-----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, NrqZkyW2voVt8mgLenomqZwzPpeb8kx9V2tb42gfmXhUw6isee7ARMLpNYsD1gUg Q5tjRkMfbRcChttKjlc0SA== 0000950112-95-002923.txt : 19951118 0000950112-95-002923.hdr.sgml : 19951118 ACCESSION NUMBER: 0000950112-95-002923 CONFORMED SUBMISSION TYPE: SC 14D9/A PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19951109 SROS: NYSE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SCOR US CORP CENTRAL INDEX KEY: 0000798363 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 751791342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-39126 FILM NUMBER: 95588859 BUSINESS ADDRESS: STREET 1: 110 WILLIAM ST STE 1800 STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038-3995 BUSINESS PHONE: 2129788200 MAIL ADDRESS: STREET 1: 110 WILLIAM STREET STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: SCOR US CORP CENTRAL INDEX KEY: 0000798363 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 751791342 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 14D9/A BUSINESS ADDRESS: STREET 1: 110 WILLIAM ST STE 1800 STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038-3995 BUSINESS PHONE: 2129788200 MAIL ADDRESS: STREET 1: 110 WILLIAM STREET STREET 2: 18TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10038 SC 14D9/A 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION RULE 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 ------------------------ 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) ------------------------ 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) ------------------------ COPY TO: PHILLIP R. MILLS, ESQ. DAVIS POLK & WARDWELL 450 LEXINGTON AVENUE NEW YORK, NY 10017 (212) 450-4000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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-- - ------------ (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 6 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. - ------------ * 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. EX-1 2 Exhibit 1 OFFER TO PURCHASE FOR CASH ALL OF THE OUTSTANDING SHARES OF COMMON STOCK OF SCOR U.S. CORPORATION AT $15.25 NET PER SHARE BY SCOR MERGER SUB CORPORATION A WHOLLY OWNED SUBSIDIARY OF SCOR S.A. - -------------------------------------------------------------------------------- THE OFFER (AS DEFINED HEREIN) AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 8, 1995, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES (AS DEFINED HEREIN) WHICH, TOGETHER WITH ANY SHARES CURRENTLY BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY PARENT (AS DEFINED HEREIN), WILL CONSTITUTE AT LEAST 90% OF THE TOTAL SHARES OUTSTANDING AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE "THE OFFER -- 1. TERMS OF THE OFFER" AND "THE OFFER -- 13. CERTAIN CONDITIONS OF THE OFFER." ------------------- THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE (AS DEFINED HEREIN) HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER (AS DEFINED HEREIN) ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. ------------------- IMPORTANT Any stockholder desiring to tender all or any portion of such stockholder's shares of common stock (the "Shares") of the Company should either (1) complete and sign the Letter of Transmittal accompanying this Offer to Purchase (the "Letter of Transmittal"), or a facsimile thereof, in accordance with the instructions in the Letter of Transmittal, have such stockholder's signature thereon guaranteed if required by Instruction 1 to the Letter of Transmittal, mail or deliver the Letter of Transmittal (or such facsimile) or, in the case of a book-entry transfer of Shares effected pursuant to the procedure set forth in "THE OFFER -- 3. Procedure for Tendering Shares", an Agent's Message (as defined herein) in lieu of the Letter of Transmittal, and any other required documents to the Depositary (as defined herein) and either deliver the Letter of Transmittal (or such facsimile) together with the certificate(s) representing the tendered Shares or deliver such Shares pursuant to the procedure for book-entry transfer set forth in "THE OFFER -- 3. Procedure for Tendering Shares", or (2) request such stockholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such stockholder. Stockholders having Shares registered in the name of a broker, dealer, commercial bank, trust company or other nominee are urged to contact such broker, dealer, commercial bank, trust company or other nominee if they desire to tender Shares so registered. A stockholder who desires to tender Shares and whose certificates for such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, or who cannot deliver all required documents to the Depositary prior to the expiration of the Offer, may tender such Shares by following the procedures for guaranteed delivery set forth in "THE OFFER -- 3. Procedure for Tendering Shares". The Purchaser makes no recommendation to any stockholder as to whether to tender or refrain from tendering Shares. Stockholders must make their own decisions whether to tender Shares and, if so, how many Shares to tender. Questions and requests for assistance may be directed to the Information Agent (as defined herein) or to the Dealer Managers (as defined herein) at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Requests for additional copies of this Offer to Purchase, the Letter of Transmittal and other tender offer materials may be directed to the Information Agent, the Dealer Managers or to brokers, dealers, commercial banks or trust companies, and copies will be furnished promptly at the Purchaser's expense. ------------------- THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR THE MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. ------------------- The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. ------------------- The date of this Offer to Purchase is November 9, 1995 TABLE OF CONTENTS
SECTION PAGE - --------------------------------------------------------------------------------------- ---- INTRODUCTION........................................................................... 1 SPECIAL FACTORS........................................................................ 3 1. History of Company........................................................... 3 2. Reasons for the Offer and the Merger......................................... 4 3. Fairness of the Offer and the Merger......................................... 6 4. Interests of Certain Persons in the Offer and the Merger; Potential Conflicts of Interests..................................................... 7 5. Background of the Offer and the Merger....................................... 8 6. Recommendation of the Company's Board of Directors and the Special Committee.................................................................... 19 THE OFFER.............................................................................. 24 1. Terms of the Offer........................................................... 24 2. Acceptance for Payment and Payment for Shares................................ 26 3. Procedure for Tendering Shares............................................... 27 4. Rights of Withdrawal......................................................... 30 5. Certain Federal Income Tax Consequences of the Offer and the Merger.......... 31 6. Price Range of Shares; Dividends............................................. 31 7. Effect of the Offer on Market for the Shares, Stock Exchange Listing, and Exchange Act Registration.............................................. 32 8. Certain Information Concerning the Company................................... 33 9. Certain Information Concerning Parent and the Purchaser...................... 41 10. Contacts with the Company.................................................... 42 11. The Merger Agreement; Appraisal Rights; Effect on the Debentures............. 49 12. Source and Amount of Funds................................................... 54 13. Certain Conditions of the Offer.............................................. 54 14. Dividends and Distributions.................................................. 55 15. Certain Legal Matters........................................................ 56 16. Fees and Expenses............................................................ 58 17. Miscellaneous................................................................ 60
SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser........ I-1 SCHEDULE II -- Appraisal Rights of Dissenting Stockholders under Delaware Law...... II-1 SCHEDULE III -- Opinion of Dillon, Read & Co. Inc................................... III-1 Appendix A -- Financial Statements from the Company's Annual Report on Form 10-K for the Year Ended December 31, 1994................................ A-1 Appendix B -- Financial Results for the Quarterly Period Ended September 30, 1995 as Reported in the Company's Press Release, dated October 24, 1995................................................................ B-1
i To the Holders of Common Stock of SCOR U.S. Corporation: INTRODUCTION SCOR Merger Sub Corporation, a newly organized Delaware corporation (the "Purchaser") and a wholly owned subsidiary of SCOR S.A., a societe anonyme organized under the laws of The French Republic ("Parent"), hereby offers to purchase all of the outstanding shares of Common Stock, par value $0.30 per share (the "Shares"), of SCOR U.S. Corporation, a Delaware corporation (the "Company"), not currently directly or indirectly owned by Parent, at a price of $15.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in this Offer to Purchase and in the Letter of Transmittal (which together constitute the "Offer"). Tendering stockholders will not be obligated to pay brokerage fees or commissions or, subject to Instruction 6 of the Letter of Transmittal, transfer taxes on the purchase of Shares by the Purchaser. The Purchaser will pay all charges and expenses of Goldman, Sachs & Co. (in such capacity, the "Dealer Managers"), The Bank of New York, as depositary (the "Depositary"), and D.F. King & Co., Inc. (the "Information Agent"). THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER A NUMBER OF SHARES WHICH, TOGETHER WITH ANY SHARES CURRENTLY BENEFICIALLY OWNED DIRECTLY OR INDIRECTLY BY PARENT, WILL CONSTITUTE AT LEAST 90% OF THE TOTAL SHARES OUTSTANDING AS OF THE DATE THE SHARES ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER (THE "MINIMUM TENDER CONDITION"). SUBJECT TO APPLICABLE RULES AND REGULATIONS OF THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE PURCHASER RESERVES THE RIGHT, WHICH IT PRESENTLY HAS NO INTENTION OF EXERCISING, TO WAIVE OR REDUCE THE MINIMUM TENDER CONDITION AND TO ELECT TO PURCHASE, PURSUANT TO THE OFFER, LESS THAN THE MINIMUM NUMBER OF SHARES NECESSARY TO SATISFY THE MINIMUM TENDER CONDITION. THE OFFER IS ALSO SUBJECT TO OTHER TERMS AND CONDITIONS CONTAINED IN THIS OFFER TO PURCHASE. SEE "THE OFFER -- 1. TERMS OF THE OFFER" AND "THE OFFER -- 13. CERTAIN CONDITIONS OF THE OFFER". THE BOARD OF DIRECTORS OF THE COMPANY AND THE COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY COMPRISED OF ALL DIRECTORS OF THE COMPANY WHO ARE NEITHER OFFICERS OR DIRECTORS OF THE PURCHASER OR PARENT NOR OFFICERS OF THE COMPANY (THE "SPECIAL COMMITTEE") HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. SEE "SPECIAL FACTORS--6. RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE". The Special Committee's financial advisor, Dillon, Read & Co. Inc. ("Dillon Read"), has delivered to the Special Committee its written opinion, dated as of November 2, 1995, that as of such date the $15.25 per Share cash consideration to be received by the holders of Shares (other than Parent) pursuant to the Offer and the Merger is fair to such holders from a financial point of view. A copy of the opinion of Dillon Read is set forth as Schedule III hereto and is contained in the Company's Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"), which is being mailed to stockholders together with this Offer to Purchase. See "SPECIAL FACTORS--6. Recommendation of the Company's Board of Directors and the Special Committee". The Company has advised the Purchaser and Parent that, as of November 2, 1995, there were 18,170,971 Shares outstanding. Parent owned 14,547,756 Shares, or approximately 80% of the outstanding Shares, as of such date. According to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 (the "1994 Annual Report"), there were approximately 140 recordholders of the Shares as of March 28, 1995. The Company has also advised the Purchaser and Parent that, as of November 2, 1995, the Company had outstanding $75,950,000 aggregate principal amount of 5 1/4% Convertible Subordinated Debentures due April 1, 2000 (the "Debentures"), which were issued by the Company on March 29, 1993 at a price equal to the principal amount thereof through a private offering. The Debentures are not redeemable by the Company prior to April 3, 1996, and outstanding Debentures are currently convertible into approximately 2.99 million Shares at a conversion price of $25.375 per Share. The Company has advised the Purchaser and Parent that during 1994 the Company repurchased in the open market $3,900,000 in principal amount of the Debentures and between January 1, 1995 and June 30, 1995 the Company repurchased in the open market $6,400,000 in principal amount of the Debentures. Under the terms of the indenture pursuant to which the Debentures were issued (the "Indenture"), in the event that Parent beneficially owns, after giving effect to the purchase of Shares pursuant to the Offer or the acquisition of Shares pursuant to the Merger, in excess of 90% of the outstanding Shares (a "Repurchase Event"), the holders of the Debentures shall have the right to require the Company to repurchase the Debentures at a repurchase price equal to 100% of the principal amount thereof together with accrued and unpaid interest to the date of such repurchase, which date shall be 45 days after the date on which the Company notifies the holders of the Debentures of such Repurchase Event. The Company has advised the Purchaser and Parent that under the Company's 1986 Stock Incentive Plan for Key Executives, the Company's 1990 Stock Option Plan for Directors and the Company's 1991 Stock Option Plan for Key Employees (collectively, the "Company Stock and Option Plans") there were, as of November 2, 1995, vested options outstanding for a total of 982,013 Shares, exercisable at prices ranging from $9.00 to $17.00, and, as of November 2, 1995, unvested options outstanding for a total of 455,003 Shares. According to the 1994 Annual Report, the number of Shares available for future grant at December 31, 1994 was 552,000. Based on the foregoing, assuming that no additional Shares are issued after November 2, 1995, the Minimum Tender Condition would be satisfied if at least 1,806,118 Shares are validly tendered prior to the expiration of the Offer and not withdrawn. The Offer is being made pursuant to an Agreement and Plan of Merger, dated as of November 2, 1995 (the "Merger Agreement"), among Parent, the Purchaser and the Company. The Merger Agreement provides that, among other things, promptly after the purchase of Shares pursuant to the Offer and the receipt of any required approval of the Merger Agreement by the Company's stockholders and the satisfaction or waiver of certain other conditions, the Purchaser will be merged (the "Merger") into the Company. Following consummation of the Merger, the Company will continue as the surviving corporation and will become a wholly owned subsidiary of Parent. Upon consummation of the Merger (the "Effective Time"), each then outstanding Share not owned by Parent or any subsidiary of Parent (other than Shares held by stockholders of the Company who have properly exercised their appraisal rights in accordance with Section 262 of the DGCL) will be converted into the right to receive an amount in cash equal to the per Share price paid pursuant to the Offer (the "Offer Price"). Pursuant to the Merger Agreement, at the Effective Time each option to purchase Shares under the Company Stock and Option Plans, whether or not then vested, will be cancelled and each holder thereof will be thereafter entitled to receive only the difference, if positive, between the Offer Price and the exercise price of such options, multiplied by the number of Shares subject to such options. In addition, in the event the Merger is consummated, the holders of the Debentures will be entitled to convert the Debentures into the right to receive the consideration receivable upon the Merger by a holder of the number of Shares into which such Debentures could have been converted immediately prior to the Merger. The Merger Agreement is more fully described in "THE OFFER -- 11. The Merger Agreement; Appraisal Rights; Effect on the Debentures". If the Minimum Tender Condition is satisfied, Parent will hold, directly or indirectly, 90% or more of the outstanding Shares, and Parent intends to contribute its Shares to the Purchaser and cause 2 the Purchaser to effect the Merger without a vote of the Company's stockholders pursuant to the short-form merger provisions of the Delaware General Corporation Law (the "DGCL"). The Merger Agreement provides that, if the Minimum Tender Condition is satisfied, the Company, the Purchaser and Parent will take all necessary and appropriate action, at the request of Parent or the Purchaser, to cause the Merger to become effective as soon as practicable after the acceptance for payment and purchase of Shares by the Purchaser pursuant to the Offer without a meeting of stockholders of the Company pursuant to such short-form merger provisions of the DGCL. If the Purchaser were to waive the Minimum Tender Condition and the number of outstanding Shares validly tendered and purchased pursuant to the Offer results in Parent and the Purchaser holding less than 90% of the outstanding Shares, then the Merger, which has already been approved by the Company's Board of Directors, would have to be approved by the Company's stockholders. Under the DGCL, the vote of the holders of a majority of the outstanding Shares would be required to approve the Merger under such circumstances. Since Parent currently owns approximately 80% of the Shares outstanding, Parent would have sufficient voting power to, and intends to, cause the approval of the Merger without the affirmative vote of any other stockholders of the Company. However, it is a condition to the parties' obligation to complete the Merger that the Purchaser have purchased Shares pursuant to the Offer. Accordingly, if the Minimum Tender Condition or any other condition to the Offer is not satisfied and Parent and the Purchaser elect not to waive any such condition, none of Parent, the Purchaser or the Company will be obligated to effect the Merger. No appraisal rights are available in connection with the Offer. Stockholders will have appraisal rights in connection with the Merger, subject to compliance with the requirements of the DGCL, even if the Merger is consummated pursuant to the short-form merger provisions of the DGCL. See "THE OFFER -- 11. The Merger Agreement; Appraisal Rights; Effect on the Debentures". By accepting the Offer through the tender of Shares and upon receipt of payment for Shares, a tendering stockholder will be (under Parent's view of applicable law) barred from thereafter attacking in any legal proceeding the fairness of the consideration received by stockholders in the Offer. For this reason, the Letter of Transmittal to be executed by tendering stockholders includes a release of any such claims, which will be effective upon receipt of payment for tendered Shares. THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. SPECIAL FACTORS 1. HISTORY OF THE COMPANY. The Company is a Delaware corporation that was formed in December 1981. Prior to the offering of 4,000,000 shares to the public on September 25, 1986 at a price of $14.50 per Share, the Company was owned by Societe Commerciale de Reassurance ("SCOR Paris"), a French reinsurance company, and by Caisse Centrale de Reassurance ("CCR"), a reinsurer wholly owned by the French government which also owned approximately 30% of SCOR Paris. As a result of a corporate reorganization completed in France in November 1989, SCOR Paris became a wholly owned subsidiary of Parent. In December 1990, SCOR Paris and another subsidiary of Parent, UAP Reassurances ("UAP Re") were merged into Parent. In June 1990, Rockleigh Management Corporation ("Rockleigh"), a wholly owned subsidiary of UAP Re, was merged into the Company. Rockleigh owned 100% of both The Unity Fire and General Insurance Company ("Unity Fire") and General Security Assurance Corporation of New York ("General Security"), each of which was a professional reinsurance company. Effective January 1, 1991, all reinsurance business of Unity Fire, including related assets and liabilities as of that date, were transferred to General Security pursuant to an assumption reinsurance agreement. Subsequently, Unity Fire became a subsidiary of General Security. On January 1, 1994, General Security 3 was merged into SCOR Reinsurance Company ("SCOR Re"), the Company's principal operating subsidiary, to form a single operating entity for the Company's assumed reinsurance business. In March 1993, the Company issued $86,250,000 aggregate principal amount of 5.25% Debentures, of which $10,300,000 aggregate principal amount had, as of November 2, 1995, been repurchased by the Company in the open market. During 1994 the Company repurchased in the open market $3,900,000 in principal amount of the Debentures and between January 1, 1995 and June 30, 1995 the Company repurchased in the open market $6,400,000 in principal amount of the outstanding Debentures. The outstanding Debentures are currently convertible into approximately 2.99 million Shares at a conversion price of $25.375 per Share. As a result of the issuance of common shares of the Company to UAP Re in the Rockleigh merger, SCOR Paris' participation in the Company's stock repurchase programs and various other purchases, as well as SCOR Paris' purchase of a portion of CCR's shares of the Company, Parent owned approximately 80% of the outstanding common stock of the Company at November 2, 1995. The remaining 3,623,215 outstanding Shares are held publicly and represent approximately 20% of the outstanding Shares. The Company is a holding company, the principal operating subsidiary of which is SCOR Re. The Company also operates through SCOR Re's wholly owned subsidiaries, General Security Insurance Company ("GSIC"), Unity Fire and General Security Indemnity Company ("GSIND") (SCOR Re, GSIC, Unity Fire and GSIND are collectively referred to as the "Operating Subsidiaries"). 2. REASONS FOR THE OFFER AND THE MERGER. The purpose of the Offer is to enable the Purchaser to acquire for cash as many outstanding Shares as possible as a first step in acquiring the entire equity interest in the Company, subject to satisfaction of the Minimum Tender Condition and the other conditions of the Offer. See "THE OFFER -- 13. Certain Conditions of the Offer". If the Minimum Tender Condition is satisfied, Parent and the Purchaser will hold 90% or more of the outstanding Shares and, as soon as practicable following the consummation of the Offer, Parent intends to contribute its Shares to the Purchaser. The Merger Agreement provides that, promptly after the purchase of Shares pursuant to the Offer and subject to the satisfaction or waiver of the terms and conditions of the Merger, the Purchaser will be merged into the Company. If the Minimum Tender Condition is satisfied, such Merger would be effected without a vote of the Company's stockholders pursuant to the short-form merger provisions of the DGCL. In the Merger, each Share not owned by Parent or any subsidiary of Parent (other than Shares held by stockholders of the Company who have properly exercised their appraisal rights under Section 262 of the DGCL) at the Effective Time will be converted into the right to receive an amount in cash equal to the Offer Price. The purpose of the Merger is to enable Parent to acquire any remaining Shares not acquired pursuant to the Offer. Following consummation of the Merger, the Company will continue as the surviving corporation and will become a wholly owned subsidiary of Parent. THE BOARD OF DIRECTORS OF THE COMPANY AND THE SPECIAL COMMITTEE HAVE UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS, HAVE APPROVED THE OFFER AND THE MERGER AND RECOMMEND THAT THE COMPANY'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER. In determining to seek the purchase of the outstanding Shares and effect the Merger at this time, Parent focused on a number of factors, including those set forth below. The primary reason for the Offer and the Merger is that the listing of the Shares on the New York Stock Exchange, Inc. ("NYSE") has not achieved the benefits hoped for by Parent in 1986 at the time of the offering of Shares to the public, and, in Parent's view, the costs associated with such listing now outweigh any resulting benefits. The Shares have attracted limited interest from 4 institutional investors and generally have low trading volumes. This illiquidity, together with the Company's financial results, have caused the Shares to trade only occasionally at or above their net book value per Share since 1993. Also, the Company's ability to utilize Shares for acquisitions or capital-raising has not been as great as had been hoped for in 1986. The present requirement to maintain the listing of the Shares on the NYSE and registration of the Shares under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), imposes on the Company significant direct and indirect compliance costs. In addition, compliance with such ongoing requirements imposes an administrative burden on the Company, resulting in the diversion of management time and resources. The Purchaser intends to seek the delisting of the Shares from the NYSE and termination of registration of the Shares under the Exchange Act as soon as possible after consummation of the Offer or the Merger, if the requirements for the delisting and termination of registration are met. The Company's businesses are complementary with Parent's businesses, and Parent intends to integrate some of the Company's operations into those of Parent in order to obtain certain operating benefits and achieve certain cost savings, as well as to incorporate the Company's strategy into Parent's worldwide strategic planning. In particular, Parent will be able to avail itself of the Company's demonstrated skills and technical expertise in evaluating and underwriting certain types of risks, and enhance its ability to achieve its global strategic plans. The increasing globalization of world economies presents opportunities for Parent to pool the resources of the group and to invest on a group-wide basis in the human and technical resources necessary to improve productivity, develop and provide a broader range of international products grounded on global expertise and to build consistent, company-wide service standards to better meet customer needs. Parent's ability to achieve the foregoing objectives under the present ownership structure is complicated by legal obligations of the Board of Directors of the Company to manage the Company in the best interests of all stockholders. Accordingly, each decision made by Parent which could affect the Company must be made with a view to its effect on the Company's minority stockholders, with the result that Parent's flexibility in dealing with its significant investment in the insurance and reinsurance industry in the United States is limited. In addition, Parent believes that the interest of the public stockholders of the Company in its near-term earnings results may sometimes be inconsistent with the Company's long-term business strategy to solidify and enhance its position in the United States' insurance and reinsurance industry. The operating results of the property and casualty insurance and reinsurance industry are subject to significant fluctuations due to competition, catastrophic events, general economic conditions, interest rates and other factors such as changes in tax laws and regulations. The operating results of the Company have been influenced by these cycles and events. Many of the factors that have contributed to the Company's volatile earnings results and reduced surplus in recent years continue, and Parent cannot predict if, when or to what extent general market conditions will improve for the insurance and reinsurance industry. Parent believes that acquiring the entire equity interest in the Company will facilitate the realization of productivity gains necessary to achieve a sustainable improvement in the Company's profitability, to achieve consistent earnings growth in all its product offerings, to enhance its credit strength and to improve its return on equity. The Company's long-term business strategy will also require significant capital investments in technology, including investment as part of Parent's worldwide systems development project, which will provide additional systems availability for the Company over the next two years. In Parent's opinion, these strategies could adversely affect the Company's near-term earnings and the trading price of the Shares. Other factors that Parent considered in determining to proceed with the Offer and the Merger at this time included a stronger French Franc/U.S. Dollar exchange rate than has existed in recent years and a cash reserve of U.S. dollars generated by Parent's group that can be used for the acquisition of Shares tendered in the Offer. In addition, Parent considered the improvement of the 5 Company's results in 1995 over its 1994 results, the fact that the additional investment that would be made by Parent to increase its percentage ownership in the Company pursuant to the Offer and the Merger would not dilute the earnings of Parent, projections as to future results of the Company (see "THE OFFER -- 8. Certain Information Concerning the Company") and the fact that the Company's stock price has generally traded below its net book value since 1993. Parent also considered certain information provided to it by its financial advisor, Goldman Sachs International ("Goldman Sachs"), including information with respect to other businesses similar in some respects to the Company and with respect to premiums paid in other acquisitions of minority interests. Such information is contained in Goldman Sachs' analyses that have been filed by Parent and Purchaser as an Exhibit to their Rule 13e-3 Transaction Statement on Schedule 13E-3 filed with the Commission in connection with the Offer (the "Schedule 13E-3") and may be examined and copied at the office of the Commission in Washington, D.C. as set forth below under "THE OFFER -- 8. Certain Information Concerning the Company". In addition, such analyses are described below in "SPECIAL FACTORS -- 5. Background of the Offer and the Merger" and are available for inspection and copying at the principal offices of the Purchaser and Parent during their respective regular business hours by any interested holder of Shares or his representative who has been so designated in writing. In making the decision to proceed with the Offer and the Merger, Parent also took into account the state of the insurance and reinsurance industry in general, including the industry's volatility over the past few years and expected future volatility. Parent believes that the industry's volatility can be better managed by the Company once the Offer and Merger are completed. The trend toward consolidation in the insurance and reinsurance industry has forced smaller companies out of the market and shifted business to larger, better capitalized reinsurers. By acquiring the Shares it does not presently own, Parent's ability to combine the capacity of Parent's group as a whole with that of the Company in the United States will be enhanced, better enabling the Company to benefit from the trend toward consolidation being experienced in the industry and to pool the group's resources to develop particular lines of business in order to capitalize opportunistically on price increases achievable in particular sectors of the industry. 3. FAIRNESS OF THE OFFER AND THE MERGER. Parent believes that the $15.25 cash consideration proposed to be paid in the Offer and pursuant to the Merger is fair to the minority stockholders of the Company. It provides a substantial premium over pre-announcement market prices to holders of the Shares and enables the Company's stockholders to receive cash for their stockholdings now at a premium per share price. The $15.25 offer price represents a premium of 73.7% over the weighted average of the market price of the Company's Common Stock during the period from January 1, 1995 to September 15, 1995, a premium of 37.1% over the market price of the Company's Common Stock as of September 25, 1995 of $11.125 per Share, a multiple of 15.9 times the latest twelve months' income for the period ended September 30, 1995 and a multiple of 17.3 times publicly forecasted earnings per Share for 1995. Based on the foregoing and in light of the Company's historical results and the fact that the Shares have since 1993 traded below the Company's net book value per Share value, which as of September 30, 1995 was $15.27 per Share, Parent believes the consideration proposed to be paid in the Offer and the Merger is fair to the minority stockholders of the Company. As a result of the Minimum Tender Condition, the tender of slightly less than a majority of the outstanding Shares not owned directly or indirectly by Parent is a condition to the obligation of the Purchaser to accept Shares for payment. Such condition, however, may be waived at the sole discretion of Parent or Purchaser. 6 None of the Purchaser, Parent or Goldman Sachs solicited other offers for the Company or its assets, and there can be no assurance that the terms of the Offer are as favorable to the public stockholders of the Company as could be obtained in a transaction, or one or more transactions, with an unaffiliated party or parties. Neither Parent nor any of its affiliates has received any firm offers or inquiries with respect to the business and assets of the Company or its investment therein from any unaffiliated party during the period from January 1, 1993 to the date of this Offer to Purchase. Goldman Sachs was not asked to render, and has not rendered, any opinion as to the fairness of the Offer or the Merger to either the Company or the public stockholders of the Company. Neither Parent nor the Purchaser has obtained any opinions as to the fairness of the Offer or the Merger to the public stockholders of the Company or any valuation or appraisal of the Company's assets from any independent party in connection with the Offer or the Merger. Representatives of Parent have had access to certain non-public information concerning the Company, including the projections which are summarized elsewhere in this Offer to Purchase. See "THE OFFER -- 8. Certain Information Concerning the Company". Following the delivery by Parent of the letter, dated September 25, 1995, described under "SPECIAL FACTORS--5. Background of the Offer and the Merger" below, the Company announced that the proposal contained in such letter was being referred to the Special Committee, which would consider the proposal. The Special Committee is composed of all of the directors of the Company who are neither officers or directors of the Purchaser or Parent nor officers of the Company. The Special Committee retained Dillon Read as its financial advisor to analyze the terms of the Offer and the Merger. Dillon Read has provided the Board of Directors with its written opinion that, as of November 2, 1995, the $15.25 cash consideration to be received by the holders of Shares (other than Parent) pursuant to the Offer and the Merger is fair to such holders from a financial point of view. The Board of Directors of the Company and the Special Committee have unanimously determined that the Offer and the Merger are fair to and in the best interests of the Company and its stockholders, have approved the Offer and the Merger and recommend that the Company's stockholders accept the Offer and tender their Shares pursuant to the Offer. See "SPECIAL FACTORS -- 6. Recommendation of the Company's Board of Directors and the Special Committee." 4. INTERESTS OF CERTAIN PERSONS IN THE OFFER; POTENTIAL CONFLICTS OF INTERESTS. Stockholders should be aware that members of the Board of Directors of the Company (collectively, the "Board" and each a "Director"), other than the members of the Special Committee, have certain interests which are referred to below, and which may present them with actual or potential conflicts of interest in connection with the Offer. Among other things, Parent already owns approximately 80% of the outstanding Shares and, after the consummation of the Offer, it is expected that the Chairman of the Board of the Company will continue to serve on the board of directors of the Company and that the President and Chief Executive Officer of the Company will continue to be employed by the Company and serve as a member of the board of directors of the Company. In addition, the Merger Agreement provides that the directors of the Company will continue as directors of the Company after consummation of the Merger. Five of the thirteen members of the Board are also members of the Board of Directors of the Parent or are officers of Parent. Allan M. Chapin, who is a voting trustee of the SCOR U.S. Voting Trust (See "THE OFFER -- 10. Contacts with the Company"), is a partner in the law firm of Sullivan & Cromwell, which has provided legal services on an on-going basis to Parent and the Company. Sullivan & Cromwell are acting as United States legal counsel to the Parent and the Purchaser in connection with the Offer, the Merger and the other transactions contemplated herein. 7 5. BACKGROUND OF THE OFFER AND THE MERGER. Parent has from time to time in recent years considered acquiring all of the Shares not owned by Parent and began such considerations again during July, 1995. During July, management of Parent began to consult with representatives of its outside United States legal counsel and financial advisors concerning the manner in which the minority interest in the Company could be acquired. In mid-September of 1995, management of Parent determined they were prepared to recommend to Parent's Board of Directors the acquisition by Parent of the minority interest in the Company and on September 21, 1995, representatives of Sullivan & Cromwell, the United States legal counsel to Parent, and Goldman Sachs, the financial advisor to Parent, met with management of Parent to discuss the legal alternatives available to effect the acquisition of the minority interest in the Company and certain financial information relevant to a determination of an appropriate price to propose for acquisition of the minority Shares. During the September 21, 1995 meeting, Goldman Sachs provided Parent with certain financial analyses. Those analyses are described below and are filed as an exhibit to the Schedule 13E-3 filed with the Commission in connection with the Offer, and such analyses shall be made available for inspection and copying at the principal executive offices of Parent and the Purchaser during their respective regular business hours by any interested holder of Shares or his representitive who has been so designated in writing. The description below is qualified by reference to text of such analyses. Goldman Sachs has not been requested to, and has not, given any opinion to Parent, the Purchaser or any other person with respect to the fairness of the consideration proposed to be paid for the Shares in the Offer and the Merger. Neither Parent nor the Purchaser has obtained any opinions as to the fairness of the Offer or the Merger to the holders of Shares or any valuation or appraisal of the Company's assets from any independent party in connection with the Offer or the Merger. During the September 21, 1995 meeting, management determined to recommend a price of $14.00 per Share to the Board of Directors of Parent. On October 24, 1995, the Company provided Goldman Sachs with updated financial information, including earnings and other financial information for the third fiscal quarter and the nine months ended September 30, 1995 that were publicly reported on October 24, 1995 and financial projections, and, subsequently, Goldman Sachs prepared and provided to Parent updates, reflecting the more current information, to certain of its analyses. These updated analyses are also filed as an exhibit to the Schedule 13E-3 and are available in the same manner as that described above for the original analyses. The description of the analyses set forth below is qualified by reference to the text of such analyses. GOLDMAN SACHS' ANALYSES. The following is a summary of certain of the financial analyses used by Goldman Sachs in connection with its discussions with the management of Parent on September 21, 1995. The presentations of Goldman Sachs containing, among other things, the financial analyses and updated financial analyses summarized below, have been filed as exhibits to the Schedule 13E-3. Historical Stock Trading Analysis. Goldman Sachs reviewed the historical trading prices and volumes for the Shares. Such review included, among other things, Goldman Sachs' analysis of the weighted average market prices of the Shares and the total volume of Shares traded as a percentage of Shares outstanding during the period from January 1, 1992 to September 15, 1995 and during the period from January 1, 1995 to September 15, 1995. Such analysis indicated a weighted average market price of $12.07 per share (based on closing prices for the Shares from January 1, 1992 to September 15, 1995) with 44.3% of the total outstanding Shares traded in such period and a weighted average market price of $8.78 per Share (based on closing prices for the Shares from January 1, 1995 to September 15, 1995) with 5.3% of the total outstanding Shares traded in such period. Such review also included Goldman Sachs' analysis of the indexed historical trading prices of the Shares during the period from December 27, 1991 to August 31, 1995 as compared to the Standard & Poor's 500 Index and a composite index comprised of seven other publicly traded corporations in the 8 reinsurance industry: General Re Corporation, American Re Corporation, Transatlantic Holdings, Inc., NAC Re Corp., National Re Corporation, Trenwick Group Inc. and Zurich Centre Re Holdings (the "Selected Companies"). Representatives of Goldman Sachs advised the management of Parent that there are no publicly traded companies directly comparable to the Company and that the analysis had to be considered in light of that qualification. The analysis of such indexed historical share trading prices indicated that the Shares underperformed both the Standard & Poor's 500 Index and the comparable composite index during that period. During such period, the Standard & Poor's 500 Index increased approximately 50%, the comparable composite index increased approximately 78%, and the value of the Shares decreased approximately 29%. Discounted Cash Flow Analysis. Goldman Sachs performed a discounted cash flow analysis based on estimated cash flow per Share, consisting of projected dividends per Share for the period from December 31, 1995 through December 31, 1999, and a projected terminal value at December 31, 1999. Goldman Sachs calculated present value per Share of such estimated cash flows using discount rates of 12.5% and 15% for three scenarios for the compound annual growth rate ("CAGR") for earnings per share ("EPS") for the Company of 5%, 10% and 15%. In each such scenario, IBES median EPS estimates for 1995-1996 were used and the scenario growth rate was applied to estimate EPS thereafter. Goldman Sachs calculated dividends per Share assuming a 34% payout ratio to EPS and calculated the Company's terminal value based on multiples of projected net income for calendar year 1999 ranging from 8x to 15x. Those calculations indicated present value per Share values based on the 5% EPS CAGR scenario ranging from $6 per Share at a 15.0% discount rate to $12 per Share at a 12.5% discount rate, implied per Share values based on the 10% EPS CAGR scenario ranging from $7 per Share at a 15.0% discount rate to $13 per Share at a 12.5% discount rate and implied per Share values based on the 15% EPS CAGR scenario ranging from $8 per Share at a 15.0% discount rate to $15 per Share at a 12.5% discount rate. Goldman Sachs' updated "Discounted Cash Flow Analysis" is discussed below. Selected Companies Analysis. Goldman Sachs reviewed and compared certain financial information