-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qo/+sms4p6IC4TgIazhFTSAPdrAXCwSncmorOvdRoa4H+gOjjcTvYgkpmjMQ17yN Bx9kdrfyaUM1I9ePqDh28w== 0000914039-97-000282.txt : 19970815 0000914039-97-000282.hdr.sgml : 19970815 ACCESSION NUMBER: 0000914039-97-000282 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK GROUP INC CENTRAL INDEX KEY: 0000787952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061152790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14737 FILM NUMBER: 97660426 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535500 10-Q 1 FORM 10-Q 1 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997. / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period __________ to __________ . Commission file number 0-14737 TRENWICK GROUP INC. (Exact name of registrant as specified in its charter) Delaware 06-1152790 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Metro Center One Station Place Stamford, Connecticut 06902 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 353-5500 None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /x/ NO ...... Indicate the number of shares outstanding of each of the issuer's classes of common stock.
Class Outstanding at July 31, 1997 ----- ---------------------------- Common Stock, $.10 par value 11,937,182
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2 TRENWICK GROUP INC. INDEX
Page PART I. Financial Information Number Consolidated Balance Sheet June 30, 1997 and December 31, 1996 3 Consolidated Statement of Income Three and Six Months Ended June 30, 1997 and 1996 4 Consolidated Statement of Changes in Stockholders' Equity Three and Six Months Ended June 30, 1997 and 1996 5 Consolidated Statement of Cash Flows Six Months Ended June 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7-11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
3 TRENWICK GROUP INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, December 31, 1997 1996 (dollars in thousands) Assets Securities available for sale at fair value: Debt securities (amortized cost: $777,146 and $700,476) $ 790,075 $ 713,998 Equity securities (cost: $31,027 and $21,346) 36,463 25,959 Cash and cash equivalents 10,012 14,253 ----------- --------- Total investments and cash 836,550 754,210 Accrued investment income 10,970 10,386 Receivables from ceding insurers 79,981 62,689 Reinsurance recoverable balances, net 55,750 47,772 Deferred policy acquisition costs 23,836 21,805 Net deferred income taxes 19,530 20,231 Other assets 11,399 3,711 ----------- --------- Total assets $ 1,038,016 $ 920,804 =========== ========= Liabilities and Stockholders' Equity Liabilities: Unpaid claims and claims expenses $ 496,062 $ 467,177 Unearned premium income 83,374 71,448 Convertible debentures -- 103,500 Other liabilities 11,914 12,926 ----------- --------- Total liabilities 591,350 655,051 ----------- --------- Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick 110,000 -- ----------- --------- Common stockholders' equity: Common stock, $.10 par value, 22,500,000 shares authorized; 11,937,182 and 10,087,826 shares outstanding 1,194 1,009 Additional paid-in capital 153,434 94,423 Retained earnings 171,139 159,512 Net unrealized appreciation of securities available for sale, net of income taxes 11,936 11,789 Deferred compensation under stock award plan (1,037) (980) ----------- --------- Total common stockholders' equity 336,666 265,753 ----------- --------- Total liabilities and stockholders' equity $ 1,038,016 $ 920,804 =========== =========
All share and per share information reflects a 3 for 2 stock split, paid on April 15, 1997. The accompanying notes are an integral part of these statements. 3 4 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- (in thousands except per share data) Revenues: Net premiums earned $47,105 $ 53,376 $101,019 $101,067 Net investment income 12,123 10,185 23,852 20,054 Net realized investment gains (losses) 1 (11) 1,916 39 Other income 10 -- 10 -- ------- -------- -------- -------- Total revenues 59,239 63,550 126,797 121,160 ------- -------- -------- -------- Expenses: Claims and claims expenses incurred 27,486 32,775 58,290 61,974 Policy acquisition costs 14,580 14,716 31,957 26,958 Underwriting expenses 3,779 3,343 7,768 7,371 Interest expense -- 1,625 890 3,249 Minority interest in Trenwick Capital Trust 2,426 -- 4,043 -- ------- -------- -------- -------- Total expenses 48,271 52,459 102,948 99,552 ------- -------- -------- -------- Income before income taxes and extraordinary item 10,968 11,091 23,849 21,608 Income taxes 2,375 2,764 5,455 5,099 ------- -------- -------- -------- Income before extraordinary item 8,593 8,327 18,394 16,509 Extraordinary loss on debt redemption, net of $558 income tax benefit -- -- 1,037 -- ------- -------- -------- -------- Net income $ 8,593 $ 8,327 $ 17,357 $ 16,509 ======= ======== ======== ======== PRIMARY EARNINGS PER SHARE Income before extraordinary item $ .71 $ .81 $ 1.59 $ 1.61 Extraordinary loss -- -- .09 -- ------- -------- -------- -------- Net income $ .71 $ .81 $ 1.50 $ 1.61 ======= ======== ======== ======== FULLY DILUTED EARNINGS PER SHARE (assuming conversion of dilutive convertible debentures) Income before extraordinary item $ .71 $ .70 $ 1.51 $ 1.39 Extraordinary loss -- -- .06 -- ------- -------- -------- -------- Net income $ .71 $ .70 $ 1.45 $ 1.39 ======= ======== ======== ======== DIVIDENDS PER COMMON SHARE $ .24 $ .21 $ .48 $ .41 ======= ======== ======== ========
All share and per share information reflects a 3-for-2 stock split, paid on April 15, 1997. The accompanying notes are an integral part of these statements. 4 5 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- (dollars in thousands) Common stockholders' equity, beginning of period $ 322,474 $ 239,338 $ 265,753 $ 240,776 Common stock, $.10 par value, and additional paid-in-capital: Conversion of debentures (1,783,926) -- -- 57,780 -- Exercise of employer stock options (750, 179,778, 60,750 and 191,778 shares) 20 3,438 776 3,596 Income tax benefits from additional compensation deductions allowable for income tax purposes 7 959 483 1,053 Restricted common stock awarded (362, 9,782 and 9,654 shares) -- 13 328 333 Restricted common stock awards cancelled (2,100 shares) -- (91) -- (91) Common stock purchased and retired (25,205, 5,091 and 30,431 shares) -- (843) (171) (1,023) Retained earnings: Net income 8,593 8,327 17,357 16,509 Cash dividends (2,865) (2,078) (5,730) (4,124) Net unrealized appreciation of securities available for sale: Change in unrealized appreciation 12,767 (5,861) 226 (17,828) Change in applicable deferred income taxes (4,466) 2,052 (79) 6,240 Deferred compensation under stock award plan: Restricted common stock awarded -- (13) (328) (333) Restricted common stock awards cancelled -- 91 -- 91 Compensation expense recognized 136 136 271 269 --------- --------- --------- --------- Common stockholders' equity, end of period $ 336,666 $ 245,468 $ 336,666 $ 245,468 ========= ========= ========= =========
