<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
RULE 13E-3 TRANSACTION STATEMENT
AMENDMENT NO. 1
(PURSUANT TO SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 13E-3
SECTION 240.13E-3) THEREUNDER)
CALIFORNIA CASUALTY MANAGEMENT COMPANY
- --------------------------------------------------------------------------------
(Name of the Issuer)
CALIFORNIA CASUALTY MANAGEMENT COMPANY
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Statement)
Series B Common Stock, no par value
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(Title of Class of Securities)
N/A
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(CUSIP Number of Class of Securities)
James M. Sevey, Esq. 1900-2000 Alameda de las Pulgas,
San Mateo, CA 94403-1298 (650) 574-4000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement subject
to Regulation 14A , Regulation 14C or Rule 13e-3(c) under the Securities
Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [X] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [ ]
Calculation of Filing Fee
<TABLE>
<CAPTION>
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Transaction valuation* Amount of filing fee
<S> <C>
$92,650 $18.53
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</TABLE>
*Transaction valuation assumes maximum number of shares acquired pursuant to
this offer of 1,853 shares of Series B Common Stock at a purchase price of
$50.00 per share.
[x] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: $18.53
Form or Registration No.: Schedule 13E-3; File No. 5-52263
Filing Party: California Casualty Management Company
Date Filed: January 20, 1998
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
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SPECIAL FACTORS
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a) The purpose of this tender offer (the "Tender Offer" or the "Rule 13e-3
transaction") is to achieve cost savings for California Casualty Management
Company (the "Company") with respect to expenses the Company would be required
to incur in connection with complying with the registration and reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") with respect to the Company's no par value Series B Common Stock (the
"Series B Common Stock"). At present, the shares of Series B Common Stock are
subject to the registration requirements of Section 12(g) and the reporting
requirements of Section 13 of the Exchange Act. Compliance with the registration
and reporting requirements of the Exchange Act would require, among other
things, that the Company file a registration statement with respect to the
Series B Common Stock and thereafter file periodic reports with the Securities
and Exchange Commission (the "Commission"), such as Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Management and the Board of Directors have determined that it is in the
best interests of the Company that the Company undertake the Tender Offer.
Management is of the view that the Company has a disproportionate number of
small Series B Common Stock shareholder accounts in relation to the total number
of shareholders of the Company. As of December 31, 1997, 332 of the Company's
563 total shareholders of record were holders of less than 10 shares of the
Series B Common Stock, holding an aggregate of 1,853 shares of Series B Common
Stock. Therefore, 59% of the total number of shareholders of record of the
Company's Common Stock owned as of December 31, 1997 less than 0.14% of the
outstanding shares of the Company's Common Stock. The time and expenses
associated with servicing the accounts of these holders in the future would
cause a disproportionate burden on the Company in relation to the aggregate
number of shares owned by such holders.
The ongoing direct expenses of being a reporting company would include
filing, printing, legal and accounting fees incurred in connection with the
preparation of periodic reports filed with the Commission. Management estimates
that the annual costs of such filings and reports would exceed $40,000. Further,
management of the Company and certain employees in the Company's Finance
Department would be required to allocate significant resources (primarily time)
in connection with Commission filings. The above dollar estimate does not
include any allocation of the expenses of management or employee time devoted to
such matters.
(b) The Company has not considered alternative means to accomplish such
purposes, since only a repurchase program of this type could eliminate the
expense incident to being subject to the registration and reporting requirements
of Sections 12(g) and 13 of the Exchange Act.
(c) The Rule 13e-3 transaction is structured as stated herein to enable the
Company to reduce its base of Series B Common Stock holders and terminate its
obligation to register the Series B Common Stock and to file periodic reports
with the Commission pursuant to the Exchange Act
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in the most efficient and cost-effective manner. The timing of the transaction
is designed to bring about the anticipated beneficial results without further
delays.
(d) The Company will benefit from the Rule 13e-3 transaction because of the
avoidance of costs associated with being a public company which will be achieved
if a sufficient number of holders of Series B Common Stock tender their shares.
There then will be no ongoing requirement for the Company to prepare and file
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports
on Form 8-K with the Commission. This will enable the Company to avoid incurring
legal, accounting and filing expenses it would otherwise be required to incur,
as well as saving the management time associated with the preparation of such
documents by Company employees. The Company estimates these cost savings to be
in excess of $40,000 on an annual basis.
The holders of the Series B Common Stock will have the opportunity to
tender and sell their shares to the Company in the absence of any other market
for such shares. They will receive a premium of approximately 31% over the
current book value per share of the Series B Common Stock. The remaining
shareholders of the Company should benefit from this transaction by receiving
the indirect benefit of the cost savings to be derived by the Company from this
transaction. The remaining shareholders of the Company will suffer no diminution
in the liquidity of their stock since there is no public market for the
Company's stock.
The corporate advantages to the Company described above will benefit
both the affiliates of the Company and the Company's non-affiliate shareholders
alike. There should be no tax consequences to the Company as a result of this
transaction. Each shareholder that participates in the Tender Offer would
realize capital gain on the sale of any shares held as a capital asset if (1)
the transaction completely terminates the shareholder's stock interest in the
Company; (2) the transaction is "substantially disproportionate" to the
shareholder (which generally requires that the shareholder's percentage interest
in the Company after the transaction be less than 80% of the shareholder's
percentage interest before the transaction); or (3) the transaction is not
"essentially equivalent to a dividend." Each of these tests is determined by
taking into account "attribution rules" for tax purposes. If the transaction
qualifies for capital gain treatment, a shareholder would realize gain equal to
the excess of the price of $50.00 per share to be paid by the Company over his
or her basis in the shares, which was $19.92 per share and which was included in
the respective shareholder's income in 1989 when the shares were issued.
However, if the transaction does not meet one of the foregoing tests, the
transaction would be treated as a dividend to the extent of the Company's
current or accumulated earnings and profits.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) The Company, as the issuer filing this schedule, reasonably believes that
the transaction is fair to unaffiliated shareholders.
(b) As noted above, no established public market exists or has ever existed for
the Company's Series B Common Stock and no such market is expected to exist in
the future. Accordingly, the Board of Directors considered the current net book
value of the Company's Series B Common Stock as providing the best available
gauge of the underlying value of the
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shares. The Board determined that setting a price that included an approximately
31% premium over the current net book value per share offered the holders of the
Series B Common Stock the sufficient incentive to tender their shares, thereby
better ensuring the success of the Tender Offer which, if successful, will
ultimately benefit all remaining shareholders. The Board of Directors of the
Company determined that general shareholder liquidity would be unaffected by
this transaction since there is no liquidity in the shares other than provided
by the Company. If the Board of Directors had considered other factors or
conducted other analyses, the Tender Offer price might have been higher.
(c) The Tender Offer is structured so that each eligible shareholder may
voluntarily accept or reject the Tender Offer. The transaction is not structured
so that approval of at least a majority of unaffiliated security holders is
required.
(d) A majority of directors who are not employees of the issuer have not
retained an unaffiliated representative to act solely on behalf of unaffiliated
security holders for the purposes of negotiating the terms of the Rule 13e-3
transaction and/or preparing a report concerning the fairness of such
transaction.
(e) The Rule 13e-3 transaction was approved by a majority of the directors of
the issuer who are not employees of the issuer.
(f) No firm offer has been made to the Company by any unaffiliated person,
during the preceding eighteen months for (A) the merger or consolidation of the
Company into or with such person or of such person into or with the Company, (B)
the sale or other transfer of all or any substantial part of the assets of the
Company or (C) securities of the Company which would enable the holder thereof
to exercise control of the Company.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The Company has not received any report, opinion (other than an opinion of
counsel) or appraisal from an outside party which is materially related to the
Rule 13e-3 transaction.
(b) Not Applicable.
(c) Not Applicable.
OTHER DISCLOSURES
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) This issuer's name and address of its principal executive offices is:
California Casualty Management Company
1900-2000 Alameda de las Pulgas
San Mateo, CA 94403-1298
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(b) The subject of the Rule 13e-3 transaction is the Company's Series B Common
Stock. At the close of business on December 31, 1997 the Company had outstanding
8,429 shares of Series B Common Stock and such shares were held of record by
approximately 503 holders.
(c) There is currently no established trading market for the Series B Common
Stock. All shares of Series B Common Stock have been held in escrow since
issuance pursuant to agreements with the Company which reserve to the Company
the right to repurchase such shares in the event that the holder thereof
proposes to sell such shares to a third party.
(d) The Company has paid dividends during the past three years as set forth
below:
<TABLE>
<CAPTION>
Calendar Period Dividends per Share
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<S> <C>
1998: First Quarter $0.75
1997: First Quarter $0.55
Second Quarter $0.15
Third Quarter $0.15
Fourth Quarter $0.15
1996: First Quarter $1.55
Second Quarter $0.15
Third Quarter $0.15
Fourth Quarter $0.15
1995: First Quarter $0.70
Second Quarter $0.10
Third Quarter $0.10
Fourth Quarter $0.10
</TABLE>
(e) The Company has made no underwritten public offerings of the Series B Common
Stock for cash during the past three years.
