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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
FINANCIAL INSTITUTIONS INSURANCE GROUP,LTD.
(Name of the Issuer)
John A. Dore
Financial Institutions Insurance Group, Ltd.
Castle Harlan Partners II, L.P.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $1.00 PER SHARE
(Title of Class of Securities)
317588 10 1
------------
(CUSIP Number of Class of Securities)
WITH A COPY TO:
<TABLE>
<S> <C> <C>
JAMES M. VAN VLIET,JR. COLLEEN M. HENNESSY MARC WEINGARTEN, ESQ.
SCHIFF HARDEN & WAITE LORD BISSELL & BROOK SCHULTE ROTH & ZABEL
7200 SEARS TOWER 115 SOUTH LASALLE STREET 900 THIRD AVENUE
CHICAGO, IL 60606 CHICAGO, IL 60603 NEW YORK, NY 10022
(312) 876-1000 (312) 443-1769 (212) 758-0404
</TABLE>
(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. [x] THE FILING OF SOLICITATION MATERIALS OR AN INFORMATION STATEMENT
SUBJECT TO REGULATION 14A [17 CFR 240.14A-1 TO 240.14B-1], REGULATION
14C [17 CFR 240.14C-1 TO 240.14C-101] OR RULE 13E-3(C) [Section
240.13E-3(C)] UNDER THE SECURITIES EXCHANGE ACT OF 1934.
B. [ ] THE FILING OF A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933.
C. [ ] 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: [x]
CALCULATION OF FILING FEE
TRANSACTION VALUATION* AMOUNT OF FILING FEE
$54,139,930 $10,827.97
[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.
<TABLE>
<S> <C>
AMOUNT PREVIOUSLY PAID: $10,827.97 FILING PARTY: FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
FORM OF REGISTRATION NO.: SCHEDULE 14A DATE FILED: MAY 22, 1996
</TABLE>
* THE TRANSACTION VALUATION IS BASED UPON (I) $16.00, AS THE AMOUNT PER SHARE
WHICH WILL BE PAID BY THE ACQUIRING PARTY IN CASH, MULTIPLIED BY
(II) THE AGGREGATE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING PLUS THE
DIFFERENCE BETWEEN $16.00 AND THE EXERCISE PRICE FOR EACH OUTSTANDING OPTION
TO ACQUIRE COMMON STOCK OF THE ISSUER.
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INTRODUCTORY NOTE
This Rule 13E-3 Transaction Statement on Amendment No. 1 to Schedule
13E-3 amends and supplements the Rule 13E-3 Transaction Statement on Schedule
13E-3 dated May 21, 1996, relating to the proposed merger of FIIG Merger Corp.
("Buyer Sub") with and into Financial Institutions Insurance Group, Ltd. (the
"Company") pursuant to the Merger Agreement dated as of April 12, 1996 by and
among the Company, Buyer Sub and FIIG Holding Corp. ("Buyer"). Buyer currently
is a wholly-owned subsidiary of Castle Harlan Partners II, L.P. ("CHP II"). It
is expected that John A. Dore, President and Chief Executive Officer of the
Company, will receive options to acquire approximately 7% of the outstanding
shares of Buyer after the Merger (of which approximately 3% will be issued in
exchange for the cancellation of certain of his options in the shares of the
Company).
The filing of this Schedule 13E-3 shall not be deemed an admission by CHP
II that it is an affiliate of the Company. Information set forth herein with
respect to the Company has been furnished by the Company, and CHP II takes no
responsibility for the accuracy thereof except for its actual knowledge.
Information set forth herein with respect to CHP II has been furnished by CHP
II, and the Company takes no responsibility for the accuracy thereof except for
its actual knowledge.
The cross reference sheet below is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
of the information required to be included in response to the items of Schedule
13E-3. The information in the Proxy Statement is hereby expressly incorporated
herein by reference and the responses to each item are qualified in their
entirety by the information contained in the Proxy Statement.
2
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CROSS REFERENCE SHEET
(Pursuant to General Instruction F
to Schedule 13E-3)
Item in Location in
Schedule 13E-3 Proxy Statement
-------------- ---------------
Item 1 (a) Cover Page
(b) SUMMARY -- General; The Special Meeting;
INTRODUCTION -- Voting Rights; Vote Required For
Approval
(c) SUMMARY -- Comparative Market Price Data
(d) SUMMARY -- Dividends
(e) Not applicable
(f) STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS
Item 2 Cover Page; SUMMARY -- General
Item 3 SPECIAL FACTORS -- Background of the Merger;
SPECIAL FACTORS -- Interests of Certain Persons in the
Merger; SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger
Item 4 (a) SUMMARY; INTRODUCTION; SPECIAL FACTORS; THE MERGER
(b) SUMMARY -- General; SUMMARY -- Interests of Certain
Persons in the Merger; SPECIAL FACTORS -- Interest
of John A. Dore and Management in the Merger;
SPECIAL FACTORS -- Interests of Certain Persons in
the Merger; SPECIAL FACTORS -- Purpose and Certain
Effects of the Merger
Item 5 THE MERGER -- Plans or Proposals After the Merger;
SPECIAL FACTORS --Purposes and Certain Effects of
the Merger; SUMMARY -- Certain Effects of the Merger
Item 6 (a) THE MERGER -- Source and Amount of Funds; SPECIAL
FACTORS -- Interest of John A. Dore and Management
in the Merger
(b) THE MERGER AGREEMENT -- Expenses
(c)-(d) THE MERGER -- Source and Amount of Funds
3
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Item 7 (a)-(d) SPECIAL FACTORS -- Background of the Merger; SPECIAL
FACTORS -- The Board of Directors' Reasons for the Merger;
Recommendation of the Company's Board of Directors;
SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger; SPECIAL FACTORS -- Purpose and
Certain Effects of the Merger; SPECIAL FACTORS -- Certain
Federal Income Tax Consequences of the Merger to the
Company's Stockholders
Item 8 (a)-(b) SUMMARY; SPECIAL FACTORS -- The Board of Directors' Reasons
for the Merger; Recommendation of the Company's Board of
Directors; SPECIAL FACTORS -- Interest of John A. Dore
and Management in the Merger; SPECIAL FACTORS -- Dore's Belief
as to the Fairness of the Merger; SPECIAL FACTORS - CHP II's
Belief as to the Fairness of the Merger
(c) INTRODUCTION -- Voting Rights; Vote Required For Approval
(d)-(f) SPECIAL FACTORS -- The Board of Directors' Reasons for the
Merger; Recommendation of the Company's Board of
Directors; SPECIAL FACTORS -- Background of the Merger
Item 9 SPECIAL FACTORS -- The Board of Directors' Reasons for the
Merger; Recommendation of the Company's Board of Directors;
SPECIAL FACTORS -- Background of the Merger; SPECIAL FACTORS
-- Dore's Belief as to the Fairness of the Merger; SPECIAL
FACTORS -- CHP II's Belief as to the Fairness of the Merger;
SPECIAL FACTORS -- Opinion of Investment Banker; Appendix C
Item 10 (a) STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS
(b) Not applicable
Item 11 SPECIAL FACTORS -- Voting Agreements; SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger
Item 12 SPECIAL FACTORS -- The Board of Directors' Reasons
for the Merger; Recommendation of the Company's Board of
Directors; SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger; SPECIAL FACTORS -- Voting Agreements
Item 13 (a) THE MERGER -- Rights of Dissenting Stockholders
(b) Not applicable
(c) Not applicable
Item 14 (a) BUSINESS, FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION
AND ANALYSIS
(b) Not applicable
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Item 15 (a) SUMMARY; SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger; SPECIAL FACTORS -- Opinion of
Investment Banker
(b) INTRODUCTION -- Solicitation of Proxies
Item 16 Proxy Statement generally
Item 17 (a) Letter dated June 4, 1996 from ING Capital Corporation to
CHP II
(b)(1) Appendix C to Proxy Statement
(b)(2) Forecasts
(b)(3) William Blair Report
(b)(4) Am-Re Consultants, Inc. Due Diligence Review
(c)(1) Appendix D to Proxy Statement
(c)(2) Letter Agreement dated January 4, 1996 between Castle
Harlan, Inc. and John A. Dore
(d) Proxy Statement
(e) Appendix B to Proxy Statement
5
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) Reference hereby is made to the information set forth on the
cover page of the Proxy Statement, which information is incorporated herein by
reference.
(b) Reference hereby is made to the information set forth under
the headings "INTRODUCTION -- Voting Rights; Vote Required for Approval" and
"SUMMARY -- General; The Special Meeting" in the Proxy Statement, which
information is incorporated herein by reference.
(c) Reference hereby is made to the information set forth under
the heading "SUMMARY -- Comparative Market Price Data" in the Proxy Statement,
which information is incorporated herein by reference.
(d) Reference hereby is made to the information set forth under
the heading "SUMMARY -- Dividends" in the Proxy Statement, which information is
incorporated herein by reference.
(e) Not applicable.
(f) Reference hereby is made to the information set forth under
the heading "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in
the Proxy Statement, which information is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) The persons filing this statement are John A. Dore, Financial
Institutions Insurance Group Ltd., a Delaware corporation, and Castle Harlan
Partners II, L.P. , a Delaware limited partnership ("CHP II"). Mr. Dore has
been President and Chief Executive Officer of the Company and its subsidiaries
since October, 1990. The address of the Company is 300 Delaware Avenue, Suite
1704, Wilmington, Delaware 19801. CHP II invests in businesses for long-term
appreciation. The address of CHP II is 150 East 58th Street, New York, New
York 10011. Reference hereby is made to the information set forth under the
heading "SUMMARY -- The Parties to the Transaction" in the Proxy
Statement, which information is incorporated herein by reference.
(e) None.
(f) None.
(g) John A. Dore is a citizen of the United States of America.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) Reference hereby is made to the information set forth under
the headings "SPECIAL FACTORS -- Interests of Certain Persons in the Merger" and
"SPECIAL FACTORS -- Background of the Merger" in the Proxy Statement, which
information is incorporated herein by reference.
6
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(b) Reference hereby is made to the information set forth under
the headings "SPECIAL FACTORS -- Background of Merger" and "SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger" in the Proxy Statement,
which information is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) Reference hereby is made to the information set forth under
the headings "SUMMARY," "INTRODUCTION," "SPECIAL FACTORS" and "THE MERGER" in
the Proxy Statement, which information is incorporated herein by reference.
(b) Reference hereby is made to the information set forth under
the headings "SUMMARY," "SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger," "SPECIAL FACTORS -- Interests of Certain Persons in
the Merger" and "SPECIAL FACTORS -- Purpose and Certain Effects of the Merger"
in the Proxy Statement, which information is incorporated herein by reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
Reference hereby is made to the information set forth under the
headings "THE MERGER -- Plans or Proposals After the Merger," "SPECIAL FACTORS
- -- Purposes and Certain Effects of the Merger" and "SUMMARY -- Certain Effects
of the Merger" in the Proxy Statement, which information is incorporated herein
by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) Reference hereby is made to the information set forth under
the headings "THE MERGER -- Source and Amount of Funds" and "SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger" in the Proxy Statement,
which information is incorporated herein by reference.
(b) Reference hereby is made to the information set forth under
the heading "THE MERGER AGREEMENT -- Expenses" in the Proxy Statement, which
information is incorporated herein by reference.
(c)-(d) Reference hereby is made to the information set forth under
the heading "THE MERGER -- Source and Amount of Funds" in the Proxy Statement,
which information is incorporated herein by reference. John A. Dore does not
expect to borrow any funds in connection with the Merger.
ITEM 7. PURPOSE, ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) Reference hereby is made to the information set forth under
the headings "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
The Board of Directors' Reasons for the Merger; Recommendation of the
Company's Board of
7
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Directors," "SPECIAL FACTORS --Interest of John A. Dore and Management in the
Merger," "SPECIAL FACTORS -- Purpose and Certain Effects of the Merger" and
"SPECIAL FACTORS -- Certain Federal Income Tax Consequences of the Merger to
the Company's Stockholders" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(b) Reference hereby is made to the information under the headings
"SUMMARY," "SPECIAL FACTORS -- The Board of Directors' Reasons for the Merger;
Recommendation of the Company's Board of Directors," "SPECIAL FACTORS --
Interest of John A. Dore and Management in the Merger," "SPECIAL FACTORS --
Dore's Belief as to the Fairness of the Merger" and "SPECIAL FACTORS -- CHP II's
Belief as to the Fairness of the Merger" in the Proxy Statement,
which information is incorporated herein by reference.
(c) The Merger is not structured to require approval by a majority
of unaffiliated stockholders. Reference hereby is made to the information
under the heading "INTRODUCTION -- Voting Rights; Vote Required For Approval"
in the Proxy Statement, which information is incorporated herein by reference.
(d)-(f) Reference is hereby made to the information under the headings
"SPECIAL FACTORS -- Background of the Merger" and "SPECIAL FACTORS -- The
Board of Directors' Reasons for the Merger; Recommendation of the Board of
Directors" in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) Reference hereby is made to Exhibit 17(b)(3), Exhibit
17(b)(4), the information in Appendix C of the Proxy Statement and under the
headings "SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
Opinion of Investment Banker," "SPECIAL FACTORS -- The Board of Directors'
Reasons for the Merger; Recommendation of the Board of Directors," "SPECIAL
FACTORS -- Dore's Belief as to the Fairness of the Merger" and "SPECIAL
FACTORS -- CHP II's Belief as to the Fairness of the Merger" in the Proxy
Statement, which information is incorporated herein by reference.
ITEM 10. INTERESTS IN SECURITIES OF THE ISSUER.
(a) Reference hereby is made to the information under the heading
"STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" in the Proxy
Statement, which information is incorporated herein by reference. Neither CHP
II, Castle Harlan Associates, L.P., Castle Harlan Partners II GP, Inc. nor John
K. Castle own any stock in the Company.
(b) None.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
Reference hereby is made to the information under the headings
"SPECIAL FACTORS -- Voting Agreements," and "SPECIAL FACTORS -- Interest of John
A. Dore."
8
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and Management in the Merger" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION.
(a)-(b) Reference hereby is made to the information under the
headings "SPECIAL FACTORS -- Voting Agreements," "SPECIAL FACTORS -- The
Board of Directors' Reasons for the Merger; Recommendation of the Company's
Board of Directors," and "SPECIAL FACTORS -- Interest of John A. Dore and
Management in the Merger" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) Reference hereby is made to the information under the heading
"THE MERGER -- Rights of Dissenting Stockholders" in the Proxy Statement,
which information is incorporated herein by reference.
(b)-(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a) (1)-(2) Reference hereby is made to the information under the
heading "BUSINESS, FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION
AND ANALYSIS" in the Proxy Statement, which information is
incorporated herein by reference.
(3) Not Applicable.
(4) Book value per share as of December 31, 1995 was
$14.32/share and as of March 31, 1996 was $14.65/share.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) Reference hereby is made to the information under the headings
"SUMMARY," "SPECIAL FACTORS -- Interest of John A. Dore and Management in the
Merger" and "SPECIAL FACTORS -- Opinions of Investment Banker" in the Proxy
Statement, which information is incorporated herein by reference.
(b) Reference hereby is made to the information under the heading
"INTRODUCTION -- Solicitation of Proxies" in the Proxy Statement, which
information is incorporated herein by reference.
9
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ITEM 16. ADDITIONAL INFORMATION.
Reference hereby is made to the Proxy Statement, which contains
additional information regarding the Merger, which information is incorporated
herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a) Letter dated June 4, 1996 from ING Capital Corporation to CHP
II.
(b)(1) Opinion of William Blair & Company L.L.C. (Attached as
Appendix C to the Proxy Statement)
(b)(2) Forecasts.
(b)(3) William Blair Report
(b)(4) Am-Re Consultants, Inc. Due Diligence Report.
(c)(1) Form of Voting Agreement. (Attached as Appendix D to the
Proxy Statement)
(c)(2) Letter Agreement dated January 4, 1996 between Castle Harlan,
Inc. and John A. Dore.
(d) A copy of the Proxy Statement is incorporated herein by
reference.
(e) Section 262 of the Delaware General Corporation Law. (Attached
as Appendix B to the Proxy Statement)
SIGNATURE
After due inquiry, and to the best of my knowledge and belief, the
undersigned hereby certify that the information set forth in this statement is
true, complete and correct.
Date: August 9, 1996 /s/ John A. Dore
----------------------------------------
John A. Dore
FINANCIAL INSTITUTIONS INSURANCE GROUP,
LTD.
By: /s/ R. Keith Long
-----------------------------------
R. Keith Long, Chairman of the
Board
CASTLE HARLAN PARTNERS II, L.P.
By Castle Harlan, Inc., its Investment
Manager
By:
/s/ Jeffrey Siegal
-------------------------------------
Jeffrey Siegal, Managing Director
10
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EXHIBIT INDEX
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<CAPTION>
Number Description
- ------ -----------
<S> <C>
17(a) Letter dated June 4, 1996 from ING Capital Corporation to CHP II . .
17(b)(2) Forecasts. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . .
17(b)(3) William Blair Report . . . . . . . . . . . . . . . .. . . . . . . . .