All share and per share information reflects a 3-for-2 stock split, paid on April 15, 1997. The accompanying notes are an integral part of these statements. 5 6 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30, 1997 1996 ---- ---- (in thousands) Cash flows from operating activities: Premiums collected $ 73,612 $ 79,066 Ceded premiums paid (4,328) (3,109) Claims and claims expenses paid (55,859) (43,994) Claims and claims expenses recovered 2,121 3,175 Underwriting expenses paid (8,230) (7,713) --------- -------- Cash provided by underwriting activities 7,316 27,425 Net investment income received 24,509 20,573 Interest expense paid (496) (3,085) Income taxes paid (recovered) (6,226) (4,881) Other income received 10 -- --------- -------- Cash provided by operating activities 25,113 40,032 --------- -------- Cash flows for investing activities: Purchases of debt securities (137,869) (72,910) Sales of debt securities 33,980 7,936 Maturities of debt securities 26,002 26,207 Purchases of equity securities (12,390) (115) Sales of equity securities 4,621 2,375 Additions to premises and equipment (78) (407) --------- -------- Cash used for investing activities (85,734) (36,914) --------- -------- Cash flows for financing activities: Issuance of mandatorily redeemable preferred capital securities 110,000 -- Redemption of convertible debentures (46,997) -- Issuance costs of capital securities (1,498) -- Issuance of common stock 776 3,596 Repurchase of common stock (171) (1,023) Dividends paid (5,730) (4,124) --------- -------- Cash provided (used) by financing activities 56,380 (1,551) --------- -------- Change in cash and cash equivalents (4,241) 1,567 Cash and cash equivalents, beginning of period 14,253 6,760 --------- -------- Cash and cash equivalents, end of period $ 10,012 $ 8,327 ========= ========
The accompanying notes are an integral part of these statements. 6 7 TRENWICK GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The interim consolidated financial statements included those of Trenwick Group Inc. and its subsidiaries and have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with prior periods. Certain items in the financial statements have been reclassified to conform with the 1997 presentation. Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The interim consolidated financial statements are unaudited; however, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. These interim statements should be read in conjunction with the 1996 audited financial statements and related notes. Earnings Per Share Primary earnings per share are computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year. Primary weighted average shares outstanding are adjusted to reflect as outstanding, throughout each year presented, common stock equivalents pursuant to the assumed exercise of stock options. Fully diluted earnings per share are computed based on the assumption that the convertible debentures are converted into common shares. Supplemental earnings per share reflect primary earnings per share adjusted as if the conversion was consummated as of the beginning of the period. 7 8 The weighted average shares of common stock outstanding and net income per share amounts are as follows:
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Primary 12,114 10,226 11,593 10,227 Supplemental 12,114 12,010 12,096 12,011 Fully diluted 12,114 13,443 12,186 13,430 PER SHARE AMOUNTS: Primary $.71 $.81 $1.50 $1.61 ==== ==== ===== ===== Supplemental $.71 $.74 $1.46 $1.47 ==== ==== ===== ===== Fully diluted $.71 $.70 $1.45 $1.39 ==== ==== ===== =====
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" which establishes new guidelines for the computation and disclosure of earnings per share. This statement is required to be adopted on December 31, 1997 and earlier adoption is not permitted. Current earnings per share ("EPS") disclosures will be replaced by basic EPS and diluted EPS as defined in the statement. The expected effect of the statement on net income per share amounts is as follows:
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Basic $.72 $.84 $1.53 $1.67 ==== ==== ===== ===== Diluted $.71 $.70 $1.47 $1.39 ==== ==== ===== =====
Issuance costs of capital securities The issuance costs associated with the issuance of the capital securities are being amortized over the term of the junior subordinated debentures. 8 9 2. REINSURANCE Trenwick purchases reinsurance to reduce its exposure to catastrophe losses and the frequency of large losses in all lines of business. Trenwick, however, remains liable in the event that its retrocessionaires do not meet their contractual obligations. The effects of reinsurance on premiums written, premiums earned and claims and claims expenses incurred is as follows (in thousands):
Premiums Written Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Assumed $59,681 $65,503 $132,418 $129,534 Ceded (10,835) (5,232) (24,014) (10,380) -------- --------- --------- --------- Net $48,846 $60,271 $108,404 $119,154 ======= ======= ======== ========
Premiums Earned Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Assumed $56,266 $58,592 $120,491 $111,427 Ceded (9,161) (5,216) (19,472) (10,360) ------- ------- -------- -------- Net $47,105 $53,376 $101,019 $101,067 ======= ======= ======== ========
Claims and Claims Expenses Incurred Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Assumed $39,359 $39,579 $85,876 $ 75,927 Ceded (11,873) (6,804) (27,586) (13,953) ------- ------- ------- -------- Net $27,486 $32,775 $58,290 $ 61,974 ======= ======= ======= ========
9 10 3. MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES On January 28, 1997, Trenwick completed a private offering of $110 million in 8.82% Subordinated Capital Income Securities ("Capital Securities") through Trenwick Capital Trust I ("Trust"), a Delaware statutory business trust. Trenwick owns all the common securities of the Trust ("Common Securities"). Concurrently with the issuance of the Capital Securities, the Trust invested the proceeds their sale, together with the consideration paid to the Trust by Trenwick for the Common Securities, in Trenwick's Junior Subordinated Debentures, whose terms are similar to those of the Capital Securities. The Trust was formed for the sole purpose of issuing the Capital Securities and the Common Securities, investing the proceeds thereof in the Junior Subordinated Debentures and making distributions to the holders of the Capital Securities. The Capital Securities mature on February 1, 2037; require preferential cumulative cash distributions at an annual rate of 8.82%, payable semi-annually on February 1 and August 1 (beginning August 1, 1997) from the payment of interest on the Junior Subordinated Debentures; and are guaranteed by Trenwick, within certain limits, as to the payment of distributions and liquidation or redemption payments. They are subject to mandatory redemption, (i) in whole but not in part at maturity, upon repayment of the Junior Subordinated Debentures, at a redemption price equal to the principal amount plus accrued and unpaid interest; (ii) in whole but not in part at any time, contemporaneously with the optional prepayment of the Junior Subordinated Debentures upon the occurrence and continuation of certain events, at a redemption price equal to the greater of the principal amount or the present value of principal and interest payable to February 1, 2007, plus accrued and unpaid interest and possible additional sums; and (iii) in whole or in part, after February 1, 2007, contemporaneously with the optional prepayment of the Junior Subordinated Debentures, at a redemption price equal to the principal amount plus accrued and unpaid interest and possible additional sums. Upon the occurrence and continuation of an event of default with respect to the Junior Subordinated Debentures, the Capital Securities shall have a preference over the Common Securities. Upon the occurrence of an event of default (A) with respect to the Junior Subordinated Debentures which is attributable to Trenwick's failure to make required payments or (B) with respect to Trenwick's guarantee, the holders of the Capital Securities may institute a direct action against Trenwick. In accordance with their terms, the Capital Securities were exchanged for fully registered Capital Securities, which are not subject to restrictions on transfer. 