(f) Information concerning purchases of the Series B Common Stock by the Company
or any affiliate of the Company since January 1, 1995 is set forth below:
<TABLE>
<CAPTION>
Number of Range of Purchase Average Purchase
Calendar Period Shares Purchased Prices Paid per Share Price Paid per Share
--------------- ---------------- --------------------- --------------------
<S> <C> <C> <C> <C>
1997: First Quarter 85 $33.97 (All) $33.97
Second Quarter 170 $34.40 (All) $34.40
Third Quarter 15 $34.40 (All) $34.40
Fourth Quarter 126 $37.07 (All) $37.07
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
1996: First Quarter 189 $31.58 to $31.99 $31.78
Second Quarter 157 $31.42 to $31.78 $31.44
Third Quarter 440 $31.42 to $32.62 $31.50
Fourth Quarter 316 $32.94 (All) $32.94
1995 First Quarter 135 $26.86 to $29.29 $28.12
Second Quarter 125 $29.29 to $30.13 $29.84
Third Quarter 107 $29.58 to $30.34 $30.02
Fourth Quarter 16 $31.58 (All) $31.58
</TABLE>
ITEM 2. IDENTITY AND BACKGROUND.
California Casualty Management Company, a California corporation whose
principal office is at 1900-2000 Alameda de las Pulgas, San Mateo, CA
94403-1298, and whose principal business is acting as the attorney-in-fact for
California Casualty Indemnity Exchange, a reciprocal insurance exchange, is the
issuer whose Series B Common Stock is the subject of this transaction and is the
person filing this Schedule 13e-3.
(a)(b) Information with respect to each of the Company's executive officers and
directors is set forth below.
<TABLE>
<CAPTION>
Ownership of Shares of
Series B Common Stock
----------------------------------
Number of Percent of
Positions and Offices Held Shares of Series Series B
Directors and Executive Officers With the Company B Common Stock Common Stock
- -------------------------------- --------------------------- ---------------- ------------
<S> <C> <C> <C>
Carl G. Brown, Jr. Director and Honorary 0 N/A
1900-2000 Alameda de las Pulgas Chairman
San Mateo, CA 94403-1298
Thomas R. Brown Chairman of the Board, 522 6.2%
1900-2000 Alameda de las Pulgas Chief Executive Officer
San Mateo, CA 94403-1298 and Director
Marston Nauman Director 386 4.6%
1900-2000 Alameda de las Pulgas
San Mateo, CA 94403-1298
Kenneth G. Berry Director 0 N/A
1900-2000 Alameda de las Pulgas
San Mateo, CA 94403-1298
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Peter Goldberg Director and President 728 8.6%
1900-2000 Alameda de las Pulgas
San Mateo, CA 94403-1298
John G. Vidosh Director and Executive 340 4.0%
1900-2000 Alameda de las Pulgas Vice President, Managing
San Mateo, CA 94403-1298 Director
Kai G.E. Anderson Director and Executive 224 2.6%
1900-2000 Alameda de las Pulgas Vice President, Managing
San Mateo, CA 94403-1298 Director
John J. Schultz III Director and Executive 391 4.6%
1900-2000 Alameda de las Pulgas Vice President, Managing
San Mateo, CA 94403-1298 Director
Jerrol L. Harris Senior Vice President - 152 1.8%
1900-2000 Alameda de las Pulgas Corporate Development
San Mateo, CA 94403-1298
Franklin Jones Executive Vice President - 137 1.6%
1900-2000 Alameda de las Pulgas Marketing
San Mateo, CA 94403-1298
Donald Fey Senior Vice President - 117 1.4%
1900-2000 Alameda de las Pulgas Calco
San Mateo, CA 94403-1298
Robert Hall Senior Vice President - 119 1.4%
1900-2000 Alameda de las Pulgas Director of Human
San Mateo, CA 94403-1298 Resources and Corporate
Services
James M. Sevey Senior Vice President - 202 2.4%
1900-2000 Alameda de las Pulgas General Counsel and
San Mateo, CA 94403-1298 Secretary
Frank Walter Senior Vice President - 48 0.6%
P.O. Box 39700 Field Operations Manager
Colorado Springs, CO 80949-9700
John Jung Senior Vice President - 0 N/A
1900-2000 Alameda de las Pulgas Chief Information Officer
San Mateo, CA 94403-1298
</TABLE>
(c)(d) The principal occupation of each director and executive officer of the
Company during the last five years is as follows:
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Carl G. Brown, Jr., Honorary Chairman of the Company's Board of
Directors since his retirement on May 1, 1978, has been a Director of the
Company since 1946.
Thomas R. Brown has served as the Company's Chairman of the Board since
May 1, 1978. He has been a Director of the Company since March 17, 1969. He has
been Chairman of the Advisory Board of California Casualty Indemnity Exchange
since May 1, 1978. Mr. Brown also served as Chairman of the Board of California
Casualty Insurance Company, California Casualty & Fire Insurance Company and
California Casualty General Insurance Company from May 1, 1978 until March 1,
1996. He has served as a director of Pillar Point Capital Management,
Incorporated, a wholly-owned subsidiary of the Company which operates as an
investment advisor to the Company and others ("PPCM"), since June 1, 1993, and
as a Director of Calco Insurance Brokers & Agents, Incorporated, a wholly-owned
subsidiary of the Company which operates as a commercial insurance broker and
agent ("Calco"), since January 3, 1994.
Marston Nauman served as the Company's Vice Chairman of the Board from
April 1, 1993 until his retirement on March 1, 1996. Prior to that time, Mr.
Nauman served as President from May 1, 1978 until March 31, 1993, and has served
as a Director of the Company since March 16, 1967. Mr. Nauman became a director
of PPCM on June 1, 1993 and continues to serve in that capacity. Mr. Nauman also
served as President of California Casualty Insurance Company, California
Casualty & Fire Insurance Company and California Casualty General Insurance
Company from May 1, 1978 until March 1, 1996.
Kai G.E. Anderson has served as Executive Vice President, Managing
Director of the Company since January 1, 1997. Previously, Mr. Anderson was
Executive Vice President, Division Manager of the Business Insurance Division of
the Company from April 1, 1993 through December 31, 1996. Prior to that time,
Mr. Anderson served as Senior Vice President, Division Manager of the Business
Insurance Division of the Company from September 1, 1985 until March 31, 1993.
Mr. Anderson has served as a Director and Vice Chairman of the Board of Calco
since January 13, 1994 and as a Director and as Chairman of the Board of Calco
Medical Management Corporation, a wholly-owned subsidiary of the Company and a
health insurance software development and administration company, since August
1, 1994.
Kenneth G. Berry has been a Director of the Company since August 24,
1970. He also has served as Chairman of the Board of Directors, Chief Executive
Officer and a Director of PPCM since June 1, 1993. Mr. Berry was a partner in
the investment counseling firm of Berry, Hartell, Evers & Osborne from January
1, 1984 until May 31, 1993.
Peter Goldberg was appointed to the Company's Board of Directors on
September 7, 1982 and was elected President of the Company effective April 1,
1993. He served as Executive Vice President-Operations from January 1, 1980
until March 31, 1993. Mr. Goldberg has also been a director and Chairman of the
Board of Calco since January 3, 1994 and a director of PPCM since June 1, 1993.
John G. Vidosh was appointed to the Company's Board of Directors and has
served as Treasurer of the Company since September 7, 1982. He has served as
Executive Vice President, Managing Director since January 1, 1997. Mr. Vidosh
was Executive Vice President of Finance
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and Administration of the Company from April 1, 1981 through December 31, 1996.
Mr. Vidosh has also served as Chief Financial Officer and a director of PPCM
since June 1, 1993.
John J. Schultz III has served as Executive Vice President, Managing
Director since January 1, 1997. Previously, he served as Senior Vice
President-Information and Actuarial Services from March 18, 1986 until March 31,
1993 and as Executive Vice President- Information and Actuarial Services from
April 1, 1993 through December 31, 1996.
Jerrol L. Harris has served as a Senior Vice President of the Company
since March 18, 1986 and a Senior Vice President - Corporate Development since
July 1, 1991.
Franklin Jones has served as Executive Vice President - Marketing since
June 1, 1997. He served as Senior Vice President - Marketing from June 1, 1993
to June 1, 1997. Prior to that time he served as Personal Insurance Division
Group Marketing Director from January 1, 1991 to May 31, 1993.
Donald Fey became a Senior Vice President of the Company on April 15,
1994. He has served as President of Calco since December 1, 1994 after serving
as Business Insurance Division - Operations Manager from April 15, 1994 through
November 30, 1994. Prior to joining the Company, Mr. Fey was employed by CIGNA
Insurance Company as its Western Region Senior Vice President from 1977 to
October of 1993, when he retired from that company.
Robert G. Hall became a Senior Vice President of the Company on June 1,
1994 and has served as the Company's Director of Human Resources and Corporate
Services since January 1, 1992.
James M. Sevey became a Senior Vice President of the Company on June 1,
1994 and has served as the Company's General Counsel since January 1, 1989 and
as Secretary since October 1, 1995.