17(b)(4) Am-Re Consultants, Inc. Due Diligence Report. . . . . . . . . . . . .
17(c)(2) Letter Agreement dated January 4, 1996 between Castle Harlan, Inc. and
John A. Dore . . . . . . . . . . . . . . . . . . . . .. . . . . . .
</TABLE>
11
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EXHIBIT 17(a)
ING CAPITAL CORPORATION Internationale
Nederlanden (U.S.)
Capital Corporation
June 4, 1996
Castle Harlan Partners II, L.P.
150 East 58th Street
New York, NY 10155
Attn: Mr. Jeffrey M. Siegal
Gentlemen:
You have advised ING (U.S.) Capital Corporation ("ING") that Castle Harlan
Partners II, L.P. ("Castle Harlan"), a Delaware limited partnership, intends to
acquire all of the issued and outstanding equity of Financial Institutions
Insurance Group, Ltd. ("FIIG"), pursuant to a Merger Agreement (the "Merger
Agreement") dated April 12, 1996 among, FIIG Holding Corp., a Delaware
corporation 100% controlled by Castle Harlan, FIIG Merger Corp., a wholly owned
subsidiary of FIIG Holding Corp., FIIG and certain stockholders of FIIG.
Pursuant to the Merger Agreement FIIG Merger Corp. would be merged with and
into FIIG and the selling shareholders of FIIG would receive $54,139,930 in
cash (the "Transaction"). You have also advised ING that the funds required to
consummate the Transaction are to be provided by a) the proceeds of the
issuance of common stock by FIIG Holding Corp. plus contributions from certain
shareholders of FIIG totaling $29,500,000, b) a $10,000,000 special dividend by
the surviving corporation in the merger subject to the approval of the
Connecticut Department of Insurance (the "Special Dividend") and c) the
remainder from the senior secured credit facilities described below (the
"Senior Facilities").
ING is pleased to commit to act as Agent to provide, on a fully underwritten
basis, up to $20,500,000 in Senior Facilities, composed of a) an $11,500,000 7
year senior secured amortizing Tranche A Term Loan, b) a $4,000,000 7 1/2 year
senior secured amortizing Tranche B Term Loan and c) a $5,000,000 2 1/2 year
Revolving Credit facility. ING's offer as set forth in this letter is subject
to the terms and conditions described herein and in the Summary of Terms and
Conditions (the "Term Sheet") annexed hereto in Exhibit A and in the letter of
even date herewith (the "Fee Letter") addressed by ING to you and to the
execution and delivery of acceptable loan documentation.
ING has submitted this letter after reviewing certain historical and financial
documents and statements of Castle Harlan, FIIG and First Reinsurance Company
of Hartford ("First Re") and other information provided by you, FIIG and First
Re concerning the Transaction. ING may terminate its obligations under the
preceding paragraph if; (i) the terms of the Transaction are changed or if any
information submitted to ING proves to have been inaccurate or incomplete or if
any adverse change occurs, or any additional information is disclosed to or
discovered, that ING deems materially adverse in respect of the condition
(financial or otherwise), business, operations, assets, nature of assets,
liabilities or prospects of FIIG, First Re, FIIG Holding Corp. or FIIG Merger
Corp.; or (ii) if any material adverse change shall occur in loan syndication
or capital market conditions generally.
You hereby jointly and severally indemnify and hold harmless each of ING and
the other Lenders and each director, officer, employee and affiliate thereof
(each, and "indemnified person") from and against any and all losses, claims,
damages, liabilities (or actions or other proceedings commenced or threatened
in respect thereof) and expenses that arise out of, result from or in any way
relate to this letter, the Term Sheet or the Fee Letter, or in connection with
the Transaction or the providing or syndication of the Senior Facilities, and
to reimburse each indemnified person, promptly for any reasonable legal or
other expenses incurred in connection with investigating, defending or
participating in any such loss, claim, damage, liability or action or other
proceeding (collectively, a "Claim") (whether or not such indemnified person is
a party to any action or proceeding out of which any such expense arises),
other than any of the foregoing claimed by any indemnified person to the extent
<PAGE> 2
incurred by reason of the gross negligence or willful misconduct of such
person. Neither ING nor any other Lender shall be responsible or liable to you
or any other person or entity for consequential damages that may be alleged as
a result of this letter. In addition, subject to the limitations set forth in
the Fee Letter in the event that the Merger Agreement is terminated, you hereby
agree to reimburse ING at closing for ING's reasonable out-of-pocket costs and
expenses (including, without limitation, reasonable legal fees and expenses,
actuarial fees and printing, reproduction and document delivery costs) incurred
in connection with the syndication of the Facilities and the preparation,
review, negotiation, execution and delivery of the definitive financing
agreements and the other documents relating to the Facilities. Your
obligations under this paragraph shall become effective upon the signing of
this letter and shall survive any termination of ING's obligations under this
letter and shall be effective even if the definitive financing agreements are
not executed but shall be superseded by the provisions of the definitive
financing agreements upon their effectiveness.
You acknowledge that ING and its affiliates may be providing financing or other
services to other companies in respect of which you or your affiliates may have
conflicting interests. You also acknowledge that ING and its affiliates have
no obligation to use in connection with the transactions contemplated by this
letter, or to furnish to you or any of your affiliates, confidential
information obtained from other companies.
This letter is delivered to you upon the condition that neither the existence
of this letter, the Term Sheet or the Fee Letter nor any of their contents
shall be disclosed by you in any form to any party including the press, any
state insurance department (except the Connecticut Department of Insurance),
A.M. Best Company or anyone else, except (i) as may be compelled in a judicial
or administrative proceeding or as otherwise required by law, or (ii) on a
confidential and "need to know" basis to your partners, directors, officers,
employees, advisors and agents or (iii) by mutual written consent of ING.
ING shall have the right to review and approve all public announcements and
filings relating to the Transaction that refer to ING or the other Lenders
before they are made (such approval not to be unreasonably withheld).
ING's offer set forth in this letter will terminate at 5:00 p.m. (New York City
Time) on June 7, 1996 unless you accept this letter and the Fee Letter at or
prior to that time by signing and returning to ING counterparts of this letter
and the Fee Letter. ING's commitment under this letter, if accepted by you,
will in any event terminate (i) at 5:00 p.m. (New York City Time) on September
30, 1996 if the initial borrowings under the Facilities (the "Closing Date")
shall not have occurred on or prior to that date or (ii) if terminated by you
prior to that date (the "Termination Date").
This letter and the Fee Letter may be executed in any number of counterparts,
each of which shall be an original and all of which, when taken together, shall
constitute one agreement, and this letter, the Fee Letter and the Term Sheet
may not be assigned by you without the prior written consent of ING and may not
be amended or any provision hereof or thereof waived or modified except in a
writing signed by each of the parties hereto. No person or entity other than
the parties hereto and the indemnified parties shall have any rights under or
be entitled to rely upon this letter, the Fee Letter or the Summary of Terms
and Conditions. This letter, the Fee Letter and the Term Sheet shall be
governed by and construed in accordance with the law of the State of New York.
We look forward to working with you to complete this transaction.
<TABLE>
<S> <C>
Accepted and Agreed:
ING (U.S.) Capital Corporation Castle Harlan Partners II, L.P.
By: Castle Harlan, Inc., its Investment Manager
By: /s/ By: /s/ Jeffrey M. Siegel
---------------------------------------------- --------------------------------
Title: Managing Director Title: Managing Director
------------------------------------------- ----------------------------
Date: June 6, 1996
------------------------------
</TABLE>
<PAGE> 3
ING CAPITAL CORPORATION
Internationale
Nederlanden (U.S.)
Capital Corporation
ANNEX A
SUMMARY OF TERMS & CONDITIONS
Borrower Financial Institutions Insurance Group, Ltd. (the
"Borrower" or "FIIG")
Purpose a) To finance the acquisition, pursuant to a Merger
Agreement (the "Merger Agreement") dated April 12,
1996 among FIIG Holding Corp., a Delaware
corporation 100% controlled by Castle Harlan
Partners II, L.P., FIIG Merger Corp., a wholly
owned subsidiary of FIIG Holding Corp., FIIG and
certain stockholders of FIIG, of all of the capital
shares of FIIG by merging FIIG Merger Corp. with
and into FIIG and in consideration for acquiring
FIIG shares pay to the selling shareholders
$54,139,930 in cash (the "Transaction") and b)
provide for a working capital facility at FIIG.
Senior Facilities Up to $20,500,000 in senior secured term facilities
as follows:
The "Term Loans"
Tranche A: $11,500,000, maturing 7 years from
closing date
Tranche B: $ 4,000,000, maturing 7 1/2 years from
closing date
The "Revolver"
A $5,000,000 stand-by revolving credit facility,
maturing June 30, 1999
ING (U.S.) Capital Corporation ("ING") commits to
provide the entire facility on a fully underwritten
basis.
Arranger and
Administrative
Agent ING
Lenders ING reserves the rights of assignment and
participation to a group of lenders acceptable to
the Agent and the Borrower (such acceptance of the
Borrower not to be unreasonably withheld).
Availability The borrowing of the Term Loans will be made in a
single drawing on the consummation of the
Transaction. Availability of the Revolver will
begin on the consummation of the Transaction with
reductions scheduled below.
Commitment
Fees Subject to the limitations in the Fee Letter, a
commitment fee at the rate of 1/2 of 1% per annum
on the average unused portion of the Senior
Facilities underwritten by ING (the "Commitments"),
accruing from the date of your acceptance of such
Commitments until the Closing Date (based on a year
of 365 days and actual days elapsed), is due and
payable upon the sooner of, a) the Closing Date or
b) upon termination of the Commitments if, and only
if, Castle Harlan receives the fee referenced in
section 8.7(b)(ii) of the Merger Agreement.
Thereafter (following
- 3 -
<PAGE> 4
Closing), commitment fees at the rate of 1/2 of 1%
per annum on the unused portion of the Revolver
will be due on the last day of each calendar
quarter.
Interest Borrower's option of either: (i) at the Base Rate
of ING, defined as the higher of the Federal Funds
Rate, as published by the Federal Reserve Bank of
New York plus 1/2 of 1%, or the prime commercial
lending rate of ING, as announced from time to time
("Base Rate Loans") or (ii) the Eurodollar Rate
("LIBOR") for periods of one, three, six, nine
months or one year ("LIBOR Based Loans"), plus in
either case the applicable margins described below.
Interest on Base Rate Loans is payable monthly in
arrears computed on the basis of the actual number
of days elapsed in a year of 365/366 days.
Interest on LIBOR Based Loans is payable on the
last business day of the applicable interest period
for such loans and on the last business day of
every third calendar month of such interest period
if such period exceeds three months. LIBOR Based
Loan interest is calculated on the basis of the
actual number of days elapsed over a year comprised
of 360 days.
<TABLE>
<CAPTION>
Interest Rate
Margin LIBOR Based Loans Base Rate Loans
<S> <C> <C> <C>
Revolver/ Revolver/
Tranche A Tranche B Tranche A Tranche B
--------- --------- --------- ---------
+2.50% +2.75% +1.00% +1.25%
</TABLE>
Mandatory
Prepayments (A) An amount equal to 100% of the net proceeds
received from (i) the sale or disposition of all or
any part of the assets of the Borrower or its
subsidiaries and (ii) the issuance of debt or
equity by the Borrower or its subsidiaries after
the Closing Date (excluding proceeds from equity
issued to management of up to an aggregate total of
$1 million), shall be applied without penalty or
premium to repay the Senior Facilities ratably to
the remaining installments of Tranche A and Tranche
B Term Loans provided that holders of Tranche B
Term Loans can at their sole discretion refuse the
prepayment and,
(B) Commencing with the fiscal year ending
December 31, 1997 (should the approval of the
Connecticut Waiver be granted) or commencing with
the fiscal year ending December 31, 1998 (should
the approval of the Connecticut Waiver not be
granted), an amount equal to 75% of the Excess Cash
Flow (defined below) of the Borrower, computed on
the basis of its audited annual financial
statements, shall be applied without penalty or
premium to repay the Senior Facilities ratably to
the remaining installments of Tranche A and Tranche
B Term Loans provided that holders of Tranche B
Term Loans can at their sole discretion refuse the
prepayment. Excess Cash Flow for any Period
("Excess Cash Flow") is defined as the sum of (a)
100% of the maximum amount of ordinary dividends
permitted to be paid by the combined insurance
subsidiaries of the Borrower in such year under
applicable insurance statues governing the payment
of dividends (the "Maximum Dividend") plus (b)
payments received by the Borrower in such year
pursuant to tax sharing agreements with
subsidiaries, plus (c) net fees received related to
management agreements (net of related management
disbursements), plus (d) the GAAP net income of all
non-insurance company subsidiaries, minus (e) taxes
paid by the Borrower in such year, minus (f)
regularly scheduled payments of interest and
principal paid by the Borrower with respect to the
Term Loans in such year ("Debt Service
Obligations"), minus (g) payments of interest with
respect to the Revolver.
- 4 -
<PAGE> 5
For the purposes of (B) above, Mandatory
Prepayments will be due annually on April 1 of each
year, beginning in 1998. "Period" is defined as
the fiscal year immediately preceding the year in
which the Mandatory Prepayment is due.
Voluntary
Prepayments Permitted in whole or in part without premium or
penalty (except for broken funding costs incurred
by the Lenders) subject to limitations as to
minimum amounts of prepayments and to be applied to
repay the Senior Facilities ratably to the
remaining installments of Tranche A and Tranche B
Term Loans provided that holders of Tranche B Term
Loans can at their sole discretion refuse the
prepayment.
Amortization The Term Loans shall amortize as follows:
<TABLE>
<CAPTION>
Tranche A Tranche B
---------- ----------
<S> <C> <C>
August 1997 $750,000
February 1998 $625,000
August 1998 $625,000
February 1999 $650,000 $100,000
August 1999 $1,000,000
February 2000 $900,000 $100,000
August 2000 $1,000,000
February 2001 $900,000 $100,000
August 2001 $1,000,000
February 2002 $900,000 $100,000
August 2002 $1,000,000
February 2003 $1,000,000 $100,000
August 2003 $1,150,000
February 2004 0 $3,500,000
</TABLE>
Security First priority perfected security interest in all
of the Borrower's assets, including but not limited
to all of the capital stock of its directly owned
subsidiaries, all rights under the Merger Agreement
and all rights under contracts among the Borrower
and its subsidiaries. Negative pledge on all other
assets of the Borrower and its subsidiaries.
Loan
Documentation To be satisfactory to ING and the other lenders and
to include such conditions, representations,
warranties, affirmative and negative covenants,
events of default, funding and yield protection
(including capital adequacy provisions) and other
provisions as are described herein, as may be
generally consistent with the current practice of
ING for facilities of this type and otherwise as
ING may reasonably determine to be appropriate.
Conditions
Precedent Will include but not be limited to:
1. The Lenders' review of and reasonable
satisfaction with the terms and conditions
of, and the documentation relating to, the
Transaction, including, without limitation,
the Merger Agreement, any other document
submitted to any insurance authority and the
other transactions contemplated hereby, the
appropriate regulatory approval of the
necessary Form A and any other regulatory
filings ("Regulatory Filings"), agreements
related to any other financing arrangements
for the Transaction and any assumptions
regarding the level of availability of
Ordinary dividends to service the Senior
Facilities.
- 5 -
<PAGE> 6
2. The Lenders' review of and reasonable
satisfaction with (a) the financial
information relating to the operations of
the Borrower and its subsidiaries and their
assets and liabilities (including potential
tax and ERISA liabilities), financial
controls, management and governance, (b)
financial statements (including a pro forma
opening balance sheet of the Borrower and
its subsidiaries as at the closing of the
Transaction) reflecting the forecasted
financial condition and income and expenses
of the Borrower and its subsidiaries.
3. The Lenders' review of and reasonable
satisfaction with (a) the business and tax
assumptions underlying the Transaction and
the repayment of the Senior Facilities and
(b) the ownership (direct and indirect),
capital structure and the corporate and
legal structure of the Borrower and its
subsidiaries (both before and after the
Transaction).
4. All conditions to the Transaction specified
in the Merger Agreement shall have been met,
or waived with the concurrence of the
Lenders.
5. All reinsurance agreements and pooling
arrangements shall be, in all material
respects, in form and substance satisfactory
to the Lenders and shall be in full force
and effect on the Closing Date.
6. The Lenders' review and reasonable
satisfaction with the tax structure of the
entire transaction, including all
documentation relating to all tax sharing
arrangements, which shall have received all
necessary regulatory approvals.
7. No indebtedness (other than as contemplated
by the Transaction or as permitted by the
loan documentation). No stock options,
warrants or similar rights featuring cash
redemption by the Borrower shall be
outstanding as to the Borrower or any of its
subsidiaries with the exception of those
permitted for redemption by Clause 12 of the
Covenants below.
8. The Lenders' satisfaction with any material
litigation with respect to the Acquisition,
and with other material litigation and
contingent obligations to which the Borrower
may be subject.
9. Lenders' satisfaction with the form and
substance of agreements among FIIG, Oakley
Underwriting Agency, Inc. and/or First
Reinsurance Company of Hartford and Virginia
Surety Company and Aon Technical Insurance
Services (a wholly owned subsidiary of Aon
Corporation).
