
A-13
<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
A-14
<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.
A-15
<PAGE>
The effects of ceded reinsurance on the Statement of Operations
for the years ended December 31, 1994, 1993 and 1992 are as follows:
<TABLE><CAPTION>
Loss
and Loss
Premiums Premiums Expenses
Written Earned Incurred
(in thousands)
December 31, 1994
<S> <C> <C> <C>
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
======= ======= =======
<CAPTION>
December 31, 1993
<S> <C> <C> <C>
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
======= ======= =======
<CAPTION>
December 31, 1992
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
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
A-16
<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
A-17
<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:
<TABLE><CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
A-18
<PAGE>
Net realized investment gains (losses) of the Company were
derived from the following sources:
<TABLE><CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
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
====== ======= =======
</TABLE>
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:
<TABLE><CAPTION>
Year Ended December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
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)
======= ======= ========
</TABLE>
(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.
A-19
<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:
A-20
<PAGE>
Held to Maturity
<TABLE><CAPTION>
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
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
======= ======= ======= ========
</TABLE>
Available for Sale
<TABLE><CAPTION>
December 31, 1994
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
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
======= ======= ======= ========
</TABLE>
A-21
<PAGE>
Held to Maturity
<TABLE><CAPTION>
December 31, 1993
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
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
======== ======= ============ ========
</TABLE>
Available for Sale
<TABLE><CAPTION>
December 31, 1993
Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
(in thousands)
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
A-22
<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):
<TABLE><CAPTION>
Available for Sale Held to Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
(in thousands)
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
(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
A-23
<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
A-24
<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:
<TABLE><CAPTION>
December 31,
1994 1993
Carrying Fair Carrying Fair
Amount Value Amount Value
(in thousands)
<S> <C> <C> <C> <C>
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)
</TABLE>
A-25
<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
======== ====== ====
A-26
<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.
A-27
<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:
<TABLE><CAPTION>
December 31,
1994 1993 1992
(in thousands)
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
A-28
<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
======== ========
A-29
<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
A-30
<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
======= =======
A-31
<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.
A-32
<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.
A-33
<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
A-34
<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
A-35
<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)
======= ====== =======
A-36
<PAGE>
(17) QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
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
</TABLE>
A-37
<PAGE>
<TABLE>
<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
</TABLE>
(a) High, low and closing sales price per share per NYSE composite tape.
A-38
<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.
A-39
<PAGE>
SCOR U.S. CORPORATION
FINANCIAL HIGHLIGHTS (UNAUDITED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------------------
1995 1994 1995 1994
------- ------- ------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS
Gross premiums written..................... $69,001 $75,325 $ 281,988 $ 239,266
Net premiums written....................... 54,574 55,791 181,599 184,593
Net premiums earned........................ 53,536 55,542 182,340 175,210
Net investment income...................... 10,579 10,157 31,751 30,363
Revenues................................... 64,336 66,022 214,804 204,632
Income (loss) from operations excluding
net realized investment gains............ $ 4,748 $ 2,237 $ 13,038 $ (12,056)
After-tax realized investment gains 78 210 463 688
Extraordinary gain on redemption of
debentures, net of tax -0- -0- 552 -0-
------- ------- ------------- ------------
NET INCOME (LOSS) $ 4,826 $ 2,447 $ 14,053 $ (11,368)
------- ------- ------------- ------------
------- ------- ------------- ------------
PER SHARE DATA--PRIMARY
Average common shares outstanding.......... 18,372 18,212 18,255 18,146
Income (loss) from operations excluding
net realized investment gains............ $ 0.26 $ 0.12 $ 0.71 $ (0.67)
After-tax realized investment gains........ -0- 0.01 0.03 0.04
Extraordinary gain on redemption of
debentures, net of tax................... -0- -0- 0.03 -0-
------- ------- ------------- ------------
NET INCOME (LOSS).......................... $ 0.25 $ 0.13 $ 0.77 $ (0.63)
------- ------- ------------- ------------
------- ------- ------------- ------------
GAAP RATIOS
Loss ratio 68.1% 70.3% 66.9% 88.1%
Expense ratio.............................. 35.4% 40.6% 37.7% 39.7%
Combined ratio............................. 103.5% 110.9% 104.6% 127.8%
STATUTORY RATIOS
Loss ratio................................. 68.2% 70.8% 67.2% 87.3%
Expense ratio.............................. 32.5% 36.4% 37.0% 35.0%
Combined ratio............................. 100.7% 107.2% 104.2% 122.8%
Net premiums written to surplus (1)........ .85:1 .93:1 .94:1 1.05:1
Loss reserves to capital and surplus (2)... 1.6:1 1.6:1 1.6:1 1.6:1
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
FINANCIAL POSITION
Cash and investments....................... $ 723,360 $ 677,556
Total assets............................... 1,181,172 1,143,715
Combined statutory capital and surplus
of operating subsidiaries (3)............ 256,823 243,416
GAAP stockholders' equity.................. 277,386 239,395
Book value per share....................... $ 15.27 $ 13.18
</TABLE>
- ------------
(1) Annualized net premiums written for the period divided by ending capital and
surplus.
(2) Statutory basis.
(3) Estimated at September 30, 1995.
B-1
<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES
Premiums written, gross......................... $ 69,001 $ 75,325 $231,988 $239,266
Premiums ceded.................................. (14,427) (19,534) (50,389) (54,573)
-------- -------- -------- --------
Premiums written, net........................... 54,574 55,791 181,599 184,693
Charge in unearned premiums..................... (1,038) (249) 741 (11,483)
-------- -------- -------- --------
Net premiums earned............................. 53,536 55,542 182,340 173,210
Net investment income........................... 10,679 10,157 31,751 30,363
Net realized investment gains................... 121 323 713 1,059
-------- -------- -------- --------
64,336 66,022 214,804 204,632
-------- -------- -------- --------
LOSSES AND EXPENSES
Losses and loss expenses, gross................. 45,276 44,787 172,151 213,468
Reinsurance recoverable......................... (8,824) (5,727) (50,199) (60,910)
-------- -------- -------- --------
Losses and loss expenses, net................... 36,452 39,060 121,952 152,558
Commissions, net................................ 10,345 14,144 46,896 46,019
Other underwriting and administration expenses.. 7,616 6,799 20,783 19,586
Other expenses.................................. 1,016 1,590 1,040 3,065
Interest expense................................ 2,596 2,454 6,906 6,982
-------- -------- -------- --------
58,025 64,047 197,577 228,210
-------- -------- -------- --------
Income (loss) from operations before Federal
income taxes (benefit).......................... 6,311 1,975 17,227 (23,578)
Federal income taxes (benefit).................. 1,485 (472) 3,726 (12,210)
-------- -------- -------- --------
Income (loss) from operations................... 4,826 2,447 13,501 (11,368)
Extraordinary gain on redemption of debentures,
net of tax.................................... -- -- 552 --
-------- -------- -------- --------
Net income (loss)............................... $ 4,826 $ 2,447 $ 14,053 $(11,368)
-------- -------- -------- --------
-------- -------- -------- --------
PER SHARE DATA PRIMARY
Average common and common equivalent shares
outstanding................................... 18,372 18,212 18,255 18,146
-------- -------- -------- --------
-------- -------- -------- --------
Income (loss) from operations................... $ 0.26 $ 0.13 $ 0.74 $ (0.63)
Extraordinary item.............................. -- -- 0.03 --
-------- -------- -------- --------
Net income (loss)............................... $ 0.26 $ 0.13 $ 0.77 $ (0.63)
-------- -------- -------- --------
-------- -------- -------- --------
FULLY DILUTED
Average common and common equivalent shares
outstanding................................... 21,513 18,212 21,317 18,146
-------- -------- -------- --------
Income (loss) from operations................... $ 0.26 $ 0.13 $ 0.73 $ (0.63)
Extraordinary item.............................. -- -- 0.03 --
-------- -------- -------- --------
Net income (loss)............................... $ 0.26 $ 0.13 $ 0.76 $ (0.63)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
B-2
<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities:
Available for sale, at fair value (amortized cost:
$556,300 and $596,791)................................... $ 563,515 $ 563,656
Hold to maturity, at amortized cost (net value: $22,609
and $22,274)............................................. 22,155 22,871
Equity securities, at fair value (cost: $108 and $1,897)...... 204 1,738
Short-term investments, at cost............................... 122,794 83,303
Other long-term investments................................... 1,374 1,225
------------- ------------
710,042 672,793
Cash............................................................ 13,318 4,763
Accrued investment income....................................... 9,608 10,339
Premiums receivable............................................. 80,996 72,018
Reinsurance recoverable on paid losses.......................... 19,939 23,755
Reinsurance recoverable on unpaid losses........................ 226,544 222,672
Prepaid reinsurance premiums.................................... 9,921 19,307
Deferred policy acquisition costs............................... 22,471 22,844
Deferred Federal income tax benefits............................ 22,542 34,818
Investment in affiliate......................................... 12,360 11,232
Other assets.................................................... 53,431 49,174
------------- ------------
$ 1,181,172 $1,143,715
------------- ------------
------------- ------------
LIABILITIES
Losses and loss expenses........................................ $ 618,738 $ 604,787
Unearned premiums............................................... 99,955 110,082
Funds held under reinsurance treaties........................... 18,571 20,758
Reinsurance balances payable.................................... 27,000 43,685
Convertible subordinated debentures............................. 75,950 82,350
Notes payable................................................... 25,000 20,000
Commercial paper................................................ 20,639 11,310
Other liabilities............................................... 17,933 11,348
------------- ------------
903,786 904,320
------------- ------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000 shares authorized;
no shares issued.............................................. -- --
Common stock, $.30 par value, 50,000 shares authorized;
18,364 and 18,356 shares issued............................... 5,509 5,507
Additional paid-in capital...................................... 114,669 114,556
Unrealized appreciation (depreciation) of investments, net of
deferred tax effect........................................... 4,752 (21,640)
Foreign currency translation adjustment......................... (252) (414)
Retained earnings............................................... 154,482 143,153
Treasury stock, at cost (193 and 192 shares).................... (1,774) (1,767)
------------- ------------
277,386 239,395
------------- ------------
$ 1,181,172 $1,143,715
------------- ------------
------------- ------------
</TABLE>
B-3
<PAGE>
SCOR U.S. CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ----------------------
1995 1994 1995 1994
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................. $ 4,826 $ 2,447 $ 14,053 $ (11,368)
Adjustments to reconcile net income (loss) to
net cash provided by (owed to) operating
activities:
Extraordinary gain on redemption of
debentures................................ -0- -0- (522) -0-
Realized investment gains................... (121) (321) (713) (1,059)
Changes in assets and liabilities:
Accrued investment gains.................. 538 (154) 731 (260)
Premium balances, net..................... 6,869 29,185 (25,665) 9,019
Prepaid issuance premiums................. 1,218 797 9,336 4,774
Reinsurance recoverable on paid losses.... (8,118) (10,827) 8,816 (29,881)
Deferred policy acquisition costs......... 257 (36) 379 (1,905)
Losses and loss expenses.................. (14,577) (15,879) 13,051 44,741
Unearned premiums......................... (179) (348) (10,127) 6,709
Reinsurance recoverable on unpaid losses.. 10,516 7,052 (3,872) 4,827
Funds held under reinsurance treaties..... 714 (321) (2,187) (16,719)
Federal income taxes...................... (4,715) (472) (3,475) (14,010)
Other..................................... 7,477 (3,967) 9,270 (3,766)
-------- -------- --------- ---------
Net cash provided by (used in) operating
activities.................................. 4,705 6,961 2,999 (2,496)
-------- -------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales, maturities or redemptions of fixed
maturities.................................. 44,922 54,168 140,362 192,056
Sales of equity securities.................... (38) 207 1,157 4,723
Net sales (purchases) of short-term
investments................................. (2,070) 1,792 (35,105) 38,526
Investment in fixed maturities................ (42,971) (66,279) (102,762) (225,947)
Investments in equity securities.............. -0- (1,685) -0- (3,500)
Other......................................... (4,935) (381) (5,430) (3,361)
-------- -------- --------- ---------
Net cash provided by (used in) investing
activities.................................. (3,112) (12,178) (1,778) 2,997
-------- -------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES..........
Dividends paid................................ (906) (1,638) (2,724) (4,908)
Redemption of convertible subordinated
debentures.................................. -0- -0- (8,907) -0-
Proceeds of notes payable..................... -0- -0- 5,000 -0-
Proceeds from issuance of commercial paper--
net......................................... (461) 3 3,473 30
Proceeds from stock options exercised......... 12 565 19 610
Other......................................... 3,570 1,372 5,479 1,747
-------- -------- --------- ---------
-------- -------- --------- ---------
Net cash provided by (used in) financing
activities.................................. 2,213 302 7,340 (2,516)
-------- -------- --------- ---------
Net increase (decrease) in cash............... 1,806 (4,915) 8,555 (8,017)
Cash at beginning of period................... 11,512 13,994 4,763 17,096
-------- -------- --------- ---------
Cash at end of period......................... $ 13,318 $ 9,079 $ 13,318 $ 9,079
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
B-4
<PAGE>
Facsimile copies of the Letter of Transmittal will be accepted. The Letter
of Transmittal, certificates for the Shares and any other required documents
should be sent by each stockholder of the Company or such stockholder's
broker-dealer, commercial bank, trust company or other nominee to the Depositary
as follows:
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<S> <C> <C>
By Mail: By Facsimile Transmission By Hand or Overnight Delivery:
(for Eligible Institutions
Tender & Exchange Department only): Tender & Exchange Department
P.O. Box 11248 (212) 815-6213 101 Barclay Street
Church Street Station Receive and Deliver Window
New York, New York 10286-1248 Confirm by telephone: New York, New York 10286
(800) 507-9357
</TABLE>
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Managers at their respective telephone numbers and locations
listed below. Requests for additional copies of the Offer to Purchase, the
Letter of Transmittal and the other tender offer materials may be directed to
the Information Agent, the Dealer Managers or to brokers, dealers, commercial
banks or trust companies or other nominees, and copies will be furnished
promptly at the Purchaser's Expense.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
United States Europe
77 Water Street Royex House, Aldermonbury Square
New York, New York 10005 London, England ECZV7H
CALL TOLL-FREE: 1-800-714-3313 (44) 171-600-5005 (collect)
THE DEALER MANAGERS FOR THE OFFER ARE:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(800) 323-5678 (Toll Free)
Exhibit 2
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
of
SCOR U.S. CORPORATION
Pursuant to the Offer to Purchase dated November 9, 1995 by
SCOR MERGER SUB CORPORATION
A Wholly Owned Subsidiary of
SCOR S.A.
-------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON FRIDAY, DECEMBER 8, 1995, UNLESS THE OFFER IS EXTENDED.
-------------------------------------------------------------------------------
The Depositary for the Offer is:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
<S> <C> <C>
By Facsimile Transmission
By Mail: (for Eligible Institutions only): By Hand or Overnight Courier:
Tender & Exchange Department (212) 815-6213 Tender & Exchange Department
P.O. Box 11248 101 Barclay Street
Church Street Station Confirm by telephone: Receive and Deliver Window
New York, New York 10286-1248 (800) 507-9357 New York, New York 10286
</TABLE>
-------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be completed by stockholders
("Stockholders") if certificates for Shares (as defined below) are to be
forwarded herewith or if tenders of Shares are to be made by book-entry transfer
to the account maintained by the Depositary at The Depository Trust Company,
Midwest Securities Trust Company or Philadelphia Depository Trust Company
(collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures
set forth in the section of the Offer to Purchase entitled "THE OFFER--3.
Procedure for Tendering Shares". Stockholders who tender Shares by book-entry
transfer are referred to herein as "Book-Entry Stockholders" and other
Stockholders are referred to herein as "Certificate Stockholders." Stockholders
whose certificates are not immediately available, or who cannot comply with the
book-entry transfer procedures on a timely basis or who cannot deliver their
certificates and all other documents required hereby to the Depositary on or
prior to the Expiration Date (as defined in the Offer to Purchase), may
nevertheless tender their Shares according to the guaranteed delivery procedure
set forth in the section of the Offer to Purchase entitled "THE OFFER--3.
Procedure for Tendering Shares". See Instruction 2. DELIVERY OF DOCUMENTS TO A
BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY FOR
THIS OFFER (AS DEFINED HEREIN).
Stockholders who wish to tender their Shares must, at a minimum, complete
columns (1) through (3) (other than Book-Entry Stockholders, who are not
required to complete columns (2) and (3)) in the "Description of Shares
Tendered" table below. If only those columns are completed, a Stockholder will
be deemed to have tendered all of its Shares listed in the table. If a
Certificate Stockholder wishes to tender with respect to less than all of its
Shares, column (4) must also be completed, and such Certificate Stockholder
should refer to Instruction 4.
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY AT ONE OF THE BOOK-ENTRY
TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
<PAGE>
Name of Tendering Institution ______________________________________________
Check One:
/ / The Depository Trust Company / / Midwest Securities Trust Company
/ / Philadelphia Depository Trust
Company
Account Number _______________________________________________________________
Transaction Code Number ______________________________________________________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Stockholder(s) _______________________________________
Window Ticket Number (if any) ______________________________________________
Date of Execution of Notice of Guaranteed Delivery _________________________
Name of Institution that Guaranteed Delivery _______________________________
If Delivery by Book-Entry Transfer:
Name of Tendering Institution ________________________________________________
Check One:
/ / The Depository Trust Company / / Midwest Securities Trust Company
/ / Philadelphia Depository Trust
Company
Account Number _______________________________________________________________
Transaction Code Number ______________________________________________________
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ----------------------------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
STOCKHOLDER(S)
(PLEASE FILL IN BLANK EXACTLY AS NAME(S) SHARES TENDERED
APPEAR(S) ON THE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
(1) (2) (3) (4)
- ----------------------------------------------------------------------------------------------------------------
TOTAL NUMBER
OF SHARES
CERTIFICATE REPRESENTED BY NUMBER
NUMBER(S)* CERTIFICATE(S)* OF SHARES TENDERED**
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
TOTAL SHARES
- ----------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless a Certificate Stockholder otherwise indicates, it will be assumed that all Shares evidenced by any
certificate(s) delivered to the Depositary are being tendered. See Instruction 4.
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
The undersigned hereby tenders to SCOR Merger Sub Corporation, a newly
organized Delaware corporation (the "Purchaser"), and a wholly owned subsidiary
of SCOR S.A., a societe anonyme organized under the laws of The French Republic
("Parent"), the above-described shares of Common Stock, par value $0.30 per
share (the "Shares"), of SCOR U.S. Corporation, a Delaware corporation (the
"Company"), pursuant to the Purchaser's Offer to Purchase all of the outstanding
Shares not currently beneficially owned directly or indirectly by Parent at a
price of $15.25 per Share, net to the seller in cash, without interest thereon,
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated November 9, 1995 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (together with the Offer to
Purchase, the "Offer"). The undersigned understands that the Purchaser reserves
the right to transfer or assign, from time to time, in whole or in part, to one
or more of its affiliates, the right to purchase the Shares tendered herewith.
Upon the terms and subject to the conditions of the Offer, and effective
upon acceptance for payment of the Shares tendered herewith in accordance with
the terms of the Offer, including if the Offer is extended or amended, the terms
or conditions of any such extension or amendment, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Purchaser, all right, title
and interest in and to all of the Shares that are being tendered hereby, and any
and all cash dividends, distributions, rights, other Shares and other securities
issued or issuable in respect thereof on or after the date of the Offer to
Purchase (collectively, "Distributions"), and irrevocably appoints the
Depositary the true and lawful agent and attorney-in-fact of the undersigned
with respect to such Shares (and all such Distributions), with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest), to (a) deliver certificates for such Shares (and all
such other shares or securities) or transfer ownership of such Shares (and all
such Distributions) on the account books maintained by a Book-Entry Transfer
Facility, together in any such case with all accompanying evidences of transfer
and authenticity, to or upon the order of the Purchaser, (b) present such Shares
(and all such Distributions) for transfer on the books of the Company and (c)
receive all benefits and otherwise exercise all rights of beneficial ownership
of such Shares (and all such Distributions), all in accordance with the terms
and the conditions of the Offer.
<PAGE>
The undersigned hereby irrevocably appoints the designees of the Purchaser,
and each of them, the attorneys-in-fact and proxies of the undersigned, each
with full power of substitution, to vote in such manner as each such attorney
and proxy or any substitute thereof shall deem proper in the sole discretion of
such attorney-in-fact and proxy or such substitute, and otherwise act (including
pursuant to written consent) with respect to all of the Shares tendered hereby
(and any associated Distributions) which have been accepted for payment by the
Purchaser, without further action, prior to the time of such vote or action,
which the undersigned is entitled to vote at any meeting of stockholders of the
Company (whether annual or special and whether or not an adjourned meeting), by
written consent or otherwise. Such appointment shall be effective when, and only
to the extent that, the Purchaser deposits the payment for such Shares (and any
associated Distributions) with the Depository. This proxy and power of attorney
shall be irrevocable and coupled with an interest in the Shares. Upon the
effectiveness of such appointment, without further action, all prior proxies
with respect to the Shares (and any associated Distributions) at any time given
by the undersigned will be revoked, and no subsequent proxies will be given nor
subsequent written consents executed (or, if given or executed, will not be
deemed effective) with respect thereto by the undersigned. The undersigned
understands that in order for Shares to be deemed validly tendered, immediately
upon the Purchaser's acceptance of such Shares for payment, the Purchaser or its
designees must be able to exercise full voting rights with respect to such
Shares (and any associated Distributions).
By accepting the Offer through the tender of Shares pursuant to the Offer,
the undersigned hereby agrees to release, and hereby releases, all claims with
respect to and in respect of the Shares other than the right to receive payment
for such tendered shares and that, upon payment for the Shares, the undersigned
waives any right to attack, and will be barred from thereafter attacking, in any
legal proceeding the fairness of the consideration paid in the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares (and any
associated Distributions) tendered hereby and that when the same are accepted
for payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances, and the same will not be subject to any adverse claim. The
undersigned will, upon request, execute and deliver any additional documents
deemed by the Depositary or the Purchaser to be necessary or desirable to
complete the sale, assignment, and transfer of the Shares (and any associated
Distributions) tendered hereby. In addition, the undersigned shall promptly
remit and transfer to the Depositary for the account of the Purchaser any and
all Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer; and, pending such remittance or
appropriate assurance thereof, the Purchaser shall be entitled to all rights and
privileges as owner of any such Distributions and may withhold the entire
purchase price or deduct from the purchase price the amount or value thereof, as
determined by the Purchaser in its sole discretion.
All authority herein conferred or agreed to be conferred shall not be
affected by and shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Subject to
the withdrawal rights set forth in the section of the Offer to Purchase entitled
"THE OFFER--4. Rights of Withdrawal", the tender of Shares hereby made is
irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of
the procedures described in the section of the Offer to Purchase entitled "THE
OFFER--3. Procedure for Tendering Shares" and in the Instructions hereto will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions of the Offer.
Unless otherwise indicated herein under "Special Payment Instructions",
please issue the check for the purchase price and/or return any certificates for
Shares not tendered or not accepted for payment in the name(s) of the registered
holder(s) appearing under "Description of Shares Tendered". Similarly, unless
otherwise indicated under "Special Delivery Instructions", please mail the check
for the purchase price and/or return any certificates for Shares not tendered or
not accepted for payment (and accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing under "Description of Shares
Tendered". In the event that both the Special Delivery Instructions and the
Special Payment Instructions are completed, please issue the check for the
purchase price and/or issue any certificates for Shares not so tendered or
accepted for payment in the name of, and deliver said check and/or return such
certificates to, the person or persons so indicated. The undersigned recognizes
that Purchaser has no obligation, pursuant to the Special Payment Instructions,
to transfer any Shares from the name of the registered holder thereof if the
Purchaser does not accept for payment any of the Shares so tendered.
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be issued in the name of someone other than the undersigned.
Issue check and/or certificate(s) to:
Name: ____________________________________
PLEASE TYPE OR PRINT
__________________________________________
Address: __________________________________
__________________________________________
(INCLUDE ZIP CODE)
__________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificate(s) for Shares not tendered or not accepted
for payment and/or the check for the purchase price of Shares accepted for
payment are to be sent to someone other than the undersigned, or to the
undersigned at an address other than that shown above.
Mail check and/or certificate(s) to:
Name: ____________________________________
PLEASE TYPE OR PRINT
__________________________________________
Address: __________________________________
__________________________________________
(INCLUDE ZIP CODE)
__________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE)
<PAGE>
IMPORTANT
SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
Signature(s) of Stockholders(s)_______________________________________________
________________________________________________________________________________
Dated: ____________, 1995
(Must be signed by registered Stockholder(s) exactly as name(s) appear(s) on
the certificate(s) for the Shares or on a security position listing or by
person(s) authorized to become registered holder(s) by certificate(s) and
documents transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please provide the
following information and see Instruction 5.)
Name(s)_________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (Full Title)___________________________________________________________
Address_________________________________________________________________________
________________________________________________________________________________
(Including Zip Code)
Area Code and Telephone Number__________________________________________________
Tax Identification or Social Security No._______________________________________
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature____________________________________________________________
Name and Title__________________________________________________________________
(Please Type or Print)
Name of Firm____________________________________________________________________
Address_________________________________________________________________________
(Include Zip Code)
Dated: ____________, 1995
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most banks, savings and loan associations and brokerage
houses) which is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program (an "Eligible Institution"). Signatures on this
Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal
is signed by the registered holder(s) of the Shares (which term, for purposes of
this document, shall include any participant in one of the Book-Entry Transfer
Facilities whose name appears on a security position listing as the owner of
Shares) tendered herewith and such holder(s) have not completed the box labeled
"Special Payment Instructions" or the box labeled "Special Delivery
Instructions" on this Letter of Transmittal or (b) if such Shares are tendered
for the account of an Eligible Institution. See Instruction 5 of this Letter of
Transmittal.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES OR BOOK-ENTRY
CONFIRMATIONS; LOST CERTIFICATES. This Letter of Transmittal is to be used
either (i) if certificates are to be forwarded herewith or (ii) unless an
Agent's Message (as defined in the Offer to Purchase) is used in lieu of this
Letter of Transmittal, if delivery of Shares is to be made pursuant to the
procedures for book-entry transfer set forth in the section of the Offer to
Purchase entitled "THE OFFER--3. Procedure for Tendering Shares". Certificates
for all physically delivered Shares, or confirmation of any book-entry transfer
into the Depositary's account at one of the Book-Entry Transfer Facilities of
Shares tendered by book-entry transfer, as well as a properly completed and duly
executed Letter of Transmittal (or facsimile thereof) with any required
signature guarantees (or, in the case of book-entry transfer, an Agent's Message
in lieu of this Letter of Transmittal), and any other documents required by this
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth herein on or prior to the Expiration Date (as defined in the
Offer to Purchase).
Stockholders whose certificates are not immediately available, or who cannot
complete the procedures for book-entry transfer on a timely basis or who cannot
deliver their certificates and all other required documents to the Depositary on
or prior to the Expiration Date, may nevertheless tender their Shares by
properly completing and duly executing the Notice of Guaranteed Delivery
pursuant to the guaranteed delivery procedure set forth in the section of the
Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares".
Pursuant to such procedure: (i) such tender must be made by or through an
Eligible Institution; (ii) a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Purchaser must be
received by the Depositary on or prior to the Expiration Date; and (iii)
certificates for physically delivered Shares (or a Book-Entry Confirmation (as
defined in the Offer to Purchase) with respect to such Shares), together with a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees (or, in the case of book-entry
transfer, an Agent's Message in lieu of this Letter of Transmittal) and any
other documents required by this Letter of Transmittal, must be received by the
Depositary within three New York Stock Exchange, Inc. trading days after the
date of execution of such Notice of Guaranteed Delivery.
If any certificate(s) for the Shares tendered hereby have been lost or
destroyed, that fact should be indicated on the face of this Letter of
Transmittal. In such event, the Depositary will forward additional information
and documentation necessary to be completed in order to effectively deliver such
lost or destroyed certificate(s).
IF SHARE CERTIFICATES ARE DELIVERED SEPARATELY TO THE DEPOSITARY, A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL MUST ACCOMPANY EACH SUCH
DELIVERY.
THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED
DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT
THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. THE DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF SUCH DELIVERY IS BY MAIL,
IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE SENT BY REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional Shares will be purchased. By execution of this Letter of Transmittal
(or facsimile thereof), a Stockholder waives any right to receive any notice of
the acceptance of the Shares for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
<PAGE>
4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE STOCKHOLDERS ONLY). If fewer
than all the Shares evidenced by any certificate submitted are to be tendered by
a Certificate Stockholder, fill in the number of Shares which are to be tendered
in the box entitled "Number of Shares Tendered". In such cases, new
certificate(s) for the remainder of the Shares that were evidenced by your old
certificate(s) will be sent to you, unless otherwise provided in the appropriate
box on this Letter of Transmittal, as soon as practicable after the Expiration
Date. All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holders of the Shares
tendered hereby, the signature must correspond with the names as written on the
face of the certificate(s) without alteration, enlargement or any change
whatsoever.
If any of the Shares tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any certificates or stock powers are signed
by trustees, executors, administrators, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to the
Purchaser of their authority so to act must be submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of certificates or
separate stock powers are required unless payment is to be made to, or
certificates for Shares not tendered or purchased are to be issued in the name
of, a person other than the registered holder(s). Signatures on such
certificates or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder of the certificate(s) listed, the certificate(s) must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name or names of the registered holder or holders appear on the
certificates(s). Signatures on such certificates or stock powers must be
guaranteed by an Eligible Institution.
6. STOCK TRANSFER TAXES. The Purchaser will pay or cause to be paid any
stock transfer taxes with respect to the transfer and sale of Shares to it or
its order pursuant to the Offer. If, however, payment of the purchase price is
to be made to, or (in the circumstances permitted hereby) if certificates for
Shares not tendered or accepted for payment are to be registered in the name of,
any person other than the registered holder, or if tendered certificates are
registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder or such person) payable on account of the transfer to
such person will be deducted from the purchase price if satisfactory evidence of
the payment of such taxes, or exemption therefrom, is not submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in
the name of, and/or certificates for Shares not tendered or not accepted for
payment are to be issued or returned to, a person other than the signer of this
Letter of Transmittal or if a check and/or such certificates are to be mailed to
someone other than the signer of this Letter of Transmittal or to an address
other than that shown above, the appropriate boxes on this Letter of Transmittal
should be completed.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for
assistance may be directed to, or additional copies of the Offer to Purchase,
this Letter of Transmittal, the Notice of Guaranteed Delivery and other tender
offer materials may be obtained from, the Information Agent (as defined in the
Offer to Purchase) or the Dealer Managers (as defined in the Offer to Purchase)
at their respective addresses set forth below or from your broker, dealer,
commercial bank or trust company.
9. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN"), generally
the stockholder's social security or federal employer identification number, on
Substitute Form W-9 below. Failure to provide the information on the form may
subject the tendering stockholder to 31% federal income tax withholding on the
payment of the purchase price. The box in Part 3 of the form may be checked if
the tendering stockholder has not been issued a TIN and has applied for a number
or intends to apply for a number in the near future. If the box in Part 3 is
checked and the Depositary is not provided with a TIN within 60 days, the
Depositary will withhold 31% of all payments of the purchase price thereafter
until a TIN is provided to the Depositary.
10. WAIVER OF CONDITIONS. Subject to the terms of the Offer, the Purchaser
reserves the right to waive any of the specified conditions to the Offer, in
whole or in part, in the case of any Shares tendered.