Frank Walter became a Senior Vice President of the Company on June 6,
1995 and has served as Senior Vice President - Field Operations since June 1,
1997 and as Senior Vice President - Regional Manager from June 15, 1995 to June
1, 1997. Prior to that time, Mr. Walter was District Manager of the Company's
Personal Insurance Division from January 1, 1977 until June 15, 1995.
John Jung became the Company's Senior Vice President - Chief Information
Officer on December 30, 1996. Prior to joining the Company, Mr. Jung held the
office of Vice President - Systems Manager for Chubb & Son, Inc. from 1984 until
1996.
(e) Neither the Company nor, to the best of the Company's knowledge or belief,
any of the persons listed in Item 2 hereof, during the last five years has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(f) Neither the Company nor, to the best of the Company's knowledge or belief,
any of the persons listed in Item 2 hereof, during the last five years has been
a party to a civil proceeding of
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a judicial or administrative body of competent jurisdiction and as a result of
such proceeding was or is subject to a judgment, decree or final order enjoining
further violations of, or prohibiting activities subject to, federal or state
securities laws or finding any violation of such laws.
(g) All of the persons listed in Item 2 hereof are U.S. citizens.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) This item is not applicable because this schedule is not filed by an
affiliate of the Company, but by the Company itself, the issuer of the
securities which is the subject of the Rule 13e-3 transaction.
(b) Not Applicable.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The material terms of the Rule 13e-3 transaction are as follows:
The Company commenced a tender offer on January 20, 1998 to purchase
shares of its Series B Common Stock at $50.00 cash per share, but only from
persons who as of December 31, 1997 owned, in the aggregate, no more than 9
shares of Series B Common Stock (the "Tender Offer"). There were 332 such
shareholders of record holding an aggregate of 1,853 shares of Series B Common
Stock as of December 31, 1997. The Company offered to buy the Series B Common
Stock tendered directly from tendering holders with the intention of retiring
the shares purchased. The Tender Offer provided that it would remain open until
February 27, 1998 (or for such further time as may be authorized by the Board of
Directors of the Company).
Subsequent to February 27, 1998, the audit of the Company's 1997
financial statements was completed and the financial statements were issued. The
Board of Directors of the Company has elected to reopen the Tender Offer until
April 30, 1998 for the purposes of (i) permitting holders of Series B Common
Stock who tendered their shares prior to February 27, 1998 to review the
Company's 1997 audited financial statements and determine whether to rescind
their tender of such shares; and (ii) to permit holders of 9 or fewer shares of
Series B Common Stock who did not tender their shares prior to February 27, 1998
to review the Company's 1997 audited financial statements and consider whether
to tender their shares of Series B Common Stock in the Tender Offer.
(b) Any person who holds of record 10 or more shares of Series B Common Stock is
prohibited from participating in the Tender Offer.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
The Company has no plan or proposal regarding activities or transactions
which are to occur after the Rule 13e-3 transaction which relate to or would
result in:
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(a) An extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving the issuer or any of its subsidiaries;
(b) Any change in the present board of directors or management of the issuer
including, but not limited to, any plan or proposal to change the number or term
of directors, to fill any existing vacancy on the board or to change any
material term of the employment contract of any executive officer;
(c) Any material change in the present dividend rate or policy or indebtedness
or capitalization of the issuer; or
(d) Any other material change in the issuer's corporate structure or business.
The Company has recently completed the sale of its headquarters office
complex located at 1900 Alameda de las Pulgas, San Mateo, California. The
proceeds from this sale were approximately $25 million. The gain from this sale
was approximately $1 million, which will be deferred and recognized over ten
years, starting in 1998. The pro forma impact on the book value per share of
common stock will be an approximately $0.08 per share increase per year in each
of the ten years beginning January 1, 1998.
In the event that sufficient shares of Series B Common Stock are
tendered to and purchased by the Company to reduce the number of holders of
record of the Series B Common Stock below 300 as of April 30, 1998, the Series B
Common Stock would become eligible for termination of registration pursuant to
Section 12(g)(4) and of the reporting requirements of Section 13 of the Exchange
Act.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) The funds to be used in this Rule 13e-3 transaction consist of cash held by
the Company and the total amount to be expended if all tender offers should be
accepted is estimated not to exceed $93,000.
(b) The following is an itemized statement of the expenses which are expected to
be incurred in connection with this Rule 13e-3 transaction and for which the
Company will be responsible for paying:
<TABLE>
<S> <C>
Filing Fees: $18.53
Legal: -0-
Accounting and Appraisal: -0-
Solicitation: -0-
Printing and Mailing $1,000
---------
Total Fees $1,018.53
=========
</TABLE>
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(c) Not Applicable.
(d) Not Applicable.
ITEMS 7 THROUGH 9.
See "Special Factors" above.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) No shares of the Series B Common Stock is owned by any pension, profit
sharing or similar plan of the Company or affiliate of the Company. For other
information regarding beneficial ownership of Series B Common Stock by executive
officers and directors of the Company, see Item 2 hereof.
(b) Pursuant to the provisions of escrow agreements entered into between the
Company and the recipients of shares of Series B Common Stock under the
Company's 1989 Employee Stock Gift Program, upon termination of employment the
Company has the option to purchase all or any of said shares for cash, at the
adjusted book value per share, within 180 days of the date of such termination,
if the employee has not completed 20 years of employment with the Company as of
the date of such termination. Prior to commencement of this Tender Offer, 23
such employees, owning an aggregate of 126 shares of Series B Common Stock
terminated their employment with the Company. The Company exercised its option
and repurchased all shares of Series B Common Stock held by said employees at a
purchase price of $37.07 per share.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUERS
SECURITIES.
The Company has made a commitment to shareholders that tender shares of
Series B Common Stock in the Tender Offer that, in the event a transaction is
consummated within two years after commencement of the Tender Offer pursuant to
which all shareholders of the Company are provided with an unqualified right to
sell their shares of Company common stock to a party other than the Company at a
price greater than $50.00 per share (a "Liquidity Event"), the Company will pay
to any shareholders that tender shares of Series B Common Stock in the Tender
Offer an amount equal to the difference between the price paid to Company
shareholders that sell their shares of Company common stock pursuant to such
Liquidity Event and $50.00.
Except for the foregoing, there is no contract, arrangement,
understanding or relationship (whether or not legally enforceable) in connection
with the Rule 13e-3 transaction between the Company and any person with respect
to any securities of the Company.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a) To the knowledge and belief of the Company, no executive officer, director
or affiliate of
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the Company intends to tender or sell any shares of Series B Common Stock in
this Rule 13e-3 transaction.
(b) Not Applicable.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) Since the Tender Offer being made by the Company may be voluntarily accepted
or rejected by the eligible shareholders, no appraisal or similar rights are
provided to such holders under applicable state law or under the Company's
Articles of Incorporation, nor will such rights be voluntarily accorded by the
Company to shareholders in connection with the Rule 13e-3 transaction.
(b) No provision has been made by the Company in connection with the Rule 13e-3
transaction to allow unaffiliated security holders to obtain access to the
corporate files of the Company or to obtain counsel or appraisal services at the
expense of the Company.
(c) Not Applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) (1) The Company's audited financial statements for the Company's
fiscal years ended December 31, 1997 and 1996 are attached as Exhibit A.
(2) The Company's ratio of earnings to fixed charges was 25
for the fiscal year ended December 31, 1997 and 54 for the fiscal year ended
December 31, 1996.
(3) The book value per share as of December 31, 1997 and 1996
are as follows:
December 31, 1997 $38.31
December 31, 1996 $33.97
(b) No pro forma data is material since the maximum number of shares to
be acquired under the offer is expected to constitute less than 0.5% of the
outstanding stock of the Company at a purchase price that is above the book
value of the shares and will create savings to the Company and improve the value
of the remaining shares.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Except for certain financial analysts who supplied data and calculated
values used in this transaction statement, the Company's General Counsel, who
assisted in the preparation of this transaction statement, and the Company's
General Counsel and his staff, who will coordinate the Tender Offer process, the
Company did not engage any officer, employee, class of employees or corporate
asset of the Company (other than the consideration for purchases of shares
tendered in
-13-
<PAGE> 14
response to the Tender Offer) in connection with the Rule 13e-3 transaction.
(b) No persons (excluding officers, employees and class of employees who have
been identified in Item 15(a) of this Schedule) will be employed, retained or
compensated by the Company or by any person on behalf of the Company, to make
solicitations or recommendations in connection with the Rule 13e-3 transaction
and provide a summary of the material terms of such employment, retainer or
arrangement for compensation.
ITEM 16. ADDITIONAL INFORMATION.
None.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
(d) The disclosure materials furnished to shareholders in connection with this
transaction are filed herewith with Exhibit B.
(e) Not Applicable.