relating to the Company to corresponding financial information, ratios and public market multiples for the following direct reinsurance companies: American Re Corporation, General Re Corporation and National Re Corporation (the "Direct Reinsurance Companies"), and for the following broker reinsurance companies: NAC Re Corp., Transatlantic Holdings, Inc. and Trenwick Inc. (the "Broker Reinsurance Companies"). The public market multiples of the Company were calculated using the price of $11.25 per Share, representing the closing price of the Shares on the NYSE on September 19, 1995. The multiples and ratios for the Company and for each of the Direct Reinsurance Companies and the Broker Reinsurance Companies (together, the "Analyzed Companies") were based on generally accepted accounting principles ("GAAP") financial data as of June 30, 1995, IBES median estimates as of September 7, 1995 and other recent publicly available information. Representatives of Goldman Sachs advised the management of Parent that there are no companies directly comparable to the Company and that the analysis had to be considered in light of that qualification. The review indicated that the percentage of the 52-week high trading prices ranged from 97.1% to 99.8%, compared to 93.8% at $11.25 per Share for the Company, that the current dividend yield for the Analyzed Companies ranged from 0.5% to 2.2%, with a mean of 0.8% for the Direct Reinsurance Companies and 1.1% for the Broker Reinsurance Companies, compared to 1.8% at $11.25 per Share for the Company, and that the calendar year 1994 return on equity for the Analyzed Companies ranged from 7.2% to 12.9%, with a mean of 10.8% for the Direct Reinsurance Companies and 10.9% for the Broker Reinsurance Companies, compared to negative return on equity for the Company. Goldman Sachs also considered for the Analyzed Companies: estimated calendar year 1995 and 1996 price/earnings ratios, which ranged from 12.2x to 16.4x for estimated calendar year 1995, with a mean of 14.2x for the Direct 9 Reinsurance Companies and 14.3x for the Broker Reinsurance Companies, and 10.8x to 14.7x for estimated calendar year 1996, with a mean of 12.4x for the Analyzed Companies as a group, compared to 12.8x and 11.8x at $11.25 per Share, respectively, for the Company; statutory combined ratios for calendar years 1992, 1993 and 1994, which ranged from 102.8% to 126.9% for calendar year 1992, with a mean of 104.8% for the Direct Reinsurance Companies and 117.5% for the Broker Reinsurance Companies, 99.5% to 110.9% for calendar year 1993, with a mean of 100.3% for the Direct Reinsurance Companies and 106.8% for the Broker Reinsurance Companies, and 98.4% to 105.7% for calendar year 1994, with a mean of 101.2% for the Direct Reinsurance Companies and 104.8% for the Broker Reinsurance Companies, compared to 123.3%, 103.7% and 118.8%, respectively, for the Company; and estimated EPS (based on IBES median estimates as of September 7, 1995) for calendar years 1995 and 1996, which ranged from $2.40 to $9.25 per share for estimated calendar year 1995, compared to $0.88 per Share for the Company, and ranged from $2.80 to $10.35 per share for estimated calendar year 1996, compared to $0.95 per Share for the Company. Goldman Sachs also compared for the Analyzed Companies the book value per share and the price to book value per share ratios, which book value per share ranged from $2.80 to $69.59 for the Analyzed Companies, compared to $15.02 per Share for the Company, and which price to book value per share ratios ranged from 1.51x to 2.18x for the Analyzed Companies, with a mean of 1.97x for the Direct Reinsurance Companies and 1.64x for the Broker Reinsurance Companies, compared to 0.75x per Share for the Company. Analysis at Various Prices. Goldman Sachs calculated alternative values for the aggregate consideration (including the price of the outstanding Debentures) based upon nine price per Share values ranging from $11.25 to $16.00 per Share. Those calculations yielded aggregate consideration values ranging from $117 million to $134 million for the outstanding Shares not beneficially owned directly or indirectly by Parent and the outstanding Debentures, excluding any severance obligations and transaction costs. Goldman Sachs considered the consideration per Share as a premium over the market price quoted on the NYSE on September 19, 1995 for the Shares of $11.25, as a multiple of actual twelve months ended June 30, 1995 ("LTM") EPS of $0.75 and IBES estimates for calendar year 1995 and 1996 EPS of $0.88 and $0.95, respectively, and as a multiple of stated book value per Share of $15.01 as of June 30, 1995 and tangible book value per Share of $14.74 as of June 30, 1995. Goldman Sachs' analyses indicated consideration per Share premiums over market ranging from 0.0% to 42.2%, with a premium of 24.4% based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995; consideration per Share multiples of LTM EPS ranging from 15.0x to 21.3x, with a multiple of 18.7x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995, of estimated calendar year 1995 EPS ranging from 12.8x to 18.2x, with a multiple of 15.9x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995, and of estimated calendar year 1996 EPS ranging from 11.8x to 16.8x, with a multiple of 14.7x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995; and consideration per Share multiples of stated book value per Share ranging from 0.75x to 1.07x, with a multiple of 0.93x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995, and of tangible book value per Share ranging from 0.76x to 1.09x, with a multiple of 0.95x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995. Goldman Sachs' updated "Analysis at Various Prices" is discussed below. Selected Transactions Analysis. Goldman Sachs analyzed certain information relating to recent acquisitions of U.S. property/casualty reinsurance companies since 1987 (the "Selected Transactions"). Such analysis indicated that for the Selected Transactions: (A) based on GAAP, aggregate consideration as a multiple of (x) net written premiums for the twelve month period ending prior to announcement of each selected transaction ranged from 10 0.48x to 1.80x, with a mean and median of 1.17x, (y) net income for the twelve month period ending prior to announcement of each selected transaction ranged from 6.72x to 21.40x, with a mean of 12.88x and median of 9.91x, and (z) tangible book value ranged from 0.82x to 3.10x, with a mean of 1.37x and median of 1.17x; and (B) based on statutory accounting principles, aggregate consideration as a multiple of (x) net income for the twelve month period ended prior to the announcement of each selected transaction ranged from 7.69x to 27.90x, with a mean of 12.83x and median of 10.32x, and (y) book value ranged from 0.91x to 1.94x, with a mean of 1.26x and median of 1.13x. Selected Buyouts Analysis. Goldman Sachs analyzed certain information relating to selected buyouts by significant existing stockholders since 1989 (the "Selected Buyouts"). Such analysis indicated that for the Selected Buyouts: (A) as an average for all buyouts, (i) pre-announcement stock price as a percentage of the 52-week high closing price per share was 80.9%, (ii) the initial offer premium to the closing price one NYSE trading day prior to the public announcement of the parents' proposals was 23.4% and the discount to the 52-week high closing price was 1.6%, (iii) the increase in the offer price paid was 9.3% and (iv) the final offer price premium to the closing price one NYSE trading day prior to the public announcement of the significant existing stockholders' proposals was 35.0% and to the 52-week high closing price was 8.0%; (B) as an average for all U.S. buyouts by a European parent, (i) pre-announcement stock price as a percentage of the 52-week high closing price per share was 82.3%, (ii) the initial offer premium to the closing price one NYSE trading day prior to the public announcement of the parents' proposals was 19.1% and the discount to the 52-week high closing price was 2.6%, (iii) the increase in the offer price paid was 6.9% and (iv) the final offer price premium to the closing price one NYSE trading day prior to the public announcement of the significant existing stockholders' proposals was 26.6% and to the 52-week high closing price was 4.1%; and (C) as an average for all buyouts of an approximate 20 percent minority stake, (i) pre-announcement stock price as a percentage of the 52-week high closing price per share was 82.1%, (ii) the initial offer premium to the closing price one NYSE trading day prior to the public announcement of the significant existing stockholders' proposals was 16.9% and the discount to the 52-week high closing price was 5.1%, (iii) the increase in the offer price paid was 6.6% and (iv) the final offer price premium to the closing price one NYSE trading day prior to the public announcement of the parents' proposals was 23.2% and to the 52-week high closing price was 0.8%. As described above, Goldman Sachs has updated its "Discounted Cash Flow Analysis" and "Analysis at Various Prices" set forth in its earlier presentation to take into account the September 30,1995 updated financial information. The updated "Discounted Cash Flow Analysis" was based on management projections for 1995-1997 EPS and indicated present value per Share values for the scenario assuming 5% EPS CAGR after 1997 ranging from $9 per Share at a 15.0% discount rate to $17 per Share at a 12.5% discount rate, present value per Share values for the scenario assuming 10% EPS CAGR after 1997 ranging from $10 per Share at a 15.0% discount rate to $18 per Share at a 12.5% discount rate and present value per Share values for the scenario assuming 15% EPS CAGR after 1997 ranging from $11 per Share at a 15.0% discount rate to $20 per Share at a 12.5% discount rate. In the updated "Analysis at Various Prices", Goldman Sachs calculated alternative values for the aggregate consideration (including the price of the oustanding Debentures) based upon nine price per Share values ranging from $11.25 to $16.00, and considered the consideration per Share as a multiple of the twelve months ended September 30, 1995 EPS of $0.96 and management projections for calendar year 1995 and 1996 EPS of $1.01 and $1.19, respectively, and as a multiple of reported book value per Share of $15.10 as of September 30, 1995 and tangible book value per Share of $14.83 as of September 30, 1995. These calculations indicated consideration per Share multiples of EPS for the twelve months period ended September 30, 1995 ranging from 11.7x to 16.7x, with a multiple of 14.6x based on the consideration per Share of $14.00 initially 11 proposed by Parent on September 25, 1995, of projected calendar year 1995 EPS ranging from 11.1x to 15.8x, with a multiple of 13.9x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995, of projected calendar year 1996 EPS ranging from 9.5x to 13.4x, with a multiple of 11.8x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995, of reported book value per Share ranging from 0.74x to 1.06x, with a multiple of 0.93x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995, and of tangible book value per Share ranging from 0.76x to 1.08x, with a multiple of 0.94x based on the consideration per Share of $14.00 initially proposed by Parent on September 25, 1995. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by such analyses. Because such analyses are inherently subject to uncertainty, being based upon numerous factors and events beyond the control of the parties or their respective advisors, none of Parent, the Purchaser, the Company, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast. As described above, Goldman Sachs' presentation to the management of Parent was one of many factors taken into consideration by Parent in making its determination to propose the Offer and the Merger. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs and is qualified by reference to the presentations containing Goldman Sachs' analyses filed as exhibits to the Schedule 13E-3. COMMUNICATIONS REGARDING PARENT'S PROPOSAL. On September 25, 1995, the Board of Parent met and approved making a proposal to the Company to acquire the Shares not owned by Parent at a price of $14.00 per Share and authorized the management of Parent to cause Parent to take such action as the management deemed necessary or advisable to acquire all Shares not already owned by Parent. On September 25, 1995, Parent sent the following letter to the Board of the Company: September 25, 1995 Board of Directors SCOR U.S. Corporation Two World Trade Center, 23rd Floor New York, NY 10048-0178 Dear Sirs, On behalf of SCOR S.A. ("Parent"), I am pleased to make a proposal to acquire all of the outstanding shares of common stock, par value $0.30 per share (the "Common Stock"), of SCOR U.S. Corporation (the "Company") not currently owned by Parent at a price of $14 per share in cash. As you know, Parent has owned a substantial majority of the outstanding shares of Common Stock since before the public offering by the Company of its Common Stock in 1986, and Parent currently owns approximately 80% of the Company's outstanding Common Stock. Parent believes it would be in the mutual best interest of Parent, the Company and the shareholders of the Company for Parent to acquire the shares of Common Stock that it does not already own on the terms and conditions set forth in this letter. Accordingly, Parent hereby submits for your consideration the following proposal. Parent is prepared to enter into a merger agreement pursuant to which a newly organized United States subsidiary of Parent would acquire all issued and outstanding shares of Common Stock that are not currently directly or indirectly owned by Parent at a price of $14 per share in 12 cash. The merger agreement could be in a form customary for transactions of this type. Our proposal presumes that there has been no material adverse change since June 30, 1995 in the results of operations, business or financial condition of the Company and its subsidiaries taken together. The transactions contemplated by this proposal would also give the holders of the Company's outstanding 5 1/4% Convertible Subordinated Debentures due April 1, 2000 (the "Debentures") the right to require the Company to repurchase the Debentures at a repurchase price equal to 100% of the principal amount thereof together with accrued and unpaid interest to the date of such repurchase. We believe that this proposal is fair to the minority stockholders of the Company. It provides a substantial premium to current market prices to holders of the Company's Common Stock and enables the Company's shareholders to receive cash for their shareholdings now at a premium per share price which they are unable to recognize in the market. The $14 offer price represents a premium of 59.5% over the weighted average of the market price of the Company's Common Stock during the period from January 1, 1995 to September 15, 1995, a premium of 24.4% over the market price of the Company's Common Stock as of September 19, 1995, a multiple of 18.7 times the latest twelve months' income and a multiple of 15.9 times publicly forecasted earnings per share for 1995. We are in a position to proceed on an expedited basis and urge that the Company act responsibly and, in order to minimize uncertainty, as quickly as possible, in considering our proposal. We expect that the directors of the Company who are not affiliated with Parent may wish to engage independent legal and financial advisors. If that is so, we would request that they do so quickly. We would like to make it clear that Parent's interest in the Company is not for sale and thus this proposal is not made in view of the sale of the Company to a third party. We welcome the opportunity to meet with the Directors and further outline our proposal at Director's meetings to be held on September 28 and 29. Sincerely yours, /s/ Jacques Blondeau Jacques Blondeau On September 26, 1995, Parent issued a press release announcing its proposal to the Board of a merger at a price of U.S. dollars 14.00 per Share in cash. On September 27, 1995, representatives of the United States legal counsel to Parent met with the General Counsel and other members of the legal department of the Company to discuss regulatory implications of the Company becoming a wholly-owned subsidiary of Parent. Counsel to Parent also requested that Parent's financial advisor be given the opportunity to perform a due diligence investigation on the Company. At a September 28, 1995 meeting of the members of the Board of the Directors of the Company who are neither officers of the Company nor officers or directors of the Purchaser or Parent (the "Unaffiliated Directors"), those directors determined to form the Special Committee to review Parent's proposal and its fairness to the minority stockholders of the Company and to negotiate the proposal with the Parent. The Special Committee was formed on September 28, 13 1995. The members of the Special Committee were John R. Cox, Raymond H. Deck, Michel J. Gudefin, Richard M. Murray, John W. Popp, David J. Sherwood and Ellen E. Thrower. The Special Committee was granted authority to retain legal and financial advisors to assist it in evaluating the interest expressed by Parent in acquiring the outstanding Shares. Subsequently, the Special Committee hired Davis Polk & Wardwell as its outside legal counsel and Dillon Read to act as financial advisor to the Special Committee. In a meeting with the Special Committee held on September 28, 1995, a representative of Parent discussed Parent's proposal contained in its September 26, 1995 letter and advised the Special Committee that Parent would likely commence a tender offer for the Shares in advance of entering into a Merger Agreement, but that Parent would defer commencing the tender offer to give the Special Committee time to retain legal and financial advisors and begin their review of the $14.00 proposal. The Special Committee and the representatives of Parent agreed that it was in the best interests of the Company and its stockholders to resolve promptly whether Parent would be acquiring the Shares not already owned by it and that the Special Committee would endeavor to be in a position to respond to Parent's proposal by October 26, 1995, the date of a previously scheduled meeting of the Executive Committee of the Board of Directors of the Company. On September 29, 1995, the Company issued a press release concerning Parent's September 25, 1995 proposal. On September 29 and October 3, 1995, representatives of the United States legal counsel to Parent called a representative of counsel for the Special Committee to discuss issues potentially associated with the possible commencement of a tender offer and to inquire as to the timing for retention of a financial advisor. During those calls, counsel to the Special Committee expressed concern that a tender offer might place the Special Committee under timing constraints in responding to Parent's proposal. United States legal counsel to Parent indicated that consummation of any tender offer would likely be conditioned upon prior approval of the Special Committee. During the October 3rd call, counsel to the Special Committee also indicated that Goldman Sachs would be provided with access to confidential information concerning the Company only after and to the extent that the Special Committee and its financial advisor determined that such access was appropriate. On October 10, 1995, representatives of United States legal counsel to Parent called a representative of counsel to the Special Committee to discuss again the timing of the retention by the Special Committee of its financial advisor and the possibility of a tender offer by Parent for the Shares prior to entering into a merger agreement. During the course of that telephone call, the representative of counsel to the Special Committee reiterated concerns relating to the commencement of a tender offer before the Special Committee had delivered its response to Parent's proposal contained in its September 25, 1995 letter. In response to a question raised by counsel to the Special Committee, the representatives of United States legal counsel to Parent indicated they planned to forward a draft of a Merger Agreement to counsel to the Special Committee promptly. On October 10, 1995, the Special Committee retained Dillon Read as its financial advisor to assist in its evaluation of, and negotiations with respect to, Parent's proposal. On October 10, 1995, the Company provided to Parent's United States legal advisors certain initial documents relating to the Company for review. On October 12, 1995, representatives of Parent's United States legal advisors sent a preliminary due diligence request list to the Company outlining the types of documents sought for review. On October 16, 1995, representatives of Parent's United States legal advisors spoke with representatives of the Company to schedule the due diligence process. During the period from October 16 to October 26, 1995, representatives of Parent's financial and United States legal advisors performed due diligence at the Company's 14 offices, were provided with due diligence materials relating to the Company and engaged in conversations with management of the Company. Additional due diligence materials were provided to representatives of Parent's United States legal advisors by the Company on November 2, 1995. On October 13, 1995, representatives of Goldman Sachs, Dillon Read and legal counsel to the Special Committee met with members of the senior management of the Company to discuss the Company's business, historical financial results and projected financial results. During the course of the October 13 meeting, the Company's management indicated that it then expected the Company to achieve operating earnings of no less than $.86 per share in 1995 compared to several then current Wall Street analysts' projections of earnings of $.88 per share for 1995. The Company's management indicated that the projected financial results for 1995 were based on expectations that gross underwriting premiums for 1995 will be less than previous estimates prepared by the Company, but that the net income results would not be materially different from previously forecasted results because of a reduction in the amount of anticipated losses. The Company's management indicated that it then believed the Company has avoided any material losses that might arise from most of the catastrophes that have occurred during the course of 1995. Management noted that most of the loss incurred by the Company in 1994 was the result of losses arising from the Northridge, California earthquake. The Company's management also indicated that it then expected to achieve earnings of $1.12 per share in 1996 compared to several then current Wall Street analysts' projections of earnings of $.95 per share for that year and that it then expected the Company to record earnings per share of $1.42 in 1997. The Company's management indicated that the significant assumptions used in the preparation of such projections included: (i) an assumption that the reinsurance market will not improve significantly over the next two years; (ii) the Company's exposure to property catastrophe loss will be less in the future because of increased management of aggregate exposures to losses arising out of that line of business; (iii) an anticipated reduction in the premiums that the Company will be able to charge and (iv) the possibility that the Company could become less competitive in the future because of higher capital bases for some of the Company's competitors. The Company management indicated at the October 13 meeting that they were in the process of updating the projected financial results of the Company. Certain of those updated financial projections, which were delivered to Parent's United States legal and financial advisors on October 23, 1995, are described in "THE OFFER -- 8. Certain Information Concerning the Company". In addition to the general review of the Company's business and results of operations discussed above, during the October 13 meeting, the Company's management discussed a number of specific matters relating to the Company's various lines of business. In the course of those discussions, the Company noted that Parent has provided 33-40% of the Company's catastrophe retrocession program and has been the Company's largest retrocessionaire by a significant margin. The Company's management indicated that it expects that all catastrophe retrocession will be provided by Parent by January 1, 1996. This increase is part of Parent's world-wide plan to provide all retrocession capacity for its subsidiaries' catastrophe reinsurance and then to retrocede such exposure to other companies. The Company indicated that the increase in Parent's position leading to Parent becoming the sole retrocessionaire of the Company's catastrophe program was decided upon prior to Parent's proposal to acquire the minority interest in the Company. The Company's management indicated its confidence in Parent's ability to satisfy its retrocession obligations. The Company's management also indicated that the Company's broker relationship is extremely concentrated. Forty percent of the brokered premiums written by the Company are sourced from two brokers. Such brokers account for 23% and 16.5%, respectively, of the total brokered premiums and single treaties account for 50% of each of those amounts. Such treaties have been in effect since 1992 and 1987, respectively. 15 During the course of the October 13 meetings with Goldman Sachs and Dillon Read, the Company's management discussed the historical price of the Company's stock. Management pointed out that the stock has in recent years traded at levels that are below the Company's net asset value. Reasons given by the Company's management for the price level of the Company's stock included: (i) low liquidity and trading volumes, (ii) depressed earnings history and return on equity and (iii) the "overhang" in the market caused by Parent's 80% ownership of the common stock. On October 19, 1995, United States legal counsel to Parent forwarded a draft of a Merger Agreement to the Special Committee's legal counsel. On October 20 and 23, 1995, the Special Committee met with its legal and financial advisors to discuss the proposal and the draft of the Merger Agreement. During such period, the Special Committee's legal and financial advisors continued their due diligence investigation of the Company. On October 24, 1995, the Company announced its financial results for the third fiscal quarter of 1995 and for the nine months ended September 30, 1995. The text of the press release announcing such results (excluding the financial statements, which are attached hereto as Appendix B) is set forth below: SCOR U.S. REPORTS THIRD QUARTER AND NINE MONTH RESULTS New York, N.Y., October 24, 1995--SCOR U.S. Corporation (NYSE:SUR) reported today that income from operations for the three months ended September 30, 1995, excluding net realized investment gains, was $4.7 million, or $.26 per share. This compares with $2.2 million or $.12 per share, for the third quarter of 1994. During the 1995 third quarter, the Company experienced $230,000, or less than $.01 per share after-tax, of net favorable development on pre-1995 property catastrophe events. The Company's 1994 third quarter results include pretax charges for catastrophes of $2.1 million, or $.08 per share after-tax. Net income for the three months ended September 30, 1995 was $4.8 million, or $.26 per share, including after-tax realized investment gains of $79,000, or less than $.01 per share. In the year earlier period, the Company reported net income of $2.4 million, or $.13 per share, including after-tax realized investment gains of $210,000, or $.01 per share. For the 1995 nine month period, excluding net realized investment gains, the Company reported income from operations of $13.0 million, or $.71 per share, compared with an operating loss of $12.1 million, or $.67 per share, for the nine month period of 1994. The Company's 1995 year to date results include pretax charges for pre-1995 catastrophe events of $4.3 million, or $.15 per share after tax, of which $3.4 million relates to the Northridge earthquake. Results for the 1994 nine month period include pretax charges of $38.7 million, or $1.39 per share on an after-tax basis, for catastrophe events, principally related to the Northridge earthquake. Net income for the 1995 nine month period was $14.1 million, or $.77 per share, including after-tax realized investment gains of $463,000, or $.03 per share, and an extraordinary gain of $552,000, or $.03 per share, resulting from the Company's repurchase of its debentures. Comparatively, the Company reported a net loss of $11.4 million, or $.63 per share, in the year earlier period, including after-tax realized investment gains of $688,000, or $.04 per share. 16 In the 1995 third quarter, net premiums written were $54.6 million, compared with $55.8 million for the 1994 third quarter. For the 1995 nine month period, net premiums written were $181.6 million, compared with $184.7 million for the corresponding 1994 period. The Company's 1995 third quarter and nine month statutory combined ratios were 100.7% and 104.2%, respectively, compared with 107.2% and 122.8%, respectively, for the third quarter and nine months of 1994. Net investment income for the 1995 nine month period increased to $31.8 million from $30.4 million in the corresponding 1994 period. Net cash provided by operating activities for the nine months ended September 30, 1995 was $3.0 million, compared with cash used in operations of $8.5 million for the corresponding 1994 period. At September 30, 1995, the statutory capital and surplus of the Company's operating subsidiaries stood at an estimated $256.8 million. Based upon preliminary available information concerning the recent hurricane activity, the Company does not expect any material adverse impact from losses arising out of those hurricanes. As previously announced, the Company's Board of Directors has received a proposal from its majority shareholder, SCOR S.A., to repurchase the Company's outstanding publicly held shares. A committee consisting of all independent directors is evaluating that proposal. SCOR U.S. Corporation, a holding company, provides property and casualty insurance and reinsurance in the treaty and facultative markets through its operating subsidiaries. All of the SCOR U.S. Corporation's operating insurance and reinsurance subsidiaries are rated "A" (excellent) by A.M. Best Company. On October 24, 1995, representatives of Dillon Read telephoned representatives of Goldman Sachs and informed Goldman Sachs that the Special Committee would recommend an offer at a price of $18.00 per Share. Representatives of Goldman Sachs then informed Dillon Read that Goldman Sachs would communicate that information to Parent. On the same day and shortly thereafter, Goldman Sachs communicated to Parent that representatives of Dillon Read had stated that the Special Committee would recommend a proposed offer by Parent at $18.00 per Share. Management of Parent then indicated to Goldman Sachs that Parent would not proceed at an $18.00 per Share price and requested Goldman Sachs to communicate that fact to Dillon Read. On the same day and shortly after the telephone call with Parent's management, representatives of Goldman Sachs telephoned Dillon Read and informed its representatives that Parent believed the $18.00 price was unsupportable and that Parent continued to believe $14.00 was an appropriate and fair price for the Shares. On October 26, 1995, representatives of Parent met with representatives of the Special Committee and informed them that Parent was not willing to pay the $18.00 per Share that had been requested by the Special Committee and that Parent would be willing to pay a maximum of $15.00 per Share. Representatives of the Special Committee then indicated that they believed they could obtain Special Committee support for a transaction at $16.00 per Share. Representatives of the Special Committee and Parent were unable to narrow further their disagreement over the appropriate price for a transaction and ended discussions on that day by agreeing to have their respective financial advisors discuss their views on the per Share consideration proposed to be paid. 17 On October 27, 1995, representatives of the financial advisors to the Special Committee telephoned financial advisors to Parent to discuss their views on the per Share consideration proposed to be paid. During the course of that meeting, representatives of Goldman Sachs discussed with representatives of Dillon Read Parent's reasons for having made an offer to purchase the Shares that it did not already own at a price of $14.00 per Share, including certain of the Goldman Sachs analyses contained in Goldman Sachs' presentation to management of Parent on September 21, 1995. In response to that discussion by representatives of Goldman Sachs, the representatives of Dillon Read indicated that the Special Committee would not accept a price per Share that did not represent a moderate premium over the book value. Although a net book value, of $15.10 per Share had been publicly announced by the Company, Dillon Read's representatives indicated to representatives of Goldman Sachs that Dillon Read believed the net book value of the Company to be in the range of $15.05 to $15.50 per Share based on information that had been made available to Dillon Read. On October 30, 1995, the legal counsel to the Special Committee communicated to legal counsel to Parent that the Special Committee would not support a transaction at $15.00 but would likely consider a price that represented a premium over the book value. On October 31, 1995, legal counsel to Parent responded to legal counsel to the Special Committee that Parent would agree to a transaction at $15.25 if such transaction were supported by the Special Committee, was the subject of a favorable fairness opinion of the financial advisor to the Special Committee, was approved by counsel for the various plaintiffs in pending shareholder claims made following Parent's initial proposal, and was effected pursuant to a mutually agreeable merger agreement. Legal counsel to the Special Committee confirmed that a price per Share of $15.25 would satisfy the criteria of the Special Committee and would likely be considered favorably by the Special Committee. See "THE OFFER -- 15. Certain Legal Matters". Also on October 31, 1995, representatives of the Special Committee's legal advisors forwarded to representatives of Parent's United States legal counsel their and the Special Committee's comments on the draft of the Merger Agreement. On November 1, 1995, representatives of Parent's United States legal counsel discussed with the Special Committee's legal advisors and Arter & Hadden, special counsel to the Special Committee for directors' and officers' liability and insurance matters, various provisions of the draft of the Merger Agreement and the comments of the Special Committee and the Special Committee's legal advisors on the draft of the Merger Agreement. On November 2, 1995, representatives of the Special Committee's legal counsel sought to narrow the representations and warranties and conditions to the Offer proposed by Parent in the draft Merger Agreement, and Arter & Hadden sought to modify the obligation of the Company and Parent to purchase directors and officers' liability insurance. On November 2, 1995, representatives of Parent's and the Special Committee's legal advisors again discussed various provisions of the Merger Agreement. After that conversation, the remaining unresolved issues were whether, as requested by Parent, the tender offer would be subject to the Minimum Tender Condition and the timing of the purchase by the Company of directors' and officers' liability insurance and the amount of such insurance that would be purchased by the Company. On November 1, 1995, representatives of counsel to the plaintiffs in the shareholder actions agreed with representatives of Parent's United States legal counsel that they were prepared to negotiate a settlement if a price per Share of $15.25 were offered to the Company's stockholders. See "THE OFFER -- 15. Certain Legal Matters". On the afternoon of November 2, 1995, the Special Committee and its legal and financial advisors met to discuss the Offer and the Merger. At that meeting, the Special Committee agreed to resolve the remaining outstanding issues on the draft Merger Agreement in the manner reflected in the Merger Agreement. A copy of the Merger Agreement has been filed as an exhibit to the 18 Schedule 14D-1 and the Schedule 13E-3, and the Merger Agreement is summarized in "THE OFFER -- 11. The Merger Agreement; Appraisal Rights; Effect on the Debentures". The Special Committee unanimously approved each of the Merger Agreement, the Offer and the Merger and determined that the terms of the Offer and the Merger are fair to, and in the best interest of, the stockholders of the Company and recommended that the stockholders of the Company tender their Shares and that the Board of Directors of the Company approve the same. At that meeting of the Special Committee, Dillon Read orally advised the Special Committee that it was Dillon Read's opinion that the consideration to be received by the holders of Shares (other than Parent) is fair to such holders from a financial point of view as of such date. See "SPECIAL FACTORS -- 6. Recommendation of the Company's Board of Directors and the Special Committee". After the meeting of the Special Committee referred to in the preceding sentence, the Board of Directors of the Company met. After receiving a report from the Special Committee on its deliberations and a recommendation from the Special Committee that the Board of Directors approve the Merger Agreement, the Offer and the Merger, the Board of Directors unanimously approved the Merger Agreement, the Offer and the Merger, determined that the Offer and the Merger are fair to, and in the best interest of, the stockholders of the Company and recommended that all stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. The Merger Agreement was executed and delivered by the parties thereto on November 2, 1995, and the transaction was announced on the morning of November 3, 1995. On November 8, 1995, the Purchaser and the Company agreed to modify the Minimum Tender Condition to the form set forth herein. The modification eliminated all options from the denominator for purposes of calculating whether Parent beneficially owns, directly or indirectly, 90% of the Shares. 6. RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS AND THE SPECIAL COMMITTEE. At the November 2, 1995 meeting of the Board of Directors of the Company, the Board of Directors of the Company, including those members of the Board of Directors of the Company constituting the Special Committee, acting upon the unanimous recommendation of the Special Committee, unanimously approved the Merger Agreement, the Offer and the Merger, determined that the terms of the Offer and the Merger are fair to, and in the best interest of, the stockholders of the Company and recommended that all stockholders of the Company accept the Offer and tender their Shares pursuant to the Offer. Reasons for Recommendation. See "SPECIAL FACTORS -- Background of the Offer and the Merger" for a description of certain events preceding the Board of Director's consideration of the Offer and the Merger. The Special Committee received presentations from, and reviewed the Offer and the Merger with, senior management of the Company as well as the Special Committee's financial advisor, Dillon Read. The Special Committee, in determining whether to recommend the approval of the Merger Agreement and the transactions contemplated thereby to the full Board of Directors, considered a number of factors, including, but not limited to, the following: (i) The belief, based on its familiarity with the Company's business, its current financial condition and results of operations and its future prospects, and the current and anticipated developments in the Company's industry, that the consideration to be received by the Company's stockholders in the Offer and Merger fairly reflects the Company's intrinsic value. (ii) The oral and written presentations made by the Company's management and Dillon Read at a meeting held on October 20, 1995 as to various financial and other considerations deemed relevant to the evaluation of the Offer and the Merger, including, but not limited to, a review of (A) the business prospects and financial condition of the Company, (B) historical 19 business information and financial results of the Company, (C) nonpublic financial and operating results of the Company, (D) financial projections and budgets prepared by the Company's management, (E) information obtained from meetings with senior management of the Company, (F) the trading range and volume history of the Shares, (G) public financial information of comparable companies and (H) public information of comparable acquisitions. (iii) The opinion of Dillon Read that the consideration to be received by the Company's stockholders pursuant to the Merger Agreement is fair to such stockholders (other than Purchaser) from a financial point of view. In considering Dillon Read's opinion, the Board was aware that Dillon Read is entitled to a fee in accordance with the terms of its engagement described below. (iv) The relationship between the consideration to be received by stockholders as a result of the Offer and the Merger and the historical market prices and recent trading activity of the Shares. (v) The recognition that, following consummation of the Offer and the Merger, the current Stockholders of the Company will no longer be able to participate in any increases or decreases in the value of the Company's business and properties. The Board and the Special Committee concluded, however, that this consideration did not justify foregoing the opportunity for stockholders to receive an immediate and substantial cash purchase price for their Shares. (vi) The fact that the terms of the Offer, and the increase in the consideration offered to the public stockholders from $14.00 per Share to $15.25 per Share, were determined through arm's-length negotiations with Parent by the Special Committee and its financial and legal advisors, all of whom are unaffiliated with Parent, and the judgment of the Special Committee and Dillon Read that, based upon the negotiations that transpired, a price higher than $15.25 per Share could not likely be obtained and that further negotiations with Parent could cause Parent to abandon the Offer, with the resulting possibility that the market price for the Shares could fall substantially below $15.25, and possibly $14.00, per Share, or to commence a tender offer without the involvement of the Special Committee at a price less than $15.25 per Share. (vii) Parent's ownership of approximately 80% of the currently outstanding Shares and the effects of such ownership on the alternatives available to the Company and the fact that, as a practical matter, no strategic alternative could be effected without the support of Parent; and the consequences of continuing to operate the Company as a majority-owned subsidiary of Parent. (viii) The terms and conditions of the Merger Agreement, the fact that there are no unusual requirements or conditions to the Offer and the Merger, and the fact that Parent has the financial resources to consummate the Offer and the Merger expeditiously. (ix) The fact that the consideration to be paid to the Company's public stockholders in the Offer and the Merger is all cash. (x) The fact that the Offer and the Merger have been structured to include a first-step cash tender offer for any and all outstanding Shares, thereby enabling stockholders who tender their Shares to promptly receive $15.25 per Share in cash, and the fact that any public stockholders who do not tender their Shares or properly exercise appraisal rights will receive the same price per Share in the subsequent Merger. (xi) The possible conflicts of interest of certain directors and members of management of both the Company and Parent discussed in "Item 3(b) -- Interests of Certain Persons" of the Company's Schedule 14D-9. 