<PAGE>
IMPORTANT: EITHER THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF),
PROPERLY COMPLETED AND DULY EXECUTED, OR, IN THE CASE OF BOOK-ENTRY TRANSFER, AN
AGENT'S MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL (TOGETHER WITH
CERTIFICATES FOR PHYSICALLY DELIVERED SHARES OR CONFIRMATION OF BOOK-ENTRY
TRANSFER) AND ALL OTHER REQUIRED DOCUMENTS, OR THE NOTICE OF GUARANTEED
DELIVERY, MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a stockholder whose tendered Shares are
accepted for purchase is required by law to provide the Depositary (as payer)
with such stockholder's correct TIN on Substitute Form W-9 below. If such
stockholder is an individual, the TIN is his or her social security number. If a
stockholder fails to provide a TIN to the Depositary, such stockholder may be
subject to a $50 penalty imposed by the Internal Revenue Service. In addition,
payments that are made to such stockholder with respect to Shares purchased
pursuant to the Offer may be subject to backup withholding of 31%.
Certain stockholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, that stockholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Depositary. See the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any payments made to the stockholder or payee. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
The box in Part 3 of the Substitute Form W-9 may be checked if the tendering
stockholder has not been issued a TIN and has applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part 3 is checked, the
stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Depositary.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares or of
the last transferee appearing on the transfers attached to, or endorsed on, the
Shares. If the Shares are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidance on which
number to report.
<PAGE>
SUBSTITUTE TO BE COMPLETED BY ALL STOCKHOLDERS
(SEE INSTRUCTION 9)
FORM W-9
PAYER'S NAME: THE BANK OF NEW YORK
PART 1--PLEASE PROVIDE YOUR TIN IN THE _______________
BOX AT RIGHT AND CERTIFY BY SIGNING SOCIAL SECURITY
AND DATING BELOW NUMBER
OR__________________________
EMPLOYER IDENTIFICATION
NUMBER
PART 2--CERTIFICATES--UNDER PENALTIES OF PERJURY, I
CERTIFY THAT:
(1) The number shown on this form is my correct
Taxpayer Identification Number (or I am waiting
for a number to be issued to me); and
DEPARTMENT OF THE
TREASURY
INTERNAL REVENUE
SERVICE
(2) I am not subject to backup withholding because
(i) I am exempt from backup withholding
(ii) I have not been notified by the
Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a
failure to report all interest or dividends,
or (iii) the IRS has notified me that I am no
longer subject to backup withholding.
Certification Instructions--You must
cross out item (2) in Part 2
above if you have been notified by the
IRS that you are subject to backup
withholding because of under-reporting
interest or dividends on your
tax return. However, if after being
notified by the IRS that you were
subject to backup withholding you
received another notification from the
IRS stating that you are no longer
subject to backup withholding, do not
cross out item(2).
PAYER'S REQUEST FOR
TAXPAYER IDENTIFICATION
NUMBER (TIN)
PART 3
SIGNATURE ___________________ DATE ____________
AWAITING
NAME (PLEASE PRINT)______________________________
TIN / /
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATIONS OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(ii) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
- ------------------------------------------ -------------
Signature Date
- ------------------------------------------
Name (Please Print)
<PAGE>
The Information Agent for the Offer is:
D.F. KING & CO., INC.
UNITED STATES EUROPE
77 Water Street Royex House, Aldermarbury Square
New York, New York 10005 London, England EC2V 7HR
CALL TOLL-FREE: 1-800-714-3313 (44) 171-600-5005 (COLLECT)
The Dealer Managers for the Offer are:
GOLDMAN, SACHS & CO.
85 Broad Street
New York, New York 10004
(Toll Free) 800-323-5678
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER.--Social Security numbers have nine digits separated by two hyphens; i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
- ------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE
SOCIAL SECURITY
NUMBER OF--
- ------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account(1)
3. Husband and wife (joint The actual owner of
account) the account or, if
joint funds, the first
individual on the
account(1)
4. Custodian account of a The minor(2)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person(3)
for a designated ward,
minor or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust
account (grantor is
also trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under State law
8. Sole proprietorship The owner(4)
account
- ------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
IDENTIFICATION
NUMBER OF--
- ------------------------------------------------------
9. A valid trust, estate, The legal entity (Do
or pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title.)(5)
10. Corporate account The corporation
11. Religious charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
- ------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card (for
individuals), or Form SS-4, Application for Employer Identification Number (for
businesses and all other entities), at the local office of the Social Security
Administration or the Internal Revenue Service and apply for a number.
PAYEE EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under Section 403(b)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or any
subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or any
agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S. or a
possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a).
. An exempt charitable remainder trust, or a nonexempt trust described in
section 4947(a)(1).
. An entity registered at all times under the Investment Company Act of 1940.
. A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is paid in
the course of the
payer's trade or business and you have not provided your correct taxpayer
identification number to the payer.
. Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Payments made to a nominee.
Exempt payees described above should file a Substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM,
SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N, and the regulations under those sections.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. The IRS uses the numbers for identification
purposes and to help verify the accuracy of tax returns. Payers must be given
the numbers whether or not recipients are required to file a tax return. Payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX
CONSULTANT OR THE INTERNAL REVENUE SERVICE
Unless otherwise noted herein, all references to section numbers or
regulations are references to the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder.
Exhibit 3
SCOR U.S. CORPORATION
110 WILLIAM STREET
NEW YORK, NEW YORK 10038
April 28, 1995
Dear Stockholder:
Your Board of Directors joins us in extending to you a cordial invitation to
attend the Annual Meeting of Stockholders of SCOR U.S. Corporation, a Delaware
corporation ("SCOR U.S."), to be held at 10:30 a.m. (New York time) on June 16,
1995, at Morgan Guaranty Trust Company of New York, 60 Wall Street, 46th Floor,
New York, New York.
At this meeting you will be asked to consider and vote upon the election of
four Directors and the ratification of the appointment of KPMG Peat Marwick as
independent auditors of SCOR U.S. for 1995.
Please date, sign and return the enclosed proxy card in the postage paid
envelope provided as soon as possible whether or not you plan to attend the
meeting.
You are, of course, welcome to attend the Annual Meeting and vote in person.
The proceedings of the Annual Meeting will be summarized in our second quarter
report to stockholders.
Very truly yours,
/s/ JACQUES P. BLONDEAU
JACQUES P. BLONDEAU
Chairman of the Board of Directors
/s/ JEROME KARTER
JEROME KARTER
President and Chief Executive Officer
<PAGE>
SCOR U.S. CORPORATION
110 WILLIAM STREET
NEW YORK, NEW YORK 10038
------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 1995
------------
The Annual Meeting of the Stockholders of SCOR U.S. Corporation, a Delaware
corporation ("SCOR U.S."), will be held on June 16, 1995 at 10:30 a.m. (New York
time) at Morgan Guaranty Trust Company of New York, 60 Wall Street, 46th Floor,
New York, New York, for the following purposes:
(1) To elect four Directors, each for a term of three years;
(2) To ratify the appointment of KPMG Peat Marwick as independent
auditors of SCOR U.S. for 1995; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
Only holders of record of shares of SCOR U.S. Common Stock, par value $.30
per share ("Shares") at the close of business on April 18, 1995, the record date
for the Annual Meeting, are entitled to notice of and to vote at the Annual
Meeting and at any adjournment or postponement thereof.
Whether or not you plan to attend the Annual Meeting, we ask you to sign,
date and return the enclosed proxy card in the postage paid envelope provided.
This will ensure representation of your Shares in the event that you are unable
to attend the Annual Meeting. Your proxy may be revoked in the manner described
in the accompanying Proxy Statement at any time before it has been voted at the
Annual Meeting.
By the Order of the Board of Directors
/s/ JOHN T. ANDREWS, JR.
JOHN T. ANDREWS, JR.
Corporate Secretary
April 28, 1995
<PAGE>
PROXY STATEMENT
SCOR U.S. CORPORATION
------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 16, 1995
------------
This Proxy Statement is being furnished to stockholders of SCOR U.S.
Corporation, a Delaware corporation ("SCOR U.S." or the "Company"), in
connection with the solicitation of proxies by its Board of Directors (the
"Board") for use at its Annual Meeting of Stockholders to be held at 10:30 a.m.
(New York time) on June 16, 1995 at Morgan Guaranty Trust Company of New York,
60 Wall Street, 46th Floor, New York, New York, and at any adjournment or
postponement thereof (the "Annual Meeting"). This Proxy Statement and the
attached Notice of Annual Meeting of Stockholders and form of proxy are first
being mailed to stockholders of SCOR U.S. on or about April 28, 1995.
PURPOSE OF THE ANNUAL MEETING
At the Annual Meeting, stockholders of SCOR U.S. will be asked:
(1) To elect four Directors, each for a term of three years;
(2) To ratify the appointment of KPMG Peat Marwick as independent
auditors of SCOR U.S. for 1995; and
(3) To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
GENERAL INFORMATION
DATE, TIME AND PLACE
The Annual Meeting will be held at 10:30 a.m. (New York time) on June 16,
1995 at Morgan Guaranty Trust Company of New York, 60 Wall Street, 47th Floor,
New York, New York.
RECORD DATE; VOTING RIGHTS
Stockholders of record at the close of business on April 18, 1995 (the
"Record Date") are entitled to notice of the meeting and to vote shares of
Common Stock, par value $.30 per share, of SCOR U.S. ("Shares") held on that
date at the Annual Meeting. Each Share is entitled to one vote. As of the Record
Date, a total of 18,164,620 Shares were outstanding, of which 14,547,756 were
owned beneficially or of record by SCOR S.A. This Proxy Statement and the
accompanying form of proxy are first being sent to stockholders on or about
April 28, 1995.
<PAGE>
PROXY PROCEDURES
Proxies are solicited from stockholders by the Board in order to provide
every stockholder an opportunity to vote on all matters scheduled to come before
the Annual Meeting, whether or not such stockholder attends in person. When the
enclosed proxy card is properly executed and returned, the Shares represented
will be voted by the proxyholders named on the card in accordance with the
stockholder's directions. Stockholders are urged to indicate their vote on each
matter by marking the appropriate box on the card. If no choice is specified,
the Shares will be voted as recommended by the Board.
The Board and management know of no matters, other than those set forth on
the proxy card, that will be presented for consideration at the Annual Meeting.
Execution of a proxy, however, confers on the designated proxyholders
discretionary authority to vote the Shares represented in accordance with their
judgment on other business, if any, that may come before the Annual Meeting.
Any stockholder executing a proxy may revoke that proxy at any time before
it is voted by a later dated proxy, by written revocation addressed to the
Corporate Secretary of SCOR U.S. at 110 William Street, Suite 1800, New York,
New York, 10038, or by voting in person at the Annual Meeting.
The expense incurred in this solicitation of proxies will be borne by SCOR
U.S. Proxies will be solicited on behalf of the Board by Georgeson & Company,
Inc. for a fee which is not expected to exceed $6,000. Expenses incurred by
Georgeson & Company, Inc. will be reimbursed by SCOR U.S. Proxies may also be
solicited in person or by telephone by officers or other employees of SCOR U.S.
and its subsidiaries who will not be additionally compensated therefor.
VOTE REQUIRED; QUORUM
Under the Company's By-laws and the applicable provisions of the Delaware
General Corporation Law, the presence in person or by proxy of a majority of the
Shares outstanding on the Record Date shall constitute a quorum. The presence of
SCOR S.A. at the Annual Meeting will assure the presence of a quorum. Tabulation
of proxies and the votes cast at the Annual Meeting will be conducted by an
independent agent and certified to by independent election inspectors.
The election inspectors will treat abstentions and votes withheld as Shares
that are present and entitled to vote for purposes of determining the presence
of a quorum and as a non-affirmative vote for purposes of determining the
approval of any matter submitted to the stockholders for a vote. If a broker or
other nominee physically indicates on the proxy that it does not have
discretionary authority as to certain Shares to vote on a particular matter
("broker non-votes"), such Shares will be treated as present and entitled to
vote for purposes of determining the presence of a quorum but as not voted and
not present for purposes of determining the approval of any matter submitted to
the stockholders for a vote.
In the election of Directors, Shares present but not voting will be
disregarded (except for quorum purposes) and the candidates for election
receiving the highest number of affirmatives votes of the Shares entitled to be
voted for them, up to the number of nominees, will be elected. With regard to
the ratification of the appointment of the independent auditors of the Company,
such matter must be approved by the affirmative vote of the holders of a
majority of the Shares entitled to vote and present in
2
<PAGE>
person or represented by proxy at the Annual Meeting. Broker non-votes will have
no effect on the outcome of either such vote.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, SCOR S.A. owned 14,547,756 Shares or approximately
80% of the outstanding Shares. The address of SCOR S.A. is Immeuble SCOR-Cedex
39, 92074 Paris La Defense, France. HCS, a French societe anonyme whose address
is that of SCOR S.A., owns approximately 48.5% of the outstanding shares of SCOR
S.A. and, consequently, may be deemed to be the beneficial owner of the Shares
owned by SCOR S.A. SCOR U.S. is not aware of any other person or group of
persons that owns more than 5% of the Shares.
The following table reflects information, as of the Record Date, regarding
the beneficial ownership of the Company's equity securities individually for
each Director and Named Executive Officer and for all Directors and all
executive officers as a group:
AMOUNT OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES OF OF SHARES
NAMED EXECUTIVE OFFICERS COMMON STOCK (1)(2) OUTSTANDING
- --------------------------------------------------------------- ------------------- -----------
<S> <C> <C>
Jacques P. Blondeau (3)(4)..................................... 75,999 *
Jerome Karter (3)(4)........................................... 105,998 *
Patrick Peugeot (3)(4)......................................... 105,689 *
John T. Andrews, Jr............................................ 31,999 *
Jeffrey Cropsey (5)............................................ 4,552 *
R. Daniel Brooks............................................... 38,314 *
Nolan Asch..................................................... 47,454 *
<CAPTION>
DIRECTORS
- ---------------------------------------------------------------
<S> <C> <C>
John Cox....................................................... 1,000 *
Raymond H. Deck................................................ 17,600 *
Michel Gudefin (6)............................................. 28,500 *
Jean Masse..................................................... 0 *
Richard M. Murray.............................................. 13,500 *
Serge M.P. Osouf............................................... 0 *
John W. Popp................................................... 11,500 *
Francois Reach................................................. 900 *
David J. Sherwood.............................................. 11,600 *
Directors and all executive officers as a group (22
individuals)................................................... 555,196 3.06%
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise indicated, the persons named have sole voting and
investment power over the number of Shares shown as being beneficially owned
by them. The table includes (i) 75,999, 89,789, 105,998, 31,999, 28,332,
33,266 respectively, issuable to Messrs. Blondeau, Peugeot,
(Footnotes continued on following page)
3
<PAGE>
(Footnotes continued from preceding page)
Karter, Andrews, Brooks, and Asch under stock options exercisable within
sixty days granted pursuant to the Stock Incentive Plan for Key Executives
("SIP") and the Stock Option Plan for Key Employees ("SOP"), (ii) 10,500
Shares issuable to each of Messrs. Deck, Gudefin, Murray, Popp and Sherwood
under stock options exercisable within sixty days granted pursuant to the
Stock Option Plan for Directors ("DP") and (iii) 462,153 Shares issuable to
all Directors and executive officers as a group under stock options
exercisable within 60 days granted pursuant to the SIP, SOP and DP, as the
case may be.
(2) The shares listed in the table exclude 14,547,756 Shares beneficially owned
by SCOR S.A. with respect to which Mr. Blondeau, a director and officer of
SCOR S.A., and Messrs. Osouf and Reach, officers of SCOR S.A., disclaim
beneficial ownership.
(3) Messrs. Blondeau, Karter and Peugeot are also Directors of SCOR U.S.
(4) Messrs. Blondeau and Peugeot each served in the position of Chief Executive
Officer ("CEO") during the fiscal year ended December 31, 1994 and therefore
are included in the category of "Named Executive Officers". Mr. Peugeot held
the position of CEO during the period from January 1, 1994 to June 16, 1994,
when he resigned. Mr. Blondeau was elected and served as CEO from June 16,
1994 until he resigned on September 30, 1994. Mr. Karter was elected as CEO
of SCOR U.S. on September 30, 1994 and continues to serve in that position.
(5) Mr. Cropsey received a restricted stock award of 4,552 shares pursuant to
the SIP. The shares were awarded on December 16, 1993. One-quarter of the
shares (1,138) will vest on the second anniversary of the date of the grant
and each one-year anniversary thereafter, starting on December 16, 1995.
(6) Includes 10,000 Shares held by Mr. Gudefin's wife.
PROPOSAL ONE
ELECTION OF DIRECTORS
GENERAL
At the Annual Meeting, four Directors are to be elected to hold office until
the Annual Meeting in 1998.
The Board currently consists of 13 Directors including one vacancy due to
the resignation of Mr. Elios Pascual on January 1, 1995. The terms of office of
Messrs. Blondeau, Cox, Karter, Peugeot and the vacant seat expire at the Annual
Meeting. Each of Messrs. Blondeau, Cox, Karter, and Peugeot has been nominated
for election. Management knows of no reason why any of these nominees will be
unable to serve, but in such event the proxies received will be voted for such
substitute nominees as the Board may recommend. The Board intends to elect an
additional director to fill the vacant seat in accordance with the terms of the
Company's By-Laws.
The names, terms of office and certain other information with respect to the
persons nominated for election as Directors and other persons serving as
Directors are set forth below.
4
<PAGE>
INFORMATION CONCERNING NOMINEES FOR TERMS EXPIRING IN 1998
NAME DIRECTOR SINCE:
- -------------------------------------------------------------- ---------------
Jacques P. Blondeau........................................... 1988
John R. Cox................................................... 1994
Jerome Karter................................................. 1989
Patrick Peugeot............................................... 1983
THE BOARD RECOMMENDS A VOTE FOR ALL NOMINEES.
DIRECTORS OF SCOR U.S.
The Directors of SCOR U.S. and their respective age and terms of office are
as follows:
<TABLE>
<CAPTION>
POSITIONS, OFFICES AND PRINCIPAL TERM
NAME AGE OCCUPATIONS WITH SCOR U.S. EXPIRES
- ------------------------------------------- ---- -------------------------------- -------
<S> <C> <C> <C>
Jacques P. Blondeau (1)(2)................. 50 Chairman of the Board 1995
Serge M.P. Osouf (1)(2).................... 51 Vice Chairman of the Board 1997
John R. Cox (1)(3)......................... 62 Director 1995
Raymond H. Deck (1)(2)(4).................. 72 Director 1997
Michel J. Gudefin (3)(4)................... 71 Director 1996
Director, President and Chief
Jerome Karter (1).......................... 57 Executive Officer 1995
Jean Masse (2)............................. 50 Director 1996
Richard M. Murray (3)...................... 72 Director 1997
Patrick Peugeot (2)........................ 57 Director 1995
John W. Popp (3)(4)........................ 72 Director 1996
Francois Reach (2)......................... 46 Director 1996
David J. Sherwood (1)(3)(4)................ 72 Director 1996
</TABLE>
- ------------
(1) Executive Committee.
(2) Finance Committee.
(3) Audit Committee.
(4) Compensation Committee.
BIOGRAPHICAL SUMMARIES OF THE DIRECTORS OF SCOR U.S.
Jacques P. Blondeau has served as Chairman of the Board of SCOR U.S. since
September 30, 1994 and as a Director since 1988. Mr. Blondeau is also Chairman
of SCOR Reinsurance Company ("SCOR Re"), the Company's principal operating
subsidiary. Mr. Blondeau serves as a Trustee of the Voting Trust that holds the
stock of SCOR Re on behalf of SCOR U.S. From November, 1988 to September 30,
1994, Mr. Blondeau had been Vice Chairman and President of SCOR U.S. and Vice
Chairman of the Board of SCOR Re. He also served as Chief Operating Officer of
SCOR U.S. from November, 1988 to June, 1994. From June 16, 1994 to September 30,
1994, he served as Chief Executive Officer of SCOR U.S. He is Chairman of the
Board and Chief Executive Officer of SCOR S.A., a French-based global
reinsurance company. Prior to being elected to these positions in SCOR
5
<PAGE>
S.A., he served as the President and Chief Operating Officer. Mr. Blondeau was
President-Operations of Societe Commercial de Reassurance ("SCOR Paris") from
1988 until 1990, when SCOR Paris was merged into SCOR S.A. From 1984 to 1988,
Mr. Blondeau was Chairman and President of Pechiney Australia and President of
Howmet Resources, Inc. (U.S.), a subsidiary of Pechiney Corporation. From
1980-1984, he held various top-level positions with the Pechiney Corporation.
Mr. Blondeau's business address is that of SCOR S.A.
Serge M.P. Osouf has served as Vice Chairman of the Board of Directors of
SCOR U.S. and SCOR Re since September 30, 1994, and has been a Director of SCOR
U.S. since September, 1993, and of SCOR Re since December, 1991. Mr. Osouf
serves as the General Manager of SCOR S.A. and prior to taking this position in
September, 1994, had been the President-Reinsurance Operations of SCOR S.A.
since 1993. He is currently Chairman of SCOR Vie and from 1987 to 1993 was
General Manager of SCOR Reassurance, two subsidiaries of SCOR S.A. Mr. Osouf's
business address is that of SCOR S.A.
Jerome Karter has served as a Director of SCOR U.S. since February, 1989,
and as its President and Chief Executive Officer since September 30, 1994. Prior
to September, 1994, he had served as Executive Vice President of SCOR U.S. since
December, 1989. Mr. Karter has also served as a Director, President and Chief
Executive Officer of SCOR Re since February, 1989. Prior to his employment at
SCOR, he held various management positions both in the United States and Europe
with major domestic and multinational insurance companies since 1961. He held
senior management positions for Factory Mutual International in London and
Affiliated F.M. Insurance Company in Paris from 1969 to 1978. He subsequently
served as General Manager-Europe for the Insurance Company of North America (now
CIGNA Corporation) and INA Reinsurance Company S.A. in Brussels from 1978 to
1984. Immediately prior to joining SCOR U.S., Mr. Karter was a Senior Vice
President and Manager of the International Department of Johnson & Higgins in
New York from 1984 to 1989. Mr. Karter's business address is that of SCOR U.S.
John R. Cox has served as a Director of SCOR U.S. and SCOR Re since June,
1994. Mr. Cox has also served as a Director of Firemark Global Insurance Fund
since 1993. Until February 3, 1995, he was a Director and a Member of the Audit
Committee of ACE Limited ("ACE") and its subsidiary companies. From 1990 to 1993
he was a Director of Bankers Insurance Company Limited. From 1985 to 1991 he was
Chairman of the Board and Chief Executive Officer of ACE. From 1983 to 1985, he
was Executive Vice President of American Can Company, subsequently known as
Primerica Corporation and now The Travelers Corporation, and Chairman and Chief
Executive Officer of Associated Madison Companies, Inc., its financial services
holding company subsidiary. From 1975 to 1983 Mr. Cox held various key executive
positions in CIGNA Corporation. Mr. Cox's business address is 44 Herbert
Terrace, West Orange, New Jersey.
Raymond H. Deck has been a Director of SCOR U.S. since 1986 and of SCOR Re
since 1985. He has been President of Chase Insurance Enterprises, Inc., a
division of Chase Enterprises, a private company with investments in real
estate, communications and the insurance industry, since 1986. He has also been
a Director of Accel International Corporation since 1990. Prior to 1986, he was
a Director and Executive Vice President of the Hartford Insurance Group. Mr.
Deck's business address is that of Chase Insurance Enterprises, Inc., One
Commercial Plaza, Hartford, Connecticut 06103.
Michel J. Gudefin has been a Director of SCOR U.S. since 1989 and of SCOR Re
since June 1990 and is a Voting Trustee of SCOR Re. Mr. Gudefin is retired. From
1988 to 1989 he was Vice Chairman
6
<PAGE>
of Howmet Corporation, the principal operating subsidiary of Pechinery
Corporation. From 1976 to 1988, Mr. Gudefin was President and Chief Executive
Officer of Pechiney Corporation. Until December 31, 1993, he was a Director of
Pechiney Corporation and Howmet Corporation. He is currently a Director of
Southwire Corporation and a Vice President and Director of Intrend Corporation.
Mr. Gudefin's business address is that of SCOR U.S.
Jean P. Masse has been a Director of SCOR U.S. and SCOR Re since March 1995.
From June 16, 1994 until March 1995, he was Director Emeritus of SCOR Re after
having served as a Director of SCOR Re from 1990 to 1994. He served as a
Director and President of The Unity Fire and General Insurance Company from
December 1982 until 1990, and during that time also served as President and
Treasurer of the Rockleigh Management Corporation, which was merged with and
into the Company in 1990. Mr. Masse's business address is Tour Voltaire, 1 place
Des Dgres, Cedex 58, 92059 Paris La Defense, France.
Richard M. Murray has served as a Director of SCOR U.S. and SCOR Re since
1990. He was Chairman and executive advisor of The Nippon Management Corporation
from 1987 to 1991. Since 1990, he has been Vice Chairman of La Prov Corporation,
a wholly-owned U.S. subsidiary and liaison office of Grupo Nacional Provincial
S.A., a leading Mexican insurance company. He was a Vice President of The
Travelers Corporation from 1967 to 1987. Mr. Murray's business address is that
of La Prov Corporation, 80 Broad Street, New York, New York 10004-2203.
Patrick Peugeot has served as a Director of SCOR U.S. since 1983 and of SCOR
Re since 1985. Mr. Peugeot is also a Voting Trustee of SCOR Re. He served as
Chairman of the Board of SCOR U.S. from 1983 until September 30, 1994, and as
Chief Executive Officer of SCOR U.S. from December 1988 until June 16, 1994. He
was also Chairman of the Board of SCOR Re until September 1994. Mr. Peugeot had
served as Chairman of the Board and Chief Executive Officer of SCOR S.A. from
1989 until 1994 and of SCOR Paris from 1983 until 1990. Mr. Peugeot was Chairman
of Caisse Centrale de Reassurance ("CCR") from 1983 to 1985. He is Honorary
Chairman of CCR and has served as Honorary Chairman of SCOR S.A. since August
30, 1994. He is now Vice Chairman and President of La Mondiale, a French mutual
life insurance company. He is also Vice Chairman of Partner Europe. Mr.
Peugeot's business address is that of La Mondiale, located at 8 boulevard
Malesherbes 75008 Paris.
John W. Popp, a Director of SCOR U.S. since March 1990 and SCOR Re since
1989, is a business consultant. He was a Partner of Peat, Marwick, Mitchell &
Co. (now KPMG Peat Marwick LLP) from 1955 to 1982. Mr. Popp has been a Director
of Old Republic International Corporation since 1993. Mr. Popp's business
address is that of SCOR U.S.
Francois Reach has served as a Director of SCOR U.S. since March 1989 and of
SCOR Re since June 1994. Mr. Reach has served as Chairman and CEO of REAFIN, the
finance company subsidiary of SCOR S.A. since October 1994. He was Chief
Investment Officer and Treasurer of SCOR S.A. from 1983 until October, 1994,
when he became Deputy General Manager of SCOR S.A. From 1986 to 1994, he was
President of REAFIN. He is also Managing Director of Finimosa (Spain) and of
Finimo Kft (Hungary). Mr. Reach's business address is that of SCOR S.A.
David J. Sherwood has served as a Director of SCOR U.S. and of SCOR Re since
1987. He is also a Voting Trustee of SCOR Re. Mr. Sherwood has served as
Chairman of the Board of Governors of the New York Insurance Exchange since
1985. He was President of The Prudential Insurance Company of America from 1978
to 1984. Mr. Sherwood's business address is that of the New York Insurance
Exchange, c/o Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd
Street, New York, New York 10022.
7
<PAGE>
EXECUTIVE OFFICERS
The executive officers of SCOR U.S. and their respective age and titles are
as follows:
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ---------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Louis A. Adanio................... 41 Senior Vice President of SCOR Re
John T. Andrews, Jr............... 53 Senior Vice President, General Counsel and
Secretary of SCOR U.S. and SCOR Re
Nolan E. Asch..................... 45 Senior Vice President and Chief Actuary of SCOR
U.S. and SCOR Re
Jacques P. Blondeau............... 50 Chairman of the Board of Directors of SCOR U.S. and
SCOR Re
Jeffrey D. Cropsey................ 52 Senior Vice President and Chief Financial Officer
of SCOR U.S. and SCOR Re
John D. Dunn, Jr.................. 49 Senior Vice President of SCOR U.S. and SCOR Re
Francis J. Fenwick................ 39 Vice President and Controller of SCOR U.S. and SCOR
Re
Howard B. Fischer................. 35 Vice President, Finance/Planning and Analysis of
SCOR U.S. and SCOR Re
Linda J. Grant.................... 34 Vice President and Treasurer of SCOR U.S. and SCOR
Re
Jerome Karter..................... 57 President and Chief Executive Officer of SCOR U.S.
and SCOR Re
Dominique Lavallee................ 36 Senior Vice President of SCOR U.S. and SCOR Re
Serge M.P. Osouf.................. 51 Vice Chairman of the Board of Directors of SCOR
U.S. and SCOR Re
</TABLE>
SELECTED BIOGRAPHICAL SUMMARIES
Louis A. Adanio has served as Senior Vice President and Facultative Manager
of SCOR Re since May 1994. From June 1990 to May 1994, Mr. Adanio had been
Senior Vice President and Facultative Property Manager of SCOR Re. From June
1989 to June 1990, Mr. Adanio had been Vice President and Facultative Property
Manager of SCOR Re. Mr. Adanio's business address is that of SCOR Re.
John T. Andrews, Jr. has been Senior Vice President, General Counsel and
Secretary of SCOR U.S. and SCOR Re since 1989. He was Senior Vice President and
General Counsel of Primerica Corporation now known as The Travelers Corporation
from 1987 to 1988, Senior Vice President and General Counsel of Associated
Madison Companies, Inc., a subsidiary of Primerica, from 1985 to 1987, and Vice
President and General Counsel of Prudential Reinsurance Company from 1977 to
1985. Mr. Andrews' business address is that of SCOR U.S.
Nolan E. Asch, a Fellow of the Casualty Actuarial Society, has been Senior
Vice President since 1990 and Chief Actuary of SCOR U.S. and SCOR Re since June
1994. Mr. Asch had been Actuary of SCOR U.S. since 1990 and of SCOR Re since
1989. He was Vice President and Actuary of SCOR Re from 1984 to 1989. Previously
he was Vice President, Casualty Underwriting of AFIA. Mr. Asch's business
address is that of SCOR U.S.
Jeffrey D. Cropsey, a certified public accountant, has been Senior Vice
President and Chief Financial Officer of SCOR U.S. and SCOR Re since November
1993. From 1990 through part of 1993, he was Chief Financial Officer of Phoenix
Re Corporation. From 1988 to 1990, he was a Vice President
8
<PAGE>
in the individual insurance operations at The Equitable Life Assurance Society
of the United States. From 1984 to 1988, he was a partner with Peat Marwick Main
& Co. From 1970 to 1984 he held positions from staff accountant through partner
with Touche Ross & Co., except for 1980 to 1982 when, during a leave of absence
from Touche Ross, he was a Practice Fellow at the Financial Accounting Standards
Board. Mr. Cropsey's business address is that of SCOR U.S.
John D. Dunn, Jr. has been Senior Vice President of SCOR U.S. and Senior
Vice President and Treaty Manager of SCOR Re since July 1994. From September
1985 to 1994 he was Executive Vice President and a Director of Mercantile and
General Reinsurance Company of America and TOA Reinsurance Company of America.
He was a Vice President of Winterthur Insurance Company from April to September,
1985. He was a Senior Vice President and a Director of San Francisco Reinsurance
Company from 1983 to 1985 and of Buffalo Reinsurance Company from 1976 to 1983.