(f) Not Applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
April 8, 1998
(Date)
/s/ JAMES M. SEVEY
-------------------------------------
(Signature)
James M. Sevey, Senior Vice President
-------------------------------------
(Name and Title)
-14-
<PAGE> 15
EXHIBIT A
[1997 AUDITED FINANCIAL STATEMENTS]
<PAGE> 16
CALIFORNIA CASUALTY MANAGEMENT COMPANY
AND SUBSIDIARIES
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<PAGE> 17
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
California Casualty Management Company
San Mateo, California
We have audited the accompanying consolidated balance sheets of California
Casualty Management Company and Subsidiaries (CCMC) as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity
and cash flows for the years then ended. These financial statements are the
responsibility of CCMC's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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 balance sheets presents fairly, in all material
respects, the consolidated financial position of California Casualty Management
Company and Subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
February 25, 1998
<PAGE> 18
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
----------
<TABLE>
<CAPTION>
ASSETS 1997 1996
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $15,047 $13,797
Insurance premium trust funds 2,879 2,804
Investment securities, available-for-sale 21,783 17,970
Receivables 6,983 5,935
Prepaid and other 2,913 1,842
Deferred income taxes 599 1,017
------- -------
Total current assets 50,204 43,365
Property and equipment, at cost, less accumulated depreciation 30,425 32,028
Deferred income taxes 4,088 3,244
Other assets 56 99
------- -------
Total assets $84,773 $78,736
======= =======
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $15,813 $17,366
Notes payable 6,000 6,000
Accrued restructuring costs 1,466 1,749
Other current liabilities 2,114 2,040
------- -------
Total current liabilities 25,393 27,155
Employee benefit plans 9,919 7,960
Other noncurrent liabilities 275 233
------- -------
Total liabilities 35,587 35,348
------- -------
Commitments and contingency (Notes 8 and 15).
SHAREHOLDERS' EQUITY
Capital stock - no par value 4,849 4,359
Unrealized gain on investment securities (net of income tax) 2,698 1,740
Retained earnings 41,639 37,289
------- -------
Total shareholders' equity 49,186 43,388
------- -------
Total liabilities and shareholders' equity $84,773 $78,736
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 19
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Management fees and reimbursements $119,408 $120,159
Brokerage operations:
Commissions 13,560 13,018
Management fees 5,231 7,052
-------- --------
Total brokerage 18,791 20,070
Self-insurance fees 384 478
Investment advisory fees 2,763 2,540
-------- --------
Total revenue 141,346 143,247
Operating expenses 134,704 140,558
-------- --------
Operating income 6,642 2,689
Investment income 2,391 3,543
-------- --------
Income before provision for income taxes 9,033 6,232
Provision for income taxes 3,113 1,567
-------- --------
Net income $ 5,920 $ 4,665
======== ========
Basic earnings per share $ 4.64 $ 3.63
======== ========
Diluted earnings per share $ 4.62 $ 3.59
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 20
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
CAPITAL INVESTMENT RETAINED
STOCK SECURITIES EARNINGS TOTAL
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balances, January 1, 1996 $ 4,029 $ 1,268 $ 35,967 $ 41,264
Net income -- -- 4,665 4,665
Capital stock retired (25,865 shares) (85) -- (766) (851)
Dividends paid to shareholders ($2.00 per share) -- -- (2,577) (2,577)
Stock options exercised, including tax benefit of $11
(13,586 shares) 415 -- -- 415
Change in unrealized appreciation in investments,
net of income taxes of $46 -- 472 -- 472
-------- -------- -------- --------
Balances, December 31, 1996 4,359 1,740 37,289 43,388
Net income -- -- 5,920 5,920
Capital stock retired (9,332 shares) (35) -- (294) (329)
Dividends paid to shareholders ($1.00 per share) -- -- (1,276) (1,276)
Stock options exercised, including tax benefit of $21
(12,071 shares) 400 -- -- 400
Stock issued in long-term executive incentive plan
(3,625 shares) 125 -- -- 125
Change in unrealized appreciation in investments, net
of income taxes of $494 -- 958 -- 958
-------- -------- -------- --------
Balances, December 31, 1997 $ 4,849 $ 2,698 $ 41,639 $ 49,186
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 21
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,920 $ 4,665
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,777 7,230
Gain on sale of property and equipment (22) (61)
Gain on sale of bonds and stocks (666) (1,423)
Provision for deferred income taxes (897) 975
Changes in:
Insurance premium trust funds (75) 662
Receivables and other assets (2,139) (281)
Accrued restructuring costs (283) (2,773)
Payables, accrued expenses, and other liabilities 522 4,007
-------- --------
Total adjustments 4,217 8,336
-------- --------
Net cash provided by operating activities 10,137 13,001
-------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment 827 221
Purchase of property and equipment (6,882) (19,481)
Proceeds from sale of investment securities 2,374 11,299
Purchase of investment securities (4,126) (4,596)
-------- --------
Net cash used in investing activities (7,807) (12,557)
-------- --------
Cash flows from financing activities:
Proceeds from short-term borrowings -- 6,000
Repayment of note payable -- (5,517)
Capital stock 196 (436)
Dividends paid to shareholders (1,276) (2,577)
-------- --------
Net cash used in financing activities (1,080) (2,530)
-------- --------
Net increase (decrease) in cash and
cash equivalents 1,250 (2,086)
Cash and cash equivalents, beginning of year 13,797 15,883
-------- --------
Cash and cash equivalents, end of year $ 15,047 $ 13,797
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 367 $ 61
======== ========
Income taxes $ 3,266 $ 2,009
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 22
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
1. AFFILIATIONS AND SEGMENT INFORMATION:
California Casualty Management Company (CCMC) is the attorney-in-fact for
the California Casualty Indemnity Exchange (CCIE) and manager for CCIE's
wholly owned subsidiaries. CCMC has three wholly owned subsidiaries:
Pillar Point Capital Management, Inc. (PPCM), Calco Insurance Brokers &
Agents, Inc. (Calco) and Calco Medical Management Corporation (CMMC). CCIE
and its subsidiaries are collectively referred to as the California
Casualty Group (CCG).
CCMC operates principally in the insurance services segment. CCG is a
multi line property and casualty insurance group headquartered in San
Mateo, California writing full coverage automobile and homeowner insurance
policies. PPCM is an investment advisor and earns its revenue by charging
an asset-based management fee. A significant portion of its revenues are
derived from investment advisory services performed for CCG, CCMC and
Calco. Calco is a commercial insurance broker and agent, and derives a
significant portion of its revenues in the form of commissions from
insurance companies. CMMC is a benefits delivery service and claims
administration company, deriving its revenue from services provided to CCG
and other nonrelated entities.
Some directors and officers of CCMC are members of the Boards and/or are
officers of CCIE and subsidiaries, PPCM, Calco and/or CMMC.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts
of CCMC and its wholly owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. Certain amounts
from prior year have been reclassified to conform to current year
presentation. These reclassifications had no effect on net income or
shareholders' equity.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the consolidated
financial statements and accompanying notes. Actual results could
differ from those estimates.
Continued
6
<PAGE> 23
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
CASH EQUIVALENTS:
Cash equivalents are all highly liquid investments with insignificant
interest rate risk and have original maturity of three months or less
at the date of acquisition. CCMC's cash equivalents are carried at fair
market value and consist of commercial paper, money market funds, and
U.S. government agency securities.
INSURANCE PREMIUM TRUST FUNDS:
Premiums collected from insureds but not yet remitted to insurance
carriers are restricted and are required to meet certain liquidity
requirements.
INVESTMENT SECURITIES:
CCMC classifies its investment portfolio as available-for-sale.
Accordingly, investment securities are reported at fair value.
Unrealized gains and losses on securities are reported as a separate
component of shareholders' equity until realized. Realized gains and
losses on investment securities are recognized on a first-in, first-out
basis.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is recognized
principally using a straight-line method over the estimated useful
lives of the assets (estimated lives range from three to ten years for
equipment and up to forty-two years for property). Leasehold
improvements are amortized over the useful life of the improvement (up
to a maximum of ten years) or the applicable lease term, whichever is
shorter.
REVENUE RECOGNITION:
Management fees are recognized primarily as services are provided.
Commission income is generally recognized as of the effective date of
insurance policies or the billing date, whichever is later. Other fee
income is recognized ratably as services are rendered.
INCOME TAXES:
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets
and liabilities and their reported amounts.
Continued
7
<PAGE> 24
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued:
EARNINGS PER SHARE (EPS):
Earnings per share and diluted earnings per share are presented in
accordance with the Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings Per Share. The following is a reconciliation of the
weighted average number of shares used to calculate the basic and
diluted EPS for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
------------------------------- -------------------------------
NET NET
INCOME SHARES EPS INCOME SHARES EPS
-------- ---------- ------ -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 5,920 1,276,353 $4.64 $ 4,665 1,286,758 $ 3.63
Effect of dilutive
shares from
stock-based
compensation
plans 5,315 11,972
------- --------- ----- ------- --------- ------
Diluted EPS $ 5,920 1,281,668 $4.62 $ 4,665 1,298,730 $ 3.59
======= ========= ===== ======= ========= ======
</TABLE>
STOCK-BASED COMPENSATION PLANS:
CCMC accounts for stock-based compensation plans using the intrinsic
value based method which measures compensation cost based on the
excess, if any, of the book value of the stock at grant date over the
amount an employee must pay to acquire the stock.
NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS:
SFAS No. 130, Reporting Comprehensive Income establishes the disclosure
requirements for reporting comprehensive income in an entity's annual
and interim financial statements. Comprehensive income includes such
items as foreign currency translation adjustments and unrealized gains
on securities currently reported as components of shareholders' equity.
SFAS No. 130 will require CCMC to classify items of comprehensive
income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately in the
equity section of the consolidated balance sheet. CCMC has not yet
determined the type of presentation it will adopt.
Continued
8
<PAGE> 25
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
3. RELATED PARTY TRANSACTIONS:
MANAGEMENT FEE AND REIMBURSEMENTS:
As the attorney-in-fact for CCIE and manager for CCIE's wholly owned
subsidiaries, CCMC is paid a fee of up to 125% of expenses incurred on
behalf of CCG. An annual incentive fee of up to 10% of CCG's calendar
year pre-tax income, calculated after giving effect to such incentive
fee, may also be paid to CCMC. Further, under various state laws, CCMC
reimburses CCG for the benefit received from its exemption of state
income taxes on earnings attributable to managing CCG operations.
Management fees earned and tax benefits reimbursed by CCMC for the
years ended December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Expenses incurred $ 110,256 $ 117,097
Markup taken 13,667 12,330
Incentive fee 1,611 --
Attorney-in-fact deduction effects (895) (2,216)
--------- ---------
Net management fee $ 124,639 $ 127,211
========= =========
Maximum markup allowed (25% of expenses incurred) $ 27,564 $ 29,274
Markup taken (13,667) (12,330)
--------- ---------
Markup allowed but not taken $ 13,897 $ 16,944
========= =========
</TABLE>
REAL ESTATE:
CCMC's home office complex is comprised of two buildings located in San
Mateo, California. They are referred to as the "1900 Building" and the
"2000 Building," respectively. CCMC purchased the 1900 Building from
CCIE in 1984 and leases space in the 2000 Building from CCIE under a
lease which expires in May 1998. Surviving provisions of the 1984
purchase and sale agreement state that CCG retains an interest in
profit sharing provisions if CCMC transfers title or refinances the
1900 Building prior to June 30, 1999. If at any time prior to June 30,
2034, CCMC proposes to sell all or any portion of the 1900 Building,
CCG shall have the right of first refusal as to purchasing the
property. (See Note 14)
Continued
9
<PAGE> 26
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
3. RELATED PARTY TRANSACTIONS, continued:
OTHER TRANSACTIONS:
CCG also reimburses CCMC for services rendered on its behalf, including
investment advisory services performed by PPCM. In addition, CCG
provides workers' compensation insurance to CCMC and its wholly owned
subsidiaries. Premium balances owed to CCG are collateralized by bank
letters of credit.
SUMMARY:
Related party transactions included in the consolidated financial
statements are summarized for the years ended December 31 as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Statements of income:
Revenues:
Management fees $ 124,639 $ 127,211
Investment advisory fees $ 2,110 $ 2,006
Expenses:
Services reimbursement $ (6,437) $ (6,313)
Rental income $ 1,786 $ 2,277
Workers' compensation insurance $ 708 $ 563
Balance sheets:
Accounts receivable $ 922 --
Accounts payable -- $ 772
</TABLE>
4. INVESTMENT SECURITIES:
The amortized cost and market value of investment securities are as
follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1997 COST GAIN LOSS VALUE
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Bonds $ 13,141 $ 450 $ (4) $ 13,587
Stocks 4,554 3,826 (184) 8,196
---------- -------- ------ ----------
Total $ 17,695 $ 4,276 $ (188) $ 21,783
========== ======== ====== ==========
</TABLE>
Continued
10
<PAGE> 27
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
4. INVESTMENT SECURITIES, continued:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1996 COST GAIN LOSS VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Bonds $ 9,975 $ 273 $ (18) $10,230
Stocks 5,358 2,629 (247) 7,740
------- ------- ------- -------
Total $15,333 $ 2,902 $ (265) $17,970
======= ======= ======= =======
</TABLE>
Bonds consist of investments in state and municipal securities. CCMC is
potentially subject to concentrations of credit risk as a result of owning
California municipal bonds totaling $6,838 and $3,226 as of December 31,
1997 and 1996, respectively. However, this risk is mitigated due to
investment quality and dispersion of issuers throughout many California
agencies. CCMC also has investments in municipal securities of several
other states, none of which presents a concentration of credit risk.
The amortized cost and market value of bonds at contractual maturities as
of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
AMORTIZED MARKET
COST VALUE
------- -------
<S> <C> <C>
Within one year $ 704 $ 711
One to five years 4,912 5,003
Five to ten years 3,173 3,363
Over ten years 4,352 4,510
------- -------
$13,141 $13,587
======= =======
</TABLE>
Realized gains and losses from sales of securities are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Gross gains:
Proceeds $ 2,308 $10,532
Gains $ 765 $ 1,584
Gross losses:
Proceeds $ 66 $ 767
Losses $ 99 $ 161
</TABLE>
Continued
11
<PAGE> 28
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
4. INVESTMENT SECURITIES, continued:
CCMC has pledged $1,433 in securities (at market value) as collateral
under letters of credit. In addition, CCMC has $205 in bonds (at market
value) on deposit with certain states.
5. PROPERTY AND EQUIPMENT:
A summary of property and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 1,625 $ 1,625
1900 Building 8,788 2,358
EDP equipment and software 20,461 20,393
Real property improvements 14,043 21,128
Office equipment 12,372 9,324
Automobiles 4,203 4,577
------- -------
61,492 59,405
Less accumulated depreciation and amortization 31,067 27,377
------- -------
$30,425 $32,028
======= =======
Depreciation and amortization expense $ 7,680 $ 7,117
======= =======
</TABLE>
6. INCOME TAXES:
A reconciliation of CCMC's effective income tax rates included in the
consolidated statements of income with the U.S. federal statutory tax rate
is as follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
AMOUNT % AMOUNT %
-------- ------ ------- -----
<S> <C> <C> <C> <C>
Tax at U.S. federal statutory rate $ 3,071 34.0% $ 2,119 34.0%
Dividends received deduction (27) (0.3) (31) (0.5)
Tax-exempt interest income (198) (2.2) (234) (3.8)
Prior year state tax refund -- -- (619) (10.0)
Non-deductible business meals and entertainment 151 1.7 148 2.4
All other items 116 1.3 184 3.0
------- ---- ------- ----
Provision for income taxes $ 3,113 34.5% $ 1,567 25.1%
======= ==== ======= ====
</TABLE>
Continued
12
<PAGE> 29
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
6. INCOME TAXES, continued:
In 1996, CCMC received California franchise tax refunds for prior years
(1988 to 1994) related to the benefit of recognizing additional
attorney-in-fact deductions (AIFD) for California state taxes of $1,698.
In 1996, CCMC also recognized a favorable true-up of 1995 state
franchise/income taxes of $511 and recorded prior years' tax refunds (1991
to 1994) due from other states of $65 for additional AIFD tax benefits. In
accordance with California statutory requirements, the benefit of the AIFD
tax refunds, as well as the related interest income of $589, and the 1995
AIFD state tax true-up was provided to CCG through a decrease in
management fee. In 1996, CCMC also wrote-off CCG-related California
deferred tax assets of $879, as the use of the AIFD in future years will
prevent CCMC from realizing the benefits of these assets.
The significant components of the provision for income taxes for each
year are summarized below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current provision $ 4,010 $ 592
Deferred:
Current deferred (312) 1,905
Noncurrent deferred: (585) (930)
------- -------
Total deferred (897) 975
------- -------
Total provision for income taxes $ 3,113 $ 1,567
======= =======
</TABLE>
The significant components of the net deferred tax assets recorded on the
balance sheet as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Employee benefits $ 4,613 $ 4,088
Restructuring expenses 414 331
Depreciation 677 537
Unrealized gain on investments (1,390) (896)
All other 373 201
------- -------
Net deferred tax assets $ 4,687 $ 4,261
======= =======
</TABLE>
Realization of these assets is dependent upon generating sufficient future
taxable income to utilize these assets. State deferred tax assets have not
been recognized as there is no future state taxable income due to the
effects of the state attorney-in-fact deduction.
Continued
13
<PAGE> 30
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
7. CREDIT AND BORROWING ARRANGEMENTS:
In January 1996, CCMC paid the remaining balance of the mortgage note
payable related to the purchase of the 1900 Building to CCG in the amount
of $5,517. Interest expense charged to operations in 1996 was $44.
On August 15, 1996, CCMC established a $10 million unsecured credit
facility with Union Bank of California to meet ongoing cash flow
requirements. The term of the revolving line of credit is two years ending
August 15, 1998, plus a one year extension subject to Bank approval. At
December 31, 1997, $6 million had been drawn on the facility. The interest
rate is LIBOR plus an applicable margin based on the ratio of total debt
to total capitalization. The weighted average rate for 1997 and 1996 was
6.2% and 5.8%, respectively. Interest expense charged to operations in
1997 and 1996 was $372 and $39, respectively.
