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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION RULE 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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SCOR U.S. CORPORATION
(Name of Subject Company)
SCOR U.S. CORPORATION
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $0.30 PER SHARE
(Title of Class of Securities)
784027104
(CUSIP Number of Class of Securities)
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JOHN T. ANDREWS, JR.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
2 WORLD TRADE CENTER
NEW YORK, NEW YORK 10048-0178
TELEPHONE: (212) 390-5200
(Name, address (including zip code) and telephone number (including area code)
of person authorized to receive notices and communications on
behalf of the persons filing statement)
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COPY TO:
PHILLIP R. MILLS, ESQ.
DAVIS POLK & WARDWELL
450 LEXINGTON AVENUE
NEW YORK, NY 10017
(212) 450-4000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is SCOR U.S. Corporation (the "Company").
The address of the principal executive offices of the Company is Two World Trade
Center, New York, New York 10048-0178. The title of the class of equity
securities to which this Statement relates are the shares of the common stock,
par value $.30 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Statement relates to the tender offer made by SCOR S.A., societe
anonyme organized under the laws of The French Republic ("Parent"), to purchase
all outstanding Shares not currently beneficially owned directly or indirectly
by Parent at a price of $15.25 per Share (the "Offer Price") net to the seller
in cash, without interest thereon, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated November 9, 1995 (the "Offer to
Purchase") and the related Letter of Transmittal (which together constitute the
"Offer"), copies of which are filed as exhibits hereto and are incorporated
herein by reference. The Offer is disclosed in a Tender Offer Statement on
Schedule 14D-1 (the "Schedule 14D-1") filed with the Securities and Exchange
Commission (the "Commission") on November 9, 1995. The address of the principal
executive offices of Parent, as reported in the Schedule 14D-1, is 1 Avenue du
President Wilson, 92074 Paris La Defense Cedex, France.
The offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 2, 1995, as amended (the "Merger Agreement"), among Parent, the
Company and SCOR Merger Sub Corporation, a newly-formed Delaware corporation and
a wholly-owned subsidiary of Parent ("Purchaser"). The Merger Agreement
provides, among other things, that upon the terms and subject to the conditions
thereof, and in accordance with the provisions of the General Corporations Law
of the State of Delaware (the "DGCL") and the Restated Certificate of
Incorporation (the "Restated Certificate") and By-Laws of the Company, Purchaser
will be merged with and into the Company (the "Merger") as soon as practicable
following the consummation of the Offer and the satisfaction or waiver of
certain other conditions, with each Share issued and outstanding immediately
prior to the effective time of the Merger (other than Shares held in the
treasury of the Company or held by any wholly-owned subsidiary thereof and
Shares held by Parent or any of its subsidiaries, which shall be canceled and
extinguished without any conversion thereof and without any payment made with
respect thereunto, and other than Dissenting Shares (as defined below)) being,
by virtue of the Merger and without any action on the part of the holder
thereof, converted into the right to receive an amount in cash, without
interest, equal to the Offer Price.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this Statement are set forth in Item 1 above.
(b) Except as described herein, to the knowledge of the Company, as of the
date hereof there are no material contracts, agreements or understandings (other
than in the ordinary course of business), or any potential or actual conflicts
of interest between the Company or its affiliates and (i) the Company, its
executive officers, directors or affiliates or (ii) Parent or its executive
officers, directors or affiliates.
Interests of Special Committee
On September 28, 1995, the Board of Directors of the Company (the "Board" or
"Board of Directors") created a special committee comprised of those directors
who are not officers of Parent or the Company or any affiliate of either of them
(the "Special Committee") to consider and make recommendations with respect to
the Proposal (as defined below). The members of the Special Committee are John
R. Cox, Raymond H. Deck, Michel J. Gudefin, Richard M. Murray, John
W. Popp, David J. Sherwood and Ellen E. Thrower. Mr. Sherwood serves as Chairman
and Mr. Cox serves as Vice Chairman of the Special Committee.
Mr. Cox currently serves as a Director of the Company and has been Director
of the Company since 1994. Mr. Cox beneficially owns 1,000 Shares.
Mr. Deck currently serves as a Director of the Company and has been a
Director of the Company since 1986. Mr. Deck beneficially owns 7,100 Shares.
Mr. Gudefin currently serves as a Director of the Company and has been a
Director of the Company since 1990. Mr. Gudefin beneficially owns 18,000 Shares.
Mr. Murray currently serves as a Director of the Company and has been a
Director of the Company since 1990. Mr. Murray beneficially owns 3,000 Shares.
Mr. Popp currently serves as a Director of the Company and has been a
Director of the Company since 1990. Mr. Popp beneficially owns 1,000 Shares.
Mr. Sherwood currently serves as a Director of the Company and has been a
Director of the Company since 1987. Mr. Sherwood beneficially owns 1,100 Shares.
Ms. Thrower currently serves as a Director of the Company and has been a
Director of the Company since 1995. Ms. Thrower beneficially owns no Shares.
In consideration of the services rendered on the Special Committee, the
members of the Special Committee each received $1,000.00 for attendance at each
meeting of the Special Committee. Mr. Sherwood will be receiving an annual
retainer fee, which is to be determined, for serving as Chairman of the Special
Committee.
Interests of Certain Persons
Certain contracts, agreements, arrangements and understandings between the
Company or its affiliates and certain of its directors, executive officers or
affiliates are described at pages 5 through 26 of the Company's Proxy Statement
dated April 28, 1995 relating to its 1995 Annual Meeting of Stockholders (the
"1995 Proxy Statement"). A copy of the 1995 Proxy Statement is attached as an
exhibit hereto and the portions thereof referred to herein are incorporated
herein by reference.(1)
The Company has granted options to purchase Shares to key executives,
directors and key employees under the Company's 1986 Stock Incentive Plan for
Key Executives, the Company's 1990 Stock Option Plan for Directors and the
Company's 1991 Stock Option Plan for Key Employees, respectively. See "The
Merger Agreement--Certain of the Covenants of the Company and Parent" under Item
3(b) below for a description of the treatment of employee stock options in the
Merger.
Jacques P. Blondeau has served as Chairman of the Board of Directors of the
Company since September 30, 1994 and as a Director of the Company since 1988.
Mr. Blondeau is also Chairman of SCOR Reinsurance Company ("SCOR Re"). Mr.
Blondeau serves as a Trustee of the Voting Trust as described below that holds
the stock of SCOR Re on behalf of the Company. Mr. Blondeau is Chairman of the
Board and Chief Executive Officer of Parent. Mr. Blondeau was President--
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(1) The following are corrections to information contained in the 1995 Proxy
Statement: (1) the bonus of Nolan E. Asch, Senior Vice President and Chief
Actuary of the Company, for 1992 as listed on page 11 of the 1995 Proxy
Statement was $20,000, not $0 as indicated therein; and (2) the expiration
date for the 9,071 options of Mr. Asch listed on page 13 of the 1995 Proxy
Statement is December 2, 2004, not November 30, 2004 as indicated therein.
2
Operations of Societe Commercial de Reassurance ("SCOR Paris") from 1988 until
1990. Serge M.P. Osouf has served as Vice Chairman of the Board of Directors of
the Company and SCOR Re since September 30, 1994, and has been a Director of the
Company since September 1993, and of SCOR Re since December 1991. Mr. Osouf
serves as the General Manager of Parent and Chairman of SCOR Vie, a subsidiary
of Parent. Patrick Peugeot has served as a Director of the Company since 1983
and of SCOR Re since 1985. Mr. Peugeot is also a Voting Trustee of SCOR Re. Mr.
Peugeot had served as Chairman of the Board and Chief Executive Officer of
Parent from 1989 until 1994 and of SCOR Paris from 1983 until 1990. Francois
Reach has served as a Director of the Company since March 1989 and of SCOR Re
since June 1994. Mr. Reach has served as Chairman and Chief Executive Officer of
REAFIN, the finance company subsidiary of Parent since October 1994. Mr. Reach
has served as Deputy General Manager of Parent since October 1994.
As of October 31, 1995, all executive officers and directors of the Company
as a group beneficially owned an aggregate of 82,161 Shares and held stock
options to purchase 815,900 Shares. Together, such Shares and Shares purchasable
upon exercise of such stock options aggregate approximately 4.94% of the
18,170,971 Shares outstanding on October 31, 1995. If the transaction is
consummated, such persons will receive an aggregate of $1,252,955.25 in cash for
their Shares and, in addition, an aggregate of $2,728,528.375 in respect of the
cash-out of their stock options. See "The Merger Agreement" below for a
discussion of the treatment of stock options in the Merger.
The following table sets forth, as of October 31, 1995, the number of Shares
and stock options owned by, and the aggregate amounts to be received by, each
executive officer and director of the Company and Parent who owns any Shares or
stock options and all executive officers and directors as a group pursuant to
the transaction (after giving effect to the payments to be made in respect of
Shares and stock options, but without taking into account such individuals' cost
bases in their Shares, pursuant to the terms of the Merger Agreement). Other
than the individuals named below, no executive officer or director of the
Company or Parent owns any Shares.
TOTAL
SHARES CASH AMOUNT
BENEFICIALLY OUTSTANDING TO BE
NAME OWNED OPTIONS RECEIVED
- ---------------------------------- ------------ ----------- ------------
Louis Adanio...................... 10,409 36,480 $262,339.75
John T. Andrews, Jr............... -0- 109,000 284,750.00
Nolan E. Asch..................... 14,188 61,671 356,334.875
Jacques P. Blondeau............... -0- 102,000 328,278.00
John R. Cox....................... 1,000 6,000 45,250.00
Jeffrey D. Cropsey................ 4,552 13,000 150,668.00
Raymond H. Deck................... 7,100 18,000 160,400.00
John D. Dunn, Jr.................. -0- 25,000 126,250.00
Francis J. Fenwick................ -0- 7,800 48,750.00
Howard B. Fischer................. 4,412 31,760 156,743.00
Linda J. Grant.................... 100 15,300 53,650.00
Michel Gudefin.................... 18,000 18,000 326,625.00
Jerome Karter..................... -0- 166,000 560,300.00
Dominique LaVallee................ 1,400 19,000 83,850.00
Jean Masse........................ -0- 6,000 39,375.00
Richard M. Murray................. 3,000 18,000 97,875.00
Serge M.P. Osouf.................. -0- 13,000 74,500.00
Patrick Peugeot................... 15,900 95,789 584,395.00
John W. Popp...................... 1,000 18,000 67,375.00
Francois Reach.................... -0- 6,000 30,000.00
Robert D. Sawicki................. -0- 9,100 56,875.00
David J. Sherwood................. 1,100 18,000 68,900.00
Ellen E. Thrower.................. -0- 3,000 18,000.00
3
The Merger Agreement provides for the indemnification of the current and
former directors and officers of the Company from and after the Effective Time
(as defined below), and the maintenance of a policy of directors' and officers'
liability insurance for a period of six years after the Effective Time. See "The
Merger Agreement--Certain of the Covenants of the Company and Parent" below. The
directors, officers and employees of the Company may be indemnified against
certain actions, claims and liabilities pursuant to the Company's By-Laws.