Mr. Dunn's business address is that of SCOR U.S.
Francis J. Fenwick has been Vice President and Controller of SCOR U.S. and
SCOR Re since October 1994. He was a Vice President and Financial Reporting
Manager of Signet Star Reinsurance Company from 1993 to 1994 and held various
offices at North Star Reinsurance Company, now known as Signet Star Reinsurance
Company from 1987 to 1993. He was a Senior Auditor at American International
Group and at Fireman's Fund Insurance Companies from 1986 to 1987 and 1984 to
1986, respectively. Mr. Fenwick's business address is that of SCOR U.S.
Howard B. Fischer has been Vice President, Finance/Planning and Analysis of
SCOR U.S. since January 1991 and of SCOR Re since October 1993. From November
1988, until January 1991, Mr. Fischer was Vice President/Assistant to the
President of SCOR U.S. Mr. Fischer's business address is that of SCOR U.S.
Linda J. Grant has served as Vice President and Treasurer of SCOR U.S. and
SCOR Re since November 1994. From 1989 to 1994, Ms. Grant was Vice President and
Assistant Treasurer of SCOR U.S. and SCOR Re. She also held various positions at
SCOR Re from 1984 to 1989. Ms. Grant's business address is that of SCOR U.S.
Dominique Lavallee has served as Senior Vice President of SCOR U.S. and SCOR
Re and as Manager of SCOR Re's Underwriting Services Department since September
1994. He was Vice President of SCOR Re from 1991 to 1994. From 1988 to 1991 he
was a Vice President of SCOR Reinsurance Company of Canada, and from 1984 to
1988 he was an Assistant Vice President of SCOR Paris. Mr. Lavallee's business
address is that of SCOR U.S.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
The Board held six meetings and acted by unanimous written consent on five
occasions during 1994. During 1994 all incumbent directors attended at least 75%
of the meetings of the Board and committees thereof on which they served except
for two former directors, Mr. David Dillard and Mr. Elios Pascual. Mr. Dillard
attended 50% of such meetings prior to his retirement from the Board of
Directors on June 16, 1994. Mr. Pascual attended 30% of such meetings, dating
from his election in June, 1994, until his resignation on January 1, 1995. For
the Board as a whole, including Messrs. Pascual and Dillard, average attendance
at the meetings was 87% during 1994.
The Board has four standing committees: the Audit Committee, the
Compensation Committee, the Executive Committee and the Finance Committee. Only
non-employee directors currently serve on the
9
<PAGE>
Audit and Compensation Committees. The Board of Directors does not have a
nominating committee. The functions normally performed by a nominating committee
are performed by the Board.
The Audit Committee's functions include: (1) review of the scope and
findings of audits conducted by SCOR U.S.'s independent auditors, KPMG Peat
Marwick; (2) review of SCOR U.S.'s accounting policies and practices for
purposes of making recommendations to the Board and management of SCOR U.S.; (3)
review of the actuarial policies and practices of SCOR U.S.'s reinsurance and
insurance subsidiaries; and (4) review of significant transactions among SCOR
U.S. and its subsidiaries and SCOR S.A. and its other subsidiaries and
affiliates. The members of the Audit Committee are Messrs. Sherwood (Chairman),
Cox, Gudefin, Murray and Popp. Mr. Dillard retired from the Board and the Audit
Committee on June 16, 1994 and Mr. Cox was appointed to the Audit Committee on
that same date. The Audit Committee held four meetings during 1994.
The Compensation Committee's functions include reviewing compensation
policies and practices. Prior to June 16, 1994, the Committee was specifically
responsible for: (a) reviewing and approving the compensation of all senior
executive officers who do not serve on the Board; (b) reviewing and recommending
to the Board the compensation of senior executives who also serve on the Board;
(c) reviewing new executive compensation programs or modifications to existing
programs; and (d) administering the annual incentive, long-term performance
incentive and stock option plans of the Company. On June 16, 1994, the powers of
the Committee were amended to modify items (a) and (b) above to provide the
Compensation Committee would also be responsible for reviewing and approving the
compensation of all individuals at or to be elected to the rank of Vice
President or above and/or who have current or proposed salaries of $100,000 or
above. The members of the Compensation Committee are Messrs. Deck (Chairman),
Gudefin, Popp and Sherwood. Mr. Elios Pascual was elected to the Board and the
Compensation Committee upon Mr. Dillard's retirement there in June 1994. Mr.
Pascual served on the Board and the Compensation Committee until his resignation
on January 1, 1995. The Compensation Committee held eight meetings during 1994.
The Executive Committee has the authority to exercise all the powers of the
Board in the management of the business and affairs of the company except as
limited by applicable laws. The members of the Executive Committee are Messrs.
Blondeau (Chairman), Cox, Deck, Karter, Osouf and Sherwood. Mr. Peugeot resigned
as a member and Chairman of the Executive Committee on September 30, 1994, and
Mr. Blondeau was elected Chairman of the Committee on September 30, 1994.
Messrs. Deck and Cox were elected to the Committee on June 16, 1994. The
Executive Committee held eight meetings and acted by unanimous written consent
on one occasion during 1994.
The Finance Committee's functions include: (1) supervising the investment
policies and practices of the Company as directed by the Board; (2) providing
advice to the Boards of the Company's operating subsidiaries concerning their
investment decisions; and (3) designating the officers of the Company who have
the authority to effect investment decisions as approved by the Board. The
members of the Finance Committee are Messrs. Reach (Chairman), Blondeau, Deck,
Osouf, Peugeot and Masse. Upon Mr. Peugeot's resignation from the Board and
Committee on September 30, 1994, Mr. Reach was elected Chairman of the
Committee. Messrs. Jolivet and Pascual resigned from the Committee and the Board
on January 1, 1995, and Messrs. Osouf and Masse were elected to the Committee on
September 30, 1994, and March 24, 1995, respectively. The Finance Committee held
four meetings during 1994.
10
<PAGE>
BOARD OF DIRECTORS RETIREMENT POLICY
In June 1992, the Board voted to amend the Company's By-Laws to provide that
no individual shall be elected or re-elected as member of the Board subsequent
to his or her attaining the age of 72.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth, for the fiscal years ended December 31,
1992, 1993 and 1994, the cash compensation paid by the Company and its
subsidiaries, as well as certain other compensation paid or accrued by such
entities for those years, to or with respect to the Chief Executive Officer and
each of the persons who were the four most highly compensated executive officers
of the Company during its most recent fiscal year (the "Named Officers"), for
services rendered in all capacities as executive officers during such period:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION:
ANNUAL COMPENSATION AWARDS
------------------------------------------ -------------------------
OTHER SECURITIES
NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($) STOCK ($)(2) OPTIONS (#) COMPENSATION ($)(3)
- ------------------------ ---- ------------- --------- ---------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jacques Blondeau (4).... 1994 $ 175,000 $ -- $-- $ -- 10,000 -$-
Chairman of the 1993 175,000 -- -- -- 24,000 --
Board and Former 1992 174,692 -- -- -- -- --
Chief Executive Officer
Jerome Karter........... 1994 $ 301,641 $ -- $ 46,243(5) $ -- 38,000 $43,364
President and Chief 1993 289,112 75,000 39,348(5) -- 33,000 52,044
Executive Officer 1992 290,910 25,000 109,598(5) -- -- 53,367
Patrick Peugeot (4)..... 1994 $ 153,750 $ -- $-- $ -- 3,000 -$-
Former Chief 1993 205,000 -- -- -- 24,000 --
Executive Officer 1992 205,846 -- 57,993(6) -- -- --
John T. Andrews, Jr..... 1994 $ 240,913 $ -- $ 48,833(7) $ -- 57,000 $32,799
Senior Vice President, 1993 230,072 65,000 244,883(7) -- 30,000 35,135
General Counsel and 1992 229,787 20,000 -- -- -- 34,251
Secretary
Nolan E. Asch........... 1994 $ 180,685 $ -- $ 8,771(8) $ -- 15,071 $12,678
Senior Vice President 1993 172,554 40,000 24,335(8) -- -- 7,703
and Chief Actuary 1992 172,341 -- 27,689(8) -- -- 9,825
R. Daniel Brooks........ 1994 $ 216,300 $ -- $-- $ -- 8,000 $14,669
Senior Vice President 1993 214,846 35,000 -- -- 22,000 13,851
1992 218,711 16,000 -- -- -- 17,779
Jeffrey D. Cropsey 1994 $ 216,544 $ -- $-- $ -- 13,000 $25,980
(9)..................... 1993 36,346 90,000 -- $ 58,607 -- --
Senior Vice President 1992 N/A N/A N/A N/A N/A N/A
and Chief Financial
Officer
</TABLE>
- ------------
(1) Company executives, including the Named Officers, are paid bi-weekly. As a
result of this cycle, the Named Officers received 27 payments of base salary
in 1992 rather than the usual 26. The data in the table includes the extra
payments and, accordingly, overstates the 1992 base salary by 1/26th or
3.8%.
(2) Except for that made to Mr. Cropsey, no restricted stock awards were made to
any of the Named Officers during the last three fiscal years and none of
them owns any shares of restricted stock of the Company. Mr. Cropsey
received a restricted stock award of 4,552 shares pursuant to the SIP. The
shares were awarded on
(Footnotes continued on following page)
11
<PAGE>
(Footnotes continued from preceding page)
December 16, 1993. One-quarter of the shares (1,138) will vest on the second
anniversary of the date of the grant and each one-year anniversary
thereafter, starting on December 16, 1995.
(3) The amounts shown in this column are derived from the following figures: (A)
For 1994: (i) Mr. Karter: $22,016--amount accrued by the Company pursuant to
the retirement provisions of Mr. Karter's employment contract with the
Company; $21,347--Company contributions and credits to the SCOR U.S. Group
Savings Plan ("GSP") and the SCOR U.S. Group Supplemental Retirement Plan
("SRP"), which is provided to certain executives whose benefits under the
GSP are capped by federal law; (ii) Mr. Andrews: $15,561-- amount accrued by
the Company pursuant to the retirement provisions of Mr. Andrews' employment
contract with the Company; $17,238--Company contributions and credits to the
GSP and SRP; (iii) Mr. Cropsey: $21,274--amount accrued by the Company
pursuant to the retirement provisions of Mr. Cropsey's Special Severance and
Pension Benefits Agreement with the Company; $4,733--Company contributions
and credits to the GSP; (iv) Mr. Brooks: $14,669--Company contributions and
credits to the GSP and SRP; and (v) Mr. Asch: $12,679--Company contributions
and credits to the GSP and SRP; (B) for 1993: (i) Mr. Karter: $33,197 -
amount accrued by the Company pursuant to the retirement provisions of Mr.
Karter's employment contract with the Company; $18,847-- Company
contributions and credits to the GSP and the SRP; (ii) Mr. Andrews:
$20,131--amount accrued by the Company pursuant to the retirement provisions
of Mr. Andrews' employment contract with the Company; $15,004--Company
contributions and credits to the GSP and SRP; (iii) Mr. Cropsey:
Not-applicable; (iv) Mr. Brooks: $13,851--Company contributions and credits
to the GSP and SRP; and (v) Mr. Asch: $7,703--Company contributions and
credits to the GSP and SRP; and (C) for 1992: (i) Mr. Karter:
$29,374--amount accrued by the Company pursuant to the retirement provisions
of Mr. Karter's employment contract with the Company; $23,993--Company
contributions and credits to the GSP and the SRP; (ii) Mr. Andrews:
$15,320--amount accrued by the Company pursuant to the retirement provisions
of Mr. Andrews' employment contract with the Company; $18,931--Company
contributions and credits to the GSP and SRP; (iii) Mr. Cropsey:
Not-applicable; (iv) Mr. Brooks: $17,779--Company contributions and credits
to the GSP and SRP; and (v) Mr. Asch: $9,825--Company contributions and
credits to the GSP and SRP.
(4) Mr. Peugeot and Mr. Blondeau did not participate in the Company's Annual
Incentive Plan, Pension Plan, GSP or SRP due to their participation in
equivalent plans at SCOR S.A.
(5) Other Annual Compensation for Mr. Karter includes forgiven interest on loans
from the Company and certain tax reimbursement payments related thereto of
$22,785 and $15,190, respectively, in 1994, $22,400 and $2,682,
respectively, in 1993, an adjusted tax reimbursement payment in 1994 of
$8,269 relating to 1993, and certain tax reimbursement payments in
connection with the exercise of stock options of $109,598 in 1992.
(6) Other Annual Compensation for Mr. Peugeot includes $57,993 for certain tax
reimbursement payments in 1992 in connection with the exercise of stock
options.
(7) Other Annual Compensation for Mr. Andrews includes forgiven interest on
loans from the Company and certain tax reimbursement payments related
thereto of $29,300, and $19,533, respectively, in 1994, and $26,512 and
$10,738, respectively in 1993, and certain tax reimbursement payments in
connection with the exercise of stock options of $198,423 in 1993.
(8) Other Annual Compensation for Mr. Asch includes forgiven interest on loans
from the Company and certain tax reimbursement payments related thereto of
$5,262 and $3,508, respectively, in 1994, and $5,764 and $2,334,
respectively, in 1993. In addition, Mr. Asch received $16,235 and $27,689 in
1993 and 1992 respectively, for tax reimbursement payments in connection
with the exercise of stock options.
(9) The 1993 figure reflects Mr. Cropsey's pro-rata salary due to a November 1,
1993 date of hire.
12
<PAGE>
STOCK OPTIONS
The following table contains information regarding the grant of stock
options under the Company's SOP and the SIP to the Named Officers during the
year ended December 31, 1994. In addition, in accordance with rules of the
Commission, the following table sets forth the hypothetical grant date present
value with respect to the referenced options, using the Black-Scholes Option
Pricing Model.
OPTION GRANTS IN 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
----------------------------------------------------------------------------
NUMBER % OF TOTAL
OF SECURITIES OPTIONS GRANT
UNDERLYING GRANTED TO EXERCISE OR DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED (#) FISCAL YEAR (2) ($/SH) (3) DATE VALUE $ (4)
- ------------------------------- ------------- --------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Jacques Blondeau............... 10,000 2.35% $ 9.00 11/30/2004 $ 3,600.00
Chairman of the Board
of Directors and Former
Chief Executive Officer
Jerome Karter.................. 13,000 8.94% $ 9.00 11/30/2004 $ 4,680.00
President and Chief 25,000 $11.125 12/02/2004 $ 7,745.00
Executive Officer
Patrick Peugeot (5)............ None N/A N/A N/A N/A
Former Chief Executive
Officer
John T. Andrews, Jr............ 13,000 13.41% $ 9.00 11/30/2004 $ 4,680.00
Senior Vice President, 44,000 $11.125 12/02/2004 $ 13,631.20
General Counsel and
Corporate Secretary
Nolan E. Asch.................. 6,000 3.54% $ 9.00 11/30/2004 $ 2,160.00
Senior Vice President 9,071 $11.125 11/30/2004 $ 2,810.20
Chief Actuary
R. Daniel Brooks............... 8,000 2.81% $ 9.00 11/30/2004 $ 2,880.00
Senior Vice President 3,929 $11.125 12/02/2004 $ 1,217.20
Jeffrey Cropsey................ 13,000 3.06% $ 9.00 11/30/2004 $ 4,680.00
Senior Vice President
and Chief Financial Officer
</TABLE>
- ------------
<TABLE>
<S> <C>
(1) The option shown in the above table represent options granted under both the
SIP and SOP, respectively. The options were granted on November 30, 1994
under the SOP and November 2, 1994 under the SIP.
The SOP is administered by the Board's Compensation Committee. The Compensation
Committee determines the eligibility of employees, the number of shares to be
granted and the terms of such grants. All stock options granted in fiscal
year 1994 are non-qualified options receiving no special tax benefit, have an
exercise price equal to the fair market value on the date of grant, vest at a
rate of approximately 33.33 percent per year, on the, second, third and
fourth anniversary of the grant date and have a term of ten years. No
incentive stock options or stock appreciation rights were granted in 1994
pursuant to the SOP.
To the extent not already exercisable and not expired upon a Change in Control
(as defined), the options become exercisable upon the later of (i) six months
after their grant date or (ii) the date of a Change in Control.
(Footnotes continued on following page)
</TABLE>
13
<PAGE>
(Footnotes continued from preceding page)
The SIP is also administered by the Compensation Committee. The Committee
determines the eligibility of employees, the number of shares to be granted
and the terms of such grants. All stock options granted in the fiscal year
1994 are non-qualified stock options, have an exercise price equal to the
fair market value on the date of grant, vest on the six month anniversary of
the grant date, and have a term of ten years and one month. At the
Compensation Committee's discretion, an individual may be eligible for a tax
bonus upon the exercise of a stock option grant.
(2) Options to purchase an aggregate of 425,175 shares were granted in fiscal
year 1994 under the SOP and SIP plans, with 343,175 granted to employees
under the SOP and 82,000 granted to key executives under the SIP.
(3) Under the SOP, the exercise price may be paid either (i) in cash, (ii)
through the delivery of Shares with a Fair Market Value (as defined) on the
immediately preceding Trading Day (as defined) 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 delivered
to SCOR U.S. shall have been held by the optionee for at least six months
and shall not secure any obligation of the optionee to SCOR U.S. If so
provided under the terms of a stock option, the Compensation Committee may,
at its sole discretion, permit an optionee, in lieu of the methods of
payment set forth above, to pay for any portion of the purchase price of the
Shares to be issued or transferred that exceeds the par value of such
Shares, by delivery of a full-recourse promissory note of the optionee in
such form as the Compensation Committee may approve. Under the SOP, any such
promissory note shall be secured by Shares 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. Under both the SOP and
SIP, any such promissory note shall have a maturity of five years or less,
as the Compensation 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 Compensation Committee may determine in
its sole discretion. The Compensation Committee shall determine in its sole
discretion the interest rate to be charged by SCOR U.S. 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 (the "Code") applies. Payment of the exercise
price under the SIP may be made by the same methods as apply to the SOP,
except that under the SIP any promissory note shall be secured by shares
having a Fair Market Value on the Trading Day immediately prior to the date
of delivery of the note that is equal to the principal amount of the note.
(4) The estimated fair value of stock options is measured at the grant date in
accordance with the Black-Scholes Option Pricing Model. The assumptions used
in such option pricing model are: expected volatility, 27.89%; expected
dividend yield, 2.01%; expected option term, 10 years; and risk-free rate of
return, 7.84%. No adjustments have been made for non-transferability or risk
of forfeiture. The actual value, if any, a Named Officer may realize will
depend on the excess of the stock price over the exercise a price on the
date the option is exercised. Consequently, there is no assurance the value
realized by a Named Officer will be at or near the value estimated above.
These amounts should not be used to predict stock performance.
(5) Mr. Peugeot did not receive any stock options under the SOP or SIP for the
fiscal year ended December 31, 1994. He did however receive a non-qualified
stock option grant of 3,000 shares under the DP on September 30, 1994, at an
grant price of $11.25 per share. The options will vest at a rate of 50% per
year, on the first and second anniversary of the grant date, and have a term
of ten years. For a more complete description of the DP, see "COMPENSATION
OF DIRECTORS".
14
<PAGE>
STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE
The following table shows stock option exercises by the Named Officers
during the fiscal year ended December 31, 1994, including the aggregate value of
gains on the date of exercise. In addition, this table includes the number of
shares covered by both exercisable and non-exercisable stock options as of
December 31, 1994. Values for "in-the money" options represent the positive
spread between the exercise price of any such existing stock options and the
year-end price of the Common Stock. The market price of the Common Stock as of
the close of business on December 31, 1994, was $8.375 per share.
AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED STOCK IN-THE-MONEY STOCK
NUMBER OF VALUED OPTIONS
SHARES ACQUIRED REALIZED OPTIONS AT 12/31/94 (#) AT 12/31/94($) (2)
UPON EXERCISE OF UPON ------------------------------- ---------------------------
NAME OPTION (#) EXERCISE (1) EXERCISABLE UNEXERCISABLE (2) EXERCISABLE UNEXERCISABLE
- ------------------------ ---------------- ------------ ----------- ----------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jacques Blondeau........ -- -- 75,999 26,000 -- --
Chairman and Former
Chief Executive Officer
Jerome Karter........... -- -- 105,998 60,002 -- --
President and Chief
Executive Officer
Patrick Peugeot......... -- -- 89,789 19,001 -- --
Former Chief
Executive Officer
John T. Andrews, Jr..... -- -- 31,999 77,001 -- --
Senior Vice President,
General Counsel
and Secretary
Nolan E. Asch........... -- -- 33,266 28,405 -- --
Senior Vice President
and Chief Actuary
R. Daniel Brooks........ -- -- 28,332 26,597 -- --
Senior Vice President
Jeffrey D. Cropsey...... -- -- -- 13,000 -- --
Senior Vice President
and Chief Financial
Officer
</TABLE>
- ------------
(1) Market value of underlying securities at exercise, minus the exercise price.
(2) Based on the December 31, 1994 stock price which was $8.375 per share, there
were no "in-the-money" stock options.
LONG-TERM INCENTIVES
The Company granted no awards to the Named Officers during 1994 under the
Performance Incentive Plan, a long-term incentive plan ("PIP"). Participation in
the PIP is limited to select senior
15
<PAGE>
executives of the Company, including the Named Officers. Under the PIP, grants
of performance units ("Units") are made every other year to eligible senior
executives. At the time when an award of Units is made, the Compensation
Committee must determine a Performance Period (as defined) of at least five
years with respect to such Units and must determine a minimum threshold of
annual compound appreciation of the adjusted book value per share of the
Company's Common Stock.
A Unit vests at the end of the applicable Performance Period. If such
appreciation exceeds the threshold rate, each Unit has a value, subject to
adjustment in certain events, equal to the difference between (i) the adjusted
book value per share of Common Stock at the end of the Performance Period plus
the dividends paid on a share of Common Stock at the commencement of the
Performance Period and (ii) the adjusted book value per share of Common Stock at
the commencement of the Performance Period.
Participants may receive any payments under the Performance Plan at the end
of the applicable Performance Period. They may elect to receive such payments in
a lump sum or in periodic installments.
Units are non-transferable except to a designated beneficiary at the death
of a Participant. Participants leaving the employ of SCOR U.S. for any reason
other than death, disability or retirement may receive payments pursuant only to
Units that have vested prior to the termination of employment. Participants or
their designated beneficiaries may receive partial payment before the end of a
Performance Period in the event of death, disability or retirement. In the event
of a Change of Control (as defined), Units vest immediately and Participants
become entitled to receive awards pursuant thereto. See also, "REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION--PERFORMANCE INCENTIVE PLAN".
COMPENSATION OF DIRECTORS
Compensation of Directors who are not employees of SCOR U.S. currently
consists of an annual retainer of $13,000, a fee of $2,000 for attendance at
each quarterly meeting of the Board, $1,500 for attendance at other meetings of
the Board (provided that if such a meeting is held jointly with the Board of any
subsidiary of which such person is also a Director, the fee is $2,000) and a fee
of $1,000 for attendance at each meeting of a committee of the Board. The
Chairman of a committee of the Board receives an annual retainer of $1,000. The
fees that a Director can receive for attending Board and committee meetings on
any one day may not exceed $3,000. Directors who are employees of SCOR U.S. or
any of its subsidiaries receive no additional compensation for their services as
Directors.
In June 1991, the stockholders of the Company approved the DP, which
provided for the automatic annual grant to each SCOR U.S. Director who is not an
employee of SCOR U.S. or its subsidiaries or affiliates (including SCOR S.A., or
any of its respective subsidiaries or affiliates) of a non-statutory stock
option to purchase 3,000 shares of SCOR U.S. Common Stock, as of the date which
is three business days following the date of each Annual Meeting of
Stockholders. In June 1994, the stockholders of the Company approved an
amendment to the DP. The DP now provides for the automatic grant to each
Eligible Director of a non-statutory option to purchase 3,000 Shares of SCOR
U.S. Common Stock as of the following dates: (1) an annual grant on the date
that is three business days following the date of each Annual Meeting of
Stockholders; and (2) a grant on the date the individual becomes an Eligible
Director (unless he or she becomes a Director on the date of the Annual
Meeting). An Eligible Director is now defined as a member of the Board of SCOR
U.S. or its subsidiaries, who is not an employee of SCOR U.S. or its
subsidiaries, but may be a employee or director of SCOR S.A., its subsidiaries,
or affiliates.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during 1994 were: Raymond H. Deck
(Chairman), Michel J. Gudefin, Elios Pascual, John W. Popp, and David J.
Sherwood. Mr. Dillard resigned from the Board and the Compensation Committee,
effective June 16, 1994, and was replaced by Mr. Pascual on that same date. Mr.
Pascual subsequently resigned from the Board and the Committee, effective
January 1, 1995. No current officer of the Company serves on the Compensation
Committee and there are no "interlocks" as defined by the Commission.
CERTAIN AGREEMENTS
Effective February 27, 1989, SCOR Re entered into a five-year employment
agreement with Mr. Karter which provides for a base salary of not less than
$240,000. Pursuant to a modification of the agreement in 1991, Mr. Karter agreed
to terminate his right to receive annual and long-term bonuses set forth in the
agreement in exchange for participation in the SCOR U.S. Annual Incentive Plan
and the PIP, plus a payment of $13,332 representing the long-term bonus accrued
under the agreement. Under the agreement, SCOR Re is also obligated to provide
supplemental retirement benefits to Mr. Karter under a formula that, among other
factors, gives Mr. Karter pension credit for five years of service with his
prior employer. The agreement is terminable upon death, or by SCOR Re upon
disability (exceeding six months), or with or without "Cause" (as defined in the
agreement) at any time. In the case of termination by SCOR Re without Cause or
if SCOR Re elects not to renew or further renew the agreement, Mr. Karter is
entitled to a severance payment equal to (i) his full salary through the date of
termination, plus (ii) any annual or long-term bonus payable if not yet paid,
plus (iii) an amount equal to the salary payable for the remaining balance of
the employment period or, if greater, an amount equal to twice the then annual
salary. If payments under the agreement would constitute "excess parachute
payments" under the Code, such payments shall be reduced if and to the extent
that such a reduction would yield a greater payment to Mr. Karter after payment
of all taxes than if such reduction were not made. SCOR Re would also be
obligated to provide supplemental pension benefits based on a maximum of ten
years' service credit. The agreement is automatically renewable for successive
periods of one year, unless Mr. Karter or SCOR Re gives six months' advance
notice of intention not to renew.
Effective November 13, 1989, SCOR U.S. entered into a three-year employment
agreement with Mr. Andrews, which provides for a base salary of at least
$200,000, and participation in SCOR U.S.'s bonus and benefit plans. Under the
agreement, SCOR U.S. is also obligated to provide supplemental retirement
benefits to Mr. Andrews under a formula that, among other factors, gives Mr.
Andrews pension credit for an additional five years of service with the Company.
The agreement is terminable upon death, or by SCOR U.S. upon disability
(exceeding six months), or with or without "Good Cause" (as defined in the
Agreement) at any time. In the case of termination by SCOR U.S. without Good
Cause, Mr. Andrews is entitled to a severance payment of his monthly salary
immediately prior to such termination for the shorter of one year or the balance
of the term of the agreement and continued participation in SCOR U.S.'s death
and medical insurance plans for such period. The agreement is automatically
renewable for successive periods of one year, unless Mr. Andrews or SCOR U.S.
gives six months' advance notice of intention not to renew.
Effective November 1, 1993, SCOR U.S. entered into a Special Severance and
Pension Benefits agreement with Mr. Jeffrey D. Cropsey, Senior Vice President
and Chief Financial Officer. Under the
17
<PAGE>
agreement, if Mr. Cropsey's employment with SCOR U.S. is terminated for any
reason other than death, disability (exceeding six months) or "Good Cause" (as
defined in the agreement) prior to November 1, 1996, Mr. Cropsey is entitled to
a severance payment of his monthly salary immediately prior to such termination
for a period of one year or less depending upon the date of such termination.
Under the agreement, SCOR U.S. is also obligated to provide supplemental
retirement benefits to Mr. Cropsey under a formula that, among other factors,
gives Mr. Cropsey pension credit for five years of service with his former
employer.
Effective July 25, 1994, SCOR U.S. entered into a two year employment
agreement with John Dunn, Jr., which provides for a base salary of at least
$215,000 and participation in SCOR U.S.'s bonus and benefit plans. Under the
agreement, SCOR U.S. is also obliged to provide supplemental retirement benefits
to Mr. Dunn under a formula that, among other factors, gives Mr. Dunn pension
credit for an additional five years of service with the company. The agreement
is terminable upon death, or by SCOR U.S. upon disability (exceeding six
months), or with "Good Cause" (as defined in the Agreement) at any time. In the
case of termination by SCOR U.S. without Good Cause, Mr. Dunn is entitled to a
severance payment equal to his monthly salary immediately prior to such
termination for the longer of one year or the balance of the term of the
agreement and continued participation in SCOR U.S.'s death and medical insurance
plans for such period. The agreement is automatically renewable for successive
periods of one year each, unless Mr. Dunn or SCOR U.S. gives at least three
months' advance notice of intention not to renew.
PENSION PLANS
The following table shows the estimated pension benefits payable to a
covered participant at normal retirement age under the Company's Pension Plan,
as well as its Supplemental Retirement Plan that provides benefits that would
otherwise be denied participants by reason of certain Code limitations on
qualified plan benefits, based on remuneration that is covered under the plans
and years of service with the Company and its subsidiaries:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
GROSS ANNUAL BENEFITS
AVERAGE PENSIONABLE COMPENSATION ---------------------------------
FOR 5 HIGHEST PAID CONSECUTIVE 15 OR MORE
YEARS IN LAST 10 YEARS OF SERVICE 5 YEARS 10 YEARS YEARS
- ------------------------------------------------------------- ------- -------- ----------
<S> <C> <C> <C>
$ 50,000........................................... $ 7,667 $ 15,333 $ 23,000
75,000............................................. 11,500 23,000 34,000
100,000............................................ 15,333 30,667 46,000
125,000............................................ 19,167 38,333 57,500
150,000............................................ 23,000 46,000 69,000
200,000............................................ 30,667 61,333 92,000
250,000............................................ 38,333 76,667 115,000
300,000............................................ 46,000 92,000 138,000
350,000............................................ 53,667 107,333 161,000
400,000............................................ 61,333 122,667 184,000
450,000............................................ 69,000 138,000 207,000
500,000............................................ 76,667 153,333 230,000
</TABLE>
A participant's remuneration covered by the Pension Plan is his or her
average base salary (as reported in the Summary Compensation Table) for the five
highest paid consecutive calendar plan years
18
<PAGE>
during the last ten years of the participant's career. Covered Compensation for
Named Officers as of the end of the last calendar year is: Mr. Karter: $376,641;
Mr. Andrews: $304,913; Mr. Cropsey: $231,544; Mr. Brooks: $251,300 and Mr. Asch:
$223,162. Estimated credited years of service for purposes of the Pension Plan
and Supplemental Retirement Plan for each of the named executives is as follows:
Mr. Karter: 5; Mr. Andrews: 5; Mr. Cropsey: 1; Mr. Brooks: 18; and Mr. Asch: 10.
Benefits shown are computed as a straight single life annuity beginning at age
65.
CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH DIRECTORS AND EXECUTIVE OFFICERS
On November 2, 1994, SCOR S.A., the majority stockholder of the Company,
acquired directly from certain of its Named Executive Officers, 82,000 Shares at
the then prevailing market price of $11.125 per Share, specifically: 44,000
Shares from John T. Andrews, Jr., Senior Vice President, General Counsel and
Secretary; 9,071 Shares from Nolan E. Asch, Senior Vice President and Chief
Actuary; 3,929 Shares from R. Daniel Brooks, Senior Vice President; and 25,000
Shares from Jerome Karter, President and CEO. Each of these senior officers had,
at the request of the Company, voluntarily agreed not to sell any Shares held by
them in connection with the privately placed offering of convertible
subordinated debentures of SCOR U.S. in 1993, and were prevented from selling
during certain other periods thereafter in accordance with Company policy. The
proceeds from these sales to SCOR S.A. were applied exclusively to reduce
indebtedness of the sellers to SCOR U.S. described below. In addition, on
November 2, 1994, under the SIP, SCOR U.S. granted to each of such officers
options to purchase a corresponding number of Shares at an exercise price of
$11.125 per Share, which was equal to the per share market price on that date.
Mr. Karter, President and Chief Executive Officer, is indebted to SCOR U.S.
in respect of a promissory note executed in connection with his purchase of a
new residence. The largest aggregate amount of indebtedness outstanding on the
note at any time during 1994 was $100,000. Partial payment has been made and
$64,125 is the amount outstanding as of April 18, 1995. The note is due in 1996.
He was also indebted to SCOR U.S. in respect of a promissory note executed in
connection with the exercise of stock options. The largest amount of
indebtedness outstanding on the note at any time during 1994 was $242,250, which
amount has been paid in full as of December 31, 1994. Mr. Karter is also
indebted to SCOR U.S. in respect of a promissory note executed in connection
with certain personal financial requirements. The largest amount of outstanding
indebtedness on this note at any time during 1994 was $126,465, which is also
the amount outstanding as of April 18, 1995. The note is due in 1996. No
interest is charged by the Company on any of the above loans.
Mr. Andrews, Senior Vice President, General Counsel and Corporate Secretary,
was indebted to SCOR U.S. in respect of two promissory notes executed during
1993 in connection with the exercise of stock options. The largest amount of
outstanding indebtedness on the notes at any time during 1994 was $523,000,
which amount has been paid in full as of December 31, 1994. Mr. Andrews is also
indebted to SCOR U.S. in respect of a promissory note executed in connection
with certain personal financial requirements. The largest amount outstanding on
these notes at any time during 1994 was $80,000, which is also the amount
outstanding as of April 18, 1995. The note is due in 1996. Mr. Andrews is also
indebted to SCOR U.S. in respect of a promissory note in the principal amount of
$33,800, executed in connection with certain personal financial requirements.
The largest amount outstanding on this note at any time during 1994 was $33,800,
which is also the amount outstanding as of April 18, 1995. The note is due in
1996. No interest is charged by the Company on any of the above loans.
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Mr. Asch, Senior Vice President and Actuary, was indebted to SCOR U.S. in
respect of various promissory notes executed in connection with the exercise of
stock options. The largest aggregate amount outstanding on the notes at any time
during 1994 was $108,909, which amount was paid in full as of December 31, 1994.
In connection with the relocation to the United States of Sylvain Boueil, a
Senior Vice President of the Company until September 30, 1994, the Company
serves as guarantor on a primary residence mortgage loan, payable on demand,
from Banque Francaise du Commerce Exterieur to Mr. Boueil in the principal
amount of $765,000. Also in connection with the purchase of this residence, Mr.
Boueil was indebted to SCOR U.S. during 1994 in respect of a demand promissory
note in favor of SCOR U.S. The largest amount of indebtedness outstanding on the
note at any time during 1994 was $102,408. The amount outstanding as of April
18, 1995 was $103,496. The note bears interest at 5.12%.
In connection with the relocation to the United States of Dominique
Lavallee, a Senior Vice President of the Company, SCOR Services, Inc., a
wholly-owned subsidiary of the Company, is guarantor of a 30-year term home
mortgage loan from The Bank of New York to Mr. Lavallee in the principal amount
of $224,000. Also in connection with the purchase of this residence, Mr.
Lavallee is indebted to SCOR U.S. in respect of a demand promissory note in
favor of SCOR U.S. The largest amount of indebtedness outstanding on the note at
any time during 1994 was $24,000. The amount outstanding as of April 18, 1995
was $12,469.20. The note bears interest at 7.82%.
Mr. Michael Walsh, Senior Vice President and Treasurer until his resignation
on November 18, 1994, was indebted to SCOR U.S. in respect of various promissory
notes executed in connection with the exercise of stock options. The largest
aggregate amount outstanding on the notes at any time during 1994 was $171,289.
The amount of the indebtedness was paid in full as of December 31, 1994.
Pursuant to a service agreement, SCOR U.S. and SCOR S.A. have agreed to
reimburse the other for services provided by various personnel. The amount of
the reimbursement for the services provided is determined by allocation of the
actual costs, including salary and related expenses. Such payments were
immaterial during 1994.
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%), for the year ended
December 31, 1994. Of this amount, approximately $6,959,000 was 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. The total written premiums written ceded by SCOR U.S.'s subsidiaries
under retrocession agreements to affiliated companies in 1994 were $35,644,000.
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 General Security
Assurance Corporation of
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New York ("General Security"). However, business underwritten by General
Security and The Unity Fire and General Insurance Company ("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 $16.2 million 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 recognized under this
Agreement. In addition, based on the experience under 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 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 $11.7 million.
SCOR S.A. provides letters of credit in favor of SCOR U.S.'s operating
subsidiary in amounts equal to its estimated liability under its reinsurance
agreements with such companies (as re-estimated on a quarterly basis). The
amount of letters of credit provided by SCOR S.A. at December 31, 1994 was
approximately $134,500,000.
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COMPENSATION POLICIES AND PERFORMANCE GRAPH
The disclosure contained in this section of the Proxy Statement shall not be
deemed incorporated by reference into any prior filing by the Company pursuant
to the Securities Act of 1933 or the Securities Exchange Act of 1934 that
incorporates future filings or portions thereof (including this Proxy Statement
or any part thereof).
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
During 1994, the Compensation Committee (the "Committee") of the Board of
Directors of SCOR U.S. was composed of five non-employee directors who have
never served as officers of or been employed by the Company. The Committee met
eight times during 1994. Mr. Karter, the Chief Executive Officer, and certain
other executive officers of the Company may attend meetings of the Committee,
but are not present during discussions or deliberations regarding their own
compensation.
The Compensation Committee reviews compensation policies and practices and
prior to June 16, 1994 was specifically responsible for (a) reviewing and
approving the compensation of all senior executive officers who do not serve on
the Board; (b) reviewing and recommending to the Board the compensation of
senior executives who also serve on the Board; (c) reviewing new executive
compensation programs or modifications to existing programs; and (d)
administering the annual incentive, long-term performance incentive and stock
option plans of the Company. On June 16, 1994, the powers of the Committee were
amended to modify items (a) and (b) above to provide that it is responsible for
reviewing and approving the compensation of all individuals at or to be elected
to the rank of Vice President or above and/or who have current or proposed
salaries of $100,000 or above.
The Committee approved base salary levels, annual incentive awards and stock
option grants for all executive officers, except the CEO, prior to June 16,
1994. Subsequent to that date, the Committee assumed the responsibility of
approving all actions relating to the compensation of all executives officers,
including the CEO. Prior to the amendment of the Committee's powers on June 16,
1994, the Board approved without modification all compensation recommendations
of the Committee in 1994 relating to the CEO.
COMPENSATION PHILOSOPHY. The overall compensation program is designed to
motivate executives to achieve short and long-term business objectives, reward
executives for their achievements and align the interests of executives and
shareholders. As such, the total compensation package emphasizes variable
incentive pay contingent on Company and individual performance. As the
executive's responsibility level within the Company increases, the portion of
the total compensation package based on Company performance and long-term equity
based awards increases.
Compensation opportunities provided to executive officers are competitive
with similar positions in the industry in order to attract and retain executives
of superior talent who are critical to the Company's success. The Committee
reviews the results of an annual comparison of company performance and executive
compensation levels of a group of domestic publicly-held professional
reinsurance companies (the "Peer Group") and other companies in the
property/casualty industry.
The Peer Group of ten reinsurance companies used in 1994 for compensation
comparisons is identical to the group of companies included in the peer index of
the shareholder return performance
22
<PAGE>
graph included in this proxy statement. This Peer Group may change as the
Company or its competitors change their focus, merge or are acquired, or as new
competitors emerge. The Peer Group used in 1994 is identical to the Peer Group
used in the 1993 review.
As a matter of Company policy, Jacques P. Blondeau, Chairman, and Serge
Osouf, Vice Chairman, do not participate in the Company's Annual Incentive,
Pension, Savings and Supplemental Retirement Plans due to their participation in
similar plans at SCOR S.A., the principal shareholder of the Company. For other
officers of the Company, the executive compensation program at present comprises
base salary, annual incentive awards and stock options. In addition, certain
senior executives receive long-term performance unit incentives.
BASE SALARY. To attract and retain superior talent, salaries are managed at
a percentile level above the median of the Peer Group and broader industry
market data. The Committee reviews and approves (or recommends to the Board as
noted above) base salaries annually and considers competitive salary levels,
individual contributions and individual responsibility levels. The total
compensation program is designed to limit fixed base salary increases and place
greater emphasis on performance-based incentives. The Committee approved or
recommended a base salary level to be effective April 1, 1994 for each executive
officer.
ANNUAL INCENTIVES. The 1994 Annual Incentive Plan (the "Plan") was designed
to reward participating executives for annual company performance and individual
contribution towards the Company's success. Company performance factors upon
which the Plan is based include return on equity, combined ratio and expense
control. These factors are weighted 45%, 45% and 10%, respectively, in
determining an overall company performance award factor. Specific threshold,
target and superior performance levels are defined for each of these three
measures at the beginning of each annual performance period. Individual
performance is based on predetermined criteria relative to business/functional
goals and individual position responsibilities. Company and individual
performance components of the annual incentive award are weighted according to
the participant's level and function. The more senior executive levels are
rewarded relatively more on the basis of Company performance. The corresponding
Company and individual performance weightings for the Named Officers annual
incentive awards were 80% and 20%, respectively.
Target awards, representing the pre-established guideline amount to be paid
each year if annual goals are achieved, are set to reflect competitive peer
group and industry practices. The target award for the Named Officers is 35% of
base salary. Actual annual incentive payments may range from 0% to 150% of
target awards to the extent that Company and individual performance meet the
identified goals. Awards under the annual incentive plan are made in March of
each year for performance in the prior year.
The 1994 Annual Incentive Plan provides that if the Company has no net
income for the year under generally accepted accounting principles ("GAAP") no
payments will be made under the Plan design. Since the Company had a net loss
for 1994, no payments were made under the Plan to any participant, including the
Named Officers.
LONG-TERM INCENTIVE PROGRAM. SCOR's Long-Term Incentive Program consists of
stock options and a long-term performance incentive plan. Stock option awards
constitute 100% of the long-term incentive compensation for all participants,
except certain senior executives. Such senior executives,
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including the Named Officers, receive 50% of long-term incentive compensation
opportunity in stock options and 50% in performance incentive units.
Target award guidelines for all long-term plans have been established so
that the total long-term incentive award opportunities for senior executives are
competitive with peer group levels, with actual award values varying with
Company performance.
STOCK OPTION PLANS. Stock option awards are intended to reinforce the
importance of shareholder value creation and allow key employees to accumulate
equity ownership in the Company. Target option award guidelines reflect
competitive peer group practices and have been established as a percentage of
base salary representing a targeted gain from options. The targeted gain amount
is divided by the projected gain in value per option (based on an assumed stock
price growth rate) to determine the target number of options to award the
executive. The Committee may also consider Company and individual performance
assessments when determining the actual number of shares granted and increase or
decrease individual awards accordingly. The number of options previously awarded
to and currently held by executive officers is reviewed but is not an important
factor in determining the size of current grants.
Stock option grants were made in 1994 to select senior executives, including
the Named Officers, under the SIP, adopted in 1986. The term of each option is
ten years and one month. Options from the 1994 grant vest is six months from the
date of grant. The exercise price of each option is equal to 100% of the fair
market value of a share of the Company's common stock on the business day
immediately prior to the date of the option grant.
Stock option grants under the SOP, adopted in 1991, were also made in 1994
to all employees of SCOR U.S., including the Named Officers. The term of each
option is ten years and options from the 1994 grant vest over a four year
period. The exercise price of each option is equal to 100% of the fair market
value of a share of the Company's common stock on the date of the option grant.
These option grants were awarded to promote a stronger relationship between
key employees and the Company's strategic business goals, as well as shareholder
value creation.
PERFORMANCE INCENTIVE PLAN. The performance incentive plan is limited in
participation to select senior executives, including the Named Officers, whose
decisions have the greatest potential to impact long-term Company performance.
Performance units are designed to link a portion of executive compensation to
the Company's growth in book value over a five year period. The target award
guidelines for this group of executives reflect competitive compensation
practices and represent a targeted gain from the performance units of 42.5% of
base salary. This percentage amount of salary is divided by a targeted 5 year
growth in book value per share and accrued dividends to determine the target
number of units to be awarded to the executive. The Committee may also consider
Company and individual performance assessments when determining the actual
number of units granted and increase or decrease individual awards accordingly.
The number of performance units previously awarded to and currently held by
executive officers is reviewed but is not an important factor in determining the
size of current awards.
Grants are made every other year with a unit base value equal to the book
value per share of Company common stock on December 31 of the preceding year.
Depending on actual growth in book value at the end of the five year performance
period, targeted gains may or may not be realized. A
24
<PAGE>
minimum threshold growth in book value that is established by the Committee at
the beginning of the performance period must be reached in each performance
period before any cash awards are made, and executives must remain with the
Company until the end of the five year period (excluding death, disability or
normal retirement).
Since the inception of the plan in 1991, grants have been made to
executives, including the Named Officers, in 1991 and 1993, and the first plan
payout, if any, would be for the performance period ending December 31, 1995.
Total executive compensation is highly dependent upon achievement of
performance goals and actual Company performance and, thus, may fall above or
below the targeted levels.
CEO COMPENSATION. On September 30, 1994, Mr. Jerome Karter became Chief
Executive Officer and President of SCOR U.S. Prior to that appointment, Mr.
Karter was Executive Vice President of SCOR U.S.
Prior to Mr. Karter being named CEO, Mr. Patrick Peugeot and Mr. Jacques
Blondeau, currently Chairman of the Board of SCOR S.A., each held the position.
Mr. Peugeot served as CEO of the Company until his resignation therefrom on June
16, 1994. Mr. Blondeau then served as CEO from June 16, 1994 to September 30,
1994. Mr. Peugeot remained as Chairman of the Board until September 30, 1994
when he resigned from that position. Mr. Blondeau was elected Chairman of the
Board on September 30, 1994. During the time in 1994 when Mr. Peugeot and Mr.
Blondeau served as CEO, no compensation actions were taken with respect to Mr.
Peugeot. Mr. Blondeau's base salary was increased to $205,000 in September,
1994, representing a 17% increase from 1992. This increase was made in
consideration of his responsibilities with the Company, as well as the fact that
his base salary had not been increased since April, 1992.
The compensation of the Company's current Chief Executive Officer, Mr.
Karter, consists of base salary, annual incentive, stock options and performance
incentive units, and is based on the policies and programs as described above.
In 1994, Mr. Karter's annual base salary was $304,623, representing a 4.4%
increase from 1993 that reflected his responsibilities as Executive Vice
President, prior to being named CEO. No action was taken with respect to Mr.
Karter's base salary at the time of his appointment as CEO. As previously
described, Mr. Karter did not receive an annual incentive award for 1994
performance.
Under the SIP, Mr. Karter was awarded a stock option grant on November 2,
1994 of 25,000 shares of Common Stock with an exercise price of $11.125 . Mr.
Karter also received a stock option grant on November 30, 1994 under the SOP of
13,000 shares of Common Stock with an exercise price of $9.00. This award was a
part of the option grants made by the Company to all employees. Both stock
option grants were awarded to align the CEO's interests with the shareholders of
the Company and increase the CEO's stake in long term company success.
The Compensation Committee believes that compensation decisions made with
respect to the current CEO, Mr. Karter, and the other executive officers,
including the Named Officers, are consistent with the Company's compensation
philosophy and appropriately tie 1994 compensation to Company business
objectives, absolute and relative Company performance and competitive market
practices, as defined by the Peer Group and broader property/casualty insurance
industry data.
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Section 162(m) of the Code, enacted in 1993, generally disallows a tax
deduction to public companies for compensation over $1 million paid to the
Company's Chief Executive Officer and four other most highly compensated
executive officers. Qualifying performance based compensation will not be
subject to the deduction limit if certain requirements are met. It is the intent
of the Committee to have the Company provide compensation, to the extent
possible, that is tax deductible in compliance with the new section 162(m) of
the Internal Revenue Code. At this time the Committee is not amending any
compensation plans to maintain deductibility under the definition of
"performance based compensation" as none of the SCOR U.S. executives, including
the CEO, are expected to receive non-qualifying performance based compensation
above the $1 million cap.
COMPENSATION COMMITTEE
Raymond H. Deck, Chairman (1)
Michel J. Gudefin
John W. Popp
David J. Sherwood
- ------------
(1) Appointed Committee Chairman on September 30, 1993.
26
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CORPORATE PERFORMANCE GRAPH
The following graph compares the Company's Common Stock performance with the
performance of the Standard & Poor's 500 Stock Index ("S&P 500"), and the
current Peer Group Index (" Peer Group"), by measuring the changes in common
stock prices from December 31, 1989 plus reinvested dividends. The Current Peer
Index includes the following publicly traded reinsurance companies: American Re
Corporation, General Re Corporation, NAC Re Corporation, National Re
Corporation, PXRE Corporation (name changed from Phoenix Re Corporation in
1994), Piedmont Management Company, Inc., Re Capital Corporation, Transatlantic
Holdings Inc., Trenwick Group Inc. and Zurich Reinsurance Centre Holdings, Inc.
Total return indices reflect reinvested dividends and are weighted on a market
capitalization basis at the beginning of each relevant time period.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN
AMONG SCOR U.S., S&P 500 AND PEER GROUP
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
SCOR U.S. $100 $89 $113 $130 $99 $66
S&P 500 $100 $97 $126 $135 $149 $150
Peer Group* $100 $107 $123 $148 $135 $153
* Market capitalization weightings for peer group companies were made as of
the beginning of each year, per SEC regulations.
The graph assumes $100 invested on 12/31/89 in the Company's Common Stock,
S&P 500 Index, and the Peer Group Index. Values are as of December 31 of
specified year assuming that dividends are reinvested.
PROPOSAL TWO
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
While stockholder approval is not required, the Board has determined to
submit to stockholders for their ratification the appointment of KPMG Peat
Marwick as independent auditors of SCOR U.S. for the year 1995. In the event of
a negative vote on this proposal, the Board may nevertheless appoint
27
<PAGE>
KPMG Peat Marwick as independent auditors of SCOR U.S. for the year 1995 unless
the Board finds other compelling reasons for making a change. Disapproval of
this resolution will be considered as advice to the Board to select other
independent auditors for the year 1996. Representatives of KPMG Peat Marwick
will be present at the Annual Meeting and will be given an opportunity to make a
statement and answer any questions at such time.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's common stock, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission and the New York Stock
Exchange.
Based on the Company's review of all insider's filings and written
representations from reporting persons, the Company believes there were no
Section 16(a) violations for 1994, except for Mr. R. Daniel Brooks, who at the
time of the filing was a Section 16(a) officer and on whose behalf one report on
Form 4, reporting one transaction, was inadvertently not timely filed by the
Company.
STOCKHOLDERS PROPOSALS
Any holder of Shares desiring to make a proposal for inclusion in proxy
material for the Annual Meeting of SCOR U.S. stockholders to be held in June
1996 must ensure that such proposal is received by the Secretary of SCOR U.S. at
the address set forth above no later than December 29, 1995.
OTHER BUSINESS
The Board does not intend to bring any other business before the Annual
Meeting and does not know of any matters to be brought before the Annual Meeting
by others. If any other matter should come before the Annual Meeting, it is the
intention of the persons named in the accompanying proxy to vote the proxy on
behalf of the stockholders they represent in accordance with their judgment.
By Order of the Board of Directors
/s/ JOHN T. ANDREWS, JR.
JOHN T. ANDREWS, JR.
Corporate Secretary
April 28, 1995
PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY. NO POSTAGE
STAMP IS NECESSARY IF MAILED IN THE UNITED STATES.
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PROXY
1995 ANNUAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby authorizes John T. Andrews, Jr., Jeffrey D.
Cropsey and Maxine H. Verne, or any one of them, with full power of
substitution, to represent the undersigned and to vote all Common Stock of
SCOR U.S. Corporation, a Delaware corporation ("SCOR U.S."), owned by the
undersigned at the Annual Meeting of Stockholders of SCOR U.S. to be held at
10:30 a.m., New York time, on June 16, 1995, at Morgan Guaranty Trust Company
of New York, 60 Wall Street, 47th floor, New York, New York, and any
adjournment thereof, as provided on the reverse side hereof.
The Board of Directors favors the appointment of proxies with authority
to vote FOR the election as directors of all nominees named in the proxy
statement and FOR proposal (2).
This proxy will be voted in accordance with any specification made on the
reverse side hereof. Where no contrary specification is made hereon, this
proxy will be voted FOR the election as directors of all nominees named on the
reverse side hereof, FOR approval of proposal (2), and in accordance with the
discretion of the proxy holders on any other matters or proposals (not known
at the time of solicitation) which may properly come before the meeting or any
adjournment thereof.
The undersigned hereby revokes any proxies heretofore given by the
undersigned.
(Continued and to be dated and signed on the reverse side.)
SCOR U.S. CORPORATION
P.O. BOX 11286
NEW YORK N.Y. 10203-0286
<PAGE>
<TABLE>
<S> <C> <C> <C>
(1) Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS
listed below listed below for all nominees
listed below
Jacques P. Blondeau, John R. Cox, Jerome Karter, Patrick Peugeot
(INSTRUCTION: To withhold authority to vote for any individual nominee mark the "EXCEPTION" box
and write that nominee's name on the line provided below.)
EXCEPTIONS
-------------------------------------------------------------------------------------------
(2) Proposal to ratify the appointment of KPMG Peat FOR AGAINST ABSTAIN
Marwick as independent Auditors of the Corporation
for the fiscal year ending December 31, 1995
Address Change
and/or Comments
Signature should conform exactly to the
name shown on this proxy. Executors,
administrators, guardians, trustees,
attorneys, officers signing for
corporations should give full titles.
----------------------------------------
Dated , 1995
----------------------------------------
(Signature of Shareholder)
----------------------------------------
(Signature of Shareholder)
Votes must be indicated X
(x) in Black or Blue ink.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
</TABLE>
Exhibit 5
SCOR U.S.
--------------------
SCOR
November 9, 1995
Dear Stockholders:
I am pleased to inform you that on November 2, 1995, SCOR U.S.
Corporation (the "Company") entered into an Agreement and Plan of Merger
(the "Merger Agreement") providing for the acquisition of all publicly held
shares of common stock of the Company by SCOR S.A. SCOR S.A. currently
beneficially owns approximately 80% of the outstanding shares of the
Company.
Pursuant to the Merger Agreement, SCOR Merger Sub Corporation, a
wholly owned subsidiary of SCOR S.A., commenced today a tender offer to
purchase any and all outstanding shares of the Company's common stock at a
price of $15.25 per share in cash. Following completion of the tender offer
and satisfaction of certain other conditions, SCOR Merger Sub Corporation
will be merged with and into the Company and each share of the Company's
common stock then outstanding (other than shares of stockholders properly
exercising appraisal rights under Delaware law and shares owned by SCOR
S.A., SCOR Merger Sub Corporation or any other direct or indirect
subsidiary of SCOR S.A.) will be converted into the right to receive $15.25
per share in cash. Following consummation of the merger, the Company will
no longer be publicly owned, but will be wholly owned by SCOR S.A.
A Special Committee of the Company's Board of Directors consisting of
seven directors unaffiliated with SCOR S.A. carefully considered SCOR
S.A.'s proposal and determined that the SCOR S.A. offer and the merger are
fair to and in the best interests of the Company's public stockholders. The
Company's Board of Directors, based upon the recommendation of the Special
Committee, unanimously approved and adopted the Merger Agreement and the
transactions contemplated thereby, and recommends that stockholders accept
the offer and tender their shares.
In arriving at its determinations, the Special Committee and the
Company's Board gave careful consideration to a number of factors,
including the opinion of the Special Committee's financial advisor that the
consideration to be received by the Company's public stockholders in the
offer and merger is fair to such stockholders from a financial point of
view as of the date thereof. Detailed information about the deliberations
of the Special Committee and the Board of Directors and their
determinations and recommendations are contained in the enclosed offering
materials.
Accompanying this letter is SCOR Merger Sub Corporation's Offer to
Purchase, dated November 9, 1995, together with related materials,
including a Letter of Transmittal to be used for tendering your shares.
These documents set forth the terms and conditions of the offer and provide
instructions as to how to tender your shares. I urge you to read the
enclosed material carefully before making your decision with respect to
tendering your shares in the offer.
Sincerely,
/s/ JEROME KARTER
--------------------------------------
JEROME KARTER
President and Chief Executive Officer
SCOR U.S. CORPORATION
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-D178
TELEPHONE (212) 390-5200 FAX (212) 390-5415
Exhibit 6
LOGO
NEWS RELEASE
FOR IMMEDIATE RELEASE
Contact: John T. Andrews, Jr. Jean Alisse
General Counsel General Counsel
SCOR U.S. Corporation SCOR S.A.
(212) 390-5224 (33-1) 46-98-73-63
SCOR U.S. BOARD AGREES TO SCOR S.A. $15.25 PER SHARE OFFER
New York, N.Y./Paris, France, November 3, 1995--SCOR U.S. Corporation
(NYSE:SUR) ("SCOR U.S.") and SCOR S.A. announced today that they have
entered into a definitive agreement (the "Merger Agreement") providing for
the merger (the "Merger") of SCOR Merger Sub Corporation ("Merger Sub"), a
newly organized Delaware corporation and a wholly owned subsidiary of SCOR
S.A., into SCOR U.S. upon the terms and subject to the conditions contained
in the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub has
agreed to commence a tender offer (the "Offer") for all of the outstanding
shares of common stock, par value $0.30 per share, of SCOR U.S. at a price
of $15.25 per share, net to the seller in cash, without interest thereon,
subject to terms and conditions set forth in the Merger Agreement and to be
set forth in the tender offer documents. If the Offer is successfully
completed, holders of the 5-1/4% Convertible Subordinated Debentures due
April 1, 2000 of SCOR U.S. would have the right to require SCOR U.S. to
repurchase such Convertible Debentures at a price equal to 100% of the
principal amount thereof, together with accrued and unpaid interest to the
repurchase date.
The Board of Directors, and Special Committee of the Board of
Directors, of SCOR U.S. have unanimously approved the Merger Agreement, the
Offer and the Merger
- more-
<PAGE>
and determined that the terms of the Offer and the Merger are fair to, and
in the best interest of, the stockholders of SCOR U.S. The Board of
Directors has recommended that all stockholders of SCOR U.S. accept the
Offer and tender their shares. Dillon, Read & Co. Inc. has acted as
financial advisor to the Special Committee of the Board of Directors of
SCOR U.S. and has advised the Special Committee that the consideration to
be received by the stockholders of SCOR U.S. is fair to the stockholders
(other than SCOR S.A.) from a financial point of view as of the date
hereof.
SCOR S.A. currently owns approximately 80% of the outstanding shares
of common stock of SCOR U.S. Approximately 3.6 million shares of SCOR U.S.
common stock are owned by the public.
SCOR U.S. Corporation, a holding company, provides property and
casualty insurance and reinsurance in the treaty and facultative market
through its operating subsidiaries. All of SCOR U.S. Corporation's
operating insurance and reinsurance subsidiaries are rated "A" (excellent)
by A.M. Best Company.
SCOR S.A., a French company, operates principally as a reinsurance
company. Together with its subsidiaries, it ranks as the largest
professional reinsurer in France and among the largest in the world.
Goldman, Sachs & Co. are acting as dealer managers for the Offer and
Goldman Sachs International has acted as financial advisor to SCOR S.A.
Exhibit 7
[ Dillon, Read & Co. Inc. Letterhead ]
November 2, 1995
SCOR U.S. Corporation
Two World Trade Center, 23rd Floor
New York, New York 10048-0178
Attention: Special Committee of the Board of Directors
Gentlemen:
You have advised us that SCOR S.A. ("SCOR S.A.") proposes to acquire all of the
publicly held outstanding common stock, par value $0.30 per share, (the
"Shares") of SCOR U.S. Corporation (the "Company") not currently held by SCOR
S.A. from the holders thereof (the "Selling Shareholders") at a purchase price
of $15.25 per share (the "Transaction"). You have requested our opinion as to
whether the consideration to be paid pursuant to the Transaction is fair to the
Selling Shareholders, from a financial point of view, as of the date hereof.
In arriving at our opinion, we have, among other things: (i) reviewed certain
publicly available business and financial information relating to the Company;
(ii) reviewed the reported price and trading activity for the Shares of the
Company; (iii) reviewed certain internal financial information and other data
provided to us by the Company relating to the business and prospects of the
Company, including financial projections prepared by the management of the
Company; (iv) conducted discussions with members of the senior management of
the Company; (v) reviewed the financial terms, to the extent publicly
available, of certain acquisition transactions which we considered relevant;
(vi) reviewed publicly available financial and securities market data pertaining
to certain publicly-held companies in lines of business generally comparable
to those of the Company; and (vii) conducted such other financial studies,
analyses and investigations, and considered such other information as we deemed
necessary and appropriate.
In connection with our review, with your consent, we have not assumed any
responsibility for independent verification of any of the foregoing information
and have relied upon it being complete and accurate in all material respects.
We have not been requested to and have not made an independent evaluation
or appraisal of any assets or
<PAGE>
liabilities (contingent or otherwise) of the Company or any of its subsidiaries,
nor have we been furnished with any such evaluation or appraisal. Further, we
have assumed, with your consent, that all of the information, including the
projections provided to us by the Company's management, was prepared in good
faith and was reasonably prepared on a basis reflecting the best currently
available estimates and judgments of the Company's management as to the future
financial performance of the Company, and was based upon the historical
performance and certain estimates and assumptions which were reasonable at the
time made. In addition we have not been asked to, and do not express any opinion
as to the after-tax consequences of the Transaction to any Selling Shareholder.
In addition, our opinion is based on economic, monetary and market conditions
existing on the date hereof.
In rendering this opinion, we are not rendering any opinion as to the value of
the Company or making any recommendation to the Selling Shareholders with
respect to the advisability of voting in favor of the Transaction.
Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment banking
business, is engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwriting, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations of estate, corporate and other purposes. Dillon Read
has received a fee for rendering this opinion.
This opinion is being rendered solely to the Special Committee of the Board of
Directors of the Company for its use in evaluating the Transaction and is not
for the benefit of, nor being rendered to, the Selling Shareholders or any
other person.
Based upon and subject to the foregoing, we are of the opinion that the
consideration to be received in the Transaction by the Selling Shareholders is
fair to the Selling Shareholders, from a financial point of view, as of the date
hereof.
Very truly yours,
DILLON, READ & CO. INC.
/s/William P. Powell
By: William P. Powell
Managing Director
Exhibit 8
Dillon, Read & Co. Inc.