20 (xii) The fact that, while no appraisal rights are available to stockholders as a result of the Offer, stockholders who do not tender pursuant to the Offer will have the right to dissent from the Merger and to demand appraisal of the fair value of their Shares under the DGCL. See "THE OFFER -- 11. The Merger Agreement; Appraisal Rights; Effect on the Debentures." The Special Committee considered each of the factors listed above during the course of its deliberations prior to recommending that the Company enter into the Merger Agreement. In light of its knowledge of the business and operations of the Company and its business judgment, the Special Committee believed that each of these factors supported its respective conclusions. In view of the wide variety of factors considered, the Special Committee did not find it practicable to, and did not, quantify the specific factors considered in making its determination, although the Special Committee did place a special emphasis on the opinion and analysis of Dillon Read which in turn did place a special emphasis on a valuation range determined using an analysis of trading values of comparable companies and an economic book value analysis as described below under "Opinion of Financial Advisor". The Board of Directors of the Company, a majority of the members of which were members of the Special Committee, approved the Merger Agreement and the transactions contemplated thereby after receiving a report from the Special Committee on its deliberations and recommendation. In reaching this decision, the Board of Directors principally considered the recommendation of the Special Committee and its familiarity with the Company's business, its current financial condition and results of operations and future prospects, and current and anticipated developments in the Company's industry. Opinion of Financial Advisor On November 2, 1995, Dillon Read delivered its opinion to the Special Committee to the effect that the consideration to be paid to the holders of Shares and certain of the Company's stock options pursuant to the Merger Agreement is fair to such holders (other than Parent) from a financial point of view as of the date thereof. A copy of Dillon Read's opinion is attached as Schedule III hereto. The summary of the opinion set forth herein is qualified in its entirety by such Schedule III which is incorporated herein by reference. Stockholders are urged to read the opinion in its entirety for a description of the assumptions made, matters considered and procedures followed by Dillon Read. The consideration to be paid pursuant to the Offer and Merger was determined by negotiations on behalf of the Company and Parent and was not determined by Dillon Read. In arriving at its opinion, Dillon Read, among other things, (1) reviewed certain publicly available business and financial information relating to the Company; (2) reviewed the reported price and trading activity for the Shares; (3) reviewed certain internal financial information and other data provided to Dillon Reed by the Company relating to the business and prospects of the Company, including financial projections prepared by the management; (4) conducted discussions with members of the senior management of the Company; (5) reviewed the financial terms, to the extent publicly available, of certain acquisition transactions which Dillon Read considered relevant; (6) reviewed publicly available financial and securities market data pertaining to certain publicly-held companies in lines of business generally comparable to those of the Company; and (7) conducted such other financial studies, analyses and investigations, and considered such other information as Dillon Read deemed necessary and appropriate. In reaching its opinion and conducting its analysis, Dillon Read did not assume any responsibility for independent verification of any of the foregoing information and relied upon it being complete and accurate in all material respects. Dillon Read was not requested to and did not make an independent evaluation or appraisal of any assets or liabilities (contingent or otherwise) of the Company or any of its subsidiaries, nor were they furnished with any such evaluation or appraisal. Dillon Read also assumed that all of the information, including the projections, provided to Dillon Read by the Company's management was prepared on a basis reflecting the best currently available estimates and judgments of the Company's management as to the future of the financial performance of the 21 Company and was based upon the historical performance and certain estimates and assumptions which were reasonable at the time made. In addition, Dillon Read was not asked to and did not express any opinion as to the after-tax consequences of the sale of such Shares by the stockholders. Dillon Read's opinion is based on economic, monetary and market conditions existing on the date thereof. In rendering their opinion, Dillon Read did not render any opinion as to the value of the Company and did not make any recommendation to the shareholders with respect to the advisability of voting in favor of the transaction. No limitations were imposed by the Special Committee, the Company or Parent upon Dillon Read with respect to the investigations made or the procedures followed by Dillon Read in rendering its opinion, and the Company and the members of its management cooperated fully with Dillon Read in connection with its investigation. In delivering its opinion and making its presentation to the Board and the Special Committee, Dillon Read discussed certain financial and comparative analyses and other matters it deemed relevant. Among the various financial analyses that Dillon Read discussed were: (i) Comparable Trading Analysis. Dillon Read undertook a comparable public company analysis. In conducting this analysis, Dillon Read reviewed certain financial results of seven companies in the reinsurance industry which Dillon Read believed to be comparable to the Company. Dillon Read calculated trading multiples of (1) 1996 expected earnings per share (based on median estimates supplied by Institutional Brokers Estimate System database), (2) book value as of June 30, 1995 and (3) surplus as of June 30, 1995. Such multiples ranged between 11.0x and 15.0x, 1.0x and 1.3x, and 1.1x and 1.4x, respectively. Based on such multiples, Dillon Read estimated a reference range of $14.49 to $18.98 per Share. (ii) Comparable Acquisition Analysis. Dillon Read reviewed 32 acquisitions of property/ casualty reinsurance companies in the United States and Europe, which had occurred between 1987 and 1995 and summarized financial ratios and statistics for the nine most comparable transactions in the United States. The values of certain multiples (i.e., net income, book value, net premiums and market value) for all nine transactions were derived, as available. Such multiples ranged between 8.9x and 24.6x, 0.8x and 1.8x, 0.6x and 1.7x, and 1.3x and 1.6x, respectively. The multiples were then applied (1) to the Company's Net Premiums for the twelve month period ending September 30, 1995 and (2) to the Company's book value as of September 30, 1995. On this basis, Dillon Read estimated an average reference range of between $14.70 to $20.32 per Share. (iii) Economic Book Value Analysis. Dillon Read calculated the economic book value of the Company as of September 30, 1995. In calculating the economic book value of the Company, Dillon Read took into consideration the following factors, among others: (1) good will of the Company, (2) mark-to-market of the investment portfolio, (3) adjustments for the market value of the electronic data processing system and leasehold improvements, (4) adjustments for the valuation of the deferred income tax benefits and publicly traded debt, (5) ranges of differences between the stated amounts and net present value of the prepaid reinsurance, loss reserves and unearned premiums and (6) a range of value for any reserve deficiency. On this basis, Dillon Read calculated a reference range of the Company between $15.24 and $17.08. (iv) Discounted Cash Flow Analysis. Dillon Read calculated the present value of future cash flows that the Company could be expected to generate over the next five years (the "Discounted Cash Flow Analysis"). In preparing the Discounted Cash Flow Analysis, Dillon Read took into consideration the following: (1) the Company's recent operating and financial performance including, (a) management's business plan for fiscal year 1995 and (b) the historical operating results for the three most recently completed fiscal years, (2) management's business plan for fiscal 1996 and 1997 and (3) projections, reports and other materials prepared by the Company and its management or representatives that were provided to Dillon 22 Read. In addition, representatives of Dillon Read met with representatives of the Company's management to discuss the Company's current and projected operations. In developing its Discounted Cash Flow Analysis for each case, Dillon Read took the "free cash flow" that the Company was expected to generate from fiscal year 1995 to 2000 and discounted these cash flows to present values. Dillon Read applied discount rates ranging from 11% to 13% determined as the most appropriate range for the Company. Dillon Read arrived at this range of appropriate discount rates by determining the weighted average cost of capital for publicly traded companies in businesses similar to the Company. To approximate the residual value of the Company after this five-year period, Dillon Read applied multiples of operating income ranging from 10.5x to 12.5x. Dillon Read's determination of the most appropriate range of multiples was based on an assessment of the multiples of operating income which have been paid in recent publicly announced acquisitions of similar businesses. These residual value estimates were then discounted to present value using each of the above range discount rates. Dillon Read summed the discounted cash flows and residual value for each multiple of operating income described above, which indicated a matrix of present values for the Company of $14.48 to $19.05 per Share. (v) Premium Analysis. Dillon Read reviewed 29 transactions involving the close-out of minority shareholder positions, which had occurred between 1990 and 1995. Dillon Read considered only those transactions in which between 10% and 45% of all outstanding shares of a target corporation were acquired in the close-out transaction and in which the acquiring company owned approximately 100% of the target corporation stock upon completion of the transaction. For each company, Dillon Read calculated for each target corporation the premium paid for each share over the trading value of such share (A) one day prior to the transaction, (B) one week prior to the transaction and (C) four weeks prior to the transaction. Dillon Read then calculated the average of all premiums paid over the target corporation's trading price at each valuation date (calculated as a percentage of such share price). Applying such average premiums to the Company's trading value at each such valuation date, Dillon Read calculated a reference range of the Company between $14.37 and $15.63. The summary set forth above does not purport to be a complete description of either Dillon Read's analyses or presentations to the Special Committee. Dillon Read believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all factors and analyses, could create an incomplete view of the processes underlying its opinion. The preparation of a fairness opinion is a complex process and not necessarily susceptible to partial analyses or summary description. In its analyses, Dillon Read made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond the Company's control. Any estimates contained therein are not necessarily indicative of actual values, which may be significantly more or less favorable than as set forth therein. Estimates of value of companies do not purport to be appraisals or necessarily reflect the prices at which companies may actually be sold. Because such estimates are inherently subject to uncertainty, none of the Company, Parent, the Purchaser, Dillon Read and any other person assumes responsibility for their accuracy. The Company has retained Dillon Read as the Special Committee's financial advisor in connection with the Merger, the Offer and other matters arising in connection therewith pursuant to an engagement letter dated October 10, 1995 (the "Engagement Letter") between the Company and Dillon Read. The Engagement Letter provides, among other things, that the Company will pay to Dillon Read a fee equal to $500,000. In addition, the Company has agreed to reimburse Dillon Read for its reasonable out-of-pocket expenses, including reasonable legal expenses, and to indemnify Dillon Read against certain liabilities. The Special Committee selected Dillon Read as its financial advisor because Dillon Read is an internationally recognized investment banking firm and regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions. 23 THE OFFER 1. TERMS OF THE OFFER. Upon the terms and subject to the conditions set forth in the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or amendment), the Purchaser will accept for payment, and pay for, all Shares validly tendered on or prior to the Expiration Date (as herein defined) and not withdrawn as permitted by "THE OFFER -- 4. Rights of Withdrawal". The term "Expiration Date" means 12:00 Midnight, New York City time, on Friday, December 8, 1995, unless and until the Purchaser shall, in its sole discretion, have extended the period for which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date on which the Offer, as so extended by the Purchaser, shall expire. This Offer is subject to various terms and conditions described herein. See "THE OFFER -- 13. Certain Conditions of the Offer". Subject to the applicable rules and regulations of the Commission, the Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, and regardless of whether or not any of the events set forth in "THE OFFER -- 13. Certain Conditions of the Offer" shall have occurred or shall have been determined by the Purchaser to have occurred, to (i) extend the period of time during which the Offer is open, and thereby delay acceptance for payment of, regardless of whether such Shares were theretofore accepted for payment, and the payment for, any Shares, by giving oral or written notice of such extension to the Depositary and (ii) amend the Offer in any other respect by giving oral or written notice of such amendment. The Purchaser shall not have any obligation to pay interest on the purchase price for tendered Shares, whether or not the Purchaser exercises its right to extend the Offer. The rights reserved by the Purchaser in this paragraph are in addition to the Purchaser's right to terminate the Offer pursuant to the provisions of "THE OFFER -- 13. Certain Conditions of the Offer". If by the Expiration Date, any or all conditions to the Offer have not been satisfied or waived, the Purchaser reserves the right (but shall not be obligated), in its sole discretion subject to the applicable rules and regulations of the Commission, to (i) terminate the Offer and not accept for payment any Shares and return all tendered Shares, (ii) waive all the unsatisfied conditions and, subject to the applicable rules and regulations of the Commission, accept for payment and pay for all Shares validly tendered prior to the Expiration Date and not theretofore withdrawn, (iii) extend the Offer and, subject to the right of stockholders to withdraw Shares until the Expiration Date, retain the Shares that have been tendered during the period or periods for which the Offer is extended, or (iv) amend the Offer in any respect by giving oral and written notice of such termination, waiver, extension, delay or amendment to the Depositary or by making public announcement thereof. There can be no assurance that the Purchaser will exercise its right to extend the Offer. See "THE OFFER -- 13. Certain Conditions to the Offer". Any extension, delay, amendment, waiver or termination will be followed as promptly as practicable by public announcement. In the case of an extension, Rule 14e-1(d) under the Exchange Act requires that the announcement be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date in accordance with the public announcement requirements of Rule 14d-4(c) under the Exchange Act. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that any material change in the information published, sent or given to stockholders in connection with the Offer be promptly disseminated to stockholders in a manner reasonably designed to inform stockholders of such change), and without limiting the manner in which the Purchaser may choose to make any public announcements, the Purchaser will not have any obligations to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. 24 If the Purchaser extends the Offer or if the Purchaser (whether before or after its acceptance for payment of the tendered Shares) is delayed in its acceptance for payment of or payment for the Shares or if the Purchaser is unable to accept for payment or pay for the Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer, the Depositary may retain tendered Shares on behalf of the Purchaser, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to withdrawal right as described in "THE OFFER -- 4. Rights of Withdrawal". However, the ability of the Purchaser to delay the payment for the Shares that the Purchaser has accepted for payment is limited by Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer. Consummation of the Offer is conditioned upon satisfaction of the Minimum Tender Condition and the other conditions set forth in "THE OFFER -- 13. Certain Conditions of the Offer". The Purchaser reserves the right (but shall not be obligated) to waive any or all such conditions and to waive the Minimum Tender Condition and to accept for payment pursuant to the Offer less than the minimum number of Shares necessary to satisfy the Minimum Tender Condition, to the extent permitted under applicable law. If the Purchaser makes a material change in the terms of the Offer or the information concerning the Offer or waives a material condition of the Offer (including a waiver or reduction of the Minimum Tender Condition), the Purchaser will disseminate additional tender offer materials and extend the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the Exchange Act. The minimum period during which an offer must remain open following material changes in the terms of the offer or information concerning the offer, other than a change in price or a change in the percentage of securities sought, or a change in the dealer's advisory fee, will depend upon the facts and circumstances then existing, including the relative materiality of the changed terms or information. In the Commission's view, an offer should remain open for a minimum of five business days from the date a material change is first published, sent or given to security holders, and, if material changes are made with respect to information that approaches the significance of price and share levels, a minimum of ten business days may be required to allow for adequate dissemination and investor response. With respect to a change in price or, subject to certain limitations, a change in the percentage of securities sought or a change in a dealer's solicitation fee, a minimum period of ten business days from the date of such change is generally required under the applicable rules and regulations of the Commission to allow for adequate dissemination to stockholders and investor response. Accordingly, if prior to the Expiration Date, the Purchaser should decrease the number of Shares being sought, or increase or decrease the consideration offered pursuant to the Offer, or change the dealer's solicitation fee, and if the Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that notice of such change is first published, sent or given to holders of Shares, the Offer will be extended at least until the expiration of such ten-business day period. As used herein, a "business day" means any day other than a Saturday, Sunday or federal holiday and consists of the time period from 12:01 a.m. through midnight, New York City time. The Company has provided to the Purchaser the Company's stockholder list and security position lists for the purpose of disseminating the Offer to holders of Shares. This Offer to Purchase, the Letter of Transmittal and other relevant materials will be mailed to recordholders of the Shares whose names appear on the Company's stockholder list and will be mailed to brokers, dealers, banks, trust companies and similar persons whose names, or the names of whose nominees, appear on such stockholder list or, if applicable, who are listed as participants in a clearing agency's security position listing, for subsequent transmittal to beneficial owners of Shares. 25 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), the Purchaser will purchase, by accepting for payment, and will pay for, Shares validly tendered on or prior to the Expiration Date and not properly withdrawn in accordance with "THE OFFER -- 4. Rights of Withdrawal" as promptly as practicable after the later to occur of (i) the Expiration Date and (ii) the satisfaction or waiver of the terms and conditions set forth in "THE OFFER -- 13. Certain Conditions of the Offer". Any determination concerning the satisfaction or waiver of the terms and conditions will be within the sole discretion of the Purchaser, and such determination will be final and binding on all holders of Shares. See "THE OFFER -- 1. Terms of the Offer" and "THE OFFER - -- 13. Certain Conditions of the Offer". The Purchaser expressly reserves the right, in its sole discretion, to delay acceptance for payment of or payment for Shares in order to comply in whole or in part with any applicable law. Any such delays will be effected in compliance with the Purchaser's obligation under Rule 14e-1(c) under the Exchange Act to pay for or return tendered Shares promptly after the termination or withdrawal of the Offer. If, prior to the Expiration Date, the Purchaser increases the consideration offered to the holders of Shares pursuant to the Offer, the Purchaser will pay such increased consideration for all Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in the consideration. For purposes of the Offer, the Purchaser will be deemed to have accepted for payment, and thereby purchased, Shares validly tendered to the Purchaser and not withdrawn if and when the Purchaser gives oral or written notice to the Depositary of the Purchaser's acceptance of such Shares for payment. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which shall act as agent for tendering stockholders for the purpose of receiving payment from the Purchaser and transmitting payment to the tendering stockholders whose shares have been received for payment. UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE PURCHASER ON THE PURCHASE PRICE OF THE SHARES TENDERED PURSUANT TO THE OFFER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY DELAY IN ACCEPTING FOR PAYMENT OR MAKING SUCH PAYMENT. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) certificates for such Shares (or timely Book-Entry Confirmation (as defined herein) of the book-entry transfer of such Shares into the Depositary's account at the Book-Entry Transfer Facility (as defined herein) pursuant to the procedures set forth in "THE OFFER -- 3. Procedure for Tendering Shares"), (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message (as defined herein) in lieu of the Letter of Transmittal) and (iii) any other documents required by such Letter of Transmittal. If the Purchaser is delayed in its acceptance for payment of, or payment for, Shares or is unable to accept for payment or pay for Shares pursuant to the Offer for any reason, then, without prejudice to the Purchaser's rights under the Offer (but subject to the Purchaser's obligations under Rule 14e-1(c) under the Exchange Act to pay for or return the Shares promptly after the termination or withdrawal of the Offer), the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent tendering stockholders are entitled to exercise, and duly exercise, withdrawal rights as described in "THE OFFER -- 4. Rights of Withdrawal". If any tendered Shares are not purchased pursuant to the Offer because of an invalid tender or otherwise, certificates for any such Shares will be returned, without expense, to the tendering stockholder (or, in the case of Shares delivered by book-entry transfer of such Shares into the 26 Depositary's account at the Book-Entry Transfer Facility pursuant to the procedures set forth in "THE OFFER -- 3. Procedure for Tendering Shares", such Shares will be credited to an account maintained at the Book-Entry Transfer Facility), as promptly as practicable after the expiration, termination or withdrawal of the Offer. The Purchaser reserves the right to transfer or assign in whole or in part from time to time to one or more direct or indirect subsidiaries of the Purchaser the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve the Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering stockholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. By accepting the benefits of the Offer through the tender of Shares and the receipt of payment for Shares, a tendering stockholder is (under the Purchaser's view of applicable law) barred from thereafter attacking in any legal proceeding the fairness of the consideration received by stockholders in the Offer. For this reason, the Letter of Transmittal to be executed by tendering stockholders includes a release of any such claims, which will be effective upon receipt of payment for tendered shares. 3. PROCEDURE FOR TENDERING SHARES. Valid Tender. To tender Shares pursuant to the Offer, either (a) a properly completed and duly executed Letter of Transmittal (or facsimile thereof) or, in the case of a book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal, and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (i) certificates for the Shares to be tendered must be received by the Depositary at one of such addresses or (ii) Shares must be delivered pursuant to the procedures for book-entry transfer described below (and a confirmation of such delivery received by the Depositary, including an Agent's Message if the tendering stockholder has not delivered a Letter of Transmittal), in each case by the Expiration Date, or (b) the guaranteed delivery procedure described below must be complied with. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to and received by the Depositary and forming a part of a book-entry confirmation, which states that such Book-Entry Transfer Facility has received an express acknowledgement from the participant in such Book-Entry Transfer Facility tendering the Shares which are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the Letter of Transmittal and that the Purchaser may enforce such agreement against such participant. Book-Entry Delivery. The Depositary will establish an account with respect to the Shares at The Depository Trust Company, Midwest Securities Trust Company and Philadelphia Depository Trust Company (collectively referred to as the "Book-Entry Transfer Facilities") for purposes of the Offer within two business days after the date of this Offer to Purchase, and any financial institution that is a participant in the system of any Book-Entry Transfer Facility may make delivery of Shares by causing such Book-Entry Transfer Facility to transfer such Shares in the Depositary's account in accordance with the procedures of such Book-Entry Transfer Facility. However, although delivery of Shares may be effected through book-entry transfer, either the Letter of Transmittal (or facsimile thereof) properly completed and duly executed together with any required signature guarantees (or, in the case of book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other required documents must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase by the Expiration Date, or the guaranteed delivery procedure described below must be complied with. The confirmation of a book-entry transfer of Shares into the Depositary's account at a Book-Entry Transfer Facility as described above is referred to herein as a "Book-Entry Confirmation". DELIVERY OF THE LETTER OF 27 TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. Signature Guarantee. Except as otherwise provided below, all signatures on a Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program (an "Eligible Institution"). Signatures on a Letter of Transmittal need not be guaranteed (a) if the Letter of Transmittal is signed by the registered holder of the Shares tendered therewith and such holder has not completed the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. If the certificates are registered in the name of a person other than the signer of the Letter of Transmittal or if payment is to be made or certificates for Shares not accepted for payment or not tendered are to be returned to a person other than the registered holder, then the tendered certificates must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered owner or owners appears on the certificates, with the signatures on the certificates or stock power guaranteed as described above. See Instructions 1 and 5 to the Letter of Transmittal. Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to the Offer and cannot deliver such Shares and all other required documents to the Depositary by the Expiration Date, or such stockholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered if all of the following conditions are met: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchaser is received by the Depositary (as provided below) prior to the Expiration Date; and (iii) the certificates for such tendered Shares (or a Book-Entry Confirmation with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantee (or, in the case of book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other documents required by the Letter of Transmittal, are received by the Depositary within three trading days on the NYSE after the date of execution of the Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in such Notice. THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING THROUGH BOOK-ENTRY TRANSFER FACILITIES, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF CERTIFICATES FOR SHARES ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. Other Requirements. Notwithstanding any other provision hereof, in all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of certificates for such Shares (or a timely Book-Entry Confirmation with respect to such Shares), properly completed and duly executed Letter(s) of Transmittal (or facsimile(s) thereof) for such Shares together with any required signature guarantees (or, in the case of book-entry transfer, an Agent's Message in lieu of the Letter of Transmittal), and any other 28 required documents. Accordingly, tendering stockholders may be paid at different times depending upon when certificates for Shares or Book-Entry Confirmations of such Shares and such other documents are actually received by the Depositary. Under no circumstances will interest be paid by the Purchaser on the purchase price of the Shares to any tendering stockholders, regardless of any extension of the Offer or any delay in accepting for payment or making such payment. Tender Constitutes an Agreement. The tender of Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering stockholder and the Purchaser upon the terms and subject to the conditions of the Offer. Appointment of Proxy After Acceptance for Payment. By executing a Letter of Transmittal as set forth above, the tendering stockholder irrevocably appoints the designees of the Purchaser, and each of them, the attorneys-in-fact and proxies of such stockholder, each with full power of substitution, to the full extent of such stockholder's rights with respect to the Shares tendered by such stockholder and accepted for payment by the Purchaser and with respect to any and all cash dividends, distributions, rights, other Shares and other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase ("Distributions"). Such appointment is effective when, and only to the extent that, the Purchaser deposits the payment for such Shares with the Depositary. All such proxies and powers of attorney shall be irrevocable and coupled with an interest in the tendered Shares. Upon the effectiveness of such appointment, without further action, all prior proxies with respect to the Shares (and any associated Distributions) given by such stockholder will be revoked, and no subsequent proxies may be given nor subsequent written consents executed (and, if given or executed, will not be deemed to be effective) with respect thereto by the Stockholder. The Purchaser's designees will, with respect to the Shares (and any associated Distributions) for which the appointment is effective, be empowered to exercise all voting and other rights of such stockholder as they, in their sole discretion, may deem proper at any annual, special or adjourned meeting of the stockholders of the Company, by written consent in lieu of any such meeting or otherwise. The Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon the Purchaser's payment for such Shares, the Purchaser must be able to exercise full voting rights with respect to such Shares (and any associated Distributions) (including voting at any meeting then scheduled or actions by written consent). See "THE OFFER -- 6. Price Range of Shares; Dividends." Release of Claims. By accepting the Offer through the tender of Shares pursuant to the Offer, the tendering stockholder agrees to release, and releases, all claims with respect to or in respect of the Shares other than the right to receive payment for the tendered Shares expressly provided herein and that, upon payment for the Shares, to waive any right to attack (and agrees to be barred from thereafter attacking) in any legal proceeding the fairness of the consideration paid in the Offer. Determination of Validity; Rejection of Shares; Waiver of Defects; No Obligation to Give Notice of Defects. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. The Purchaser reserves the absolute right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. The Purchaser also reserves the absolute right to waive any of the conditions of the Offer or any defect or irregularity in the tender of any Shares. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. Neither the Purchaser, the Depositary, the Information Agent or the Dealer Managers nor any other person will be under any duty to give notification of any defects or irregularities in tenders or will incur any liability for failure to give any such notification. The Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and Instructions thereto) will be final and binding. 29 Backup Withholding. In order to avoid backup withholding of federal income tax on payments of cash pursuant to the Offer, a stockholder surrendering Shares in the Offer must provide the Depositary with such stockholder's correct taxpayer identification number ("TIN") on a Substitute Form W-9 and certify under penalties of perjury that such TIN is correct and that such stockholder is not subject to backup withholding. Certain stockholders (including, among others, all corporations and certain foreign individuals and entities) are not subject to backup withholding. If a stockholder does not provide its correct TIN or fails to provide the certifications described above, under federal income tax laws, the Depositary will be required to withhold 31% of the amount of any payment made to certain stockholders pursuant to the Offer. All stockholders tendering Shares pursuant to the Offer should complete and sign the main signature form and Substitute Form W-9 included as part of the Letter of Transmittal to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is provided in a manner satisfactory to the Purchaser and the Depositary). Non-corporate foreign stockholders should complete and sign the main signature form and a Form W-8, Certificate of Foreign Status, a copy of which may be obtained from the Depositary, in order to avoid backup withholding. See Instruction 10 to the Letter of Transmittal. 4. RIGHTS OF WITHDRAWAL. Except as otherwise provided in this Section 4, tenders of Shares made pursuant to the Offer are irrevocable except that Shares tendered pursuant to the Offer may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by the Purchaser pursuant to the Offer, may also be withdrawn at any time after January 8, 1996. For a withdrawal to be effective, a written, telegraphic, telex or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person having tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder, if different from that of the person who tendered such Shares. If certificates for Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then prior to the physical release of such certificates, the name of the registered holder and the serial numbers shown on such certificates must also be submitted to the Depositary and, unless such Shares have been tendered for the account of any Eligible Institution, the signature on the notice of withdrawal must be guaranteed by an Eligible Institution. If Shares have been tendered pursuant to the procedures for book-entry tender as set forth in "THE OFFER -- 3. Procedure for Tendering Shares", any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares and otherwise comply with such Book-Entry Transfer Facility's procedures for such withdrawal, in which case a notice of withdrawal will be effective if delivered to the Depositary by any method of delivery described in the first sentence of this paragraph. Withdrawals of tenders of Shares may not be rescinded, and any Share properly withdrawn will thereafter be deemed not validly tendered for the purposes of the Offer. However, withdrawn Shares may be retendered by again following one of the procedures described above in "THE OFFER -- 3. Procedure for Tendering Shares" at any time on or prior to the Expiration Date. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by the Purchaser, in its sole discretion, which determination shall be final and binding. None of the Purchaser, Parent, the Dealer Managers, the Depositary, the Information Agent, or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give such notification. If the Purchaser extends the Offer, is delayed in its acceptance for payment of Shares, or is unable to accept for payment Shares pursuant to the Offer, for any reason, then, without prejudice 30 to the Purchaser's rights under this Offer, the Depositary may, nevertheless, on behalf of the Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering stockholders are entitled to withdrawal rights as set forth in this Section 4. Under no circumstances will interest be paid by the Purchaser on the purchase price of the Shares tendered pursuant to the Offer, regardless of any extension of the Offer or any delay in making payment. 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER AND THE MERGER. Sales of Shares pursuant to the Offer will be taxable transactions for Federal income tax purposes and may also be taxable under applicable state, local and other tax laws. For Federal income tax purposes, a stockholder whose Shares are purchased pursuant to the Offer, or who receives cash as a result of the Merger, will realize gain or loss equal to the difference between the adjusted basis of the Shares sold or exchanged and the amount of cash received therefor. Such gain or loss will be capital gain or loss if the Shares are held as capital assets by the stockholder. Under current Federal income tax law, net capital gain of an individual or other non-corporate taxpayer may be subject to tax at a preferential tax rate. In addition, a taxpayer's ability to deduct capital losses may be limited. THE INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO STOCKHOLDERS IN SPECIAL SITUATIONS SUCH AS STOCKHOLDERS WHO RECEIVED THEIR SHARES UPON THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION AND STOCKHOLDERS WHO ARE NOT UNITED STATES PERSONS. STOCKHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER AND THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS. 6. PRICE RANGE OF SHARES; DIVIDENDS. The Shares are listed on the NYSE under the symbol "SUR". The following table sets forth, for the calendar quarters indicated, the high and low sales prices for the Shares on the NYSE Composite Tape and the amount of cash dividends paid per Share, based upon public sources:
SHARES ----------------------------------------------------- CASH DIVIDENDS CALENDAR YEAR HIGH LOW PAID - --------------------------------------------------------- ----------------- -------------- -------------- 1993: First Quarter........................................ $ 20 3/4 $ 17 $ .08 Second Quarter....................................... 19 3/4 16 1/8 .08 Third Quarter........................................ 16 7/8 14 7/8 .08 Fourth Quarter....................................... 16 3/4 12 3/8 .08 1994: First Quarter........................................ $ 13 $ 10 1/4 $ .09 Second Quarter....................................... 12 1/4 10 1/8 .09 Third Quarter........................................ 12 1/4 11 .09 Fourth Quarter....................................... 11 3/8 7 1/2 .09 1995: First Quarter........................................ $ 8 3/4 $ 7 3/4 $ .05 Second Quarter....................................... 9 1/4 7 1/2 .05 Third Quarter........................................ 15 1/2 9 .05 Fourth Quarter (through November 8, 1995)............ 15 3/4 15 N/A