4. STOCKHOLDERS' EQUITY Preferred Stock Trenwick has 1,000,000 shares of $.10 par value preferred stock authorized and none outstanding. Stock Options and Benefit Plans For the six months ended June 30, 1997, Trenwick awarded key employees an aggregate of 9,782 shares of common stock under the terms of the 1989 Stock Plan, valued at an average of $33.50 per share (approximately $328,000). Trenwick is recognizing compensation expense determined by the value of the shares, amortized over a five year vesting period. During the six month period, 5,091 shares were repurchased at an average of $33.50 per share (approximately $171,000) in connection with the satisfaction of withholding taxes payable upon the vesting of shares previously awarded under the plan. 10 11 Common Stock On May 21, 1997, Trenwick's Board of Directors approved a stock repurchase program covering up to one million shares of the Company's common stock; no shares have been repurchased to date. On March 6, 1997, Trenwick's Board of Directors approved a three-for-two stock split which was paid on April 15, 1997 to stockholders of record at the close of business on March 18, 1997. An amount equal to the par value of the additional shares issued has been transferred from additional paid-in capital to common stock. In this report, all share and per share data have been retroactively restated to reflect the stock split. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Trenwick ("Trenwick") is a holding company whose principal subsidiary, Trenwick America Reinsurance Corporation ("Trenwick America Re") reinsures property and casualty risks written by U.S. insurance companies. Substantially all of Trenwick America Re's business is produced by reinsurance brokers. Trenwick America Re divides its business into three categories: treaty, specialty and facultative. OPERATING RESULTS Trenwick Group Inc. reported consolidated net income of $8.6 million or $.71 per share for the second quarter of 1997 compared to $8.3 million or $.70 per fully diluted share for the second quarter of 1996. Per share earnings in the second quarter of 1997 reflect weighted average shares of 12.1 million, which should be compared to fully diluted weighted average shares of 13.4 million in the second quarter of 1996. The decrease in the average number of shares resulted from the redemption of $45.8 million principal amount of Trenwick's 6% convertible debentures called February 20, 1997. For the first half of 1997, Trenwick's income before extraordinary item was $18.4 million or $1.59 per share compared to $16.5 million or $1.61 per share in the first half of 1996. Net income per fully diluted share was $1.45 for the first half of 1997 compared to $1.39 for the first half of 1996. PREMIUMS Trenwick's decision not to participate in the continuing downward spiral in property/casualty reinsurance rates contributed to the 9% decline in gross written premium and a 19% decline in net premiums written for the second quarter of 1997 compared to the second quarter of 1996. This decline in net premiums written is magnified by Trenwick's previously announced decision to buy more reinsurance protection in 1997 in light of the continued general deterioration in reinsurance pricing and the opportunity to buy additional protection at more favorable terms than in prior years. 12 13 The distribution of the Company's net premiums written by type was as follows (in thousands):
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 % Change 1997 1996 % Change ---- ---- -------- ---- ---- -------- CASUALTY Treaty $36,784 $ 40,785 (10)% $ 71,034 $ 78,136 (9)% Specialty 7,259 11,569 (37) 22,879 21,349 7 Facultative 730 1,592 (54) 2,037 2,946 (31) ------- -------- --- -------- --------- --- 44,773 53,946 (17) 95,950 102,431 (6) PROPERTY 4,073 6,325 (36) 12,454 16,723 (26) ------- -------- --- -------- --------- --- Total $48,846 $ 60,271 (19)% $108,404 $ 119,154 (9)% ======= ======== === ======== ========= ===
Trenwick's premium writings declined in the second quarter of 1997 as a result of a reduction in existing casualty treaty and specialty business. While, to date, new casualty business has offset the decline in premiums due to the non-renewal of certain accounts, premium writings from existing business have declined as a result of increased competition among primary companies. This increase in competition has caused cedants to reduce their premium writings or restructure their reinsurance programs, reducing the amount of reinsurance they purchase. Property business continued to decline primarily as a result of the Company's conservative response to continued erosion in catastrophe reinsurance pricing. New casualty business increased 31% and 30% in the quarter and first half of 1997 over the same periods in 1996 and represented approximately 47% and 37% of total premium writings during the periods. Continuing casualty business decreased 28% and 5% in the quarter and for the first half of 1997 over the same periods in 1996. Continuing casualty business represented 45% and 52% of the total premium writings during the periods. The Company's property business represented approximately 8% and 11% of total premium writings for the quarter and first half of 1997. UNDERWRITING EXPERIENCE The combined ratio is one means of measuring the profitability of a property and casualty company. The combined ratio reflects underwriting experience, but does not reflect income from investments or provisions for income taxes. A combined ratio below 100% indicates profitable underwriting and a combined ratio exceeding 100% indicates unprofitable underwriting. Although a reinsurer may have unprofitable underwriting results, the reinsurer may still be profitable because of investment income earned on the accumulated invested assets. 13 14 The following table sets forth Trenwick's combined ratios and the components thereof calculated on a GAAP basis for the period indicated, together with Trenwick America Re's combined ratio calculated on a statutory basis:
Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- Claims and claims expense ratio 58.4% 61.4% 57.7% 61.3% ------ ---- ---- ---- Expense ratio: Policy acquisition expense ratio 30.9 27.6 31.6 26.7 Underwriting expense ratio 8.0 6.3 7.7 7.3 ------ ---- ---- ---- Total expense ratio 38.9% 33.9% 39.3% 34.0% ------ ---- ---- ---- Combined ratio (GAAP basis) 97.3% 95.3% 97.0% 95.3% ------ ---- ---- ---- Trenwick America Re statutory combined ratio 96.1% 95.3% 96.0% 94.6% ------ ---- ---- ----