10. ING's review of and reasonable satisfaction
with compliance with all applicable and
material foreign, U.S., federal, state and
local laws and regulations, including all
applicable state insurance laws and
regulations.
11. ING's review of and reasonable satisfaction
with employment agreements or arrangements
between the Borrower and its subsidiaries
and certain key personnel, including
non-compete provisions.
12. Evidence that all necessary and material
filings have been made and all necessary and
material licenses, permits and government
approvals have been obtained and remain in
full force and effect or applicable waiting
periods have expired.
- 6 -
<PAGE> 7
13. Satisfactory legal opinions.
14. ING's review of and satisfaction with a
review of the reserves of First Re.
15. ING's review of and reasonable satisfaction
with settlement of intercompany arrangements
with Seller and Seller's affiliates.
16. ING's satisfaction that upon consummation of
the Acquisition First Re will have an A.M.
Best rating at minimum of A-, and no lower.
17. No material adverse change in the condition
(since March 31, 1996) financial or
otherwise, including operations, properties,
investments or prospects of the Borrower and
its subsidiaries.
18. Lenders' satisfaction with the Connecticut
Department of Insurance's granting of the
Special Dividend.
19. The receipt by FIIG Holding Corp. of not
less than $29,500,000 in the aggregate from
the proceeds of capital contributions by
certain shareholders of FIIG and the
issuance of its common stock.
20. The Lenders' review of and satisfaction with
such other documentation, terms and
conditions as may be appropriate in light of
new information and as may be standard.
Covenants Will include but not be limited to the following:
A. The Borrower and subsidiaries (GAAP basis):
1. Maximum consolidated debt to net worth
ratio;
2. No indebtedness except as permitted by
the loan documentation;
3. Prohibition on creation or assumption
of any liens on any property of the
Borrower or any of its subsidiaries,
except as permitted by the loan
documentation;
4. Limitation on mergers and
acquisitions, material disposition of
assets, dividends, retrocession
transactions (other than in the
ordinary course of business), leases
and capital expenditures;
5. Limitation on termination,
modification and supplementing of
lines of business and of tax sharing
agreements;
6. Satisfaction of reporting requirements
as required by the Lenders, including
without limitation satisfactory
independent review from time to time
of the Borrower's loss and allocated
loss expense reserves;
7. Reporting requirements to the Agent as
to material litigation, material
regulatory proceedings and other
material matters (to be agreed upon);
- 7 -
<PAGE> 8
8. Except as provided in the loan
documentation, maintenance of
corporate existence, compliance with
laws, payment of taxes, maintenance of
properties, maintenance of licenses
and permission of inspection by
Lenders;
9. No violation of margin regulations;
10. Maintenance of property and liability
insurance as is usually carried by
owners of similar businesses and
properties;
11. Limitation on transactions with
affiliates except as expressly
permitted by the loan documentation;
12. Prohibition on alteration of common
stock that would have an adverse
effect on the Senior Facilities, and
limitation (up to a limit of $150,000
in cash redemptions per annum for
management/company employee related
transactions) on redemption of
preferred or common stock as agreed.
13. The Borrower will put in place an
interest rate protection program,
related to the Senior Facilities,
acceptable to the Agent;
14. The Borrower will cause its
subsidiaries to make all necessary
dividend payments, in a timely manner,
in order to meet its obligations under
the Senior Facilities, including but
not limited to Mandatory Prepayments.
In addition, the Borrower will make
its best efforts to obtain regulatory
approvals for Extraordinary Dividends
(for its insurance subsidiaries) when
necessary to meet its obligations
under the Senior Facilities;
15. Subordination of management fees
B. The Borrower and insurance company
subsidiaries (SAP basis):
1. Minimum statutory surplus;
2. Maximum net premiums written to
surplus ratio;
3. Minimum Risk Based Capital ratios for
the Borrower's insurance subsidiaries;
4. Limitation on investments, to include,
but not limited to: On a consolidated
statutory basis, the Borrower is
permitted to own Investments
consisting of a) NAIC Investment Grade
Securities, b) NAIC Non-investment
Grade Securities not to exceed 5% of
Total Invested Assets, and c) Common
and Preferred Stock, Real Estate, and
Mortgages, which in the aggregate do
not exceed 50% of Surplus. Single
issuer concentration restrictions as
per insurance regulations.
C. The Borrower and Subsidiaries:
1. Minimum Consolidated Fixed Charge
Coverage Ratio
- 8 -
<PAGE> 9
D. FIIG Holding Corp.
1. FIIG Holding Corp. to remain a special
purpose stock holding company
Representations
and Warranties Will include those relating to corporate existence,
financial condition, litigation, no breach,
corporate action, approvals, use of loans, ERISA,
taxes, Investment Company Act, credit agreements
and other material agreements, investments,
compliance with laws and regulations, disclosure,
assets, solvency, labor matters, proprietary
rights, security documents, the Transaction, real
property and insurance.
Events of
Default Will include payment, misrepresentation, covenant,
bankruptcy, material ERISA, material judgment, loss
of material licenses, a change in control,
cross-defaults and other customary and appropriate
defaults, with appropriate grace periods with
respect to certain of such events of default.
Transfers Each Lender will have rights of participation and
assignment with the consent of the Borrower (not to
be unreasonably withheld) with respect to its loans
and commitments, subject in the case of assignments
to a minimum amount of $2,000,000.
Majority
Lenders Lenders holding more than 50.1% of the outstanding
principal amount of the loans.
Governing Law Laws of the State of New York
- 9 -
<PAGE> 1
EXHIBIT 17(b)(2)
1996 BUDGET HIGHLIGHTS
1995 is on budget in total revenue and ahead of budget in total net income.
The premium revenue is providing most of the increase from 1994, but a rebound
in interest rates and the resurgent investment market has allowed more income
to reach the bottom line in the form of investment income and capital gains.
Our expenses are at budget, and the underwriting results have continued to
develop per plan for both discontinued programs and our ongoing insurance and
reinsurance programs.
The 1996 budget calls for a 38.49% increase in net premium revenue but a
reduced amount of capital gains. The underwriting is going to benefit from the
lower commissions paid when we use First Re and the other expenses are
projected to be flat with 1995. We will increase our net income marginally
because of investment income, and if the investment markets allow capital
gains, we should exceed the budget by a higher margin.
Financial Institutions Insurance Group
Proforma Financial Results
(000 Omitted)
<TABLE>
<CAPTION>
Actual Actual Actual Actual Projected Budget
Yr. Ended Yr. Ended Yr. Ended Yr. Ended Yr. Ended Yr. Ended
1991 12/31/92 12/31/93 12/31/94 1995 1996
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Premiums earned 8,872 7,344 7,434 7,820 11,800 16,342
Net Investment Income 3,936 3,344 3,470 3,535 4,400 5,105
Net realized gains on Investments 831 1,032 1,275 570 1,000 500
Goodwill Amortization 139 427 414 466 465 465
Other Income 168 277 150 50
---------------------------------------------------------------------------------
Total revenue 13,778 12,147 12,762 12,667 17,815 22,462
Losses and Expenses
Losses and loss adjustment expenses 5,622 4,597 4,924 2,613 5,600 8,983
Commissions Expenses 2,605 1,762 1,864 1,787 2,800 3,859
Other operating and management expenses 1,963 2,229 2,886 3,725 3,859 3,573
---------------------------------------------------------------------------------
Total losses and expenses 10,190 8,588 9,674 8,125 12,259 16,415
---------------------------------------------------------------------------------
Income before income taxes 3,588 3,560 3,088 4,543 5,556 6,046
Provision for income taxes 1,178 614 (124) 804 1,300 1,350
---------------------------------------------------------------------------------
Net Income 2,410 2,946 3,212 3,739 4,256 4,696
=================================================================================
Net Income increase 22.2% 9.0% 16.4% 13.8% 10.4%
Expense Ratios
Loss Ratio 63.4% 62.6% 66.2% 33.4% 47.5% 55.0%
Acquisition Ratio 29.4% 24.0% 25.1% 22.8% 23.7% 23.6%
Expense Ratio 22.1% 30.3% 38.8% 47.6% 32.7% 21.9%
Combined Ratio 114.9% 116.9% 130.1% 103.9% 103.9% 100.4%
<CAPTION>
% Budget
Chg 1995
---------------------------
<S> <C> <C>
Revenue
Premiums earned 38% 11,417
Net Investment Income 16% 4,628
Net realized gains on Investments -50% 250
Goodwill Amortization 0% 425
Other Income -67% 250
--------
Total revenue 26% 16,970
Losses and Expenses
Losses and loss adjustment expenses 60% 5,004
Commissions Expenses 38% 2,898
Other operating and management expenses -7% 3,831
--------
Total losses and expenses 34% 11,733
--------
Income before income taxes 9% 5,238
Provision for income taxes 4% 1,001
--------
Net Income 10% 4,236
========
Net Income increase 13.3%
Expense Ratios
Loss Ratio 43.8%
Acquisition Ratio 25.4%
Expense Ratio 33.6%
Combined Ratio 102.8%
</TABLE>
<PAGE> 2
FINANCIAL INSTITUTIONS INSURANCE GROUP, LTD.
UNDERWRITING RECAP
<TABLE>
ACTUAL ACTUAL PROJECTED BUDGET FORECAST FORECAST FORECAST FORECAST
1993 1994 1995 1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premium Earned 7,434,000 7,820,000 11,114,468 16,332,751 19,344,028 21,062,430 22,952,674 25,031,941
Losses 4,924,000 2,613,000 5,029,325 9,235,804 11,387,006 13,063,707 15,858,078 17,281,885
Acquisition Cost 1,864,000 1,787,000 2,669,727 3,859,946 4,377,636 4,557,226 4,907,654 5,288,563
UW Profit 646,000 3,420,000 3,415,416 3,237,001 3,579,386 3,441,497 2,186,942 2,461,493
Loss Ratio 66.2% 33.4% 45.3% 56.5% 58.9% 62.0% 69.1% 69.0%
Acquisition Ratio 25.1% 22.9% 24.0% 23.6% 22.6% 21.6% 21.4% 21.1%
Combined loss and
Acquisition Ratio 91.3% 56.3% 69.3% 80.2% 81.5% 83.7% 90.5% 90.2%
</TABLE>
<PAGE> 1
EXHIBIT 17(b)(3)
CORPORATE FINANCE
PRESENTATION TO ICECAP
BOARD OF DIRECTORS
March 20, 1996
William Blair & Company
Limited Liability Company
<PAGE> 2
- -- Table of Contents
I. Background and Review of the Process
II. Summary of Contact with Potential Purchasers
III. Review of Castle Harlan and its Offer
IV. Review of ICECAP Historical Data
V. Valuation Analysis
VI. Valuation Summary
VII. Form of William Blair Fairness Opinion
Appendices
2
<PAGE> 3
- -- Introduction
- William Blair Engagement
- Assist in exploring strategic alternatives
- William Blair Activities
- Numerous due diligence meetings and calls with ICECAP
management and staff
- Review and analysis of ICECAP historical and projected financial data
- Contact with potential buyers
- Review and analysis of offers received
- William Blair Qualifications
- Full service investment bank
- Experienced in mergers and acquisitions
3
<PAGE> 4
- -- Background
FOR PURPOSES OF CLARITY, ALL ICECAP STOCK PRICES REFERENCED IN THIS BOOK
REFLECT THE 20% STOCK DIVIDEND, EFFECTIVE FEBRUARY 22, 1996.
- On 8/18/95, ICECAP received an unsolicited offer from Keith Long to acquire
ICECAP for $13.33 per share in cash, an 8.5% premium over the market price
of $12.29 at the close on 8/14/95.
- On 8/21/95, ICECAP publicly disclosed this offer. That day, the market
price closed at $13.54 per share.
- On 9/29/95, the Special Committee of ICECAP's Board of Directors engaged
William Blair to assist the Special Committee in its analysis of ICECAP's
strategic options.
4
<PAGE> 5
-- Background
- From 9/29/95 through 11/30/95, William Blair: (i) received and analyzed
various data, including ICECAP's historical financial statements,
management's financial projections, financial data of comparable companies
and reported price and trading activity of ICECAP's stock; and (ii)
participated in several meetings with various management personnel and
staff.
- Also between 9/29/95 and 11/30/95, William Blair met with the Special
Committee three times: on 10/18/95, 11/8/95 and 11/30/95, at which meetings
William Blair presented its analysis of the strategic alternatives
available to ICECAP.
- On 11/30/95, the Special Committee concluded that it was appropriate and in
the best interest of the stockholders to explore all alternatives,
including the sale of ICECAP, in order to maximize stockholder value, and
that no action should be taken in response to Keith Long's offer at that
time.
5
<PAGE> 6
- -- Background
- Between 12/1/95 and 1/8/96, William Blair prepared a list of potential
purchasers, which included parties that had contacted ICECAP or William
Blair following the 8/21/95 press release and parties identified by
William Blair as potential purchasers.
- On 12/28/95, Keith Long revoked his offer of $13.33 per share.
- On 1/5/96, Castle Harlan Partners II, L.P. and John Dore jointly submitted
a proposal to acquire ICECAP for $15.00 per share in cash, an 18.8%
premium over the market price at the close on 1/4/96 and a 22.1% premium
over the price at the close on 8/14/95 (the day before the bid from Keith
Long).
- On 1/8/96 the Board authorized Blair to contact potential purchasers.
- On 1/8/96, William Blair called the 24 parties on the potential purchasers
list. Of those contacted, 15 expressed interest in receiving a package of
publicly available information regarding ICECAP, which William Blair sent
to them on 1/10/96.
6
<PAGE> 7
- -- Background
- Between 1/18/96 and 1/24/96, William Blair distributed confidential
selling memorandums to the eight parties who expressed interest in
receiving such information and who signed a confidentiality agreement.
The cover letter enclosed with the selling memorandum requested that the
recipient, if interested in pursuing a transaction, submit proposed terms
by 1/26/96.
- On 1/26/96, William Blair received an indication of interest from one of
the above eight parties - Danielson Holding Company, which indicated an
interest, subject to several significant conditions, in acquiring ICECAP
for $17.19 per share in cash.
- On 2/15/96, Danielson Holding Company indicated that it was unable to
pursue the acquisition of ICECAP at that time.
- On 2/17/96, Castle Harlan submitted a proposal to acquire the Company for
$16.00 per share, a 6.7% premium over its previous offer and a 30.2%
premium over the price at the close on 8/14/95 (the day before the bid from
Keith Long).
7
<PAGE> 8
- -- Background
- On 3/4/96, Castle Harlan submitted notice that it had satisfactorily
completed its due diligence.
- On 3/11/96, Castle Harlan submitted a draft Merger Agreement to ICECAP.