Indemnification
The Restated Certificate and the By-Laws contain provisions which state that
no director shall be personally liable to the Company or its stockholders for
monetary damages with respect to claims by the Company or the stockholders for
breaches of fiduciary duty as a director. The provisions do not limit director
liability for monetary damages (a) for any breach of the director's duty of
loyalty to the Company or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of Title 8 of the DGCL (i.e., unlawful dividends or
other unlawful payments) or (d) for any transaction from which the director
derived an improper personal benefit.
The By-Laws of the Company provide that each director and each officer or
former director or officer of the Company or each person who may have served at
the Company's request as a director or officer of another corporation in which
the Company owned shares of capital stock or of which the Company is a creditor,
may be indemnified by the Company against liabilities imposed upon such director
or officer and expenses reasonably incurred by such director or officer in
connection with any claim made against such director or officer, or any action,
suit or proceeding to which such director or officer may be a party by reason of
such person being, or having been, a director or officer of the Company, and
against such sums as independent counsel selected by the Board of Directors
shall deem reasonable payment made in settlement of any such claim, action, suit
or proceeding primarily with a view of avoiding expenses of litigation;
provided, however, that no director or officer shall be indemnified with respect
to matters as to which such director or officer shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in
performance of duty, or with respect to any matters which such indemnification
would be against public policy. Such indemnification is in addition to any other
rights to which directors or officers may be entitled.
The Company, its directors and its officers are covered under a Directors
and Officers Insurance Including Company Reimbursement Policy (the "D&O
Insurance") effective for the period from June 22, 1995 to June 22, 1996.
Pursuant to the policy, the insurer agreed (1) to pay on behalf of the Company's
directors and officers loss from certain claims arising from such directors' or
officers' wrongful acts, except for any loss which the Company pays to or on
behalf of such directors or officers as indemnification and (2) to reimburse the
Company for loss from certain claims which the Company pays to or on behalf of
the directors or officers as indemnification.
Contracts and Transactions between the Company and Parent.
Ownership of the Company. Parent currently owns approximately 80% of the
outstanding Shares and therefore has the ability to control the Company through
the election of a majority of the Board and voting at meeting of stockholders.
Six of the thirteen members of the Board also serve as directors and/or officers
of Parent, its subsidiaries or affiliates or are officers of the Company
("Affiliated Directors").
Share Repurchases. On November 2, 1994, Parent acquired directly from
certain of the Company's Executive Officers 82,000 Shares at the then prevailing
market price of $11.125 per Share, specifically: 44,000 Shares from John T.
Andrews, Jr., Senior Vice President, General Counsel and Secretary; 9,071 Shares
from Nolan E. Asch, Senior Vice President and Chief Actuary;
4
3,929 Shares from R. Daniel Brooks, Senior Vice President; and 25,000 Shares
from Jerome Karter, President and Chief Executive Officer. Each of these senior
officers had, at the request of the Company, voluntarily agreed not to sell any
Shares held by them in connection with the privately placed offering of
convertible subordinated debentures of the Company in 1993, and were prevented
from selling during certain other periods thereafter in accordance with Company
policy. The proceeds from these sales to Parent were applied exclusively to
reduce indebtedness of the sellers to the Company. In addition, on November 2,
1994, under the Company's Stock Incentive Plan for Key Employees, the Company
granted to each of such officers options to purchase a corresponding number of
Shares at an exercise price of $11.125 per Share, which was equal to the per
share market price on that date.
Loan Agreement. On October 2, 1995, the Company, as borrower, entered into a
Loan Agreement with Parent, as lender, which provides for a term loan to the
Company of a principal sum of $20 million from Parent. The term of the loan is
one year commencing on October 2, 1995 and is subject to renewal for an
additional term of one year at the option of the Company. The interest rate for
the loan during any three month interest period is the rate equal to 0.2% plus
the applicable three month London Interbank Offered Rate. Interest is payable
two days prior to the end of each three month interest period. The proceeds of
the loan are restricted to the repayment of, or the repayment of indebtedness
incurred in respect of the repayment of, a bank financing obtained by the
Company. In October 1995, the Company borrowed $20 million under this loan
agreement.
Credit Agreement. As of November 2, 1995, the Company had outstanding
$75,950,000 aggregate principal amount of 5 1/4% Convertible Subordinated
Debentures due April 1, 2000 (the "Debentures"), which were issued by the
Company on March 29, 1993 at a price equal to the principal amount thereof
through a private offering. The Debentures are not redeemable by the Company
prior to April 3, 1996, and outstanding Debentures are currently convertible
into approximately 2.99 million Shares at a conversion price of $25.375 per
Share. Under the terms of the indenture pursuant to which the Debentures were
issued (the "Indenture"), in the event that Parent beneficially owns, after
giving effect to the purchase of Shares pursuant to the Offer or the acquisition
of Shares pursuant to the Merger, in excess of 90% of the outstanding Shares (a
"Repurchase Event"), the holders of the Debentures shall have the right to
require the Company to repurchase the Debentures at a repurchase price equal to
100% of the principal amount thereof together with accrued and unpaid interest
to the date of such repurchase, which date shall be 45 days after the date on
which the Company notifies the holders of the Debentures of such Repurchase
Event.
On January 24, 1995, the Company, as borrower, entered into a Credit
Agreement (the "Credit Agreement") with Parent, as lender. The Credit Agreement
provides that during term of the Credit Agreement (the "Revolving Credit
Period"), which is five years, the Company may borrow amounts from time to time
from Parent, which amounts in the aggregate at any one time do not exceed $20
million. During the Revolving Credit Period, the Company may borrow, repay or
prepay any loans under the Credit Agreement subject to the terms thereof. The
interest rate on each loan during any three month interest period is the rate
equal 0.5% plus the applicable three month London Interbank Offered Rate.
Interest is payable at the end of each three month interest period unless added
to the outstanding principal balance of such loan at the option of the Company.
The proceeds of the Credit Agreement are restricted to the repurchase of the
Debentures in the market or the repayment of any debt incurred in order to
repurchase Debentures. In addition, Parent may provide or arrange financing
necessary for the Company to satisfy its obligation to repurchase Debentures in
accordance with the terms of the Indenture.
Retrocession Agreements. SCOR Re, like most reinsurance companies, enters
into retrocession arrangements for many of the same reasons primary insurers
seek reinsurance, including increasing their premium writing and risk capacity
without requiring additional capital and reducing
5
the effect of individual or aggregate losses. Historically, SCOR Re has
retroceded risks to retrocessionaires on both a proportional and excess of loss
basis. Since a reinsurer remains liable to a ceding company with respect to any
risk subject to a retrocession agreement, such retrocessionaires are subject to
an initial review of financial condition before final acceptability is confirmed
and to subsequent reviews on an annual basis.
From 1974 through 1986, virtually all of SCOR Re's retrocessions had been to
affiliates. Based on the increased surplus resulting from the Company's public
offering in 1986, SCOR Re significantly decreased the total amount of
reinsurance retroceded, a large portion of which continues to be retroceded to
affiliates. All reinsurance agreements with affiliates must be submitted to the
New York Insurance Department for prior review. In 1994, 11.5% of gross premiums
written by the Company were retroceded to Parent, compared with 15.6% and 14.0%
in 1993 and 1992, respectively.
Under its 1995 retrocessional program, SCOR Re retains a maximum of $2.0
million as to any one ceding company program for treaty business. SCOR Re
retains a maximum of $3.9 million and $1.0 million per risk for facultative
property and facultative casualty business, respectively. Under its 1994
retrocessional program SCOR Re retained a maximum of $2.0 million as to any one
ceding company program for treaty business and a maximum of $3.3 million and
$1.1 million per risk for facultative property and facultative casualty
business, respectively.
SCOR Re purchases coverage against the accumulation of losses resulting for
a single catastrophic event. As with most reinsurers, SCOR Re retains a share of
its catastrophe exposures. In 1995, SCOR Re has general catastrophe
retrocessional coverage, which covers property exposures only, for generally 78%
of $48 million in excess of $20 million per occurrence. The Company also has
underlying coverage for $15 million in excess of $5 million per occurrence after
a $5 million deductible. Parent participates in SCOR Re's 1995 general
catastrophe retrocessional program for a total limit of approximately $13.7
million.
Pursuant to a Net Aggregate Excess of Loss Retrocessional Agreement dated as
of July 1, 1986 (the "1986 Retrocessional Agreement"), Parent reinsured SCOR Re
for adverse loss development from pre-1986 business that exceeded the total of
loss reserves established as of June 30, 1986 and premiums earned after June 30,
1986 from such pre-1986 business. The 1986 Retrocessional Agreement provided
protection to the Company for business underwritten by SCOR Re only and did not
provide coverage for pre-1986 business underwritten by any other subsidiary.
However, business underwritten by General Security Assurance Corporation of New
York ("General Security") and The Unity Fire and General Insurance Company
("Unity Fire") is protected against adverse development by a separate net
aggregate excess of loss retrocessional agreement, as described below. The 1986
Retrocessional Agreement terminated on December 31, 1993, at which time Parent's
liability to SCOR Re was $16.2 million. This amount is the actuarially
determined expected ultimate loss from the pre-1986 business in excess of the
"aggregate deductible" (which is defined as the total of net outstanding loss
and loss expense reserves, net incurred but not reported ("IBNR") loss reserves
and net unearned premium reserves established as of June 30, 1986 for the
pre-1986 business, plus all net premiums and future net premium adjustments
earned after June 30, 1986 under retrospectively rated treaties for such
business). During the first quarter of 1994, SCOR Re received $16.2 million from
Parent in settlement of its liability under this agreement.