535 Madison Avenue
New York, New York 10022
212-906-7000
October 10, 1995
SCOR U.S. Corporation
110 William Street
New York, NY 10038-3995
Attention: Special Committee of the Board of Directors
Gentlemen:
1. We understand that the Board of Directors of SCOR U.S. Corporation (the
"Company") has received from SCOR S.A. a proposal whereby SCOR S.A. would
acquire all of the publicly held outstanding shares of common stock, par value
$0.30 per share (the "Common Shares"), of the Company not currently owned by
SCOR S.A. at a purchase price of $14.00 in cash per Common Share. As used in
this letter, the term "Transaction" refers to any transaction pursuant to which
SCOR S.A. or any other affiliated entity acquires the outstanding minority
interest in the capital stock or assets of the Company, whether by way of
merger, consolidation, reorganization or other business combinations, a tender
or exchange offer, a recapitalization or otherwise.
2. This letter confirms the agreement of the Company to engage Dillon,
Read & Co. Inc ("Dillon Read") to serve as financial advisor to the Special
Committee of the Company's Board of Directors (the "Special Committee") with
respect to the proposed Transaction. If requested, Dillon Read shall render a
written opinion (the "Opinion") relating to the fairness from a financial point
of view of the consideration to be received by the public holders of Common
Shares pursuant to the proposed Transaction, which Opinion shall be updated in
connection with obtaining approval from shareholders of the Company in
connection with the Transaction.
3. For Dillon Read's services hereunder, the Company agrees to pay fees to
Dillon Read in cash as follows:
(a) $250,000 upon the execution of this Agreement, and
<PAGE>
Dillon Read & Co. Inc.
(b) $250,000 upon the completion or abandonment of this
Transaction, which for purposes of this subsection (b) shall be the
earliest of (i) the successful completion of the Transaction, (ii) the
date the Company or SCOR S.A. abandons or terminates the Transaction,
(iii) the date the Special Committee advises Dillon Read that it does
not require Dillon Read's Opinion and (iv) October 10, 1996. This
additional fee shall be payable whether or not a Transaction is
consummated. No additional fee shall be paid in connection with any
reconsideration pursuant to Paragraph 7 below.
Whether or not (i) a Transaction is consummated or (ii) an Opinion is
required, the Company will reimburse Dillon Read, upon its demand from time to
time, for the expenses reasonably incurred and adequately documented by it on or
after October 10, 1995 in entering into and performing services pursuant to this
Agreement (including the fees and disbursements of Dillon Read's counsel).
4. In the ordinary course of its business, Dillon Read may trade the
securities of both the Company and the acquiror for its own account and for the
accounts of customers, and it may at any time hold a long or short position in
such securities. In doing so, Dillon Read is aware of its duties and
responsibilities under applicable law.
5. The Company will make available to Dillon Read all information
concerning the Company's business, assets, operations or financial condition
which Dillon Read reasonably requests in connection with the performance of its
services hereunder. The Company will make its management and other personnel
and appropriate representatives of its independent public accountants and its
advisors available to Dillon Read for discussions and consultations at such
times as Dillon Read may reasonably request in connection with the performance
of its services hereunder. The Company understands that in rendering services
hereunder Dillon Read will be relying, without independent verification, upon
the accuracy and completeness of all information that is or will be furnished to
Dillon Read by or on behalf of the Company and Dillon Read will not in any
respect be responsible for the accuracy or completeness thereof. As a condition
to Dillon Read's being furnished such information, Dillon Read agrees to treat
such information confidentially and to use such information solely for the
purpose of performing its responsibilities hereunder and such information will
not be disclosed except to employees who need such information in connection
with the Transaction or as required by law.
6. The written Opinion rendered by Dillon Read pursuant to this Agreement
may be reproduced in full in any disclosure document relating to the Transaction
that is mailed by the Company, SCOR S.A. or its affiliates to its shareholders;
provided, however, that all reference to Dillon Read in any such disclosure
document and the description or inclusion of its Opinion and advice shall be
subject to Dillon Read's prior written consent with respect to form and
substance. Except (a) as permitted by the immediately preceding sentence or (b)
to the extent legally required (after consultation with Dillon Read and its
counsel, none of (a) the name of Dillon Read, (b) any advice
<PAGE>
Dillon Read & Co. Inc.
rendered by Dillon Read to the Company or the Special Committee or (c) any
communication from Dillon Read in connection with the services performed by
Dillon Read pursuant to this Agreement will be quoted or referred to orally or
in writing by the Company or any of its affiliates or any of their agents,
without Dillon Read's prior written consent.
7. With respect to any opinion delivered prior to the completion of the
Transaction, it is understood that Dillon Read may reconsider its opinion upon
review of any disclosure document relating to the Transaction in final form and
any report, document, release or communication published or filed by or on
behalf of the Company in connection with the Transaction and upon review of such
other information as may hereafter be disclosed or otherwise becomes available
to Dillon Read.
8. In the event that Dillon Read becomes involved in any action,
proceeding, investigation or inquiry in connection with any matter referred to
in this Agreement or arising out of the matters contemplated by this Agreement,
the Company will reimburse Dillon Read for its legal and other expenses
(including the cost of any investigation and preparation) as they are incurred
by Dillon Read in connection therewith provided that such legal and other
expenses do not arise primarily out of a final judicial determination of gross
negligence or bad faith on the part of Dillon Read in performing the services
which are the subject of this Agreement. The Company also agrees to indemnify
Dillon Read and hold it harmless against any losses, claims, damages or
liabilities in connection with any matter referred to in this Agreement or
arising out of the matters contemplated by this Agreement, unless it shall be
finally judicially determined that such losses, claims, damages or liabilities
arise primarily out of the gross negligence or bad faith of Dillon Read in
performing the services which are the subject of this Agreement; and if such
indemnification were for any reason not to be available, to contribute to the
losses, claims, damages and liabilities involved in the proportion that the
Company's interest bears to Dillon Read's interest in the matters contemplated
by this Agreement. For purposes of this paragraph, the term Dillon Read shall
include Dillon Read, its officers, directors, employees, agents and controlling
persons. The foregoing agreement shall be in addition to any rights that any
indemnified party may have at common law or otherwise.
9. Dillon Read's services hereunder may be terminated by the Special
Committee at any time without liability or continuing obligation of the Special
Committee except that Dillon Read's fees pursuant to Section 3 hereof shall
become immediately payable in full and except for expenses incurred by Dillon
Read as a result of services rendered prior to the date of termination and
provided that the provisions of Sections 5, 6, 7 and 8 hereof shall remain
operative and in full force and effect regardless of any termination.
10. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
11. This Agreement shall be binding upon Dillon Read and the Company and
the successors and assigns of both and any successor of any substantial portion
of the Company's and Dillon Read's respective businesses and/or assets.
<PAGE>
Dillon Read & Co. Inc.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below, whereupon this Agreement
and your acceptance shall constitute a binding agreement between us.
Very truly yours,
DILLON, READ & CO INC.
By: /s/ David M. Dickson, Jr.
-------------------------
David M. Dickson, Jr.
Senior Vice President
Accepted and agreed to
as of the date first
above written:
SCOR U.S. CORPORATION
By: /s/ David J. Sherwood
------------------------
David J. Sherwood
On behalf of the Company and
the Special Committee of the
Board of Directors
CONFIDENTIAL
SCOR U.S. Corporation
Presentation to the Special Committee of the Board of Directors
November 2, 1995
Dillon, Read & Co. Inc.
<PAGE>
Confidential
TABLE OF CONTENTS
Tab
---
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . A
Overview of SCOR U.S. Corporation . . . . . . . . . . . . . . B
SCOR U.S. Valuation Indicators . . . . . . . . . . . . . . . C
Exhibits
--------
Analysis of Comparable Trading Companies . . . . . . . . . . 1
Analysis of Comparable Acquisitions . . . . . . . . . . . . . 2
Premiums Paid in Minority "Close Outs" . . . . . . . . . . . 3
Discounted Cash Flow Analysis . . . . . . . . . . . . . . . . 4
Weighted Average Cost of Capital Analysis . . . . . . . . . . 5
Dillon, Read & Co. Inc. SCOR U.S. Corporation
<PAGE>
OVERVIEW
<PAGE>
Confidential
SUMMARY OF THE OFFER
- Shareholders of SCOR U.S. Corporation ("SCOR") other than SCOR S.A.
will receive $15.25 per share in cash
- SCOR S.A. currently owns 80% of the outstanding shares of common
stock of SCOR
- Including the assumption of SCOR debt, the implied valuation of the
offer is as follows:
(Dollars in Millions)
Implied SCOR
Cash Offer Valuation
--------- ------------
Equity Value $55.4(a) $277.0(a)
Convertible Subordinated Debentures 76.0
Notes Payable 25.0
Commercial Paper 20.6
------------
Total Asset Valuation $398.6
============
- --------------------
(a) Assumes the acquisition of 20% of SCOR, or 3,632,924 common shares.
Excludes 1,576,951 stock options outstanding at option price per share
ranges of $8.00 - $17.00.
Dillon, Read & Co. Inc. A - 1 SCOR U.S. Corporation
<PAGE>
<TABLE><CAPTION>
Confidential
PROPOSAL MULTIPLES
Sensitivity Analysis
Offer
<S> <C> <C> <C> <C> <C>
Offer Price $14.00 $15.00 $15.25 $16.00
---------- ---------- ---------- ----------
Total Equity Value ($MM) $254.3 $272.5 $277.0 $290.6
P/E: SCOR Statistic
- ------------------------------------- ----------------
1995E E.P.S.(a) $0.92 15.2x 16.3x 16.6x 17.4x
1996E E.P.S.(a) 0.97 14.4 15.5 15.7 16.5
1995E E.P.S.(b) $1.01 13.9x 14.9x 15.1 15.8x
1996E E.P.S.(b) 1.19 11.8 12.6 12.8 13.4
Price as a Multiple of:
- -------------------------------------
Book Value (9/30/95) (Primary)(c) $15.27 0.91x 0.98x 1.00x 1.05x
(F-D)(c) 15.03 0.93 0.99 1.01 1.06
Surplus (9/30/95) (Primary)(c) 14.13 0.99 1.06 1.08 1.13
(F-D)(c) 13.96 1.00 1.07 1.09 1.14
Premium Over Market:
- -------------------------------------
Day before Offer $11.125 25.8% 34.8% 37.1% 43.8%
52-Week High, Pre-Offer 11.625 20.4 29.0 31.2 37.6
52-Week Low, Pre-Offer 7.500 86.7 100.0 103.3 126.7
</TABLE>
- --------------------
(a) Source: I/B/E/S.
(b) Based on management October projections.
(c) Based on primary book value of $277.4MM, surplus of $256.8MM, options of
1,066,789 (under $15.25) and exercise proceeds of $11.849MM.
Dillon, Read & Co. Inc. A - 2 SCOR U.S. Corporation
<PAGE>
OVERVIEW OF SCOR U.S.
<PAGE>
Confidential
REINSURANCE INDUSTRY
- Primary insurance companies continue to direct business towards
financially secure reinsurers who are perceived to be long-term
players.
- Increasing consolidation is evident
- Ceding companies flight to quality is also evident
- Since 1987, increasing global competition, including from Bermuda
based reinsurers (established after Hurricane Andrew in 1992)
together with increasing retention by primary insurance companies,
has resulted in generally soft market conditions across many lines
of business.
- Supply of reinsurance is directly related to levels of surplus
in the industry, which was expanded in the early 1990's as a
response to many catastrophes
- Cyclicality in the reinsurance industry is now experienced in
different lines and regions at different times
- The Bermuda companies may become more broad - based competitors for
all reinsurers (including casualty) depending on a number of
competitive factors.
- To the extent the Bermudians become more broad - based, the
increased competition could intensify market competition and
create pricing pressure
Dillon, Read & Co. Inc. B - 1 SCOR U.S. Corporation
<PAGE>
<TABLE><CAPTION>
Confidential
COMPETITIVE POSITION
1994 6/30
Premiums 1995 Combined Ratio
--------------
Broker Market Earned Surplus 1994 1995
- ------------------------------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C>
Transatlantic Re/Putnam Re $851,183 $668,494 105.7% 103.1%
Zurich Reinsurance Centre 221,814 645,621 114.6 108.0
Prudential Reins. 722,454 639,693 118.4 107.2
Kemper Reinsurance 317,399 451,627 108.8 104.5
NAC Reins. 375,870 435,607 105.7 103.9
Underwriters Reins 182,282 409,038 107.0 102.4
TIG Reinsurance 394,458 402,246 104.4 103.3
Skandia Ameriaca Reins. 164,026 347,093 124.6 124.4
Constitution Reins. 466,103 290,413 101.0 104.2
SCOR U.S. 229,904 251,890 118.7 105.7
Trenwick America Reins. 132,683 243,739 103.1 96.9
Signet Star Reins. 182,976 224,221 113.8 103.1
Winterthur Reins. 207,880 222,919 109.1 106.7
Gerling Global 92,772 141,597 112.8 105.4
Folksamerica Group 154,070 117,252 109.2 103.8
Chartwell 101,632 115,101 105.7 104.4
Frankona 111,424 114,481 103.3 104.3
Christiania General 140,592 113,550 111.7 104.8
Generali 110,391 105,375 114.7 107.9
Reinsurance Corp. of N.Y. 129,372 97,379 120.4 109.7
Direct-Writer Market
- ------------------------------------
General Re $2,417,071 $4,227,923 101.2% 99.3%
Employers Reins. 2,100,119 2,808,540 104.6 102.7
American Re 1,442,571 1,120,108 103.8 99.4
Swiss Re NA 831,014 NA NA
Munich Re Group 666,908 783,999 116.7 105.2
National Reins. 333,123 386,374 98.4 98.1
</TABLE>
Dillon, Read & Co. Inc. B - 2 SCOR U.S. Corporation
<PAGE>
<TABLE><CAPTION>
Confidential
RELATIONSHIP WITH BROKERS
- SCOR's relationship with the intermediaries appears well diversified and balanced
1991 to July 1995 Written Premiums
--------------------------------------------------------------
Broker Treaty % of Total Facultative % of Total
- ----------------------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Blanch $154,085 15.9% -- --
John P. Woods 118,480 12.2 -- --
Guy Carpenter 114,996 11.8% $3,352 4.5%
Sedgwick Re 83,259 8.6% 11,270 15.1%
Bails 73,271 7.5% 58 0.1%
Alexander Re 62,159 6.4% 3,584 4.8%
Intere 44,523 4.6% 59 0.1%
Aon 43,859 4.5% 6,614 8.9%
Wilcox 35,977 3.7% 3 0.0%
Towers Perrin 31,869 3.3% -- --
Marsh & McLennan -- -- 11,077 14.9%
RFC Intermediaries Inc. -- -- 6,581 8.8%
Willis Corroon Corporation -- -- 5,132 6.9%
Alexander Howden -- -- 3,603 4.8%
Willis Faber 18,516 1.9% 3,289 4.4%
Alexander & Alexander -- -- 2,703 3.6%
</TABLE>
Dillon, Read & Co. Inc. B - 3 SCOR U.S. Corporation
<PAGE>
<TABLE><CAPTION>
Confidential
CEDING COMPANY BUSINESS
- SCOR U.S. has a number of large ceding company relationships which
account for a relatively large percentage of its business
1992 1993 1994 1995 Through July 1
------------------------------ -------------------------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
N $25,120 19.3% N $27,000 16.5% A $26,896 16.4% A $31,014 25.8%
A 15,238 11.7% A 17,285 10.5% K 18,001 11.0% B 15,375 12.8%
Q 14,079 10.8% K 17,241 10.5% C 18,000 11.0% C 10,000 8.3%
B 9,550 7.3% O 16,425 10.0% B 17,375 10.6% D 8,893 7.4%
R 6,191 4.8% M 10,000 6.1% L 10,341 6.3% E 8,145 6.8%
O 5,734 4.4% B 8,526 5.2% D 9,329 5.7% F 5,308 4.4%
F 5,703 4.4% D 8,078 4.9% E 8,495 5.2% G 4,669 3.9%
G 5,391 4.1% E 7,641 4.7% M 5,327 3.3% H 4,275 3.6%
K 5,098 3.9% P 5,390 3.3% F 5,209 3.2% I 3,900 3.3%
S 5,000 3.8% G 5,277 3.2% H 5,200 3.2% J 3,761 3.1%
Other 32,874 25.3% Other 41,256 25.1% Other 39,515 24.1% Other 24,642 20.5%
-------- ------ -------- ------ -------- ------ -------- ------
Total $129,978 100.0% Total $164,119 100.0% Total $163,689 100.0% Total $119,981 100.0%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
Dillon, Read & Co. Inc. B - 4 SCOR U.S. Corporation
<PAGE>
Confidential
RECENT DEVELOPMENTS
Date Event
- ------- -------------------------------------------------------------
9/26/95 Offer by SCOR to acquire 20% of SCOR U.S. Corporation that it
doesn't already own at $14/share
3/10/95 SCOR U.S. reduces regular quarterly dividend from $0.36 to
$0.20 annually
3/09/95 SCOR S.A. postpones capital reorganization
1/30/95 SCOR U.S. management sale of stock to SCOR S.A.
8/94 SCOR S.A. CEO resigns
Dillon, Read & Co. Inc. B - 5 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
SCOR PRINCIPAL OPERATING UNITS
<S> <C> <C>
Audit
SCOR U.S. Committee
| of the Board
| |
| |
| |
------------------------------------------|----------------------------------------Reserving
| | Committee
| |
| |
| |
| |
| SUPPORT | UNDERWRITING
| -----------------------------------------------------------------------------------------------------------
| | | | | | | | |
| | | Chief | Underwriting | Facultative/ |
| General Chief Info Financial | Services Treaty Alt. Risk Bonds
| Counsel Officer Officer | SCOR Re SCOR Re SCOR Re SCOR Re
| |
| |
| -Law -Information -Finance | -Actuarial -Treaty Prop/Cas -Facultative Prop/Cas -Surety & Fidelity
| -Human Services -Accounting | -Claims -Treaty Catastrophe -Alternative Risk
| Resources -Investments| -Retro -Insurance
| & Administration | Management
| -Investor | -Underwriting
| Relations | Stds
| --------|---------
Communications/ | |
Risk Morgard, SCOR Re
Management Inc. California Re
</TABLE>
Dillon, Read & Co. Inc. B - 6 SCOR U.S. Corporation
<PAGE>
Confidential
NET PREMIUMS EARNED
(Dollars in 000s)
Year Ended December 31, Nine Months Ended
----------------------- -------------------
1993 1994 1994 1995
TREATY
- ------
Property Pro Rata NA NA $47,366 $41,351
Property per Risk NA NA 4,226 3,072
Property Catastrophe NA NA 9,233 4,580
Non-Standard Auto $33,944 $40,107 27,005 32,694
Casualty NA NA 38,643 40,651
Other NA NA 17,995 21,559
FACULTATIVE
- -----------
Property 29,240 32,878 8,935 10,740
Casualty 29,549 30,300 16,139 20,764
Other NA NA 920 1,562
OTHER NA NA 2,747 5,364
- -----
TOTAL $236,051 $228,244 $173,209 $182,337
-----
Dillon, Read & Co. Inc. B - 7 SCOR U.S. Corporation
<PAGE>
Confidential
NET LOSS RATIO
(Dollars in 000s)
Year Ended December 31, Nine Months Ended
----------------------- ------------------
1993 1994 1994 1995
---------- ----------- --------- --------
TREATY
- ------
Property Pro Rata NA NA 125.4% 77.4%
Property per Risk NA NA 54.2 31.4
Property Catastrophe NA NA 70.7 14.8
Non-Standard Auto 64.4% 83.9% 78.1 72.1
Casualty NA NA 89.9 62.0
Other NA NA 63.5 61.9
FACULTATIVE
- -----------
Property 38.8% 65.0% 44.5% 53.0%
Casualty 70.9 70.0 50.4 48.4
Other NA NA 177.8 126.4
OTHER NA NA 120.5% 157.9%
- -----
TOTAL 66.2% 83.8% 88.1% 66.9%
-----
Dillon, Read & Co. Inc. B - 8 SCOR U.S. Corporation
<PAGE>
Confidential
NET COMBINED RATIO
(Dollars in 000s)
Year Ended December 31, Nine Months Ended
----------------------- ---------------------
1993 1994 1994 1995
--------- --------- -------- ----------
TREATY
- ------
Property Pro Rata NA NA 164.5% 120.6%
Property per Risk NA NA 35.7 93.5
Property Catastrophe NA NA 84.3 94.1
Non-Standard Auto 97.7% 120.4% 118.4 107.1
Casualty NA NA 127.9 90.4
Other NA NA 99.8 103.4
FACULTATIVE
- -----------
Property 66.4% 94.0% 89.4% 98.8%
Casualty 97.7 98.8 84.5 79.9
Other NA NA 191.6 149.9
OTHER NA NA 166.3% 194.0%
- -----
TOTAL 105.1% 123.0% 123.3% 103.9%
-----
Dillon, Read & Co. Inc. B - 9 SCOR U.S. Corporation
<PAGE>
Confidential
PROPERTY PRO RATA
- The Company totally readjusted its strategy with regard to this market
- Historically, Property pro rata been responsible for largest
share of CAT losses
- Competitors are not writing new proportional business
- SCOR reduced its exposure over 50% and will continue to
reallocate volume
- Reduce CAT exposures dramatically and capped most treaties
<TABLE><CAPTION>
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
-------------- ----------------------- ----------------------------------
1993 1994 1994 1995 1995 1996 1997
----- ----- ----------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned NA NA $47,366 $41,351 $78,199 $52,430 $41,369
Expense Ratio NA NA 125.4% 77.4% 57.0% 64.0% 63.1%
Combined Ratio NA NA 164.5 120.6 92.5 100.2 99.9
Dillon, Read & Co. Inc. B - 10 SCOR U.S. Corporation
<PAGE>
Confidential
PROPERTY PER RISK
- Highly competitive market due to excess capacity in broker and
direct market and Bermuda and London.
- Ceding companies having trouble in the pro rata market
have increased reinsurance opportunities in excess market
- SCOR has small and profitable niche here
- Difficult to expand due to expanding direct writers
</TABLE>
<TABLE><CAPTION>
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
-------------- ------------------- ----------------------------------
1993 1994 1994 1995 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned NA NA $4,226 $3,072 $7,510 $11,671 $15,916
Expense Ratio NA NA 54.2% 31.4% 82.2% 85.6% 85.3%
Combined Ratio NA NA 35.7 93.5 124.1 123.1 97.0
</TABLE>
Dillon, Read & Co. Inc. B - 11 SCOR U.S. Corporation
<PAGE>
Confidential
PROPERTY CATASTROPHE
- Lower rates on line renewals will be evident this renewal season
due to increased capital and competition
- Bermuda continues to increase its involvement on programs
- Bermuda capital appears likely to remain in place
- Business is still adequately priced and SCOR appears able
to manage its CAT exposure
<TABLE><CAPTION>
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
1993 1994 1994 1995 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned NA NA $9,233 $4,580 $7,987 $7,987 $7,987
Expense Ratio NA NA 70.7% 14.8% 59.8% 59.9% 59.9%
Combined Ratio NA NA 84.3 94.1 92.6 90.1 88.1
Dillon, Read & Co. Inc. B - 12 SCOR U.S. Corporation
<PAGE>
Confidential
NON STANDARD AUTO
- - Increased primary and reinsurer competition have resulted in pricing
pressure recently
- SCOR has developed this line well but profitability has
attracted competition
- Construction Re has lion's share of market while Hartford
and Gerling Global have become active
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
-------------------- ------------------- -----------------------------------
1993 1994 1994 1995 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned $33,944 $40,107 $27,005 $32,694 $64,984 $84,098 $105,984
Expense Ratio 64.4% 83.9% 78.1% 72.1% 66.3% 65.7% 65.2%
Combined Ratio 97.7 120.4 118.4 107.1 101.3 100.3 99.2
</TABLE>
Dillon, Read & Co. Inc. B - 13 SCOR U.S. Corporation
<PAGE>
Confidential
CASUALTY ALL OTHER
- - SCOR's desire to balance its casualty and property books requires
greater participation in this line of business
- Casualty is currently underpriced and highly competitive
- Competitive conditions will limit growth opportunities in
commercial and private auto and excess liability covers
- More MGA proposals and programs being written and SCOR is
expected to participate
<TABLE><CAPTION>
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
------------- -------------------- ---------------------------------
1993 1994 1994 1995 1995 1996 1997
----- ----- ------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned NA NA $38,643 $40,651 $46,006 $51,035 $55,379
Expense Ratio NA NA 89.9% 62.0% 81.6% 71.2% 68.0%
Combined Ratio NA NA 127.9 90.4 112.1 100.3 95.3
</TABLE>
Dillon, Read & Co. Inc. B - 14 SCOR U.S. Corporation
<PAGE>
Confidential
PROPERTY FACULTATIVE
- - Considered SCOR's core business; the Company has an excellent record
focusing on energy, petrochemicals and chemicals
- Excellent historical loss ratio
- Recent downward pressure on rates due to increased retentions and
more capacity
- General property market may be reaching bottom
- SCOR plans a steady expansion of the facultative franchise
<TABLE><CAPTION>
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
--------------------- -------------------- --------------------------------
1993 1994 1994 1995 1995 1996 1997
-------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned $29,240 $32,878 $8,935 $10,740 $17,818 $21,911 $25,502
Expense Ratio 38.8% 65.0% 44.5% 53.0% 56.5% 55.5% 55.4%
Combined Ratio 66.4 94.0 89.4 98.8 107.2 101.5 97.9
</TABLE>
Dillon, Read & Co. Inc. B - 15 SCOR U.S. Corporation
<PAGE>
Confidential
CASUALTY FACULTATIVE
- - Extremely heavy competition has limited growth
- Pricing improvement not evident in this line of business
- Company will concentrate on smaller lines of buffer layer business
in the automobile or general liability lines
- Intent to focus on developing niches of expertise; will achieve
better spread of risk and less volatility
<TABLE><CAPTION>
(Dollars in 000s)
Year Ended Nine Months
December 31, Ended Projected
--------------------- -------------------- --------------------------------
1993 1994 1994 1995 1995 1996 1997
-------- -------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums Earned $29,549 $30,300 $16,139 $20,764 $25,969 $29,739 $35,819
Expense Ratio 70.9% 70.0% 50.4% 48.4% 87.0% 83.6% 85.0%
Combined Ratio 97.7 98.8 84.5 79.9 123.7 115.9 114.3
</TABLE>
Dillon, Read & Co. Inc. B - 16 SCOR U.S. Corporation
<PAGE>
Confidential
EXPENSE RATIO (GAAP)(a)
YEAR EXPENSE RATIO WRITTEN PREMIUMS PER EMPLOYEE
---- ------------- -----------------------------
1990 40.5% $1.3 MM
1991 38.9 1.3
1992 43.8 1.7
1993 38.9 1.8
1994 38.6 1.9
1995E 36.7 2.0
---------
a) U/W year; includes commission ratio
Dillon, Read & Co. Inc. B - 17 SCOR U.S. Corporation
<PAGE>
Confidential
INCOME STATEMENT
<TABLE><CAPTION>
Year Ended December 31, LTM Ended
--------------------------------------------- Sept 30,
(Dollars in 000s, except per share data) 1992 1993 1994 1995
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Revenues:
Net Premiums Earned $192,050 $236,051 $228,244 $237,374
Net Investment Income 42,880 42,044 40,990 42,378
Net Realized Investment Gains/(Losses) 15,048 12,930 984 638
--------- -------- -------- ---------
Net Revenues 249,978 291,025 270,218 280,390
Losses and Expenses:
Losses and Expenses, net 160,545 156,292 191,270 160,664
Commissions, net 55,960 61,324 59,434 60,311
Other Operating Expenses 23,918 26,420 26,009 27,206
Other 4,346 4,073 4,039 2,014
--------- -------- -------- ---------
Interest Expense 4,579 8,005 8,920 8,844
Pretax Income 630 34,911 (19,454) 21,351
Income Taxes (Benefit) (3,771) 6,983 (11,262) 4,674
--------- -------- -------- ---------
Net Income from Continuing Operations $4,401 $27,928 ($8,192) $16,677
========= ======== ======== =========
Extraordinary Items -- -- 351 903
Cumulative Effect of Accounting Change 2,848 (2,600) -- --
--------- -------- -------- ---------
Net Income $7,249 $25,328 ($7,841) $17,580
========= ======== ======== =========
Average Shares Outstanding (000s) 18,256 18,395 18,166 18,248
Fully Diluted E.P.S. from Continuing Operations $0.25 $1.45 ($0.45) $0.91
Fully Diluted E.P.S. 0.40 1.33 (0.43) 0.96
GAAP Operating Ratios:
Loss Ratio 83.6% 66.2% 83.8% 67.7%
Commissions Ratio 29.1% 26.0% 26.0% 25.4%
Expense Ratio 14.7% 12.9% 13.2% 12.3%
--------- -------- -------- ---------
Combined Ratio 127.5% 105.1% 123.0% 105.4%
Return on Average Equity 1.7% 10.0% -3.1%
</TABLE>
Dillon, Read & Co. Inc. B - 18 SCOR U.S. Corporation
<PAGE>
Confidential
NET ASSETS
<TABLE><CAPTION>
(Dollars in 000s)
As of December 31, As of
------------------------ Sept 30,
ASSETS 1993 1994 1995
-------- ---------- --------
<S> <C> <C> <C>
Investments:
Fixed Maturities:
Available for Sale at Fair Value $581,104 $563,656 $563,515
Held to Maturity at Amortized Cost 24,876 22,871 22,155
Equity Securities at Fair Value 18,951 1,738 204
Short-term Investments at Cost 90,642 83,303 122,794
Other Long Term Investments 1,081 1,225 1,374
---------- ---------- ----------
Total Investments 716,654 672,793 710,042
Cash 17,096 4,763 13,318
Reinsurance Recoverable on Unpaid Losses 221,843 222,672 226,544
Reinsurance Recoverable on Paid Losses 36,827 23,755 19,939
Premiums Receivable 80,319 72,019 80,996
Investment in Affiliates 10,789 11,532 12,360
Other Assets 110,583 136,181 117,973
---------- ---------- ----------
Total Assets $1,194,111 $1,143,715 $1,181,172
========== ========== ==========
LIABILITIES OTHER THAN DEBT
Reserves for Losses and Loss Expenses $562,209 $604,787 $618,738
Unearned Premiums 114,376 110,082 99,955
Funds Held Under Reinsurance Treaties 39,602 20,758 18,571
Reinsurance Balances Payable 60,233 43,685 27,000
Other Liabilities 10,031 11,348 17,933
---------- ---------- ----------
Total Liabilities Other than Debt 786,451 790,660 782,197
---------- ---------- ----------
TOTAL NET ASSETS $407,660 $353,055 $398,975
========== ========== ==========
</TABLE>
Dillon, Read & Co. Inc. B - 19 SCOR U.S. Corporation
<PAGE>
Confidential
CAPITALIZATION
<TABLE><CAPTION>
(Dollars in 000s) As of December 31, As of
----------------------- Sept 30,
CAPITALIZATION 1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Debt:
Convertible Subordinated Debentures $86,250 $82,350 $75,950
Notes Payable 20,000 20,000 25,000
Commercial Paper 10,721 11,310 20,639
------- ------- -------
Total Debt 116,971 113,660 121,589
Stockholders' Equity
Common Stock 5,490 5,507 5,507
Additional Paid in Capital 112,670 114,556 114,669
Unrealized Appreciation/(Depreciation) of Investments,
Net of Deferred Tax Effect 16,634 (21,640) 4,752
Foreign Currency Translation Adjustments 12 (414) (252)
Retained Earnings 157,532 143,153 154,482
Treasury Stock (1,649) (1,767) (1,774)
------- ------- -------
Total Stockholders' Equity 290,689 239,395 277,386
------- ------- -------
TOTAL CAPITALIZATION $407,660 $353,055 $398,975
-------- -------- --------
Total Debt to Capitalization 28.7% 32.2% 30.5%
Net Debt to Capitalization 24.5 30.8 27.1
</TABLE>
Dillon, Read & Co. Inc. B - 20 SCOR U.S. Corporation
<PAGE>
Confidential
LOSS RESERVES
- THE COMPANY HAS TAKEN A CONSERVATIVE APPROACH TOWARD ESTABLISHING
PROVISIONS FOR LOSS RESERVES. THE MAJORITY OF SCOR'S BUSINESS
IS GENERALLY "SHORTER TAIL" PROPERTY, AND THEREFORE, IT IS
GENERALLY EASIER TO DETERMINE LOSS AMOUNTS ON A TIMELY BASIS
<TABLE><CAPTION>
($ in millions)
Year ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
________________________________________________________________________________________________________________________________
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
________________________________________________________________________________________________________________________________
Initial Reserves For
Losses and loss expenses $87 $104 $138 $192 $241 $289 $319 $324 $341 $340 $382
Re-estimated as of:
One Year Later $89 $116 $139 $192 $239 $301 $326 $319 $337 $338
Two Years Later 98 115 132 183 234 297 318 302 335
Three Years Later 101 115 123 185 225 292 300 302
Four Years Later 106 120 133 180 223 274 298
Five Years Later 108 137 134 178 213 275
Six Years Later 123 137 131 171 212
Seven Years Later 119 135 127 173
Eight Years Later 118 131 129
Nine Years Later 118 133
Ten Years Later 117
Cumlative amount of liability
paid through:
One Year Later $33 $33 $30 $42 $59 $62 $85 $92 $121 $94
Two Years Later 48 53 48 73 89 113 139 145 161
Three Years Later 62 66 65 93 115 149 176 159
Four Years Later 71 80 79 106 139 174 180
Five Years Later 81 92 88 123 151 173
Six Years Later 87 100 98 131 143
Seven Years Later 93 107 104 118
Eight Years Later 97 111 91
Nine Years Later 100 101
Ten Years Later 92
Cumulative ($30) ($29) $9 $19 $29 $14 $21 $22 $6 $2
Redemption (Deficiency) -35% -28% 6% 10% 12% 5% 7% 7% 2% 1%
Percentage
_________________________________________________________________________________________________________________________________
</TABLE>
Dillon, Read & Co. Inc. B - 21 SCOR U.S. Corporation
<PAGE>
Confidential
LOSS RESERVES (CONT'D)
- - As of 12/31/94, SCOR U.S. studied its IBNR (only facultative casualty
and treaty) using alternative methods of analysis (Alternative Method
Study)
- SCOR typically utilizes Incurred Loss Development method to
estimate reserves
- The Alternative Method Study utilized the Bornheutter-Ferguson
Method
Gross IBNR
----------
12/31/94
(Dollars in Millions)
<TABLE><CAPTION>
Alt. Method
IBNR Type Estimated Actual Difference
- ------------------------------------ ----------- --------- ----------
<S> <C> <C> <C>
Property Pro-Rata excl. Catastrophes $11.8 $14.5 $2.7
Property per Risk Excl. Catastrophes 0.9 2.4 1.4
Property Catastrophe 11.1 11.1 0.0
Non-Standard Auto 12.7 12.1 (0.7)
Standard Auto 22.1 18.8 (3.3)
General Liability 63.7 52.3 (11.3)
Professional Liability 10.7 9.3 (1.4)
Workers' Compensation 9.1 10.1 1.0
Bonds; Fidelity & Surety 3.2 4.0 0.8
Marine 2.7 0.0 (2.7)
Inherent Defect Insurance 0.5 0.0 (0.5)
Agricultural 0.1 0.0 (0.1)
Facultative Casualty 85.7 80.7 (5.0)
------ ------ -------
Total $243.3 $215.2 ($19.1)
====== ====== =======
</TABLE>
Dillon, Read & Co. Inc. B - 22 SCOR U.S. Corporation
<PAGE>
Confidential
LOSS RESERVES (CONT'D)
- - KPMG Peat Marwick has periodically reviewed the Loss and Loss Adjustment
Expense Reserve
- - The last review was December 31, 1993 (no rating agency need in 1994)
and resulted in the following analysis:
($ in millions)
Low Selected High
-------- ---------- --------
Case Reserves $170.4 $170.4 $170.4
IBNR 137.6 154.6 173.6
----- ----- -----
Total 308.0 325.0 344.0
Covered Reserves 340.4
Differential $32.4 $15.4 $(3.6)
===== ===== ======
Dillon, Read & Co. Inc. B - 23 SCOR U.S. Corporation
<PAGE>
Confidential
RETROCESSION
($ in millions)
- - SCOR U.S.'s retrocession program appears adequate in relation to its
surplus capacity, gross line capacity and changing market conditions
- Record of recovery is excellent
- Pricing is independent of SCOR S.A.