8
<PAGE> 9
-- ICECAP Post-Split Price/Volume - Daily
8/14/95 - Present
FACTSET SECURITY PRICE HISTORY REPORT
FIRE FINANCIAL INSTNS INS GROUP L
Page 9
<TABLE>
<CAPTION>
DATE VOLUME CLOSE
<S> <C> <C>
8/14/95 720 12
8/15/95 8,160 12.291
8/16/95 960 12.916
8/17/95 2,880 12.916
8/18/95 - 12.708
8/21/95 2,760 13.541
8/22/95 1,200 13.541
8/23/95 5,280 12.916
8/24/95 3,360 12.916
8/25/95 - 13.229
8/28/95 120 12.916
8/29/95 - 13.229
8/30/95 - 13.229
8/31/95 2,160 12.916
9/01/95 - 13.229
9/05/95 - 13.124
9/06/95 - 13.124
9/07/95 15,001 13.124
9/08/95 - 13.333
9/11/95 120 13.749
9/12/95 - 13.333
9/13/95 1,800 12.916
9/14/95 - 13.073
9/15/95 3,120 12.708
9/18/95 - 13.020
9/19/95 15,241 13.500
9/20/95 - 12.812
9/21/95 - 12.812
9/22/95 12,961 12.187
9/25/95 23,521 12.812
9/26/95 - 12.760
9/27/95 1,920 12.708
9/28/95 - 12.760
9/29/95 48,482 13.541
10/02/95 - 13.749
10/03/95 1,800 13.541
10/04/95 960 13.333
10/05/95 - 13.645
10/06/95 - 13.645
10/09/95 - 13.645
10/10/95 - 13.645
10/11/95 - 13.645
10/12/95 - 13.645
10/13/95 - 13.645
10/16/95 - 13.645
10/17/95 - 13.645
10/18/95 11,760 13.749
10/19/95 240 13.333
10/20/95 1,200 13.749
10/23/95 47,042 13.645
10/24/95 1,200 13.749
10/25/95 - 13.698
10/26/95 - 13.749
10/27/95 - 13.698
10/30/95 - 13.698
10/31/95 - 13.749
11/01/95 6,240 13.333
11/02/95 4,560 13.749
11/03/95 - 13.749
11/06/95 2,880 13.333
11/07/95 - 13.749
11/08/95 - 13.749
11/09/95 120 14.166
11/10/95 120 14.166
11/13/95 - 13.749
11/14/95 - 13.749
11/15/95 - 13.749
11/16/95 - 13.749
11/17/95 960 13.333
11/20/95 - 13.749
11/21/95 - 13.749
11/22/95 - 13.749
11/24/95 - 13.749
11/27/95 - 13.749
11/28/95 - 13.749
11/29/95 8,880 13.541
11/30/95 120 12.916
12/01/95 - 13.229
12/04/95 4,920 13.749
12/05/95 23,761 14.166
12/06/95 10,200 13.749
12/07/95 3,120 13.749
12/08/95 2,040 13.906
12/11/95 1,200 13.749
12/12/95 1,370 13.749
12/13/95 240 14.166
12/14/95 - 13.958
12/15/95 360 14.166
12/18/95 - 13.958
12/19/95 - 13.958
12/20/95 600 14.166
12/21/95 - 13.958
12/22/95 - 13.958
12/26/95 2,400 13.541
12/27/95 - 13.437
12/28/95 - 13.333
12/29/95 - 13.229
1/02/96 1,320 12.708
1/03/96 - 12.448
1/04/96 3,600 12.187
1/05/96 8,400 12.708
1/08/96 - 14.270
1/09/96 - 14.270
1/10/96 1,200 13.958
1/11/96 1,200 13.958
1/12/96 - 14.270
1/15/96 - 14.270
1/16/96 1,8841 14.479
1/17/96 - 14.219
1/18/96 7,200 14.374
1/19/96 4,320 13.958
1/22/96 7,200 14.374
1/23/96 3,900 14.000
1/24/96 - 14.000
1/25/96 - 14.000
1/26/96 - 14.000
1/29/96 108 13.500
1/30/96 - 14.000
1/31/96 1,200 14.500
2/01/96 2,000 14.500
2/02/96 13,700 14.750
2/05/96 6,400 15.250
2/06/96 - 15.250
2/07/96 8,200 14.750
2/08/96 700 15.000
2/09/96 700 15.250
2/12/96 - 15.000
2/13/96 6,400 15.000
2/14/96 - 15.000
2/15/96 4,400 15.000
2/16/96 3,000 14.500
2/20/96 1,500 15.500
2/21/96 - 15.125
2/22/96 7,600 15.000
2/23/96 1,100 15.250
2/26/96 - 15.250
2/27/96 300 15.500
2/28/96 608 15.500
2/29/96 - 15.375
3/01/96 - 15.375
3/04/96 400 15.000
3/05/96 - 15.375
3/06/96 - 15.375
3/07/96 1,000 15.000
3/08/96 - 15.375
3/11/96 - 15.375
3/12/96 - 15.375
3/13/96 13,400 15.125
3/14/96 11,400 15.125
3/15/96 - 15.375
</TABLE>
9
<PAGE> 10
- -- General Economic Conditions
- Stock prices near all-time high; recent volatility; concerns
about effect of rising interest rates
- Interest rates rising due to strong economic indicators
- Consumer debt at all-time high
- Election-related uncertainty
- Volatility in retail sales: very weak year-end 1995
followed by strong January 1996
- Strong corporate profits in 1995
10
<PAGE> 11
- -- The Property/Casualty Insurance Industry
- Very competitive market
- "Soft" pricing since the late 1980s
- Margins narrowing
- Excess capacity
- Excess capital
- Consolidation/restructuring
- Volatile interest rate environment
11
<PAGE> 12
- -- Summary of Contact with Potential
Purchasers
Total Contacted
24
Received Public Expressed No
Docum./Interested Interest in Transaction
15 9
Received Selling Expressed No Interest
Memorandum in Receiving Memo.
8 7
Offer Made Expressed No
2 Interest
6
12
<PAGE> 13
- -- Summary of Contact with Potential Purchasers
<TABLE>
<CAPTION>
Company Name City State Remarks
------------ ---- ----- -------
<S> <C> <C> <C>
THOSE THAT MAKE OFFERS
- ----------------------
Castle Harlan New York New York $15.00/share; subsequently increased to $16.00/share
Danielson Holding Corporation New York New York $17.19/share (with contingencies); subsequently indicated an
inability to focus on ICECAP due to acquisition of Midland
Financial Group
THOSE THAT RECEIVED BOOKS, BUT EXPRESSED NO INTEREST
- ----------------------------------------------------
Acceptance Insurance Omaha Nebraska Are not going to make an offer at this time, but may consider in
future
Orchid Holdings San Francisco California Needed additional time; never responded
Executive Risk Simsbury Connecticut The price is above what they would be willing to pay
PICOM Insurance Co. Okemos Michigan The price is above what they would be willing to pay
Prudential Reinsurance Newark New Jersey The price is above what they would be willing to pay
Capsure Holdings Atlanta Georgia Have a high regard for John Dore, and without him could not bid
>$15
THOSE THAT EXPRESSED NO INTEREST
- --------------------------------
Gryphon Holdings New York New York The price is above what they would be willing to pay
Old Republic international Chicago Illinois The price is above what they would be willing to pay
Fox Pitt Kelton New York New York Does not want to compete with John Dore
Markel Company Glen Allen Virginia Respects what John Dore is trying to do, and does not want to
interfere
Sterling Bank San Francisco California Does not want to compete with John Dore
Aetna Life & Casualty Hartford Connecticut Left detailed messages; no response
AIG New York New York Left detailed messages; no response
Chubb Corporation Warren New Jersey Left detailed messages; no response
Design Professionals Monterey California Left detailed messages; no response
Front Royal Group North Carolina Left detailed messages; no response
Advanta Insurance Horsham Pennsylvania Are not interested in commercial lines of business
CNA Chicago Illinois No interest given time frame; not an aggressive
bidder in auction situations
Guaranty National Englewood Colorado Are not interested in business at present time
NW Capital New York New York Are not interested in business at present time
Talegen (Crum & Forster) Parsippany New Jersey The timing is not right due to the KKR purchase of Talegen
EMH Financial Chicago Illinois Have other deals in progress, and can not focus on making a bid on
ICECAP
</TABLE>
13
<PAGE> 14
-- Summary of Offer
<TABLE>
<S> <C>
Offer Price Per Share $ 16.00
Shares Outstanding 3,210,591
-----------
$51,369,456
Offer Price Per Share $ 16.00
Avg. Option Strike Price $ 6.61
------------
$ 9.39
Options Outstanding 295,056
------------
$ 2,770,576
------------
Total Consideration $54,140,032
===========
</TABLE>
14
<PAGE> 15
- -- Summary of Offer
<TABLE>
<S> <C>
TYPE OF OFFER: Cash
CONDITIONS: Subject to regulatory and
stockholder approval
OTHER OFFERS: No solicitation; fiduciary out
BUST-UP FEE: $3.5 Million
DROP DEAD DATE: August 31, 1996?
REPRESENTATIONS AND WARRANTIES OF CO.: Terminate upon closing
DIVIDEND PAYMENT: Continue at normal rate; delay
July dividend 1 month
</TABLE>
15
<PAGE> 16
- -- Background on Castle Harlan
- Castle Harlan was established in 1987 by John K. Castle and Leonard M.
Harlan.
- The primary investment activity of Castle Harlan is the management of
Castle Harlan Partners II, L.P., a private equity investment partnership
formed in 1992 with more than $255 million of equity capital.
- Transactions have ranged in size from $50 million to $800 million.
- Castle Harlan generally invests in companies that satisfy the following
fundamental criteria:
- An important market position with potential for leadership in defendable
market niches
- Proprietary products or services with proven market acceptance and low
risk of technological obsolescence
- Pricing power or profit margins indicative of a dominant competitive
position or high franchise value
- A friendly transaction with a targeted minimum size of $50 million
- The following companies have been or are represented in the Castle Harlan
Portfolio:
- Ethan Allen, Inc.
- INDSPEC Chemical Corporation
- Long John Silver's, Inc.
- MAG Aerospace Industries, Inc.
- Smarte Carte, Inc.
16
<PAGE> 17
-- Background on Castle Harlan
- In 1995, Castle Harlan sold companies valued at $1.1 billion. The
companies sold during 1995 include:
- INDSPEC Chemical Corporation
- Delaware Management Holdings
- Revere National Corporation
- Stait Outdoor Advertising, Inc.
- On October 6, 1995, Castle Harlan announced the purchase of Homestead
National Corporation, the holding company for Homestead Insurance Company,
a leading excess and surplus lines property and casualty insurer. The
value of the transaction was approximately $60 million.
17
<PAGE> 18
- -- ICECAP Historical Earnings
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 NINE MONTHS ENDED LTM
----------------------------------------- -------------------------- -----------
1992 1993 1994 9/30/94 9/30/95 9/30/95
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Premiums Earned $ 7,344,128 $ 7,433,716 $ 7,819,784 $ 5,942,829 $ 8,109,700 $ 9,986,655
Net Investment Income 3,344,198 3,470,202 3,277,864 2,339,427 3,073,920 4,012,357
Net Realized Gains on Investments 1,031,977 1,275,142 570,231 582,808 839,963 827,386
Other Income 427,072 582,465 742,546 507,041 450,339 685,844
----------- ----------- ----------- ----------- ---------- -----------
Total Revenue 12,147,375 12,761,525 12,410,425 9,372,105 12,473,922 15,512,242
----------- ----------- ----------- ----------- ---------- -----------
LOSSES AND EXPENSES
Gross Losses and Loss Adjustment
Expenses(1) 6,032,056 6,571,662 5,966,394 4,746,340 5,947,457 7,167,511
Less: Favorable Reserve Development (1,435,000) (1,648,000) (3,353,000) (2,300,000) (2,300,000) (3,353,000)
----------- ----------- ----------- ----------- ---------- ----------
Net Losses and Loss Adjustment Expenses 4,597,056 4,923,662 2,613,394 2,446,340 3,647,457 3,814,511
Commission Expenses 1,762,197 1,864,320 1,786,664 1,452,061 1,786,488 2,121,091
Director Fees 306,723 331,000 248,250 321,931 404,681
Other Operating and Management Expenses 2,228,570 2,579,230 3,136,801 2,234,764 2,379,135 3,281,172
----------- ----------- ----------- ----------- ---------- -----------
Total Losses and Expenses 8,587,823 9,673,935 7,867,859 6,381,415 8,135,011 9,621,455
----------- ----------- ----------- ----------- ---------- -----------
INCOME BEFORE INCOME TAXES 3,559,552 3,087,590 4,542,566 2,990,690 4,338,911 5,890,787
=========== =========== =========== =========== ========== ===========
(1) Actual Losses and LAE/Premiums Earned 82.1% 88.4% 76.3% 79.9% 73.3% 71.8%
(1) Assumed Adjusted Losses and LAE/Prem.
Earned 65.0% 65.0% 65.0% 65.0% 65.0% 65.0%
</TABLE>
18
<PAGE> 19
- -- Adjust for "Core" Earnings
- Addbacks:
- Director Fees
- Excess Losses and LAE
- Reductions:
- Investment Income on Excess Capital
- Realized Gains on Investments
- Favorable Reserve Development
- Amortization of Negative Goodwill
19
<PAGE> 20
- -- Historical Core Earnings - Adjusted
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED LTM
----------------------------------------- ------------------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1992 1993 1994 9/30/94 9/30/95 9/30/95
------------- ------------- ------------- ------------ ----------- -----------
REVENUE
Premiums Earned $ 7,344,128 $ 7,433,716 $ 7,819,784 $ 5,942,829 $ 8,109,700 $ 9,986,655
Net Investment Income 3,344,198 3,470,202 3,277,864 2,339,427 3,073,920 4,012,357
Net Realized Gains on Investments 1,031,977 1,275,142 570,231 582,808 839,963 827,386
Other Income 427,072 582,465 742,546 507,041 450,339 685,844
------------- ------------ ------------ ----------- ------------- -------------
Total Revenue 12,147,375 12,761,525 12,410,425 9,372,105 12,473,922 15,512,242
============= ============ ============ =========== ============= ============
LOSSES AND EXPENSES
Gross Losses and Loss Adjustment Expenses (1) 6,032,056 6,571,662 5,966,394 4,746,340 5,947,457 7,167,511
Less: Favorable Reserve Development (1,435,000) (1,648,000) (3,353,000) (2,300,000) (2,300,000) (3,353,000)
------------- ------------ ------------ ------------ ------------ -----------
Net Losses and Loss Adjustment Expenses 4,597,056 4,923,662 2,613,394 2,446,340 3,647,457 3,814,511
Commission Expenses 1,762,197 1,864,320 1,786,664 1,452,061 1,786,488 2,121,091
Director Fees 306,723 331,000 248,250 321,931 404,681
Other Operating and Management Expenses 2,228,570 2,579,230 3,136,801 2,234,764 2,379,135 3,281,172
------------- ------------ ------------ ----------- ---------- ----------
Total Losses and Expenses 8,587,823 9,673,935 7,867,859 6,381,415 8,135,011 9,621,455
------------- ------------ ------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 3,559,552 3,087,590 4,542,566 2,990,690 4,338,911 5,890,787
============= ============ ============ ============ ============ ============
ADDBACKS
Director Fees 156,723 181,000 135,750 209,431 254,681
Excess Losses and LAE (1) 1,258,373 1,739,747 883,534 883,501 676,152 676,185
REDUCTIONS
Investment Income on Excess Capital (2) (1,416,000) (1,046,000) (1,014,000) (490,000) (580,000) (1,104,000)
Net Realized Gains on Investments (1,031,977) (1,275,142) (570,231) (582,808) (839,963) (827,386)
Favorable Reserve Development (1,435,000) (1,648,000) (3,353,000) (2,300,000) (2,300,000) (3,353,000)
Amortization of Negative Goodwill (466,000) (477,465) (427,000) (320,250) (365,625) (472,375)
------------- ------------ ------------ ------------ ------------ ------------
ADJUSTED INCOME BEFORE TAXES $ 468,948 $ 537,453 $ 242,869 $ 316,883 $ 1,138,906 $ 1,064,893
============ ============= ============ ============ ============ ============
ASSUMPTIONS
- -----------
(1) Actual Losses and LAE/Premiums Earned 82.1% 88.4% 76.3% 79.9% 73.3% 71.8%
(1) Assumed Adjusted Losses and 65.0% 65.0% 65.0% 65.0% 65.0% 65.0%
LAE/Premiums Earned
(2) Excess Capital $ 20,000,000 $ 20,000,000 $ 20,000,000 $ 20,000,000 $ 20,000,000 $ 20,000,000
(2) Investment Portfolio Pre-Tax Yield 7.1% 5.2% 5.1% 4.9% 5.8% 5.8%
</TABLE>
20
<PAGE> 21
-- ICECAP Historical Ratio
Analysis
<TABLE>
<CAPTION>
COMPARABLE
LTM COMPANY ICECAP
1992 1993 1994 9/30/95 MEDIAN COMMENT
---- ---- ---- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
PREMIUMS EARNED/ 21.1% 19.8% 20.2% 22.2% 121.0% Very Low
COMMON EQUITY
PREMIUMS EARNED/ 60.5% 58.3% 63.0% 64.4% 87.4% Low
TOTAL REVENUE
COMMISSION & OP. 54.3% 63.9% 67.2% 58.1% 36.6% Very High
EXP./PREM. EARNED
ADJ. OPERATING 3.9% 3.0% 5.0% 6.8% 11.2% Low
EARNINGS/TOTAL REVENUE
COMMON EQUITY/ASSETS 44.0% 45.2% 45.7% 47.0% 21.8% Very High
DIVIDEND YIELD 5.6% 2.0% 2.0% 1.8% 0.2% High
RETURN ON AVERAGE 3.9% 4.0% 4.4% 5.1% 2.6% High
ASSETS
RETURN ON AVERAGE 7.9% 8.9% 9.8% 10.9% 12.6% Low
COMMON EQUITY
</TABLE>
21
<PAGE> 22
- -- Valuation Approaches
- Comparable Public Company Analysis
- Comparable Merger Analysis
- Acquisition Premium Analysis
22
<PAGE> 23
- -- Comparable Company-based
Valuation
- Value = (ICECAP's "Core" Earnings*
Comparable Company Multiple) + Excess
Capital
or
--
- Value = (ICECAP's (Book Value-Excess
Capital) * Comparable Company
Price/Book Multiple) + Excess Capital
23
<PAGE> 24
- -- Comparable Public Companies
<TABLE>
<CAPTION>
3 YEAR
COMPOUN.