On May 4, 1994, SCOR Re and Parent entered into a Second Net Aggregate
Excess of Loss Retrocessional Agreement ("the 1994 Retrocessional Agreement")
dated as of May 4, 1994 and effective as of January 1, 1994, which protects the
same business covered under the 1986 Retrocessional Agreement. Under this
Agreement, SCOR Re is responsible for any further adverse development up to $8.8
million beyond the $16.2 million of adverse development recognized under
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the 1986 Retrocessional Agreement, at which point the 1994 Retrocessional
Agreement attaches and provides coverage for up to $10 million of any additional
adverse development. SCOR Re paid a premium of $2 million for this coverage,
which expires on December 31, 2004. At December 31, 1994, no recovery was
recognized under the 1994 Retrocessional Agreement. In addition, based on the
experience under the 1994 Retrocessional Agreement, SCOR Re is eligible to
receive a contingent commission of up to 27.75% of the premium.
SCOR Re is a party to two additional retrocession agreements providing for
significant premium payments to Parent. First, pursuant to the Catastrophe
Excess of Loss Reinsurance Contract for the 1994 year, SCOR Re paid Parent a
premium for that year of approximately $3.80 million for the coverage specified
under that reinsurance contract in respect of losses under policies covering
treaty and facultative reinsurance assumed by SCOR Re resulting from certain
property exposures. Losses arising from the earthquake in Northridge, California
in 1994 resulted in a restatement of the coverage under the contract for an
additional premium of approximately $3.5 million. Second, pursuant to the
Catastrophe Excess of Loss Reinsurance Contract for the 1995 year, SCOR Re is
required to pay each of Parent and one of its affiliates, SCOR Reassurance, by
way of quarterly installments, a premium of approximately $2.04 million for that
year for the coverage to be provided by each of them as specified under that
reinsurance contract in respect of losses under policies covering treaty and
facultative reinsurance assumed by SCOR Re resulting from certain casualty
occurrences.
Parent entered into a Net Aggregate Excess of Loss Retrocessional Agreement
with each of Unity Fire and General Security, pursuant to which Parent agreed to
reinsure those companies to the extent that their net ultimate incurred losses
(as defined in the agreements) arising in 1989 and prior accident years exceed
an aggregate deductible. As a result of an assumption by General Security of the
rights, liabilities and obligations of Unity Fire, the Net Aggregate Excess of
Loss Retrocessional Agreement with Unity Fire was terminated and the net
Aggregate Excess of Loss Retrocessional Agreement with General Security was
amended (as so amended, the "Agreement") to include the protection formerly
provided to Unity Fire by its retrocessional agreement with Parent. As a result
of a merger of General Security into SCOR Re, the protection under the Agreement
is now for the benefit of SCOR Re. The aggregate deductible is defined as the
sum of net outstanding loss and loss expense reserves and net IBNR loss reserves
as of December 31, 1989, for 1989 and prior accident years, as documented in the
1989 statutory financial statements of Unity Fire and General Security. This
amount has been established at a combined aggregate of $93.8 million. The annual
premium for this protection is $210,000 through 2004. The Agreement continues in
force until all covered losses are settled.
The retrocession of risks underwritten by a reinsurer does not legally
discharge it from liability for any part of the risk retroceded. Accordingly,
the operating subsidiaries of the Company, which includes SCOR Re, General
Security Insurance Company, Unity Fire and General Security Indemnity Company
(collectively, the "Operating Subsidiaries") would be required to pay the full
amount of the loss associated with the reinsured risk if for any reason Parent
or any other retrocessionaire was unable or failed to meet its reinsurance
obligations. Generally, under the New York Insurance Law, retrocessionaires
which are not licensed or otherwise authorized reinsurers in New York must
provide letters of credit or other permitted assets to secure their obligations
to the ceding reinsurer (based on the ceding reinsurer's current estimate of the
ceded liability) in order for the ceding reinsurer to take credit on its
statutory financial statements for the reinsurance ceded. This security can be
applied by the ceding reinsurer toward discharging its own liability in the
event of a default by the retrocessioinaire. At December 31, 1994, the amount of
estimated liability for which retrocessionaires were liable to the Operating
Subsidiaries was approximately $265.7 million, of which approximately $215.2
million was secured by letters of credit in favor of, or funds held by, the
Operating Subsidiaries. Additionally, an amount of $37.6 million represents the
liability on reinsurance ceded to New York licensed or authorized reinsurance
companies, which are not required to
7
provide additional security in order for the ceding reinsurer to take credit for
the reinsurance ceded. The amounts of estimated liability recoverable from
retrocessionaires at December 31, 1993 and 1992 were approximately $285.1
million and $289.2 million, respectively. The Operating Subsidiaries' exposure
to amounts deemed unrecoverable from retrocessionaires has been limited and to
the extent it has been exposed, paid losses, outstanding losses and incurred but
not reported losses recoverable from retrocessionaires which are determined to
be uncollectible are charged to operations.
Voting Trust. The New York Insurance Law prohibits (with certain exceptions)
the issuance of a license to a company that is owned or financially controlled
in whole or in part by a government, unless an insurer was so owned or
financially controlled prior to the effective date of such statute. Unity Fire
was so owned or financially controlled prior to such effective date. Because
Parent, the controlling stockholder of the Company, was indirectly partially
owned by certain French insurance companies which were majority owned by the
French Government, the Company, in 1984, to permit SCOR Re to obtain a New York
insurance license, established a voting trust for its holdings of capital stock
of SCOR Re. The voting trust was irrevocable for a period of ten years (through
June 6, 1994), unless SCOR Re's New York license was withdrawn. In 1994, in
order for SCOR Re to retain its New York license and obtain a California
insurance license, the SCOR Reinsurance Company 1994 Voting Trust Agreement,
among SCOR Re, the Company and the Voting Trustees designated therein was
entered as of June 6, 1994, thereby renewing the voting trust for an additional
period of three years. The five voting trustees under the voting trust possess
and are entitled to exercise all the rights and powers of absolute owners of the
capital stock of SCOR Re, except to pass any voting right or ownership interest
to others. Decisions of the voting trustees may be made by majority vote,
provided that such majority consists of at least two voting trustees who are not
officers, directors or stockholders of Parent. The voting trustees are required
to forward any dividends paid by SCOR Re to the Company as the registered holder
of the voting trust certificates evidencing beneficial ownership of SCOR Re's
stock. Transfers of voting trust certificates may only be made by the registered
holder thereof. The current voting trustees are as follows: Patrick Peugeot,
Jacques P. Blondeau, Allan M. Chapin, Michel J. Gudefin, and David J. Sherwood.
All of the voting trustees are Directors of the Company, with the exception of
Mr. Chapin, who is a partner of Sullivan & Cromwell, United States legal counsel
of Parent.
Ownership of Commercial Risk. In January 1992, the Company acquired 19.8% of
the stock of Commercial Risk, a Bermuda holding company for two insurance
subsidiaries. The purchase price was approximately $9.9 million. As a result of
a recapitalization of Commercial Risk in 1994, the Company currently owns
approximately 12.87% of the outstanding stock of Commercial Risk. Parent owns
approximately 52.27% of the outstanding stock of Commercial Risk.
Services Agreement. Pursuant to an Amended Service Agreement dated as of
June 11, 1992 between the Company and Parent, the Company and Parent have agreed
to reimburse the other for services provided by various personnel. The amount of
the reimbursement for the services provided is determined by allocation of the
actual costs, including salary and related expenses.
Reinsurance. The Operating Subsidiaries assume reinsurance from Parent and
other affiliated companies primarily on a quota share or surplus share basis.
Written premiums assumed from these companies (and the percentage of gross
written premiums) were approximately $7.85 million (2.6%), $8.38 million (2.5%)
and $6.70 million (2.2%) for the years ended December 31, 1994, 1993 and 1992,
respectively. Of these amounts, approximately $6.96 million, $7.93 million and
$6.28 million for 1994, 1993 and 1992, respectively, were assumed from Parent.
8
The Operating Subsidiaries also retrocede reinsurance to Parent and other
affiliated companies, primarily on a quota share or surplus share basis. The
total written premiums approximately ceded by the Company's subsidiaries under
retrocession agreements to affiliated companies in 1994 were approximately
$35.64 million.
Parent provides letters of credit in favor of the Operating Subsidiary in
amounts equal to its estimated liability under its reinsurance agreements with
such companies (as re-estimated on a quarterly basis). The amount of letters of
credit provided by Parent at December 31, 1994 was approximately $134.5 million
and at December 31, 1993 was approximately $123 million.
Software. The Company has agreed in principle with Parent for the purchase
by Parent of the Company's New Treaty System ("NTS"). The purchase price is
approximately $1.5 million. To date, the Company has expended approximately
$10.2 million in researching, developing and implementing NTS.
The Merger Agreement.
The following is a description of certain provisions of the Merger
Agreement. Such description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which is filed as
an exhibit hereto.
The Offer. Pursuant to the Merger Agreement, Purchaser is obligated to
commence the Offer no later than five business days following the date of the
Merger Agreement. The Merger Agreement provides that the obligation of Purchaser
to consummate the Offer and to accept for payment and purchase the Shares
tendered pursuant to the Offer shall be subject only to the conditions set forth
in the Merger Agreement, which are described below under the caption "The Merger
Agreement--Conditions to the Offer." Subject to the terms and conditions of the
Offer, Purchaser will promptly pay for all Shares duly tendered that it is
obligated to purchase thereunder. The Board of Directors and a majority of the
members of the Special Committee shall recommend acceptance of the Offer to its
stockholders in a Solicitation/Recommendation Statement on Schedule 14D-9, as
such statement may be amended or supplemented from time to time, to be filed
with the Commission upon commencement of the Offer; provided, however, that if
the Board of Directors determines that its fiduciary duties require it to amend
or withdraw its recommendation, such amendment or withdrawal shall not
constitute a breach of the Merger Agreement. Purchaser will not without the
prior written consent of the Company decrease the price per Share or change the
form of consideration payable in the Offer, decrease the number of Shares sought
or change the conditions to the Offer. Purchaser shall not terminate or withdraw
the Offer unless at the expiration date of the Offer the conditions to the Offer
set forth below have not been satisfied or waived.