<TABLE><CAPTION>
Treaty Facultative Catastrophe
--------------------------- --------------------------- ---------------------
<S> <C> <C> <C>
Property $3 SCOR S.A. $13.0 SCOR S.A. (Prop.) -
(Proportional) 4.0 X/S 3.0 Non-Affiliate
2.0 X/S 4.0 SCOR S.A.
Casualty - $2.5 X/S 2.5 SCOR S.A. -
1.5 X/S 1.0 SCOR S.A.
(experience rated)
Prop. CAT $6 SCOR S.A. - $6X/S $20 Pre (Lead)
(Proportional) 6X/S 26 Lloyds
6X/S 32 Lasalle
10X/S 38 Non-Affiliate
12X/S 48 PXRE
8X/S 60 Zurich (Sale)
</TABLE>
Dillon, Read & Co. Inc. B - 24 SCOR U.S. Corporation
<PAGE>
Confidential
EXPOSURE MANAGEMENT
- - SCOR U.S. monitors its total exposure to various catastrophic events
quarterly
- Company has continued to reduce its estimated exposures
primarily through a reduction in its property pro-rata book
- Company diversifying its aggregate exposures
- - Estimated exposures are in line with SCOR U.S.'s surplus capacity (net
of CAT)
($ in Millions)
Wind (25 Year Event) Earthquake ($80b Event)
-------------------- -----------------------
1/1/94 $28.6 MM $118.0 MM
7/1/95 21.8 MM 112.5 MM
Dillon, Read & Co. Inc. B - 25 SCOR U.S. Corporation
<PAGE>
Confidential
INVESTMENT PORTFOLIO
(Dollars in 000s)
As of 9/30/95
------------------------------
Amount % Total
----------- ------------
Taxable Bonds $341,997 48%
Tax-Exempt Bonds 210,184 30
----------- ------------
Total Bonds $552,181 78%
Preferred Stock 33,521 5
Common Stock 170 0
Short-Term Investments 122,794 17
Other 1,374 0
----------- ------------
Total Investments $710,040 100%
=========== ============
Average Maturity 4.81
Average Rating Aaa
Yield:
- ------
Bond Portfolio 6.2%
Equity Portfolio 5.3
Dillon, Read & Co. Inc. B - 26 SCOR U.S. Corporation
<PAGE>
Confidential
INVESTMENT PORTFOLIO (CONT'D)
- - As of December 1994, the ratings of SCOR's bond portfolio were as follows:
(Dollars in 000s)
Carrying % Total
Bond Portfolio Value Portfolio
------------------------------------------ ---------- ----------
U.S. Treasuries and Agencies $158,571 28.6%
Foreign Government and Agencies 14,636 2.6%
Aaa 202,626 36.5%
Aa 89,607 16.2%
A 86,346 15.6%
Baa 2,787 0.5%
---------- --------
Total $554,573 100%
Dillon, Read & Co. Inc. B - 27 SCOR U.S. Corporation
<PAGE>
Confidential
PRINCIPAL SHAREHOLDERS (a)
Shares Held
Institution as of 6/95 % of Outstanding
- --------------------------------------- ----------- ----------------
Tweedy Browne 949,533 5.2%
Dimensional Fund 611,700 3.4
Prudential 213,900 1.2
Wilshire Associates 204,100 1.1
Wells Fargo 184,429 1.0
Sanford Bernstein 106,600 0.5
J.P. Morgan 56,000 0.3
Brandywine Asset Management 53,900 0.3
Mellon Bank 53,621 0.3
California State 51,463 0.3
----
13.7%
=====
- -------------
(a) Source: Technimetrics, Inc.
Dillon, Read & Co. Inc. B - 28 SCOR U.S. Corporation
<PAGE>
SCOR U.S. VALUATION INDICATORS
<PAGE>
Confidential
VALUATION APPROACH
Valuation Approach Proxy
<TABLE>
<S> <C>
- - Comparable Trading Analysis - Trading multiples of comparable reinsurance
companies
- Correlation of price-to-book trading multiples
to ROE for reinsurance comparables
- - Comparable Merger Analysis - Multiples and premiums paid for acquisitions
in the reinsurance industry
- - Economic Book Value Analysis - Adjustments to reported book value
- - Discounted Cash Flow Analysis - Based on 1995 - 2000 projections of cash flows
- - Premium Analysis - Premiums paid in comparable minority "close out"
transactions
Dillon, Read & Co. Inc. C - 1 SCOR U.S. Corporation
<PAGE>
Confidential
SCOR U.S. ONE YEAR PRICE AND VOLUME HISTORY
</TABLE>
<TABLE><CAPTION>
DAILY STOCK PRICE
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8.50 $ 8.00 $ 8.00 $ 7.50 $ 8.00 $ 9.00 $ 9.00 $ 9.00 $11.00 $11.50 $11.50 $15.50
</TABLE>
DAILY VOLUME
1/2/95 0
1/18/95 18,000
2/3/95 5,000
2/21/95 2,500
3/9/95 2,000
3/27/95 2,000
4/12/95 1,500
4/28/95 1,500
5/16/95 1,500
6/1/95 1,500
6/19/95 1,500
7/5/95 1,500
7/21/95 1,500
8/8/95 1,500
8/24/95 1,500
9/11/95 1,500
9/27/95 180,000
10/13/95 1,500
11/1/95 1,500
Dillon, Read & Co. Inc. C - 2 SCOR U.S. Corporation
<PAGE>
Confidential
TRADING VOLUME SINCE ANNOUNCEMENT OF TRANSACTION
Rolling Average since
Date SUR Volume Announcement
---------- ---------- ---------------------
11/1 2,900 16,646
10/31 13,700 17,156
10/31 13,700 17,288
10/30 5,400 17,432
10/27 800 17,933
10/26 5,100 18,678
10/25 2,600 19,295
10/24 6,700 20,090
10/23 600 20,760
10/20 0 21,821
10/19 11,600 24,388
10/18 4,000 25,188
10/17 11,200 26,600
10/13 1,000 27,700
10/12 1,500 29,754
10/11 4,000 32,108
10/10 14,000 34,664
10/9 5,000 36,730
10/6 4,900 40,256
10/5 1,500 44,675
10/4 2,600 50,843
10/3 3,000 58,883
10/2 13,900 70,060
9/29 44,900 84,100
9/28 34,300 97,167
9/27 73,000 128,600
9/26 184,200 184,200
-----------
Total 466,100
Dillon, Read & Co. Inc. C - 3 SCOR U.S. Corporation
<PAGE>
Confidential
STOCK PRICE PERFORMANCE OF COMPARABLE COMPANIES
Pricing Date
<TABLE><CAPTION>
American Re Corp General Re Corp NAC Re Corp S&P 500
S&P Financial Transatlantic Hldgs Inc SCOR PXRE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
8/31/90 100% 100% 100% 100% 100% 100% 100% 100%
9/28/90 100% 93% 95% 87% 96% 92% 99% 69%
10/31/90 102% 102% 94% 79% 95% 108% 97% 72%
11/30/90 121% 114% 100% 93% 123% 115% 130% 82%
12/31/90 126% 117% 102% 98% 124% 127% 139% 86%
1/31/91 122% 123% 107% 105% 127% 129% 138% 94%
2/28/91 131% 131% 114% 116% 141% 144% 154% 103%
3/29/91 134% 134% 116% 123% 163% 147% 162% 97%
4/30/91 122% 143% 116% 124% 167% 160% 161% 104%
5/31/91 128% 141% 121% 130% 169% 144% 159% 106%
6/28/91 129% 130% 115% 121% 155% 155% 141% 104%
7/31/91 128% 142% 120% 128% 157% 152% 151% 94%
8/30/91 120% 133% 123% 133% 157% 146% 154% 106%
9/30/91 119% 122% 120% 132% 151% 145% 177% 106%
10/31/91 128% 135% 122% 133% 155% 136% 175% 100%
11/29/91 121% 129% 116% 124% 155% 145% 173% 100%
12/31/91 138% 167% 129% 142% 177% 156% 173% 117%
1/31/92 123% 157% 127% 140% 176% 161% 100% 196% 119%
2/28/92 128% 159% 128% 145% 169% 162% 100% 204% 104%
3/31/92 126% 150% 125% 142% 163% 158% 82% 200% 119%
4/30/92 110% 138% 129% 143% 149% 151% 80% 182% 106%
5/29/92 110% 138% 129% 146% 151% 145% 81% 185% 124%
6/30/92 115% 137% 127% 149% 149% 152% 80% 190% 128%
7/31/92 118% 153% 132% 153% 167% 160% 84% 185% 133%
8/31/92 123% 157% 128% 145% 163% 160% 87% 168% 111%
9/30/92 140% 178% 130% 150% 205% 190% 104% 182% 139%
10/30/92 150% 210% 130% 154% 234% 221% 125% 214% 142%
11/30/92 150% 208% 134% 164% 234% 214% 122% 203% 147%
12/31/92 156% 215% 135% 170% 255% 223% 127% 197% 175%
1/29/93 100% 162% 228% 136% 176% 249% 245% 156% 210% 221%
2/26/93 100% 158% 218% 138% 179% 241% 247% 152% 225% 286%
3/31/93 105% 158% 223% 140% 186% 245% 258% 145% 223% 275%
4/30/93 104% 156% 210% 137% 180% 226% 256% 170% 213% 339%
5/31/93 94% 154% 193% 140% 179% 226% 232% 153% 199% 325%
6/30/93 93% 154% 189% 140% 188% 251% 232% 141% 189% 339%
7/30/93 99% 164% 179% 139% 192% 247% 242% 147% 187% 325%
8/31/93 98% 178% 189% 144% 196% 272% 238% 159% 177% 386%
9/30/93 95% 166% 191% 142% 200% 259% 260% 142% 189% 386%
10/29/93 78% 156% 163% 145% 188% 240% 230% 144% 172% 381%
11/30/93 73% 149% 150% 143% 181% 234% 220% 137% 159% 333%
12/31/93 77% 145% 158% 145% 185% 238% 214% 133% 146% 303%
1/31/94 80% 154% 167% 149% 194% 242% 201% 125% 132% 286%
2/28/94 70% 143% 158% 145% 183% 213% 182% 123% 127% 278%
3/31/94 72% 145% 138% 138% 175% 210% 188% 120% 117% 231%
4/29/94 76% 151% 143% 140% 181% 210% 199% 118% 138% 261%
5/31/94 92% 162% 155% 142% 190% 248% 229% 126% 127% 292%
6/30/94 85% 147% 157% 138% 184% 238% 218% 111% 124% 292%
7/29/94 76% 156% 149% 142% 188% 254% 214% 113% 132% 292%
8/31/94 79% 151% 141% 147% 194% 245% 216% 109% 131% 294%
9/30/94 82% 143% 135% 143% 180% 229% 203% 109% 127% 322%
10/31/94 79% 151% 137% 146% 182% 231% 200% 105% 125% 274%
11/30/94 70% 159% 134% 141% 171% 237% 204% 102% 100% 289%
12/30/94 87% 167% 178% 142% 173% 254% 232% 113% 94% 314%
1/31/95 83% 175% 175% 146% 183% 250% 237% 119% 96% 272%
2/28/95 92% 176% 177% 151% 193% 261% 241% 131% 94% 261%
3/31/95 95% 178% 161% 155% 193% 278% 229% 126% 89% 268%
4/28/95 103% 172% 175% 160% 200% 289% 244% 130% 90% 269%
5/31/95 101% 183% 156% 165% 214% 289% 238% 132% 101% 240%
6/30/95 101% 181% 165% 169% 215% 296% 233% 144% 101% 261%
7/31/95 102% 179% 195% 174% 221% 300% 255% 146% 114% 288%
8/31/95 108% 201% 194% 174% 247% 318% 290% 134% 124% 279%
9/30/95 104% 204% 193% 181% 233% 306% 259% 153% 175% 303%
10/31/95 103% 196% 187% 180% 240% 306% 254% 160% 173% 283%
</TABLE>
Dillon, Read & Co. Inc. C - 4 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
PRICE-TO-BOOK VALUE RATIOS FOR COMPARABLE COMPANIES(a)
Date American Re General Re NAC Re Transatlantic PXRE SCOR
<S> <C> <C> <C> <C> <C> <C>
12/31/89 NA 2.67 NA NA 1.05 1.22
3/31/90 NA 2.63 1.85 NA 0.86 1.03
6/30/90 NA 2.51 1.84 1.59 0.85 0.83
9/30/90 NA 2.18 1.38 1.19 0.48 0.72
12/31/90 NA 2.6 1.7 1.48 0.58 0.98
3/31/91 NA 2.48 1.84 1.86 0.65 1.1
6/30/91 NA 2.33 1.72 1.7 0.68 0.94
9/30/91 NA 2.07 1.55 1.59 0.7 1.13
12/31/91 NA 2.26 2.01 1.78 0.79 1.07
3/31/92 NA 2.01 1.62 1.59 0.79 1.19
6/30/92 NA 1.82 1.45 1.41 0.57 1.11
9/30/92 NA 2.16 1.94 1.91 0.66 1.09
12/31/92 NA 2.32 2.33 2.28 0.87 1.19
3/31/93 2.64 2.28 2.31 1.95 1.3 1.29
6/30/93 2.23 2.16 1.9 1.93 1.54 1.07
9/30/93 2.14 2.22 1.87 1.92 1.74 1.04
12/31/93 1.67 1.88 1.41 1.55 1.24 0.81
3/31/94 1.59 1.86 1.3 1.43 0.96 0.74
6/30/94 1.85 1.9 1.49 1.61 1.15 0.81
9/30/94 1.8 1.79 1.32 1.51 1.19 0.83
12/31/94 1.92 2.08 1.84 1.68 1.13 0.64
3/31/95 1.89 2.06 1.45 1.69 0.94 0.55
6/30/95 1.84 1.92 1.12 1.67 1.07 0.61
11/1/95 1.89 2.1 1.56 1.74 1.14 1.02
</TABLE>
- ------------
(a) Source: Compustat Industrial.
Dillon, Read & Co. Inc. C - 5 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
ONE-YEAR FORWARD P/E RATIOS FOR COMPARABLE COMPANIES (a)
(FY + 1 P/E)
12/31/89 3/31/90 6/30/90 9/30/90 12/31/90 3/31/91 6/30/91 9/30/91 12/31/91 3/31/92 6/30/92 9/30/92
-------- ------- ------- ------- -------- ------- ------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General Re 15x 12.5x 13.5x 12x 14x 14x 13x 14x 15x 13.5x 13.5x 15x
NAC Re 17 12.5 15 11 14 14 14 13 15 15 12.5 14.5
Transatlantic 8 12 13 13 13 14 12 9 11.5
SCOR 17 8 8 7 9 9 7.5 7.5 8 10 9 7.5
PXRE 13 7.5 25 35 30 20 8 9 19 9 9.5 12
<CAPTION>
12/31/92 3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 11/1/95
-------- ------- ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
General Re 21x 17x 16x 19x 17x 14.5x 17x 15x 17x 15x 15x 16x 15.5x
NAC Re 16 18 17 20 18 13.5 15 14 14 14 14 13.5 15
Transatlantic 19 14 14 16 14.5 12 14 13.5 13 12.5 13 12.5 13
SCOR 36 12 9.5 11.5 12 8 21 16 13 9 9.5 17.5 16.5
PXRE 12 19 14.5 15 12.5 7.5 5.5 6.5 6 5 5 5 5
</TABLE>
- ------------
(a) One year forward P/E ratios taken from IBES database (based on median
EPS estimates).
Dillon, Read & Co. Inc. C - 6 SCOR U.S. Corporation
<PAGE>
Confidential
COMPARABLE COMPANIES - OBSERVATIONS
- - Public market valuations of U.S. reinsurers are analyzed on forward
price/earnings multiples and on price/book value multiples
- Reasonably good correlation between return on equity and
price-to-book multiples
- Book value multiples distorted due to possible under-reserving
by the sector in general and FASB115
- - Historically, significant movements in stock prices have been the result
of several factors
- Perceived change in industry fundamentals, i.e., an expected turn
in P/C pricing
- Secular interest rate movements/expectations
- Earnings surprises
- - Trading multiples suggest that the stronger reinsurers with certain
characteristics have achieved premium valuation relative to their peers
- Direct reinsurers more profitable than broker reinsurers
- Property reinsurers have more volatility in earnings and therefore
lower relative P/E
- Larger casualty companies with greater market share, and to
some extent greater pricing power, more profitable than smaller
companies
- Non-proportional reinsurers have been more profitable than
proportional reinsurers
Dillon, Read & Co. Inc. C - 7 SCOR U.S. Corporation
<PAGE>
Confidential
CURRENT 1995E P/E MULTIPLES
<TABLE><CAPTION>
Prudential NAC Re Transatlantic Trenwick PXRE General American National
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995E P/E(a) 15.7x 14.7x 13.2x 13.1x 5.2x 15.8x 12.8x 12.0x
Broker Average 14.2x(b) Direct Average 13.5x
</TABLE>
- -------------
(a) E.P.S. estimates based on I/B/E/S, based on 11/1/95 Stock prices
(b) Excludes PXRE
Dillon, Read & Co. Inc. C - 8 SCOR U.S. Corporation
<PAGE>
Confidential
CURRENT 1996E P/E MULTIPLES
<TABLE><CAPTION>
NAC Re Trenwick Transatlantic Prudential PXRE General American National
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995E P/E(a) 12.6x 11.8x 11.3x 11.3x 5.0x 14.1x 10.7x 10.7x
Broker Average 11.8x(b) Direct Average 11.8x
</TABLE>
- --------------
(a) E.P.S. estimates based on I/B/E/S, based on 11/1/95 Stock prices
(b) Excludes PXRE
Dillon, Read & Co. Inc. C - 9 SCOR U.S. Corporation
<PAGE>
Confidential
CURRENT BOOK VALUE TRADING MULTIPLES
<TABLE><CAPTION>
Transatlantic NAC Re Trenwick Prudential PXRE General American National
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-to-Book Multiple(a) 1.7x 1.6x 1.5x 1.2x 1.1x 2.1x 1.9x 1.6x
Broker Average 1.4x(b) Direct Average 1.9x
</TABLE>
- --------------
(a) Based on 11/1/95 Stock price and latest book value
Dillon, Read & Co. Inc. C - 10 SCOR U.S. Corporation
<PAGE>
Confidential
COMPARISON OF CURRENT FINANCIAL STATISTICS
($ in millions)
<TABLE><CAPTION>
Broker Companies Direct Companies
----------------------------------------------------------- ----------------------------
SCOR U.S. NAC Re PXRE Prudential Transatlantic Trenwick American General National
--------- ------ ---- ---------- ------------- -------- -------- ------- --------
PARENT Capitalization
- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Debt $121.3 $218.0 $69.7 $19.3 $0.0 $103.5 $450.0 $156.0 $100.0
Preferred 0.0 0.0 0.0 0.0 0.0 0.0 225.0 0.0 0.0
Shareholders' Equity 272.7 405.8 192.4 877.4 894.1 218.8 953.1 5,708.0 346.0
------- ------- ------ ------ ------ ------ -------- -------- ------
Total Capitalization $394.0 $623.8 $262.1 $896.7 $894.1 $322.3 $1,628.1 $5,864.0 $446.0
======= ======= ====== ====== ====== ====== ======== ======== ======
Shareholders' Equity/
Total 69.2% 65.1% 73.4% 97.9% 100.0% 67.9% 72.4% 97.3% 77.6%
Capitalization
Business
- --------
% of 1994 Property Business 53% 20% 100% 51% 35% 25% 35% 25% 26%
INSURANCE Company
- -----------------
Statutory Surplus @ 6/30/95 $243(a) $436 $212(a) $640 $591(a) $244 $1,120 $4,228(a) $386(a)
1994 Statutory Net Income (1) 27 34 3 86 20 130 511 41
LTM Premiums/Surplus(b) 1.0x 1.1x 0.5x 1.4x 1.6x 0.7x 1.5x 1.1x 0.8x
LTM Premiums/Reserves 0.4 0.4 1.4 0.4 0.4 0.3 0.4 0.3 0.3
RATINGS
- -------
Moody's Senior Debt Rating A3 Baa2 Ba2 NA NA Baa3 Baa2 Aa1+ Baa1
S&P Senior Debt Rating A+ A- BB- NA NA BBB(cvt.) BBB+(sub) AAA A+
S&P Claims-Paying Rating A+ AA- A- A NR A AA AAA NA
</TABLE>
- --------------------------------
(a) As of December 31, 1994.
(b) As of most recent quarter.
Dillon, Read & Co. Inc. C - 11 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
COMPARISON OF CURRENT TRADING LEVELS
Broker Companies
----------------------------------------------------------------
SCOR U.S. NAC Re PXRE Prudential Transatlantic Trenwick
---------- -------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current Price (11/1/95) $15.250 $36.000 $25.125 $20.375 $68.000 $49.500
Year High 15.750 39.000 29.750 20.750 70.375 53.000
% of Year High 96.8% 92.3% 84.5% 98.2% 96.6% 93.4%
Equity Value(MM) $277.0 $632.3 $219.2 $1,018.8 $1,560.1 $321.3
Adjusted LTM P/E(a) 20.1x 16.4x 5.5x 16.5x 13.1x 11.9x
1995 E 16.6 14.7 5.2 15.7 13.2 13.1
1996 E 15.7 12.6 5.0 11.3 11.3 11.8
Projected 5 year EPS Growth NA 16.0% 15.0% NA 15.0% 14.0%
Rate(b)
Market/Book Value 1.0x 1.6x 1.1x 1.2x 1.7x 1.5x
Market/Adjusted Book Value(c) 0.8 1.1 1.0 0.9 1.4 1.2
Market/Statutory Surplus 1.1 1.5 1.0 1.6 2.6 1.3
Dividend Yield 1.3% 0.4% 2.4% 0.6% 0.6% 2.3%
ROAE 5.5% 12.1% 25.0% 2.9% 14.5% 13.2%
Adjusted ROAE (a) 5.3% 10.2% 25.3% 2.5% 14.5% 13.2%
</TABLE>
Direct Companies
-------------------------------
American General National
---------- --------- ---------
Current Price (11/1/95) $38.375 $146.375 $33.625
Year High 43.125 153.250 35.375
% of Year High 89.0% 95.5% 95.1%
Equity Value(MM) $1,805.5 $12,006.9 $567.1
Adjusted LTM P/E(a) 14.8x 16.3x 14.5x
1995 E 12.8 15.8 12.0
1996 E 10.7 14.1 10.7
Projected 5 year EPS Growth 15.0% 14.0% 13.0%
Rate(b)
Market/Book Value 1.9x 2.1 1.6x
Market/Adjusted Book Value(c) 1.1 1.6 1.3
Market/Statutory Surplus 1.6 3.2 1.5
Dividend Yield 1.0% 1.3% 0.5%
ROAE 14.2% 15.1% 7.9%
Adjusted ROAE (a) 14.0% 14.0% 12.2%
- --------------------------------
(a) Adjusted earnings exclude the after-tax effect of net investment gains.
(b) Source: I/B/E/S.
(c) Adjusted book value includes unearned premiums reserve net of after-tax
deferred acquisition cost.
Dillon, Read & Co. Inc. C - 12 SCOR U.S. Corporation
<PAGE>
Confidential
PRICE-TO-BOOK VS. RETURN ON EQUITY
Pretax tax return Multiple of Book Value
NRC 14.60% 1.6x
ARN 18.20% 2
GRN 18.50% 2.1
TRH 17.40% 1.8
Trenwich 12.90% 1.58
SUR 0.055 1
Dillon, Read & Co. Inc. C - 13 SCOR U.S. Corporation
<PAGE>
Confidential
VALUATION BASED ON TRADING COMPARABLES
(Dollars in millions, except per share data)
SCOR US Multiple Range Per Share Value
Reference Figure Low High Low High
- ------------------------- -------- ---- ---- ---- ----
1996E E.P.S.(a) $1.19 11.0x 15.0x $13.09 $17.85
Latest Book Value(b) $15.03 1.0x 1.3x $15.03 $19.55
Latest Surplus(b) 13.96 1.1 1.4 15.35 19.54
Average $14.49 - $18.98
- --------------------------------
(a) Company projections.
(b) Fully diluted, as of September 30, 1995.
Dillon, Read & Co. Inc. C - 14 SCOR U.S. Corporation
<PAGE>
Confidential
COMPARISON OF ACQUISITIONS
Approach:
- --------
- - Reviewed 32 mergers and acquisitions of property/casualty reinsurance
companies in the U.S. and in Europe.
- - Summarized financial ratios and statistics for 9 most comparable U.S.
transactions and reviewed multiples of net income, multiples of book value
and tangible book value.
Limitations:
- -----------
- - Declines in interest rates and other economic factors, including an
upturn in the property/catastrophe cycle, fueled a strong market for
insurance companies in 1992 and 1993 which didn't exist to the same
extent in 1994 and 1995.
- - Previous acquisitions generally occurred in different stock
market, economic environments and property/casualty cycles.
Dillon, Read & Co. Inc. C - 15 SCOR U.S. Corporation
<PAGE>
Confidential
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS
<TABLE><CAPTION>
($ in millions)
Price Paid as a multiple of Acquiree
Announcement Aggregate Net Book Net Market ROAE of
Date Acquiree/Acquiror Value Income Value Premiums Value Acquiree
- ----------- ----------------------------------- --------- -------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
08/07/95 Piedmont Management Company $85.4 24.6x 1.1x 0.6x 1.3x N.A.
Inc./Chartwell Re Corporation
01/06/95 Re Capital/ 131.6 18.0 1.0 1.7 1.4 6.8%
Zurich Centre Re
12/21/94 Constitution Re/ 400.0 N.A. 1.4 N.A. N.A. N.A.
Exor America Inc.
07/29/93 Underwriters Reinsurance Co. 216.1(1) N.A. 1.4 N.A. N.A. 19.0
(Sub. of Underwriters Re Holding)/
Allegheny Corp.
03/22/93 Kemper Re/Lumbermens Mutual 610.2 N.M. 1.8 N.A. N.A. N.M.
06/09/92 American Re-Insurance Corp. (Aetna) 1,429.5(2) 9.6x 1.2 1.4 N.A. 17.2
American Re Corp. (Formed by KKR.)
03/20/92 Belvedere Corp./ 37.4(3) 18.1 0.8 1.4 1.6x 4.5
Christiana General Insurance
(Sub. of UNI Storebrand AS)
01/10/92 Chartwell Re Corp. 71.0 8.9 1.1 N.A. N.A. N.A.
(Sub. of NWNL Companies)/
Wand Partners/Michigan Mutual
08/29/89 National Reinsurance Corp./ 395.1 10.4 1.4 N.A. N.A. 13.4
Robert M. Bass & Acadia
</TABLE>
Notes:
- --------------------------------
Notes: (1) Actual purchase is $201 MM for a 93% interest. Value is grossed
up for multiple purposes.
(2) GAAP financial data for multiples is as of 12/31/91.
(3) Actual purchase is $16.9MM for remaining 45.2% interest. Value is
grossed up for multiple purposes.