As indicated, Trenwick's claims and claims expense ratio improved in the second quarter and first half of 1997 compared to the same periods in 1996. The claims and claims expense ratio in the second quarter and first half of 1997 includes prior period favorable development of approximately $900,000 and $2.9 million, respectively. This improvement in the claims and claims expense ratio is partially offset by a continued shift in the mix of business from excess to quota share along with profit commission incurred on business written in prior years. INVESTMENT INCOME Net investment income of $12.1 million in the second quarter of 1997 increased 19% compared to $10.2 million for the same period in 1996. Net investment income of $23.9 million in the first half of 1997 increased 19% compared to $20.1 million in the first half of 1996. Pre-tax yields on invested assets, excluding equity securities, averaged 6.4% and 6.5% in 1997 and 1996, respectively. The increase in investment income is due to the continued growth in Trenwick's invested asset base. This growth resulted primarily from funds received of $29.7 million from the aggregate excess of loss commutation recorded in December 1996, coupled with approximately $61 million of funds received in January 1997 from Trenwick's previously reported private offering of $110 million 8.82% Subordinated Capital Income Securities. The remaining proceeds were used to redeem $46 million principal amount of the Company's convertible debentures, plus accrued interest. After-tax net investment income in the second quarter and first half of 1997 was $9.3 million and $18.4 million compared to $7.9 million and $15.7 million for the comparative periods in 1996. The effective tax rate on net investment income for the first half of 1997 was approximately 22.9%, versus 22.0% for the same period in 1996. 14 15 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, Trenwick's consolidated investments and cash totaled $836.6 million, as compared to $754.2 million at December 31, 1996. The fair value of the Company's debt securities portfolio exceeded amortized cost of $777.1 million and $700.5 million by $12.9 million and $13.5 million at June 30, 1997 and December 31, 1996, respectively. At June 30, 1997 and at December 31, 1996, the fair value of the Company's equity securities exceeded cost of $31.0 million and $21.3 million by $5.4 million and $4.6 million, respectively. As of June 30, 1997, Trenwick's consolidated stockholders' equity totaled $336.7 million or $28.20 per share, as compared to $265.8 million or $26.34 per share at December 31, 1996. This $70.9 million increase resulted primarily from the conversion of $57.7 million in debentures into approximately 1.8 million shares. Since December 31, 1996, the unrealized appreciation of debt and equity investments nominally increased by $147,000, net of tax, or $.01 per share. In January 1997, the Company made a private offering of $110,000,000 in 8.82% Subordinated Capital Income Securities due February 20, 2037 through Trenwick Capital Trust I, a Delaware statutory business trust. In connection with this offering, the Company called for redemption all $103,500,000 aggregate principal amount of the Company's 6% convertible debentures due December 15, 1999, on February 20, 1997, at a redemption price of 102.57% principal amount plus accrued interest to the redemption date. Of the $103,500,000 principal amount of debentures outstanding on that date, $45,819,000 principal amount were redeemed and $57,681,000 principal amount were converted into an aggregate of 1,783,926 shares of the Company's common stock, par value $.10 per share. The remaining net proceeds from the offering of the Capital Securities will be used for general corporate purposes, which may include investments in and advances to subsidiaries, the financing of growth and expansion, stock repurchases, the financing of possible future acquisitions and other corporate purposes. Statutory surplus of Trenwick America Re was $304.5 million as of June 30, 1997, compared to $286.3 million as of December 31, 1996. Cash flow from operations of $25.1 million in the first half of 1997 decreased approximately 37% compared to cash flow from operations of $40.0 million in the first half of 1996. In the first half last year, the Company benefited from non-recurring premium collections of approximately $7 million and below average paid loss activity. Cash provided by financing activities in the first half of 1997 increased to $56.4 million compared to cash used for financing activities of $1.6 million in the first half of 1996. This increase primarily resulted from funds received from the aforementioned private offering partially offset by the debt redemption. Trenwick declared a second quarter dividend of $.24 per share in 1997, a 14% increase compared to $.21 in the second quarter of 1996. 15 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders A total of 6,760,293 shares, or 85% of the 7,957,628 shares of common stock outstanding on the March 27, 1997 record date, were represented at the Company's Annual Meeting of Stockholders held on May 22, 1997. Voting results were as follows: On the proposal to elect three directors to serve in Class I until 2000, each of Messrs. W. Marston Becker and James F. Billett, Jr. was elected by an affirmative vote of 6,754,593 shares, with 5,700 shares withheld, and Mr. Joseph D. Sargent was elected by an affirmative vote of 6,754,497 shares, with 5,796 shares withheld. The Proxy Committee voted its proxies for Mr. Becker in lieu of nominee Alan R. Gruber, who died subsequent to his nomination. Messrs. Herbert Palmberger, Frederick D. Watkins and Stephen R. Wilcox continue to serve in Class II until 1998, and Messrs. Anthony S. Brown, Neil Dunn and P. Anthony Jacobs continue to serve in Class III until 1999. On the proposal to amend the Company's Restated Certificate of Incorporation to increase the authorized shares of common stock from 15,000,000 to 30,000,000 and to increase the authorized shares of preferred stock from 1,000,000 to 2,000,000, there were 6,460,764 shares voted in favor, 200,455 shares opposed and 18,451 shares abstaining. On the proposal to increase the aggregate number of shares authorized for issuance under the 1993 Stock Option Plan by 500,000 shares, there were 6,002,834 shares voted in favor, 86,683 shares opposed and 570,626 shares abstaining. On the proposal to ratify the appointment of Price Waterhouse LLP as independent accountants for the year ending December 31, 1997, there were 6,754,083 shares voted in favor, 610 shares opposed and 5,600 shares abstaining. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 3(i) Certificate of Amendment of Restated Certificate of Incorporation of Trenwick Group Inc. dated as of May 13, 1986, June 2, 1987 and May 27, 1997. 