Conditions to the Offer. The Merger Agreement provides that, notwithstanding
any other provision of the Offer, Purchaser shall not be obligated to accept for
payment any Shares or, subject to any applicable rules and regulations of the
Commission, including Rule 14e-1(c) (relating to Purchaser obligation to pay for
or return tendered Shares promptly after termination or withdrawal of the Offer)
or pay for, and may delay the acceptance for payment of or payment for, any
tendered Shares unless there have been validly tendered and not withdrawn prior
to the expiration date of the Offer a number of Shares that, together with any
Shares currently beneficially owned directly or indirectly by Parent,
constitutes at least 90% of the total Shares outstanding as of the date the
Shares are accepted for payment pursuant to the Offer (the "Minimum Tender
Condition"), or if on or after November 2, 1995, and at or before the time of
payment for any of such Shares
9
(whether or not any Shares have theretofore been accepted for payment or paid
for pursuant to the Offer), any of the following events shall occur:
(a) there shall be any statute, rule, regulation, judgment, injunction
or other order, enacted, promulgated, entered, enforced or deemed applicable
to the Offer or the Merger or any other action shall have been taken by any
government, legislative body, court or governmental, regulatory or
administrative agency, authority, tribunal or commission, domestic,
supranational or foreign (each, a "Governmental Entity"), or any other
person, domestic, supranational or foreign (i) challenging the legality of
the acquisition by Purchaser of the Shares; (ii) restraining, delaying or
prohibiting the making or consummation of the Offer or the Merger or
obtaining from the Company, Parent or Purchaser any damages in connection
therewith; (iii) relating to assets of, or prohibiting or limiting the
ownership or operation by Parent or Purchaser of all or any portion of the
business or assets of, the Company, Parent or Purchaser (including the
business or assets of their respective affiliates and subsidiaries) or
imposing any limitation on the ability of Parent or Purchaser to conduct
such business or own such assets; (iv) imposing limitations on the ability
of Parent or Purchaser (or any affiliate of Parent or Purchaser) to acquire
or hold or to exercise full rights of ownership of the Shares, including,
without limitation, the right to vote the Shares purchased by them on all
matters properly presented to the stockholders of the Company or (v) having
a substantial likelihood of any of the foregoing.
(b) there shall have occurred (i) any general suspension of, or
limitation on times or prices for, trading in securities on any national
securities exchange or in the over-the-counter market in the United States
or France or (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or France (whether or not
mandatory);
(c) the Company shall have breached or failed to perform in any material
respect any of its covenants, obligations or agreements under the Merger
Agreement or any representation or warranty of the Company set forth in the
Merger Agreement shall have been inaccurate or incomplete in any material
respect when made or thereafter shall become inaccurate or incomplete in any
material respect;
(d) any change, including, without limitation, any change arising out of
or related to any natural disaster (including hurricanes and earthquakes),
shall have occurred or been threatened or become known (or any condition,
event or development shall have occurred or been threatened or become known
involving a prospective change) in the business, properties, assets,
liabilities, condition (financial or otherwise), or results of operations of
the Company or any of its subsidiaries that could reasonably be expected to
be materially adverse to the Company and its subsidiaries taken as a whole;
(e) all consents, registrations, approvals, permits, authorizations,
notices, reports or other filings required to be made or obtained by the
Company, Parent, Purchaser or any stockholder of Parent with or from any
Governmental Entity in connection with the Offer and the Merger shall not
have been made or obtained except where the failure to make or to obtain, as
the case may be, such consents, registrations, approvals, permits,
authorizations, notices, reports or other filings could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), properties, assets, liabilities, business or results of
operations of the Company and its subsidiaries taken as a whole;
(f) the Special Committee of the Board of Directors shall have adversely
amended or modified or shall have withdrawn its recommendation of the Offer
or the Merger, or shall have
10
failed to reconfirm publicly such recommendation upon request by Parent or
Purchaser, or shall have resolved to do any of the foregoing; or
(g) the Agreement shall have been terminated in accordance with its
terms or Purchaser shall have reached an agreement or understanding with the
Special Committee providing for termination of the Offer;
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above, and regardless of the circumstances (including any
action or inaction by Purchaser, Parent or any affiliate of Parent) giving rise
to any such condition, makes it inadvisable to proceed with the Offer or with
such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of Purchaser and may be
asserted by Purchaser regardless of the circumstances (including any action or
inaction by Purchaser, Parent or any affiliate of Parent) giving rise to any
such conditions or may be waived by Purchaser in whole or in part at any time
and from time to time in its sole discretion. The failure by Purchaser at any
time to exercise any of the foregoing rights shall not be deemed a waiver of any
such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time. Any determination by Purchaser
concerning the events described above will be final and binding on all holders
of the Shares.
The Merger. The Merger Agreement provides that, upon the terms and subject
to the conditions thereof, at the time at which the Company and Parent file a
certificate of merger with the Secretary of State of the State of Delaware and
make all other filings or recordings required by the DGCL in connection with the
Merger, Purchaser shall merge with and into the Company in accordance with the
DGCL. The Merger shall become effective on the date on which the Certificate of
Merger is duly filed with the Secretary of State of the State of Delaware (the
"Effective Time"). As a result of the Merger, the separate corporate existence
of Purchaser will cease, and the Company will be the Surviving Corporation (as
defined in the Merger Agreement).
At the Effective Time, (i) each Share issued and outstanding immediately
prior to the Effective Time (other than Shares owned by Parent, Purchaser or any
other direct or indirect subsidiary of Parent (collectively, "Parent Companies")
or Shares that are owned by the Company or any direct or indirect subsidiary of
the Company or Shares ("Dissenting Shares") which are held by stockholders
("Dissenting Stockholders") properly exercising appraisal rights pursuant to
Section 262 of the DGCL (collectively, "Excluded Shares")) shall be converted
into the right to receive, without interest, an amount in cash (the "Merger
Consideration") equal to $15.25 and (ii) all Shares, by virtue of the Merger and
without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and returned and shall cease to exist, and
each holder of a certificate representing any such Shares (other than Excluded
Shares) shall thereafter cease to have any rights with respect to such Shares,
except the right to receive the Merger Consideration for such Shares upon the
surrender of such certificate in accordance with the Merger Agreement or the
right, if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Section 262 of the DGCL.
At the Effective Time, each Share issued and outstanding at the Effective Time
and owned by any of Parent Companies or held in the Company's treasury or owned
by the Company or any direct or indirect subsidiary of the Company shall cease
to be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
At the Effective Time each share of common stock, par value $1.00 per share,
of Purchaser issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and
11
without any action on the part of Purchaser or the holders of such shares, be
converted into one share of common stock of the Surviving Corporation.
The Merger Agreement provides that the Dissenting Shares will not be
converted into or represent the right to receive the Merger Consideration.
Holders of such shares will be entitled to receive payment of the "fair value"
of such Shares held by them in accordance with the provisions of Section 262 of
the DGCL, except that all Dissenting Shares held by stockholders who fail to
perfect or who effectively withdraw or lose their rights to dissent will
thereupon be deemed to have been converted into, as of the Effective Time, the
right to receive, without any interest thereon, the Merger Consideration, upon
surrender of the certificate or certificates that formerly evidenced such
Shares.
The Merger Agreement provides that, at the Effective Time, the Restated
Certificate and the By-Laws of the Company in effect at the Effective Time will
be the Certificate of Incorporation and By-Laws of the Surviving Corporation,
except that Article 4A of the Company's Restated Certificate shall be amended to
read in its entirety as follows: "The aggregate number of shares of stock which
the Corporation shall have the authority to issue is 1,000 shares of Common
Stock, par value $0.01 per share."
Agreements of Parent and the Company. The Merger Agreement provides that in
the event that Parent, Purchaser or any other subsidiary of Parent shall acquire
at least 90% of the outstanding Shares pursuant to the Offer or otherwise,
Parent, Purchaser and the Company have agreed, at the request of Parent or
Purchaser, to take all necessary and appropriate action to cause the Merger to
become effective as soon as practicable after the acceptance for payment and
purchase of Shares by Purchaser pursuant to the Offer without a meeting of
stockholders of the Company in accordance with Section 253 of the DGCL.
The Merger Agreement provides that the directors and officers of the Company
as of the Effective Time shall be the directors and officers, respectively, of
the Surviving Corporation until their successors have been duly elected or
appointed and qualified or until the earlier death, resignation or removal in
accordance with the Surviving Corporation's Certificate of Incorporation and
By-Laws.
Certain of the Covenants of the Company and Parent. The Company has agreed
that, prior to the Effective Time (unless Parent shall otherwise agree in
writing and except as otherwise expressly contemplated by the Merger Agreement),
the business of the Company and its subsidiaries shall be conducted only in the
ordinary and usual course consistent with past practice and, to the extent
consistent therewith, each of the Company and its subsidiaries have agreed to
use its best efforts to preserve its business organization intact (including
maintaining all of its Permits (as defined in the Merger Agreement)) and to
maintain its existing relations with customers, suppliers, employees and
business associates and it shall take no action that would adversely affect the
ability of the parties to consummate promptly the transactions contemplated by
the Merger Agreement.
Pursuant to the Merger Agreement, if required following termination of the
Offer, the Company will take all action necessary to convene a meeting of
holders of Shares as promptly as practicable to consider and vote upon the
approval of the Merger Agreement and the Merger. The Company has agreed that the
Board, subject to their fiduciary requirements of applicable law, shall
recommend such approval and that the Company shall take all lawful action to
solicit such approval. Parent has agreed to vote all Shares then owned by Parent
Companies (including all Shares currently owned by Parent Companies) in favor of
the Merger Agreement.
12
Parent and the Company have each agreed in the Merger Agreement, subject to
the terms and conditions provided therein, to make promptly their respective
Regulatory Filings and Purchaser Regulatory Filings (as each term is defined
therein) and thereafter to make any other required submissions with respect to
the Offer and the Merger and to use their respective best efforts to take
promptly, or cause to be taken promptly, all other action and do, or cause to be
done, all other things necessary, proper or appropriate under applicable laws
and regulations to consummate and make effective the transactions contemplated
by the Merger Agreement as soon as practicable.
Prior to the Effective Time, the Company has agreed in the Merger Agreement
to take such actions as may be necessary such that at the Effective Time each
stock option outstanding, pursuant to the Company's stock and option plans (an
"Option"), whether or not then vested shall be canceled and only entitle the
holder thereof, upon surrender thereof, to receive an amount in cash equal to
the difference, if positive, between the Merger Consideration and the exercise
price per Share of such Option multiplied by the number of Shares previously
subject to such Option.