8. LEASE COMMITMENT:
CCMC leases certain office buildings, equipment and software under
noncancelable operating lease. Certain leases have options permitting
renewals for additional periods.
The rent expense under these leases was $7,550 in 1997 and $9,176 in 1996.
Future annual minimum lease payments as of December 31, 1997, are as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
<S> <C>
1998 $ 4,416
1999 3,493
2000 3,375
2001 3,145
2002 2,975
Thereafter 13,514
-----------
Total minimum lease payments $ 30,918
===========
</TABLE>
Continued
14
<PAGE> 31
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
9. CAPITAL STOCK:
Share information as well as capital stock amounts for each Series of
common stock at December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Common stock, Series A:
Authorized 2,800,000 2,800,000
Issued and outstanding 1,275,429 1,272,262
Capital stock $ 4,628 $ 4,255
Common stock, Series B:
Authorized 1,000,000 1,000,000
Issued and outstanding 8,429 5,232
Capital stock $ 221 $ 104
</TABLE>
The rights, privileges and restrictions of Series A and B are identical
except holders of shares of Series A have exclusive voting rights and
power to vote upon election of Directors or upon any other matters.
10. STOCK-BASED COMPENSATION PLANS:
CCMC has four stock-based compensation plans, which are described below.
CCMC has the right to repurchase the shares issued under the three plans
upon termination of employment at book value. However, after 20 years of
employment, the employee may elect to retain the ownership of the awarded
shares under the Stock Options and Employee Stock Gift Plans.
LONG-TERM EXECUTIVE INCENTIVE PLAN:
A long-term executive incentive plan for key officers was approved by
the Board of Directors in 1994 and approved subsequently by the
California Department of Insurance in 1997. The Plan provides key
executives with common stock and cash compensation based on the
attainment of certain profitability and other measures over a
three-year period. The compensation expense is recorded over this
period and was $3,032 and $2,226 in 1997 and 1996, respectively. These
awards vest over a subsequent three-year period. Under this Plan,
300,000 shares of Series B common stock have been reserved for
issuance. In 1997, 10,862 shares were granted for the three-year plan
ended December 31, 1996, of which 3,625 shares were issued.
Continued
15
<PAGE> 32
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
10. STOCK-BASED COMPENSATION PLANS, continued:
STOCK OPTIONS PLAN:
CCMC also has a nonqualified stock option plan which provides for
granting options to key executives to purchase an aggregate of 200,000
shares of Series A common stock. Options granted under the plans are
nonqualified and are granted at a price equal to CCMC's book value at
the date of grant. Granted options vest after 14 months and are
exercisable for one month thereafter. Compensation expense is recorded
for the difference in stock value between grant date and exercise date.
Compensation expense was $45 and $25 in 1997 and 1996, respectively.
<TABLE>
<CAPTION>
EXERCISE
YEAR OF OPTIONS OPTIONS PRICE PER
YEAR OF GRANT EXERCISE GRANTED EXERCISED SHARE
------------- -------- ------- --------- ---------
<S> <C> <C> <C> <C>
1997 1998 19,591 - $30.57
1996 1997 18,372 12,071 $28.79
1995 1996 26,426 13,586 $26.36
</TABLE>
EMPLOYEE STOCK GIFT PLAN:
CCMC has an Employee Stock Gift Plan. There were 4,804 and 5,232 Series
B shares outstanding under this plan at December 31, 1997 and 1996,
respectively. No shares were awarded during the period and there was no
compensation expense.
PERFORMANCE SHARE PLAN:
CCMC sponsors a Performance Share Plan for key full time sales
employees who are compensated in part by sales commissions. Under this
plan, employees were granted Units that parallel the benefits of owning
CCMC's capital stock over time, and generally have none of the rights
of stock ownership. The Units are convertible to cash, at a value
equivalent to the most recent quarter end's adjusted book value of
CCMC's capital stock, when exercisable. There were 15,882 and 21,225
fully vested Units at December 31, 1997 and 1996, respectively. At
December 31, 1997, CCMC had a fully vested obligation of $615. The
expense for this plan is recorded based on the change in the adjusted
book value for vested units and was $79 and $214 for the year ended
December 31, 1997 and 1996, respectively.
Compensation expense recorded by CCMC for the Long-Term Executive
Incentive and Performance Share Plans would be the same if the fair value
method was used. Compensation expense recorded by CCMC for the Stock
Option and Employee Stock Gift Plans (the Plans) would not be materially
different from amounts calculated using the fair value method due to the
short purchase period of the Stock Option Plan as well as relatively few
granted shares under both the Plans.
Continued
16
<PAGE> 33
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
11. EMPLOYEE BENEFIT PLANS:
SAVINGS INVESTMENT PLAN:
The Savings Investment Plan is qualified under section 401(k) of the
Internal Revenue Code. Under this plan, employees may elect to
contribute from 1% to 18% of their annual compensation to the Plan,
limited to a maximum annual amount as set periodically by the Internal
Revenue Service. CCMC matching contributions to the Plan were $1,270
and $1,368 for the years ended December 31, 1997 and 1996,
respectively.
PENSION, SUPPLEMENTAL EXECUTIVE RETIREMENT (SERP) AND EXCESS PLANS:
CCMC sponsors a noncontributory pension plan covering substantially all
employees. Benefits are based on the employee's compensation during the
five years before retirement. CCMC's funding policy for the pension
plan is to contribute an amount annually that is not less than the
minimum funding requirement under the Employee Retirement Income
Security Act of 1974 (ERISA). At December 31, 1997, the assets are
invested primarily in bonds and stocks with 3.5% invested in insurance
contracts with an unrelated party.
CCMC also sponsors a SERP, covering certain key executives who have
been with CCMC for a limited time period and an excess plan covering
employees with earnings which exceed the limitations set out in the
pension plan and/or Internal Revenue Code Section 415. Benefits are
based on formulas similar to those of the pension plans. The SERP and
excess plan are not subject to ERISA and are not currently being
funded.
Continued
17
<PAGE> 34
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
11. EMPLOYEE BENEFIT PLANS, continued:
PENSION, SUPPLEMENTAL EXECUTIVE RETIREMENT (SERP) AND EXCESS PLANS,
continued:
The following table sets forth the funded status of the pension plan
and SERP and excess plan and the amounts recognized in the balance
sheet at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
SERP & SERP &
PENSION EXCESS PENSION EXCESS
PLAN PLAN PLAN PLAN
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 48,766 $ 8,642 $ 41,832 $ 6,378
======== ======== ======== ========
Accumulated benefits $ 52,636 $ 8,820 $ 44,502 $ 6,509
======== ======== ======== ========
Projected benefits $ 64,165 $ 11,985 $ 55,015 $ 9,205
Plan assets at fair value 59,077 -- 51,581 --
-------- -------- -------- --------
Projected benefit obligation more than plan assets 5,088 11,985 3,434 9,205
Unrecognized prior service cost 649 (1,384) 773 (1,651)
Unrecognized net loss (5,860) (3,266) (4,623) (1,455)
Unrecognized net obligation -- (21) -- (28)
-------- -------- -------- --------
Accrued pension expense (benefit) (123) 7,314 (416) 6,071
Additional liability -- 1,506 -- 438
-------- -------- -------- --------
Pension liability recognized -- 8,820 -- 6,509
Intangible asset offsetting additional liability -- (1,405) -- (438)
-------- -------- -------- --------
Pension (asset) liability recognized in the
balance sheet $ (213) $ 7,415 $ (416) $ 6,071
======== ======== ======== ========
</TABLE>
The following table sets forth the rates used to compute the pension
plan obligation at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Discount rate 7.00% 7.50%
Average rate of increase in compensation levels 5.00% 5.00%
</TABLE>
Continued
18
<PAGE> 35
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
11. EMPLOYEE BENEFIT PLANS, continued:
PENSION, SUPPLEMENTAL EXECUTIVE RETIREMENT (SERP) AND EXCESS PLANS,
continued:
Net pension expense includes the following components:
<TABLE>
<CAPTION>
1997 1996
------------------- --------------------
SERP & SERP &
PENSION EXCESS PENSION EXCESS
PLAN PLAN PLAN PLAN
------- ------- ------- -------
<S> <C> <C> <C> <C>
Service cost - benefits earned during the period $ 2,132 $ 300 $ 2,407 $ 307
Interest cost on projected benefit obligation 4,227 793 3,935 653
Actual return on assets (8,898) -- (6,373) --
Net amortization and deferral 4,155 445 2,500 414
------- ------- ------- -------
Net pension expense $ 1,616 $ 1,538 $ 2,469 $ 1,374
======= ======= ======= =======
</TABLE>
The following table sets forth the rates used to calculate the net
periodic pension plan expenses for the year ended December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Discount rate 7.50% 7.00%
Average rate of increase in compensation levels 5.00% 5.00%
Long-term rate of return on assets 9.00% 9.00%
</TABLE>
POSTRETIREMENT HEALTH CARE BENEFITS:
CCMC currently offers postretirement benefits other than pensions
(postretirement benefits) which are primarily retiree health care
benefits. Substantially all of CCMC's employees can purchase health
care through CCMC's plan when they become eligible for retirement.