11.0 Computation of Earnings Per Share 27.0 Financial Data Schedule b) Reports on Form 8-K None 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRENWICK GROUP INC. ----------------------------------- (Registrant) Date: August 14, 1997 JAMES F. BILLETT, JR. ---------------- ----------------------------------- James F. Billett, Jr. Chairman, President and Chief Executive Officer Date: August 14, 1997 ALAN L. HUNTE --------------- ----------------------------------- Alan L. Hunte Vice President, Chief Financial Officer and Treasurer 17 EX-3 2 EXHIBIT 3.1 1 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF TRENWICK GROUP INC. Trenwick Group Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: (a) The name of the corporation is Trenwick Group Inc. The date of its original Certificate of Incorporation with the Secretary of State was October 29, 1985. (b) This Certificate of Amendment of Restated Certificate of Incorporation amends the Restated Certificate of Incorporation by amending the first sentence of paragraph 4 thereof to increase the number of authorized common shares and preferred shares. (c) The text of the first sentence of paragraph 4 as amended is herein set forth in full: 4. The aggregate number of shares which the corporation is authorized to issue is 32,000,000 shares, to consist of 30,000,000 Common shares ("Common Stock") at a par value of $.10 each and 2,000,000 Preferred shares ("Preferred Stock") at a par value of $.10 each. (d) This Certificate of Amendment of Restated Certificate of Incorporation was duly adopted by vote of the directors and of the stockholders in accordance with Section 242 of the General Corporation Law of the State of Delaware. 2 IN WITNESS WHEREOF, said Trenwick Group Inc. has caused this certificate to be signed by James F. Billett, Jr., its Chairman of the Board of Directors, and attested by Jane T. Wiznitzer, its Secretary, this 27th day of May, 1997. TRENWICK GROUP INC. By /s/ James F. Billett, Jr. ------------------------------- James F. Billett, Jr. Chairman of the Board ATTEST: /s/ Jane T. Wiznitzer - ----------------------------- Jane T. Wiznitzer Secretary 3 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF TRENWICK GROUP INC. Trenwick Group Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: (a) The name of the corporation is Trenwick Group Inc. The date of its original Certificate of Incorporation with the Secretary of State was October 29, 1985. (b) This Certificate of Amendment of Restated Certificate of Incorporation amends the Restated Certificate of Incorporation by adding a new paragraph 12 regarding the elimination of director liability for monetary damages for breaches of directors' fiduciary duty of care. (c) The text of the new paragraph 12 is herein set forth in full: 12. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, as the same exists or hereafter may be amended, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the corporation, in addition to the limitation on 4 personal liability provided herein, shall be limited to the fullest extent permitted by the amended Delaware General Corporation Law. Any repeal or modification of this paragraph by the stockholders of the corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a director of the corporation existing at the time of such repeal or modification. (d) This Certificate of Amendment of Restated Certificate of Incorporation was duly adopted by vote of the directors and of the stockholders in accordance with Sections 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Trenwick Group Inc. has caused this certificate to be signed by James F. Billett, Jr., its Chairman of the Board of Directors, and attested by Barbara R. Freed, its Secretary this 2nd day of June, 1987. TRENWICK GROUP INC. James F. Billett, Jr. By /s/ James F. Billett, Jr. ------------------------- ATTEST: By /s/ Barbara R. Freed - ---------------------------- Secretary 2 5 RESTATED CERTIFICATE OF INCORPORATION OF TRENWICK GROUP INC. Trenwick Group Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: (a) The name of the corporation is Trenwick Group Inc. The date of filing of its original Certificate of Incorporation with the Secretary of State was October 29, 1985. (b) This Restated Certificate of Incorporation restates and integrates and further amends the Certificate of Incorporation of this corporation by deleting the previous paragraphs 4, 5, 6, 7, 8 and 10, adding a new paragraph 4 amending the authorized capital of the corporation, renumbering previous paragraph 9 as paragraph 5, adding a new paragraph 6 regarding the classification and removal of directors, adding a new paragraph 7 regarding the procedure for nomination and election of directors, adding a new paragraph 8 regarding stockholder and director actions in the event of certain business transactions, adding a new paragraph 9 regarding amendments of new paragraphs 6 and 7, and renumbering previous paragraphs 11 and 12 as paragraphs 10 and 11, respectively, with amendments for consistency. 6 (c) The text of the Certificate of Incorporation as amended or supplemented heretofore is further amended hereby to read as herein set forth in full: "1. The name of the corporation is Trenwick Group Inc. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. 4. The aggregate number of shares which the corporation is authorized to issue is 16,000,000 shares, to consist of 15,000,000 Common shares ("Common Stock") at a par value of $.10 each and 1,000,000 Preferred shares ("Preferred Stock") at a par value of $.10 each. The designations, relative rights, preferences and limitations of the shares of each class are as follows: (a) Common Stock (1) Each holder of Common Stock is entitled to one vote for each share of Common Stock on all matters to be voted on and is not entitled to cumulative voting for the election of directors. (2) Subject to provisions of law and the rights of the Preferred Stock and any one or more series thereof having a preference as to dividends over the Common Stock then outstanding, dividends may be paid on the Common Stock at such times and in such amounts as the board of directors shall determine. (3) Upon the liquidation, dissolution or winding up of the corporation, after any preferential amounts to be distributed to the holders of the Preferred Stock and any one or more series thereof having a preference over the Common Stock then outstanding have been paid or declared and set apart for payment, the holders of the Common Stock shall be entitled to receive all the remaining assets of - 2 - 7 the corporation available for distribution to its stockholders ratably in proportion to the number of shares of Common Stock held by them respectively. (4) The holders of the Common Stock do not have any preemptive or preferential right to purchase or subscribe for any part of the unissued capital stock of the corporation of any class or for any new issue of stock of any class, whether now or hereafter authorized or issued. (b) Preferred Stock The board of directors is expressly authorized to adopt, from time to time, a resolution or resolutions providing for the issue of Preferred Stock in one or more series, with such voting powers, full or limited, or without voting powers, and with such designations, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof as shall be expressed in such resolution or resolutions, including, without limiting the generality of the foregoing, the following: (1) the designation and number of shares or series; (2) the dividend rate of such series, the conditions and dates upon which such dividends shall be payable, the preference or relation of such dividends to dividends payable on any other class or classes of capital stock of the corporation, and whether such dividends shall be cumulative or noncumulative; (3) whether the shares of such series shall be subject to redemption by the corporation, and, if made subject to such redemption, the times, prices, rates, adjustments and other terms and conditions of such redemption; (4) the terms and amount of any sinking or similar fund provided for the purchase or redemption of the shares of such series; (5) whether the shares of such series shall be convertible into or exchangeable for shares of capital stock or other securities of the corporation or of any other corporation, and, if provision be made for conversion or exchange, the times, prices, rates, - 3 - 8 adjustments and other terms and conditions of such conversion or exchange; (6) the extent, if any, to which the holders of the shares of such series shall be entitled to vote as a class or otherwise with respect to the election of directors or otherwise; (7) the restrictions and conditions, if any, upon the issue or reissue of any additional Preferred Stock ranking on a parity with or prior to such shares as to dividends or upon dissolution; (8) the rights of the holders of the shares of such series upon the dissolution of, or upon the distribution of assets of, the corporation, which rights may be different in the case of voluntary dissolution than the case of involuntary dissolution; and (9) any other relative rights, preferences or limitations of shares of such series consistent with this Section 4(b) and applicable law. 5. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized to make, alter or repeal the By-Laws of the corporation. 6. (a) At the 1987 annual meeting of stockholders, the directors elected to serve on the corporation's board of directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the whole board of directors. Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1988, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term. (b) Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the corporation shall have the right, pursuant to Section 4(b) hereof, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, - 4 - 9 filling of vacancies and other features of such directorships shall be governed by the terms applicable thereto, and such directors so elected shall not be divided into classes pursuant to Section 6(a) unless expressly provided by the terms of such Preferred Stock. (c) Subject to the rights of the holders of any one or more classes or series of Preferred Stock issued by the corporation, any director may be removed from office, with or without cause, only by the affirmative vote of the holders of eighty percent (80%) of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors, voting together as a single class. 7. Subject to the rights of holders of any one or more classes or series of Preferred Stock issued by the corporation, nominations for the election of directors may be made by the board of directors (or a proxy committee appointed by the board of directors) or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote generally in the election of directors may nominate one or more persons for election as directors at a meeting only if written notice of such stockholder's intent to make such nomination or nominations has been given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the corporation not later than (i) with respect to an election to be held at an annual meeting of stockholders, ninety (90) days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of stockholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to stockholders. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (d) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the board of directors; and (e) the - 5 - 10 consent of each nominee to serve as a director of the corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure. 8. (a) In addition to any affirmative vote required by law or this Restated Certificate of Incorporation or the By-Laws of the corporation, and except as otherwise expressly provided in Section 8(b), a Business Transaction (as hereinafter defined) with, or proposed by or on behalf of, any Interested Stockholder (as hereinafter defined) or any Affiliate or Associate (as hereinafter defined) of any Interested Stockholder or any person who thereafter would be an Affiliate or Associate of such Interested Stockholder shall require the affirmative vote of not less than a majority of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock (as hereinafter defined), voting together as a single class, excluding Voting Stock beneficially owned by such Interested Stockholder. Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage or separate class vote may be specified by law or otherwise. (b) The provisions of Section 8(a) shall not be applicable to any particular Business Transaction, and such Business Transaction shall require only such affirmative vote, if any, as is required by law or by any other provision of this Restated Certificate of Incorporation or the By-Laws of the corporation, or otherwise, if the Business Transaction shall have been approved (whether such approval is made prior to or subsequent to the acquisition of, or announcement or public disclosure of the intention to acquire, beneficial ownership of the Voting Stock that caused the Interested Stockholder to become an Interested Stockholder), either specifically or as a transaction which is within an approved category of transactions, by a majority of the Disinterested Directors (as hereinafter defined). (c) The following definitions shall apply with respect to this Section 8: (1) The term "Business Transaction" shall mean: (A) any merger or consolidation of the corporation or any Subsidiary (as hereinafter defined) with (i) any Interested Stockholder or (ii) any other company (whether or not itself an Interested Stockholder) which is or after such merger or consolidation would be an Affiliate or Associate of an Interested Stockholder; or - 6 - 11 (B) any sale, lease, exchange, mortgage, pledge, transfer or other disposition or security arrangement, investment, loan, advance, guarantee, agreement to purchase, agreement to pay, extension of credit, joint venture participation or other arrangement (in one transaction or a series of transactions) with or for the benefit of any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder involving any assets, securities or commitments of the corporation, any Subsidiary or any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder which (except for any arrangement, whether as employee, consultant or otherwise, other than as a director, pursuant to which any Interested Stockholder or any Affiliate or Associate thereof shall, directly or indirectly, have any control over or responsibility for the management of any aspect of the business or affairs of the corporation, with respect to which arrangements the value tests set forth below shall not apply), together with all other such arrangements (including all contemplated future events), has an aggregate Fair Market Value (as hereinafter defined) and/or involves aggregate commitments of $4,000,000 or more or constitutes more than five percent of the book value of the total assets (in the case of transactions involving assets or commitments other than capital stock) or five percent of the stockholders' equity (in the case of transactions in capital stock) of the entity in question (the "Substantial Part"), as reflected in the most recent fiscal year-end consolidated balance sheet of such entity existing at the time the stockholders of the corporation would be required to approve or authorize the Business Transaction involving the assets, securities and/or commitments constituting any Substantial Part; or (C) the adoption of any plan or