PREMIUMS
MARKET EARNED & 1994 1995E 1994 1995E LTM
PRICE CAP. INV.INCOME ROAA ROAA ROAE ROAE P/ADJ.E
Name 3/13/96 (MIL) GROWTH (%) (%) (%) (%) RATIO(1)
- -------------------------- ------- ------ ---------- ---- ---- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ACCEPTANCE INSURANCE COS INC $14.75 $222.7 44.4% 4.4 -0.3% 16.5% - 1.2% NMF
CAPSURE HOLDINGS CORP 16.25 250.4 55.6% 2.7 3.7 6.6% 8.7% 14.5
EXSTAR FINL CORP 1.38 7.6 21.1% -1.9% -0.8% -33.6% -20.1% NMF
GAINSCO INC 10.50 225.9 16.2% 7.1% 6.5% 20.4% 18.0% 14.2
GUARANTY NATIONAL CORP 13.63 193.3 17.9% 3.8% 1.2% 15.2% 5.1% 20.6
MMI COMPANIES INC 28.25 244.4 NA 2.3% 2.6% 12.6% 14.4% 12.1
TITAN HOLDINGS INC 12.75 93.9 53.4% 4.4% 3.4% 13.7% 12.2% 9.5
MEAN 176.9 34.8% 3.3% 2.3% 7.3% 5.3% 14.2
MEDIAN 222.7 32.7% 3.8% 2.6% 13.7% 8.7% 14.2
EXECUTIVE RISK INC 29.88 343.4 11.2% 4.1% 4.3% 15.5% 16.5% 14.7
GRYPHON HOLDINGS INC 18.38 149.7 4.7% 1.3% 2.3% 6.7% 13.1% 14.9
MARKEL CORP 87.50 473.4 14.2% 1.6% 2.6% 12.9% 19.1% 20.2
MEAN 322.2 10.0% 2.3% 3.1% 11.7% 16.2% 16.6
MEDIAN 343.4 11.2% 1.6% 2.6% 12.9% 16.5% 14.9
TOTAL
MEAN 220.5 26.5% 3.0% 2.6% 8.7% 8.6% 15.1
MEDIAN 224.3 17.9% 3.2% 2.6% 13.3% 12.6 % 14.6
ICECAP 15.13 48.6 -4.7% 4.4% 5.0% 9.8% 10.9% 10.7
</TABLE>
<TABLE>
<CAPTION>
MARKET
CAP/ LONG-
P/E P/E LTM ADJ. TERM
RATIO RATIO PRICE/ DIV COM EQ/ OPER. GROWTH
Name CAL.'95 CAL.'96 BOOK YIELD ASSETS INCOME(1) RATE
- -------------------------- ------- ------ -------- ----- ------ --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
ACCEPTANCE INSURANCE COS INC 11.1 8.2 131% 0.00% 21.0% 52.9 NA
CAPSURE HOLDINGS CORP 14.1 13.4 02% 0.00% 45.6% 8.8 NA
EXSTAR FINL CORP 1.2 NA 120% 0.00% 4.0% (1.2) NA
GAINSCO INC 13.8 11.8 241% 0.42% 36.8% 10.5 NA
GUARANTY NATIONAL CORP 20.6 9.1 99% 3.57% 22.5% 12.9 8.5%
MMI COMPANIES INC 12.4 10.7 143% 0.85% 17.7% 11.3 15.0%
TITAN HOLDINGS INC 9.1 NA 122% 2.22% 26.8% 7.7 NA
MEAN 11.8 10.6 137% 1.01% 24.9% 14.7 11.8%
MEDIAN 12.4 10.7 122% 0.42% 22.5% 10.5 11.8%
EXECUTIVE RISK INC 14.8 12.9 205% 0.33% 26.6% 12.5 14.5%
GRYPHON HOLDINGS INC 13.6 9.2 174% 0.00% 15.9% 12.5 17.0%
MARKEL CORP 18.9 16.2 244% 0.00% 14.8% 11.9 NA
MEAN 15.8 12.8 208% 0.11% 19.1% 12.3 15.8%
MEDIAN 14.8 12.9 205% 0.00% 15.9% 12.5 15.8%
TOTAL
MEAN 13.0 11.4 158% 0.74% 23.2% 14.0 13.8%
MEDIAN 13.7 11.3 137% 0.17% 21.8% 11.6 14.8%
ICECAP NA NA 108% 1.98% 47.0% 45.6 NA
</TABLE>
(1) Adjusting operating income and adjusted earnings per share
excludes gains on investments.
24
<PAGE> 25
- -- Comparable Public Companies
<TABLE>
<CAPTION>
1994
NET LTM CALCULATED CALCULATED CALCULATED REPORTED
WRITTEN PREMIUMS 1994 1994 1994 1994
PREMIUMS/ EARNED/ GAAP GAAP GAAP GAAP
STATUTORY COMMON EXPENSE LOSS COMBINED EXPENSE
NAME SURPLUS EQUITY RATIO (1) RATIO (2) RATIO RATIO
- ---------------------------------- --------- -------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ACCEPTANCE INSURANCE COS INC 1.81 1.52 26.8% 70.5% 97.3% NA
CAPSURE HOLDINGS CORP 0.83 0.40 58.3% 25.2% 83.5% 25.2%
EXSTAR FINL CORP 2.50 7.95 30.1% 62.6% 92.6% 30.1%
GAINSCO INC 2.32 0.99 37.8% 48.8% 86.6% 34.4%
GUARANTY NATIONAL CORP 2.42 1.82 31.2% 66.4% 97.6% 31.1%
MMI COMPANIES INC 0.93 0.89 35.7% 85.1% 120.9% 18.7%
TITAN HOLDINGS INC 2.33 1.44 37.0% 59.6% 96.6% NA
MEAN 1.88 2.14 36.7% 59.8% 96.5% 27.9%
MEDIAN 2.32 1.44 35.7% 62.6% 96.6% 30.1%
EXECUTIVE RISK INC 1.01 0.66 29.1% 67.6% 96.7% 29.1%
GRYPHON HOLDINGS INC 0.96 0.89 41.8% 65.8% 107.6% 41.8%
MARKEL CORP 1.56 1.42 34.2% 64.2% 98.4% 32.8%
MEAN 1.18 0.99 35.7% 63.3% 98.7% 34.6%
MEDIAN 1.01 0.89 36.2% 63.4% 96.6% 32.8%
MEAN 1.67 1.80 35.4% 64.5% 99.1% 30.4%
MEDIAN 1.69 1.21 35.7% 63.8% 97.6% 30.6%
TOTAL
ICECAP 0.22 0.22 67.2% 33.4% 100.6% NA
</TABLE>
<TABLE>
<CAPTION>
LTM LTM
REPORTED REPORTED OP.EXP.+ NET REAL.
1994 1994 1994 1994 1994 COMMISS- GAINS/INV.
GAAP GAAP SAP SAP SAP IONS/ INC.+NET
LOSS COMBINED EXPENSE LOSS COMBINED PREMIUMS REAL.
NAME RATIO RATIO RATIO RATIO RATIO EARNED GAINS
- -------------------------------- -------- -------- ------- ----- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ACCEPTANCE INSURANCE COS INC NA NA NA NA NA 28.7% 9.1%
CAPSURE HOLDINGS CORP 58.3% 83.5% NA NA NA 64.0% 3.6%
EXSTAR FINL CORP 62.6% 92.7% 31.7% 64.6% 96.3% 46.1% 5.6%
GAINSCO INC 48.8% 83.2% 34.4% 47.9% 82.3% 38.3% 1.9%
GUARANTY NATIONAL CORP 66.4% 97.5% 30.5% 66.3% 96.8% 30.8% 11.5%
MMI COMPANIES INC 85.7% 104.4% NA NA NA 37.6% 1.6%
TITAN HOLDINGS INC NA NA 31.9% 59.5% 91.4% 35.6% 2.8%
MEAN 64.4% 92.3% 32.1% 59.6% 91.7% 40.2% 4.1%
MEDIAN 62.6% 92.7% 31.8% 62.1% 93.9% 37.6% 2.8%
EXECUTIVE RISK INC 67.6% 96.7% 30.0% 67.6% 97.6% 27.9% 3.0%
GRYPHON HOLDINGS INC 65.8% 107.6% NA NA NA 42.6% 7.5%
MARKEL CORP 64.2% 97.0% NA NA NA 33.7% 16.6%
MEAN 65.9% 100.4% 30.0% 67.6% 97.6% 34.7% 9.0%
MEDIAN 65.8% 97.0% 30.0% 67.6% 97.6% 33.7% 7.5%
TOTAL
MEAN 64.9% 95.3% 31.7% 61.2% 92.9% 38.5% 5.6%
MEDIAN 65.0% 96.9% 31.7% 64.6% 96.3% 36.6% 4.3%
ICECAP NA NA 42.3% 36.0% 78.3% 58.1% 17.1%
</TABLE>
25
<PAGE> 26
- -- Inputs for Comparable
Company-based Valuation
- Determine Excess Capital
- Determine True Capital
- Review Capital Requirements and Comparable
Company Capital Ratios
- Determine Forecasted "Core" Earnings
26
<PAGE> 27
- -- Determination of Excess Capital
as of 9/30/95 ($000's)
<TABLE>
<CAPTION>
9/30/95 REQUIRED EXCESS
------- -------- -------
<S> <C> <C> <C>
STATED CAPITAL $ 44,998
NEGATIVE GOODWILL 1,273
EXCESS RESERVES (AFTER-TAX) 1,500
--------
$ 47,771
========
REQUIRED CAPITAL(PER MANAGEMENT) $ 40,000 $ 7,771
======== ========
REGULATORY DIVIDEND RESTRICTION $ 44,998
90%
--------
$ 40,498 $ 7,273
======== ========
COMPARABLE COMPANY COM.EQ./ASSETS $ 88,713
22%
--------
$ 19,339 $ 28,432
======== ========
COMPARABLE COMPANY PREM.EARNED/
COM.EQ. $ 9,987
121%
--------
$ 8,254 $ 39,517
======== ========
AVERAGE $ 27,023 $ 20,748
======== ========
</TABLE>
27
<PAGE> 28
- -- Determination of Excess Capital
as of 9/30/95 ($000's)
<TABLE>
<CAPTION>
9/30/95 REQUIRED EXCESS
------- -------- ------
<S> <C> <C> <C>
STATED CAPITAL $ 44,998
NEGATIVE GOODWILL 1,273
EXCESS RESERVES (AFTER-TAX) 1,500
---------
$ 47,771
=========
REQUIRED CAPITAL (PER MANAGEMENT) $ 40,000 $ 7,771
========= ========
REGULATORY DIVIDEND RESTRICTION $ 44,998
90%
---------
$ 40,498 $ 7,273
========= ========
COMPARABLE COMPANY COM. EQ./ASSETS $ 88,713
22%
---------
$ 19,339 $ 28,432
========= ========
COMPARABLE COMPANY PREM. EARNED/COM. EQ. $ 9,447
121%
---------
$ 7,807 $ 39,964
========= ========
AVERAGE $ 26,911 $ 20,860
========= ========
</TABLE>
27
<PAGE> 29
- -- Valuation - Key Value Drivers
- Future Growth in Premiums Written
- Loss Experience
- Operating Expenses
- Business Mix
- Reserve Level
- Capital Level
- General Industry/Economic Conditions
28
<PAGE> 30
-- Forecasted Income Statement*
<TABLE>
<CAPTION>
ICECAP PROJECTIONS
LTM 9/30/95 1995E 1996E
----------- ----- -----
<S> <C> <C> <C>
REVENUE
Premiums Earned $ 9,986,655 $ 11,800,000 $ 16,342.000
Net Investment Income 4,012,357 4,400,000 5,105,000
Net Realized Gains on Investments - - -
Other Income 213,469 150,000 50,000
------------- ------------- --------------
Total Revenue 14,212,481 16,350,000 21,497,000
------------- ------------- --------------
LOSSES AND EXPENSES
Gross Losses and LAE 7,166,947 8,600,000 11,489,539
Less: Favorable Reserve Development - - -
------------- ------------- -------------
Net Losses and LAE 7,166,947 8,600,000 11,489,539
Commission Expense 2,121,091 2,800,000 3,860,000
Other Operating Expenses 3,431,172 3,859,000 3,573,000
------------- ------------- -------------
Total Losses and Expenses 12,719,210 15,259,000 18,922,539
Income Before Taxes 1,493,271 1,091,000 2,574,461
Taxes 25.0% (373,318) (272,750) (643,615)
------------- ------------- -------------
Net Income $ 1,119,953 $ 818,250 $ 1,930,846
EXCESS CAPITAL $ 20,000,000 $ 20,000,000 $ 20,000,000
Investment Portfolio Yield - Pre-Tax 5.8% 5.8% 5.8%
Investment Portfolio Yield - After-Tax 4.4% 4.4% 4.4%
Adjusted Operating Earnings $ 333,271 $ (69,000) $ 1,414,461
Adjusted Net Income $ 249,953 $ (51,750) $ 1,060,846
RATIO ANALYSIS
Net Loss and LAE Ratio 71.8% 72.9% 70.3%
Comm. Expense/Earned Premium 21.2% 23.7% 23.6%
Other Expense/Earned Premium 34.4% 32.7% 21.9%
Comm. & Other Expense/Earned Premium 55.6% 56.4% 45.5%
Earned Premium Growth na 50.9% 38.5%
</TABLE>
*Per management "Business Strategy and Operating Budget-Version C" as
adjusted to eliminate non-recurring items.
29
<PAGE> 31
- -- Comparable Public Company-
based Valuation
<TABLE>
<CAPTION>
IMPLIED
COMPARABLE COMPANY 10% MARKETABILITY ICECAP ICECAP
MULTIPLE DISCOUNT DATA (1) VALUE (2)
------------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
LTM P/BOOK 137% 123% $24,997,839 $50,822,335
LTM P/ADJ. E 14.6x 13.1x $249,953 $23,284,382
LTM P/ADJ. OP. E 11.6x 10.4x $333,271 $23,479,349
1995 P/E 13.7x 12.3x $(51,750) $19,361,923
1996 P/E 11.3x 10.2x $1,060,846 $30,788,804
IMPLIED ICECAP TRADING VALUE $40,000,000
MERGER PREMIUM 28.8%
IMPLIED ICECAP MERGER VALUE $51,500,000
</TABLE>
(1) Excludes $20,000,000 in excess capital.
(2) (Comparable Company Multiple * ICECAP Data) + $20,000,000.
30
<PAGE> 32
- -- Comparable Merger-based
Valuation
- Value = (ICECAP's "Core" Earnings
* Comparable Merger Multiple) + Excess
Capital
or
--
- Value = (ICECAP's (Book Value-Excess
Capital) * Comparable Merger Price/Book
Multiple) + Excess Capital
31
<PAGE> 33
- -- Selected Insurance Mergers*
<TABLE>
<CAPTION>
PRICE/ COMMON
DATE PRICE/ PRICE/ OPERATING EQUITY/
EFFECTIVE TARGET NAME TARGET BUSINESS DESCRIPTION ACQUIROR NAME BOOK EARNINGS EARNINGS ASSETS
- --------- --------------------- ----------------------------- --------------- ------ -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
10/03/95 Milwaukee Insurance Insurance holding company Unitrin Inc 1.30 44.32 40.10 21.8%
Group Inc
04/26/95 Re Capital Corp Reinsurance company Zurich Reinsurance 1.46 22.39 21.89 26.0%
Centre
11/16/94 Pinnacle Insurance Co Pvd insurance services Home State Holdings 0.67 NMF NMF 7.9%
Inc
08/13/93 Redland Group Inc Fire, marine, casualty ins co Acceptance Insurance 2.98 NMF NMF 20.7%
Cos Inc
08/04/93 Business Insurance Corp Pvd fire, marine, casualty ins Foundation Health 1.07 9.80 9.15 17.7%
Corp
06/30/93 American Reliance-Ins Pvd property, casualty ins Vik Brothers 1.33 NMF NMF 10.8%
Business International USA
08/27/92 Niagara Exchange Corp Property, casualty insurance Selective Insurance 1.96 12.03 11.27 30.8%
Group Inc
10/11/91 American Southern Property, casualty ins co Vista Resources Inc 1.24 7.65 5.24 40.8%
Insurance Co
MEAN 1.50 19.24 17.53 22.1%
MEDIAN 1.32 12.03 11.27 21.3%
AVERAGE 1.41 15.63 14.40 21.7%
</TABLE>
*Source: Securities Data Company; comparable mergers for which financial data
was publicly available.
32
<PAGE> 34
- -- Selected Insurance Merger
Valuation
<TABLE>
<CAPTION>
IMPLIED
COMPARABLE MERGER ICECAP ICECAP
MULTIPLE DATA (1) VALUE (2)
----------------- -------- ---------
<S> <C> <C> <C>
LTM P/BOOK 141% $24,997,839 $55,246,953
LTM P/E 15.6x $249,953 $23,906,765
LTM P/OP. E 14.4x $333,271 $24,799,102
IMPLIED ICECAP MERGER VALUE $49,000,000
</TABLE>
(1) Excludes $20,000,000 in excess capital.
(2) (Comparable Company Multiple * ICECAP Data) + $20,000,000.