Retirees pay the full premium cost of their coverage. The liability
results from CCMC paying a group rate which includes retirees who are
not yet eligible for Medicare. The amount contained in the group rate
for early retirees is considered a postretirement benefit which must be
recognized in the year earned.
CCMC uses the accrual method of accounting for postretirement benefits
other than pensions based upon an actuarially determined cost to be
recognized over the period that an employee provides services to CCMC.
CCMC amortizes the accumulated postretirement benefit obligation (APBO)
in the amount of $790 recognized prior to adoption of SFAS 106 on a
delayed basis over twenty years. CCMC estimates its December 31, 1997
and 1996 unrecognized liability to be approximately $476 and $896,
respectively. The assumed health care trend rate for 1997 is 10%. This
trend rate reduces by 0.5% per year until it reaches an ultimate level
of 5.0% in the year 2007. Increasing the assumed healthcare cost trend
rate by one percentage point in each year would have resulted in an
increase in the
Continued
19
<PAGE> 36
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
11. EMPLOYEE BENEFIT PLANS, continued:
POSTRETIREMENT HEALTH CARE BENEFITS, continued:
APBO as of December 31, 1997 of $120 and an increase in the aggregate
of the service cost and interest cost components of net periodic
postretirement benefit cost for 1997 of $17. The weighted average of
the assumed discount rate of 7% was used to determined the APBO. The
postretirement benefits are not currently being funded.
The following sets forth the status of postretirement benefits
reconciled with amounts reported in CCMC's December 31, 1997 and 1996
balance sheets.
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $ 843 $ 908
Fully eligible active plan participants 139 218
Other active participants 439 637
------- -------
Total $ 1,421 $ 1,763
======= =======
Accrued postretirement benefit liability, in excess of plan assets 1,421 1,763
Unrecognized net gain (loss) 148 (231)
Unrecognized transition obligation (624) (665)
------- -------
Accrued postretirement benefit cost $ 945 $ 867
======= =======
</TABLE>
The net periodic postretirement benefit cost for 1997 and 1996 included
the following components:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Service cost for benefits earned during the year $ 53 $ 82
Interest cost 100 124
Amortization of unrecognized transition obligation over twenty years 42 42
Net amortization and deferral (4) 9
----- -----
Net periodic postretirement benefit cost $ 191 $ 257
===== =====
</TABLE>
Continued
20
<PAGE> 37
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
12. RESTRUCTURING:
During 1996, CCMC announced a plan to consolidate its business insurance
division, reducing certain administrative positions, and recorded a
restructuring charge of $974 in operating expenses. In 1997, CCMC
announced a restructuring in response to CCIE's decision to cease
underwriting workers' compensation insurance effective October 1997. As a
result, an additional charge of $1,087 was recorded in operating expenses.
There was a favorable adjustment of $274 made to the liability as a result
of a change in estimates during 1997. The provision for the reduction in
workforce of approximately 130 employees includes severance and other
benefit costs. Payments made against the liability were $1,096 and $3,901
in 1997 and 1996, respectively.
13. HOME OFFICE RENOVATION:
CCMC commenced the renovation of the 1900 Building in the third quarter of
1995 and completed the project in January 1997. The 1900 Building was
renovated to upgrade the ability to handle new computer and
telecommunication technology, to improve the heating, ventilation, and air
conditioning systems, and to comply with the Americans with Disabilities
Act of 1990. The total cost of this renovation, including building
improvements, furniture, and equipment was $17,491.
In June 1997, CCMC completed a major tenant improvement project related to
its leased space at the 2000 Building. The total cost of this project
including tenant improvements, furniture, and equipment was $1,768.
In 1997 and 1996, CCMC also incurred operating expenses of $1,240 and
$2,709, respectively, associated with these projects. Included in these
expenses were temporary facility costs, write-off of existing tenant
improvements, other assets, and moving expenses.
Under the management fee agreements, since these facilities are primarily
used to conduct the business of CCG, operating expenses are substantially
reimbursable when the expenses are incurred by CCMC. Those capital
improvement costs which are associated with CCG's business, will also be
recovered as management fees as the assets are depreciated over their
useful lives.
Continued
21
<PAGE> 38
CALIFORNIA CASUALTY MANAGEMENT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
----------
14. PENDING SALE OF HOME OFFICE COMPLEX:
On December 31, 1997, CCMC and CCIE, signed a letter of intent to sell the
home office complex and related land located at 1900-2000 Alameda de las
Pulgas, San Mateo, California. CCMC will simultaneously enter into a
twenty year capital lease-back agreement for the 1900 Building if the home
office complex is sold. CCMC plans to defer any gain from this transaction
and amortize it over the twenty year capital lease-back period using the
straight-line method.
15. CONTINGENCY:
CCMC is party to various claims and lawsuits arising in the normal course
of business. It is the opinion of management, after consultation with
legal counsel, that the disposition of these matters will not have a
material adverse effect on the financial position or results of operations
of CCMC.
22
<PAGE> 39
EXHIBIT B
April 8, 1998
TO: ALL HOLDERS OF LESS THAN 10 SHARES OF SERIES B COMMON
STOCK OF CALIFORNIA CASUALTY MANAGEMENT COMPANY AS
OF DECEMBER 31, 1997
As you know, on January 20, 1998, we made an offer to purchase (the
"Tender Offer") all shares of California Casualty Management Company ("CCMC")
Series B Common Stock from you. I am very pleased with the response we received
to our original offer, as more than 80% of those eligible accepted our offer.
At the same time that we made our offer to you, we filed the same
materials with the Securities and Exchange Commission ("SEC"). The SEC raised
some technical concerns regarding the presentation of certain accounting and
reporting items on our financial statements, and after further discussion with
the SEC, we decided to provide you with a copy of CCMC's audited 1997
consolidated financial statements which address the SEC's concerns. A copy is
included with the enclosed materials.
We have also elected to reopen the Tender Offer until April 30, 1998 for
the purpose of (i) permitting holders of Series B Common Stock who tendered
their shares prior to February 27, 1998 to review our audited 1997 consolidated
financial statements and determine whether to rescind their tender of such
shares; and (ii) to permit holders of less than 10 shares of Series B Common
Stock who did not tender their shares prior to February 27, 1998 to review our
audited 1997 consolidated financial statements and consider whether to tender
their shares of Series B Common Stock in the Tender Offer.
Accordingly, we hereby offer those holders of CCMC Series B Common Stock
who tendered their shares in the Tender Offer on or before February 27, 1998 the
right to rescind the prior tender and retain their shares of CCMC Series B
Common Stock (the "Rescission Offer"). If you tendered your shares in the Tender
Offer, a Notice of Rescission is included in the enclosed materials to be used
only by those holders who wish to rescind their prior tender. If you desire to
rescind the prior tender, you should sign the Notice of Rescission and return it
to us with a check made payable to CCMC in the amount of the price previously
paid to the holder by us for the tendered Series B Shares. Upon receipt of the
signed Notice of Rescission and check, we will provide written confirmation to
you of the number of shares of Series B Common Stock registered in your name.
The right to rescind a prior tender will expire on April 30, 1998. If we do not
receive a signed Notice of Rescission and payment on or before April 30, 1998,
we will consider you to have waived the right to rescind the prior tender. THUS,
IF YOU DO NOT WISH TO RESCIND YOUR PRIOR TENDER, YOU NEED NOT TAKE ANY ACTION.
<PAGE> 40
If you did not tender your shares in the Tender Offer on or before
February 27, 1998, the enclosed materials include an offer (the "Offer to
Purchase") to those holders of less than 10 shares of CCMC Series B Common Stock
as of December 31, 1997 to consider making such a tender on or before April 30,
1998. To accept this offer, you must return the enclosed Letter of Transmittal
to us by April 30, 1998. We will then be able to send you the proceeds by May
15, 1998.
If you have any questions regarding either the Rescission Offer or the
Offer to Purchase, you may contact Pat Persse (Assistant Vice President -
Finance) at extension 4437 or Jim Englese (Assistant Vice President - Legal) at
extension 4539. If you are calling from outside the home office complex, you may
call them at 1-800-288-7765.
Thank you for your attention to this important matter.
Very truly yours,
Thomas R. Brown
Chairman of the Board
-2-
<PAGE> 41
CALIFORNIA CASUALTY MANAGEMENT COMPANY
OFFER TO PURCHASE SERIES B COMMON STOCK
TO CERTAIN HOLDERS OF SHARES OF SERIES B COMMON STOCK OF CALIFORNIA CASUALTY
MANAGEMENT COMPANY:
California Casualty Management Company, a California corporation ("CCMC"),
hereby makes an offer (the "Offer") to all shareholders of record as of December
31, 1997 who hold in the aggregate less than 10 shares of Series B Common Stock
of CCMC upon the terms and conditions set forth herein and in the attached
Schedule 13E-3, to purchase at $50.00 per share (the "Purchase Price") in cash
all shares of Series B Common Stock (the "Shares") held by such shareholders.