On September 25, 1995, the last full trading day prior to the public announcement of Parent's intention to seek to cause the Company to become a wholly-owned subsidiary of Parent in a transaction in which holders of Shares would receive $14.00 in cash per share, the reported 31 closing price on the NYSE Composite Tape was $11 1/8 per Share. On November 2, 1995, the last full NYSE trading day prior to the public announcement of execution of the Merger Agreement and the Purchaser's agreement to commence the Offer, the reported closing price on the NYSE Composite Tape was $15 1/4 per Share. Stockholders are urged to obtain a current market quotation for the Shares. At its regular December meetings, the Board of Directors of the Company historically has declared a regularly quarterly dividend payable on or about December 31 of each year to stockholders of record on approximately the twelfth day preceding such dividend payment date. Declarations of dividends are within the discretion of the Board of Directors of the Company, and there can be no assurance that the Board of Directors will declare a dividend payable in December 1995. 7. EFFECT OF THE OFFER ON MARKET FOR THE SHARES, STOCK EXCHANGE LISTING, AND EXCHANGE ACT REGISTRATION. The purchase of Shares by the Purchaser pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and would reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. The Shares are currently listed on the NYSE. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, the number of holders of at least 100 Shares (exclusive of NYSE "Excluded Holdings") should fall below 1,200, the number of publicly held Shares (exclusive of holdings of officers and directors of the Company and their immediate families and other concentrated holdings of 10% or more) should fall below 600,000, or the aggregate market value of the publicly held Shares (exclusive of NYSE "Excluded Holdings") should fall below $5,000,000. According to the 1994 Annual Report, there were approximately 140 holders of record of Shares on March 28, 1995, and the Company has advised the Purchaser and Parent that, as of November 2, 1995, there were 18,170,971 Shares outstanding. Parent owned 14,547,756 Shares as of such date. If such exchange were to delist the Shares, the market therefor could be adversely affected. It is possible that the Shares would be traded on other securities exchanges or in the over-the-counter market, and that price quotations would be reported by such exchanges, or through the National Association of Securities Dealers Automated Quotation System, Inc. ("NASDAQ") or other sources. The extent of the public market for the Shares and the availability of such quotations would, however, depend upon the number of stockholders and/or the aggregate market value of the Shares remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration of the Shares under the Exchange Act and other factors. The Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade, or the termination of registration of outstanding Shares under the Exchange Act, would have an adverse effect on the market price for or the marketability of Shares. The Shares are currently registered under the Exchange Act. Such registration may be terminated by the Company upon application to the Commission if the outstanding Shares are not listed on a national securities exchange and if there are fewer than 300 holders of record of Shares. Termination of registration of the Shares under the Exchange Act would reduce the information required to be furnished by the Company to its stockholders and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with stockholders' meetings pursuant to Section 14(a), the related requirement of furnishing annual and 32 transition reports to stockholders pursuant to Section 15(d) of the Exchange Act and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable with respect to the Shares. Furthermore, the ability of "affiliates" of the Company and persons holding "restricted securities" of the Company to dispose of such securities pursuant to Rule 144 under the Securities Act of 1933, as amended, may be impaired or eliminated. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be eligible for NYSE reporting. The Purchaser intends to seek delisting of the Shares from the NYSE and termination of registration of the Shares as soon as possible after consummation of the Offer or the Merger if, and as soon as, the requirements for delisting and termination of registration are met. The Shares are currently "margin securities" under the regulations of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such Shares for the purpose of buying, carrying or trading in securities ("Purpose Loans"). Depending upon factors similar to those described above regarding the continued listing, public trading and market quotations of the Shares, it is possible that, following the purchase of the shares pursuant to the Offer, the Shares would no longer constitute "margin securities" for the purposes of the margin regulations of the Federal Reserve Board and therefore could no longer be used as collateral for Purpose Loans made by brokers. In addition, if registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or be eligible for NYSE reporting. 8. CERTAIN INFORMATION CONCERNING THE COMPANY. The Company is a Delaware corporation with its principal executive offices located at Two World Trade Center, New York, New York 10048-0178. The following description of the Company's business has been taken from the 1994 Annual Report at page I-3: The Company, through its subsidiaries, provides property and casualty insurance and reinsurance. Reinsurance is provided to primary insurance companies on both a treaty and facultative basis. SCOR Re specializes in underwriting treaties covering non-standard automobile, commercial and technical risks and provides property, casualty and special risk coverages on a facultative basis. SCOR Re writes treaty business almost exclusively through reinsurance intermediaries and writes facultative business directly with primary insurance companies and through reinsurance intermediaries. GSIC and Unity Fire provide commercial property and casualty insurance on both a primary and excess basis and underwrite alternative risk market coverages. GSIND provides commercial property and casualty coverages on a surplus lines basis. FINANCIAL INFORMATION. Set forth below is certain summary consolidated financial information for the Company's last three fiscal years as contained in the 1994 Annual Report and for the six months ended June 30, 1995 and June 30, 1994 as contained in the Company's Quarterly Reports on Form 10-Q for the quarters ended June 30, 1995 and June 30, 1994. More comprehensive financial information is included in such reports (including management's discussion and analysis of financial condition and results of operation) and other documents filed by the Company with the Commission, and the following summary is qualified in its entirety by reference to such reports and other documents and all of the financial information and notes contained therein. Copies of such reports and other documents may be examined at or obtained from the Commission or from the NYSE in the manner set forth below. Copies of the financial statements (and the notes thereto) of the Company contained in the 1994 Annual Report and copies of the financial results for the three and nine months ended September 30, 1995, as set forth in the Company's October 24, 1995 press release, are attached to this Offer to Purchase as Appendices A and B, respectively. The book value per Share set forth in Appendix B has been revised since the October 24, 1995 press release (which reported a $15.10 per Share book value), and the revised book value per Share as of September 30, 1995 has been set forth in Appendix B. 33 SCOR U.S. CORPORATION SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) (UNAUDITED) ------------------- CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ------------------------ -------------------------------------- 1995 1994 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- OPERATING DATA: Net premiums earned................. $ 128,804 $ 117,668 $ 228,244 $ 236,051 $ 192,050 Net investment income............... 21,072 20,206 40,990 42,044 42,880 Net realized investment gains....... 592 736 984 12,930 15,048 ---------- ---------- ---------- ---------- ---------- Total revenue....................... 150,468 138,610 270,218 291,025 249,978 Losses and expenses, net............ 85,500 113,498 191,270 156,292 160,545 Commissions, net.................... 36,551 31,875 59,434 61,324 55,960 Other underwriting and administration expenses........... 13,167 12,787 26,009 26,420 23,918 Other expenses...................... 24 1,475 4,039 4,073 4,346 Interest expense.................... 4,310 4,528 8,920 8,005 4,579 ---------- ---------- ---------- ---------- ---------- Total expenses...................... 139,552 164,163 289,672 256,114 249,348 Income (loss) from operations before income taxes...................... 10,916 (25,553) (19,454) 34,911 630 Income taxes (benefit).............. 2,241 (11,738) (11,262) 6,983 (3,771) ---------- ---------- ---------- ---------- ---------- Income (loss) from operations....... 8,675 (13,815) (8,192) 27,928 4,401 Extraordinary gain on redemption of debentures, net of tax............ 552 -0- 351 -0- -0- Cumulative effect of accounting changes, net of tax............... -0- -0- -0- (2,600) 2,848 ---------- ---------- ---------- ---------- ---------- Net income (loss)................... $ 9,227 $ (13,815) $ (7,841) $ 25,328 $ 7,249 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) per fully diluted Share............................. $ 0.50 $ (0.76) $ (0.43) $ 1.33 $ 0.40 Cash dividends declared per Share... $ 0.10 $ 0.18 $ 0.36 $ 0.32 $ 0.28 CERTAIN GAAP FINANCIAL RATIOS: Loss ratio.......................... 66.4% 96.5% 83.8% 66.2% 83.6% Commission ratio.................... 28.4 27.1 26.0 26.0 29.1 U/W, administration and other expense ratio..................... 10.2 12.1 13.2 12.9 14.7 Expense ratio....................... 38.6 39.2 39.2 38.9 43.8 Combined ratio...................... 105.0 135.7 123.0 105.1 127.4 SAP COMBINED RATIO (A):............. 105.6 130.1 118.8 103.7 123.3 Ratio of Earnings to Fixed Charges........................... 3.13x (b) (b) 4.89x 1.14x
- ------------ (a) Operating subsidiaries only. (b) Earnings were inadequate to cover fixed charges by $25,812,000 for the six months ended June 30, 1994 and by $20,197,000 for the year ended December 31, 1994. 34 CONSOLIDATED BALANCE SHEETS
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31, ------------------------ -------------------------------------- 1995 1994 1994 1993 1992 ---------- ---------- ---------- ---------- ---------- ASSETS: Investments................... $ 709,427 $ 660,671 $ 672,793 $ 716,654 $ 600,598 Cash.......................... 11,512 13,994 4,763 17,096 20,378 Accrued investment income..... 10,146 10,275 110,339 10,169 10,572 Premiums receivable........... 90,728 109,975 72,018 80,319 61,793 Reinsurance recoverable on paid losses Affiliates.................. 10,589 12,216 4,399 9,498 15,777 Other....................... 1,232 43,672 19,356 27,329 26,578 Reinsurance recoverable on unpaid losses Affiliates.................. 142,093 125,463 127,096 134,154 112,797 Other....................... 94,967 98,605 95,576 87,689 107,854 Prepaid reinsurance premiums Affiliates.................. 6,629 10,407 10,504 14,578 12,903 Other....................... 4,510 12,033 8,803 11,839 13,326 Deferred policy acquisition costs....................... 22,728 25,609 22,844 24,140 22,171 Deferred Federal income tax benefits.................... 24,423 38,280 34,818 11,894 13,939 Investment in affiliates...... 12,555 11,048 11,532 10,789 10,111 Other assets.................. 46,089 42,455 48,874 37,963 40,424 ---------- ---------- ---------- ---------- ---------- $1,187,628 $1,214,703 $1,143,715 $1,194,111 $1,069,221 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES: Losses and loss expenses...... $ 633,315 $ 622,829 $ 604,787 $ 562,209 $ 561,813 Unearned premiums............. 100,134 121,633 110,082 114,376 104,824 Funds held under reinsurance treaties Affiliates.................. 1,435 3,719 3,654 21,777 23,478 Other....................... 16,422 19,485 17,104 17,825 15,157 Reinsurance balances payable Affiliates.................. 13,003 9,898 15,328 18,196 32,951 Other....................... 16,860 59,825 28,357 42,037 18,488 Convertible subordinated debentures.................. 75,950 86,250 82,350 86,250 0 Notes payable................. 25,000 20,000 20,000 20,000 28,000 Commercial paper.............. 20,321 10,954 11,310 10,721 10,247 Other liabilities............. 12,460 13,309 11,348 10,031 8,147 ---------- ---------- ---------- ---------- ---------- 914,900 967,902 904,320 903,422 803,105 ---------- ---------- ---------- ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, no par value, 5,000,000 shares authorized; no shares issued............ 0 0 0 0 0 Common stock, $0.30 par value, 50,000,000 Shares authorized; 18,356,000 Shares issued.................. 5,507 5,490 5,507 5,490 5,453 Additional paid-in capital.... 114,568 112,894 114,556 112,670 112,068 Unrealized appreciation (depreciation) of investments, net of deferred tax effect................ 3,671 (10,299) (21,640) 16,634 11,416 Foreign currency translation adjustment.................. 197 (269) (414) 12 254 Retained earnings............. 150,564 140,452 143,153 157,532 138,002 Treasury stock, at cost....... (1,774) (1,467) (1,767) (1,649) (1,077) ---------- ---------- ---------- ---------- ---------- 272,733 246,801 239,395 290,689 266,116 ---------- ---------- ---------- ---------- ---------- $1,187,628 $1,214,703 $1,143,715 $1,194,111 $1,069,221 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- BOOK VALUE PER SHARE........... $ 15.02 $ 13.60 $ 13.18 $ 16.05 $ 14.77
35 Except as otherwise set forth herein, the information concerning the Company contained in this Offer to Purchase has been taken from or based upon publicly available documents and records on file with the Commission and other public sources and is qualified in its entirety by reference thereto. Although neither the Purchaser nor Parent has any knowledge that would indicate that any statements contained herein based on such documents and records are untrue, neither the Purchaser nor Parent can take responsibility for the accuracy or completeness of the information contained in such documents and records, or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to the Purchaser or Parent. The Company is subject to the information and reporting requirements of the Exchange Act and in accordance therewith is obligated to file reports and other information with the Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities, any material interests of such persons in transactions with the Company and other matters is required to be disclosed in proxy statements distributed to the Company's stockholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities of the Commission located at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located in the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and in Seven World Trade Center, Suite 1300, New York, New York. Copies may be obtained, by mail, upon payment of the Commission's customary charges, by writing to its principal office at Room 1024, Judiciary Plaza, Washington, D.C. 20549. The Shares are listed on the NYSE and such material, reports, proxy statements and other information can also be available for inspection at the NYSE, 20 Broad Street, New York, New York. CERTAIN PROJECTIONS. Parent and its representatives from time to time receive projections of financial results prepared by the management of the Company in the ordinary course of business as a part of its financial planning process. Although the Company does not as a matter of course publicly disclose projections as to future revenues or earnings, because they were received by Parent, the Purchaser is making these projections available to all stockholders. THE "SUMMARY PROJECTIONS" WERE PREPARED AS PART OF THE COMPANY'S STRATEGIC PLANNING PROCESS AT DECEMBER 1994, MARCH 1995 AND OCTOBER 1995. NONE OF THE PROJECTIONS SET FORTH BELOW IS TO BE REGARDED AS FACT AND SUCH PROJECTIONS SHOULD NOT BE RELIED UPON AS ACCURATE REPRESENTATIONS OF FUTURE RESULTS. IN ADDITION, BECAUSE THE ESTIMATES AND ASSUMPTIONS UNDERLYING THE SUMMARY PROJECTIONS, AS TO FUTURE RESULTS, ARE BASED UPON EVENTS AND CIRCUMSTANCES THAT HAVE NOT TAKEN PLACE AND ARE INHERENTLY SUBJECT TO SIGNIFICANT FINANCIAL, MARKET, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND CONTINGENCIES WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND ARE BEYOND PARENT'S, THE PURCHASER'S AND THE COMPANY'S CONTROL, THEY ARE INHERENTLY IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THE PROJECTED RESULTS CAN BE REALIZED. THEREFORE, IT IS EXPECTED THAT THERE WILL BE DIFFERENCES BETWEEN THE ACTUAL AND PROJECTED RESULTS AND THAT THE ACTUAL RESULTS MAY BE MATERIALLY HIGHER OR LOWER THAN THOSE PROJECTED. THE INCLUSION OF THE SUMMARY PROJECTIONS SHOULD NOT BE REGARDED AS A REPRESENTATION BY PARENT, THE PURCHASER, OR THE COMPANY, OR ANY OF THEIR RESPECTIVE AFFILIATES OR REPRESENTATIVES, THAT THE PROJECTED RESULTS WILL BE ACHIEVED. THE SUMMARY PROJECTIONS WERE NOT PREPARED WITH A VIEW TOWARDS PUBLIC DISCLOSURE OR COMPLYING WITH PUBLISHED GUIDELINES OF THE COMMISSION OR GUIDELINES ESTABLISHED BY THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. NONE OF THE PURCHASER, PARENT, THE COMPANY, OR ANY OF THEIR RESPECTIVE AFFILIATES, REPRESENTATIVES, FINANCIAL ADVISORS, INDEPENDENT AUDITORS OR DIRECTORS OR OFFICERS, ASSUMES ANY RESPONSIBILITY FOR THE ACCURACY OF THE SUMMARY PROJECTIONS. THE SUMMARY PROJECTIONS HAVE NOT BEEN 36 EXAMINED, REVIEWED OR COMPILED BY THE COMPANY'S INDEPENDENT AUDITORS, AND ACCORDINGLY THEY HAVE NOT EXPRESSED AN OPINION OR ANY OTHER ASSURANCE ON THEM. The Summary Projections were based on numerous global assumptions, including the following: (i) that there will be no significant change in market conditions; (ii) that the Company's staff levels will be adequate to implement the Company's proposed strategies; (iii) that, in general, historical retrocession patterns will not change; and (iv) that the Company will remain in the brokered treaty distribution channel (although the projections are based on the implementation of new business strategies for the brokered treaty distribution channel). According to representatives of the Company, the premium growth included in The Summary Projections was based on the professional judgment of the Company after giving careful consideration to the Company's premium growth for each line of business and the expected impact of any underwriting changes that have been or will be implemented. The loss ratios and combined ratios included in The Summary Projections were also based on the professional judgment of the management group after giving consideration to the Company's historical ratios for each line of business and the expected impact of any underwriting changes that have been or are projected to be implemented. The assumed payout patterns have also been based on historical data, with adjustments for the projected change in mix of the Company's business. The Summary Projections were also based on numerous operational assumptions, including the following: (i) the Company will continue to engage in transactions with its affiliates; (ii) new products (which contribute to the projected increase in premiums written) will be accepted in the marketplace; (iii) the Company will incur increases in operating expenses during 1995 relating to technological changes, offset by a reduction in operating expenses resulting from implementation of such new technologies thereafter and (iv) the Company will continue to maintain approximately the same number of branch operations that it currently maintains. The Summary Projections were also based on numerous specific assumptions and factors relating to each of the Company's lines of business, including the following: (i) With respect to property underwritings, incurred losses on earned premiums are reserved at underwriting year ultimate ratios; (ii) With respect to casualty underwritings, incurred losses on earned premiums are reserved by underwriting year, utilizing actuarial department formulas; (iii) With respect to net investment income, (a) the projections are based on the June 30, 1994 portfolio plus income on 50% of projected cash flow (however, 1995 is reduced by a proposed $20 million repayment of a bank financing) and (b) new money and reinvestment of bond maturities are invested at 8%, which is assumed to be the yield on 7 to 10-year investment grade taxable securities; (iv) Realized gains are assumed to be zero; (v) Other operating expenses are expected to increase by 1% per year, plus an estimated overall 1% increase adjustment for staffing changes and increased New Treaty System amortization of $900,000 in 1995 and thereafter; (vi) With respect to interest expense, (a) all years include $1.1 million of interest on funds held, $4.8 million of interest and amortization on the Debentures and $450,000 of commercial paper interest and (b) 1995 includes $1.2 million of interest for three quarters of a year until the bank financing is repaid. The March 1995 update to The Summary Projections reflected updated views on market trends and a reduction of $1.5 million in annual operating expenses. The October 1995 update of The Summary Projections assumed (i) an increase of $40 million in net invested assets in each of 1996 and 1997 at a taxable interest rate of 6% and (ii) the refinancing, rather than repayment, of a $20 million bank loan. The October 1995 update of The Summary Projections generally extrapolated nine months actual results for the full year 1995 and included $1 million in expenses projected to be incurred in connection with Parent's proposal. 1995 projections exclude the effect of a $552,000 extraordinary gain on the repurchase of Debentures realized in the first half of 1995. None of the assumptions or factors used is susceptible to accurate prediction and there is no assurance that The Summary Projections will be realized or that the Company's actual results will not be substantially less or substantially more than those projected. The Summary Projections do not include any benefits relating to the acquisition of the Shares by the Purchaser pursuant to the Offer or the Merger. 37 THE SUMMARY PROJECTIONS PROJECTED STATEMENT OF OPERATIONS FOR FISCAL YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) (UNAUDITED)
MONTH WHEN PROJECTIONS WERE PREPARED -------------------------------- DECEMBER MARCH OCTOBER 1994 1995 1995 -------- -------- -------- Gross written premium..................................... $363,143 $332,900 $314,531 Net written premium....................................... 293,365 269,745 256,820 Net earned premium........................................ 297,602 273,167 259,304 Net investment income..................................... 43,056 42,611 42,430 Net investment gain....................................... 0 0 713 -------- -------- -------- TOTAL REVENUES:........................................... 340,658 315,778 302,447 Losses.................................................... 207,242 187,010 174,410 Commissions............................................... 79,195 74,288 69,125 Expenses.................................................. 29,542 28,004 29,004 Other..................................................... 422 (116) 617 Interest.................................................. 7,528 7,528 8,994 -------- -------- -------- TOTAL EXPENSES:........................................... 323,929 296,714 282,150 Income before taxes....................................... 16,729 19,064 20,297 Income taxes.............................................. 813 1,681 1,838 -------- -------- -------- NET INCOME:............................................... $ 15,916 $ 17,383 $ 18,459 -------- -------- -------- -------- -------- -------- Average Shares outstanding................................ 18,546 18,546 18,196 Net income per Share...................................... $ 0.86 $ 0.94 $ 1.01 Combined ratio (SAP)...................................... 105.8% 105.9% 104.8% Average stockholders equity............................... $251,697 $250,378 $263,434 Return on equity.......................................... 6.3% 6.9% 7.0%
The foregoing table sets forth the projected Statement of Operations for the fiscal year ended December 31, 1995, which projections were prepared during the months indicated above. Because management of the Company periodically updates the projections, they may vary, and in fact have varied, depending on the time such projections are made. 38 THE SUMMARY PROJECTIONS PROJECTED STATEMENTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 1996 AND 1997 (IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA) (UNAUDITED)
1996 PROJECTIONS 1997 PROJECTIONS -------------------- -------------------- MONTH WHEN MONTH WHEN PROJECTIONS WERE PROJECTIONS WERE PREPARED PREPARED -------------------- -------------------- DECEMBER OCTOBER DECEMBER OCTOBER 1994 1995 1994 1995 -------- -------- -------- -------- Gross written premium....................... $413,644 $367,680 $482,810 $430,417 Net written premium......................... 328,224 284,749 382,130 341,779 Net earned premium.......................... 325,841 279,501 372,419 329,182 Net investment income....................... 47,349 44,830 53,473 47,230 Net investment gains........................ 0 0 0 0 -------- -------- -------- -------- TOTAL REVENUES:............................. 373,190 324,331 425,892 376,412 Losses...................................... 227,879 187,708 260,208 216,777 Commissions................................. 84,329 74,087 95,459 89,509 Expenses.................................... 30,634 29,000 31,170 30,000 Other....................................... (852) (190) (1,576) (1,569) Interest.................................... 6,328 7,912 6,328 7,912 -------- -------- -------- -------- TOTAL EXPENSES:............................. 348,318 298,517 391,589 342,629 Income before taxes......................... 24,872 25,814 34,303 33,783 Income taxes................................ 4.034 4,140 7,894 7,489 -------- -------- -------- -------- NET INCOME:................................. $ 20,838 $ 21,674 $ 26,409 $ 26,294 -------- -------- -------- -------- -------- -------- -------- -------- Average primary shares outstanding.......... 18,596 18,196 18,648 18,196 Earnings per Share.......................... $ 1.12 $ 1.19 $ 1.42 $ 1.45 Combined ratio (SAP)........................ 105.1% 103.9% 103.6% 102.0% Average equity.............................. 263,524 286,233 280,233 304,689 Return on equity............................ 7.9% 7.6% 9.4% 8.6%
The foregoing table sets forth the projected Statements of Operations for the fiscal years ended December 31, 1996 and 1997, which projections were prepared during the months indicated above. Because management of the Company periodically updates the projections, they may vary, and in fact have varied, depending on the time such projections are made. 39 SHARE OWNERSHIP INFORMATION. The following table sets forth the information provided to the Purchaser and Parent by the Company regarding the Share ownership by directors and officers of the Company as of November 1, 1995 unless otherwise noted. To Parent's and the Purchaser's knowledge, each of the following listed persons currently intends to tender his Shares in the Offer.
NUMBER OF OPTION NUMBER OF NUMBER OF SHARES OPTION SHARES REGISTERED EXERCISABLE AS UNEXERCISABLE DIRECTORS SHARES HELD OF 11/1/95 AS OF 11/1/95 - ------------------------------------------------ ----------- ---------------- ------------- Jacques P. Blondeau............................. 0 83,998 18,002 John R. Cox..................................... 1,000 1,500 4,500 Raymond H. Deck................................. 7,100 13,500 4,500 Michel Gudefin.................................. 18,000 13,500 4,500 Jerome Karter................................... 0 166,997 24,003 Jean Masse...................................... 0 0 6,000 Richard M. Murray............................... 3,000 13,500 4,500 Serge M.P. Osouf................................ 0 1,500 11,500 Patrick Peugeot................................. 15,900 122,809 4,500 John W. Popp.................................... 1,000 13,500 4,500 Francois Reach.................................. 0 1,500 4,500 David J. Sherwood............................... 1,100 13,500 4,500 Ellen E. Thrower................................ 0 0 3,000 NON-DIRECTOR EXECUTIVE OFFICERS - ------------------------------------------------ Louis Adanio.................................... 10,409 33,121 13,668 John T. Andrews, Jr. ........................... 0 129,998 23,002 Nolan E. Asch................................... 14,188 79,081 12,668 Jeffrey D. Cropsey.............................. 4,552 0 13,000 John D. Dunn, Jr. .............................. 0 4,999 20,001 Francis J. Fenwick.............................. 0 0 7,800 Howard B. Fischer............................... 4,412 25,204 10,968 Linda J. Grant.................................. 100 11,508 9,301 Dominique Lavallee.............................. 1,400 5,999 13,001 Robert D. Sawicki............................... 0 0 9,100 Total (All Directors and Executive Officers as a group)................................... 82,161 735,714* 231,014
- ------------ * Represents approximately 3.22 percent of the Shares outstanding. 40 9. CERTAIN INFORMATION CONCERNING PARENT AND THE PURCHASER. PARENT AND THE PURCHASER. The Purchaser is a Delaware corporation incorporated on October 12, 1995 and organized on November 2, 1995 as a wholly-owned subsidiary of Parent solely for the purposes of entering into the Merger Agreement, purchasing the Shares pursuant to this Offer and effecting the Merger. The Purchaser has conducted no business. Its registered office is CT Corporation Service, 1209 Orange Street, Wilmington, Delaware. Parent is organized under the laws of The French Republic and its principal executive offices are located at Immeuble SCOR-Cedex 39, 92074 Paris La Defense, France. Parent operates principally as a reinsurance company. Together with its subsidiaries, it ranks as the largest professional reinsurer in France and among the largest in the world. For the year ended December 31, 1994 and for the six months ended June 30, 1995, Parent had consolidated net income of FRF 282 million and FRF 206 million, in each case calculated in accordance with French generally accepted accounting principles. At December 31, 1994, Parent had total assets of approximately FRF 34.8 billion and total shareholders equity of approximately FRF 5.4 billion, calculated in accordance with French generally accepted accounting principles. As of November 7, 1995, the rate of exchange of FFr into U.S. dollars, based on the noon buying rate in New York City for cable transactions in foreign currencies as certified for customers purposes by the Federal Reserve Bank of New York was $4.880 FFr per U.S. dollar. The name, citizenship, business address, present principal occupation, and material positions held during the past five years of each of the directors and executive officers of Parent and the Purchaser are set forth in "SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser" to this Offer to Purchase. Neither Parent nor the Purchaser is subject to the information requirements of the Exchange Act and, accordingly, neither files reports or other information with the Commission under the Exchange Act relating to its business, financial position, results of operations or other matters. SHARE OWNERSHIP INFORMATION. Parent currently owns 14,547,756 Shares, or approximately 80% of the issued and outstanding Shares. In addition, the following table sets forth the number of Shares beneficially owned as of November 2, 1995 by the persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser" to this Offer to Purchase and any other associate or majority-owned subsidiary of Parent or any of the persons so listed. To Parent's and the Purchaser's knowledge only Mr. Peugeot owns Shares other than through unexercised stock options. Mr. Peugeot has indicated that he intends to tender such Shares into the Offer. Parent and the Purchaser do not believe any of such persons intends to exercise options for the purpose of tendering into the Offer. AMOUNT BENEFICIALLY NAME OF INDIVIDUAL OWNED - ------------------------------------------------------- ------------ Patrick Peugeot........................................ 138,709 Jacques Blondeau....................................... 83,998 Serge Osouf............................................ 1,500 Francois Reach......................................... 1,500 Except as elsewhere set forth in this Offer to Purchase: (i) neither Parent nor the Purchaser nor, to the knowledge of Parent or the Purchaser, any of the persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser" hereto nor any associate or majority-owned subsidiary of any of the foregoing, beneficially owns or has a right to acquire any equity securities of the Company; (ii) neither Parent nor the Purchaser nor, to the best knowledge 41 of Parent or the Purchaser, any of the persons or entities referred to above, nor any director, executive officer or subsidiary of any of the foregoing, has effected any transaction in such equity securities during the past 60 days; (iii) neither Parent nor the Purchaser nor, to the knowledge of Parent or the Purchaser, any of the persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser" hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents or authorizations; (iv) there have been no contacts, negotiations or transactions since January 1, 1993 between Parent or the Purchaser, or, to the knowledge of Parent or the Purchaser, any of the persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser" hereto, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, a tender offer or other acquisition of securities, an election of directors, or a sale or other transfer of a material amount of asset of the Company; and (v) neither Parent nor the Purchaser, nor, to the best knowledge of Parent or the Purchaser, any of the persons listed in "SCHEDULE I -- Directors and Executive Officers of Parent and the Purchaser" hereto, has since January 1, 1992 had any transaction with the Company or any of its executive officers, directors or affiliates that would require disclosure under the rules and regulations of the Commission applicable to the Offer. References herein to the subsidiaries or affiliates of Parent or the Purchaser do not include the Company and its subsidiaries. SHARE REPURCHASES. On November 2, 1994, Parent acquired directly from certain of the Company's executive officers, 82,000 Shares at the then prevailing market price of $11.125 per Share, specifically: 44,000 Shares from John T. Andrews, Jr., Senior Vice President, General Counsel and Secretary of the Company; 9,071 Shares from Nolan E. Asch, Senior Vice President and Chief Actuary of the Company; 3,929 Shares from R. Daniel Brooks, Senior Vice President of the Company; and 25,000 Shares from Jerome Karter, President and Chief Executive Officer of the Company. Each of these senior officers had, at the request of the Company, voluntarily agreed not to sell any Shares held by them in connection with the privately placed offering of convertible subordinated debentures of the Company in 1993, and were prevented from selling during certain other periods thereafter in accordance with Company policy. The proceeds from these sales to Parent were applied exclusively to reduce indebtedness of the sellers to the Company. In addition, on November 2, 1994, under the Company's Stock Incentive Plan for Key Employees, the Company granted to each of such officers options to purchase a corresponding number of Shares at an exercise price of $11.125 per Share, which was equal to the per Share market price on that date. 10. CONTACTS WITH THE COMPANY. DIRECTORS OF THE COMPANY. The Board of Directors of the Company currently consists of thirteen members, five of whom are officers and/or directors of the Purchaser or officers of the Company. The Purchaser currently has, and following the Offer and the Merger will continue to have, the ability to elect the entire Board of Directors of the Company. The members of the Company's Board of Directors are as follows: Jacques P. Blondeau has served as Chairman of the Board of the Company since September 30, 1994 and as a Director since 1988. Mr. Blondeau is also Chairman of SCOR Reinsurance Company ("SCOR Re"), the Company's principal operating subsidiary. Mr. Blondeau serves as a Trustee of the Voting Trust that holds the stock of SCOR Re on behalf of the Company. From November, 1988 to September 30, 1994, Mr. Blondeau had been Vice Chairman and President of the Company and Vice Chairman of the Board of SCOR Re. He also served as Chief Operating 42 Officer of the Company from November, 1988 to June, 1994. From June 16, 1994 to September 30, 1994, he served as Chief Executive Officer of the Company. He is Chairman of the Board and Chief Executive Officer of Parent. Prior to being elected to these positions in Parent, he served as the President and Chief Operating Officer. Mr. Blondeau was President-Operations of SCOR Paris from 1988 until 1990, when SCOR Paris was merged into Parent. From 1984 to 1988, Mr. Blondeau was Chairman and President of Pechiney Australia and President of Howmet Resources, Inc. (U.S.), a subsidiary of Pechiney Corporation. From 1980-1984, he held various top-level positions with the Pechiney Corporation. Mr. Blondeau's business address is that of Parent. Serge M.P. Osouf has served as Vice Chairman of the Board of Directors of the Company and SCOR Re since September 30, 1994, and has been a Director of the Company since September, 1993, and of SCOR Re since December, 1991. Mr. Osouf serves as the General Manager of Parent and prior to taking this position in September, 1994, had been the President-Reinsurance Operations of Parent since 1993. He is currently Chairman of SCOR Vie and from 1987 to 1993 was General Manager of SCOR Reassurance, two subsidiaries of Parent. Mr. Osouf's business address is that of Parent. Jerome Karter has served as a Director of the Company since February, 1989, and as its President and Chief Executive Officer since September 30, 1994. Prior to September, 1994, he had served as Executive Vice President of the Company since December, 1989. Mr. Karter has also served as a Director, President and Chief Executive Officer of SCOR Re since February, 1989. Prior to his employment at SCOR, he held various management positions both in the United States and Europe with major domestic and multinational insurance companies since 1961. He held senior management positions for Factory Mutual International in London and Affiliated F.M. Insurance Company in Paris from 1969 to 1978. He subsequently served as General Manager-Europe for the Insurance Company of North America (now CIGNA Corporation) and INA Reinsurance Company S.A. in Brussels from 1978 to 1984. Immediately prior to joining the Company, Mr. Karter was a Senior Vice President and Manager of the International Department of Johnson & Higgins in New York from 1984 to 1989. Mr. Karter's business address is that of the Company. John R. Cox has served as a Director of the Company and SCOR Re since June, 1994. Mr. Cox has also served as a Director of Firemark Global Insurance Fund since 1993. From 1985 to 1991 he was Chairman of the Board and Chief Executive Officer of ACE Limited ("ACE"). Until February 3, 1995, he was a Director and a Member of the Audit Committee of ACE and its subsidiary companies. From 1990 to 1993 he was a Director of Bankers Insurance Company Limited. From 1983 to 1985, he was Executive Vice President of American Can Company, subsequently known as Primerica Corporation and now The Travelers Corporation, and Chairman and Chief Executive Officer of Associated Madison Companies, Inc., its financial services holding company subsidiary. From 1975 to 1983 Mr. Cox held various key executive positions in CIGNA Corporation. Mr. Cox's business address is 44 Herbert Terrace, West Orange, New Jersey. Raymond H. Deck has served as a Director of the Company since 1986 and of SCOR Re since 1985. He has been President of Chase Insurance Enterprises, Inc., a division of Chase Enterprises, a private company with investments in real estate, communications and the insurance industry, since 1986. He has also been a Director of Accel International Corporation since 1990. Prior to 1986, he was a Director and Executive Vice President of the Hartford Insurance Group. Mr. Deck's business address is that of Chase Insurance Enterprises, Inc., One Commercial Plaza, Hartford, Connecticut 06103. Michel J. Gudefin has served as a Director of the Company since 1989 and of SCOR Re since June 1990 and is a Voting Trustee of SCOR Re. Mr. Gudefin is retired. From 1988 to 1989 he was Vice Chairman of Howmet Corporation, the principal operating subsidiary of Pechiney Corporation. From 1976 to 1988, Mr. Gudefin was President and Chief Executive Officer of Pechiney Corporation. 43 Until December 31, 1993, he was a Director of Pechiney Corporation and Howmet Corporation. He is currently a Director of Southwire Corporation and a Vice President and Director of Intrend Corporation. Mr. Gudefin's business address is that of the Company. Jean P. Masse has served as a Director of the Company and SCOR Re since March 1995. From June 16, 1994 until March 1995, he was Director Emeritus of SCOR Re after having served as a Director of SCOR Re from 1990 to 1994. He served as a Director and President of The Unity Fire and General Insurance Company from December 1982 until 1990, and during that time also served as President and Treasurer of the Rockleigh Management Corporation, which was merged with and into the Company in 1990. Mr. Masse's business address is Tour Voltaire, 1 place Des Dgres, Cedex 58, 92059 Paris La Defense, France. Richard M. Murray has served as a Director of the Company and SCOR Re since 1990. He was Chairman and executive advisor of The Nippon Management Corporation from 1987 to 1991. Since 1990, he has been Vice Chairman of La Prov Corporation, a wholly-owned U.S. subsidiary and liaison office of Grupo Nacional Provincial S.A., a leading Mexican insurance company. He was a Vice President of The Travelers Corporation from 1967 to 1987. Mr. Murray's business address is that of La Prov Corporation, 80 Broad Street, New York, New York 10004-2203. Patrick Peugeot has served as a Director of the Company since 1983 and of SCOR Re since 1985. Mr. Peugeot is also a Voting Trustee of SCOR Re. He served as Chairman of the Board of the Company from 1983 until September 30, 1994, and as Chief Executive Officer of the Company from December 1988 until June 16, 1994. He was also Chairman of the Board of SCOR Re until September 1994. Mr. Peugeot had served as Chairman of the Board and Chief Executive Officer of Parent from 1989 until 1994 and of SCOR Paris from 1983 until 1990. Mr. Peugeot was Chairman of CCR from 1983 to 1985. He is Honorary Chairman of CCR and has served as Honorary Chairman of Parent since August 30, 1994. He is now Vice Chairman and President of La Mondiale, a French mutual life insurance company. He is also Vice Chairman of Partner Europe. Mr. Peugeot's business address is that of La Mondiale, located at 22 boulevard Malesherbes 75008 Paris. John W. Popp, has served as a Director of the Company since March 1990 and SCOR Re since 1989. Mr. Popp also is a business consultant. He was a Partner of Peat, Marwick, Mitchell & Co. (now KPMG Peat Marwick LLP) from 1955 to 1982. Mr. Popp has been a Director of Old Republic International Corporation since 1993. Mr. Popp's business address is that of the Company. Francois Reach has served as a Director of the Company since March 1989 and of SCOR Re since June 1994. Mr. Reach has served as Chairman and CEO of REAFIN, the finance company subsidiary of Parent since October 1994. He was Chief Investment Officer and Treasurer of Parent from 1983 until October, 1994, when he became Deputy General Manager of Parent. From 1986 to 1994, he was President of REAFIN. He is also Managing Director of Finimosa (Spain) and of Finimo Kft (Hungary). Mr. Reach's business address is that of Parent. David J. Sherwood has served as a Director of the Company and of SCOR Re since 1987. He is also a Voting Trustee of SCOR Re. Mr. Sherwood has served as Chairman of the Board of Governors of the New York Insurance Exchange since 1985. He was President of The Prudential Insurance Company of America from 1978 to 1984. Mr. Sherwood's business address is that of the New York Insurance Exchange, c/o Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022. Ellen E. Thrower has served as a director of the Company since July 1995. She has served as President and Chief Executive Officer of The College of Insurance and Chief Executive Officer of its parent organization, The Insurance Society of New York since 1988. She has been a director of the Insurance Education Foundation since 1988; the New York City Council on Economic Education, 44 Inc., since 1992; the Pennsylvania National Mutual Casualty Insurance Co. since 1990; and the United Educators Insurance Risk Retention Group, Inc., since 1994. Ms. Thrower's business address is that of The College of Insurance, 101 Murray Street, New York, New York 10007. CONTRACTS AND AGREEMENTS. The Company and Parent have a number of financial, operating and other arrangements and have engaged in certain intercompany transactions believed to be mutually beneficial. These arrangements include those set forth below. Copies of the Agreements referred to below required to be filed as exhibits to the Schedule 13E-3 and the Schedule 14D-1 are so filed and are available in the same manner as that described in "SPECIAL FACTORS--5. Background of the Offer and the Merger", and the following summaries are qualified in their entirety by reference to the copies of such agreements. (i) Retrocession Agreements: SCOR Re, like most reinsurance companies, enters into retrocession arrangements for many of the same reasons primary insurers seek reinsurance, including increasing their premium writing and risk capacity without requiring additional capital and reducing the effect of individual or aggregate losses. Historically, SCOR Re has retroceded risks to retrocessionaires on both a proportional and excess of loss basis. Since a reinsurer remains liable to a ceding company with respect to any risk subject to a retrocession agreement, such retrocessionaires are subject to an initial review of financial condition before final acceptability is confirmed and to subsequent reviews on an annual basis. From 1974 through 1986, virtually all of SCOR Re's retrocessions had been to affiliates. Based on the increased surplus resulting from the Company's public offering in 1986, SCOR Re significantly decreased the total amount of reinsurance retroceded, a large portion of which continues to be retroceded to affiliates. All reinsurance agreements with affiliates must be submitted to the New York Insurance Department for prior review. In 1994, 11.5% of gross premiums written by the Company were retroceded to Parent, compared with 15.6% and 14.0% in 1993 and 1992, respectively. Under its 1995 retrocessional program, SCOR Re retains a maximum of $2.0 million as to any one ceding company program for treaty business. SCOR Re retains a maximum of $3.9 million and $1.0 million per risk for facultative property and facultative casualty business, respectively. Under its 1994 retrocessional program SCOR Re retained a maximum of $2.0 million as to any one ceding company program for treaty business and a maximum of $3.3 million and $1.1 million per risk for facultative property and facultative casualty business, respectively. SCOR Re purchases coverage against the accumulation of losses resulting from a single catastrophic