33
<PAGE> 35
- -- Premiums Paid for Selected
Insurance Mergers*
<TABLE>
<CAPTION>
DATE
EFFECTIVE TARGET NAME TARGET BUSINESS DESCRIPTION
- --------- ----------------------------- ---------------------------
<S> <C> <C>
1/3/96 Kentucky Medical Insurance Co Insurance company
10/3/95 Milwaukee Insurance Group Inc Insurance holding company
11/1/95 CII Financial Inc Workers compensation ins svcs
10/19/95 Employee Benefits Plans Inc Provide pension fund services
5/22/95 Victoria Financial Corp Insurance holding co
6/27/95 Pharmacy Management Services Medical cost containment svcs
1/20/94 UniCare Financial Corp Insurance underwriting svcs
12/30/91 National Health Care Systems Provide medical plan services
</TABLE>
<TABLE>
<CAPTION>
ADJUSTED
PREMIUM PREMIUM
1 WEEK COMMON 1 WEEK
DATE PRIOR TO EQUITY/ PRIOR TO
EFFECTIVE ACQUIROR NAME ANNOUNCE ASSETS ANNOUNCE(1)
- --------- ------------- --------- ------- -----------
<S> <C> <C> <C> <C>
1/3/96 Michigan Physicians Mutual 37.4% 29.4% 23.4%
10/3/95 Unitrin Inc 63.0% 21.8% 29.2%
11/1/95 Sierra Health Services Inc 40.3% 9.3% 8.0%
10/19/95 First Financial Management 62.9% 42.9% 57.4%
5/22/95 USF&G Corp 78.3% 29.0% 48.3%
6/27/95 Beverly Enterprises Inc 16.6% 80.1% 28.4%
1/20/94 Wellpoint Health Networks Inc 43.2% 89.0% 81.8%
12/30/91 Foundation Health Corp 25.7% 21.3% 11.6%
AVERAGE 45.9% 40.3% 36.0%
MEDIAN 41.7% 29.2% 28.8%
</TABLE>
(1)The adjusted premium amounts reflect adjusting the target's common
equity/assets, for purposes of comparison, such that it is
equivalent to that of ICECAP (47.0%) and then computing the premium paid.
*Source: Securities Data Company; insurance mergers between $0 and
$150 million for which premium information was available.
34
<PAGE> 36
- -- Selected Insurance Company
Merger Valuation
<TABLE>
<CAPTION>
1 WEEK 1 WEEK
PREMIUM (1) PREMIUM (1)
------------- -------------
<S> <C> <C>
Comparable Merger Multiples 28.8% 28.8%
ICECAP Data $ 12.29 (2) $ 41,134,081 (2)
-------------- -------------
ICECAP VALUE $ 15.83 $ 52,980,696
============== =============
IMPLIED MERGER VALUE $53,000,000
</TABLE>
(1) ICECAP publicly disclosed the offer on 8/21/95.
(2) August 14, 1995
35
<PAGE> 37
- -- Valuation Summary
- Summarize Valuation of:
- Comparable Public Company Analysis
- Comparable Merger Analysis
- Acquisition Premium Analysis
36
<PAGE> 38
- -- Valuation Summary
<TABLE>
<CAPTION>
Implied Value Implied Value Range
------------- -------------------
<S> <C> <C>
Comparable Company Analysis $51,500,000 $49,000,000-$54,000,000
(with Merger Premium)
Comparable Merger Analysis $49,000,000 $46,500,000-$51,500 000
Acquisition Premium Analysis $53,000,000 $50,500,000-$55,500,000
----------- -----------------------
WB Valuation Range $51,000,000 $47,000,000-$55,000,000
=========== =======================
</TABLE>
37
<PAGE> 39
- -- Valuation Summary
<TABLE>
<S> <C>
COMPARABLE COMPANY ANALYSIS
(WITH MERGER PREMIUM)...........
$49,000 - $54,000
TOTAL CONSIDERATION
PROPOSED BY CASTLE
HARLAN
COMPARABLE MERGER ANALYSIS...... $46,500 - $51,500
ACQUISITION PREMIUM ANALYSIS.... $50,500 - $55,500
BLAIR VALUATION RANGE........... $47,000 - $55,000
</TABLE>
38
<PAGE> 40
- -- Multiple Summary
<TABLE>
<CAPTION>
COMPARABLE COMPANY ANALYSIS (WITH MERGER PREMIUM) COMPARABLE MERGER ANALYSIS
-------------------------------------------------- --------------------------------------------------
IMPLIED DEAL COMPARABLE COMPANY PREMIUM IMPLIED DEAL COMPARABLE MERGER PREMIUM/
MULTIPLE (1) MULTIPLE (DISCOUNT) MULTIPLE (1) MULTIPLE (DISCOUNT)
------------ ------------------ ---------- ------------ ----------------- ----------
<S> <C> <C> <C> <C> <C> <C>
LTM P/Book 136.6% 158.8% -14.0% 136.6% 141.0% -3.1%
LTM P/E 136.6x 16.6x 724.0% 136.6x 15.6x 775.6%
LTM P/OP.E 102.4x 13.4x 661.8% 102.4x 14.4x 611.4%
1995 P/E NMF 15.9x NMF NA NA NA
1996 P/E 32.2x 13.1x 145.7% NA NA NA
</TABLE>
(1) Assumes $20 million in excess capital, and reflects adjustments to earnings
for non-recurring items.
39
<PAGE> 41
[LETTERHEAD]
March 20, 1996
Board Of Directors
Financial Institutions Insurance Group, Ltd.
10 North Dearborn Street
Chicago, IL 60602-4202
Members of the Board of Directors:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Financial Institutions Insurance Group, Ltd. (the
"Company") of the consideration to be received pursuant to the terms of the
draft merger agreement dated as of March 18, 1996 (the "Draft Merger
Agreement") by and among FIIG Holding Corp., FIIG Merger Corp., and the Company.
Pursuant to the Draft Merger Agreement, FIIG Merger Corp. will be merged with
and into the Company (the "Merger"), and each outstanding share of common stock
(the "Common Stock") of the Company will be converted into the right to receive
$16.00 per share in cash. Furthermore, optionholders of the Company will
receive an amount per share of Common Stock subject to an option equal to
$16.00 minus the exercise price per share (the "Option Conversion" and together
with the Merger, the "Transaction").
We have acted as financial advisor to the Company in connection with this
transaction. For purposes of the opinion set forth herein, we have: (i)
analyzed certain publicly available financial statements of the Company; (ii)
analyzed certain financial projections prepared by the management of the
Company; (iii) discussed the past and current operations and financial
condition and the prospects of the Company with senior executives of the
Company; (iv) reviewed the reported prices and trading activity for the
Company's common stock; (v) reviewed the financial performance of the Company
and the prices of the Company's common stock with that of certain other
comparable publicly-traded companies and their securities; (vi) reviewed the
financial terms, to the extent publicly available, of certain comparable
acquisition transactions; (vii) reviewed the Draft Merger Agreement; and (viii)
performed such other analyses as we have deemed relevant.
We assumed and relied upon without independent verification the accuracy and
completeness of the information reviewed by us for the purposes of this
opinion. We did not make any independent valuation or appraisal of the assets
or liabilities of the Company, nor were we furnished with any such appraisals.
With respect to the financial projections, we have assumed that they have been
reasonably prepared on the bases reflecting the best currently available
estimates and judgements of the Company's management. We assume no
responsibility for, and express no view as to, such forecasts or the
assumptions on which they are based. Our opinion is necessarily based solely
upon information available to us and business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date hereof. Our
opinion does not address the Company's underlying business decision to effect
the Transaction.
In rendering our opinion, we have assumed that the Transaction will be
consummated on the terms described in the Draft Merger Agreement, without any
waiver of any material terms or conditions by the Company, and that obtaining
the necessary regulatory approvals for the Transaction will not have an
adverse effect on the Company.
<PAGE> 42
Financial Institutions Insurance Group, Ltd. -2- March 20,1996
William Blair & Company, L.L.C. has been engaged in the investment banking
business since 1935. We undertake the valuation of investment securities in
connection with public offerings, private placements, business combinations,
estate and gift tax valuations and similar transactions. For our services,
including the rendering of this opinion, the Company will pay us a fee, a
significant portion of which is contingent upon consummation of the
Transaction, and indemnify us against certain liabilities.
It is understood that this letter may not be disclosed or otherwise referred to
without our prior written consent. We hereby consent, however, to the
inclusion of this opinion as an exhibit to any proxy statement distributed in
connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of March 20, 1996, the consideration to be received by the
stockholders of the Company in the Transaction is fair, from a financial
point of view, to such stockholders.
Very truly yours,
WILLIAM BLAIR & COMPANY, L.L.C.
BY: [SIG]
_________________________
TITLE: [SIG]
______________________
<PAGE> 43
- -- Appendix
- Price/Volume Graphs
- Shareholder List
- Business Descriptions of Potential Purchasers
- Business Descriptions of Comparable Companies
42
<PAGE> 44
-- ICECAP Post-Split Price/Volume - Weekly
12/30/94 - Present
FACTSET SECURITY PRICE HISTORY REPORT
FIRE FINANCIAL INSTNS INS GROUP L
Page 43
<TABLE>
<CAPTION>
DATE VOLUME CLOSE
<S> <C> <C>
12/30/94 13,249 9.374
1/06/95 1,872 9.287
1/13/95 12,817 9.721
1/20/95 6,625 9.374
1/27/95 - 9.374
2/03/95 18,145 9.374
2/10/95 62,645 9.374
2/17/95 720 9.374
2/24/95 16,417 9.374
3/03/95 8,929 9.374
3/10/95 15,121 9.461
3/17/95 12,817 9.461
3/24/95 - 9.461
3/31/95 - 9.461
4/07/95 15,121 9.461
4/13/95 6,337 9.461
4/21/95 - 9.461
4/28/95 34,851 9.374
5/05/95 68,261 9.635
5/12/95 24,770 9.808
5/19/95 - 9.808
5/26/95 17,425 9.808
6/02/95 15,553 10.069
6/09/95 66,821 9.895
6/16/95 53,284 12.846
6/23/95 6,481 12.499
6/30/95 13,681 12.152
7/07/95 39,747 11.718
7/14/95 26,210 11.457
7/21/95 14,833 11.718
7/28/95 22,201 12.187
8/04/95 6,480 12.500
8/11/95 16,801 12.500
8/18/95 12,721 12.708
8/25/95 12,601 13.229
9/01/95 2,280 13.229
9/08/95 15,001 13.333
9/15/95 5,040 12.708
9/22/95 31,321 12.187
9/29/95 36,883 13.541
10/06/95 51,242 13.645
10/13/95 - 13.645
10/20/95 13,201 13.749
10/27/95 49,442 13.698
11/03/95 10,800 13.749
11/10/95 3,120 14.166
11/17/95 1,080 13.333
11/24/95 960 13.749
12/01/95 9,000 13.229
12/08/95 44,042 13.906
12/15/95 5,160 14.166
12/22/95 960 15.958
12/29/95 2,400 15.229
1/05/96 13,321 12.708
1/12/96 10,800 14.278
1/19/96 30,361 13.958
1/26/96 15,420 14.000
2/02/96 17,000 14.750
2/09/96 29,700 15.250
2/16/96 14,500 14.500
2/23/96 13,200 15.250
3/01/96 2,000 15.375
3/08/96 1,400 15.375
3/15/96 24,800 15.375
</TABLE>
<PAGE> 45
-- ICECAP Post-Split Price/Volume - Daily
12/31/93 - Present
FACTSET SECURITY PRICE HISTORY REPORT
FIRE FINANCIAL INSTNS INS GROUP L
PAGE 44
<TABLE>
DATE VOLUME CLOSE
<S> <C> <C>
12/31/93 12,961 8.680
1/07/94 25,346 8.680
1/14/94 288 8.680
1/21/94 40,611 8.680
1/28/94 58,460 9.244
2/04/94 18,722 9.374
2/11/94 6,337 9.374
2/18/94 576 9.374
2/25/94 - 9.374
3/04/94 20,306 8.680
3/11/94 40,179 9.548
3/12/94 27,362 9.721
3/25/94 16,705 9.635
3/31/94 144 9.635
4/08/94 13,537 9.345
4/15/94 - 9.635
4/22/94 - 9.287
4/29/94 - 9.287
5/06/94 21,314 8.853
5/13/94 25,346 9.287
5/20/94 17,425 9.287
5/27/94 - 9.287
6/03/94 1,872 9.287
6/10/94 3,312 8.853
6/17/94 12,097 8.853
6/24/94 3,168 8.853
7/01/94 34,851 9.287
7/08/94 46,660 9.158
7/15/94 36,723 9.548
7/22/94 1,152 9.114
7/29/94 1,152 8.767
8/05/94 16,705 8.159
8/12/94 - 8.506
8/19/94 12,673 8.593
8/26/94 11,089 9.201
9/02/94 1,440 8.853
9/09/94 - 8.853
9/16/94 12,673 8.853
9/23/94 19,010 8.853
9/30/94 9,505 9.027
10/07/94 44,644 8.680
10/14/94 4,608 8.853
10/21/94 10,801 8.940
10/28/94 7,057 8.940
11/04/94 13,681 8.593
11/11/94 29,666 8.593
11/18/94 3,168 8.680
11/25/94 5,760 8.593
12/02/94 2,592 8.593
12/09/94 12,673 8.680
12/16/94 58,325 8.333
12/23/94 35,427 9.201
12/30/94 13,249 9.374
1/06/95 1,872 9.287
1/13/95 12,817 9.721
1/20/95 6,625 9.374
1/27/95 - 9.374
2/03/95 18,145 9.374
2/10/95 62,645 9.374
2/17/95 720 9.374
2/24/95 16,417 9.374
3/03/95 8,929 9.374
3/10/95 15,121 9.461
3/17/95 12,817 9.461
3/24/95 - 9.461
3/31/95 - 9.461
4/07/95 15,121 9.461
4/13/95 6,337 9.461
4/21/95 - 9.461
4/28/95 34,851 9.374
5/05/95 68,261 9.635
5/12/95 24,770 9.808
5/19/95 - 9.808
5/26/95 17,425 9.808
6/02/95 15,553 10.069
6/09/95 66,821 9.895
6/16/95 53,284 12.846
6/23/95 6,481 12.499
6/30/95 13,681 12.152
7/07/95 39,747 11.718
7/14/95 26,210 11.457
7/21/95 14,833 11.718
7/28/95 22,201 12.187
8/04/95 6,480 12.500
8/11/95 16,801 12.500
8/18/95 12,721 12.708
8/25/95 12,601 13.229
9/01/95 2,280 13.229
9/08/95 15,001 13.333
9/15/95 5,040 12.708
9/22/95 31,321 12.187
9/29/95 86,883 13.541
10/06/95 51,242 13.645
10/13/95 - 13.645
10/20/95 13,201 13.749
10/27/95 49,442 13.698
11/03/95 10,800 13.749
11/10/95 3,120 14.166
11/17/95 1,080 13.333
11/24/95 960 13.749
12/01/95 9,000 13.229
12/08/95 44,047 13.906
12/15/95 5,160 14.166
12/22/95 960 13.958
12/29/95 2,400 13.229
1/05/96 13,321 12.708
1/12/96 10,800 14.270
1/19/96 30,351 13.958
1/26/96 15,420 14.000
2/02/96 17,000 14.750
2/09/96 29,700 15.250
2/16/96 14,500 14.500
2/23/96 13,200 15.250
3/01/96 2,000 15.375
3/08/96 1,400 15.375
3/15/96 24,800 15.375
</TABLE>
<PAGE> 46
- -- ICECAP Shareholder List (post-split)
<TABLE>
<CAPTION>
OWNERSHIP OF
ICECAP COMMON STOCK
- -------------------------------------------------------------------------------------------------------------
Number of Shares
as a % of
Institutional Number Shares Total
Holdings Institution Name Qtr. Change of Shares Outstanding Outstanding
- ------------- ---------------- ----------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Wells Fargo Inst. TR NA - 63,370 3,191,182 (1) 2.0%
Tweedy Browne Co. L.P. - 23,904 0.7%
LaSalle National Trust 10,320 12,384 0.4%
David L. Babson & Co. - 7,488 0.2%
California State Teachers Retire. - 1,570 0.0%
Paine Webber Inc. (1,415) - 0.0%
--------- ----------------
TOTAL INSTITUTIONAL HOLDINGS 108,715 3.4%
========= ================
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
as a % of
Beneficial Number Total
Owners (2) Name of Shares Outstanding
- ---------- ------------------------------------------ --------- ----------------
<S> <C> <C> <C>
R. Keith Long (3) 391,852 12.3%
William M. Toll (3) 353,664 11.1%
David G. Booth 245,405 7.7%
John A. Dore (3) 204,149 6.4%
Pierpont Morgan Ltd./Scott J. Seligman 196,151 6.1%
John F. Fyfe 158,026 5.0%
------- ----------------
TOTAL BENEFICIAL OWNERS (2) 1,549,246 48.5%
========== =================
</TABLE>
45
<PAGE> 47
- -- ICECAP Shareholder List
<TABLE>
<CAPTION>
OWNERSHIP OF
ICECAP COMMON STOCK
- ------------------------------------------------------------------------------------------------------------
Number of Shares
as a % of
Number of Total
Corporate Insiders (4) Name Shares Outstanding
- ---------------------- ---- ------------- -----------------
<S> <C> <C> <C>
John B. Zellars (per JBZ) 54,062 1.7 %
Lonnie Lee Steffen 34,992 1.1 %
Herschel Rosenthal 30,586 1.0 %
Wilbur D. Cannon Jr. 24,984 0.8 %
William B. O'Connell 14,314 0.4 %
Joseph C. Morris 13,277 0.4 %
Dale Coyle Bottom 8,825 0.3 %
John P. Diesel 7,200 0.2 %
Daniel S. Konar 6,624 0.2 %
Gerald J. Levy 4,608 0.1 %
Thad Woodard 4,608 0.1 %
Lana J. Braddock 1,440 0.0 %
Robert E. Wendt 1,253 0.0 %
------------- ----------------
TOTAL INSIDER HOLDINGS (4) 206,772 6.5 %
============= ================
TOTAL OTHER HOLDINGS 1,326,449 41.6 %
============= ===============
</TABLE>
(1) As reported of September 30, 1995.