Parent and the Company have agreed that from and after the Effective Time,
the Surviving Corporation and Parent will indemnify and hold harmless each
present and former director and/or officer of the Company, determined as of the
Effective Time (the "Indemnified Parties"), that is made a party or threatened
to be made a party to any threatened, pending or completed, action, suit,
proceeding or claim, whether civil, criminal, administrative or investigative,
by reason of the fact that he or she was a director or officer of the Company or
any subsidiary of the Company prior to the Effective Time and arising out of
actions or omissions of the Indemnified Party in any such capacity occurring at
or prior to the Effective Time (a "Claim") against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amounts paid in
settlement pursuant to the Merger Agreement, losses, claims, damages or
liabilities (collectively, "Costs") reasonably incurred in connection with any
Claim, whether asserted or claimed prior to, at or after the Effective Time, to
the fullest extent that the Company would have been permitted under Delaware
law. The Surviving Corporation and Parent shall also advance expenses (including
attorneys' fees), as incurred by the Indemnified Party to the fullest extent
permitted under applicable law provided such Indemnified Party provides an
undertaking to repay such advances if it is ultimately determined that such
Indemnified Party is not entitled to indemnification.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, shall promptly notify the Surviving
Corporation and Parent thereof, but the failure to so notify shall not relieve
the Surviving Corporation or Parent of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the indemnifying
party. In the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) Parent or the
Surviving Corporation shall have the right to assume the defense thereof and
Parent shall not be liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such Indemnified
Parties in connection with the defense thereof, except that if Parent or the
Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between Parent or the Surviving Corporation and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to them, and
Parent or the Surviving Corporation shall pay all reasonable fees and expenses
of such counsel for the Indemnified Parties promptly as statements therefor are
received; provided, however, that the Surviving Corporation and Parent shall be
obligated to pay for only one firm or counsel for all Indemnified Parties in any
jurisdiction unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest, (ii) the Indemnified Parties
will cooperate in the defense of any such matter and (iii) Parent shall not be
liable for any settlement effected without its prior written consent; and
provided further that the Surviving Corporation and Parent, respectively, shall
not
13
have any obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and non-appealable, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. If such indemnity is not available with respect to any Indemnified Party,
then the Surviving Corporation and the Indemnified Party shall contribute to the
amount payable in such proportion as is appropriate to reflect relative faults
and benefits.
If a claim for indemnification or advancement is not paid in full by the
Surviving Corporation or Parent within thirty days after a written claim
therefor has been received by the Surviving Corporation or Parent, the
Indemnified Party may any time thereafter bring suit against the Surviving
Corporation or Parent to recover the unpaid amount of the claim and, if
successful in whole or in part, the Indemnified Party shall be entitled to be
paid also the expense of prosecuting such claims.
Neither the failure of the Surviving Corporation or Parent (including their
Boards of Directors, independent local counsel or shareholders) to have made a
determination prior to the commencement of such suit that indemnification of the
Indemnified Party is proper in the circumstances because he or she has met the
applicable standard of conduct, nor an actual determination by the Surviving
Corporation or Parent (including their Boards of Directors, independent legal
counsel, or shareholders) that the Indemnified Party has not met such applicable
standard of conduct, shall be a defense to the suit or create a presumption that
the Indemnified Party has not met the applicable standard of conduct.
In addition, the Surviving Corporation agreed to maintain the Company's
existing officers' and directors' liability insurance or equivalent liability
insurance ("D&O Insurance") for a period of six years after the Effective Time
so long as the annual premium therefor is not in excess of the last annual
premium paid prior to the date of the Merger Agreement (the "Current Premium");
provided, however, if the existing D&O Insurance expires, is terminated or
canceled during such six-year period, the Surviving Corporation agreed to use
its best efforts to obtain as much D&O Insurance as can be obtained for the
remainder of such period for a premium not in excess (on an annualized basis) of
200 percent of the Current Premium. In lieu of this insurance arrangement, the
Surviving Corporation may, on or before the expiration of the Offer, enter into
alternative insurance arrangements provided that such arrangements are approved
by the members of the Special Committee and Parent.
The Company has agreed in the Merger Agreement that if Purchaser or any
other Parent Company shall have purchased Shares pursuant to the Offer, to take
all necessary action to enter into a supplemental indenture prior to the
Effective Time with the Trustee (as defined in the Debentures) pursuant to the
indenture under which the Debentures were issued, to provide, among other
things, that on and after the Effective Time the Debentures will be convertible
only into the Merger Consideration.
If any takeover statute shall become applicable to the Merger, the Offer or
the other transactions contemplated pursuant to the Merger Agreement, the
Company has agreed in the Merger Agreement that the Company and the members of
the Board shall grant such approvals and take such actions as are necessary so
that the transactions contemplated pursuant to the Merger Agreement may be
consummated as promptly as practicable on the terms contemplated by the Merger
Agreement and otherwise act to eliminate or minimize the effects of such statute
or regulation on the transactions contemplated by the Merger Agreement.
The Company and Parent each have agreed in the Merger Agreement to use (and
cause its subsidiaries to use) its best efforts to cause the conditions set
forth in Article VII of the Merger Agreement to be satisfied and to consummate
the Merger and the other transactions contemplated
14
by the Merger Agreement. The Company further agreed to use (and to cause its
subsidiaries to use) its best efforts (including providing information and
communication) to obtain all necessary waivers, consents and approvals from
other parties to material agreements, leases and other contracts and to obtain
as promptly as practicable all necessary approvals, authorizations and consents
of Governmental Entities (including applicable insurance regulators) required to
be obtained in order to consummate the transactions contemplated by the Merger
Agreement, and each of the parties to the Merger Agreement agree to cooperate
with the others in obtaining all such consents, waivers, approvals and
authorizations.
In the Merger Agreement, Parent agreed to vote (or consent with respect to)
or cause to be voted (or a consent to be given with respect to) any Shares
(including all Shares currently owned) and any shares of common stock of
Purchaser beneficially owned by it or any of its subsidiaries or with respect to
which it or any of its subsidiaries has the power (by agreement, proxy or
otherwise) to cause to be voted (or to provide a consent), in favor of the
adoption and approval of the Merger Agreement at any meeting of stockholders of
the Company or Purchaser, respectively, at which the Merger Agreement shall be
submitted for adoption and approval and at all adjournments or postponements
thereof (or, if applicable, by any action of stockholders of either the Company
or Purchaser by consent in lieu of a meeting).
In the Merger Agreement, Parent and the Company agreed that no amendment to
the Certificate of Incorporation or By-Laws of the Surviving Corporation shall
reduce in any way the elimination of personal liability of directors of the
Company contained therein or adversely affect any existing right of any director
or officer (or former director or officer) to be indemnified with respect to
acts, omissions or events occurring prior to the Effective Time.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto including among
others, representations as to corporate organization and qualification,
capitalization, corporate authority, no violation of charter or by-laws, debt
instruments or material agreements of the Company or applicable law resulting
from the transaction, accuracy of the Company's public filings, including
financial statements, absence of any material adverse change in the Company's
business and absence of undisclosed liabilities.
Conditions to Certain Obligations. The respective obligations of the
Company, Parent and Purchaser to consummate the Merger are subject to the
fulfillment of the following conditions: (i) in the event of a Company
stockholder meeting upon termination of the Offer to vote for the approval of
the Merger Agreement and the Merger, the Merger Agreement shall have been duly
approved by the holders of a majority of the Shares, in accordance with
applicable law and the Restated Certificate and the Company's By-Laws; (ii)
Purchaser (or one of Parent Companies) shall have purchased Shares pursuant to
the Offer; and (iii) no court or other Governmental Entity of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, judgment, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and prohibits
consummation of the Merger.
Termination. The Merger Agreement may be terminated and the Merger may be
abandoned (i) at any time prior to the Effective Time, before or after the
approval by holders of Shares, by the mutual consent of Parent and the Company,
by action of their respective boards of directors; (ii) by action of the board
of directors of either Parent or the Company if (a) Purchaser or any Parent
Company, shall have terminated the Offer without purchasing any Shares pursuant
thereto, provided, in the case of termination of the Merger Agreement by Parent,
such termination of the Offer is not in violation of the terms of the Offer, or
(b) without fault of the terminating party, the Merger shall not have been
consummated by March 31, 1996, whether or not such date is before or after the
15
approval by holders of Shares; (iii) at any time prior to the Effective Time,
before or after the approval by holders of Shares, by action of the board of
directors of Parent, if (a) the Company shall have failed to comply in any
material respect with any of the covenants or agreements contained in the Merger
Agreement to be complied with or performed by the Company at or prior to such
date of termination, or (b) the Board of Directors or the Special Committee
shall have withdrawn or modified in a manner adverse to Parent or Purchaser its
approval or recommendation of the Offer, the Merger Agreement or the Merger or
the Board of Directors or the Special Committee, upon request by Parent, shall
fail to reaffirm such approval or recommendation, or shall have resolved to do
any of the foregoing; (iv) at any time prior to the Effective Time, before or
after the approval by holders of Shares by action of the Board of Directors, if
Parent or Purchaser (a) shall have failed to comply in any material respect with
any of the covenants or agreements contained in the Merger Agreement to be
complied with or performed by Parent or Purchaser at or prior to such date of
termination or (b) shall have failed to commence the Offer within five days of
the execution of the Merger Agreement; provided however that no action taken by
the Board of Directors with respect to termination of the Merger Agreement and
the Merger shall be effective unless such action is approved by the affirmative
vote of at least a majority of the members of the Special Committee.
Payment of Expenses. Whether or not the Merger shall be consummated, the
Company, Parent and Purchaser shall pay its own expenses incident to preparing
for, entering into and carrying out the Merger Agreement and the consummation of
the Merger.
Modification or Amendment. Subject to the applicable provisions of the DGCL,
at any time prior to the Effective Time, Parent, the Company and Purchaser may
modify or amend the Merger Agreement, by written agreement executed and
delivered by duly authorized officers of the respective parties.
Waiver of Conditions. The conditions to each of the Company, Parent or
Purchaser's obligations to consummate the Merger are for the sole benefit of
such party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
The Letter Agreement
In a Letter Agreement dated as of November 8, 1995, among Parent, Purchaser
and the Company (the "Letter Agreement"), the parties agreed to modify the
Minimum Tender Condition to eliminate the consideration of options for purposes
of calculating whether Parent beneficially owned, directly or indirectly, at
least 90% of the Shares.