proposal for the liquidation or dissolution of the corporation or for any amendment to the corporation's By-Laws; or (D) any reclassification of securities (including any reverse stock split), or recapitalization of the corporation, or any merger or consolidation of the corporation with any of its Subsidiaries or any other transaction (whether or not with or otherwise involving an Interested Stockholder) that has the effect, directly or indirectly, of increasing the proportionate share of any class or series of Capital Stock, or any securities convertible into Capital Stock or into equity securities of any - 7 - 12 Subsidiary, that is beneficially owned by any Interested Stockholder or any Affiliate or Associate of any Interested Stockholder; or (E) any agreement, contract or other arrangement providing for any one or more of the actions specified in the foregoing clauses (A) to (D). (2) The term "Capital Stock" shall mean all capital stock of the corporation authorized to be issued from time to time under this Restated Certificate of Incorporation, and the term "Voting Stock" shall mean all Capital Stock which by its terms may be voted on all matters submitted to stockholders of the corporation generally. (3) The term "person" shall mean any individual, firm, company or other entity and shall include any group comprised of any person and any other person with whom such person or any Affiliate or Associate of such person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Capital Stock. (4) The term "Interested Stockholder" shall mean any person (other than the corporation or any Subsidiary and other than any profit-sharing, employee stock ownership or other employee benefit plan of the corporation or any Subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity) who (a) is or has announced or publicly disclosed a plan or intention to become the beneficial owner of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock; or (b) is an Affiliate or Associate of the corporation and at any time within the two-year period immediately prior to the date in question was the beneficial owner of Voting Stock representing ten percent (10%) or more of the votes entitled to be cast by the holders of all then outstanding shares of Voting Stock. (5) A person shall be a "beneficial owner" of any Capital Stock or shall "beneficially own" any Capital Stock (a) which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; (b) which such person or any of its Affiliates or Associates has or shares, directly or indirectly, (i) the right to acquire (whether such right is exercisable immediately or subject to the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (ii) the right to vote pursuant to any - 8 - 13 agreement, arrangement or understanding; or (c) which is beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has or shares any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of Capital Stock. For the purposes of determining whether a person is an Interested Stockholder pursuant to this Section 8, the number of shares of Capital Stock deemed to be outstanding shall include shares deemed beneficially owned by such person through application of this Section 8, but shall not include any other shares of Capital Stock that may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. (6) An "Affiliate" of, or a person "Affiliated" with a specified person, is a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. The term "Associate" used to indicate a relationship with any person, means (1) any corporation or organization (other than the corporation or a majority-owned subsidiary of the corporation) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities, (2) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity, or (3) any relative or spouse of such person, or any relative of such spouse who has the same home as such person or who is a director or officer of the corporation or any of its parents or subsidiaries. (7) The term "Subsidiary" means any company of which a majority of any class of equity security is beneficially owned by the corporation; provided, however, that for the purposes of the definition of Interested Stockholder set forth in this Section 8, the term "Subsidiary" shall mean only a company of which a majority of each class of equity security is beneficially owned by the corporation. (8) The term "Disinterested Director" means any member of the board of directors of the corporation (the "Board of Directors"), while such person is a member of the Board of Directors, who is not an Affiliate or Associate or representative or agent or employee of the Interested Stockholder and was a member of the Board of Directors prior to the time that the Interested Stockholder became an Interested Stockholder, and any successor of a - 9 - 14 Disinterested Director while such successor is a member of the Board of Directors, who is not an Affiliate or Associate or representative or agent or employee of the Interested Stockholder and is recommended or elected to succeed the Disinterested Director by a majority of Disinterested Directors. (9) The term "Fair Market Value" means (a) in the case of cash, the amount of such cash; (b) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock quoted on the National Association of Securities Dealers Automated Quotation System (NASDAQ), the New York Stock Exchange or such other market on which the corporation's shares are publicly traded, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by a majority of the Disinterested Directors in good faith; and (c) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined in good faith by a majority of the Disinterested Directors. (d) A majority of the Disinterested Directors shall have the power and duty to determine for the purposes of this Section 8 on the basis of information known to them after reasonable inquiry, all questions arising under this Section 8, including, without limitation, (1) whether a person is an Interested Stockholder, (2) the number of shares of Capital Stock or other securities beneficially owned by any person, (3) whether a person is an Affiliate or Associate of another, (4) whether a Proposed Action is with, or proposed by, or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder, (5) whether the assets that are the subject of any Business Transaction have, or the consideration to be received for the issuance or transfer of securities by the corporation or any Subsidiary in any Business Transaction has, an aggregate Fair Market Value of $4,000,000 or more, and (6) whether the assets or securities that are the subject of any Business Transaction constitute a Substantial Part. Any such determination made in good faith shall be binding and conclusive on all parties. (e) Nothing contained in this Section 8 shall be construed to relieve any Interested Stockholder from any fiduciary obligation imposed by law. (f) For the purposes of this Section 8, a Business Transaction or any proposal to amend, repeal or adopt any provision of this Restated Certificate of - 10 - 15 Incorporation inconsistent with this Section 8 (collectively, "Proposed Action") is presumed to have been proposed by, or on behalf of, an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder or a person who thereafter would become such if (1) after the Interested Stockholder became such, the Proposed Action is proposed following