The Offer will expire on April 30, 1998, unless extended by CCMC, in its sole
discretion, in accordance with applicable law and regulations.
The Purchase Price will be payable by check made payable to the tendering
shareholder as provided for hereinafter. The Shares are not currently publicly
traded.
-------------------------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF THIS TRANSACTION OR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
-------------------------------------------
Except as provided herein, CCMC has made no arrangements for and has no
understanding with any dealer, salesman or other person regarding the
solicitation hereunder, and no person has been authorized by CCMC to give any
information or to make any representations in connection with this Offer other
than those contained herein and, if given or made, such other information or
representations must not be relied upon as having been authorized. The delivery
of this Offer shall not, under any circumstances, create any implication that
the information herein is correct as of any time subsequent to the date hereof.
The Offer is not being made to, nor will CCMC accept the tender from, holders of
Shares in any jurisdiction in which the Offer or the acceptance thereof would
not be in compliance with the securities or Blue Sky laws of such jurisdiction.
April 8, 1998
-3-
<PAGE> 42
LETTER OF TRANSMITTAL
TO TENDER SHARES OF SERIES B COMMON STOCK
OF
CALIFORNIA CASUALTY MANAGEMENT COMPANY
PURSUANT TO THE OFFER TO PURCHASE
DATED APRIL 8, 1998
BY
CALIFORNIA CASUALTY MANAGEMENT COMPANY
THE OFFER EXPIRES AT 12:00 MIDNIGHT, SAN FRANCISCO TIME, ON
THURSDAY APRIL 30, 1998, UNLESS THE OFFER IS EXTENDED.
<PAGE> 43
DESCRIPTION OF SHARES TENDERED
NAME AND ADDRESS OF REGISTERED HOLDER: SHARES TENDERED:
______________________________________ _____SHARES OF CCMC SERIES B
COMMON STOCK
______________________________________
______________________________________
Ladies and Gentlemen:
The undersigned hereby tenders to California Casualty Management
Company, a California corporation ("CCMC"), the above-described shares of Series
B Common Stock of CCMC (the "Shares"), constituting all of the Shares owned by
the undersigned, pursuant to CCMC's offer to purchase all Shares held by each
shareholder who, as of December 31, 1997, owned in the aggregate, less than 10
Shares, at a price of $50.00, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase and Schedule 13e-3
dated April 8, 1998 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, together with any
amendments or supplements thereto or hereto, collectively constitute the
"Offer").
Subject to and effective upon acceptance for payment of the Shares
tendered hereby in accordance with the terms and subject to the conditions of
the Offer, the undersigned hereby sells, assigns and transfers to, or upon the
order of, CCMC all right title and interest in and to all Shares tendered hereby
and irrevocably constitutes and appoints the Secretary of CCMC the true and
lawful agent and attorney-in-fact of the undersigned with respect to such
Shares, 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 held in escrow by CCMC, together with all accompanying evidences
of transfer and authenticity, to or upon the order of CCMC; and (b) present such
Shares for transfer or cancellation on the books of CCMC, all in accordance with
the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Shares
tendered hereby and that when the same are accepted for payment by CCMC, CCMC
will acquire good and unencumbered title thereto, free and clear of all liens,
restrictions, charges and encumbrances and not subject to any adverse claims.
The undersigned will, upon request, execute and deliver any additional documents
deemed by CCMC to be necessary or desirable to complete the sale, assignment and
transfer of the Shares tendered hereby.
-2-
<PAGE> 44
All authority herein transferred or agreed to be conferred in this
Letter of Transmittal shall not be affected by, and shall survive, the death or
incapacity of the undersigned, and any obligation of the undersigned shall be
binding upon the heirs, personal representatives, successors, assigns,
administrators, trustees in bankruptcy, personal and legal representatives of
the undersigned.
Date:__________________
___________________________________
Signature
___________________________________
Printed Name
___________________________________
Social Security Number
-3-
<PAGE> 45
PAYER'S NAME: CALIFORNIA CASUALTY MANAGEMENT COMPANY
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------
SUBSTITUTE FORM W-9 Part 1 - PLEASE PROVIDE Social Security Number:
YOUR TIN ON THE LINE AT
RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW
- ------------------------------------------------------------------------------------------------------
Department of the Treasury Part 2 - Certification - Under penalties of perjury, I certify that:
Internal Revenue Service
(1) The number shown on this form is my correct Taxpayer
Payer's Request for Taxpayer Identification Number (or I am waiting for a number to be issued to
Identification Number ("TIN") me) and
(2) I am not subject to backup withholding
because (a) I am exempt from backup
withholding, or (b) 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 (c) the IRS has notified
me that I am no longer subject to
backup withholding.
Certification Instructions - You must cross out
Item 2 above if you have been notified by the
IRS that you are currently 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 that you are
no longer subject to backup withholding, do not
cross out Item (2).
- ------------------------------------------------------------------------------------------------------
Part 3 - Awaiting TIN ____ SIGNATURE _________________________________
DATE: ___________________, 1998
- ------------------------------------------------------------------------------------------------------
</TABLE>
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.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECKED THE LINE IN PART 3 OF SUBSTITUTE 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 (1) 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 (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable payments made to me will be withheld.
Signature ____________________________ Date ___________________, 1998
-4-
<PAGE> 46
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. Delivery of Letter of Transmittal. This Letter of Transmittal is to be
completed in full and returned to the Company in the enclosed envelope on or
before 12:00 Midnight, San Francisco time, April 30, 1998 (the "Expiration
Date") unless the Expiration Date is extended by the Company, in its sole
discretion. No tender of Shares will be accepted by the Company unless it covers
all Shares held of record by the tendering shareholder, as set forth in the
Offer. No alternative, conditional or contingent tenders will be accepted. By
executing this Letter of Transmittal (or facsimile thereof), the tendering
shareholder waives any right to receive any notice of the acceptance for payment
of the Shares.
2. Signatures on Letter of Transmittal. If this Letter of Transmittal is signed
by the registered holder(s) of the Shares tendered hereby, the signature(s) must
correspond with the name(s) as set forth in the share records of the Company
without alteration, enlargement or any change whatsoever.
If any of the Shares tendered hereby is held of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If this Letter of Transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, or other person acting in a fiduciary
or representative capacity, such person should so indicate when signing, and
proper evidence satisfactory to the Company of the authority of such person so
to act must be submitted.
3. Backup Withholding. Under U.S. Federal income tax law, a shareholder whose
tendered Shares are accepted for payment is required to provide the Company with
such shareholder's correct taxpayer identification number ("TIN") which, for
individual taxpayers is the taxpayer's Social Security Number on Substitute Form
W-9 above. If the Company is not provided with the correct TIN, the Internal
Revenue Service ("IRS") may subject the shareholder to a penalty imposed by the
IRS. In addition, payments that are made to such shareholder with respect to
Shares purchased pursuant to the Tender Offer may be subject to 31% backup
withholding.
If backup withholding applies, the Company is required to withhold 31%
of any such payments made to the shareholder. 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 IRS,
provided that the required information is given to the IRS.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF MUST
BE RECEIVED BY THE COMPANY ON OR BEFORE THE EXPIRATION DATE.
-5-
<PAGE> 47
NOTICE OF RESCISSION OF TENDER
DESCRIPTION OF SHARES TENDERED
NAME AND ADDRESS OF REGISTERED HOLDER: SHARES TENDERED:
____ SHARES OF CCMC SERIES B
COMMON STOCK
TENDER OFFER PRICE: $_______
Ladies and Gentlemen:
I am in receipt of the letter dated April 8, 1998 in which California
Casualty Management Company ("CCMC") offered me the right to rescind my tender
of shares of CCMC Series B Common Stock in response to CCMC's Offer to Purchase
dated January 20, 1998. I hereby exercise my right to rescind my tender of the
number of shares of CCMC Series B Common Stock set forth above. I enclose a
check made payable to California Casualty Management Company in the amount of
the Tender Offer Price set forth above, which constitutes the amount paid to me
in consideration of my prior tender of CCMC Series B Common Stock.
Upon receipt of this Notice of Rescission of Tender and the enclosed
check, please provide me with written confirmation of my status as the record
holder of the number of shares of CCMC Series B Common Stock set forth above.
Date:__________________
___________________________________
Signature
___________________________________
Printed Name
___________________________________
Social Security Number
<PAGE> 48
INSTRUCTIONS:
1. Complete this Notice of Rescission ONLY if you wish to exercise your
right to rescind your prior tender of shares of CCMC Series B Common Stock. If
you do not with to rescind your prior tender, YOU DO NOT NEED TO DO ANYTHING.
2 If you wish to rescind your prior tender of CCMC Series B Common
Stock, please date and execute this Notice of Rescission and return it to CCMC
with a check payable to California Casualty Management Company in the amount of
the Tender Offer Price set forth above, constituting the payment you received in
consideration of your prior tender of shares of CCMC Series B Common Stock. If
the dated and executed Notice of Rescission and payment are not received by CCMC
on or before April 30, 1998, you will be deemed to have waived your right to
rescind your prior tender of shares of CCMC Series B Common Stock.
-2-