(c) Background of the Offer.
In a letter to the Board of Directors dated September 25, 1995, that was
delivered to the Board on September 26, 1995, from Jacques Blondeau on behalf of
Parent, Parent made a proposal to acquire in a negotiated transaction any and
all outstanding Shares not currently owned by Parent at a price of $14.00 per
Share in cash (the "Proposal"). In such letter and at a meeting of the Board of
Directors held on September 28, 1995, Parent described the Proposal.
On September 26, 1995, Parent issued a press release announcing the Proposal
and its terms.
On September 27, 1995, Sullivan & Cromwell, United States legal counsel to
Parent, met with the Company's General Counsel and other members of the
Company's legal department to discuss regulatory implications of the Company
becoming a wholly-owned subsidiary of Parent. Sullivan & Cromwell also requested
that Parent's financial advisor be given the opportunity to perform a due
diligence investigation on the Company.
16
At the Board meeting on September 28, 1995, the Board established and
selected the Special Committee, among other things, to evaluate and make a
recommendation to the Board regarding the Proposal and to negotiate the terms of
the Proposal. The Board authorized the Special Committee to retain financial and
legal advisors. Thereafter, the Special Committee retained Davis Polk & Wardwell
("Davis Polk") as its legal advisor to assist in its consideration of, and
negotiations with respect to, the Proposal. Neither the Special Committee nor
any of its advisors were authorized to solicit any offers or proposals by any
third party for the acquisition of the Company.
In a meeting with the Special Committee held on September 28, 1995, a
representative of Parent advised the Special Committee that Parent would likely
commence a tender offer for the Shares in advance of entering into a merger
agreement, but that Parent would defer commencing the tender offer to give the
Special Committee time to retain legal and financial advisors and begin their
review of the Proposal. The Special Committee and Parent agreed that it was in
the best interests of the Company and its stockholders to resolve promptly
whether Parent would be acquiring the Shares not already owned by it and that
the Special Committee would endeavor to be in a position to respond to the
Proposal by October 26, 1995, the date of a previously scheduled meeting of the
Executive Committee of the Board of Directors.
On September 29, 1995, the Company issued a press release concerning the
terms of the Proposal and announcing that a special committee of independent
directors had been formed to consider the Proposal with the assistance of
independent legal and financial advisors.
On September 29 and October 3, 1995, Sullivan & Cromwell called Davis Polk
to discuss issues potentially associated with the possible commencement of a
tender offer and to inquire as to the timing for retention of a financial
advisor. During those conversations, Davis Polk expressed concern that a tender
offer might place the Special Committee under timing constraints in responding
to the Proposal. During the conversation on October 3, Davis Polk also indicated
that Goldman Sachs would be provided with access to confidential information
concerning the Company only after and to the extent that the Special Committee
and its financial advisor determined that such access was appropriate.
On October 2, 1995, a purported class action lawsuit relating to the
Proposal was filed in the Delaware Chancery Court, New Castle County, naming
Parent, the Company and certain directors of the Company as defendants. The
action alleges, among other things, that the defendants have breached or will
breach their fiduciary duties in connection with the offer from Parent and seeks
to enjoin the Proposal or to recover damages. See "Item 8(a)--Certain Legal
Proceedings" for a description of such action and similar actions.
On October 10, 1995, Sullivan & Cromwell called Davis Polk to discuss again
the timing of the retention by the Special Committee of its financial advisor
and the possibility of a tender offer by Parent for the Shares prior to entering
into a merger agreement. During the course of that telephone call, Davis Polk
reiterated concerns relating to the commencement of a tender offer before the
Special Committee had delivered its response to the Proposal.
At a meeting of the Special Committee on October 10, 1995, the Special
Committee retained Dillon, Read & Co. Inc. ("Dillon Read") as its financial
advisor to assist in its evaluation of, and negotiations with respect to, the
Proposal.
17
During the weeks of October 9, October 16 and October 23, 1995, the Special
Committee's advisors conducted a detailed investigation of the Company and
review of the Proposal. As part of its due diligence investigation, Dillon Read,
among other things, interviewed senior management of the Company.
On September 29, October 4, October 10, October 11, October 20, twice on
October 24, October 26, October 30, October 31 and November 2, 1995, the Special
Committee met or participated in teleconferences with its financial and/or legal
advisors to discuss the terms of the Proposal, the Company's business, the
progress of Dillon Read's investigation of the Company and its business and the
legal responsibilities of the Special Committee.
On October 19, 1995, Sullivan & Cromwell, legal advisors to Parent,
delivered to Davis Polk a proposed form of the Merger Agreement. During the next
week and thereafter, Davis Polk reviewed the terms and conditions of the Merger
Agreement and negotiated such terms and conditions with Sullivan & Cromwell.
At a meeting of the Special Committee and its financial and legal advisors
held on October 20, 1995, Dillon Read made an oral presentation to the Special
Committee with respect to the Company and the Proposal. Dillon Read discussed
with the Special Committee, among other things, a preliminary valuation analysis
of the Company, which included a comparable company trading analysis, a
comparable company acquisition analysis, an economic book value analysis, a
discounted cash flow analysis and a close out acquisition premium analysis.
Davis Polk also discussed with the Special Committee provisions of the Merger
Agreement.
At a meeting of the Special Committee held in the morning of October 24,
1995, Dillon Read made another oral presentation to the Special Committee. At
the meeting on October 24, 1995, based on the reports and advice of its
advisors, the Special Committee determined that it should seek an increase in
the price proposed by Parent. Later that day, Parent's and the Special
Committee's respective financial advisors had two separate conversations to
discuss the status of the Special Committee's evaluation of the Proposal. In
such discussions, the Special Committee's advisors conveyed to Parent's advisors
the Special Committee's view that Parent should increase its proposed price.
At a meeting of the Special Committee and its financial and legal advisors
held on October 26, 1995, Dillon Read updated the Special Committee with respect
to its valuation analysis. On that day, Parent's representatives and legal
advisors had several meetings and conversations with members of the Special
Committee and the Special Committee's legal advisors.
At meetings among Parent and the Special Committee and their respective
legal advisors on October 26, 1995, Parent and the Special Committee and their
respective advisors explored the possibility of an acceptable revised Proposal
at a price in excess of $14.00 per Share in cash. Following numerous
discussions, Jacques P. Blondeau, Chairman and Chief Executive Officer of
Parent, informed David J. Sherwood, Chairman of the Special Committee, that
Parent was not prepared to offer a price in excess of $15.00 per Share. Mr.
Sherwood responded that he believed that the Special Committee would insist on
more than $15.00 per Share but that he would consult with the Special Committee
and Dillon Read. After discussions with Dillon Read and Davis Polk, the Special
Committee instructed Davis Polk to contact Sullivan & Cromwell and indicate that
the Special Committee was not prepared to endorse an offer of $15.00 per Share.
On October 27, 1995, Dillon Read and Goldman Sachs again discussed their
respective views on the value of the Company. During that discussion, Goldman
Sachs discussed Parent's reasons for having made an offer to purchase the Shares
that it did not already own at a price of $14.00 per Share, including Goldman
Sachs' analyses contained in a presentation to management of Parent. In response
to that discussion by Goldman Sachs, Dillon Read indicated that the Special
Committee
18
would probably not accept a price per Share that did not represent at least a
moderate premium over the book value.
On October 30, 1995, Davis Polk communicated to Sullivan & Cromwell that the
Special Committee would not support an offer at $15.00 per Share but would
likely consider a price that represented a premium over the book value.
On October 31, 1995, Sullivan & Cromwell informed Davis Polk that Parent
would agree to a transaction at $15.25 if such transaction were supported by the
Special Committee, was the subject of a favorable fairness opinion of Dillon
Read, was approved by counsel for the various plaintiffs in pending shareholder
actions filed following Parent's initial proposal and was effected pursuant to a
mutually acceptable merger agreement. Davis Polk confirmed that $15.25 would
satisfy the criteria of the Special Committee and would likely be considered
favorably by the Special Committee.
During the course of the day and evening on November 1, 1995, Sullivan &
Cromwell and Davis Polk continued their negotiations of the terms of the Merger
Agreement.
On November 1, 1995, representatives of counsel to plaintiffs in the
shareholder actions agreed with Sullivan & Cromwell that they were prepared to
negotiate a settlement if a price per share of $15.25 were offered to the
Company's stockholders.
At a meeting of the Special Committee held on November 2, 1995, the Special
Committee and its advisors reviewed and considered the recent discussions
concerning the Proposal and the terms of the draft Merger Agreement. Following
such review, the Special Committee and its advisors reviewed the revised
Proposal to acquire the Shares at a price of $15.25 per Share in cash. Dillon
Read then presented its opinion that the consideration of $15.25 per Share in
cash to be paid in the Offer and Merger pursuant to the revised Proposal would
be fair to the Company's public stockholders from a financial point of view.
(See "Item 4(b)--Reasons for the Board's Recommendation; Opinion of Financial
Advisor"). The Special Committee unanimously determined that, in light of Dillon
Read's opinion and the other factors considered by the Special Committee, the
Offer and the Merger pursuant to the revised Proposal would be fair to and in
the best interests of the Company's public stockholders and that it would
recommend that, subject to the satisfactory resolution of certain provisions of
the Merger Agreement, the Board approve and adopt the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and
recommend to the Company's stockholders that they accept the Offer and tender
their Shares pursuant to the Offer. (See "Item 4(a)--Recommendation of the
Special Committee and the Board" for a description of the determinations and
recommendations made by the Special Committee and the factors considered in
connection therewith.)
The Board then met and received the recommendation of the Special Committee
concerning the revised Proposal. At such meeting, the Special Committee reviewed
with the Board their investigation of the Proposal, the course of their
discussions and negotiations with Parent's advisors and the factors considered
by the Special Committee in reaching its determinations and recommendations
concerning the revised Proposal. The Board (including the Affiliated Directors),
based upon, among other things, the recommendation of the Special Committee,
unanimously approved and adopted the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and authorized the
execution and delivery of the Merger Agreement. (See "Item 4(a)--Recommendation
of the Special Committee and the Board".)
Thereafter, on November 2, 1995, Sullivan & Cromwell and Davis Polk
completed their negotiation of the Merger Agreement. The Company and Parent
executed and delivered the Merger Agreement and issued a press release
announcing the transaction on November 3, 1995.