the election of any director of the corporation who, with respect to such Interested Stockholder, would not qualify to serve as a Disinterested Director or (2) such Interested Stockholder, Affiliate, Associate or person votes for or consents to the adoption of any such Proposed Action, unless as to such Interested Stockholder, Affiliate, Associate or person a majority of the Disinterested Directors makes a good faith determination that such Proposed Action is not proposed by or on behalf of such Interested Stockholder, Affiliate, Associate or person, based on information known to them after reasonable inquiry. (g) Notwithstanding any other provision of this Restated Certificate of Incorporation or the By-Laws of the corporation (and notwithstanding the fact that a lesser percentage or separate class vote may be specified by law, this Restated Certificate of Incorporation or the By-Laws of the corporation), any proposal to amend or repeal this Section 8 of this Restated Certificate of Incorporation or to amend, repeal or adopt any provision of this Restated Certificate of Incorporation inconsistent with this Section 8 which is proposed by or on behalf of an Interested Stockholder or an Affiliate or Associate of an Interested Stockholder shall require the affirmative vote of the holders of not less than a majority of the votes entitled to be cast by the holders of all the then outstanding shares of Voting Stock, voting together as a single class, excluding Voting Stock beneficially owned by such Interested Stockholder; provided, however, that this Section 8(g) shall not apply to, and such majority vote shall not be required for, any amendment, repeal or adoption recommended by a majority of the Disinterested Directors. 9. Notwithstanding anything contained in this Restated Certificate of Incorporation to the contrary, the affirmative vote of the holders of at least eighty percent (80%) of the voting power of all shares of the corporation entitled to vote generally in the election of directors, voting together in a single class, shall be required to alter, amend or adopt any provision inconsistent with Sections 6 and 7 hereof. 10. Whenever a compromise or arrangement is proposed between this corporation and its creditors or any class of them and/or between this corporation and its stockholders - 11 - 16 or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this corporation, as the case may be, and also on this corporation. 11. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon the stockholders herein are granted subject to this reservation." (d) This Restated Certificate of Incorporation was duly adopted by vote of the stockholders in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware. (e) This Restated Certificate of Incorporation shall be effective on June 9, 1986. - 12 - 17 IN WITNESS WHEREOF, said Trenwick Group Inc. has caused this certificate to be signed by James F. Billett, Jr., its Chairman of the Board of Directors, and attested by Barbara Freed, its Secretary this 13th day of May, 1986. TRENWICK GROUP INC. James F. Billett, Jr. By /s/ James F. Billett, Jr. ---------------------------- ATTEST: By /s/ Barbara R. Freed - --------------------------- Secretary - 13 - EX-11 3 EXHIBIT 11 1 TRENWICK GROUP INC. Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
Income Before Extraordinary Item Net Income Three Months Ended Three Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- INCOME AVAILABLE TO COMMON STOCKHOLDERS: Income before extraordinary item/net income (primary) $ 8,593 $8,327 $8,593 $8,327 Add interest on convertible debentures converted February 20, 1997 into common stock, net of applicable taxes - 589 - 589 -------- ------ ------ ------ Income available (supplemental) 8,593 8,916 8,593 8,916 Add interest on convertible debentures redeemed when dilutive - 467 - 467 -------- ------ ------ ------ Income available (fully diluted) $ 8,593 $9,383 $8,593 $9,383 ======== ====== ====== ====== WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Average common shares outstanding 11,937 10,010 11,937 10,010 Equivalent shares associated with employee stock options 177 216 177 216 -------- ------ ------ ------ Weighted average common and common equivalent shares (primary) 12,114 10,226 12,114 10,226 Additional shares associated with convertible debentures converted February 20, 1997 - 1,784 - 1,784 -------- ------ ------ ------ Weighted average common and common equivalent shares (supplemental) 12,114 12,010 12,114 12,010 Additional shares associated with convertible debentures redeemed when dilutive - 1,417 - 1,417 Additional equivalent shares associated with employee stock options - 16 - 16 -------- ------ ------ ------ Weighted average common and common equivalent shares (fully diluted) 12,114 13,443 12,114 13,443 -------- ------ ------ ------ PER SHARE AMOUNTS: Primary $.71 $.81 $.71 $.81 ==== ==== ==== ==== Supplemental $.71 $.74 $.71 $.74 ==== ==== ==== ==== Fully diluted $.71 $.70 $.71 $.70 ==== ==== ==== ====
2 TRENWICK GROUP INC. Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
Income Before Extraordinary Item Net Income Six Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 ---- ---- ---- ---- INCOME AVAILABLE TO COMMON STOCKHOLDERS: Income before extraordinary item/net income (primary) $18,394 $16,509 $17,357 $16,509 Add interest on convertible debentures converted February 20, 1997 into common stock, net of applicable taxes 322 1,177 322 1,177 ------- ------- ------- ------- Income available (supplemental) 18,716 17,686 17,679 17,686 Add interest on convertible debentures redeemed when dilutive 256 935 -- 935 ------- ------- ------- ------- Income available (fully diluted) $18,972 $18,621 $17,679 $18,621 ======= ======= ======= ======= WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Average common shares outstanding 11,415 9,951 11,415 9,951 Equivalent shares associated with employee stock options 178 276 178 276 ------- ------- ------- ------- Weighted average common and common equivalent shares (primary) 11,593 10,227 11,593 10,227 Additional shares associated with convertible debentures converted February 20, 1997 503 1,784 503 1,784 ------- ------- ------- ------- Weighted average common and common equivalent shares (supplemental) Additional shares associated with 12,096 12,011 12,096 12,011 convertible debentures redeemed when dilutive Additional equivalent shares associated 399 1,417 -- 1,417 with employee stock options Weighted average common and common 90 2 90 2 ------- ------- ------- ------- equivalent shares (fully diluted) 12,585 13,430 12,186 13,430 ======= ======= ======= ======= PER SHARE AMOUNTS: Primary Supplemental $1.59 $1.61 $1.50 $1.61 ===== ===== ===== ===== Fully diluted $1.55 $1.47 $1.46 $1.47 ===== ===== ===== ===== $1.51 $1.39 $1.45 $1.39 ===== ===== ===== =====
EX-27 4 EXHIBIT 27
7 This schedule contains summary financial information extracted from the Financial Statements contained in the Form 10-Q for the six months ended June 30, 1997 for Trenwick Group Inc. 1,000 U.S. DOLLARS 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 1 790,075 0 0 36,463 0 0 826,538 10,012 79,981 23,836 1,038,016 496,062 83,374 0 0 0 110,000 0 1,194 335,472 1,038,016 101,019 23,852 1,916 10 58,290 31,957 12,701 23,849 5,455 18,394 0 1,037 0 17,357 1.50 1.45 0 0 0 0 0 0 0
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