event. As with most reinsurers, SCOR Re retains a share of its catastrophe exposures. In 1995, SCOR Re has general catastrophe retrocessional coverage, which covers property exposures only, for generally 78% of $48 million in excess of $20 million per occurrence. The Company also has underlying coverage for $15 million in excess of $5 million per occurrence after a $5 million deductible. Parent participates in SCOR Re's 1995 general catastrophe retrocessional program for a total limit of approximately $13.7 million. Pursuant to a Net Aggregate Excess of Loss Retrocessional Agreement dated as of July 1, 1986 ("1986 Retrocessional Agreement"), Parent reinsured SCOR Re for adverse loss development from pre-1986 business that exceeded the total of loss reserves established as of June 30, 1986 and premiums earned after June 30, 1986 from such pre-1986 business. The 1986 Retrocessional Agreement provided protection to the Company for business underwritten by SCOR Re only and did not provide coverage for pre-1986 business underwritten by any other subsidiary. However, business underwritten by General Security and Unity Fire is protected against adverse development by a separate net aggregate excess of loss retrocessional agreement, as described below. The 1986 Retrocessional Agreement terminated on December 31, 1993, at which time, Parent's 45 liability to SCOR Re was $16.2 million. This amount is the actuarially determined expected ultimate loss from the pre-1986 business in excess of the "aggregate deductible" (which is defined as the total of net outstanding loss and loss expense reserves, net incurred but not reported ("IBNR") loss reserves and net unearned premium reserves established as of June 30, 1986 for the pre-1986 business, plus all net premiums and future net premium adjustments earned after June 30, 1986 under retrospectively rated treaties for such business). During the first quarter of 1994, SCOR Re received $16.2 million from Parent in settlement of its liability under this agreement. Given the remaining uncertainty of the ultimate liability of certain exposures underwritten in the pre-1986 SCOR Re business, SCOR Re and Parent entered into a new Net Aggregate Excess of Loss Agreement ("the 1994 Retrocessional Agreement") effective January 1, 1994, which protects the same business covered under the 1986 Retrocessional Agreement. Under this Agreement, SCOR Re is responsible for any further adverse development up to $8.8 million beyond the $16.2 million of adverse development recognized under the 1986 Retrocessional Agreement, at which point (the "attachment point") the 1994 Retrocessional Agreement attaches and provides coverage for up to $10 million of any additional adverse development. Because the losses related to the 1986 Retrocessional Agreement settlements have not yet been paid, the Company earns interest on the funds received. Based on the Company's assumption of the expected payment pattern of these reserves, the Company expects that such investment income would at least equal any adverse development below the attachment point. SCOR Re paid a premium of $2 million for this coverage, which expires on December 31, 2004. At December 31, 1994, no recovery was recognized under the 1994 Retrocessional Agreement. In addition, based on the Agreement's experience, SCOR Re is eligible to receive a contingent commission of up to 27.75% of the premium. SCOR Re is a party to two additional retrocession agreements providing for significant premium payments to Parent. First, pursuant to the Catastrophe Excess of Loss Reinsurance Contract for the 1994 year, SCOR Re paid Parent a premium for that year of $3,797,984 for the coverage specified under that reinsurance contract in respect of losses under policies covering treaty and facultative reinsurance assumed by SCOR Re resulting from certain property exposures. Losses arising out of the Northridge earthquake resulted in the reinstatement of coverage under the contract for an additional premium from SCOR Re to Parent of approximately $3.5 million. Second, pursuant to the Catastrophe Excess of Loss Reinsurance Contract for the 1995 year, SCOR Re is required to pay to each of Parent and one of its affiliates, SCOR Reassurance, by way of quarterly installments, a premium of $2,041,110 for that year for the coverage to be provided by each of them as specified under that reinsurance contract in respect of losses under policies covering treaty and facultative reinsurance assumed by SCOR Re resulting from certain property exposures. Parent entered into a Net Aggregate Excess of Loss Retrocessional Agreement with each of Unity Fire and General Security, pursuant to which Parent agreed to reinsure those companies to the extent that their net ultimate incurred losses (as defined in the agreements) arising in 1989 and prior accident years exceed an aggregate deductible. As a result of the above-described assumption by General Security of the rights, liabilities and obligations of Unity Fire, the Net Aggregate Excess of Loss Retrocessional Agreement with Unity Fire was terminated and the Net Aggregate Excess of Loss Retrocessional Agreement with General Security was amended (as so amended, the "Agreement") to include the protection formerly provided to Unity Fire by its retrocessional agreement with Parent. As a result of the merger of General Security into SCOR Re, the protection under the Agreement is now for the benefit of SCOR Re. The aggregate deductible is defined as the sum of net outstanding loss and loss expense reserves and net IBNR loss reserves as of December 31, 1989, for 1989 and prior accident years, as documented in the 1989 statutory financial statements of Unity Fire and General Security. This amount has been established at a combined 46 aggregate of $93.8 million. The annual premium for this protection is $210,000 through 2004. The Agreement continues in force until all covered losses are settled. At December 31, 1994, Parent's estimated liability to SCOR Re under the Agreement was approximately $11.7 million. The retrocession of risks underwritten by a reinsurer does not legally discharge it from liability for any part of the risk retroceded. Accordingly, the Operating Subsidiaries would be required to pay the full amount of the loss associated with the reinsured risk if for any reason Parent or any other retrocessionaire was unable or failed to meet its reinsurance obligations. Generally, under the New York Insurance Law, retrocessionaires which are not licensed or otherwise authorized reinsurers in New York must provide letters of credit or other permitted assets to secure their obligations to the ceding reinsurer (based on the ceding reinsurer's current estimate of the ceded liability) in order for the ceding reinsurer to take credit on its statutory financial statements for the reinsurance ceded. This security can be applied by the ceding reinsurer toward discharging its own liability in the event of a default by the retrocessionaire. At December 31, 1994, the amount of estimated liability for which retrocessionaires were liable to the Operating Subsidiaries was approximately $265.7 million, of which approximately $215.2 million was secured by letters of credit in favor of, or funds held by, the Operating Subsidiaries. Additionally, an amount of $37.6 million represents the liability on reinsurance ceded to New York licensed or authorized reinsurance companies, which are not required to provide additional security in order for the ceding reinsurer to take credit for the reinsurance ceded. The amounts of estimated liability recoverable from retrocessionaires at December 31, 1993 and 1992 were approximately $285.1 million and $289.2 million, respectively. The Operating Subsidiaries' exposure to amounts deemed unrecoverable from retrocessionaires has been limited and to the extent it has been exposed, paid losses, outstanding losses and incurred but not reported losses recoverable from retrocessionaires which are determined to be uncollectible are charged to operations. (ii) Reinsurance: The Company's operating subsidiaries assume reinsurance from Parent and other affiliated companies primarily on a quota share or surplus share basis. Written premiums assumed from these companies (and the percentage of gross written premiums) were approximately $7,845,000 (2.6%), $8,375,000 (2.5%) and $6,699,000 (2.2%) for the years ended December 31, 1994, 1993 and 1992, respectively. Of these amounts, approximately $6,959,000, $7,925,000 and $6,278,000 for 1994, 1993 and 1992, respectively, were assumed from Parent. The Company's operating subsidiaries also retrocede reinsurance to Parent and other affiliated companies, primarily on a quota share or surplus share basis. For the years ended December 31, 1994, 1993 and 1992 the percentage of assumed premiums written to net premiums written was 126.9%, 131.4% and 145.9%, respectively. Reinsurance does not discharge or diminish the primary liability to insureds of the Company on risks reinsured; however, it does permit the Company to recover the applicable portion of any loss from its retrocessionaires. Retrocessionaires of the Company are subject to an initial review of financial condition before final acceptability is confirmed and subsequent reviews on an annual basis. Parent provides letters of credit in favor of the Company's Operating Subsidiaries in amounts equal to its estimated liability under its reinsurance agreements with such companies (as re-estimated on a quarterly basis). The amount of letters of credit provided by Parent at December 31, 1994 was approximately $134,500,000. (iii) SCOR Re Voting Trust: The New York Insurance Law prohibits (with certain exceptions) the issuance of a license to a company that is owned or financially controlled in whole or in part by a government, unless an insurer was so owned or financially controlled prior to the effective date of 47 such statute. Unity Fire was so owned or financially controlled prior to such effective date. Because Parent, the controlling stockholder of the Company, was indirectly partially owned by certain French insurance companies which were majority owned by the French Government, the Company, in 1984, to permit SCOR Re to obtain a New York insurance license, established a voting trust for its holdings of capital stock of SCOR Re. The voting trust was irrevocable for a period of ten years (through June 6, 1994), unless SCOR Re's New York license was withdrawn. In 1994, in order for SCOR Re to retain its New York license and obtain a California insurance license, the voting trust was renewed for an additional period of three years. The five voting trustees under the voting trust possess and are entitled to exercise all the rights and powers of absolute owners of the capital stock of SCOR Re, except to pass any voting right or ownership interest to others. Decisions of the voting trustees may be made by majority vote, provided that such majority consists of at least two voting trustees who are not officers, directors or stockholders of the Purchasers. The voting trustees are required to forward any dividends paid by SCOR Re to the Company as the registered holder of the voting trust certificates evidencing beneficial ownership of SCOR Re's stock. Transfers of voting trust certificates may only be made by the registered holder thereof. The current voting trustees are as follows: Patrick Peugeot, Jacques P. Blondeau, Allan M. Chapin, Michel J. Gudefin, and David J. Sherwood. All of the voting trustees are directors of the Company with the exception of Mr. Chapin, who is a partner of Sullivan & Cromwell, legal counsel to Parent. Although there can be no assurances as to the actions the voting trustees may or may not take in the future, since the establishment of the voting trust in June 1984, the actions of the voting trustees have been limited primarily to the election of directors of SCOR Re. (iv) Credit Agreement: In 1995, the Company established a $20 million credit agreement with Parent, the proceeds of which are restricted to the repurchase of the Debentures in the market or the repayment of any debt incurred to repurchase Debentures. In addition, Parent may provide the funds or arrange financing necessary for the Company to satisfy its obligation to repurchase Debentures in accordance with the terms of the Indenture (v) Loan Agreement: In 1995, the Company has established a $20 million loan agreement with Parent, the proceeds of which are restricted to the repayment of, or the repayment of indebtedness incurred in respect of the repayment of a bank financing obtained by the Company. In October 1995, the Company borrowed $20 million under this loan agreement (vi) Software: The Company has agreed in principle with Parent for the purchase by Parent of the Company's New Treaty System ("NTS"), at a purchase price of $1.5 million. To date, the Company has expended approximately $10.2 million in researching, developing and implementing NTS. In January 1992, the Company acquired 19.8% of the stock of Commercial Risk, a Bermuda holding company for two insurance subsidiaries. The purchase price was approximately $9.9 million. As a result of a recapitalization of Commercial Risk in 1994, the Company currently owns approximately 12.87% of the outstanding stock of Commercial Risk. Parent owns approximately 52.27% of the outstanding stock of Commercial Risk. 48 11. THE MERGER AGREEMENT; APPRAISAL RIGHTS; EFFECT ON THE DEBENTURES. The Merger. The Merger Agreement provides that, promptly after the purchase of Shares pursuant to the Offer and the receipt of any required approval of the Merger Agreement by the Company's stockholders and the satisfaction or waiver of certain other conditions, the Purchaser will be merged into the Company. Because Parent currently owns a majority of the outstanding Shares, parent will have the vote necessary under Delaware law to approve the Merger. Under Delaware law, if the Purchaser owns at least 90% of the outstanding Shares, which would be the case if the Minimum Tender Condition is satisfied, the Merger may be effected without the vote of the Company's stockholders. Following consummation of the Merger, the Company will continue as the surviving corporation in the Merger (the "Surviving Corporation") and will become a wholly owned subsidiary of Parent. At the Effective Time, each Share outstanding immediately prior to the Effective Time (other than Shares owned by Parent, the Purchaser, the Company or any direct or indirect subsidiary of Parent or the Company or Shares ("Dissenting Shares") held by stockholders of the Company who have properly exercised their appraisal rights in accordance with Section 262 of the DGCL) will be converted into the right to receive, without interest, an amount in cash (the "Merger Consideration") equal to the Offer Price. At the Effective Time each share of common stock, par value $1.00 per share, of Purchaser, issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of Purchaser or the holders of such shares, be converted into one share of common stock of the Surviving Corporation. The Merger Agreement provides that the Dissenting Shares will not be converted into or represent the right to receive the Merger Consideration. Holders of such Shares will be entitled to receive payment of the "fair value" of such Shares held by them in accordance with the provisions of Section 262 of the DGCL, except that all Dissenting Shares held by stockholders who fail to perfect or who effectively withdraw or lose their rights to dissent will thereupon be deemed to have been converted into, as of the Effective Time, the right to receive, without any interest thereon, the Merger Consideration, upon surrender of the certificate or certificates that formerly evidenced such Shares. The Merger Agreement contemplates that the certificate of incorporation of the Surviving Corporation, which will be the Restated Certificate of Incorporation of the Company, shall be amended to provide that the authorized capital of the Surviving Corporation shall be 1,000 shares of common stock, par value $.01 per share. The Merger Agreement provides that Purchaser shall make available or cause to be made available to the paying agent appointed by Purchaser with the Company's prior approval (the "Paying Agent") amounts sufficient in the aggregate to provide all funds necessary for the Paying Agent to make payments described above to holders of Shares issued and outstanding immediately prior to the Effective Time. Promptly after the Effective Time, the Paying Agent shall, pursuant to irrevocable instructions, make the payments provided for in the preceding sentence out of the funds deposited with the Paying Agent for such purpose. One hundred and eighty days following the Effective Time, the Surviving Corporation shall be entitled to cause the Paying Agent to deliver to it any funds (including any interest received with respect thereto) made available to the Paying Agent which have not been disbursed to holders of certificates formerly representing Shares outstanding at the Effective Time, and thereafter such holders shall be entitled to look to the Surviving Corporation only as general creditors thereof with respect to the cash payable under due surrender of their certificates. The Surviving Corporation shall pay all charges and expenses, including those of the Paying Agent, in connection with the exchange of cash for Shares and Purchaser shall reimburse the Surviving Corporation for such charges and expenses. 49 Conditions to Certain Obligations. The obligations of the Company, the Purchaser and Parent to effect the Merger are subject to the satisfaction of certain conditions set forth in the Merger Agreement, including (i) the purchase by the Purchaser (or one or more affiliates of the Purchaser) of Shares pursuant to the Offer, (ii) to the extent required by applicable law, the receipt of stockholder approval of the Merger and the Merger Agreement and (iii) there being no statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) enacted, issued, promulgated, enforced or entered by any governmental, regulatory or administrative authority, agency, tribunal commission or other entity, domestic, international or foreign, including any state insurance governmental or regulatory body and non-governmental self-regulatory organization (a "Governmental Entity"), or any court which is in effect and prohibits consummation of the Merger. Termination. According to its terms, the Merger Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time, whether before or after any approval by the stockholders of the Company, by the mutual consent of Parent and the Company, by action of their respective Boards and Directors. In addition, the Merger Agreement may be terminated by action of the Board of Directors of either Parent or the Company if (i) the Purchaser shall have terminated the Offer without purchasing any Shares pursuant thereto; provided, in the case of termination of the Merger Agreement by Parent, such termination of the Offer is not in violation of the terms of the Offer or (ii) without fault of the terminating party, the Merger shall not have been consummated by March 31, 1996, whether or not such date is before or after any approval by the stockholders of the Company of the Merger and the Merger Agreement. The Merger Agreement may be terminated by Parent at any time prior to the Effective Time, whether before or after any approval by the stockholders of the Company, by the action of the board of directors of the Parent, if (i) the Company shall have failed to comply in any material respect with any of the covenants and agreements contained in the Merger Agreement to be complied with or performed by the Company at or prior to such date of termination or (ii) the Board of Directors of the Company or those directors of the Company who are not officers of Parent or the Company or any affiliate of either of them (the "Independent Directors") shall have withdrawn or modified in a manner adverse to Parent or the Purchaser its approval or recommendation of the Offer, the Merger Agreement or the Merger or the Board of Directors of the Company or the Independent Directors, upon request by Parent, shall fail to reaffirm such approval or recommendation, or shall have resolved to do any of the foregoing. The Merger Agreement may be terminated at any time prior to the Effective Time, before or after any approval by the stockholders of the Company, by action of the Board of Directors of the Company, if Parent or the Purchaser shall (i) have failed to comply in any material respect with any of the covenants or agreements contained in the Merger Agreement to be complied with or performed by Parent or the Purchaser at or prior to such date of termination or (ii) shall have failed to commence the Offer within the time required by the Merger Agreement. Subject to the applicable provisions of the DGCL, the Merger Agreement may be amended by action taken by the Company, Parent and the Purchaser at any time prior to the Effective Time. Certain Covenants of the Parties. The Purchaser has agreed in the Merger Agreement that it will not, without the prior written consent of the Company, decrease the price per Share or change the form of consideration payable in the Offer, decrease the number of Shares sought or change the conditions to the Offer. Also, the Purchaser shall not terminate or withdraw the Offer or extend the Expiration Date unless at the Expiration Date the conditions set forth in "THE OFFER -- 13. Certain Conditions of the Offer" have not been satisfied or waived. If the Purchaser or Parent or any direct or indirect subsidiary of Parent shall have purchased any Shares pursuant to the Offer, the Merger Agreement provides that the Company shall take all necessary action to enter into a supplemental indenture prior to the Effective Time with the Trustee (as defined in the Debentures) pursuant to the Indenture, to provide, among other things, that on 50 and after the Effective Time the Debentures will be convertible only into the right to receive an amount of cash, without interest, equal to the Offer Price. The Merger Agreement also provides that prior to the Effective Time, the Company shall take such actions as may be necessary such that at the Effective Time each stock option outstanding pursuant to the Company Stock and Option Plans (an "Option"), whether or not then vested, shall be cancelled and only entitle the holder thereof, upon surrender thereof, to receive an amount in cash equal to the difference between the Offer Price and the exercise price per Share of such Option, multiplied by the number of Shares previously subject to such Option. The Merger Agreement provides that for six years after the Effective Time, the Surviving Corporation shall maintain the Company's existing directors' and officers' liability insurance or equivalent liability insurance ("D&O Insurance") so long as the annual premium therefor is not in excess of the last annual premium paid prior to the date of the Merger Agreement (the "Current Premium"); provided, however, if the existing D&O Insurance expires, is terminated or canceled during such six-year period, the Surviving Corporation will use its best efforts to obtain as much D&O Insurance as can be obtained for the remainder of such period for a premium not in excess (on an annualized basis) of 200 percent of the Current Premium. In lieu of the insurance arrangement described above, the Company may, on or before the expiration of the Offer, enter into alternative insurance arrangements, provided that such arrangements are approved by the Independent Directors and Parent. The Merger Agreement also provides that, from and after the Effective Time, Parent and the Surviving Corporation will indemnify and hold harmless each present and former director and/or officer of the Company, determined as of the Effective Time (the "Indemnified Parties") that is made a party or threatened to be made a party to any threatened, pending or completed, action, suit, proceeding or claim, whether civil, criminal, administrative or investigative, by reason of the fact that he or she was a director or officer of the Company or any subsidiary of the Company prior to the Effective Time and arising out of actions or omissions of the Indemnified Party in any such capacity occurring at or prior to the Effective Time (a "Claim") against any costs or expenses (including reasonable attorneys' fees), judgments, fines, amounts paid in settlement pursuant to the provisions of the Merger Agreement described in the next succeeding paragraph, losses, claims, damages or liabilities (collectively, "Costs") reasonably incurred in connection with any Claim, whether asserted or claimed prior to, at or after the Effective Time, to the fullest extent that the Company would have been permitted under Delaware law. The Merger Agreement further provides that the Surviving Corporation and Purchaser shall also advance expenses (including attorneys' fees), as incurred by the Indemnified Party to the fullest extent permitted under applicable law provided such Indemnified Party provides an undertaking to repay such advances if it is ultimately determined that such Indemnified Party is not entitled to indemnification. Pursuant to the Merger Agreement, upon learning of any Claim described in the preceding paragraph, such Indemnified Party shall promptly notify the Surviving Corporation and Parent thereof. In the event of any such Claim (whether arising before or after the Effective Time), (i) Parent or the Surviving Corporation shall have the right to assume the defense thereof and Parent shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if Parent or the Surviving Corporation elects not to assume such defense or counsel for the Indemnified Parties advises that there are issues which raise conflicts of interest between Parent or the Surviving Corporation and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and Parent or the Surviving Corporation shall pay all reasonable fees and expenses of such counsel for the Indemnified Parties promptly as statements therefor are received; provided, however, that the Surviving Corporation and Parent shall be obligated pursuant to the Merger Agreement (b) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties would present such counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate in 51 the defense of any such matter and (iii) Parent shall not be liable for any settlement effected without its prior written consent; and provided further that the Surviving Corporation and Parent, respectively, shall not have any obligation under the Merger Agreement to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final and non-appealable, that the indemnification of such Indemnified Party in the manner contemplated by the Merger Agreement is prohibited by applicable law. If such indemnity is not available with respect to any Indemnified Party, then the Surviving Corporation and the Indemnified Party shall contribute to the amount payable in such proportion as is appropriate to reflect relative faults and benefits. The Merger Agreement further provides that if a claim for indemnification or advancement under the Merger Agreement is not paid in full by the Surviving Corporation or Parent within thirty days after a written claim therefor has been received by the Surviving Corporation or Parent, the Indemnified Party may any time thereafter bring suit against the Surviving Corporation or Purchaser to recover the unpaid amount of the claim and, if successful in whole or in part, the Indemnified Party shall be entitled to be paid also the expense of prosecuting such claims. Under the terms of the Merger Agreement, neither the failure of the Surviving Corporation or Purchaser (including their Boards of Directors, independent legal counsel or shareholders) to have made a determination prior to the commencement of such suit that indemnification of the Indemnified Party is proper in the circumstances because he or she has met the applicable standard of conduct, nor an actual determination by the Surviving Corporation or Parent (including their boards of directors, independent legal counsel, or shareholders) that the Indemnified Party has not met such applicable standard of conduct, shall be a defense to the suit or create a presumption that the Indemnified Party has not met the applicable standard of conduct. The Merger Agreement also provides that no amendment to the Certificate of Incorporation or By-laws of the Surviving Corporation shall reduce in any way the elimination of personal liability of the directors of the Company contained therein or adversely affect any then existing right of any director or officer (or former director or officer) to be indemnified with respect to acts, omissions or events occurring prior to the Effective Time. In the Merger Agreement, the Company has agreed that its Board of Directors and a majority of the Independent Directors will recommend acceptance of the Offer to the Company's stockholders and will file with the Commission contemporaneously with the commencement of the Offer, and mail to its stockholders, a Solicitation/Recommendation Statement on Schedule 14D-9 containing the unanimous recommendation of the Company's Board of Directors and the Independent Directors that the Company's stockholders accept the Offer. The Merger Agreement also provides that if the Company's Board of Directors determines that its fiduciary duties require it to amend or withdraw its recommendation, such amendment or withdrawal shall not constitute a breach of the Merger Agreement. The Merger Agreement also contains certain other restrictions as to the conduct of business by the Company pending the Merger, as well as representations and warranties of each of the parties customary in transactions of this kind. The foregoing description of the Merger Agreement is qualified in its entirety by reference to the text of the Merger Agreement, a copy of which has been filed as an exhibit to the Schedule 14D-1 and to the Schedule 13E-3 and may be obtained in the manner described in "THE OFFER -- 8. Certain Information Concerning the Company". The foregoing description of the Merger Agreement is qualified in its entirety by reference to that document. If the Minimum Tender Condition is satisfied, Parent directly or indirectly will hold 90% or more of the outstanding Shares, and Parent intends to contribute its Shares to the Purchaser and cause the Purchaser to effect the Merger without a vote of the Company's stockholders pursuant to the 52 "short-form" merger provisions of the DGCL. As the Purchaser already owns 14,547,756 of the 18,170,971 total outstanding Shares, assuming no additional Shares are issued after November 2, 1995, the Purchaser will need to purchase pursuant to its Offer a minimum of 1,806,118 of the Shares in order to satisfy the Minimum Tender Condition. However, if the Purchaser were to waive the Minimum Tender Condition, resulting in the Purchaser and Parent holding less than 90% of the outstanding Shares, then the Merger would have to be approved by the Company's Board of Directors and by the Company's stockholders. Under the DGCL, the vote of the holders of a majority of the outstanding Shares would be required to approve the Merger under such circumstances. Since Parent currently owns more than a majority of the outstanding Shares, Parent will have sufficient voting power to approve the Merger without the affirmative vote of any other stockholders of the Company, and Parent intends to do so. APPRAISAL RIGHTS. Holders of Shares do not have appraisal rights as a result of the Offer. After the Offer is consummated, the Purchaser anticipates that the Shares will cease to be listed or traded on the NYSE. In connection with the Merger, even if the Merger is consummated pursuant to the short-form merger provisions discussed above, holders of the Shares will have certain rights under the DGCL to dissent and demand appraisal of, and payment in cash for the fair value of, their Shares. Such rights, if the statutory procedures are complied with, could lead to a judicial determination of the fair value (excluding any element of value arising from accomplishment or expectation of the Merger) required to be paid in cash, plus a payment in cash of a fair rate of interest from the date of consummation of the Merger, to such dissenting holders for their Shares. Any such judicial determination of the fair value of Shares would take into account all relevant factors and could, accordingly, be based upon considerations other than or in addition to the price paid in the Offer and the Merger and the market value of the Shares, asset values, earning capacity and the investment value of the Shares. The value so determined could be more or less than the purchase price per Share pursuant to the Offer or the consideration per Share to be paid in the Merger. The costs of appraisal litigation (including fees of counsel and experts retained by the parties) will be taxed upon the parties, or either of them, in such manner as appears equitable to the court. See "SCHEDULE II -- Appraisal Rights of Dissenting Stockholders under Delaware Law" attached hereto for a summary of appraisal rights under the DGCL. The Purchaser does not intend to object, assuming the proper procedures are followed, to the exercise by any other stockholder of such stockholder's appraisal rights and who demands appraisal of, and payment in cash for the fair value of, such stockholder's Shares, even if the Shares are not delisted prior to the consummation of the Merger. However, Parent intends to cause the Company, as the surviving corporation in the Merger, to argue in any appraisal proceeding that, for the purposes of such a proceeding, the fair value of the Shares is less than the price paid in the Offer and the Merger. THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY AVAILABLE DISSENTERS' RIGHTS. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS ARE CONDITIONED ON STRICT ADHERENCE TO THE APPLICABLE PROVISIONS OF DELAWARE LAW. Effect on the Debentures. Under the terms of the Indenture, in the event of a Repurchase Event (which would occur in the event that Parent directly or indirectly owns, after giving effect to the purchase of Shares pursuant to the Offer or the acquisition of Shares pursuant to the Merger, in excess of 90% of the outstanding Shares), the holders of the Debentures shall have the right to require the Company to repurchase the Debentures at a repurchase price equal to 100% of the principal amount thereof together with accrued and unpaid interest to the date of such repurchase (the "Repurchase Price"), which date shall be 45 days after the date on which the Company notifies the holders of the Debentures of such Repurchase Event. In addition, in the event the Merger is consummated, the holders of the Debentures will be entitled to convert the Debentures 53 into the right to receive the consideration receivable upon the Merger by a holder of the number of Shares into which such Debentures could have been converted immediately prior to the Merger. In light of the current conversion price at which the Debentures may be converted into Shares, holders of Debentures would receive a greater cash amount in the event they elected to require the Company to repurchase their Debentures at the Repurchase Price than they would if they elected to convert their Debentures into the right to receive the merger consideration in respect of the Shares into which such Debentures could have been converted immediately prior to the Merger. Therefore, the Purchaser expects that substantially all of the holders of the Debentures would elect to require the Company to repurchase their Debentures at the Repurchase Price. Plans for the Company. Except as otherwise set forth in this Offer to Purchase, it is expected that, initially following the Merger, the business and operations of the Company will be continued substantially as they are currently being conducted. 12. SOURCE AND AMOUNT OF FUNDS. The Purchaser estimates that the total amount of funds required to purchase 100% of the outstanding Shares pursuant to the Offer and the Merger and to pay related fees and expenses will be approximately $61,500,000. See "THE OFFER -- 16. Fees and Expenses" for additional information as to the fees and expenses payable by the Purchaser. The Purchaser will obtain these funds as capital contributions from Parent's existing working capital. 13. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, the Purchaser shall not be obligated to accept for payment any Shares or, subject to any applicable rules and regulations of the Commission, including Rule 14e-1(c) (relating to the Purchaser's obligation to pay for or return tendered Shares promptly after termination or withdrawal of the Offer), pay for, and may delay the acceptance for payment of or payment for, any tendered Shares unless the Minimum Tender Condition shall have been satisfied or waived or, if on or after November 2, 1995, and at or before the time of payment for any of such Shares (whether or not any Shares have theretofore been accepted for payment or paid for pursuant to the Offer), any of the following events shall occur: (a) there shall be any statute, rule, regulation, judgment, injunction or other order, enacted, promulgated, entered, enforced or deemed applicable to the Offer or the Merger or any other action shall have been taken by any Governmental Entity, or any other person, domestic, supranational or foreign (i) challenging the legality of the acquisition by the Purchaser of the Shares; (ii) restraining, delaying or prohibiting the making or consummation of the Offer or the Merger or obtaining from the Company, Parent or the Purchaser any damages in connection therewith; (iii) relating to assets of, or prohibiting or limiting the ownership or operation by Parent or the Purchaser of all or any portion of the business or assets of, the Company, Parent or the Purchaser (including the business or assets of their respective affiliates and subsidiaries) or imposing any limitation on the ability of Parent or the Purchaser to conduct such business or own such assets; (iv) imposing limitations on the ability of Parent or the Purchaser (or any affiliate of Parent or the Purchaser) to acquire or hold or to exercise full rights of ownership of the Shares, including, without limitation, the right to vote the Shares purchased by them on all matters properly presented to the stockholders of the Company or (v) having a substantial likelihood of any of the foregoing; (b) there shall have occurred (i) any general suspension of, or limitation on times or prices for, trading in securities on any national securities exchange or in the over-the-counter market in the United States or France or (ii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States or France (whether or not mandatory); 54 (c) the Company shall have breached or failed to perform in any material respect any of its covenants, obligations or agreements under the Merger Agreement or any representation or warranty of the Company set forth in the Merger Agreement shall have been inaccurate or incomplete in any material respect when made or thereafter shall become inaccurate or incomplete in any material respect; (d) any change, including, without limitation, any change arising out of or related to any natural disaster (including hurricanes and earthquakes), shall have occurred or been threatened or become known (or any condition, event or development shall have occurred or been threatened or become known involving a prospective change) in the business, properties, assets, liabilities, condition (financial or otherwise), or results of operations of the Company or any of its subsidiaries that could reasonably be expected to be materially adverse to the Company and its subsidiaries taken as a whole; (e) all consents, registrations, approvals, permits, authorizations, notices, reports or other filings required to be made or obtained by the Company, Parent, the Purchaser or any stockholder of Parent with or from any Governmental Entity in connection with the Offer and the Merger shall not have been made or obtained except where the failure to make or to obtain, as the case may be, such consents, registrations, approvals, permits, authorizations, notices, reports or other filings could not reasonably be expected to have a material adverse effect on the condition (financial or otherwise), properties, assets, liabilities, business or results of operations of the Company and its subsidiaries taken as a whole; (f) the Special Committee shall have adversely amended or modified or shall have withdrawn its recommendation of the Offer or the Merger, or shall have failed to publicly reconfirm such recommendation upon request by Parent or the Purchaser, or shall have resolved to do any of the foregoing; or (g) the Merger Agreement shall have been terminated in accordance with its terms or the Purchaser shall have reached an agreement or understanding with the Special Committee providing for termination of the Offer which, in the reasonable judgment of the Purchaser with respect to each and every matter referred to above, and regardless of the circumstances (including any action or inaction by the Purchaser, Parent or any affiliate of Parent) giving rise to any such condition, makes it inadvisable to proceed with the Offer or with such acceptance for payment or payment. The foregoing conditions are for the sole benefit of the Purchaser and may be asserted by the Purchaser regardless of the circumstances (including any action or inaction by the Purchaser, Parent or any affiliate of Parent) giving rise to any such conditions or may be waived by the Purchaser in whole or in part at any time and from time to time in its sole discretion. The failure by the Purchaser at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time. Any determination by the Purchaser concerning the events described above will be final and binding on all holders of the Shares. 