(2) Beneficial owners of more than 5% of the outstanding stock as of their last
report date
(3) Corporate insider.
(4) Does not include those included as beneficial owners.
Source: Spectrum
46
<PAGE> 48
- -- Business Descriptions of Potential Purchasers
- ACCEPTANCE INSURANCE - In 1994 Acceptance had insurance premiums
earned of $202,659,000 and as of 12/31/94 had common equity of
$159,754,000. Acceptance Insurance Companies (formerly Stoneridge
Resources) is an insurance holding company engaged in the specialty
property and casualty insurance business through five subsidiaries
(Acceptance Insurance Co., Acceptance Indemnity Insurance Co.,
Redland Insurance Co., American Growers Insurance Co. and Phoenix
Indemnity Insurance Co.). It concentrates on excess and surplus
lines of specialty insurance programs. Through a network of
specialty general agents, the company writes insurance for specialty
automobile lines; surplus lines liability and substandard property
coverages for small businesses normally not actively sought by
larger insurers; liquor liability or dram shop coverages for liquor
stores and taverns and restaurants serving alcoholic beverages; used
car dealer and automobile repair shop property and casualty
coverages and excess liability, which provides coverage in excess of
limits provided by primary liability carriers. The Non-Standard
Automobile program provides coverage for drivers who do not qualify
for standard or preferred treatment with standard line companies.
Acceptance's transportation coverages are written for long-haul
truckers. In March 1994, the company acquired Statewide Insurance
Corp. The Rural America segment is comprised of crop insurance
programs and standard property and casualty coverages for the rural
market. Written premiums from multi-peril crop and crop hail
insurance represent the bulk of premium revenues for the Redland
group of companies.
- ADVANTA - A credit card company and William Blair client. Have a
large insurance division.
- AETNA LIFE AND CASUALTY COMPANY - In 1994 Aetna had net earned
premiums of $11,444,600,000 and as of 12/31/94 had common equity of
$5,948,500,000. Aetna provides insurance and financial services to
corporations, public and private institutions and individuals in the
United States and abroad. Aetna's products and services include
health and life insurance for individuals and employer-sponsored
groups, retirement services and related international services.
47
<PAGE> 49
- -- Business Descriptions of Potential Purchasers
- AMERICAN INTERNATIONAL GROUP- In 1994 AIG had net premiums earned of
$10,865,753,000 and as of 12/31/94 had common equity of
$16,421,661,000. AIG is a holding company whose subsidiaries engage
in property, casualty, marine and life insurance underwriting
throughout the U.S. and in 129 other countries. It also offers a
variety of financial services, including airline leasing and
currency trading. AIG's general insurance operations are multiline
property-casualty companies. The Domestic General-Brokerage
division deals principally with insurance brokers representing major
industrial and commercial clients. The Agency division provides
coverage to small and medium-size businesses and writes selected
personal lines. Financial service operations include interest rate
and currency swaps, cash management, premium financing, airline
leasing and private banking.
- CAPSURE HOLDINGS CORPORATION - In 1994 Capsure had net earned
premiums of $92,481,000 and as of 12/31/94 had common equity of
$224,865,000. Capsure Holdings Corporation (formerly Nucorp Inc.)
is a holding company whose principal subsidiaries--United Capitol
Insurance Co., Universal Surety of America and Western Surety
Co.--are specialty property and casualty insurers. Through these
subsidiaries, the company underwrites commercial general liability,
property, and small contract surety business in the excess and
surplus lines market. Since the 1990 acquisition of United Capitol
Insurance, Capsure's former core oil gas business has been de-
emphasized. United Capital Insurance Co. writes general liability,
property and surety bond insurance for the commercial sector of the
U.S. market, targeting unique, hazardous or difficult coverages and
classes that require specialized underwriting expertise. United's
primary business objective is the generation of underwriting profits
through individual risk underwriting, sound loss reserving and
conservative investing practices. Universal Surety, which was
acquired in September 1994, specialized in underwriting small
contract surety and miscellaneous bond insurance. In 1994,
Universal accounted for 17% of CSH's net written surety and fidelity
premiums. Universal markets its products through approximately
1,000 independent property and casualty insurance agencies through
its headquarters in Houston and branches in Austin, Dallas, Kansas
City and San Antonio. Western Surety Co., acquired in August 1992,
markets license and permit, fiduciary and
48
<PAGE> 50
- -- Business Descriptions of Potential Purchasers
probate, fidelity, public official and notary public bonds in all
50 states through 37,000 independent property and casualty insurance
agencies. Capsure has a Sam Zell connection.
- CASTLE HARLAN - Castle Harlan is a merchant banking firm founded in
1987. Its two affiliates are Castle Harlan Partners II, L.P. and
Legend Capital Group, L.P. They have sold companies valued at $1.1
billion in 1995. See "Background on Castle Harlan."
- CHUBB CORPORATION - In 1994 Chubb Corporation had net premiums
earned of $3,776,283,000 and as of 12/31/94 had common equity of
$4,247,029,000. Chubb is engaged in property and casualty insurance
domestically and abroad and in life and health insurance and real
estate development. The property and casualty group operates
through more than 3,300 independent agents and some 400 insurance
brokers. The life and health insurance group is composed of Chubb
Life Insurance Co. of America and its wholly-owned subsidiaries,
Colonial Life Insurance Co. of America, Chubb Sovereign Life
Insurance Co., and ChubbHealth, Inc. The life group offers
participating and nonparticipating individual life insurance as well
as group life and health insurance and individual health and
annuity contracts on a nonparticipating basis only. Managed care
health services are offered in the New York City area through
ChubbHealth.
- CNA FINANCIAL - In 1994 CNA Financial had net premiums earned of
$9,474,400,000 and as of 12/31/94 had common equity of
$4,545,900,000. CNA is one of the largest multiline insurers in
the U.S. Property and casualty insurance operations are conducted
through Continental Casualty Co. and its affiliates. Based on net
premiums written in 1993, Continental Casualty was ranked as the
sixth largest property-casualty insurer in the U.S. Products are
marketed through independent agents and brokers. Through
Continental Assurance Co. (the 23rd largest life
49
<PAGE> 51
- -- Business Descriptions of Potential Purchasers
insurer in the U.S.), CNA markets individual and group life and
health insurance and annuities. Life insurance products are sold
through licensed agents, most of whom are independent contractors who
sell for CNA and other companies on a commission basis.
- TALEGEN (CRUM & FORSTER INSURANCE GROUP) - Crum & Forster is a
subsidiary of Talegen, which is Xerox's insurance unit, pending a
sale of this unit to KKR. In 1994 Crum & Forster had net premiums
earned of $853,565,000. They specialize in providing standard
commercial lines coverage through a highly select group of
independent agents nationwide. Focus is on medium to large
commercial property and casualty insurance products tailored to meet
the needs of agents and their commercial clients needs.
- DANIELSON HOLDING CORPORATION - Danielson Holding Corporation
(formerly Mission Insurance, Group Inc.) is a holding company that
emerged from bankruptcy proceedings on August 15, 1990. In 1994 it
had net sales of $110,340,000 and as of 12/31/94 had common equity
of $62,320,000. It acquires and owns majority interests in
companies engaged in insurance and other businesses and invests in
debt and equity securities in secondary market transactions. In
early 1993, it acquired a fiduciary trust company as the first step
in its strategy to become a full-range financial service business.
DHC's largest subsidiary is National American Insurance Co. of
California (NAICC), which primarily writes workers' compensation
insurance in California and nearby states. In 1994 NAICC had net
premiums earned of $76,422,000. Workers' compensation contributed
77% of 1994's direct written premiums of $104.4 million; $92 million
of that was in California. Automobile lines contributed most of the
balance. Direct written premiums for workers' compensation
decreased in 1994; premium growth was principally due to the
expansion of NAICC's non-standard private passenger automobile
program in California. NAICC has begun to expand the commercial
automobile line in Arizona, Idaho, Oregon and Nevada, but there was
no significant increase in premium in 1994. NAICC anticipates
continued growth in its automobile insurance programs, while workers
50
<PAGE> 52
- -- Business Descriptions of Potential Purchasers
compensation premiums are likely to decline in 1995. In 1993, DHC
acquired Danielson Trust Company (formerly HomeFed Trust), a trust
and fiduciary services corporation, for $4.6 million. In 1994,
Danielson Trust acquired the assets of the Western Trust Services
division of Grossmont Bank; in connection with the acquisition,
Danielson Trust acquired $787 million of assets under
administration. The acquisition of San Diego's only other locally
based trust operation by a non-local bank in 1994 positioned
Danielson Trust as the leading independent provider of trust
services in Southern California.
- DESIGN PROFESSIONALS INSURANCE COMPANY - In 1994 DPIC Companies had
net premiums earned of $46,336,000 and as of 12/31/94 had
policyholders' surplus of $71,251,000. DPIC, which is the second
largest underwriter of professional liability for architects and
engineers in the U.S., uses strict underwriting guidelines to limit
risk exposure. Business is written on a claims made and defense
within limits basis through 54 specialized agents. All of the
company's stock was owned by Employee Benefits Insurance Company
until the end of the second quarter 1995, when ownership was
transferred to Orion Capital Corporation, a New York based insurance
holding company, which acquired indirect control of the company in
1984.
- JOHN DORE - President and Chief Executive Officer of Financial
Institutions Insurance Group.
- EMH FINANCIAL - Chicago area merchant bank.
- EXECUTIVE RISK - In 1994 Executive Risk had net premiums earned of
$94,961,000 and common equity of $130,854,000. The company is an
insurance holding company, developing, marketing and underwriting
liability insurance for company directors and officers. The Company
operates in three markets, financial institutions, commercial
businesses and non-profit organizations. The company primarily
underwrites insurance policies issued by Aetna Casualty and Surety
Co. in the United States.
51
<PAGE> 53
- -- Business Descriptions of Potential Purchasers
- FOX PITT KELTON - A merchant bank located in New York.
- FRONT ROYAL GROUP - In 1994 Front Royal Group had net earned
premiums of $37,412,000. Front Royal is an insurance holding
company specializing in environmental, property and casualty
insurance services. Colony Insurance Company focuses operations on
specialty excess and surplus lines. In 1994 Colony had net earned
premiums of $20,915,000 and as of 12/31/94 had policyholders surplus
of $22,741,000. Hamilton Insurance Company provides commercial
property and casualty lines. In 1994, Hamilton had net earned
premiums of $6,858,000 and as of 12/31/94 had policyholders surplus
of $5,104,000. Front Royal Insurance Company writes environmental
impairment liability insurance for preferred risks. In 1994 Front
Royal Insurance Company had net earned premiums of $9,639,000 and as
of 12/31/94 had policyholders surplus of $8,463,000.
- GRYPHON HOLDINGS, INC. - In 1994 Gryphon had net earned premiums of
$61,605,000 and as of 12/31/94 had common equity of $93,773,000.
The company is a holding company that underwrites commercial
property and casualty insurance through its subsidiaries. The
Company offers coverage in select areas, including architects' and
engineers' professional liability, difference in conditions
(primarily earthquake coverage) and other areas. Gryphon's
subsidiaries serve small-to mid-sized insureds.
- GUARANTY NATIONAL - In 1994 Guaranty National had net premiums
earned of $321,638,000 and as of 12/31/94 had common equity of
$144,759,000. Guaranty National, through wholly owned subsidiaries,
underwrites and sells specialty property and casualty insurance that
is not readily available in traditional insurance markets. The
commercial lines operation principally writes non-standard
automobile coverage. GNC also provides commercial coverage in
certain non-automotive areas. The personal lines operation
principally writes non-standard automobile insurance for individuals
who do not qualify for preferred or standard insurance because of
their driving records, ages or vehicle types, or other factors,
including market conditions for standard risks.
52
<PAGE> 54
- -- Business Descriptions of Potential Purchasers
- MARKEL CORP. - In 1994 Markel had net earned premiums of
$243,067,000 and as of 12/31/94 had common equity of $138,501,000.
Markel is a diversified specialty insurance organization that acts
as an insurance broker, underwriting manager and an insurer of
various specialty insurance products serving particular market
niches. The company's products and programs include professional
liability insurance for architects and engineers, insurance
companies, agents and brokers, and lawyers and medical
professionals. Property coverages include fire and allied lines on
restaurants, bowling alleys and vacant buildings. Liability
coverages include bars, restaurants, day-care centers, and special
events.
- NW CAPITAL - NW Capital is a merchant bank. William Blair was
contacted by Robert Godfrey, who has spent time at MBIA. Mr.
Godfrey knows John Dore from the 1970's. NW Capital had an interest
in Capital Guaranty prior to the offer made by Financial Security
Assurance Holdings Ltd.(merger is pending board approval on December
20, 1995).
- OLD REPUBLIC INTERNATIONAL - In 1994 Old Republic had net earned
premiums of $1,282,900,000 and as of 12/31/94 had common equity of
$1,404,700,000. Old Republic is a holding company with subsidiaries
engaged in writing property and liability, title, mortgage guaranty,
life, and disability insurance, and annuities. The company is
licensed to do business in the United States, the District of
Columbia, Puerto Rico, Canada and Hong Kong.
- ORCHID HOLDINGS, L.P. - Invests in enterprises through the purchase
of minority or controlling interests in publicly-traded or private
companies. The bulk of Orchid's $42 million of committed capital
comes from its managing partners and the remaining capital comes
from a small group of prestigious U.S.-based families with resources
exceeding several billion dollars. Orchid's managing partners can
make substantial contributions in finance and strategy but rely
exclusively upon their operating partners for managing the
businesses in which they invest.
53
<PAGE> 55
- -- Business Descriptions of Potential Purchasers
- PICOM INSURANCE - In 1994 PICOM Insurance Company had net earned
premiums of $48,490,506 and as of 12/31/94 had common equity of
$63,141,680. PICOM (formerly Physicians Insurance Company of
Michigan) is a licensed property and casualty insurance carrier,
writing professional liability insurance for physicians, surgeons,
dentists, hospitals, other healthcare providers and lawyers and law
firms in Michigan. In January 1995, the company began offering
medical professional liability policies in Illinois.
- PRUDENTIAL REINSURANCE HOLDINGS INC. - Prudential Reinsurance
Holdings Inc., through its wholly owned subsidiary, Prudential Re,
provides treaty and facultative reinsurance to property and casualty
insurance companies in the U.S. and selected international markets.
Prudential Reinsurance Holdings Inc. was incorporated in Delaware in
November 1993 as a holding company for Prudential Re. Prudential
Reinsurance Holdings Inc. began trading on the NYSE on 10/3/95.
- STERLING BANCORP - In 1994, Sterling had total revenue of
$48,000,000 and as of 12/31/94 had common equity of $52,000,000.
Sterling Bancorp is a New York-based bank holding company that owns
Sterling National Bank & Trust Company, which specializes in serving
middle-market growth companies, as well as other subsidiaries
engaged in accounts receivable financing, factoring and other bank-
related activities. Earnings rose sharply in the first six months
of 1995, aided by growth in average earning assets and an improved
net interest spread (4.51%, compared with 4.04% in the year-earlier
period). Scott Seligman, CEO, is looking to this as a personal
investment, outside of the bank.
54
<PAGE> 56
- -- Comparable Public Company Business Descriptions
- ACCEPTANCE INSURANCE CO. INC.- See "Business Descriptions of
Potential Purchasers."
- CAPSURE HOLDINGS CORP. - See "Business Descriptions of Potential
Purchasers."
- EXECUTIVE RISK, INC.- See "Business Descriptions of Potential
Purchasers."
- EXSTAR FINANCIAL CORP. - The company, operating through
subsidiaries, underwrites specialized casualty insurance policies.
The company insures manufacturing operations, general contractors,
medical products and equipment risks. Other insurance coverage
includes architect, engineer and design professionals and ocean
marine industries.
- GAINSCO, INC. - The company is a property/casualty insurance
company. The Company writes commercial automobile, general
liability, auto garage, commercial multiperil, mono-line fire and
personal motor home and recreational vehicle insurance coverage.
Gainsco is licensed to sell insurance in 49 states through
approximately 140 non-affiliated general agents.
- GRYPHON HOLDINGS, INC. - See "Business Descriptions of Potential
Purchasers."
- GUARANTY NATIONAL CORP. - See "Business Descriptions of Potential
Purchasers."
55
<PAGE> 57
- -- Comparable Public Company Business Descriptions
- MARKEL CORP. - See "Business Descriptions of Potential Purchasers."
- MMI COMPANIES - The company offers a comprehensive program for
managing medical malpractice risk by combining insurance products
with specialized risk management services. The Company markets its
product to non-profit health care systems and their affiliated
physicians. MMI also writes life insurance through a subsidiary.
- TITAN HOLDINGS INC. - The company is an insurance holding company.
The Company, through its subsidiaries, underwrites property and
casualty insurance for small to medium sized public entities,
non-standard automobile insurance for individuals and other
specialty insurance programs.