19
On November 8, 1995, Purchaser, Parent and the Company agreed to modify the
Minimum Tender Condition pursuant to the Letter Agreement.
On November 9, 1995, pursuant to the Merger Agreement, the Parent commenced
the Offer.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Special Committee and the Board.
On November 2, 1995, the Special Committee determined that each of the Offer
and the Merger is fair to, and in the best interests of, the stockholders of the
Company (other than Parent) and determined to recommend that the Board approve
and adopt the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, and to recommend to the Company's
stockholders that they accept the Offer and tender their Shares pursuant to the
Offer. At a meeting held on November 2, 1995, the Board (including six Parent
designees) unanimously determined that each of the Offer and the Merger is fair
to, and in the best interests of, the stockholders of the Company (other than
Parent), approved and adopted the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and determined to
recommend that the Company's stockholders accept the Offer, tender their Shares
pursuant to the Offer and approve and adopt the Merger Agreement.
Copies of a letter to stockholders communicating the Board's determination
and recommendation and of a press release relating thereto are filed as exhibits
hereto and are incorporated herein by reference.
(b) Reasons for the Board's Recommendation; Opinion of Financial Advisor.
Reasons for Recommendation.
See Item 3(b) for a description of certain events preceding the Board of
Director's consideration of the Offer and the Merger.
The Special Committee received presentations from, and reviewed the Offer
and the Merger with, senior management of the Company as well as the Special
Committee's financial advisor, Dillon Read. The Special Committee, in
determining whether to recommend the approval of the Merger Agreement and the
transactions contemplated thereby to the full Board of Directors, considered a
number of factors, including, but not limited to, the following:
(i) The belief, based on its familiarity with the Company's business,
its current financial condition and results of operations and its future
prospects, and the current and anticipated developments in the Company's
industry, that the consideration to be received by the Company's
stockholders in the Offer and Merger reflects fairly the Company's intrinsic
value.
(ii) The presentations made by the Company's management and Dillon Read
at the meeting held on October 20, 1995 as to various financial and other
considerations deemed relevant to the evaluation of the Offer and the
Merger, including, but not limited to, a review of (A) the business
prospects and financial condition of the Company, (B) historical business
information and financial results of the Company, (C) nonpublic financial
and operating results of the Company, (D) financial projections and budget
prepared by the Company's management, (E) information obtained from meetings
with senior management of the Company, (F) the trading range and volume
history of the Shares, (G) public financial information of comparable
companies and (H) public information of comparable acquisitions.
(iii) The opinion of Dillon Read that the consideration to be received
by the Company's stockholders pursuant to the Merger Agreement is fair to
such stockholders (other than Parent) from a financial point of view. In
considering Dillon Read's opinion, the Board was
20
aware that Dillon Read is entitled to the fee described in Item 5 in
accordance with the terms of its engagement.
(iv) The relationship between the consideration to be received by
stockholders as a result of the Offer and the Merger and the historical
market prices and recent trading activity of the Shares.
(v) The recognition that, following consummation of the Offer and the
Merger, the current Stockholders of the Company will no longer be able to
participate in any increases or decreases in the value of the Company's
business and properties. The Board and the Special Committee concluded,
however, that this consideration did not justify foregoing the opportunity
for stockholders to receive an immediate and substantial cash purchase price
for their Shares.
(vi) The fact that the terms of the Offer, and the increase in the
consideration offered to the public stockholders from $14.00 per Share to
$15.25 per Share, were determined through arm's-length negotiations with
Parent by the Special Committee and its financial and legal advisors, all of
whom are unaffiliated with Parent, and the judgment of the Special Committee
and Dillon Read that, based upon the negotiations that transpired, a price
higher than $15.25 per Share could not likely be obtained and that further
negotiations with Parent could cause Parent to abandon the Offer, with the
resulting possibility that the market price for the Shares could fall
substantially below $15.25, and possibly $14.00, per Share, or to commence a
tender offer without the involvement of the Special Committee at a price
less than $15.25 per Share.
(vii) Parent's ownership of approximately 80% of the currently
outstanding Shares and the effects of such ownership on the alternatives
available to the Company and the fact that, as a practical matter, no
strategic alternative could be effected without the support of Parent; and
the consequences of continuing to operate the Company as a majority-owned
subsidiary of Parent.
(viii) The terms and conditions of the Merger Agreement, the fact that
there are no unusual requirements or conditions to the Offer and the Merger,
and the fact that Parent has the financial resources to consummate the Offer
and the Merger expeditiously.
(ix) The fact that the consideration to be paid to the Company's public
stockholders in the transaction is all cash.
(x) The fact that the transaction has been structured to include a
first-step cash tender offer for any and all outstanding Shares, thereby
enabling stockholders who tender their Shares to receive promptly $15.25 per
Share in cash, and the fact that any public stockholders who do not tender
their Shares or properly exercise appraisal rights will receive the same
price per Share in the subsequent Merger.
(xi) The possible conflicts of interest of certain directors and members
of management of both the Company and Parent discussed above under "Item
3(b)--Interests of Special Committee" and "Item 3(b)--Interests of Certain
Persons."
(xii) The fact that, while no appraisal rights are available to
stockholders as a result of the Offer, stockholders who do not tender
pursuant to the Offer will have the right to dissent from the Merger and to
demand appraisal of the fair value of their Shares under the DGCL. See "Item
3(b)--The Merger Agreement."
The Special Committee considered each of the factors listed above during the
course of its deliberations prior to recommending that the Company enter into
the Merger Agreement. In light of its knowledge of the business and operations
of the Company and its business judgment, the Special Committee believed that
each of these factors supported its conclusions. In view of the
21
wide variety of factors considered, the Special Committee did not find it
practicable to, and did not, quantify the specific factors considered in making
its determination, although the Special Committee did place a special emphasis
on the opinion and analysis of Dillon Read which in turn did place a special
emphasis on a valuation range determined using an analysis of trading values of
comparable companies and an economic book value analysis (as described below
under "Opinion of Financial Advisor").
The Board of Directors of the Company, a majority of the members of which
were members of the Special Committee, approved the Merger Agreement and the
transactions contemplated thereby after receiving a report from the Special
Committee on its deliberations and recommendation. In reaching this decision,
the Board of Directors principally considered the recommendation of the Special
Committee and its familiarity with the Company's business, its current financial
condition and results of operations and future prospects, and current and
anticipated developments in the Company's industry.
(b) Opinion of Financial Advisor
On November 2, 1995, Dillon Read delivered its opinion to the Special
Committee to the effect that the consideration to be paid to the holders of
Stock and certain of the Company's stock options pursuant to the Merger
Agreement is fair to such holders (other than Parent) from a financial point of
view as of the date thereof. A copy of Dillon Read's opinion is attached hereto
as Exhibit 7. The summary of the opinion set forth herein is qualified in its
entirety by Exhibit 7 which is incorporated herein by reference. Stockholders
are urged to read the opinion in its entirety for a description of the
assumptions made, matters considered and procedures followed by Dillon Read. The
consideration to be paid pursuant to the Offer and Merger was determined by
negotiations on behalf of the Company and Parent and was not determined by
Dillon Read. In arriving at its opinion, Dillon Read, among other things, (1)
reviewed certain publicly available business and financial information relating
to the Company; (2) reviewed the reported price and trading activity for the
Shares; (3) reviewed certain internal financial information and other data
provided to us by the Company relating to the business and prospects of the
Company, including financial projections prepared by the management; (4)
conducted discussions with members of the senior management of the Company; (5)
reviewed the financial terms, to the extent publicly available, of certain
acquisition transactions which Dillon Read considered relevant; (6) reviewed
publicly available financial and securities market data pertaining to certain
publicly-held companies in lines of business generally comparable to those of
the Company; and (7) conducted such other financial studies, analyses and
investigations, and considered such other information as Dillon Read deemed
necessary and appropriate. In reaching its opinion and conducting its analysis,
Dillon Read did not assume any responsibility for independent verification of
any of the foregoing information and relied upon it being complete and accurate
in all material respects. Dillon Read was not requested to and did not make an
independent evaluation or appraisal of any assets or liabilities (contingent or
otherwise) of the Company or any of its subsidiaries, nor were they furnished
with any such evaluation or appraisal. Dillon Read also assumed that all of the
information, including the projections, provided to Dillon Read by the Company's
management was prepared on a basis reflecting the best currently available
estimates and judgments of the Company's management as to the future of the
financial performance of the Company and was based upon the historical
performance and certain estimates and assumptions which were reasonable at the
time made. In addition, Dillon Read was not asked to and did not express any
opinion as to the after-tax consequences of the sale of such Shares by the
stockholders. Dillon Read's opinion is based on economic, monetary and market
conditions existing on the date thereof. In rendering its opinion, Dillon Read
did not render any opinion as to the value of the Company and did not make any
recommendation to the stockholders with respect to the advisability of voting in
favor of the transaction. No limitations were imposed by the Special Committee,
the Company or Parent upon Dillon Read with respect to the investigations made
or the procedures followed by Dillon Read in
22
rendering its opinion, and the Company and the members of its management
cooperated fully with Dillon Read in connection with its investigation.
In delivering its opinion and making its presentation to the Board and the
Special Committee, Dillon Read discussed certain financial and comparative
analyses and other matters it deemed relevant. Among the various financial
analyses that Dillon Read discussed were:
(i) Comparable Trading Analysis. Dillon Read undertook a comparable
public company analysis. In conducting this analysis, Dillon Read reviewed
certain financial results of seven companies in the reinsurance industry
which Dillon Read believed to be comparable to the Company. Dillon Read
calculated trading multiples of (1) 1996 expected earnings per share (based
on median estimates supplied by Institutional Brokers Estimate System
database), (2) book value as of June 30, 1995 and (3) surplus as of June 30,
1995. Such multiples ranged between 11.0x and 15.0x, 1.0x and 1.3x, and
1.1x and 1.4x, respectively. Based on such multiples, Dillon Read estimated
a reference range of $14.49 to $18.98 per Share.