14. DIVIDENDS AND DISTRIBUTIONS. If, on or after the date hereof, the Company should (a) split, combine or otherwise change the Shares or its capitalization, (b) acquire Shares or otherwise cause a reduction in the number of outstanding Shares, (c) issue or sell additional Shares (other than the issuance of Shares reserved for issuance as of the date of this Offer to Purchase under employee stock option and restricted stock option plans in accordance with their terms, in effect and publicly disclosed as of the date of this Offer to Purchase), shares of any other class of capital stock, other voting securities or any 55 securities convertible into or exchangeable for, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing or (d) disclose that it has taken any such action, then without prejudice to the Purchaser's rights under the provisions of "THE OFFER -- 13. Certain Conditions of the Offer", the Purchaser, in its sole discretion, may make such adjustments as it deems appropriate in the Offer and Merger consideration and other terms of the Offer and Merger, including, without limitation, the number or type of securities offered to be purchased. If, on or after the date hereof, the Company should declare or pay any cash dividend on the Shares or make any other distribution on the Shares (other than regular quarterly cash dividends on the Shares), or issue with respect to the Shares any additional Shares, shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, payable or distributable to stockholders of record on a date prior to the transfer of the Shares purchased pursuant to the Offer to the name of the Purchaser or its nominees or transferees on the Company's stock transfer records, then, subject to the provisions of "THE OFFER -- 13. Certain Conditions of the Offer" below, (a) the price payable by the Purchaser pursuant to the Offer and Merger may, in the sole discretion of the Purchaser, be reduced by the amount of any such cash dividend or distribution and (b) the whole of any such non-cash dividend, distribution or issuance to be received by the tendering stockholders will (i) be received and held by the tendering stockholders for the account of the Purchaser and will be required to be promptly remitted and transferred by each tendering stockholder to the Depositary for the account of the Purchaser, accompanied by appropriate documentation of transfer, or (ii) at the direction of the Purchaser, be exercised for the benefit of the Purchaser, in which case the proceeds of such exercise will promptly be remitted to the Purchaser. Pending such remittance and subject to applicable law, the Purchaser will be entitled to all rights and privileges as owner of any such non-cash dividend, distribution, issuance proceeds or rights and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. Cash dividends of the Company's reinsurance subsidiaries may be paid only out of their statutory earned surplus. For the Operating Subsidiaries domiciled in New York (which, at December 31, 1994, represented approximately 89% of the Company's statutory surplus), the payment of dividends is subject to statutory restrictions imposed by New York insurance law. Generally, the maximum amount of dividends that may be paid in any twelve month period without the prior approval of the relevant authorities is the lesser of net investment income and 10% of statutory surplus, as such terms are defined for the purposes of New York insurance law. 15. CERTAIN LEGAL MATTERS. GENERAL. Except as otherwise disclosed herein, based upon an examination of publicly available filings with respect to the Company, neither the Purchaser nor Parent is aware of any licenses or other regulatory permits which appear to be material to the business of the Company and which might be adversely affected by the acquisition of Shares by the Purchaser pursuant to the Offer or by the Merger or of any approval or other action by any governmental, administrative or regulatory agency or authority which would be required for the acquisition or ownership of Shares by the Purchaser pursuant to the Offer or by the Merger. Should any such approval or other action be required, it is currently contemplated that such approval or action would be sought or taken. There can be no assurance that any such approval or action, if needed, would be obtained or, if obtained, that it will be obtained without substantial conditions or that adverse consequences might not result to the Company's, Parent's or Purchaser's business or that certain parts of the Company's, Parent's or Purchaser's business might not have to be disposed of in the event that such approvals were not obtained or such other actions were not taken, any of which could cause the Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. The 56 Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions. See "THE OFFER -- 13. Certain Conditions of the Offer". STATE TAKEOVER LAWS. A number of states have adopted laws and regulations applicable to offers to acquire securities of corporations which are incorporated in such states and/or which have substantial assets, stockholders, principal executive offices or principal places of business therein. In Edgar v. MITE Corporation, the Supreme Court of the United States held that the Illinois Business Takeover Statute, which made the takeover of certain corporations more difficult, imposed a substantial burden on interstate commerce and was therefore unconstitutional. In CTS Corporation v. Dynamics Corporation of America, the Supreme Court held that as a matter of corporate law, and in particular, those laws concerning corporate governance, a state may constitutionally disqualify an acquiror of "Control Shares" (ones representing ownership in excess of certain voting power thresholds e.g. 20%, 33 1/3% or 50%) of a corporation incorporated in its state and meeting certain other jurisdictional requirements from exercising voting power with respect to those shares without the approval of a majority of the disinterested stockholders. The Purchaser has not currently complied with any state takeover laws. The Purchaser reserves the right to challenge the applicability or validity of any state law purportedly applicable to the Offer or the Merger and nothing in this Offer to Purchase or any action taken in connection with the Offer or the Merger is intended as a waiver of such right. If it is asserted that one or more state takeover laws applies to the Offer or the Merger and it is not determined by an appropriate court that such act or acts do not apply or are invalid as applied to the Offer or the Merger, the Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, the Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in consummating the Offer or the Merger. In such case, the Purchaser may not be obligated to accept for payment any Shares tendered. INSURANCE REGULATORY REQUIREMENTS AND APPROVALS. The Company's Operating Subsidiaries are domiciled or "commercially domiciled" for insurance regulatory purposes in the States of New York, Maryland and California and are accordingly subject to the insurance laws and regulations of such states. The Company also has an indirect minority interest in a reinsurance company domiciled in the State of Vermont (together with New York, Maryland and California, the "Domiciliary States"). Under the insurance laws and regulations of the Domiciliary States, transactions involving the acquisition of control of a domestic insurer, as well as certain transactions involving an insurance holding company such as the Company, are generally subject to the prior approval of insurance regulators in each such state. In particular, the acquisition of outstanding Shares of the Company sufficient to satisfy the Minimum Tender Condition, as well as the consummation of the Merger, may be subject to such prior approvals. In light of the fact that Parent already owns approximately 80% of the Company's outstanding common stock and accordingly already "controls" the Company and its insurance company Subsidiaries for purposes of applicable insurance laws. However, Parent has sought confirmation from insurance regulators in the Domiciliary States to the effect that no additional insurance regulatory filings, notifications or approvals would be required in connection with the acquisition of additional Shares or the consummation of the Merger. Based on discussions with such regulators to date, Parent believes that no such filings, notifications or approvals will be required, although there can be no assurances in this regard. CERTAIN LITIGATION. Between September 27 and October 2, 1995 the following actions (the "Underlying Actions") were commenced in the Court of Chancery of the State of Delaware in and for New Castle County (the "Court"): Howard Sande Feldman, Custodian for Jan Sharona Feldman, UGMA v. Jacques P. Blandeau [sic], et al., C.A. No. 14577 57 Crandon Capital Partners v. Jacques P. Blondeau, et al., C.A. No. 14579 Daniel Bruno v. Scor U.S. Corporation, et al., C.A. No. 14582 Jay Baxt v. Jacques P. Blandeau [sic], et al., C.A. No. 14585 Kalter and Kaplan Profit Sharing Plan-- Keogh F/B/O Ivan Kalter v. Jacques P. Blondeau, et al., C.A. No. 14589. The complaints in the Underlying Actions alleged, among other things, (i) Parent's proposal was the product of unfair dealing inasmuch as defendants possess non-public information concerning the financial condition and prospects of the Company, (ii) Parent's proposed offer price of $14.00 cash per Share to be paid to the putative class members was inadequate and unfair, and (iii) the conduct of defendants constituted self-dealing in violation of their fiduciary duties to the putative class members. On October 25, 1995, a motion was served in each of the Underlying Actions, seeking an order (1) consolidating the Underlying Actions for all purposes, (2) designating the complaint in action No. 14577 as the complaint in the Consolidated Action, and (3) designating the law firms of Bernstein Litowitz Berger & Grossmann; Wechsler Harwood Halebian & Feffer LLP; and Wolf Popper Ross Wolf & Jones, L.L.P. as plaintiffs' co-lead counsel and the law firms of Chimicles, Jacobsen & Tikellis and Rosenthal, Monhait, Gross & Goddess, P.A. as plaintiffs' Delaware co-liaison counsel. Copies of the complaints filed in the Underlying Actions are filed as exhibits to the Schedule 14D-1 and the Schedule 13E-3, may be obtained in the manner described in "THE OFFER -- 8. Certain Information Concerning the Company" and are incorporated herein by reference. The foregoing description of the action is qualified in its entirety by reference to such exhibit. On November 1, 1995, representatives of counsel to the plaintiffs in the shareholder actions agreed with representatives of Parent's United States legal counsel that they were prepared to negotiate a setlement if a price per Share of $15.25 were offered to the Company's stockholders. An agreement in principle has been reached with plaintiffs' counsel to settle the litigation based on Purchaser's increase of the Offer Price to $15.25. This settlement is subject to approval of the Court and confirmatory discovery. The defendants have denied, and continue to deny, that they have committed or have threatened to commit any violation of law or breaches of duty to the plaintiffs or the putative class. The defendants have agreed to the proposed settlement because such settlement would eliminate the burden and expense of further litigation and would facilitate the consummation of a transaction that they believe to be in the best interests of the Company and its stockholders. 16. FEES AND EXPENSES. Goldman, Sachs & Co. are acting as Dealer Managers in connection with the Offer and Goldman Sachs has provided certain financial advisory services to Parent in connection with the Offer and the Merger. Neither Parent nor the Purchaser is paying the Dealer Managers a solicitation fee for acting as Dealer Managers. 58 Pursuant to a letter agreement dated September 22, 1995 (the "Engagement Letter"), Parent engaged Goldman Sachs to act as its financial advisor in connection with the possible acquisition of the outstanding Shares not currently beneficially owned directly or indirectly by Parent. Pursuant to the terms of the Engagement Letter, Parent has agreed to pay Goldman Sachs a fee of $540,000 upon execution of the Engagement Letter and, if at least 90% of the outstanding Shares, including the Shares currently beneficially owned directly or indirectly by Parent, are acquired by Parent in one or more transactions, a transaction fee of $900,000, less any fees already paid pursuant to the Engagement Letter. Parent has agreed to reimburse Goldman Sachs for its reasonable out-of-pocket expenses, including attorney's fees and disbursements, and to indemnify Goldman Sachs against certain liabilities, including certain liabilities under the federal securities laws. The Purchaser and Parent have agreed to reimburse the Dealer Managers for their reasonable out-of-pocket expenses, including the fees and expenses of its counsel, for acting as Dealer Managers, and have agreed to indemnify the Dealer Managers against certain liabilities and expenses in connection with acting as Dealer Managers, including liabilities under the federal securities laws. Goldman Sachs and the Dealer Managers, as part of their investment banking businesses, are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. In selecting Goldman Sachs as its financial advisor (including Goldman, Sachs & Co. as Dealer Managers), Parent considered primarily the reputation of Goldman Sachs and its affiliates as an internationally recognized investment banking firm that has substantial experience in transactions similar to the Merger. In addition to acting as financial advisor to Parent in connection with the Offer and the Merger, Goldman Sachs and the Dealer Managers have provided certain investment banking services to the Company and Parent from time to time, including the Dealer Managers having acted as financial advisor to the Company in connection with its acquisition of Rockleigh in 1990, acting as dealer in the Company's commercial paper program since 1991 and having acted as lead manager in the placement of the Debentures in 1993, and may provide investment banking services to the Company, the Purchaser and/or Parent in the future. Goldman Sachs provides a full range of financial, advisory and brokerage services and in the course of its normal trading activities may from time to time effect transactions and hold positions in the securities or options on securities of the Company and/or Parent for its own account and for the account of customers. As of the date hereof, Goldman Sachs holds for its own account $90,000 in principal amount of the Debentures. The Purchaser has also retained D.F. King & Co., Inc. to act as the Information Agent in connection with the Offer and the Merger. The Information Agent may contact holders of Shares by mail, telephone, telex, telegraph and personal interviews and may request brokers, dealers and other nominee stockholders to forward materials relating to the Offer and the Merger to beneficial owners of Shares. The Information Agent will receive $7,000 for such services, plus, in the event the Purchaser extends the term of the Offer, an additional fee of $1,000 for each such extension, plus reimbursement of out-of-pocket expenses and the Purchaser will indemnify the Information Agent against certain liabilities and expenses in connection with the Offer and the Merger, including liabilities under the federal securities laws. The Purchaser will pay the Depositary reasonable and customary compensation for its services in connection with the Offer and the Merger, plus reimbursement for out-of-pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including liabilities under the federal securities laws. Brokers, dealers, commercial 59 banks and trust companies will be reimbursed by the Purchaser for customary mailing and handling expenses incurred by them in forwarding material to their customers. In addition to the fees set forth above, the Purchaser has paid, or will be responsible for paying, the following fees and expenses: filing fees $14,000; legal fees and expenses $250,000; and printing and miscellaneous $175,000. 17. MISCELLANEOUS. The Offer is made solely by the Offer to Purchase and the Letter of Transmittal and any amendments or supplements thereto. The Purchaser is not aware of any state where the making of the Offer is prohibited by the administrative or judicial action pursuant to any valid state statute. If the Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of the Shares pursuant thereto, the Purchaser will make a good faith effort to comply with such statute. If, after such good faith effort, the Purchaser cannot comply with such statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. To the extent the Purchaser becomes aware of any law that would limit the class of offerees in the Offer, the Purchaser will amend the Offer and, depending on the timing of such amendment, if any, will extend the Offer to provide adequate dissemination of such information to holders of Shares prior to the expiration of the Offer. In those jurisdictions where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of the Purchaser by the Dealer Managers or one or more registered brokers or dealers licensed under the laws of such jurisdiction. No person has been authorized to give any information or make any representation on behalf of the Purchaser not contained in this Offer to Purchase or in the Letter of Transmittal and, if given or made, such information or representation must not be relied upon as having been authorized. The Purchaser has filed with the Commission a Schedule 14D-1, together with exhibits, pursuant to Rule 14d-3 under the Exchange Act and a Schedule 13E-3, together with exhibits, pursuant to Rule 13e-3 under the Exchange Act, furnishing certain additional information with respect to the Offer. Such Schedules and any amendments thereto, including exhibits, may be inspected and copies may be obtained from the Commission in the manner set forth in "THE OFFER -- 8. Certain Information Concerning the Company" (except that they will not be available at the regional offices of the Commission). SCOR Merger Sub Corporation November 9, 1995. 60 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND THE PURCHASER The following table sets forth the name and present principal occupation or employment, and material occupations, positions, offices or employments for the past five years of each director and executive officer of Parent and the Purchaser. Each such person is a citizen of France, unless otherwise indicated. Unless otherwise indicated, the address of each such person is Immeuble SCOR, 1, Avenue du President Wilson, Puteaux, 92074 Paris La Defense Cedex, France. PARENT
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION AND (IF REQUIRED) FIVE YEAR EMPLOYMENT HISTORY ------------------------- ---------------------------- 1. DIRECTORS OF PARENT: Jacques Blondeau............................. CHAIRMAN AND CHIEF EXECUTIVE OFFICER Mr. Blondeau was President and Chief Operating Officer of Parent from 1991 through 1992. In January 1993, Mr. Blondeau became General Manager of Parent and in September 1994, he became Chairman and Chief Executive Officer of Parent. Didier Pfeiffer.............................. VICE CHAIRMAN; VICE CHAIRMAN AND 9, Place Vendome PRESIDENT, UNION DES ASSURANCES DE PARIS 75001 Paris, France Mr. Pfeiffer has been Vice Chairman and President of Union des Assurances de Paris since 1984. Jean-Jacques Bonnaud......................... DIRECTOR; CHAIRMAN AND CHIEF EXECUTIVE 2, rue Pillet-Will OFFICER, GROUPE DES ASSURANCES 75448 Paris Cedex 09, France NATIONALES From 1991 to June 1994 Mr. Bonnaud was President of Groupe des Assurances Nationales and since July 1994 he has been Chairman and Chief Executive Officer of Groupe des Assurances Nationales. Regis Bouche................................. DIRECTOR; CHAIRMAN, CAISSE CENTRALE DES 8-10 rue d'Astorg MUTUELLES AGRICOLE 75008 Paris, France From 1991 to September 12, 1994, Mr. Bouche was Vice Chairman of Caisse Centrale des Mutuelles Agricole and on September 12, 1994 he became Chairman of Centrale des Mutuelles Agricole. Louis Chodron de Courcel..................... DIRECTOR; SENIOR VICE PRESIDENT, 1-3 rue Laffitte BANQUE NATIONALE DE PARIS 75009 Paris, France From 1991 to 1993 Mr. Chodron de Courcel was Directeur Central of Banque Nationale de Paris and since then has been Senior Vice President of Banque Nationale de Paris. Pierre Florin................................ DIRECTOR; SENIOR VICE PRESIDENT, La Grande Arche-Cedex 41 AXA FRANCE 92044 Paris La Defense, France From 1990 to 1991 Mr. Florin was a Manager at AXA France. From 1992 to 1994 Mr. Florin was Senior Vice President of Union Europe. Mr. Florin became Senior Vice President of AXA France at the beginning of 1995.
I-1
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION AND (IF REQUIRED) FIVE YEAR EMPLOYMENT HISTORY ------------------------- ---------------------------- Thierry Fouquet.............................. DIRECTOR Mr. Fouquet has occupied the position of Executive with Parent since 1990. Pierre Labadie............................... DIRECTOR; CHAIRMAN OF THE MANAGEMENT Tour Voltaire-Cedex 58 BOARD, UAP INTERNATIONAL 1 Place des Degres From 1991 to September 1993 Mr. Labadie was a 92059 Paris La Defense, France Member of the Management Board of UAP International and since October 1993 he has been Chairman of the Management Board of UAP International. Jean Louis Meunier........................... DIRECTOR; CHAIRMAN OF THE MANAGEMENT Tour Assur-Cedex 14 BOARDS OF UNION DES ASSURANCES DE PARIS 92038 Paris La Defense, France AND UAP INCENDIE ACCIDENTS ET UAP VIE From 1991 to 1994 Mr. Meunier General Manager in charge of life and non-life insurance at Union dex Assurances de Paris and UAP Incendie Accidents et UAP Vie. Since May 1994 Mr. Meunier has been Chairman of the Management Boards of Union des Assurances de Paris and UAP Incendie Accidents et UAP Vie. Roger Papaz.................................. DIRECTOR; DIRECTOR, ASSURANCES GENERALES 87, rue de Richelieu DE FRANCE 75002 Paris, France Mr. Papaz has been a Director and Honorary General Manager of Assurances Generales de France since 1991. Patrick Peugeot.............................. DIRECTOR; HONORARY CHAIRMAN AND 22, Boulevard Malesherbes PRESIDENT LA MONDIALE 75008 Paris, France From 1991 to August Mr. Peugeot was Chairman and Chief Executive Officer of Parent. In September 1994 Mr. Peugeot became Vice Chairman and President of La Mondiale. Luc Rouge.................................... DIRECTOR Mr. Rouge has occupied the position of Executive with SCOR Reassurances since 1973. Alexis Ruset................................. DIRECTOR; CHAIRMAN AND CHIEF EXECUTIVE 31, rue de Courcelles OFFICER, CAISSE CENTRALE DE REASSURANCE 75008 Paris, France Mr. Ruset has been Chairman and Chief Executive Officer of Caisse Centrale de Reassurance since 1991. Jacques Vandier.............................. DIRECTOR; CHAIRMAN, M.A.C.I.F. 2-4 rue de Pied de Fond Mr. Vandier has been Chairman of M.A.C.I.F. 79037 Niort Cedex, France since 1991.
I-2
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATION AND (IF REQUIRED) FIVE YEAR EMPLOYMENT HISTORY ------------------------- ---------------------------- 2. EXECUTIVE OFFICERS OF PARENT: Serge Osouf.................................. GROUP GENERAL MANAGER From 1991 to March 1993, Mr. Osouf was General Manager of Parent. In April 1993 Mr. Osouf became Parent's Managing Director and President-Reinsurance Operations and since September 1994 he has been Group General Manager of Parent. Francois Reach............................... DEPUTY GROUP GENERAL MANAGER; CHAIRMAN AND CHIEF EXECUTIVE OFFICER, REAFIN From 1991 to September 1994, Mr. Reach was President of REAFIN and in October 1994 he became Chairman and Chief Executive Officer of REAFIN. Since September 1994, Mr. Reach has also occupied the position of Deputy Group General Manager with Parent. Pierre-Denis Champvillard.................... DEPUTY GROUP GENERAL MANAGER; GENERAL MANAGER, SCOR REASSURANCE From 1991 to February 1993 Mr. Champvillard was General Manager of SCOR Vie. In March 1993 Mr. Champvillard became General Manager of SCOR Reassurance and since September 1994 he has also occupied the position of Deputy Group General Manager with Parent. Michel Laparra............................... GROUP GENERAL CONTROLLER From 1991 to 1992 Mr. Laparra was Vice Chairman of Abeille Reassurances and from 1992 to August 1995 he was Chairman of Abeille Reassurances. In September 1995 Mr. Laparra became Group General Controller of Parent. DIRECTORS AND EXECUTIVE OFFICERS OF THE PURCHASER
PRINCIPAL OCCUPATION AND NAME FIVE YEAR EMPLOYMENT HISTORY ---- ---------------------------- Jacques Blondeau............................. PRESIDENT AND DIRECTOR Mr. Blondeau was President and Chief Operating Officer of Parent from 1991 through 1992. In January 1993, Mr. Blondeau became General Manager of Parent and in September 1994, he became Chairman and Chief Executive Officer of Parent. Serge Osouf.................................. VICE PRESIDENT--TREASURER AND DIRECTOR From 1991 to March 1993, Mr. Osouf was General Manager of Parent. In April 1993 Mr. Osouf became Parent's Managing Director and President-Reinsurance Operations and since September 1994 he has been Group General Manager of Parent. Jean Alisse.................................. VICE PRESIDENT--SECRETARY AND DIRECTOR Mr. Alisse has been Vice President and General Counsel of Parent since 1991.
I-3 SCHEDULE II APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS UNDER DELAWARE LAW In connection with the Merger, a stockholder may have the right to dissent from the Merger and, in lieu of receiving $15.25 net in cash per Share, to seek the "fair value" of all of such stockholder's Shares, as determined in accordance with the applicable provisions of the Delaware General Corporation Law ("DGCL"). In order to perfect such appraisal rights, a stock is required to follow the procedures set forth in Section 262 of the DGCL, as summarized below. The following discussion of the provisions of Section 262 is not intended to be a complete statement of its provisions and is qualified in its entirety by reference to the full text of that section. THE PROCEDURES SET FORTH IN SECTION 262 SHOULD BE STRICTLY COMPLIED WITH. FAILURE TO FOLLOW ANY SUCH PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262. Any stockholder of the Company may elect to dissent from the Merger with respect to all of the Shares registered in such stockholder's name. If the Merger is consummated pursuant to a stockholder vote, a stockholder who votes in favor of the Merger, whether in person or by proxy, shall waive such stockholder's appraisal rights. However, a stockholder is not required to vote against the Merger in order to qualify to exercise appraisal rights. If the Merger is to be consummated pursuant to a stockholder vote, the Company, not less than 20 days prior to the meeting of stockholders, shall notify each of its stockholders who was such on the record date for such meeting that appraisal rights are available. Any stockholder electing to exercise the appraisal rights must deliver to the Company, before the taking of the vote on the proposed Merger, a written demand for appraisal of such stockholder's Shares. Such demand must reasonably inform the Company of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's Shares. Within ten (10) days after the effective date of such Merger, the surviving or resulting corporation must notify each stockholder of each constituent corporation who has complied with Section 262(d)(1) and has not voted in favor of or consented to the Merger of the date that the Merger has become effective. FAILURE TO MAKE SUCH WRITTEN DEMAND SHALL CONSTITUTE A WAIVER OF THE STOCKHOLDER'S APPRAISAL RIGHTS. If the Merger is to be consummated pursuant to Section 228 or 253 of the DGCL, the surviving or resulting corporation, either before the effective date of such Merger or within ten (10) days thereafter, shall notify each of the stockholders entitled to appraisal rights of the effective date of such Merger and that appraisal rights are available for any or all of the Shares of the Company. The notice shall be sent by certified or registered mail, return receipt requested, addressed to the stockholder, at such stockholder's address as it appears on the records of the Company. Any stockholder entitled to appraisal rights may, within twenty (20) days after the date of mailing of the notice, demand in writing from the surviving or resulting corporation the appraisal of such stockholder's Shares. Such demand must reasonably inform the Company of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's Shares. FAILURE TO MAKE SUCH WRITTEN DEMAND SHALL CONSTITUTE A WAIVER OF THE STOCKHOLDER'S APPRAISAL RIGHTS. The written demand for appraisal must be made by or for the holder of record of Shares registered in such holder's name. Accordingly, such demand should be executed by or for such II-1 stockholder of record, fully and correctly, as such stockholder's name appears on such stockholder's stock certificates. If the stock is owned of record in a fiduciary capacity, such as by a trustee, guardian or custodian, execution of the demand should be made in such capacity and if the stock is owned of record by more than one person as in a joint tenancy or tenancy in common, such demand should be executed by or for all joint owners. An authorized agent, including one or two or more joint owners, may execute the demand for appraisal for a stockholder of record. However, the agent must identify the record owner or owners and expressly disclose the fact that in executing the demand he is acting as agent for the record owner. Within 120 days after the day of the effective date of the Merger, any stockholder who has satisfied the foregoing conditions and who is otherwise entitled to appraisal rights under Section 262, may file a petition in the Delaware court of Chancery demanding a determination of the value of the Shares held by all stockholders entitled to appraisal rights. If no such petition is filed, appraisal rights will be lost for all stockholders who had previously demanded appraisal of their shares. Stockholders seeking to exercise appraisal rights should not assume that the surviving or resulting corporation will file a petition with respect to the appraisal of the value of their shares or that the surviving or resulting corporation will initiate any negotiations with respect to the "fair value" of such shares. ACCORDINGLY, STOCKHOLDERS WHO WISH TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD REGARD IT AS THEIR OBLIGATION TO TAKE ALL STEPS NECESSARY TO PERFECT THEIR APPRAISAL RIGHTS IN THE MANNER PRESCRIBED IN SECTION 262. Within 120 days after the day of the effective date of the merger, any stockholder who has complied with the provisions of Section 262 is entitled, upon written request, to receive from the surviving or resulting corporation a statement setting forth the aggregate number of Shares not voted in favor of the Merger and with respect to which demands for appraisal have been received by the surviving or resulting corporation and the aggregate number of holders of such Shares. Such statement must be mailed to the stockholder within 10 days after the written request therefor is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under Section 262, whichever is later. If a stockholder files the petition for appraisal in a timely manner, the surviving or resulting corporation must file, within 20 days of service of the stockholders' petition, a verified list of the names and addresses of all stockholders who have demanded appraisal for their shares and with whom the surviving or resulting corporation has not reached an agreement regarding value. If the surviving or resulting corporation files a petition, it must be accompanied by a similar list. If so ordered by the Court, the Register of Chancery is required to provide notice by registered or certified mail of the hearing to stockholders shown on the list and to provide notice by publication. If a petition for an appraisal is timely filed, at the hearing on such petition, the Delaware Court of Chancery will determine the stockholders entitled to appraisal rights and will appraise the value of the Shares owned by such stockholders, determining its "fair value" exclusive of any element of value arising from the accomplishment or expectation of the Merger. The Court will direct payment of the fair value of such shares together with a fair rate of interest, if any, on such fair value to stockholders entitled thereto upon surrender to the surviving or resulting corporation of share certificates. Upon application of a stockholder, the Court may, in its discretion, order that all or a portion of the expenses incurred by any stockholder in connection with an appraisal proceeding, including without limitation, reasonable attorneys' fees and the fees and expenses of experts, be charged pro rata against the value of all the shares entitled to appraisal. Although the Purchaser believes that the price per Share set out in the offer is fair, it cannot make any representation as to the outcome of the appraisal of fair value as determined by the Delaware Court of Chancery, and stockholders should recognize that such an appraisal could result in a determination of a lower, higher or equivalent value. II-2 Any stockholder who has duly demanded an appraisal in compliance with Section 262 will not, after the effective date of the Merger, be entitled to vote such stockholder's Shares for any purpose nor be entitled to the payment of any dividends or other distributions on such stockholder's Shares (other than those payable to stockholders of record as of a date prior to the effective date of the Merger). If no petition for an appraisal is filed within the time provided, or if a stockholder delivers to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the Merger, either within 60 days or after the effective date of the Merger or, with the written approval of the surviving or resulting corporation, thereafter, then the right of such stockholder to an appraisal will cease and such stockholder shall be entitled to receive in cash, without interest, the amount to which he would have been entitled had he not demanded appraisal of such stockholder's Shares. No appraisal proceeding in the Court of Chancery will be dismissed as to any stockholder without the approval of the Court, which approval may be conditioned on such terms as the Court deems just. Any notice, objection, demand or other written communication required to be given to the Company by a dissenting stockholder should be delivered to the Secretary of such respective corporation at the address set forth in the Schedule 13e-3 or should be delivered as otherwise permitted by law. Although not specifically required, it is recommended that such written communications be sent by registered or certified mail, return receipt requested. IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF DELAWARE LAW, ANY STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS SHOULD CONSULT SUCH STOCKHOLDER'S LEGAL ADVISOR. II-3 [ Dillon, Read & Co. Inc. Letterhead ] November 2, 1995 SCOR U.S. Corporation Two World Trade Center, 23rd Floor New York, New York 10048-0178 Attention: Special Committee of the Board of Directors Gentlemen: You have advised us that SCOR S.A. ("SCOR S.A.") proposes to acquire all of the publicly held outstanding common stock, par value $0.30 per share, (the "Shares") of SCOR U.S. Corporation (the "Company") not currently held by SCOR S.A. from the holders thereof (the "Selling Shareholders") at a purchase price of $15.25 per share (the "Transaction"). You have requested our opinion as to whether the consideration to be paid pursuant to the Transaction is fair to the Selling Shareholders, from a financial point of view, as of the date hereof. In arriving at our opinion, we have, among other things: (i) reviewed certain publicly available business and financial information relating to the Company; (ii) reviewed the reported price and trading activity for the Shares of the Company; (iii) reviewed certain internal financial information and other data provided to us by the Company relating to the business and prospects of the Company, including financial projections prepared by the management of the Company; (iv) conducted discussions with members of the senior management of the Company; (v) reviewed the financial terms, to the extent publicly available, of certain acquisition transactions which we considered relevant; (vi) reviewed publicly available financial and securities market data pertaining to certain publicly-held companies in lines of business generally comparable to those of the Company; and (vii) conducted such other financial studies, analyses and investigations, and considered such other information as we deemed necessary and appropriate. In connection with our review, with your consent, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied upon it being complete and accurate in all material respects. We have not been requested to and have not made an independent evaluation or appraisal of any assets or liabilities (contingent or otherwise) of the Company or any of its subsidiaries, nor have we been furnished with any such evaluation or appraisal. Further, we have assumed, with your consent, that all of the information, including the projections provided to us by the Company's management, was prepared in good faith and was reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company's management as to the future financial performance of the Company, and was based upon the historical performance and certain estimates and assumptions which were reasonable at the time made. In addition we have not been asked to, and do not express any opinion as to the after-tax consequences of the Transaction to any Selling Shareholder. In addition, our opinion is based on economic, monetary and market conditions existing on the date hereof. In rendering this opinion, we are not rendering any opinion as to the value of the Company or making any recommendation to the Selling Shareholders with respect to the advisability of voting in favor of the Transaction. Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment banking business, is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwriting, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations of estate, corporate and other purposes. Dillon Read has received a fee for rendering this opinion. This opinion is being rendered solely to the Special Committee of the Board of Directors of the Company for its use in evaluating the Transaction and is not for the benefit of, nor being rendered to, the Selling Shareholders or any other person. Based upon and subject to the foregoing, we are of the opinion that the consideration to be received in the Transaction by the Selling Shareholders is fair to the Selling Shareholders, from a financial point of view, as of the date hereof. Very truly yours, DILLON, READ & CO. INC. /s/William P. Powell By: William P. Powell Managing Director III-2 APPENDIX A INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders SCOR U.S. Corporation: We have audited the consolidated balance sheets of SCOR U.S. Corporation and subsidiaries as of December 31, 1994 and 1993 and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1994 as listed in the accompanying index of the 1994 Annual Report on Form 10-K of SCOR U.S. Corporation. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SCOR U.S. Corporation and subsidiaries as of December 31, 1994 and 1993 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. As discussed in Note 2(k) to the consolidated financial statements, in 1993 the Company adopted the provisions of the Statement of Financial Accounting Standards ("SFAS") No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," and the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" and also adopted the consensus opinion regarding the Financial Accounting Standards Board's Emerging Issues Task Force regarding Issue No. 93-6, "Accounting for Multiple-Year Retrospectively-Related Contracts by Ceding and Assuming Enterprises". In 1992, the Company adopted the provisions of SFAS No. 109, "Accounting for Income Taxes", and changed its method of accounting for deferred policy acquisition costs. New York, New York February 2, 1995 A-1
SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands) Year Ended December 31, 1994 1993 Assets Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $596,791 and $558,882) $ 563,656 $ 581,104 Held to maturity, at amortized cost (fair value: $22,274 and $27,109) 22,871 24,876 Equity securities, at fair value (cost: $1,897 and $15,581) 1,738 18,951 Short-term investments, at cost 83,303 90,642 Other long-term investments 1,225 1,081 ------- ------- 672,793 716,654 Cash 4,763 17,096 Accrued investment income 10,339 10,169 Premiums receivable 72,018 80,319 Reinsurance recoverable on paid losses Affiliates 4,399 9,498 Other 19,356 27,329 Reinsurance recoverable on unpaid losses Affiliates 127,096 134,154 Other 95,576 87,689 Prepaid reinsurance premiums Affiliates 10,504 14,578 Other 8,803 11,839 Deferred policy acquisition costs 22,844 24,140 Deferred Federal income tax benefits 34,818 11,894 Investment in affiliates 11,532 10,789 Other assets 48,874 37,963 --------- --------- $1,143,715 $1,194,111 ========= =========
See notes to consolidated financial statements. A-2
SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (in thousands). Year Ended December 31, 1994 1993 Liabilities Losses and loss expenses $ 604,787 $ 562,209 Unearned premiums 110,082 114,376 Funds held under reinsurance treaties Affiliates 3,654 21,777 Other 17,104 17,825 Reinsurance balances payable Affiliates 15,328 18,196 Other 28,357 42,037 Convertible subordinated debentures 82,350 86,250 Notes payable 20,000 20,000 Commercial paper 11,310 10,721 Other liabilities 11,348 10,031 ------- ------- 904,320 903,422 ------- ------- Stockholders' Preferred stock, no par value, 5,000 Equity shares authorized; no shares issued -0- -0- Common stock, $0.30 par value, 50,000 shares authorized; 18,356 and 18,299 shares issued 5,507 5,490 Additional paid-in capital 114,556 112,670 Unrealized appreciation (depreciation) of investments, net of deferred tax effect (21,640) 16,634 Foreign currency translation adjustment (414) 12 Retained earnings 143,153 157,532 Treasury stock, at cost (192 and 190 shares) (1,767) (1,649) ------- ------- 239,395 290,689 --------- --------- $1,143,715 $1,194,111 ========= =========
See notes to consolidated financial statements. A-3
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31, 1994 1993 1992 Revenues Net premiums earned $228,244 $236,051 $192,050 Net investment income 40,990 42,044 42,880 Net realized investment gains 984 12,930 15,048 ------- ------- ------- 270,218 291,025 249,978 ------- ------- ------- Losses Losses and loss expenses, net 191,270 156,292 160,545 And Commissions, net 59,434 61,324 55,960 Expenses Other underwriting and administration expenses 26,009 26,420 23,918 Other expenses 4,039 4,073 4,346 Interest expense 8,920 8,005 4,579 ------- ------- ------- 289,672 256,114 249,348 ------- ------- ------- Income (loss) from operations before Federal income taxes (benefit) (19,454) 34,911 630 Federal income taxes (benefit) (11,262) 6,983 (3,771) ------- ------- ------- Income (loss) from operations (8,192) 27,928 4,401 Extraordinary gain on redemption of debentures, net of tax 351 -0- -0- Cumulative effect of accounting changes, net of tax -0- (2,600) 2,848 ------- ------- ------- Net income (loss) $(7,841) $25,328 $7,249 ======= ======= =======
See notes to consolidated financial statements. A-4
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31, 1994 1993 1992 Per Share Average common and common Data equivalent shares outstanding 18,166 18,395 18,256 Primary ======= ======= ======= Income (loss) from operations $ (0.45) $ 1.52 $ 0.25 Extraordinary item 0.02 -0- -0- Cumulative effect of accounting changes -0- (0.14) 0.15 ------- ------- ------- Net income (loss) $ (0.43) $ 1.38 $ 0.40 ======= ======= ======= Fully Average common and common Diluted equivalent shares outstanding 18,166 20,916 18,256 ======= ======= ======= Income (loss) from operations $ (0.45) $ 1.45 $ 0.25 Extraordinary item 0.02 -0- -0- Cumulative effect of accounting changes -0- (0.12) 0.15 ------- ------- ------- Net income (loss) $ (0.43) $ 1.33 $ 0.40 ======= ======= =======
A-5
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Year Ended December 31, 1994 1993 1992 Pro- Pro-forma amounts assuming forma retroactive application of the change in the method of accounting for multiple-year retrospectively rated reinsurance contracts: Income (loss) from operations $27,928 $1,801 ======= ====== Income (loss) from operations per share Primary $ 1.52 $ 0.10 ======= ====== Fully diluted $ 1.45 $ 0.10 ======= ====== Net income (loss) $27,928 $ 4,649 ======= ====== Net income (loss) per share Primary $ 1.52 $ 0.25 ======= ====== Fully diluted $ 1.45 $ 0.25 ======= ======
See notes to consolidated financial statements. A-6
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except per share data) Year Ended December 31, 1994 1993 1992 Common Stock Balance at beginning of year $5,490 $5,453 $5,431 Issuance of common stock 17 37 22 ------- ------- -------- Balance at end of year 5,507 5,490 5,453 ------- ------- -------- Additional paid-in capital Balance at beginning of year 112,670 112,068 111,361 Issuance of common stock 700 1,428 938 Change in unpaid stock options exercised (shares of 55, 87 and 97) 1,175 (768) (346) Deferred compensation 11 (58) 115 ------- ------- -------- Balance at end of year 114,556 112,670 112,068 ------- ------- -------- Unrealized appreciation (depreciation) of investments Balance at beginning of year 16,634 11,416 5,826 Change in unrealized appreciation (38,274) 5,218 5,590 ------- ------- -------- Balance at end of year (21,640) 16,634 11,416 ------- ------- -------- Foreign currency translation adjustment Balance at beginning of year 12 254 1,646 Change in foreign currency translation adjustment (426) (242) (1,392) ------- ------- -------- Balance at end of year $ (414) $ 12 $ 254 ------- ------- --------
See notes to consolidated financial statements. A-7
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except per share data) Year Ended December 31, 1994 1993 1992 Retained earnings Balance at beginning of year $157,532 $138,002 $135,786 Net income (loss) (7,841) 25,328 7,249 Dividends ($.36, $.32 and $.28 per share) (6,538) (5,798) (5,033) ------- ------- ------- Balance at end of year 143,153 157,532 138,002 ------- ------- ------- Treasury stock Balance at beginning of year (1,649) (1,077) (1,305) Net (purchases) reissuance of treasury stock (118) (572) 228 ------- ------- ------- Balance at end of year (1,767) (1,649) (1,077) ------- ------- ------- Total stockholders' equity at end of year $239,395 $290,689 $266,116 ======== ======== ======== Common stock shares Balance at beginning of year 18,299 18,176 18,105 Issuance of common stock 57 123 71 ------- ------- ------- Balance at end of year 18,356 18,299 18,176 ======= ======= ======= Treasury stock shares Balance at beginning of year 190 153 179 Net purchases (reissuance) of treasury stock 2 37 (26) ------- ------- ------- Balance at end of year 192 190 153 ======= ======= =======
A-8 See notes to consolidated financial statements.