Dillon, Read & Co. Inc. C - 16 SCOR U.S. Corporation
<PAGE>
Confidential
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS
(millions(1))
<TABLE><CAPTION>
Implied
Price Price/
---------------------------
Announcement % for Net Net Book
Date Acquiree/Acquiror Deal Size Acquired 100% Premiums Income Value
- ------------ ------------------------------------- ---------- -------- -------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/23/94 Cologne Re/General Re DM 902 50.1% 1,800.4 0.4x 13.7x 2.6x
09/02/93 Francaise d'Assurance pour le FF 370.0 20.0% 1,850.0 2.8 12.9 1.0
Commerce Exterieur SA (COFACE)/
Societe Commerciale de Reassurance
(SCOR)
25/11/91 Lincoln European Reinsurance USD 11.0 96.6% 11.4 0.7 --- 0.8
Company/
Mapfre SA
16/11/91 Nederlandse Reassurantie Groep DF 1,113 41.0% 276 0.3 9.9 0.8
(NRG)/
Internationale Nederlanden Groep
(ING)
17/09/91 Pinnacle Reinsurance Co. Ltd/ USD 63.7 100.0% 63.7 -- 8.0 1.2
Zurich Versicherungs-Gesellschaft
16/05/91 Societe Anonyme Francaise de FF 463 100.0% 463 N.A. N.A. 0.7
Reassurance/
AGF Re
10/07/90 Legal & General (Victory Re)/NRG/ GBP 122 100.0% 122 0.7 N.A. N.A.
Nationale Nederlanden
08/05/88 Skandia International Holding AB/ SEK3,600.0 54.0% 6,666.7 0.9 15.2 2.8
Skandia AB
04/01/88 Vittoria Riassicurazioni/ USD 121.2 100.0% 121.2 1.0 N.M. N.M.
Societe Commerciale de Reassurance
02/10/87 Baltica Nordisk-Re/ DKR 1,200 100.0% 1,200 108 N.A. 1.6
Employers Re
</TABLE>
- ---------------
(1) $ Values converted at historic exchange rate existing at
time of transaction
Dillon, Read & Co. Inc. C - 17 SCOR U.S. Corporation
<PAGE>
Confidential
VALUATION BASED ON ACQUISITION COMPARABLES
(Dollars in millions, except per share data)
SCOR US Multiple Range Per Share Value
Figure --------------- ---------------
Reference Low High Low High
LTM Net Premiums (a) $237.4 1.1x 1.5x $14.37 $19.60
Latest Book Value (a) $15.03 1.0x 1.4x $15.03 $21.05
Average $14.70 - $20.32
- --------------------------------
(a) Fully diluted, as of September 30, 1995.
Dillon, Read & Co. Inc. C - 18 SCOR U.S. Corporation
<PAGE>
Confidential
ECONOMIC BOOK VALUE ANALYSIS
(Dollars in millions, except per share data)
9/30/95
-----------
GAAP Equity $277.4 MM
Goodwill (6.0)
Investment Portfolio 0.5
EDP System and Leasehold Improvements (11.0)
Deferred Income Tax Benefit (22.5)
Market Adjustment for Debt 7.6
Net Present Value of:
Prepaid Reinsurance (3.0) - (2.0)
Discount on Reserves 41.4 - 54.2
Imbedded Value of Unearned Prem. 18.0 - 19.6
Reserve Deficiency (20.0) - 0
------------------
Estimated Economic Book Value $281.4 - 316.8 MM
==================
Primary Per Share $15.49 - 17.43
==================
Fully Diluted Per Share $15.24 - 17.08
==================
Dillon, Read & Co. Inc. C - 19 SCOR U.S. Corporation
<PAGE>
Confidential
DISCOUNTED CASH FLOW ANALYSIS
- - We have also reviewed a valuation of SCOR based on a discounted cash flow
analysis
- Discounts cumulative stream of dividends to the present
- Assumes a terminal value based on a multiple of earnings in the
future
- - The discounted cash flow analysis, however, has certain shortcomings
relative to the other analyses we have reviewed
- Difficulty in projecting earnings beyond one year in the insurance
industry
- The majority of the value resides in the terminal value
- - The key assumptions utilized were as follows:
Terminal Year: 2000
Premiums Earned Growth beyond 1997: 7%
Investment Income Growth beyond 1997: 8%
Discount Rate: 11% - 13%
Terminal Multiple of Earnings: 10.5x - 12.5x
SAP Tax Rate: 20%
Dillon, Read & Co. Inc. C - 20 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
DISCOUNTED CASH FLOW VALUATION - PROJECTIONS
(Dollars in millions)
SCOR U.S. Projections Dillon Read Projections
--------------------------------------------- ------------------------------------
1995 1996 1997 1998 --- 2000
---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Premiums Earned $259.3 $279.5 $329.2 $352.2 $403.3
Net Investment Income 42.4 44.8 47.2 51.0 59.5
Pretax Income(a) 29.3 33.7 41.7 46.8 54.6
Net Income(b) 23.4 27.0 33.4 37.4 40.4
SAP Dividends 24.3 24.3 24.5 25.4 28.0
Growth in Net Premiums Earned 13.6% 7.8% 17.8% 7.0% 7.0%
Growth in Investment Income 3.5 5.6 5.4 8.0 8.0
Loss Ratio 67.3 67.2 65.9 65.9 65.9
Commission Ratio 26.7 26.5 27.2 27.2 27.2
Expense Ratio 11.4 10.3 8.6 8.6 8.6
-------- -------- -------- -------- --------
Combined Ratio 105.3 104.0 101.7 101.7 101.7
Net Premiums/End of Year Surplus 1.1x 1.3x 1.3x 1.4x 1.4x
</TABLE>
- --------------------------------
(a) Excludes interest expense.
(b) Assures a 20% SAP Fox rate
Dillon, Read & Co. Inc. C - 21 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
DISCOUNTED CASH FLOW VALUATION
(Dollars in millions)
- - Per Share Valuation:
Multiple of 2000 Earnings
---------------------------------------------------------------------------
Discount Rate 10.5x 11.5x 12.5x
----------------- --------------------- ---------------------------- --------------------
<S> <C> <C> <C> <C> <C>
11.0% $15.88 $17.47 $19.05
12.0% 15.17 16.70 18.22
13.0% 14.48 15.95 17.43
- - Indicative Valuation Range: $14.48 - $19.05 per Share
</TABLE>
Dillon, Read & Co. Inc. C - 22 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
CLOSE OUT PREMIUM ANALYSIS
Value Common
Price of Shares % of
Date Per Deal Aquired Shares
Announced Target Name Acquiror Name Share ($mil) (mil) Acq.
- --------- -------------------------- -------------------------- ------ ------- ------- -------
<s <C> <C> <C> <C> <C> <C>
12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc $20.00 $188.1 9.4 19.0 %
09/08/94 Contel Cellular Inc GTE Corp 25.50 254.3 10.0 10.0
08/24/94 Castle & Cooke Homes Inc Dole Food Co Inc 15.75 81.5 5.6 17.0
07/28/94 Chemical Waste Management Inc WMX Technologies Inc 8.85 397.4 44.9 21.4
06/06/94 Ogden Projects Inc Ogden Corp 18.38 110.3 6.0 15.8
03/01/94 FoxMeyer Corp National Intergroup Inc 14.46 79.7 5.5 19.5
06/17/93 Hadson Energy Resources Corp Apache Corp 15.00 39.3 2.6 33.5
04/26/93 Southeastern Public Service Co DWG Corp 25.60 86.1 3.4 29.0
11/13/92 Brand Cos Inc Rust International Inc 18.75 185.0 9.9 44.0
08/17/92 PHLCORP Inc Leucadia National Corp 25.78 139.9 5.4 36.9
03/02/92 Grace Energy Corp WR Grace & Co 19.00 77.3 4.1 16.6
02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 7.25 43.0 5.8 18.0
09/18/91 Arkla Exploration Co Arkla Inc 15.44 92.6 6.0 18.0
08/02/91 Envirosafe Services Inc EnviroSource Inc 11.69 16.8 1.4 37.4
07/28/91 Country Lake Foods Inc Land O' Lakes Inc 15.30 22.6 1.6 34.5
06/13/91 Weigh-Tronix Staveley Industries PLC 22.00 25.3 1.2 44.3
03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 19.25 51.0 2.7 18.0
01/25/91 Medical Management of America Investor Group 8.25 12.9 1.6 23.7
01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 19.39 391.8 20.1 39.0
11/11/90 US WEST NewVector Group Inc US WEST Inc 45.03 437.5 9.7 19.0
10/23/90 ERC Environmental and Energy Ogden Corp 15.13 33.6 2.2 38.8
07/31/90 Freeport-McMoRan Oil and Gas Freeport McMoRan Inc 10.88 46.2 4.3 18.5
07/19/90 Caesars New Jersey Inc Ceasars World Inc 22.58 48.4 2.2 13.4
07/12/90 TVX Broadcast Group Inc Paramount Communications 9.50 61.4 6.5 21.0
07/06/90 Mack Trucks Inc Renault Vehicules Industriels 6.25 103.7 16.6 40.0
05/17/90 DST Systems Inc Kansas City Southern Inds Inc 15.85 39.1 2.2 11.5
05/08/90 ISS International Service Sys ISS International Service A/S 12.00 15.4 1.3 34.0
03/02/90 Shearson Lehman Brothers Hldgs American Express Co 12.90 360.0 27.9 39.0
01/24/90 Copperweld Corp Imetal SA 17.00 78.0 4.6 44.4
<CAPTION>
% Owned Premium Premium Premium
After 1 Day 1 Week 4 Weeks
Date Trans- Prior Prior Prior
Announced action to Deal to Deal to Deal
- --------- ------- -------- ------- -------
<S> <C> <C> <C> <C>
12/28/94 100 % 19.4% 18.5% 18.5%
09/08/94 100 43.7% 37.8% 36.0%
08/24/94 100 35.4% 41.5% 55.5%
07/28/94 100 10.6% 8.9% 1.1%
06/06/94 100 5.8% 17.6% 20.5%
03/01/94 100 7.1% 9.1% 11.2%
06/17/93 100 26.3% 27.7% 25.0%
04/26/93 100 65.2% 63.8% 86.2%
11/13/92 100 4.9% 13.6% 4.9%
08/17/92 100 12.1% 15.2% 28.9%
03/02/92 100 24.6% 21.6% 7.8%
02/06/92 100 52.6% 45.0% 45.0%
09/18/91 100 8.4% 28.7% 30.0%
08/02/91 100 16.9% 11.3% -2.6%
07/25/91 100 39.1% 45.7% 53.0%
06/13/91 98 41.9% 41.9% 44.3%
03/01/91 100 22.2% 16.7% 24.2%
01/25/91 100 65.0% 65.0% 65.0%
01/03/91 100 14.1% 24.1% 9.2%
11/11/90 100 47.6% 58.0% 83.8%
10/23/90 100 37.5% 44.1% 44.1%
07/31/90 100 36.0% 42.6% 47.4%
07/19/90 100 40.0% 49.2% 44.5%
07/12/90 100 26.7% 90.0% 85.2%
07/06/90 100 19.0% 19.0% 21.8%
05/17/90 99 24.3% 40.9% 51.0%
05/08/90 100 54.8% 60.0% 60.0%
03/02/90 100 -0.8% 18.6% 7.5%
01/24/90 100 47.8% 41.7% 33.3%
- -------------------------------------------------------
All Close outs: Average 29.2% 35.1% 35.9%
Median 26.3% 37.8% 33.3%
High 65.2% 90.0% 86.2%
Low -0.8% 8.9% -2.6%
- -------------------------------------------------------
</TABLE>
Dillon, Read & Co. Inc. C-23 SCOR U.S. Corporation
<PAGE>
Confidential
CLOSE OUT PREMIUM VALUATION
SUR Implied
Stock Applicable Offer
Price Premium Price
----------- ---------------- -----------
1 Day Prior to Transaction $11.125 29.2% $14.37
1 Week Prior to Transaction 11.500 35.1% 15.54
4 Weeks Prior to Transaction 11.500 35.9% 15.63
Valuation Based on Premium Analysis $14.37 - $15.63
Dillon, Read & Co. Inc. C - 24 SCOR U.S. Corporation
<PAGE>
Confidential
SUMMARY OF VALUATION INDICATORS
PRICE PER SHARE
HIGH LOW
Comparable Trading $18.98 $14.49
Comparable Acquisitions 20.32 14.70
Economic Book Value Analysis 17.08 15.24
Discounted Cash Flow 19.05 14.48
Premium Analysis 15.63 14.37
Dillon, Read & Co. Inc. C - 25 SCOR U.S. Corporation
<PAGE>
<TABLE><CAPTION>
Dillon, Read & Co. Inc.
SCOR U.S. Corporation
Analysis of Comparable Companies
CURRENT TRADING STATISTICS
(Dollars in millions)
Broker Companies
-------------------------------------------------------------------------
SCOR U.S. NAC Re PXRE Corp. Prudential Re Transatlantic Trenwick
----------- ----------- ----------- ---------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Current Price as of 11/01/95 $15.250 $36.000 $25.125 $20.375 $68.000 $49.500
52 week High 15.750 39.000 29.750 20.750 70.375 53.000
% of Year High 96.8% 92.3% 84.5% 98.2% 96.6% 93.4%
% of 52 week spectrum 93.9% 79.7% 47.1% 83.3% 89.5% 79.1%
Number of shares Outstanding MM 18.2 17.6 8.7 50.0 22.9 6.5
Equity Value $277.0 $632.3 $219.2 $1,018.8 $1,560.1 $321.3
====== ====== ====== ======== ======== ======
- ------------------------------------------------------------------------------------------------------------------------------------
Market Value of Equity to:
Adjusted P/E 20.1 x 16.4 x 5.1 x 16.5 x 13.1 x 11.9 x
1995 E 16.6 14.7 5.2 15.7 13.2 13.1
1996 E 15.7 12.6 5.0 11.3 11.3 11.8
- ------------------------------------------------------------------------------------------------------------------------------------
Projected 5 year EPS Growth Rate NA 16.0 % 15.0 % NA 15.0 % 14.0 %
Dividend Yield 1.3% 0.4% 2.4% 0.6% 0.6% 2.3%
ROAE 5.5% 12.1% 25.0% 2.9% 14.5% 13.2%
Adjusted ROAE 5.3% 10.2% 25.3% 2.5% 14.5% 13.2%
- ------------------------------------------------------------------------------------------------------------------------------------
Market/Book Value 1.0 x 1.6 x 1.1 x 1.2 x 1.7 x 1.5 x
Market/Adjusted Book Value 0.8 1.1 1.0 0.9 1.4 1.2
Market/Statutory Surplus 1.1 1.5 1.0 1.6 2.6 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Direct Companies
-----------------------------------------------
American Re General Re National Re
---------------- ------------- -------------
<S> <C> <C> <C>
Current Price as of 11/01/95 $38.375 $146.375 $33.625
52 week High 43.125 153.250 35.375
% of Year High 89.0% 95.5% 95.1%
% of 52 week spectrum 73.4% 84.9% 86.7%
Number of shares Outstanding MM 47.1 82.0 16.9
Equity Value $1,805.5 $12,006.9 $567.1
======== ========= ======
- ----------------------------------------------------------------------------------------------
Market Value of Equity to:
Adjusted P/E 14.8 x 16.3 x 14.5 x
1995 E 12.8 15.8 12.0
1996 E 10.7 14.1 10.7
- ----------------------------------------------------------------------------------------------
Projected 5 year EPS Growth Rate 15.0 % 14.0 % 13.0 %
Dividend Yield 1.0% 1.3% 0.5%
ROAE 14.2% 15.1% 7.9%
Adjusted ROAE 14.0% 14.2% 12.2%
- ----------------------------------------------------------------------------------------------
Market/Book Value 1.9 x 2.1 x 1.6 x
Market/Adjusted Book Value 1.1 1.6 1.3
Market/Statutory Surplus 1.6 3.2 1.5
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Dillon, Read & Co. Inc.
SCOR U.S. Corporation
Analysis of Comparable Companies
- ------------------------------------------------------------------------------------------------------------------------------------
Comparative Analysis
(Dollars in millions)
Broker Companies
--------------------------------------------------------------------------------
SCOR U.S. NAC Re PXRE Corp. Prudential Re Transatlantic Trenwick
----------- ----------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Size:
Total Assets $1,187.6 $2,138.8 $183.6 $4,363.6 $3,674.9 $796.7
Book Value of Common 272.7 405.8 192.4 877.4 894.1 218.8
LTM Total Revenues 282.1 544.3 126.1 1,035.8 1,101.5 192.7
- ------------------------------------------------------------------------------------------------------------------------------------
Performance:
LTM Pretax Return on Average Equity 6.6% 14.6% 36.5% 2.8% 17.4% 16.4%
LTM Pretax Margin 6.0% 10.1% 49.6% 6.6% 12.9% 17.3%
Net Revenues 3 Year C.A.G.R. 4.0% 21.3% 53.9% -0.8% 28.6% 21.3%
Pretax Income 3 Year C.A.G.R. NM 242.5% NM -67.5% 18.7% -47.8%
<CAPTION>
Direct Companies
-------------------------------------------------
American Re General Re National Re
----------------- -------------- -------------
<S> <C> <C> <C>
Size:
Total Assets $7,071.4 $34,810.0 $1,641.6
Book Value of Common 953.1 5,708.0 346.0
LTM Total Revenues 1,809.2 5,067.0 340.0
- ----------------------------------------------------------------------------------------
Performance:
LTM Pretax Return on Average 18.2% 18.5% 10.9%
LTM Pretax Margin 8.8% 19.0% 10.3%
Net Revenues 3 Year C.A.G.R. NA 6.4% 4.8%
Pretax Income 3 Year C.A.G.R. NA 4.9% -18.4%
</TABLE>
<TABLE><CAPTION>
Credit Analysis
(Dollars in millions)
SCOR U.S. NAC Re PXRE Corp. Prudential Re Transatlantic Trenwick
----------- ----------- --------------- --------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total Assets $1,187.6 $2,138.8 $183.6 $4,363.6 $3,674.9 $796.7
LT Debt 101.0 200.0 69.7 19.3 0.0 103.5
Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0
Common Equity 272.7 405.8 192.4 877.4 894.1 218.8
----- ----- ----- ----- ----- -----
Total capitalization $373.7 $605.8 $262.1 $896.7 $894.1 $322.3
====== ====== ====== ====== ====== ======
LT Debt/Total capitalization 27.0% 33.0% 26.6% 2.2% 0.0% 32.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Net premiums/Statutory surplus 1.0 x 1.1 x 0.5 x 1.4 x 1.6 x 0.7 x
Total assets/Common equity 4.4 x 5.3 x 1.0 x 5.0 x 4.1 x 3.6 x
Total assets/Statutory surplus 4.9 4.9 0.9 6.8 6.2 3.3
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
American Re General Re National Re
----------------- -------------- -------------
<S> <C> <C> <C>
Total Assets $7,071.4 $34,810.0 $1,641.6
LT Debt 600.0 156.0 100.0
Preferred Stock 0.0 1.0 0.0
Common Equity 953.1 5,708.0 346.0
----- ------- -----
Total capitalization $1,553.1 $5,865.0 $446.0
======== ======== ======
LT Debt/Total capitalization 38.6% 2.7% 22.4%
- ----------------------------------------------------------------------------------------
Net premiums/Statutory surplus 1.5 x 1.1 x 0.8 x
Total assets/Common equity 7.4 x 6.1 x 4.7 x
Total assets/Statutory surplus 6.3 9.2 4.2
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Confidential
<TABLE><CAPTION>
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS
($ in millions)
Announcement Aggregate
Date Acquiree/Acquiror Deal Description Value
- ------------ ---------------------------- --------------------------------- ---------
<S> <C> <C> <C>
08/07/95 Piedmont Management Company/ Chartwell announced it was $85.4
Chartwell Re Corp. acquiring RECO for $85.4MM from
Piedmont after Piedmont
completed its spin-off of
Lexington, an asset-manager.
01/06/95 Re Capital/ Zurich Centre Re acquired 131.6
Zurich Centre Re publicly-traded Re Capital in a
public auction. (John Deere
owned a 40% stake)
12/21/94 Constitutional Re/ Xerox Corp. sold its reinsurance 400.0
Exor America Inc. unit, Constitution Re., to Exor
American Inc. (an affiliate of
IFI)
10/25/93 American Skandia Life Hartford Life acquired the life 19.1
Reinsurance/Hartford Life reinsurance business of Skandia
(ITT Corporation) (Sweden), which specializes in
risk analysis and financial
reinsurance .
09/09/93 American Royal Reinsurance Australian insurer QBE Ins. 59.0
Co. Group acquired Royal
(Sub. of Royal Insurance)/QBE Insurance's U.S. reinsurance
Insurance subsidiary. American Royal
Rewrites property (50%),
casualty (30%), and accident and
health (20%) through
intermediaries on a treaty and
facultative basis.
<CAPTION>
Price Paid as a Multiple of Acquiree
--------------------------------------------
GAAP/Statutory
---------------------------------
Announcement Net Book Net Market ROAE of
Date Income Value Premiums Value Acquiree
- ------------ -------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
08/07/95 24.6x 1.1x 0.6x 1.3x N.A.
01/06/95 18.0 1.0 1.7 1.4 6.8%
12/21/94 N.A. 1.35 N.A. N.A. N.A.
10/25/93 N.A. N.A. N.A. N.A. N.M.
N.M. 1.2 0.7
09/09/93 N.A. N.A. N.A. N.A. N.A.
N.M. 1.09 142.6
</TABLE>
- -------------------------
(1) Actual purchase is $201 MM for a 93% interest.
Value is grossed up for multiple purposes.
Dillon, Read & Co. Inc. 2 - 1 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS
($ in millions)
Announcement Aggregate
Date Acquiree/Acquiror Deal Description Value
- ------------ ---------------------------- --------------------------------- ---------
<S> <C> <C> <C>
07/29/93 Underwriters Reinsurance Co. Allegheny Corporation purchased 216.1(1)
(Sub. of Underwriters Re the remaining 93% of
Holding)/ Alleghany Corp. Underwriters Re, which had been
in registration. Underwriters
was owned by a consortium led by
Goldman Sachs and Continental
Corporation, and wrote multi-
line insurance and specialized
coverages.
03/22/93 Kemper Re/Lumbermens Mutual Kemper swapped Kemper Re and its 610.2
50% interest in a risk
management company to Lumbermens
in exchange for Lumbermens 35%
stake in Kemper.
06/09/92 American Re-Insurance Corp. A KKR Fund purchased American 1,429.5(2)
(Sub. of Aetna) Re, the third largest P&C
American Re Corp. (Formed by Reinsurance Company in the U.S.,
KKR.) a direct writer, from Aetna.
05/14/93 Skandia America Reinsurance Centre Reinsurance Holdings, N.A.
Corp/ Bermudan subsidiary of Zurich
Zurich Versicherungs- Versicherungs-Gesellschaft, has
Gesellschaft acquired the reinsurance
business of Skandia America
Reinsurance (SARC) of the US
from Skandia. Terms were not
disclosed. SARC conducts non
life reinsurance business in the
US, Canada and Bermuda.
<CAPTION>
Price Paid as a Multiple of Acquiree
--------------------------------------------
GAAP/Statutory
---------------------------------
Announcement Net Book Net Market ROAE of
Date Income Value Premiums Value Acquiree
- ------------ -------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
07/29/93 N.A. 1.41 N.A. N.A. 19.04
6.4x 1.20 153.2
03/22/93 N.M. 1.8 N.A. N.A. N.M.
N.M. 1.4 N.A.
06/09/92 9.6 1.2 142.3 N.A. 17.15
9.1 1.9 169.6
05/14/93 N.A. N.A. N.A. N.A. N.A.
</TABLE>
- --------------------------------
(2) GAAP financial data for multiples is as of 12/31/91.
Dillon, Read & Co. Inc. 2 - 2 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS
($ in millions)
Announcement Aggregate
Date Acquiree/Acquiror Deal Description Value
- ------------ ---------------------------- --------------------------------- ---------
<S> <C> <C> <C>
03/20/92 Belvedere Corp./ Norwegian Unistorebrand 37.4(3)
Christiana General Insurance purchased US treaty property &
(Sub. of UNI Storebrand AS>) casualty reinsurer Belvedere
Corp.
02/18/92 Global Insurance Company/ Lawrence acquired this reinsurer 8.9
Lawrence Insurance Group of small/medium sized insurance
companies, which additionally
has small primary operations.
01/10/92 Chartwell Re Corp. Chartwell, a property casualty 71.0
(Sub. of NWNL Companies)/ reinsurance subsidiary of NWNL,
Wand Partners/Michigan Mutual was sold to an investor group
led by Wand Partners, an SG
Warburg affiliate, and Michigan
Mutual.
09/17/91 Mony Re Inc./ Folksamgruppen has acquired Mony 21.0
Folksamgruppen Re, a US life reinsurer, from
Mutual of NY.
05/17/90 Metropolitan Reinsurance Skandia, via its US subsidiary, 65.0
Company/ acquired the Reinsurance
Skandia AB Business Unit from Metropolitan
Reinsurance Company, subsidiary
of Metropolitan Life Insurance.
08/29/89 National Reinsurance Corp./ National Re, a multi-line P&C 395.1
Robert M. Bass & Acadia treaty reinsurer, was sold to a
management and Bass Acadia Fund
partnership. National Re had
been owned by Lincoln National.
08/03/88 General Reinsurance/Insurance General Re sold its life 300.0
Investment Associates reinsurance subsidiary to an
investment group.
<CAPTION>
Price Paid as a Multiple of Acquiree
--------------------------------------------
GAAP/Statutory
---------------------------------
Announcement Net Book Net Market ROAE of
Date Income Value Premiums Value Acquiree
- ------------ -------- ------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
03/20/92 18.1 0.79 136.2 1.58x 4.50
19.4 1.12 N.A.
02/18/92 N.A. 0.80 N.A. N.A. N.A.
9.6 0.67 39.8
01/10/92 8.9 1.08 N.A. N.A. N.A.
7.7 1.31 389.3
09/17/91 N.A. N.A. N.A. N.A. N.A.
05/17/90 N.A. N.A. N.A. N.A. N.A.
08/29/89 10.4 1.41 N.A. N.A. 13.4
11.7 1.98 140.6 16.9
08/03/88 11.0 0.9 N.A. N.A. 8.7
9.4 2.0 20.3
- --------------------------------
(3) Actual purchase is $16.9MM for remaining 45.2% interest.
Value is grossed up for multiple purposes.
</TABLE>
Dillon, Read & Co. Inc. 2 - 3 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS
(LCL/$MILLIONS, EXCEPT LIT BILLIONS (1))
Implied
Announcement % Price for Net Net Book
Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value
- ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
09/23/94 Cologne Re/General General Re and Colonia formed a DM 902 50.1% 1,800.0 $4,073 $131 $695
Re new company that acquired 75%
of the common and 30% of the
preferred shares (66% economic
interest) in Cologne Re.
General Re contributed $884MM
for the class of shares of the
new company while Colonia
contributed the Cologne Re
shares in exchange for the
Class A shares.
09/02/93 Francaise SCOR has acquired a 20% stake FF 370.0 20.0% 1,850.0 665.6 143.0 1,798.3
d'Assurance pour in COFACE from UAP and Caisse USD 67.0 335.0
le Commerce des Depots et Consignations,
Exterieur SA who hold 5% and 15%,
(COFACE)/ respectively. Under the terms
Societe of the deal, the sellers
Commerciale de exchanged 3 of their shares for
Reassurance (SCOR) every 31 SCOR shares, which
were valued at FF 600. COFACE
insures certain risks for the
French Government including
political, catastrophic and
monetary risks, certain
organized commercial risks,
political risks in connection
with overseas investment by
exporters, and exchange
guarantees. The company has an
international spread.
25/11/91 Lincoln European Mapfre of Spain has agreed to USD 11.0 96.6% 11.4 17.1 (1.8) 14.0
Reinsurance buy 96.6% of Lincoln European BFR 359.1 371.8 611.0 (66.0) 499.0
Company/ Reinsurance Company, the
Mapfre SA Brussels-based arm of Lincoln
National Corporation of the US.
The company underwrites
property and casualty lines,
the majority of which is
proportional reinsurance.
16/11/91 Nederlandse ING has bid for the remaining DF 1,113 41.0% 276 1,085.0 27.8 353
Reassurantie Groep 41% of shares in NRG (leading ($62) ($150) ($592)
(NRG)/ Dutch reinsurer) which it does
Internationale not already own. ING will pay
Nederlanden Groep DFl 113MM to minority
(ING) shareholders and make a capital
contribution to NRG of DFl
500MM.
<CAPTION>
Price/
---------------------------
Announcement Net Net Book
Date Premiums Income Value
- ------------ -------- ------ -----
<S> <C> <C> <C>
09/23/94 0.4x 13.7x 2.6x
09/02/93 2.8 12.9 1.0
25/11/91 0.7 N.M. 0.8
16/11/91 0.25x 9.93x 0.78x
</TABLE>
_________
(1) $ Values converted at historic exchange rate existing at time of
transaction.
Dillon, Read & Co. Inc. 2 - 4 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS
(LCL/$MILLIONS, EXCEPT LIT BILLIONS (1))
Implied
Announcement % Price for Net Net Book
Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value
- ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
17/09/91 Pinnacle CE Health has sold Pinnacle USD 63.7 100.0% 63.7 -- 8.0 53.7
Reinsurance Co. reinsurance to Centre STG 36.8 36.8 -- 4.6 31.0
Ltd/ Reinsurance, subsidiary of
Zurich Zurich Insurance. To allow
Versicherungs- Centre Re to buy Pinnacle's
Gesellschaft business and not the whole
company, Pinnacle was first
sold to Vertex and then
transferred to Centre Re.
16/05/91 Societe Anonyme AGF Re is to merge with SAFR, FF 463 100.0% 463 N.A. N.A. 629
Francaise de which is 27% controlled by AGR ($78) ($107)
Reassurance/ Group, to form the second
AGF Re largest reinsurance company in
France. As the merger will not
give AGF a majority stake in
SAFR's capital, it will remain
independent. The deal is to be
carried out via a capital
raising operation on the part
of SAFR, which then absorbed
AGF Re through a share swap.
17/01/91 Hamburger Hannover Ruckversicherungs, DM N.A. N.A. N.A. N.A. N.A. N.A.
Internationale/ subsidiary of HDI, acquired the
Haftlichtverbrand reinsurance business of
der Deutschen Hamburger Internationale
Industrie VAG Rucksversicherung, from
Wolksfursoge Holding AG. Terms
were not disclosed.
10/07/90 Legal & General Legal and General sold Victory GBP 122 100.0% 122 173.7 N.A. N.A.
(Victory Re)/NRG/ Reinsurance to Netherlands USD ($227) ($227)
Nationale Reinsurance Group (NRG) for
Nederlanden B.P.122MM. The deal made NRG
the 11th biggest reinsurer.
This transaction comprises
proceeds in cash of GBP 122MM
for NGR and the release of GBP
18MM of further capital
resources held within L&G
subsidiary companies.
<CAPTION>
Price/
---------------------------
Announcement Net Net Book
Date Premiums Income Value
- ------------ -------- ------ -----
<S> <C> <C> <C>
17/09/91 -- 8.0 1.2
16/05/91 N.A. N.A. .74
17/01/91 N.A. N.A. N.A.
10/07/90 0.70x N.A. N.A.
</TABLE>
_________
(1) $ Values converted at historic exchange rate existing at time of
transaction.