(ii) Comparable Acquisition Analysis. Dillon Read reviewed 32
acquisitions of property/ casualty reinsurance companies in the United
States and Europe, which had occurred between 1987 and 1995 and summarized
financial ratios and statistics for the nine most comparable transactions in
the United States. The values of certain multiples (i.e., net income, book
value, net premiums and market value) for all nine transactions were
derived, as available. Such multiples ranged between 8.9x and 24.6x, 0.8x
and 1.8x, 0.6x and 1.7x, and 1.3x and 1.6x, respectively. The multiples were
then applied (1) to the Company's net premiums for the twelve month period
ending September 30, 1995 and (2) to the Company's book value as of
September 30, 1995. On this basis, Dillon Read estimated an average
reference range of between $14.70 to $20.32 per Share.
(iii) Economic Book Value Analysis. Dillon Read calculated the economic
book value of the Company as of September 30, 1995. In calculating the
economic book value of the Company, Dillon Read took into consideration the
following factors, among others: (1) good will of the Company, (2)
mark-to-market of the investment portfolio, (3) adjustments for the market
value of the electronic data processing system and leasehold improvements,
(4) adjustments for the valuation of the deferred income tax benefits and
publicly traded debt, (5) ranges of differences between the stated amounts
and net present value of the prepaid reinsurance, loss reserves and unearned
premiums and (6) a range of value for any reserve deficiency. Based on such
information, Dillon Read estimated a reference range of $15.24 to $17.08 per
Share.
(iv) Discounted Cash Flow Analysis. Dillon Read calculated the present
value of future cash flows that the Company could be expected to generate
over the next five years (the "Discounted Cash Flow Analysis"). In preparing
the Discounted Cash Flow Analysis, Dillon Read took into consideration the
following: (1) the Company's recent operating and financial performance
including, (a) management's business plan for fiscal year 1995 and (b) the
historical operating results for the three most recently completed fiscal
years, (2) management's business plan for fiscal 1996 and 1997 and (3)
projections, reports and other materials prepared by the Company and its
managements or representatives that were provided to Dillon Read. In
addition, representatives of Dillon Read met with representatives of the
Company's management to discuss the Company's current and projected
operations. In developing its Discounted Cash Flow Analysis for each case,
Dillon Read took the "free cash flow" that the Company was expected to
generate from fiscal year 1995 to 2000 and discounted these cash flows to
present values. Dillon Read applied discount rates ranging from 11% to 13%
determined as the most appropriate range for the Company. Dillon Read
arrived at this range of appropriate discount rates by determining the
weighted average cost of capital for publicly
23
traded companies in businesses similar to the Company. To approximate the
residual value of the Company after this five-year period, Dillon Read
applied multiples of operating income ranging from 10.5x to 12.5x. Dillon
Read's determination of the most appropriate range of multiples was based on
an assessment of the multiples of operating income which have been paid in
recent publicly announced acquisitions of similar businesses. These residual
value estimates were then discounted to present value using each of the
above range discount rates. Dillon Read summed the discounted cash flows and
residual value for each multiple of operating income described above, which
indicated a matrix of present values for the Company of $14.48 to $19.05 per
Share.
(v) Premium Analysis. Dillon Read reviewed 29 transactions involving the
close-out of minority shareholder positions, which had occurred between 1990
and 1995. Dillon Read considered only those transactions in which between
10% and 45% of all outstanding shares of a target corporation were acquired
in the close-out transaction and in which the acquiring company owned
approximately 100% of the target corporation stock upon completion of the
transaction. For each company, Dillon Read calculated for each target
corporation the premium paid for each share over the trading value of such
share (1) one day prior to the transaction, (2) one week prior to the
transaction and (3) four weeks prior to the transaction. Dillon Read then
calculated the average of all premiums paid over the target corporation's
trading price at each valuation date (calculated as a percentage of such
share price). Applying such average premiums to the Company's trading value
at each such valuation date, Dillon Read estimated a reference range of
$14.37 to $15.63 per Share.
The summary set forth above does not purport to be a complete description of
either Dillon Read's analyses or presentations to the Special Committee. Dillon
Read believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete view of the
processes underlying its opinion. The preparation of a fairness opinion is a
complex process and not necessarily susceptible to partial analyses or summary
description. In its analyses, Dillon Read made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the Company's control. Any estimates contained
therein are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Estimates of
value of companies do not purport to be appraisals or necessarily reflect the
prices at which companies may actually be sold. Because such estimates are
inherently subject to uncertainty, none of the Company, Parent, Dillon Read and
any other person assumes responsibility for their accuracy.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Company has retained Dillon Read as the Special Committee's financial
advisor in connection with the Merger, the Offer and other matters arising in
connection therewith pursuant to an engagement letter dated October 10, 1995
(the "Engagement Letter") between the Company and Dillon Read. The Engagement
Letter provides, among other things, that the Company will pay to Dillon Read a
fee equal to $500,000. In addition, the Company has agreed to reimburse Dillon
Read for its reasonable out-of-pocket expenses, including reasonable legal
expenses, and to indemnify Dillon Read against certain liabilities.
The Special Committee selected Dillon Read as its financial advisor because
Dillon Read is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Neither the Company nor any person acting on its behalf intends currently to
employ, retain or compensate any other person to make solicitations or
recommendations to stockholders in connection with the Offer.
24
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the best of the Company's knowledge, by an executive
officer, directors, affiliate or subsidiary of the Company.
(b) To the best of the Company's knowledge, except for Shares the sale of
which may trigger liability for the holder(s) under Section 16(b) of the
Exchange Act, each executive officer, director and affiliate of the Company
currently intends to tender all Shares over which he or she has sole dispositive
power to Parent.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTION BY THE SUBJECT COMPANY.
(a) Except as described in Item 3(b), no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company, (iii) a tender offer for or other acquisition of securities by or of
the Company or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described under Item 3 and Item 4, there are no transactions,
board resolutions, agreements in principle or signed contracts in response to
the Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Certain Legal Proceedings.
Between September 27 and October 2, 1995, Parent, the Company and the
Company's directors were named as defendants in five actions (the "Underlying
Actions") commenced in the Court of Chancery of the State of Delaware in and for
New Castle County. The complaints in the Underlying Actions alleged, among other
things, that (i) Parent's proposal was the product of unfair dealing inasmuch as
defendants possess non-public information concerning the financial condition and
prospects of the Company, (ii) Parent's proposed offer price of $14.00 cash per
Share to be paid to the putative class members was inadequate and unfair and
(iii) the conduct of defendants constituted self-dealing in violation of their
fiduciary duties to the putative class members.
On October 24, 1995, an order was entered in each of the Underlying Actions
(1) consolidating the Underlying Actions for all purposes in one action (the
"Consolidated Action"), (2) designating the complaint in action No. 14577 as the
complaint in the Consolidated Action and (3) designating the law firms of
Bernstein Litowitz Berger & Grossman; Wechsler Harwood Halebian & Feffer LLP;
and Wolf Popper Ross Wolf & Jones, L.L.P. as plaintiffs' co-lead counsel and the
law firms of Chimicles, Jacobsen & Tikellis and Rosenthal, Monhait, Gross &
Goddess, P.A. as plaintiffs' Delaware co-liaison counsel.
On November 1, 1995, plaintiffs' counsel agreed with Sullivan & Cromwell
that such plaintiffs' counsel were prepared to negotiate a settlement if a price
per Share of $15.25 were offered to the Company's stockholders.
An agreement in principle has been reached with plaintiffs' counsel to
settle the litigation based on Parent's increase of the Offer Price to $15.25.
This settlement is subject to approval of the Court and confirmatory discovery.
25
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 --Offer to Purchase, dated November 9, 1995.
Exhibit 2 --Letter of Transmittal.
Exhibit 3 --Proxy Statement dated April 28, 1995 relating to SCOR U.S.
Corporation's 1995 Annual Meeting of Stockholders.
Exhibit 4** --Agreement and Plan of Merger, dated as of November 2, 1995
between SCOR U.S. Corporation, SCOR S.A. and SCOR Merger
Sub Corporation.
Exhibit 5* --Letter to Stockholders of SCOR U.S. Corporation dated
November 9, 1995.
Exhibit 6 --Press Release issued by SCOR S.A. and SCOR U.S. Corporation
on November 3, 1995.
Exhibit 7* --Opinion of Dillon, Read & Co. Inc. dated November 2, 1995.
Exhibit 8 --Engagement Letter, dated October 10, 1995, between Dillon,
Read & Co. Inc. and SCOR U.S. Corporation.
Exhibit 9 --Report of Dillion, Read & Co. Inc. to the Special
Committee of the Board of Directors of SCOR U.S. Corporation
dated November 2, 1995.
Exhibit 10 --Letter Agreement dated as of November 8, 1995 among
SCOR S.A., SCOR U.S. Corporation and SCOR Merger Sub
Corporation.
------------
* Included in copies of this Schedule 14D-9 mailed to stockholders.
** Incorporated by reference from the Company's Report on Form 8-K, dated
November 6, 1995.
26
SIGNATURE
After reasonable inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
SCOR U.S. CORPORATION
Dated: November 9, 1995
By: /s/ JEROME KARTER
---------------------------------------
JEROME KARTER
President and Chief Executive Officer
27
EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
- ------------ ----------------------------------------------------- ----
Exhibit 1 --Offer to Purchase, dated November 9, 1995.
Exhibit 2 --Letter of Transmittal.
Exhibit 3 --Proxy Statement dated April 28, 1995 relating
to SCOR U.S. Corporation's 1995 Annual Meeting
of Stockholders.
Exhibit 4** --Agreement and Plan of Merger, dated as of
November 2, 1995 between SCOR U.S. Corporation,
SCOR S.A. and SCOR Merger Sub Corporation.
Exhibit 5* --Letter to Stockholders of SCOR U.S. Corporation
dated November 9, 1995.
Exhibit 6 --Press Release issued by SCOR S.A. and SCOR U.S.
Corporation on November 3, 1995.
Exhibit 7* --Opinion of Dillon, Read & Co. Inc. dated
November 2, 1995.
Exhibit 8 --Engagement Letter, dated October 10, 1995, between
Dillon, Read & Co. Inc. and SCOR U.S. Corporation.
Exhibit 9 --Report of Dillion, Read & Co. Inc. to the Special
Committee of the Board of Directors of SCOR U.S.
Corporation dated November 2, 1995.
Exhibit 10 --Letter Agreement dated as of November 8, 1995
among SCOR S.A., SCOR U.S. Corporation and SCOR
Merger Sub Corporation.
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* Included in copies of this Schedule 14D-9 mailed to stockholders.
** Incorporated by reference from the Company's Report on Form 8-K, dated
November 6, 1995.