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 1994 1993 1992 Cash flows Net income (loss) $(7,841) $25,328 $7,249 from Adjustments to reconcile net income operating (loss) to net cash provided by (used in) activities operating activities: Cumulative effect of accounting changes -0- 2,600 (2,848) Realized investment gains (984) (12,930) (15,048) Changes in assets and liabilities net of effects of acquisitions: Accrued investment income (170) 403 203 Premium balances, net (8,247) (13,732) 9,779 Prepaid reinsurance premiums 7,110 (188) (8,517) Reinsurance recoverable on paid losses 13,072 5,528 (23,302) Deferred policy acquisition costs 1,296 (1,969) (5,367) Losses and loss expenses 42,578 396 101,583 Unearned premiums (4,294) 9,552 22,010 Reinsurance recoverable on unpaid losses (829) (1,192) (84,538) Funds held under reinsurance treaties (18,844) 967 7,663 Federal income taxes (11,174) 11,219 (11,769) Other (10,403) 1,794 (5,172) ------- ------- ------- Net cash provided by (used in) operating activities $ 1,270 $27,776 $(8,074) ------- ------- -------
See notes to consolidated financial statements. A-9
SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 1994 1993 1992 Cash flows Sales, maturities or redemptions of from fixed maturities $246,868 $349,423 $464,094 investing Sales of equity securities 19,920 12,105 15,279 activities Net sales (purchases) of short-term investments 9,899 (73,940) 15,181 Investments in fixed maturities (266,174) (375,024) (436,138) Investments in equity securities (16,161) (6,999) (25,316) Acquisitions, net of cash acquired -0- -0- (8,153) Investment in affiliate -0- -0- (9,900) Other (4,138) (9,422) (3,400) -------- ------- ------- Net cash provided by (used in) investing activities (9,786) (103,857) 11,647 -------- ------- ------- Cash flows Dividends paid (6,538) (5,798) (5,033) from Proceeds from issuance of convertible financing subordinated debentures -0- 85,172 -0- activities Proceeds from issuance of commercial paper - net 30 96 10,247 Repayment of notes payable -0- (8,000) -0- Proceeds from stock options exercised 1,533 967 364 Other 1,158 362 (17) -------- ------- ------- Net cash provided by (used in) financing activities (3,817) 72,799 5,561 -------- ------- ------- Net increase (decrease) in cash (12,333) (3,282) 9,134 Cash at beginning of year 17,096 20,378 11,244 -------- ------- ------- Cash at end of year $ 4,763 $17,096 $20,378 ======== ======= =======
A-10 See notes to consolidated financial statements. SCOR U.S. CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION SCOR U.S. Corporation ("SCOR U.S.") is a Delaware corporation that was formed in December 1981. Prior to the offering of 4,000,000 shares to the public on September 25, 1986, SCOR U.S. was owned by Societe Commerciale de Reassurance ("SCOR Paris"), a French reinsurance company, and by Caisse Centrale de Reassurance ("CCR"), a reinsurer wholly owned by the French government which also owned approximately 30% of SCOR Paris. As a result of a corporate reorganization completed in France in November 1989, SCOR Paris became a wholly owned subsidiary of SCOR S.A. In December 1990, SCOR Paris and another subsidiary of SCOR S.A., UAP Reassurances ("UAP Re") were merged into SCOR S.A. In June 1990, Rockleigh Management Corporation ("Rockleigh"), a wholly owned subsidiary of UAP Re, was merged into SCOR U.S. Rockleigh owned 100% of both The Unity Fire and General Insurance Company ("Unity Fire") and General Security Assurance Corporation of New York ("General Security"), each of which was a professional reinsurance company. On January 1, 1994, General Security was merged into SCOR Reinsurance Company ("SCOR Re"), the Company's principal operating subsidiary. As a result of the issuance of common shares of SCOR U.S. to UAP Re in the Rockleigh merger, SCOR Paris' participation in SCOR U.S. stock repurchase programs and various other purchases, as well as SCOR Paris' purchase of CCR's shares of SCOR U.S., SCOR S.A. owned approximately 80% of the outstanding common stock of SCOR U.S. at December 31, 1994. The remaining 20% is held publicly and represents 3,616,864 shares of the outstanding shares of SCOR U.S. common stock. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The accompanying consolidated financial statements are presented in conformity with generally accepted accounting principles ("GAAP"). The consolidated financial statements of SCOR U.S. Corporation and subsidiaries (the "Company") include the accounts of SCOR U.S. and its wholly owned subsidiaries, SCOR Re, Unity Fire, General Security Indemnity Company ("GSIND") (formerly Southwest International Reinsurance Company), Morgard, Inc. ("Morgard"), General Security Insurance Company ("GSIC") (formerly The International Insurance Company of Takoma Park, Maryland ("IIC")), SCOR Services, Inc., and BIND, Inc., and its majority owned subsidiary, California Reinsurance Management Corporation ("Cal Re") and its equity affiliate Commercial Risk Partners Limited ("Commercial Risk"). The Company operates primarily in one significant industry segment; property and casualty reinsurance. Substantially all of the Company's gross premiums written are assumed from domestic ceding companies. All significant intercompany transactions have been eliminated in consolidation. A-11 (b) Premium Income Premium income is recognized as earned on a pro rata basis over the terms of the policies. Unearned premiums are calculated primarily on a pro rata basis on facultative business and as reported by ceding reinsureds on treaty business. (c) Policy Acquisition Costs Costs applicable to the acquisition of new business, principally commissions, are deferred when paid and expensed as the related premiums are earned. Deferred policy acquisition costs considers anticipated losses and loss expenses and maintenance expenses that will be incurred as those premiums are earned. Deferred policy acquisition costs are reviewed periodically to determine that they do not exceed recoverable amounts after allowing for anticipated investment income. Amortization of acquisition costs for 1994, 1993 and 1992 was $59,434,000, $61,324,000 and $55,960,000, respectively. (d) Loss Reserves The reserve for losses and loss expenses is based upon estimates received from ceding reinsureds on treaty contracts, accumulation of case estimates for losses and loss expenses on claims reported on facultative contracts and estimates of losses and loss expenses incurred but not reported ("IBNR") based upon the Company's expectations of what may have been incurred. Such provisions are necessarily based on estimates and, accordingly, there can be no assurance that the ultimate liability will not exceed such estimates. The reserves are reviewed continually during the year and changes in estimates are reflected in operating results currently. (e) Property and Equipment Depreciation and amortization of property and equipment have been provided principally on the straight-line method with estimated useful lives of fifteen years for property and five to ten years for equipment. Leasehold improvements are amortized on a straight-line basis over the term of the corresponding lease. Depreciation and amortization amounted to $1,651,000, $765,000 and $603,000 for the years ended December 31, 1994, 1993 and 1992, respectively. (f) Investments The Company has categorized substantially all of its investments in fixed maturities as securities "available for sale" and, in conformity with Financial Accounting Standards Board Statement No. 115 "Accounting for Certain Investments in Debt and Equity Securities", which was adopted December 31, 1993, carries such investments at fair value. Fixed maturities purchased with the intent to hold to maturity are categorized as securities "held to maturity" and are carried at amortized cost. Equity securities are carried at fair value. Short- term investments are carried at cost, which approximates fair value. The Company's policy is to determine realized gains and losses on investments sold on the specific identification method. The Company includes unrealized gains and losses on equity securities and fixed maturities categorized as available for sale in stockholders' equity, A-12 net of any tax effect. For cash flows statement purposes, the Company does not consider any of its investments to be cash equivalents. (g) Earnings per Share Primary earnings per share data are based on the weighted average number of common shares outstanding during the period and, if dilutive, common shares assumed to be outstanding which are issuable under stock option plans. Fully diluted earnings per share are based on the additional assumption that the Debentures (as defined in Note 6) are converted into common shares, if dilutive. (h) Reclassification of Certain Amounts Certain amounts from prior financial statements have been reclassified to conform with current classifications. (i) Intangibles (1) Goodwill The Company has classified as goodwill the cost in excess of net assets of companies acquired in purchase transactions. Goodwill is amortized on a straight-line basis over a period of 10 years. Amortization charged to operations amounted to $596,000, $542,000 and $499,000 for the years ended December 31, 1994, 1993 and 1992, respectively. (2) Insurance Licenses In conjunction with its acquisition of IIC, the Company acquired licenses for approximately $3,200,000, which are amortized on a straight-line basis over 10 years. Amortization charged to operations amounted to $317,000 and $343,000 for the years ended December 31, 1994 and 1993, respectively. No amount was charged to operations for 1992. (j) Foreign Currency Transactions Revenues and expenses denominated in foreign currencies are translated at the rate of exchange at the transaction date. Assets and liabilities denominated in foreign currencies are translated at the rate of exchange at the end of a reporting period. Gains or losses resulting from foreign currency transactions are included in the Company's results from operations. Net gains (losses) resulting from foreign currency transactions during 1994, 1993 and 1992 were $(156,000), $(929,000) and $555,000, respectively. (k) Accounting Changes In the first quarter of 1993, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 113 "Accounting and Reporting for Reinsurance of Short- Duration and Long-Duration Contracts" ("SFAS 113"). The adoption of SFAS 113 did not have a material effect on the Company's financial position or its results from operations. A-13 The FASB's Emerging Issues Task Force ("EITF") reached a consensus on July 22, 1993 regarding Issue No. 93-6, "Accounting for Multiple-Year Retrospectively Rated Contracts by Ceding and Assuming Enterprises" ("EITF 93-6"). EITF 93-6 had an impact on certain of the Company's retrocessional agreements. As a result of the Company's implementation of the change in accounting method, as of January 1, 1993, a charge of $2,600,000 (after an income tax benefit of $1,400,000), or $0.14 per share, is included as a reduction to income as a cumulative adjustment. The effect of this change, excluding the cumulative adjustment, for the year ended December 31, 1993 was to increase net income by $2,600,000, or $0.14 per share. The pro-forma amounts shown in the statements of operations have been adjusted for the effect of retroactive application of the adoption of EITF 93-6, net of related income taxes. Effective as of December 31, 1993, SCOR U.S. adopted Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The adoption of SFAS 115 did not have any effect on the Company's financial position or its results of operations. During 1992, the Company adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"), which changes the method of accounting for income taxes under GAAP. As a result of adopting SFAS 109, the Company recognized a cumulative benefit of the change in accounting principle of $2,367,000, or $0.13 per share, as of January 1, 1992. The effect of this change, excluding the cumulative benefit, for the year ended December 31, 1992 was to decrease net income by $480,000. During 1992, the Company also changed its accounting method for deferred policy acquisition costs to consider anticipated investment income in evaluating the recoverability of such costs. This new method is preferable because it is the prevalent method used in the insurance industry. The newly adopted accounting method also allows for a more appropriate matching of the income statement amounts of commissions expense with the related earned premiums and the balance sheet amounts of deferred policy acquisition costs with the related unearned premiums. This change resulted in the recognition of a cumulative benefit of the change in accounting principle of $481,000 (after reduction for income taxes of $248,000), or $0.02 per share, as of January 1, 1992. This change had no effect on net income, excluding the cumulative benefit, for the year ended December 31, 1992. (3) ACQUISITIONS (a) Purchase of Morgard On March 10, 1992, SCOR U.S. acquired 100% of the stock of Morgard, a developer, marketer and administrator of an insurance product that indemnifies monthly mortgage payments after involuntary unemployment. The purchase price was approximately $2,549,000 and the transaction was accounted for using the purchase method of accounting A-14 and, accordingly, Morgard's purchased assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The acquisition did not have a material pro forma impact on operations. In March 1994, the Company issued 31,500 shares of its common stock at an approximate market value of $360,000 as additional consideration pursuant to the Morgard purchase agreements. (b) Investment in Commercial Risk During January 1992, SCOR U.S. acquired 19.8% of the stock of Commercial Risk, a Bermuda holding company for two insurance subsidiaries engaged in writing shared-risk products. The majority shareholder of Commercial Risk is SCOR S.A. The purchase price was approximately $9,900,000, which included equity and debt. As a result of a recapitalization of Commercial Risk in 1994, all of SCOR U.S.'s investment was converted to equity, with SCOR U.S. owning approximately 13% of Commercial Risk. The investment in Commercial Risk is accounted for using the equity method of accounting and, accordingly, the accompanying consolidated financial statements reflect the Company's proportionate share of Commercial Risk's stockholders' equity and operating income. SCOR U.S. accounts for its proportionate share of Commercial Risk's income in its statements of operations under the caption "other expenses (income)". Income (loss) from Commercial Risk amounted to $743,000, $678,000 and ($110,000) in 1994, 1993 and 1992, respectively. (c) Purchase of The International Insurance Company of Takoma Park, Maryland On December 4, 1992, SCOR U.S. acquired 100% of the stock of IIC. The purchase price was approximately $8,200,000 and the transaction was accounted for using the purchase method of accounting and, accordingly, IIC's purchased assets and liabilities have been recorded at their estimated fair values at the date of acquisition. The acquisition did not have a material pro forma impact on operations. During 1993, IIC's name was changed to GSIC. (4) REINSURANCE SCOR U.S.'s operating subsidiaries assume reinsurance from SCOR S.A. and other affiliated companies primarily on a quota share or surplus share basis. Written premiums assumed from these companies (and the percentage of gross written premiums) were approximately $7,845,000 (2.6%), $8,375,000 (2.5%) and $6,699,000 (2.2%) for the years ended December 31, 1994, 1993 and 1992, respectively. Of these amounts, approximately $6,959,000, $7,925,000 and $6,278,000 for 1994, 1993 and 1992, respectively, were assumed from SCOR S.A. SCOR U.S.'s operating subsidiaries also retrocede reinsurance to SCOR S.A. and other affiliated companies, primarily on a quota share or surplus share basis. A-15 The effects of ceded reinsurance on the Statement of Operations for the years ended December 31, 1994, 1993 and 1992 are as follows:
Loss and Loss Premiums Premiums Expenses Written Earned Incurred (in thousands) December 31, 1994 Direct $13,667 $13,927 $ 9,554 Assumed 293,125 297,159 260,073 Ceded - affiliate (35,644) (39,718) (37,651) Ceded - other (40,088) (43,124) (40,706) ------- ------- ------- Net $231,060 $228,244 $191,270 ======= ======= ======= December 31, 1993 Direct $ 11,972 $ 8,677 $ 6,944 Assumed 322,547 316,292 206,603 Ceded - affiliate (51,453) (49,778) (37,986) Ceded - other (37,653) (39,140) (19,269) ------- ------- ------- Net $245,413 $236,051 $156,292 ======= ======= ======= December 31, 1992 Direct $ 4,922 $ 2,682 $ 1,645 Assumed 299,906 280,136 335,954 Ceded - affiliate (43,523) (39,134) (59,473) Ceded - other (55,762) (51,634) (117,581) ------- ------- ------- Net $205,543 $192,050 $160,545 ======= ======= =======
For the years ended December 31, 1994, 1993 and 1992 the percentage of assumed premiums written to net premiums written was 126.9%, 131.4% and 145.9%, respectively. Reinsurance does not discharge or diminish the primary liability to insureds of the Company on risks reinsured; however, it does permit the Company to recover the applicable portion of any loss from its retrocessionaires. Retrocessionaires of SCOR U.S. are subject to an initial review of financial condition before final acceptability is confirmed and subsequent reviews on an annual basis. The Company, like most reinsurance companies, enters into retrocession arrangements for many of the same reasons primary insurers seek reinsurance, including increasing their premium writing and risk capacity without requiring additional capital and reducing the effect of individual or aggregate losses. Historically, SCOR Re has retroceded risks to retro- cessionaires on both a proportional and excess of loss basis. Under its 1994 retrocessional program, SCOR Re retained a maximum of $2.0 million as to any one ceding company program for treaty business and a A-16 maximum of $3.3 million and $1.1 million per risk for facultative property and facultative casualty business, respectively. Paid losses, outstanding losses and IBNR recoverable from retrocessionaires which are determined to be uncollectible are charged to operations. There were no such amounts charged to operations for the years ended December 31, 1994, 1993 and 1992. Pursuant to a Net Aggregate Excess of Loss Retrocessional Agreement dated as of July 1, 1986 ("the 1986 Retrocessional Agreement"), SCOR S.A. reinsured SCOR Re for adverse loss development from pre-1986 business that exceeded the total of loss reserves established as of June 30, 1986, and premiums earned after June 30, 1986, from such pre-1986 business. The 1986 Retrocessional Agreement provided protection to the Company for business underwritten by SCOR Re only and did not provide coverage for pre-1986 business underwritten by any other subsidiary. However, business underwritten by General Security and Unity Fire is protected against adverse development by a separate net aggregate excess of loss retrocessional agreement, as described below. The 1986 Retrocessional Agreement terminated on December 31, 1993, at which time SCOR S.A.'s liability to SCOR Re was $16,224,000. This amount is the actuarially determined expected ultimate loss from the pre-1986 business in excess of the "aggregate deductible" (which is defined as the total of net outstanding loss and loss expense reserves, net incurred but not reported loss reserves and net unearned premium reserves established as of June 30, 1986 for the pre-1986 business, plus all net premiums and future net premium adjustments earned after June 30, 1986 under retrospectively rated treaties for such business). During the first quarter of 1994, SCOR Re received $16,224,000 from SCOR S.A. in settlement of its liability under this agreement. SCOR Re and SCOR S.A. entered into a new Net Aggregate Excess of Loss Agreement ("the 1994 Retrocessional Agreement") effective January 1, 1994, which protects the same business covered under the 1986 Retrocessional Agreement. Under this Agreement, SCOR Re is responsible for any further adverse development up to $8,800,000, at which point the 1994 Retrocessional Agreement attaches and provides coverage for up to $10,000,000 of any additional adverse development. SCOR Re paid a premium of $2,000,000 for this coverage, which expires on December 31, 2004. At December 31, 1994, no recovery was recog- nized under this agreement. In addition, based on the experience of the 1994 Retrocessional Agreement, SCOR Re is eligible to receive a contingent commission of up to 27.75% of the premium. SCOR S.A. entered into a Net Aggregate Excess of Loss Retrocessional Agreement ("the 1990 Retrocessional Agreement") with each of Unity Fire and General Security, pursuant to which SCOR S.A. agreed to reinsure those companies to the extent that their net ultimate incurred losses (as defined in the agreements) arising in 1989 and prior accident years exceed an aggregate deductible. As a result of the January 1, 1991 assumption by General Security of the rights, liabilities and obligations of Unity Fire, the Net Aggregate Excess of Loss Retrocessional Agreement with Unity Fire was terminated and the Net Aggregate Excess of Loss Retrocessional Agreement with General Security was amended (as so amended, the "Agreement") to include the protection formerly provided to Unity Fire by its retrocessional agreement with SCOR S.A. As a result of the merger of A-17 General Security into SCOR Re, the protection under the Agreement is now for the benefit of SCOR Re. The aggregate deductible is defined as the sum of net outstanding loss and loss expense reserves and net incurred but not reported loss reserves as of December 31, 1989, for 1989 and prior accident years, as documented in the 1989 statutory financial statements of Unity Fire and General Security. This amount has been established at a combined aggregate of $93,830,000. The annual premium for this protection is $210,000 through 2004. The Agreement continues in force until all covered losses are settled. At December 31, 1994, SCOR S.A.'s estimated liability under the Agreement was approximately $11,700,000. SCOR S.A. provides letters of credit in amounts equal to its estimated liability under its reinsurance agreements (as reestimated on a quarterly basis). The amount of letters of credit provided by SCOR S.A. at December 31, 1994 was approximately $134,500,000. The amounts recoverable under the Net Aggregate Excess of Loss Retrocessional Agreements are included in "Retrocessions to Affiliates" above and have the effect of reducing the Company's net losses and loss expenses incurred. The Company withholds funds from retrocessionaires in accordance with the retrocessional agreements. Under the terms of the agreements, the Company pays interest on the principal sums of amounts withheld at annual rates of 6% to 7.5% computed and rendered quarterly. The Company incurred interest expense (income) of $1,882,000, $2,191,000 and $1,755,000 in 1994, 1993 and 1992, respectively, of which $(2,000), $1,161,000 and $1,003,000, respectively, relates to SCOR S.A. (5) INVESTMENTS Net investment income of the Company, comprised primarily of interest and dividends, was derived from the following sources:
Year Ended December 31, 1994 1993 1992 (in thousands) Fixed maturities $38,555 $39,859 $41,736 Equity securities 776 999 1,036 Short-term investments 2,855 2,120 1,485 Other 175 428 196 ------- ------- ------- 42,361 43,406 44,453 Investment expense (1,371) (1,362) (1,573) ------- ------- ------- Net investment income $40,990 $42,044 $42,880 ======= ======= =======
A-18 Net realized investment gains (losses) of the Company were derived from the following sources:
Year Ended December 31, 1994 1993 1992 (in thousands) Net realized investment gains (losses): Fixed maturities $ (814) $10,921 $13,245 Equity securities 1,497 1,791 1,642 Other 301 218 161 ----- ------- ------- $ 984 $12,930 $15,048 ====== ======= =======
Proceeds from sales of available for sale securities during 1994, 1993 and 1992 were $260,902,000, $358,168,000 and $480,864,000, respectively. Gross gains of $7,162,000, $14,722,000 and $19,212,000, and gross losses of $6,479,000, $2,016,000 and $4,325,000 during 1994, 1993 and 1992, respectively, were realized on those sales. The changes in net unrealized gains (losses) on investments of the Company (including unrealized gains and losses on fixed maturities held to maturity that are not reflected in stockholders' equity) are derived from the following sources:
Year Ended December 31, 1994 1993 1992 (in thousands) Decrease during period in difference between fair value and cost of investments in equity securities $(3,529) $(722) $(651) Deferred income tax benefit 1,235 212 221 ------- ------- ------- Decrease in net unrealized losses on equity securities (2,294) (510) (430) ------- ------- ------- Increase (decrease) during period in difference between fair value and cost of investments in fixed maturities (58,187) 9,758 (15,165) Deferred income tax benefit (expense) 20,365 (3,562) 5,156 ------- ------- ------- Increase (decrease) in net unrealized gains (losses) on fixed maturities (1) (37,822) 6,196 (10,009) ------- ------- ------ Total increase (decrease) in net unrealized gains (losses) on equity securities and fixed maturities $(40,116) $ 5,686 $(10,439) ======= ======= ========
(1) Includes changes in net unrealized gains (losses) of ($55,357,000), $9,017,000 and $9,118,000, and deferred tax expense (benefit) of ($19,377,000), $3,288,000 and $3,100,000 on fixed maturities carried at market value for 1994, 1993 and 1992, respectively, which is reflected in stockholders' equity. A-19 At December 31, 1994 and 1993, approximately $22,871,000 and $24,876,000, respectively, of bonds carried at amortized cost were on deposit with various regulatory authorities as required by law. The following table presents gross unrealized gains and losses and the related deferred taxes on equity securities and fixed maturities carried at fair value. Year Ended December 31, 1994 1993 (in thousands) Equity securities: Gross unrealized gains $251 $3,987 Gross unrealized losses (410) (617) ------ ------- Net unrealized gains (losses) (159) 3,370 ------ ------- Fixed maturities, at fair value: Gross unrealized gains 1,112 25,937 Gross unrealized losses (34,247) (3,715) ------- ------- Net unrealized gains (losses) (33,135) 22,222 ------- ------- Total net unrealized gains (losses) (33,294) 25,592 Deferred tax asset (liability) 11,654 (8,958) ------- ------- Unrealized appreciation (depreciation) of investments $(21,640) $16,634 ======== ======= The amortized cost and estimated fair values of investments by major security type at December 31, 1994 and 1993 are as follows: A-20 Held to Maturity
December 31, 1994 Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (in thousands) U.S. Treasury securities and obligations of U.S. government corpor- ations and agencies $14,199 $53 $(824) $13,428 Debt securities issued by foreign governments 8,672 226 (52) 8,846 Total fixed maturities held to maturity $22,871 $279 $(876) $22,274 ======= ======= ======= ========
Available for Sale
December 31, 1994 Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (in thousands) U.S. Treasury securities and obligations of U.S. government corpor- ations and agencies $96,097 $272 $(4,556) $91,813 Obligations of states and political subdivisions 254,196 135 (12,549) 241,782 Debt securities issued by foreign governments 5,992 77 (106) 5,963 Corporate securities 114,321 474 (6,363) 108,432 Mortgage-backed securities 91,439 148 (7,875) 83,712 Redeemable preferred stocks 34,746 6 (2,798) 31,954 ------- ------- ------- ------- Total fixed maturities available for sale 596,791 1,112 (34,247) 563,656 Equity securities 1,897 251 (410) 1,738 ------- ------- ------- ------- Total investments carried at fair value $598,688 $1,363 $(34,657) $565,394 ======= ======= ======= ========
A-21 Held to Maturity
December 31, 1993 Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (in thousands) U.S. Treasury securities and obligations of U.S. government corpor- ations and agencies $15,792 $ 976 $ (6) $ 16,762 Obligations of states and political subdivisions 499 21 -0- 520 Debt securities issued by foreign governments 8,459 1,242 -0- 9,701 Corporate securities 126 -0- -0- 126 -------- ------- ------------ ------- Total fixed maturities held to maturity $ 24,876 $ 2,239 $ (6) $ 27,109 ======== ======= ============ ========
Available for Sale
December 31, 1993 Estimated Amortized Unrealized Unrealized Fair Cost Gains Losses Value (in thousands) U.S. Treasury securities and obligations of U.S. government corpor- ations and agencies $ 64,362 $ 3,780 $ (2,035) $ 66,107 Obligations of states and political subdivisions 265,111 12,677 (396) 277,392 Debt securities issued by foreign governments 3,985 503 -0- 4,488 Corporate securities 132,494 7,243 (538) 139,199 Mortgage-backed securities 59,353 1,116 (457) 60,012 Redeemable preferred stocks 33,577 618 (289) 33,906 ------- ------- -------- ------- Total fixed maturities available for sale 558,882 25,937 (3,715) 581,104 Equity securities 15,581 3,987 (617) 18,951 ------- ------- -------- ------- Total investments carried at fair value $574,463 $ 29,924 $(4,332) $600,055 ======== ======== ======== ========
A-22 The amortized cost and estimated fair value of fixed maturities at December 31, 1994, by contractual maturity, are shown below (expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties):
Available for Sale Held to Maturity ------------------ ---------------- Amortized Fair Amortized Fair Cost Value Cost Value (in thousands) Due in one year or less $13,212 $13,126 $228 $222 Due after one year - five years 136,872 133,061 10,461 10,521 Due after five year - ten years 302,681 284,758 12,022 11,392 Due after ten years 17,841 17,045 160 139 ------- ------- ------- ------- 470,606 447,990 22,871 22,274 Mortgage-backed securities 91,439 83,712 -0- -0- Redeemable preferred stocks 34,746 31,954 -0- -0- ------- ------- ------- ------- Total $596,791 $563,656 $22,871 $22,274 ======== ======== ======== ========
(6) NOTES PAYABLE AND CREDIT ARRANGEMENTS On March 29, 1993, SCOR U.S. sold at par $86,250,000 of 5.25% Convertible Subordinated Debentures due April 1, 2000 ("Debentures") through a private offering. The Debentures are not redeemable by the Company prior to April 3, 1996 and are convertible into approximately 3.4 million shares of SCOR U.S. common stock at a conversion price of $25.375 per share. Expenses incurred in the offering of approximately $1,800,000 were deferred and are being amortized over the life of the Debentures. The Company contributed $50,000,000 of the net proceeds to SCOR Re. Interest expense incurred on the Debentures during 1994 and 1993 was $4,465,000 and $3,484,000, respectively. On October 1, 1990 SCOR U.S. renewed a $20,000,000 note which was payable on that date. The new note is due and payable on October 3, 1995 and bears interest at a fixed annual rate of 9.575%. On March 12, 1993, the Company entered into an intermediate-term interest rate swap agreement with a commercial bank related to this note. The swap agreement has a maturity date of October 1, 1995 and provides for the Company to make floating rate payments in exchange for fixed rate payments due on the loan. The floating rate, which is reset every six months and is capped at 12.375%, was 11.068% as of December 31, 1994, and 8.693% as of December 31, 1993. In addition, SCOR U.S. had an $8,000,000 note at market interest rates which was repaid on May 10, 1993. Interest expense incurred for these notes, including the effect of the interest rate swap, during 1994, 1993 and 1992 was $2,072,000, $1,953,000 and $2,261,000, respectively. In 1990, SCOR U.S. established a commercial paper program that allows the Company to raise up to $50,000,000. The weighted average interest rate of commercial paper outstanding at December 31, 1994 was 6.29%. The maximum outstanding at any month end during 1994 was A-23 $11,310,000, and the average outstanding during 1994 was $10,269,000. The weighted average interest rate during 1994 was 5.68%. Interest expense incurred on commercial paper during 1994, 1993 and 1992 was approximately $501,000, $378,000, $450,000, respectively. Interest paid including interest paid on reinsurance funds withheld, during 1994, 1993 and 1992 was $8,647,000, $6,928,000 and $4,250,000, respectively. (7) RETIREMENT OF DEBENTURES During 1994 the Company repurchased in the open market $3.9 million in principal amount of the Debentures and recognized an extraordinary gain of $351,000 (after deduction for income taxes of $189,000), or $0.02 per share. Funding for the repurchased Debentures which settled in January 1995, was achieved through the issuance of the Company's commercial paper. (8) FINANCIAL INSTRUMENTS Off-Balance-Sheet Risk On March 12, 1993, the Company entered into an interest rate swap agreement to effectively convert underlying fixed-rate debt into variable-rate debt based on LIBOR (See Note 6). The notional principal amount of this agreement, which matures in October 1995, is $20,000,000. The Company has entered into this agreement with a creditworthy international financial institution and considers the risk of nonperformance to be remote. The Company is exposed to market risk due to the possibility of exchanging a lower interest rate for a higher interest rate. The net interest effect of this swap transaction is reported as an adjustment of interest income as incurred. Concentration of Credit Risk At December 31, 1994 the Company did not have a material concentration of financial instruments in any single investee, industry or geographic location. All of the Company's investments in fixed maturities are investment grade securities and virtually all are rated A or better. The Company's client base and their dispersion throughout the United States limits the concentration of credit risk on amounts due from clients. At December 31, 1994, the Company had no significant concentrations of credit risk. Fair Value of Financial Instruments The following methods and assumptions were used by the Company to estimate the fair value disclosures for its assets and liabilities as of December 31, 1994 and 1993: Fixed maturities and equity securities: Fair values are based on quoted market prices or dealer quotes. If a quoted market price is A-24 not available, fair value is estimated using quoted market prices for similar securities. Cash and short-term investments: The carrying amount is a reasonable estimate of fair value. Convertible subordinated debentures: Fair value is based on the prevailing market bid. Notes payable: Fair value is based on the discounted amount of future cash flows using the Company's current estimated borrowing rate for a similar liability. Commercial paper: The carrying amount is a reasonable estimate of fair value due to the short-term variable market rate nature of this liability. Interest rate swap: Fair value is based on the estimated amount that the Company would pay or (receive) to terminate the swap agreement at the reporting date, taking into account current interest rates and current creditworthiness of the counterparty. The estimated fair values of the Company's financial instruments are as follows:
December 31, 1994 1993 Carrying Fair Carrying Fair Amount Value Amount Value (in thousands) Assets Fixed maturities at fair value $563,656 $563,656 $581,104 $581,104 Fixed maturities at amortized cost 22,871 22,274 24,876 27,109 Equity securities 1,738 1,738 18,951 18,951 Short-term investments 83,303 83,303 90,642 90,642 Cash 4,763 4,763 17,096 17,096 Liabilities Convertible subordinated debentures 82,350 69,998 86,250 81,075 Notes payable 20,000 20,000 20,000 21,897 Commercial paper 11,310 11,310 10,721 10,721 Interest rate swap -0- 341 -0- (266)
A-25 (9) FEDERAL INCOME TAXES SCOR U.S. and its subsidiaries file a consolidated Federal income tax return. The components of the provision for Federal income taxes attributed to income from operations were as follows: Year Ended December 31, 1994 1993 1992 (in thousands) Current tax expense (benefit) $ (9,171) $7,882 $(1,853) Deferred tax benefit (2,091) (899) (1,918) -------- ------ ------- $(11,262) $6,983 $(3,771) ======== ====== ======= Income taxes paid $ 1,800(1) $3,546 (1) $8,001 ======== ====== ======= (1) Excludes refunds received in 1994 and 1993 of $1,700,000 and $7,782,000, respectively. Total income tax expense (benefit) for the years ended December 31, 1994, 1993 and 1992 was allocated as follows: Year Ended December 31, 1994 1993 1992 (in thousands) Income (loss) from continuing operations $(11,262) $6,983 $(3,771) Extraordinary item 189 -0- -0- Cummulative effect of accounting changes -0- (1,400) 2,119 Stockholders' equity: Unrealized appreciation (depre- ciation) of investments (20,611) 3,077 2,877 Foreign currency translation (229) (125) (717) ------- ----- ----- $(31,913) $8,535 $508 ======== ====== ==== A-26 The components of the net deferred Federal income tax benefits recognized in the Company's consolidated balance sheet at December 31, 1994 and 1993 were as follows: Deferred Tax Asset (Liability) (in thousands) 1994 1993 Deferred policy acquisition costs $(7,995) $(8,449) Unearned premium reserve 6,354 6,157 Loss reserves 25,052 23,352 Other (469) (214) ------- ------- Tax effect of temporary differences 22,942 20,846 Unrealized (appreciation) depreciation of investments 11,653 (8,958) Foreign currency translation 223 6 ------- ------- $34,818 $ 11,894 ======= ======= SFAS 109 requires the establishment of a valuation allowance for deferred income tax benefits where it is more likely than not that some portion of the deferred income tax benefits will not be realized. Management believes, based on the Company's historical record of generating taxable income and its expectations of future earnings, that the Company's taxable income in future years will be sufficient to realize the net deferred income tax benefits which are reflected on its consolidated balance sheet as of December 31, 1994. In addition, management believes certain tax planning strategies exist, including its ability to alter the mix of its investment portfolio to taxable investments from tax-exempt investments, which could be implemented if necessary to ensure sufficient taxable income to realize fully its net deferred income tax benefits. Management also believes that the Company's net deferred income tax benefits related to unrealized depreciation of fixed maturity investments is recoverable through its ability to hold these investments to maturity. Accordingly, SCOR U.S. has not established a valuation allowance with respect to its net deferred income tax benefits. The Omnibus Budget Reconciliation Act of 1993 (the "Act") was signed into law in August 1993. The Act provided for an increase in the corporate tax rate to 35% from the previous 34% rate. As a result of the revaluation of the Company's net deferred tax assets to reflect the change in tax rates, the Company recognized a net benefit of $472,000, or $0.03 per share, in 1993. This benefit is included in the provision for Federal income taxes attributable to income from operations. A-27 A reconciliation of income tax expense (benefit) computed by applying the United States Federal income tax rate of 35% in 1994 and 1993 and 34% in 1992 to income (loss) from operations before Federal income taxes (benefit) to the provision for Federal income taxes (benefit) is as follows: Year Ended December 31, 1994 1993 1992 (in thousands) Computed tax expense (benefit) at U.S. Federal rate $(6,809) $12,219 $ 214 Tax-exempt interest (4,282) (4,262) (3,587) Dividends received deduction (638) (672) (605) Tax rate change -0- (472) -0- Other 467 170 207 ------- ------- ------- $(11,262) $6,983 $(3,771) ======= ======= ======= (10) RESERVES FOR LOSSES AND LOSS EXPENSES Changes in the Company's reserves for losses and loss expenses for each year in the three year period ended December 31, 1994 is summarized as follows:
December 31, 1994 1993 1992 (in thousands) Reserve for losses and loss expenses at beginning of year, net $340,366 $341,162 $324,117 -------- -------- -------- Provision for losses and loss expenses: Occuring in current year 193,587 160,695 165,468 Occuring in prior years (2,317) (4,403) (4,923) -------- -------- -------- Total 191,270 156,292 160,545 -------- -------- -------- Payment for losses and loss expenses, net of amounts recoverable Occuring in current year 55,155 36,018 51,514 Occuring in prior years 94,366 121,070 91,986 -------- -------- -------- Total 149,521 157,088 143,500 -------- -------- -------- Reserve for losses and loss expenses at end of year, net 382,115 340,366 341,162 Reinsurance recoverable on unpaid losses 222,672 221,843 220,651 -------- -------- -------- Reserve for losses and loss expenses at end of year, gross $604,787 $562,209 $561,813 ======== ======== ========