56
<PAGE> 1
Exhibit 17(b)(4)
Financial Institutions Insurance Group, Ltd.
Due Diligence Review
Executive Summary
Draft Report
Prepared For
Castle Harlan, Inc.
AM-RE CONSULTANTS, INC.
February 28, 1996
<PAGE> 2
Table of Contents
Page
Introduction 1
Summary of Findings 2
Review of Operations
- -Financial 3
- -Actuarial 5
- -Underwriting 6
- -Claims 7
Conditions and Limitations 9
Exhibits
- -Summary Exhibit for Reserve Analysis A
<PAGE> 3
Introduction
Am-Re Consultants, Inc. (ARCI) was retained by Castle Harlan, Inc. (Castle
Harlan) to perform a due diligence review of Financial Institutions Insurance
Group Ltd. (FIIG) and its insurance company subsidiary, The First Reinsurance
Company of Hartford (First Re) in connection with the possible investment in
FIIG by Castle Harlan.
Our review was performed over a four day period by a team of six ARCI
consultants with general management, marketing/underwriting, claims, actuarial
and financial expertise. The first two days of the review were spent on-site
at FIIG's home office in Chicago, Illinois. The on-site review involved
collecting data, interviewing management and staff, and reviewing a sampling of
claim and underwriting files. During the following two days, further financial
and actuarial analyses were performed off-site.
This Executive Summary presents an overview of our findings and can be
supplemented by a full detailed report if requested.
<PAGE> 4
Summary of Findings
First Re is a specialty carrier writing non-medical professional liability
coverages on a claims-made basis. The company operates in a very competitive
environment and has a philosophy to write relatively low limits (up to $5
million) in various programs within the D&O and E&O marketplace.
First Re is dependent on Aon for a number of services including policy fronting
in some states by Virginia Surety
The internal control of the financial reporting area needs strengthening
Gross loss and loss adjustment expense (LAE) reserves are projected to be $6.2
million (19.2%) redundant
The quality of FIIG's reinsurance program is acceptable
The overall underwriting effort appears strong and well-controlled
First Re's claims are well managed by two Aon affiliates
The company limits its writings of risk types that present higher than average
exposures e.g., computer hardware manufacturers and distributors
<PAGE> 5
Review of Operations
Financial
FIIG is currently dependent on Aon for a number of services. The ability to
move away from this dependency in the long run is dependent on obtaining
additional state licenses and developing stand alone claims handling and
systems capabilities
Senior financial management is very hands on
The internal control environment needs strengthening
- -- Little, if any, oversight or peer review outside the two primary financial
team members
- -- Financial decisions and reporting often not adequately checked
- -- A small operation in two locations which may be slightly understaffed
The quality of the overall reinsurance program appears acceptable with
reinsurance recoverables as of 12/31/95 of $5.6 million gross
- -- Many small balances from many reinsurers
- -- The largest balance of $1.2 million with Walbrook (a company in liquidation)
was commuted in 1996 at full value
- -- Balance of $1.0 million is fully collateralized with Anglo American is
expected to be commuted in 1996
- -- Approximately $0.6 million recoverable from Lloyd's (uncollateralized),
which we rate as weak, pending resolution of its current problems
<PAGE> 6
Review of Operations (con't.)
Financial (con't.)
First Re received an unfavorable triennial examination report from Connecticut
as of December 31, 1993 primarily because of financial reporting issues
- -- It appears most items in the report have been addressed as of 12/31/95
- -- The examination may cause delays in additional state licensing in the near
term
Deductible receivables are not monitored pro-actively in the financial area but
appear to be managed appropriately on an individual claim basis
<PAGE> 7
Review of Operations (con't.)
Actuarial
Total gross loss and LAE reserves are projected to be $6.2 million (19.2%)
redundant as of December 31, 1995. The components of the estimated redundancy
are:
- -- Loss and allocated loss adjustment expense (ALAE) reserves for the run-off
Financial Institutions D&O and Fidelity books: $4.6 million
- -- Loss and ALAE reserves for the Oakley book: $1.3 million
- -- Unallocated loss adjustment expense (ULAE) reserves: ($0.2) million
- -- Reserves for all other run-off books were not independently projected by
ARCI.
We reviewed the Coopers & Lybrand actuarial analysis as of December 31, 1995
and relied upon their results which showed a redundancy of $0.4 million
The ARCI analysis employed traditional actuarial methodologies including
incurred loss projection, Bornhuetter-Ferguson, and loss ratio selection
techniques. Differences from C&L and Liscord, Ward, and Roy analyses were
primarily the result of selecting different loss development tail factors and
loss ratios for the various programs
The current year combined underwriting ratio is projected to be 121% broken
down by -- 78% gross loss + LAE ratio -- 43% expense ratio
Despite the indicated overall redundancy, we have concern about data integrity.
In particular they had considerable difficulty balancing raw data with that
shown in the actuarial reports and the annual statement.
<PAGE> 8
Review of Operations (con't.)
Underwriting
The overall underwriting effort appears strong and well-controlled
Staff is knowledgeable and experienced and have a good working relationship
with claims staff
The underwriting process appears to be well managed
- -- Good development and use of risk and exposure information
- -- Use a variety of specialized applications and questionnaires which are keyed
to risk types
- -- Strong financial analysis (D&O book) using a variety of sources (e.g. Dow
Jones, 10K/10Q, annual reports)
- -- Excellent file documentation
FIIG writes a variety of risk types:
- -- Small to medium size firms for lawyers, architects/engineers
- -- Corporate D&O for firms less than $200 million in assets
- -- Computer hardware manufacturers and distributors are acceptable but present
higher than average exposures
- -- Some business could be deemed "distressed" due to size and loss experience;
however risk selection is sound
- -- Will write prior "acts" and "tail" coverage
Market is very competitive for A&E, D&O, Lawyers
- -- Pricing modifications are aggressive reflecting competitive market, however,
pricing modifications are documented in the files (keyed to risk exposures,
conditions, and characteristics)
- -- Major competitors include Aetna, AIG, CNA, Coregis, DPIC, ERMA
<PAGE> 9
Review of Operations (con't.)
Claims
The claims reviewed at Aon are well handled
- -- The files are well documented often containing detailed summaries analyzing
coverage, liability and damages
- -- Coverage issues are recognized and separate coverage counsel engaged to
avoid potential "conflicts"
- -- Deductibles are generally paid directly by the insured who must provide
verification of same before any payment is made over the deductible
- -- Aon is cost conscious and only retains counsel as necessary
- -- A concerted effort is made to involve other coverages if at all possible
- -- They have developed a list of very competent attorneys specializing in D&O
and E&O claims.
Each Aon affiliate has qualified staff with manageable case loads
The policies are written on a "claims made" basis and most were policies of
indemnification
- -- Reimbursement of defense costs is predicated on coverage for the loss
- -- Expense is part of loss
- -- Specific exclusions are tailored to known situations revealed during the
underwriting/production process
- -- Extensive exclusions in the D&O/Corporate Reimbursement coverages leave
only a narrow window for potential coverage
<PAGE> 10
Review of Operations (con't.)
Claims (con't.)
D&O coverage for computer manufacturers with limits of $5,000,000 is an area
of concern:
- -- Possibility of "class actions" arising out of
- -- Product failure
- -- Obsolescence
- -- Alleged inadequate research and development
- -- Falling stock prices following IPO's
Class action litigation usually involves significant legal expense even if the
merits are lacking
Although we generally agreed with Aon's reserves there were some exceptions
due to:
- -- Over-reliance on the strength of coverage positions resulting in optimistic
reserving with stair-stepping following adverse developments
- -- Difficulty in measuring damages in failure to disclose/insider trading cases
A systemized process to track the erosion of aggregate limits does not
presently exist.
- -- Aon acknowledges the need and is in the process of putting in a new system
(FUSION D) which will reportedly track per claim and aggregate limit erosion
<PAGE> 11
Conditions and Limitations
This report was prepared for the internal use of the management of Castle
Harlan. Further distribution or use is expressly prohibited without the prior
written consent of ARCI.
ARCI has prepared this report in conformity with its intended utilization by a
person(s) technically competent in the areas addressed and for the stated
purposes only. Judgments as to the conclusions, recommendations, methods and
data contained in this report should be made only after studying the report in
its entirety. Furthermore, members of the ARCI staff are available to explain
and/or amplify any matter presented herein, and it is assumed that the user of
this report will seek such explanation and/or amplification as to any matter in
question.
This report is not a recommendation to invest in or not to invest in FIIG nor
is it an evaluation of any proposed investment pricing thereof. For our
analysis, ARCI relied upon the accuracy of data and information provided by
FIIG in connection with this assignment. ARCI has made no independent analysis
of completeness of such data and information for the purposes of this report.
Loss and ALAE reserve estimates are subject to potential errors of estimation
since the ultimate liability for claims is subject to the outcome of events yet
to occur, e.g., jury decisions and attitudes of claimants with respect to
settlements. Thus no assurance can be given as to the adequacy of the
projected reserve levels.
Our projection of future claim payment and emergence was based on FIIG's
historical experience, supplemented by industry data and other qualitative
information where appropriate. It is possible that this historical data will
not be a prediction of future emergence for FIIG. We have not anticipated any
extraordinary changes to the legal, social and economic environment which might
affect the cost and frequency of claims.
<PAGE> 12
Conditions and Limitations (con't.)
We have employed techniques and assumptions that we believe are appropriate,
and we believe the conclusions presented herein are reasonable, given the
information currently available. However, it should be recognized that future
loss emergence will likely deviate, perhaps substantially, from our estimates.
Because the above procedures do not constitute an examination made in
accordance with generally accepted auditing standards, we do not express an
opinion on any of the financial statements or accounts of FIIG. Had we
performed additional procedures or had we made an examination of FIIG's
financial statements in accordance with generally accepted auditing standards,
other matters might have come to our attention that would have been reported to
you.
<PAGE> 13
Exhibit A
First Reinsurance Company of Hartford
Summary of December 31, 1995 Gross Loss and LAE Reserves (000's)
<TABLE>
<CAPTION>
ARCI First Re Redundancy/ As Percent
Estimate Carried (Deficiency) of Carried
<S> <C> <C> <C> <C>
Russell Re
Hugo 1,445 * 794 (651) -82.0%
Storm 90A 528 * 255 (273) -107.1%
Property 1,776 * 2,216 440 19.9%
Casualty 508 * 713 205 28.8%
Total 4,257 3,978 (279) -7.0%
ALAS 2,302 2,765 463 16.7%
Financial
D&O 817 2,889 2,072 71.7%
Bonds 4,644 7,171 2,527 35.2%
Total 5,461 10,060 4,599 45.7%
Other Re 2,516 * 2,739 223 8.1%
Oakley 10,433 11,782 1,349 11.4%
ULAE 957 766 (191) -24.9%
Grand Total 25,926 32,090 6,164 19.2%
</TABLE>
*Not independently projected by ARCI, relying on Coopers' 12/31/95 report.
<PAGE> 14
Exhibit A
First Reinsurance Company of Hartford
Summary of December 31, 1995 Gross Loss and LAE Reserves (000's)
<TABLE>
<S> <C> <C> <C> <C>
ARCI First Re Redundancy/ As Percent
Estimate Carried (Deficiency) of Carried
Russell Re
Hugo 1,445 * 794 (651) -82.0%
Storm 90A 528 * 255 (273) -107.1%
Property 1,776 * 2,216 440 19.9%
Casualty 508 * 713 205 28.8%
Total 4,257 3,978 (279) -7.0%
ALAS 2,302 * 2,765 463 16.7%
Financial
D&O 817 2,889 2,072 71.7%
Bonds 4,644 7,171 2,527 35.2%
Total 5,461 10,060 4,599 45.7%
Other Re 2,516 * 2,739 223 8.1%
Oakley 9,595 11,422 1,827 16.0%
ULAE 916 766 (150) -19.6%
Grand Total 25,047 31,730 6,683 21.1%
C&L 25,047 31,791 6,744
Sch P 25,047 32,456 7,409
</TABLE>
*Not independently projected by ARCI, relying on Coopers' 12/31/95 report.
<PAGE> 1
EXHIBIT 17 (c)(2)
January 4, 1996
Mr. John Dore
c/o First Re Management Company, Inc.
10 North Dearborn Street
8th Floor Chicago, IL 60602-4202
Dear Mr. Dore:
This letter sets forth the mutual understanding between you and Castle Harlan,
Inc. ("CHI") regarding our agreement to make a joint proposal to acquire,
through an entity to be jointly formed by us, Financial Institutions Insurance
Group, Ltd. ("FIIG"). We understand that if FIIG were acquired, CHI's fund,
Castle Harlan Partners II, L.P. ("CHP II"), would join with you as the primary
equity provider in financing this acquisition.
Terms of Joint Arrangement. As part of our joint efforts, you and we agree to
share all material information concerning the business and affairs of FIIG
which is, or comes to be, in the possession of either of us, except information
obtained by you as an officer or director of FIIG for which you do not have
this permission of that company to share such information. In addition we will
jointly develop and implement a program of due diligence as well as all other
significant matters that would be attendant to pursuing and financing an
acquisition of FIIG and operating FIIG thereafter.
As we discussed, it will be necessary to retain legal and financial advisors.
We reserve the right, in consultation with you, to retain such advisors. If
the transaction is completed then you and we will be reimbursed for these
expenses and your separate expenses by the new company. If no proposal is made
or if the transaction is not completed then you will be responsible for your
legal fees and disbursements, and we will be responsible for our legal fees and
disbursements as well as any financial or accounting advisors that are
retained.
Exclusivity. You, as an individual, and we agree that neither you, as an
individual, nor we will commit to, solicit, encourage, or propose to any other
institution or party the purchase of FIIG or any of its parts or assets without
the consent of the other signatory to this letter. Furthermore, other than
performing your obligations under your current employment agreement, you will
not solicit, negotiate or enter into any agreement with i) FIIG or any
affiliate of FIIG or ii) any such other institution or party to be employed by
FIIG, or any such other institution or party, in the event of the purchase of
FIIG by such other institution or party. You understand that the arrangement
covered in this letter is exclusive to CHI. The acquisition by another party
of FIIG or the cessation of efforts to sell FIIG shall not terminate the
exclusivity arrangement. This exclusivity provision can only be terminated or
modified with the mutual consent of both parties hereto.
Terms of the Proposal. The proposal to be submitted will be in a mutually
agreeable form and will cover 100% of the stock of FIIG other than $1 million
of stock owned by you, valued at the acquisition price. Any such proposal
would not be subject to financing but would be subject to completion of a
review confirming the accuracy and completeness of FIIG public reports. It is
recognized that you have a grant of permission by the Executive Committee of
<PAGE> 2
the Board of Directors of FIIG upon which you are relying in entering into
this agreement. It is agreed that our joint proposal will be handled in
accordance with the requirements of that grant of permission. Further, it is
recognized that such grant of permission, if withdrawn at any time, may require
termination of your actively collaborating with CHI on the acquisition and such
termination of active collaboration will not constitute a breach of this
agreement. Such termination would not affect your exclusivity obligations or
our obligations hereunder. Nothing contained herein is intended to or shall
have the effect of constituting a breach of your obligations under your
existing employment agreement with FIIG.
Future FIIG Employment. It is contemplated that you would serve as Chief
Executive Officer and be elected as a director of the acquiring company and all
of its subsidiaries (including FIIG) unless, with respect it any such
subsidiary (other than FIIG), good reason exists for someone else to serve in
such capacity. We would expect to have the acquiring company enter into a
three year employment contract with you on that basis providing for, among
other things, a salary of $300,000 per annum. Such employment arrangement
would not require you to relocate from the Chicago area. We would also cause
the acquiring company to adopt an incentive based bonus plan directed to all
members of senior management.
It is also contemplated that employment contracts would be offered to selected
senior management of FIIG as you may specify.
Your employment arrangement would provide for the acquiring company to pay a
lump sum severance payment to you equal to twice your annual base salary at the
time of termination in the event the company terminates your employment prior
to the end of the contract term for any reason other than death, disability or
cause. In the event of termination upon death, your salary would continue to
be paid for the period ending on the last day of the month in which such death
occurs. In the event of termination upon disability or for cause, you would be
entitled to receive your base salary for the period ending on the date such
termination occurred.
Investment Opportunity. We understand that you are prepared to invest in the
new company by rolling-over the stock owned by you and not covered by the
purchase of FIIG, as discussed above. In addition, you and key employees will
also have the right to invest additional amounts at the time of closing. Such
investments will be made at the acquisition price and the acquiring company
would provide loans to such key employees or such investment up to an aggregate
amount of $500,000.
CHI Arrangement. We agree that CHI will not receive any front end fee in
connection with the acquisition or financing but may receive a fee in exchange
for providing investment banking and advisory services in the future. You also
agree that CHI may charge an annual management fee to the new company
commensurate with CHI's customary practice.
If the foregoing is acceptable to you, please execute a copy of the letter
enclosed herewith and return it to us.
We look forward to working with you.
<PAGE> 3
Very truly yours,
CASTLE HARLAN, INC.
By: /s/ Jeffrey M. Siegal
Jeffrey M. Siegal
Managing Director
AGREED AND ACCEPTED as of the
date first above written:
By: /s/ John A Dore