Dillon, Read & Co. Inc. 2 - 5 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS
(LCL/$MILLIONS, EXCEPT LIT BILLIONS (1))
Implied
Announcement % Price for Net Net Book
Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value
- ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
22/01/90 Atersforsakerings/ Wasa AB has acquired SEK 34.0 100.0% 34.0 -- -- --
Wasa Forsakring AB Aterforsakrings AB, Swedish USD 5.6 5.6
reinsurance company, from
Skandia, Trygg-Hansa and
Folksam.
28/07/89 Societe SCOR is to merge with UAP FF -- 100.0% -- 5,857.4 238.1 2,761.5
Commerciale de Reassurance. The merger will
Reassurance/ be executed through a paper bid
Union des for SCOR & UAP Re from
Assurances de Compagnie Generales de
Paris Voitures, a shell listed
company in which UAP and
Assurances Generales de France
each own 40%.
01/05/89 Deutsche Continental Corporation of the DEM -- 100.0% -- 198.8 2.6 63.5
Continental US has sold its German USD 111.7 1.5 35.7
Ruecksversi- subsidiary for an undisclosed
cherung/ amount.
Societe
Commerciale de
Reassurance
24/09/88 Copenhagen Re/ The acquisition was made by FFR 560.0 85.0% 658.8 85.5 (0.6) 100.4
Groupama creating a reinsurance holding USD 83.1 97.8 12.4 (0.1) 14.6
co in which Groupama has an 85%
stake. The holding co will
have capital of USD 100MM of
which Copenhagen Re (parent
company) will contribute USD
15MM.
26/06/88 Imperial Chemicals ICI has agreed to sell its STG 10.0 100.0% 10.0 12.0 2.0 --
Reinsurance/ reinsurance subsidiary to QBE. USD 17.3 17.3 20.8 3.4 --
QBE Insurance
Group
<CAPTION>
Price/
---------------------------
Announcement Net Net Book
Date Premiums Income Value
- ------------ -------- ------ -----
<S> <C> <C> <C>
22/01/90 -- -- --
28/07/89 -- -- --
01/05/89 -- -- --
24/09/88 7.7 N.M. 6.6
26/06/88 0.8 5.1 --
</TABLE>
_________
(1) $ Values converted at historic exchange rate existing at time of
transaction.
Dillon, Read & Co. Inc. 2 - 6 SCOR U.S. Corporation
<PAGE>
Confidential
<TABLE><CAPTION>
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS
(LCL/$MILLIONS, EXCEPT LIT BILLIONS (1))
Implied
Announcement % Price for Net Net Book
Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value
- ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
08/05/88 Skandia Skandia acquired the SEK3,600.0 54.0% 6,666.7 7,609.0 438.0 2,342.0
International outstanding shares of Skandia USD 556.8 1,031.1
Holding AB/ International Holding
Skandia AB reinsurance concern spun off 3
years ago. The offer to
Skandia International
shareholders is SEK 60 in cash
and 1 Skandia Insurance share.
The new shares issued will
represent 22.4% of its expanded
equity of 77.3MM shares.
04/01/88 Vittoria SCOR acquired practically the USD 121.2 100.0% 121.2 117.2 1.4 17.3
Riassicurazioni/ only large Italian reinsurer.
Societe Through the sale the divestor
Commerciale de Toro Assicurazioni recentered
Reassurance its activities on direct
insurance.
02/10/87 Baltica Nordisk- Baltica, a Danish insurance DKR 1,200 100.0% 1,200 $109 754
Re/ group, sold Baltica-Nordiske, ($173) ($173) ($109) N.A. ($109)
Employers Re its reinsurance business, to
Employers Re, a subsidiary of
General Electric Company, based
in Kansas.
The acquisition does not
include Baltica-Skandinavia
(UK).
<CAPTION>
Price/
---------------------------
Announcement Net Net Book
Date Premiums Income Value
- ------------ -------- ------ -----
<S> <C> <C> <C>
08/05/88 0.9 15.2 2.8
04/01/88 1.0 N.M. N.M.
02/10/87 108 N.A. 1.59
</TABLE>
_________
(1) $ Values converted at historic exchange rate existing at time of
transaction.
Dillon, Read & Co. Inc. 2 - 7 SCOR U.S. Corporation
<PAGE>
<TABLE><CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Dillon, Read & Co., Inc.
SCOR U.S CORP.
Selected Minority Close Out Transactions
- ------------------------------------------------------------------------------------------------------------------------------
Value Common % Owned
Price of Shares % of After
Date Per Deal Aquired Shares Trans-
Announced Target Name Acquiror Name Share ($mil) (mil) Acq. action
- --------- -------------------------- -------------------------- -------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc $20.00 $188.1 9.4 19.0 % 100 %
09/08/94 Contel Cellular Inc GTE Corp 25.50 254.3 10.0 10.0 100
08/24/94 Castle & Cooke Home Inc Dole Food Co Inc 15.75 81.5 5.6 17.0 100
07/28/94 Chemical Waste Management Inc WMX Technologies Inc 8.85 397.4 44.9 21.4 100
06/06/94 Ogden Projects Inc Ogden Corp 18.38 110.3 6.0 15.8 100
03/01/94 FoxMeyer Corp National Intergroup Inc 14.46 79.7 5.5 19.5 100
06/17/93 Hadson Energy Resources Corp Apache Corp 15.00 39.3 2.6 33.5 100
04/26/93 Southeastern Public Service Co DWG Corp 25.60 86.1 3.4 29.0 100
11/13/92 Brand Cos Inc Rust International Inc 18.75 185.0 9.9 44.0 100
08/17/92 PHLCORP Inc Leucadia National Corp 25.78 139.9 5.4 36.9 100
03/02/92 Grace Energy Corp WR Grace & Co 19.00 77.3 4.1 16.6 100
02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 7.25 43.0 5.8 18.0 100
09/18/91 Arkla Exploration Co Arkla Inc 15.44 92.6 6.0 18.0 100
08/02/91 Envirosafe Services Inc EnviroSource Inc 11.69 16.8 1.4 37.4 100
07/25/91 Country Lake Food Inc Land O' Lakes Inc 15.30 22.6 1.6 34.5 100
06/13/91 Weigh-Tronix Staveley Industries PLC 22.00 25.3 1.2 44.3 98
03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 19.25 51.0 2.7 18.0 100
01/25/91 Medical Management of America Investor Group 8.25 12.9 1.6 23.7 100
01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 19.39 391.8 20.1 39.0 100
11/11/90 US WEST NewVector Group Inc US West Inc 45.03 437.5 9.7 19.0 100
10/23/90 ERC Environmental and Energy Ogden Corp 15.13 33.6 2.2 38.8 100
07/31/90 Freeport-McMoRan Oil and Gas Freeport McMoRan Inc 10.88 46.2 4.3 18.5 100
07/19/90 Caesars New Jersey Inc Caesars World Inc 22.58 48.4 2.2 13.4 100
07/12/90 TVX Broadcast Group Inc Paramount Communications 9.50 61.4 6.5 21.0 100
07/06/90 Mack Trucks Inc Renault Vehicules Industriels 6.25 103.7 16.6 40.0 100
05/17/90 DST Systems Inc Kansas City Southern Inds Inc 15.85 39.1 2.2 11.5 99
05/08/90 ISS International Service Sys ISS International Service A/S 12.00 15.4 1.3 34.0 100
03/02/90 Shearson Lehman Brothers Hldgs American Express Co 12.90 360.0 27.9 39.0 100
01/24/90 Copperweld Corp Imetal SA 17.00 78.0 4.6 44.4 100
</TABLE>
Premium Premium Premium
1 Day 1 Week 4 Weeks
Date Prior Prior Prior
Announced to Deal to Deal to Deal
- --------- -------- ------- -------
12/28/94 19.4% 18.5% 18.5%
09/28/94 43.7% 37.8% 36.0%
08/24/94 35.4% 41.5% 55.5%
07/28/94 10.6% 8.9% 1.1%
06/06/94 5.8% 17.6% 20.5%
03/01/94 7.1% 9.1% 11.2%
06/17/93 26.3% 27.7% 25.0%
04/26/93 65.2% 63.8% 86.2%
11/13/92 4.9% 13.6% 4.9%
08/17/92 12.1% 15.2% 28.9%
03/02/92 24.6% 21.6% 7.8%
02/06/92 52.6% 45.0% 45.0%
09/18/91 8.4% 28.7% 30.0%
08/02/91 16.9% 11.3% -2.6%
07/25/91 39.1% 45.7% 53.0%
06/13/91 41.9% 41.9% 44.3%
03/01/91 22.2% 16.7% 24.2%
01/25/91 65.0% 65.0% 65.0%
01/03/91 14.1% 24.1% 9.2%
11/11/90 47.6% 58.0% 83.8%
10/23/90 37.5% 44.1% 44.1%
07/31/90 36.0% 42.6% 47.4%
07/19/90 40.0% 49.2% 44.5%
07/12/90 26.7% 90.0% 85.2%
07/06/90 19.0% 19.0% 21.8%
05/17/90 24.3% 40.9% 51.0%
05/08/90 54.8% 60.0% 60.0%
03/02/90 -0.8% 18.6% 7.5%
01/24/90 47.8% 41.7% 33.3%
- -------------------------------------------------------
All Close Outs: Average 29.2% 35.1% 35.9%
Median 26.3% 37.8% 33.3%
High 65.2% 90.0% 86.2%
Low -0.8% 8.9% -2.6%
- -------------------------------------------------------
- -------------------------------------------------------
Purchase 15-25% Average 27.8% 35.6% 38.1%
Median 24.6% 28.7% 30.0%
High 65.0% 90.0% 85.2%
Low 5.8% 8.9% 1.1%
- -------------------------------------------------------
<PAGE>
<TABLE><CAPTION>
DILLON, READ & CO. INC. 11/02/95
- ---------------------------------------------------------------------------------------------------------------------
Preliminary & Confidential SCOR U.S. CORPORATION
Discounted Cash Flow Analysis
(Dollars in millions)
- ---------------------------------------------------------------------------------------------------------------------
Actual Company Projections
------ -------------------
INCOME PROJECTIONS 1992 1993 1994 1995 1996 1997
-------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net Premiums Earned $192.1 $236.1 $228.2 $259.3 $279.5 $329.2
Net Investment Income 42.9 42.0 41.0 42.4 44.8 47.2
Net Investment Gains/(Losses) 15.0 12.9 1.0 0.7 -- --
-------- -------- ------- -------- ------- -------
Net Revenues 250.0 291.0 270.2 302.4 324.3 376.4
Losses and Expenses:
Losses and Expenses, net 160.5 156.3 191.3 174.4 187.7 216.8
Commissions, net 56.0 61.3 59.4 69.1 74.1 89.5
Other Operating Expenses 23.9 26.4 26.0 29.0 29.0 30.0
Other 4.3 4.1 4.0 0.6 (0.2) (1.6)
Interest Expense 4.6 8.0 8.9 -- -- --
-------- -------- ------- -------- ------- -------
Pretax Income 1995-2004 0.6 34.9 (19.5) 29.3 33.7 41.7
Income Taxes 20.0% (3.8) 7.0 (11.3) 5.9 6.7 8.3
-------- -------- ------- -------- ------- -------
Net Income from Continuing Ops. $4.4 $27.9 ($8.2) $23.4 $27.0 $33.4
======== ======== ======= ======== ======= =======
Extraordinary Items -- -- 0.4 -- -- --
Cum. Effect of Accting Change 2.8 (2.6) -- -- -- --
-------- -------- ------- -------- ------- -------
Net Income $7.2 $25.3 ($7.8) $23.4 $27.0 $33.4
======== ======== ======= ======== ======= =======
Annual Growth -87.5% 249.4% -131.0% -398.8% 15.1% 23.6%
Less: Preferred Dividends -- -- -- -- -- --
Net Income to Common $7.2 $25.3 ($7.8) $23.4 $27.0 $33.4
======== ======== ======= ======== ======= =======
- ---------------------------------------------------------------------------------------------------------------------
Growth in Net Premiums Earned 22.91% -3.31% 13.61% 7.79% 17.77%
Growth in Investment Income -1.95% -2.51% 3.51% 5.66% 5.35%
Loss Ratio 83.6% 66.2% 83.8% 67.3% 67.2% 65.9%
Commission Ratio 29.1% 26.0% 26.0% 26.7% 26.5% 27.2%
Expense Ratio 14.7% 12.9% 13.2% 11.4% 10.3% 8.6%
Combined Ratio 127.5% 105.1% 123.0% 105.3% 104.0% 101.7%
Return on Average Equity 9.6% 11.1% 13.4%
- ---------------------------------------------------------------------------------------------------------------------
Dividends ($24.3) ($24.3) ($24.5)
Dividend Payout Ratio 103.9% 89.9% 73.5%
Retained Earnings ($0.9) $2.7 $8.8
Surplus:
Beginning Statutory Surplus $243.4 $242.5 $245.2
Plus: Retained Earnings (0.9) 2.7 8.8
Other -- -- --
-------- ------- -------
Ending Statutory Surplus $242.5 $245.2 $254.1
======== ======= =======
Average Surplus $243.0 $243.9 $249.7
10% of Beginning Surplus 24.3 24.3 24.5
Minimum EOY Surplus (Multiple of Net Premiums) 1.7 x $152.5 $164.4 $193.6
Total Dividends Allowable 105.1 85.0
Net Premiums/End of Year Surplus 1.1 x 1.3 x
<CAPTION>
Projected
---------
INCOME PROJECTIONS 1998 1999 2000 2001 2002 2003 2004
------- ------- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net Premiums Earned $352.2 $376.9 $403.3 $431.5 $461.7 $494.0 $528.6
Net Investment Income 51.0 55.1 59.5 64.3 69.4 74.9 80.9
Net Investment Gains/(Losses) -- -- -- -- -- -- --
------- ------- ------- --------- ------- ------- -------
Net Revenues 403.2 432.0 462.8 495.7 531.1 569.0 609.5
Losses and Expenses:
Losses and Expenses, net 232.0 248.2 265.6 284.2 304.0 325.3 348.1
Commissions, net 95.8 102.5 109.7 117.3 125.5 134.3 143.7
Other Operating Expenses 30.4 32.6 34.8 37.3 39.9 42.7 45.7
<PAGE>
Other (1.7) (1.8) (1.9) (2.1) (2.2) (2.4) (2.5)
Interest Expense -- -- -- -- -- -- --
------- ------- ------- --------- ------- ------- -------
Pretax Income 1995-2004 46.8 50.5 54.6 59.1 63.8 69.0 74.6
Income Taxes 20.0% 9.4 10.1 10.9 11.8 12.8 13.8 14.9
------- ------- ------- --------- ------- ------- -------
Net Income from Continuing Ops. $37.4 $40.4 $43.7 $47.2 $51.1 $55.2 $59.7
======= ======= ======= ========= ======= ======= =======
Extraordinary Items -- -- -- -- -- -- --
Cum. Effect of Accting Change -- -- -- -- -- -- --
------- ------- ------- --------- ------- ------- -------
Net Income $37.4 $40.4 $43.7 $47.2 $51.1 $55.2 $59.7
======= ======= ======= ========= ======= ======= =======
Annual Growth 12.2% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1%
Less: Preferred Dividends -- -- -- -- -- -- --
Net Income to Common $37.4 $40.4 $43.7 $47.2 $51.1 $55.2 $59.7
======= ======= ======= ========= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------------------------
Growth in Net Premiums Earned 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0%
Growth in Investment Income 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Loss Ratio 65.9% 65.9% 65.9% 65.9% 65.9% 65.9% 65.9%
Commission Ratio 27.2% 27.2% 27.2% 27.2% 27.2% 27.2% 27.2%
Expense Ratio 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6%
Combined Ratio 101.7% 101.7% 101.7% 101.7% 101.7% 101.7% 101.7%
Return on Average Equity 14.4% 14.8% 15.2% 15.5% 15.8% 16.0% 16.3%
- ----------------------------------------------------------------------------------------------------------------------------------
Dividends ($25.4) ($26.6) ($28.0) ($29.6) ($31.3) ($33.3) ($35.5)
Dividend Payout Ratio 67.9% 65.8% 64.0% 62.6% 61.4% 60.3% 59.5%
Retained Earnings $12.0 $13.8 $15.7 $17.7 $19.7 $21.9 $24.2
Surplus:
Beginning Statutory Surplus $254.1 $266.1 $279.9 $295.6 $313.3 $333.0 $354.9
Plus: Retained Earnings 12.0 13.8 15.7 17.7 19.7 21.9 24.2
Other -- -- -- -- -- -- --
------- ------- ------- --------- ------- ------- -------
Ending Statutory Surplus $266.1 $279.9 $295.6 $313.3 $333.0 $354.9 $379.1
======= ======= ======= ========= ======= ======= =======
Average Surplus $260.1 $273.0 $287.8 $304.5 $323.2 $344.0 $367.0
10% of Beginning Surplus 25.4 26.6 28.0 29.6 31.3 33.3 35.5
Minimum EOY Surplus (Multiple of Net
Premiums) $207.2 $221.7 $237.2 $253.8 $271.6 $290.6 $310.9
Total Dividends Allowable 84.3 84.8 86.4 89.1 92.8 97.6 103.7
Net Premiums/End of Year Surplus 1.3 x 1.3 x 1.4 x 1.4 x 1.4 x 1.4 x 1.4 x
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE><CAPTION>
DILLON, READ & CO. INC.
- -----------------------------------------------------------------------------------------------------------------------------------
Preliminary & Confidential
SCOR U.S. CORPORATION
Discounted Cash Flow Analysis
(Dollars in millions)
- -----------------------------------------------------------------------------------------------------------------------------------
PRESENT VALUE OF DIVIDENDS
- -------------------------- ------------------------------------------------------------
Discount 1996 1997 1998 1999 2000
NPV Value of Dividends Discounted to Rate ---------- ----------- --------- ---------- ------------
1/1/96 at Equity Discount Rates of: --------
- ------------------------------------------
<S> <C> <C> <C> <C> <C>
11.0% $21.8 $19.9 $18.6 $17.5 $16.6
12.0% 21.7 19.6 18.1 16.9 15.9
13.0% 21.5 19.2 17.6 16.3 15.2
NPV Value of Cumulative Dividends
Disc. 1/1/96 at Equity Discount Rates of:
- ------------------------------------------
11.0% $21.8 $41.8 $60.3 $77.9 $94.5
12.0% 21.7 41.2 59.3 76.2 92.1
13.0% 21.5 40.7 58.3 74.6 89.8
- -----------------------------------------------------------------------------------------------------------------------------------
NPV Value of Dividends and Equity Disc. Discount P/E 1996 1997 1998 1999 2000
to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- ----
- ------------------------------------------ --------- --------
11.0% 10.5 x $305.1 $357.3 $379.2 $388.3 $396.8
11.0% 11.5 332.1 387.3 409.5 417.9 425.6
11.0% 12.5 359.1 417.4 439.9 447.5 454.4
UNLEVERED PRESENT VALUE 12.0% 10.5 x $305.0 $353.9 $372.4 $378.4 $383.8
- ----------------------- 12.0% 11.5 331.9 383.7 402.3 407.2 411.5
12.0% 12.5 358.9 413.5 432.1 436.0 439.3
13.0% 10.5 x $304.8 $350.6 $365.9 $368.9 $371.3
13.0% 11.5 331.7 380.1 395.2 396.9 398.1
13.0% 12.5 358.7 409.6 424.5 424.9 424.9
----------------------------------------------------
NPV per Share of Dividends and Equity Disc. Discount P/E 1996 1997 1998 1999 2000
to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- ----
- ------------------------------------------ --------- --------
Net Debt (9/30/95) $108.3 11.0% 10.5 x $196.9 $249.0 $270.9 $280.1 $288.5
11.0% 11.5 223.9 279.1 301.2 309.6 317.3
11.0% 12.5 250.8 309.1 331.6 339.2 346.1
PRESENT VALUE OF EQUITY 12.0% 10.5 x $196.7 $245.6 $264.2 $270.2 $275.5
- ----------------------- 12.0% 11.5 223.7 275.4 294.0 298.9 303.3
12.0% 12.5 250.6 305.2 323.8 327.7 331.0
13.0% 10.5 x $196.5 $242.3 $257.6 $260.6 $263.0
13.0% 11.5 223.5 271.9 286.9 288.6 289.8
13.0% 12.5 250.4 301.4 316.2 316.6 316.6
NPV per Share of Dividends and Equity Disc. Discount P/E 1996 1997 1998 1999 2000
to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- ----
- ------------------------------------------- -------- --------
Shares (MM) 18.2 11.0% 10.5 x $10.84 $13.71 $14.91 $15.42 $15.88
11.0% 11.5 12.32 15.36 16.58 17.05 17.47
11.0% 12.5 13.81 17.02 18.26 18.67 19.05
PV PER SHARE 12.0% 10.5 x $10.83 $13.52 $14.54 $14.87 $15.17
- -------------------------------- 12.0% 11.5 12.31 15.16 16.19 16.46 16.70
12.0% 12.5 13.80 16.80 17.83 18.04 18.22
13.0% 10.5 x $10.82 $13.34 $14.18 $14.35 $14.48
13.0% 11.5 12.30 14.97 15.80 15.89 15.95
13.0% 12.5 13.79 16.59 17.41 17.43 17.43
<CAPTION>
PRESENT VALUE OF DIVIDENDS As of Year
- --------------------------
Discount 2001 2002 2003 2004
NPV Value of Dividends Discounted to Rate ------------ ------------- ------------- ------------
1/1/96 at Equity Discount Rates of: --------
- ------------------------------------------
<S> <C> <C> <C> <C>
11.0% $15.8 $15.1 $14.5 $13.9
12.0% 15.0 14.2 13.5 12.8
13.0% 14.2 13.3 12.5 11.8
NPV Value of Cumulative Dividends
Disc. 1/1/96 at Equity Discount Rates of:
- ------------------------------------------
11.0% $110.3 $125.4 $139.8 $153.7
12.0% 107.1 121.2 134.7 147.5
13.0% 104.0 117.3 129.8 141.6
- -----------------------------------------------------------------------------------------------------------------------------------
Assuming Sale at the End of
---------------------------
NPV Value of Dividends and Equity Disc. Discount P/E 2001 2002 2003 2004
to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ----
- ------------------------------------------ --------- --------
11.0% 10.5 x $404.7 $412.0 $419.0 $425.5
11.0% 11.5 432.7 439.3 445.6 451.4
11.0% 12.5 460.7 466.6 472.1 477.3
UNLEVERED PRESENT VALUE 12.0% 10.5 x $388.5 $392.9 $396.8 $400.5
- ----------------------- 12.0% 11.5 415.4 418.8 421.8 424.6
12.0% 12.5 442.2 444.6 446.6 448.7
13.0% 10.5 x $373.2 $374.9 $376.2 $377.3
13.0% 11.5 398.9 399.4 399.6 399.7
13.0% 12.5 424.5 423.9 423.1 422.2
Assuming Sale at the End of
NPV per Share of Dividends and Equity Disc. Discount P/E 2001 2002 2003 2004
to 1/1/96 at Equity Discount Rates of: Rate Multiple
- ------------------------------------------ --------- --------
Net Debt (9/30/95) $108.3 11.0% 10.5 x $296.4 $303.8 $310.7 $317.2
11.0% 11.5 324.4 331.1 337.3 343.1
11.0% 12.5 352.5 358.4 363.9 369.0
PRESENT VALUE OF EQUITY 12.0% 10.5 x $280.3 $284.6 $288.6 $292.2
- ----------------------- 12.0% 11.5 307.1 310.5 313.5 316.3
12.0% 12.5 333.9 336.4 338.5 340.4
13.0% 10.5 x $265.0 $266.6 $267.9 $269.0
13.0% 11.5 290.6 291.1 291.4 291.5
13.0% 12.5 316.3 315.6 314.8 313.9
Assuming Sale at the End of
---------------------------
NPV per Share of Dividends and Equity Disc. Discount P/E 2001 2002 2003 2004
to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ----
- ------------------------------------------- -------- --------
Shares (MM) 18.2 11.0% 10.5 x $16.32 $16.72 $17.10 $17.47
11.0% 11.5 17.86 18.23 18.57 18.89
11.0% 12.5 19.40 19.73 20.03 20.32
PV PER SHARE 12.0% 10.5 x $15.43 $15.67 $15.89 $16.09
- --------------------------------- 12.0% 11.5 16.91 17.09 17.26 17.41
12.0% 12.5 18.38 18.52 18.64 18.74
13.0% 10.5 x $14.59 $14.68 $14.75 $14.81
13.0% 11.5 16.00 16.03 16.04 16.05
13.0% 12.5 17.41 17.38 17.33 17.28
</TABLE>
<PAGE>
<TABLE><CAPTION>
Preliminary & Confidential 10:56 AM 02-Nov-95
SCOR U.S. CORPORATION
Weighted Average Cost of Capital
(Dollars in millions)
Dillon, Read & Co. Inc.
Estimation of Unlevered Asset Beta
Company Equity Total Market Debt/
Ticker Beta (a) Debt Equity Capitalization Capitalization
- ------------- ---------- -------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
SCOR U.S. 0.49 $121.3 $277.0 $398.3 30.4%
NAC Re 0.79 200.0 632.3 832.3 24.0%
PXRE Corp 1.04 69.7 219.2 288.9 24.1%
Transatlantic 0.74 0.0 1,560.1 1,560.1 0.0%
Trenwick 0.65 103.5 321.3 424.8 24.4%
American Re 1.05 600.0 1,805.5 2,405.5 24.9%
General Re 0.83 157.0 12,006.9 12,163.9 1.3%
National Re 0.82 100.0 567.1 667.1 15.0%
<CAPTION>
Company Equity/ Unlevered
Ticker Capitalization Beta(b)
- ------------- -------------- ---------
<S> <C> <C>
SCOR U.S. 69.6% 0.39
NAC Re 76.0% 0.64
PXRE Corp 75.9% 0.83
Transatlantic 100.0% 0.74
Trenwick 75.6% 0.53
American Re 75.1% 0.83
General Re 98.7% 0.82
National Re 85.0% 0.72
Average Unlevered Asset Beta 0.73
=====
- --------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital under Hypothetical Capital Structures
(D+P)/(ME+D+P) 4.8% 8.8% 12.8% 16.8%
(D+P)/ME 5.0% 9.6% 14.6% 20.1%
D/(ME+D+P) 4.8% 8.8% 12.8% 16.8%
ME/(ME+D+P) 95.3% 91.3% 87.3% 83.3%
Equity Beta (b) 0.76 0.79 0.81 0.84
Cost of Equity Over Bills (c) 11.8% 12.1% 12.3% 12.6%
Cost of Equity Over Bonds (d) 11.6% 11.8% 12.0% 12.2%
Average Cost of Equity 11.7% 11.9% 12.1% 12.4%
(D+P)/(BV+D+P) (g) 7.3% 13.2% 18.8% 24.2%
Cost of Debt 6.8% 7.0% 7.1% 7.3%
After-tax Cost of Debt (e) 4.4% 4.6% 4.6% 4.7%
Weighted Average Cost of Capital
Based on Bills 11.5% 11.4% 11.3% 11.2%
Based on Bonds 11.2% 11.1% 11.0% 10.9%
--------------------------------------------------------------------------------------------------------------
Average 11.36% 11.27 11.17% 11.08%
--------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
Weighted Average Cost of Capital under Hypothetical Capital Structures
(D+P)/(ME+D+P) 20.8% 24.7% 28.8% 32.8% 36.7%
(D+P)/ME 26.2% 32.9% 40.4% 48.7% 58.1%
D/(ME+D+P) 20.8% 24.7% 28.8% 32.8% 36.7%
ME/(ME+D+P) 79.3% 75.3% 71.3% 67.3% 63.3%
Equity Beta (b) 0.88 0.92 0.96 1.00 1.06
Cost of Equity Over Bills (c) 12.8% 13.2% 13.5% 13.9% 14.3%
Cost of Equity Over Bonds (d) 12.4% 12.7% 13.0% 13.3% 13.7%
Average Cost of Equity 12.6% 12.9% 13.2% 13.6% 14.0%
(D+P)/(BV+D+P) (g) 29.4% 34.3% 39.1% 43.6% 48.0%
Cost of Debt 7.5% 8.0% 9.0% 11.0% 13.0%
After-tax Cost of Debt (e) 4.9% 5.2% 5.9% 7.2% 8.5%
Weighted Average Cost of Capital
Based on Bills 11.2% 11.2% 11.3% 11.7% 12.2%
Based on Bonds 10.9% 10.8% 10.9% 11.3% 11.8%
------------------------------------------------------------------------------------------------------------
Average 11.02% 11.01% 11.11% 11.49% 11.96%
------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------
Notes
(a) Source Bloomberg 11/2/95 calculated daily over two years over the S&P 500.
(b) Assumes a debt beta of 0.17 as given by Reilly and Joehnk in the Journal of
Finance, December, 1976. Unlevered asset beta calculated as:
[((D+P)/(ME+D+P)) Debt Beta + (ME/Me+D+P)*Equity Beta]. Equity Beta under
the hypothetical capital structures calculated as: [Asset Beta +((D+P)/ME)
*(Asset Beta - Debt Beta)]
(c) Cost of equity over bills calculated as: (Equity Beta*8.40%+5.46%) The 8.40%
figure is the estimated historical arithmetic mean, from 1926 to 1994,
returns over bills demanded by investors to invest in equities according
to Ibbotson Associates. The 5.46% figure our proxy for the risk free rate,
is the average yield on 3-Month Treasury Bills on November 2, 1995.
(d) Cost of equity over bonds calculated as (Equity Beta*7.00%+6.27%). The
7.00% figure is the estimated historical arithmetic mean, from 1926 to 1994,
rate over bonds demanded by investor to invest in equities according to
Ibbotson Associates. The 6.27% figure our proxy for the risk free rate,
is the average yield on 30 year Treasury Bond on November 2, 1995
(e) Using a tax rate of 35% which approximates that average combined federal
and state tax rates.
(f) Liquidation Value
(g) (D+P)/(BV+D+P)=[(D+P)/(ME+D+P)]*[{MBV*(1+[(D+P)/(ME])}/{1+(MBV*[(D+P)/ME])}
] where MBV=trading multiple of book value
Exhibit 10
November 8, 1995
SCOR U.S. Corporation
Two World Trade Center
New York, New York 10177
Dear Sirs:
By this letter agreement, each of the undersigned hereby confirms that,
notwithstanding the introductory language contained in Annex A to the Agreement
and Plan of Merger, dated as of November 2, 1995 (the "Merger Agreement"), by
and among SCOR U.S. Corporation, SCOR S.A. and SCOR Merger Sub Corporation, the
Minimum Tender Condition shall be satisfied if there shall have been validly
tendered and not withdrawn prior to the expiration date of the Offer a number
of Shares that, together with any Shares currently beneficially owned directly
or indirectly by Purchaser, constitutes at least 90% of the total Shares
outstanding as of the date the Shares are accepted for payment pursuant to the
Offer.
Terms used but not defined in this letter agreement shall have the meanings
given such terms in the Merger Agreement.
Except as expressly set forth in this letter agreement, the Merger
Agreement, as originally executed, shall remain in full force and effect.
This letter agreement may be executed in any number of counterparts, each
such counterpart being deemed to be an original instrument, and all such
counterparts shall together constitute the same agreement.
<PAGE>
Please confirm your agreement to the provisions of this letter agreement
by signing in the space provided below.
Very truly yours,
SCOR S.A.
By:/s/ Jacques Blondeau
--------------------------
Name : Jacques Blondeau
Title: Chairman and Chief
Executive Officer
SCOR Merger Sub Corporation
By:/s/ Jacques Blondeau
---------------------
Name : Jacques Blondeau
Title: President
Agreed and confirmed:
SCOR U.S. Corporation
By: /s/ Jerome Karter
--------------------------
Name : Jerome Karter
Title: President and Chief
Executive Officer