A-28 The operating companies of SCOR U.S. have not underwritten significant amounts of business in those classes or with those insurers that are known to be exposed to asbestos and environmental- related claims. During the years ended December 31, 1994, 1993 and 1992, the Company has not experienced any significant amount of net loss reporting or development on claims related to these exposures. In addition, the Company is significantly protected from adverse development under the SCOR S.A. Retrocessional Agreements (see Note 4). Any recoveries under such agreements are considered to be fully realizable. Based on the above information, the Company believes that its exposure to asbestos and environmental-related claims is not material to the Company's financial position or results of operations. (11) STATUTORY REQUIREMENTS The Insurance Department of the State of New York ("Department"), in which SCOR Re, GSIND and Unity Fire are domiciled, and the Maryland Insurance Administration, in which GSIC is domiciled, recognizes as net income and surplus (stockholder's equity) those amounts determined in conformity with statutory accounting practices prescribed or permitted by the respective jurisdiction, which differ in certain respects from GAAP. Reconciliations of statutory surplus and net income, as determined using statutory accounting principles, to the amounts included in the accompanying financial statements are as follows: December 31, 1994 1993 (in thousands) Statutory surplus of insurance subsidiaries $243,416 $271,895 Deferred policy acquisition costs 22,844 24,140 Unauthorized reinsurance 12,931 7,076 Non-admitted assets 4,589 3,052 Unrealized appreciation (depreciation) on fixed maturities carried at fair value (33,135) 22,222 Deferred Federal income taxes 34,818 11,894 Parent company and non-insurance subsidiaries' net assets 56,282 56,660 Long-term debt (102,350) (106,250) --------- -------- GAAP stockholders' equity $239,395 $290,689 ======== ======== A-29 Year Ended December 31, 1994 1993 1992 (in thousands) Statutory net income (loss) of insurance subsidiaries $(1,109) $ 34,735 $ 5,164 Deferred policy acquisition costs (1,296) 1,969 5,367 Deferred Federal income taxes 2,091 899 1,918 Cumulative effect of accounting changes -0- -0- 2,848 Parent company operations (5,018) (8,128) (7,377) Non-insurance subsidiary operations (2,509) (4,147) (671) ------- ------- ------- GAAP net income (loss) $(7,841) $25,328 $7,249 ======= ======= ======= Cash dividends of the Company's reinsurance subsidiaries may be paid only out of their statutory earned surplus. For the operating subsidiaries domiciled in New York (which represents approximately 89% of the Company's statutory surplus), the payment of dividends is subject to statutory restrictions imposed by New York insurance law. Generally the maximum amount of dividends that may be paid in any twelve-month period without the prior approval of the Department is the lesser of net investment income or 10% of statutory surplus, as such terms are defined in the New York insurance law. During the year ending December 31, 1994, $11,900,000 of dividends were declared and paid to SCOR U.S. Based on 1994 year-end statutory surplus, the maximum dividend distribution that may be made by the Company's reinsurance subsidiaries during 1995 without prior approval is approximately $24,342,000. The amount of the Company's reinsurance subsidiaries' net assets (stockholders' equity) restricted from payment of dividends to SCOR U.S. without prior approval is approximately $219,074,000, which is 92% of total consolidated net assets. SCOR Re Voting Trust As a result of New York Insurance Department licensing requirements regarding government financial control and ownership of insurers, all of the capital stock of SCOR Re is held in an irrevocable voting trust. The voting trust, which was to expire during 1994, was renewed for an additional three years. The five voting trustees, four of whom are directors of SCOR U.S., are entitled to exercise all of the rights and powers of absolute owners of the capital stock of SCOR Re, subject to certain limitations specified in the voting trust agreement. General Security Voting Trust The Insurance Laws of the State of California generally prohibit the issuance or renewal of a license to a company owned, operated or controlled, in whole or in part, by a government. In connection with A-30 the continuation of General Security's California license, on February 1, 1993, with the approval of the New York Insurance Department, a voting trust was established by SCOR U.S. for its holdings of capital stock in General Security. This voting trust was terminated upon the merger of General Security into SCOR Re, effective January 1, 1994. (12) EMPLOYEE BENEFITS Pension Plans: SCOR U.S. has a qualified defined benefit pension plan ("SCOR U.S. Group Pension Plan") covering substantially all employees of SCOR U.S. and its affiliates. Benefits under the SCOR U.S. Group Pension Plan are based on an employee's years of service and compensation. SCOR U.S.'s funding policy is to contribute at least the minimum amount required by ERISA but not more than the maximum amount that can be deducted for Federal income tax purposes. The SCOR U.S. Group Pension Plan excludes expatriates who are temporarily assigned to the U.S. and covered by other plans sponsored or funded by the Company or a member of the SCOR S.A. Group. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. In 1994, 1993 and 1992, there were no contributions required. The following table sets forth the SCOR U.S. Group Pension Plan funded status and amounts recognized in the SCOR U.S. consolidated balance sheet at December 31, 1994 and 1993 (in thousands): 1994 1993 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $2,892 and $2,391 in 1994 and 1993, respectively $(3,295) $(3,312) ======= ======= Projected benefit obligation for service rendered to date $(4,678) $(5,656) Plan assets at fair value 5,912 5,560 ------- ------- Plan assets in excess of projected benefit 1,234 (96) obligation Unrecognized transition asset (885) (1,033) Unrecognized net loss from past experience 184 1,495 Unrecognized prior service costs (293) 150 ------- ------- Prepaid pension cost included in other assets $ 240 $ 516 ======= ======= A-31 Net pension expense for 1994, 1993 and 1992 included the following components (in thousands): 1994 1993 1992 Service cost-benefits earned during the period $534 $592 $406 Interest cost on projected benefit obligation 325 333 230 Actual return on plan assets (413) (412) (250) Net amortization and deferral (170) (100) (279) ----- ----- ------ Net pension expense $276 $413 $107 ==== ===== ====== The weighted-average discount rate and the average rate of compensation increase used in determining the actuarial present value of the projected benefit obligation were 8% and 5.5% in 1994, 7.5% and 6.0% in 1993, 8.0% and 6.0% in 1992, respectively. The expected long- term rate of return on assets was 7.5% in 1994 and 8% in 1993. Savings Plans: The SCOR U.S. Group Savings Plan ("SCOR U.S. Savings Plan") is qualified under Sections 401 (a) and 401 (k) of the United States Internal Revenue Code of 1986 as amended. Substantially all employees of SCOR U.S. and affiliates are eligible to participate in the savings plan. The SCOR U.S. Savings Plan excludes expatriates who are temporarily assigned to the U.S. and covered by other plans sponsored or funded by the Company or a member of the SCOR S.A. Group. Contributions to the savings plan are determined by the Board of Directors and are made from the net profits of the current taxable year or the accumulated net profits of SCOR U.S. Contributions for the years ended December 31, 1994, 1993 and 1992 were $575,000, $585,000 and $556,000, respectively. The pension and savings plans may be terminated at any time by the Board of Directors of SCOR U.S. Supplemental Retirement Plan: SCOR U.S. also sponsors the SCOR U.S. Group Supplemental Retirement Plan ("Supplemental Retirement Plan"), an unfunded nonqualified plan established in 1989 which covers a select group of management employees. This plan enables participants in the pension plan and savings plan to earn pension benefits and tax-deferred savings benefits on the same percentage of pay basis without regard to current IRS restrictions. The Supplemental Retirement Plan incurred expenses of approximately $226,000, $133,000 and $143,000 for the years ended 1994, 1993 and 1992, respectively. Employment Contracts: The Company has entered into employment contracts that provide minimum pension benefits to four executives. The benefits under these contracts are unfunded, and expenses of approximately $70,000, $53,000 and $45,000 were accrued in 1994, 1993 and 1992, respectively. A-32 (13) INCENTIVE AND STOCK OPTION PLANS In July 1986, the Company adopted a Stock Incentive Plan for Key Executives ("Incentive Plan"), pursuant to which 786,000 shares of the common stock were reserved for issuance through options for all key executives of the Company, defined to include officers and employees of the Company and those employees of SCOR S.A. who serve on the Executive Committee of the Board of Directors of SCOR U.S. In March 1994, the number of shares available for issuance under the Incentive Plan was increased to 856,740. Nonqualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and stock bonus awards were available under the Incentive Plan. Certain of these awards may result in future compensation expense to the Company. Incentive stock options were available to be granted at not less than fair market value of the Company's common stock on the date of grant. Non-qualified options were available to be granted at not less than 85% of fair market value of the Company's common stock on the date of grant. Options become exercisable as specified at the date of grant and expire ten years and one month from the date of grant. On September 19, 1990 the shareholders of SCOR U.S. approved a Stock Option Plan for Directors. Under this plan 220,000 shares of the common stock of SCOR U.S. have been reserved for issuance. Grants of options to purchase 3,000 shares will be made to each Director, except Directors employed by the Company, three business days following each SCOR U.S. Annual Meeting. Each option granted becomes exercisable with respect to one-half the shares of SCOR U.S. common stock covered thereby on the first anniversary of the date upon which it was granted and with respect to the balance of the shares on the second anniversary thereof. Under the Stock Option Plan for Key Employees ("SOP") approved by the shareholders of SCOR U.S. at the Annual Meeting in June 1991, 1,426,000 shares of common stock have been reserved for issuance through options for all key employees of SCOR U.S. Corporation and its subsidiaries. In March 1994, the number of shares available for issuance under the SOP was increased to 1,554,340. The per share option price shall never be less than 100% of the fair market value of the shares at the time of the grant. Unless otherwise provided by the Board of Directors, each option granted would become exercisable to the extent of one-third of the total number of the shares of common stock subject to the option on each anniversary of the grant and expire ten years from the date the option is granted. A-33 Information regarding the above option plans is summarized below: Number of Option Price Shares Per Share Range --------- --------------- Outstanding at December 31, 1991 1,045,605 $ 8.00 -- $15.50 Options granted 21,000 $16.75 -- $16.75 Options exercised (71,296) $ 8.00 -- $14.25 Options cancelled (19,535) $12.25 -- $14.25 --------- --------------- Outstanding at December 31, 1992 975,774 $ 8.00 -- $16.75 Options granted 552,693 $15.50 -- $17.00 Options exercised (123,418) $ 8.00 -- $14.25 Options cancelled (30,284) $14.25 -- $17.00 --------- --------------- Outstanding at December 31, 1993 1,374,765 $ 8.00 -- $17.00 Options granted 458,175 $ 9.00 -- $11.125 Options exercised (57,100) $ 8.00 -- $ 9.99 Options cancelled (198,889) $ 9.00 -- $17.00 --------- --------------- Outstanding at December 31, 1994 1,576,951 $ 8.00 -- $17.00 ========= =============== The number of options exercisable at December 31, 1994 was 856,000. The number of shares available for future grant at December 31, 1994 was 552,000. As indicated above, the Incentive Plan allows for the granting of restricted stock awards. The following table summarizes information regarding stock awards, for each year in the three-year period ended December 31, 1994. 1994 1993 1992 Non vested restricted stock grants at the beginning of the year 4,552 -0- 19,263 Restricted stock awards granted -0- 4,552 -0- Restricted stock awards vested -0- -0- (19,263) ----- ----- ------ Non-vested restricted stock awards at the end of the year 4,552 4,552 -0- ===== ===== ====== The Company recognized compensation expense of $11,000, $-0- and $115,000 in 1994, 1993 and 1992, respectively, in connection with these awards. At December 31, 1994, the amount of deferred compensation relating to these grants which will be recognized over the remaining vesting period is $47,000 which is included in additional paid-in capital. During 1993 and 1992 the Company issued 44,000 shares and 40,000 shares of its common stock in exchange for notes receivable from various officers of $523,000 and $358,000, respectively. These shares were issued as a result of stock options exercised under the Company's stock option plans. The balance of unpaid stock options exercised at A-34 December 31, 1994 and 1993 was $27,000 and $1,202,000, respectively, and is recorded as a reduction to additional paid-in capital. The Company has outstanding loans with various officers related to stock options exercised and restricted stock grants. These loans bear interest at rates ranging from 4% to 10%. The aggregate unpaid principal balance at December 31, 1994 and 1993 was $27,000 and $1,202,000, respectively. (14) COMMITMENTS The Company conducts its operations in leased premises. The Company also leases data processing equipment and automobiles. Total rental expense for the years ended December 31, 1994, 1993 and 1992, amounted to $2,412,000, $2,438,000 and $2,088,000, respectively. At December 31, 1994, future minimum rental commitments are as follows (in thousands): Year Ending December 31, 1995 $2,246 1996 1,437 1997 848 1998 776 1999 526 Thereafter 68 ------ $5,901 ====== (15) CONTINGENCIES SCOR Re, GSIC, GSIND and Unity Fire are each party to various lawsuits arising in the normal course of their business. SCOR U.S. does not believe that any of the litigation to which SCOR Re, General Security, GSIC, GSIND or Unity Fire is currently a party will have a material adverse effect on the operating results or financial condition of SCOR U.S. and its subsidiaries. At December 31, 1994 and 1993, the Company's reinsurance subsidiaries had letters of credit outstanding aggregating approximately $1,731,000 and $16,352,000, respectively, in favor of certain insurance companies under terms of reinsurance agreements. The Company guarantees to a commercial bank payment when due of three mortgage loans, with original principal amounts aggregating approximately $2.8 million, issued to former excecutive officers of the Company. The guarantees are secured by the residential premises. (16) FOREIGN OPERATIONS The Company conducts reinsurance business in Canada through branches established for that purpose. The functional currency of such branches is the Canadian dollar. The assets and liabilities of such branches included herein have been translated into United States dollars at exchange rates in effect at the balance sheet dates, and A-35 operations at average exchange rates in effect during the relevant periods. Foreign currency translation adjustments have been recorded as follows: Translation Income Adjustment Taxes Net ----------- ------ ---- (in thousands) Balance, December 31, 1991 $2,494 $ 848 $1,646 Change during the year (2,109) (717) (1,392) ------- ------ ------- Balance, December 31, 1992 385 131 254 Change during the year (367) (125) (242) ------- ------ ------- Balance, December 31, 1993 18 6 12 Change during the year (655) (229) (426) ------- ------ ------- Balance, December 31, 1994 $(637) $(223) $ (414) ======= ====== ======= A-36 (17) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Three Months Ended, March 31, June 30, September 30, December 31, 1994 1994 1994 1994 (in thousands, except per share data) Net premiums earned $62,685 $54,983 $55,542 $55,034 Net investment income 9,998 10,208 10,157 10,627 Net realized investment gains (losses) 323 413 323 (75) Total revenues 73,006 65,604 66,022 65,586 Total expenses 97,570 66,593 64,047 61,462 Income (loss) from operations (14,418) 603 2,447 3,176 Extraordinary gain on redemption of debentures -0- -0- -0- 351 Net income (loss) $(14,418) $ 603 $2,447 $ 3,527 ========== ========== ========== ========== Per share data: Primary Average common and common equivalent shares outstanding 18,221 18,191 18,212 18,214 ========== ========== ========== ========== Income (loss) from operations $(0.79) $0.03 $0.13 $0.17 Extraordinary item -0- -0- -0- 0.02 ---------- ---------- ---------- ---------- Net income (loss) $(0.79) $0.03 $0.13 $0.19 ========== ========== ========== ========== Fully diluted Average common and common equivalent shares outstanding 18,221 18,191 18,212 18,214 ========== ========== ========== ========== Income (loss) from operations $(0.79) $0.03 $ 0.13 $ 0.17 Extraordinary item -0- -0- -0- 0.02 ---------- ---------- ---------- ---------- Net income (loss) $(0.79) $ 0.03 $ 0.13 $ 0.19 ========== ========== ========== ========== Dividends declared $ 0.09 $ 0.09 $ 0.09 $ 0.09 ========== ========== ========== ========== Stock prices (a) High $ 13 $12 1/4 $12 1/4 $11 3/8 Low 10 1/4 10 1/8 11 7 1/2 Close 10 3/8 11 11 1/4 8 3/8
A-37
Three Months Ended, March 31, June 30, September 30, December 31, 1993 1993 1993 1993 (in thousands, except per share data) Net premiums earned 53,760 $ 56,722 $ 59,847 $ 65,722 Net investment income 10,032 10,866 10,893 10,253 Net realized investment gains 3,328 2,029 2,068 5,505 Total revenues 67,120 69,617 72,808 81,480 Total expenses 55,516 62,452 66,428 71,718 Income from operations 8,773 5,873 5,808 7,474 Cumulative effect of accounting changes (2,600) -0- -0- -0- Net income $ 6,173 $ 5,873 $ 5,808 $ 7,474 ========== ========== ========== ========== Per share data: Primary Average common and common equivalent shares outstanding 18,494 18,472 18,425 18,309 ========== ========== ========== ========== Income from operations $ 0.47 $ 0.32 $ 0.32 $ 0.41 Cumulative effect of accounting changes (0.14) -0- -0- -0- ---------- ---------- ---------- ---------- Net income $ 0.33 $ 0.32 $ 0.32 $ 0.41 ========== ========== ========== ========== Fully diluted Average common and common equivalent shares outstanding 18,494 18,472 21,819 21,679 ========== ========== ========== ========== Income from operations $ 0.47 $ 0.32 $ 0.30 $ 0.38 Cumulative effect of accounting changes (0.14) -0- -0- -0- ---------- ---------- ---------- ---------- Net income $ 0.33 $ 0.32 $ 0.30 $ 0.38 ========== ========== ========== ========== Dividends declared $ 0.08 $ 0.08 $ 0.08 $ 0.08 ========== ========== ========== ========== Stock prices (a) High $20 3/4 $19 3/4 $16 7/8 $16 3/4 Low 17 16 1/8 14 7/8 12 3/8 Close 19 3/4 16 3/4 16 3/4 13
(a) High, low and closing sales price per share per NYSE composite tape. A-38 (18) SUBSEQUENT EVENTS The Company believes that its potential for losses from January 17, 1995 Nambu-Jishin earthquake in Kobe, Japan is limited since foreign writings represent an insignificant portion of its portfolio. On March 3, 1995 the Company entered into a lease for office space for its New York headquarters. The term of the lease is approximately 16 years with aggregate minimum rental payments of approximately $30 million. A-39 SCOR U.S. CORPORATION FINANCIAL HIGHLIGHTS (UNAUDITED) (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------------------- 1995 1994 1995 1994 ------- ------- ------------- ------------ OPERATIONS Gross premiums written..................... $69,001 $75,325 $ 281,988 $ 239,266 Net premiums written....................... 54,574 55,791 181,599 184,593 Net premiums earned........................ 53,536 55,542 182,340 175,210 Net investment income...................... 10,579 10,157 31,751 30,363 Revenues................................... 64,336 66,022 214,804 204,632 Income (loss) from operations excluding net realized investment gains............ $ 4,748 $ 2,237 $ 13,038 $ (12,056) After-tax realized investment gains 78 210 463 688 Extraordinary gain on redemption of debentures, net of tax -0- -0- 552 -0- ------- ------- ------------- ------------ NET INCOME (LOSS) $ 4,826 $ 2,447 $ 14,053 $ (11,368) ------- ------- ------------- ------------ ------- ------- ------------- ------------ PER SHARE DATA--PRIMARY Average common shares outstanding.......... 18,372 18,212 18,255 18,146 Income (loss) from operations excluding net realized investment gains............ $ 0.26 $ 0.12 $ 0.71 $ (0.67) After-tax realized investment gains........ -0- 0.01 0.03 0.04 Extraordinary gain on redemption of debentures, net of tax................... -0- -0- 0.03 -0- ------- ------- ------------- ------------ NET INCOME (LOSS).......................... $ 0.25 $ 0.13 $ 0.77 $ (0.63) ------- ------- ------------- ------------ ------- ------- ------------- ------------ GAAP RATIOS Loss ratio 68.1% 70.3% 66.9% 88.1% Expense ratio.............................. 35.4% 40.6% 37.7% 39.7% Combined ratio............................. 103.5% 110.9% 104.6% 127.8% STATUTORY RATIOS Loss ratio................................. 68.2% 70.8% 67.2% 87.3% Expense ratio.............................. 32.5% 36.4% 37.0% 35.0% Combined ratio............................. 100.7% 107.2% 104.2% 122.8% Net premiums written to surplus (1)........ .85:1 .93:1 .94:1 1.05:1 Loss reserves to capital and surplus (2)... 1.6:1 1.6:1 1.6:1 1.6:1 SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ (UNAUDITED) FINANCIAL POSITION Cash and investments....................... $ 723,360 $ 677,556 Total assets............................... 1,181,172 1,143,715 Combined statutory capital and surplus of operating subsidiaries (3)............ 256,823 243,416 GAAP stockholders' equity.................. 277,386 239,395 Book value per share....................... $ 15.27 $ 13.18
- ------------ (1) Annualized net premiums written for the period divided by ending capital and surplus. (2) Statutory basis. (3) Estimated at September 30, 1995. B-1 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1995 1994 1995 1994 -------- -------- -------- -------- REVENUES Premiums written, gross......................... $ 69,001 $ 75,325 $231,988 $239,266 Premiums ceded.................................. (14,427) (19,534) (50,389) (54,573) -------- -------- -------- -------- Premiums written, net........................... 54,574 55,791 181,599 184,693 Charge in unearned premiums..................... (1,038) (249) 741 (11,483) -------- -------- -------- -------- Net premiums earned............................. 53,536 55,542 182,340 173,210 Net investment income........................... 10,679 10,157 31,751 30,363 Net realized investment gains................... 121 323 713 1,059 -------- -------- -------- -------- 64,336 66,022 214,804 204,632 -------- -------- -------- -------- LOSSES AND EXPENSES Losses and loss expenses, gross................. 45,276 44,787 172,151 213,468 Reinsurance recoverable......................... (8,824) (5,727) (50,199) (60,910) -------- -------- -------- -------- Losses and loss expenses, net................... 36,452 39,060 121,952 152,558 Commissions, net................................ 10,345 14,144 46,896 46,019 Other underwriting and administration expenses.. 7,616 6,799 20,783 19,586 Other expenses.................................. 1,016 1,590 1,040 3,065 Interest expense................................ 2,596 2,454 6,906 6,982 -------- -------- -------- -------- 58,025 64,047 197,577 228,210 -------- -------- -------- -------- Income (loss) from operations before Federal income taxes (benefit).......................... 6,311 1,975 17,227 (23,578) Federal income taxes (benefit).................. 1,485 (472) 3,726 (12,210) -------- -------- -------- -------- Income (loss) from operations................... 4,826 2,447 13,501 (11,368) Extraordinary gain on redemption of debentures, net of tax.................................... -- -- 552 -- -------- -------- -------- -------- Net income (loss)............................... $ 4,826 $ 2,447 $ 14,053 $(11,368) -------- -------- -------- -------- -------- -------- -------- -------- PER SHARE DATA PRIMARY Average common and common equivalent shares outstanding................................... 18,372 18,212 18,255 18,146 -------- -------- -------- -------- -------- -------- -------- -------- Income (loss) from operations................... $ 0.26 $ 0.13 $ 0.74 $ (0.63) Extraordinary item.............................. -- -- 0.03 -- -------- -------- -------- -------- Net income (loss)............................... $ 0.26 $ 0.13 $ 0.77 $ (0.63) -------- -------- -------- -------- -------- -------- -------- -------- FULLY DILUTED Average common and common equivalent shares outstanding................................... 21,513 18,212 21,317 18,146 -------- -------- -------- -------- Income (loss) from operations................... $ 0.26 $ 0.13 $ 0.73 $ (0.63) Extraordinary item.............................. -- -- 0.03 -- -------- -------- -------- -------- Net income (loss)............................... $ 0.26 $ 0.13 $ 0.76 $ (0.63) -------- -------- -------- -------- -------- -------- -------- --------
B-2 SCOR U.S. CORPORATION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ (UNAUDITED) ASSETS Investments: Fixed maturities: Available for sale, at fair value (amortized cost: $556,300 and $596,791)................................... $ 563,515 $ 563,656 Hold to maturity, at amortized cost (net value: $22,609 and $22,274)............................................. 22,155 22,871 Equity securities, at fair value (cost: $108 and $1,897)...... 204 1,738 Short-term investments, at cost............................... 122,794 83,303 Other long-term investments................................... 1,374 1,225 ------------- ------------ 710,042 672,793 Cash............................................................ 13,318 4,763 Accrued investment income....................................... 9,608 10,339 Premiums receivable............................................. 80,996 72,018 Reinsurance recoverable on paid losses.......................... 19,939 23,755 Reinsurance recoverable on unpaid losses........................ 226,544 222,672 Prepaid reinsurance premiums.................................... 9,921 19,307 Deferred policy acquisition costs............................... 22,471 22,844 Deferred Federal income tax benefits............................ 22,542 34,818 Investment in affiliate......................................... 12,360 11,232 Other assets.................................................... 53,431 49,174 ------------- ------------ $ 1,181,172 $1,143,715 ------------- ------------ ------------- ------------ LIABILITIES Losses and loss expenses........................................ $ 618,738 $ 604,787 Unearned premiums............................................... 99,955 110,082 Funds held under reinsurance treaties........................... 18,571 20,758 Reinsurance balances payable.................................... 27,000 43,685 Convertible subordinated debentures............................. 75,950 82,350 Notes payable................................................... 25,000 20,000 Commercial paper................................................ 20,639 11,310 Other liabilities............................................... 17,933 11,348 ------------- ------------ 903,786 904,320 ------------- ------------ STOCKHOLDERS' EQUITY Preferred stock, no par value, 5,000 shares authorized; no shares issued.............................................. -- -- Common stock, $.30 par value, 50,000 shares authorized; 18,364 and 18,356 shares issued............................... 5,509 5,507 Additional paid-in capital...................................... 114,669 114,556 Unrealized appreciation (depreciation) of investments, net of deferred tax effect........................................... 4,752 (21,640) Foreign currency translation adjustment......................... (252) (414) Retained earnings............................................... 154,482 143,153 Treasury stock, at cost (193 and 192 shares).................... (1,774) (1,767) ------------- ------------ 277,386 239,395 ------------- ------------ $ 1,181,172 $1,143,715 ------------- ------------ ------------- ------------
B-3 SCOR U.S. CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ---------------------- 1995 1994 1995 1994 -------- -------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)............................. $ 4,826 $ 2,447 $ 14,053 $ (11,368) Adjustments to reconcile net income (loss) to net cash provided by (owed to) operating activities: Extraordinary gain on redemption of debentures................................ -0- -0- (522) -0- Realized investment gains................... (121) (321) (713) (1,059) Changes in assets and liabilities: Accrued investment gains.................. 538 (154) 731 (260) Premium balances, net..................... 6,869 29,185 (25,665) 9,019 Prepaid issuance premiums................. 1,218 797 9,336 4,774 Reinsurance recoverable on paid losses.... (8,118) (10,827) 8,816 (29,881) Deferred policy acquisition costs......... 257 (36) 379 (1,905) Losses and loss expenses.................. (14,577) (15,879) 13,051 44,741 Unearned premiums......................... (179) (348) (10,127) 6,709 Reinsurance recoverable on unpaid losses.. 10,516 7,052 (3,872) 4,827 Funds held under reinsurance treaties..... 714 (321) (2,187) (16,719) Federal income taxes...................... (4,715) (472) (3,475) (14,010) Other..................................... 7,477 (3,967) 9,270 (3,766) -------- -------- --------- --------- Net cash provided by (used in) operating activities.................................. 4,705 6,961 2,999 (2,496) -------- -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Sales, maturities or redemptions of fixed maturities.................................. 44,922 54,168 140,362 192,056 Sales of equity securities.................... (38) 207 1,157 4,723 Net sales (purchases) of short-term investments................................. (2,070) 1,792 (35,105) 38,526 Investment in fixed maturities................ (42,971) (66,279) (102,762) (225,947) Investments in equity securities.............. -0- (1,685) -0- (3,500) Other......................................... (4,935) (381) (5,430) (3,361) -------- -------- --------- --------- Net cash provided by (used in) investing activities.................................. (3,112) (12,178) (1,778) 2,997 -------- -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES.......... Dividends paid................................ (906) (1,638) (2,724) (4,908) Redemption of convertible subordinated debentures.................................. -0- -0- (8,907) -0- Proceeds of notes payable..................... -0- -0- 5,000 -0- Proceeds from issuance of commercial paper-- net......................................... (461) 3 3,473 30 Proceeds from stock options exercised......... 12 565 19 610 Other......................................... 3,570 1,372 5,479 1,747 -------- -------- --------- --------- -------- -------- --------- --------- Net cash provided by (used in) financing activities.................................. 2,213 302 7,340 (2,516) -------- -------- --------- --------- Net increase (decrease) in cash............... 1,806 (4,915) 8,555 (8,017) Cash at beginning of period................... 11,512 13,994 4,763 17,096 -------- -------- --------- --------- Cash at end of period......................... $ 13,318 $ 9,079 $ 13,318 $ 9,079 -------- -------- --------- --------- -------- -------- --------- ---------
B-4 Facsimile copies of the Letter of Transmittal will be accepted. The Letter of Transmittal, certificates for the Shares and any other required documents should be sent by each stockholder of the Company or such stockholder's broker-dealer, commercial bank, trust company or other nominee to the Depositary as follows: The Depositary for the Offer is: THE BANK OF NEW YORK By Mail: By Facsimile Transmission By Hand or Overnight Delivery: (for Eligible Institutions Tender & Exchange Department only): Tender & Exchange Department P.O. Box 11248 (212) 815-6213 101 Barclay Street Church Street Station Receive and Deliver Window New York, New York 10286-1248 Confirm by telephone: New York, New York 10286 (800) 507-9357
Questions or requests for assistance may be directed to the Information Agent or the Dealer Managers at their respective telephone numbers and locations listed below. Requests for additional copies of the Offer to Purchase, the Letter of Transmittal and the other tender offer materials may be directed to the Information Agent, the Dealer Managers or to brokers, dealers, commercial banks or trust companies or other nominees, and copies will be furnished promptly at the Purchaser's Expense. THE INFORMATION AGENT FOR THE OFFER IS: D.F. KING & CO., INC. United States Europe 77 Water Street Royex House, Aldermonbury Square New York, New York 10005 London, England ECZV7H CALL TOLL-FREE: 1-800-714-3313 (44) 171-600-5005 (collect) THE DEALER MANAGERS FOR THE OFFER ARE: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 (800) 323-5678 (Toll Free) EX-2 3 Exhibit 2 LETTER OF TRANSMITTAL To Tender Shares of Common Stock of SCOR U.S. CORPORATION Pursuant to the Offer to Purchase dated November 9, 1995 by SCOR MERGER SUB CORPORATION A Wholly Owned Subsidiary of SCOR S.A. ------------------------------------------------------------------------------- THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON FRIDAY, DECEMBER 8, 1995, UNLESS THE OFFER IS EXTENDED. ------------------------------------------------------------------------------- The Depositary for the Offer is: THE BANK OF NEW YORK
By Facsimile Transmission By Mail: (for Eligible Institutions only): By Hand or Overnight Courier: Tender & Exchange Department (212) 815-6213 Tender & Exchange Department P.O. Box 11248 101 Barclay Street Church Street Station Confirm by telephone: Receive and Deliver Window New York, New York 10286-1248 (800) 507-9357 New York, New York 10286
------------------- DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by stockholders ("Stockholders") if certificates for Shares (as defined below) are to be forwarded herewith or if tenders of Shares are to be made by book-entry transfer to the account maintained by the Depositary at The Depository Trust Company, Midwest Securities Trust Company or Philadelphia Depository Trust Company (collectively, the "Book-Entry Transfer Facilities"), pursuant to the procedures set forth in the section of the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares". Stockholders who tender Shares by book-entry transfer are referred to herein as "Book-Entry Stockholders" and other Stockholders are referred to herein as "Certificate Stockholders." Stockholders whose certificates are not immediately available, or who cannot comply with the book-entry transfer procedures on a timely basis or who cannot deliver their certificates and all other documents required hereby to the Depositary on or prior to the Expiration Date (as defined in the Offer to Purchase), may nevertheless tender their Shares according to the guaranteed delivery procedure set forth in the section of the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares". See Instruction 2. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY FOR THIS OFFER (AS DEFINED HEREIN). Stockholders who wish to tender their Shares must, at a minimum, complete columns (1) through (3) (other than Book-Entry Stockholders, who are not required to complete columns (2) and (3)) in the "Description of Shares Tendered" table below. If only those columns are completed, a Stockholder will be deemed to have tendered all of its Shares listed in the table. If a Certificate Stockholder wishes to tender with respect to less than all of its Shares, column (4) must also be completed, and such Certificate Stockholder should refer to Instruction 4. / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution ______________________________________________ Check One: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Account Number _______________________________________________________________ Transaction Code Number ______________________________________________________ / / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Stockholder(s) _______________________________________ Window Ticket Number (if any) ______________________________________________ Date of Execution of Notice of Guaranteed Delivery _________________________ Name of Institution that Guaranteed Delivery _______________________________ If Delivery by Book-Entry Transfer: Name of Tendering Institution ________________________________________________ Check One: / / The Depository Trust Company / / Midwest Securities Trust Company / / Philadelphia Depository Trust Company Account Number _______________________________________________________________ Transaction Code Number ______________________________________________________
- ---------------------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED - ---------------------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED STOCKHOLDER(S) (PLEASE FILL IN BLANK EXACTLY AS NAME(S) SHARES TENDERED APPEAR(S) ON THE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST IF NECESSARY) - ---------------------------------------------------------------------------------------------------------------- (1) (2) (3) (4) - ---------------------------------------------------------------------------------------------------------------- TOTAL NUMBER OF SHARES CERTIFICATE REPRESENTED BY NUMBER NUMBER(S)* CERTIFICATE(S)* OF SHARES TENDERED** -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- TOTAL SHARES - ---------------------------------------------------------------------------------------------------------------- * Need not be completed by Book-Entry Stockholders. ** Unless a Certificate Stockholder otherwise indicates, it will be assumed that all Shares evidenced by any certificate(s) delivered to the Depositary are being tendered. See Instruction 4. - ----------------------------------------------------------------------------------------------------------------
NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to SCOR Merger Sub Corporation, a newly organized Delaware corporation (the "Purchaser"), and a wholly owned subsidiary of SCOR S.A., a societe anonyme organized under the laws of The French Republic ("Parent"), the above-described shares of Common Stock, par value $0.30 per share (the "Shares"), of SCOR U.S. Corporation, a Delaware corporation (the "Company"), pursuant to the Purchaser's Offer to Purchase all of the outstanding Shares not currently beneficially owned directly or indirectly by Parent at a price of $15.25 per Share, net to the seller in cash, without interest thereon, upon the terms and subject to the conditions set forth in the Offer to Purchase dated November 9, 1995 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (together with the Offer to Purchase, the "Offer"). The undersigned understands that the Purchaser reserves the right to transfer or assign, from time to time, in whole or in part, to one or more of its affiliates, the right to purchase the Shares tendered herewith. Upon the terms and subject to the conditions of the Offer, and effective upon acceptance for payment of the Shares tendered herewith in accordance with the terms of the Offer, including if the Offer is extended or amended, the terms or conditions of any such extension or amendment, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Purchaser, all right, title and interest in and to all of the Shares that are being tendered hereby, and any and all cash dividends, distributions, rights, other Shares and other securities issued or issuable in respect thereof on or after the date of the Offer to Purchase (collectively, "Distributions"), and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares (and all such Distributions), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such Shares (and all such other shares or securities) or transfer ownership of such Shares (and all such Distributions) on the account books maintained by a Book-Entry Transfer Facility, together in any such case with all accompanying evidences of transfer and authenticity, to or upon the order of the Purchaser, (b) present such Shares (and all such Distributions) for transfer on the books of the Company and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares (and all such Distributions), all in accordance with the terms and the conditions of the Offer. The undersigned hereby irrevocably appoints the designees of the Purchaser, and each of them, the attorneys-in-fact and proxies of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or any substitute thereof shall deem proper in the sole discretion of such attorney-in-fact and proxy or such substitute, and otherwise act (including pursuant to written consent) with respect to all of the Shares tendered hereby (and any associated Distributions) which have been accepted for payment by the Purchaser, without further action, prior to the time of such vote or action, which the undersigned is entitled to vote at any meeting of stockholders of the Company (whether annual or special and whether or not an adjourned meeting), by written consent or otherwise. Such appointment shall be effective when, and only to the extent that, the Purchaser deposits the payment for such Shares (and any associated Distributions) with the Depository. This proxy and power of attorney shall be irrevocable and coupled with an interest in the Shares. Upon the effectiveness of such appointment, without further action, all prior proxies with respect to the Shares (and any associated Distributions) at any time given by the undersigned will be revoked, and no subsequent proxies will be given nor subsequent written consents executed (or, if given or executed, will not be deemed effective) with respect thereto by the undersigned. The undersigned understands that in order for Shares to be deemed validly tendered, immediately upon the Purchaser's acceptance of such Shares for payment, the Purchaser or its designees must be able to exercise full voting rights with respect to such Shares (and any associated Distributions). By accepting the Offer through the tender of Shares pursuant to the Offer, the undersigned hereby agrees to release, and hereby releases, all claims with respect to and in respect of the Shares other than the right to receive payment for such tendered shares and that, upon payment for the Shares, the undersigned waives any right to attack, and will be barred from thereafter attacking, in any legal proceeding the fairness of the consideration paid in the Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares (and any associated Distributions) tendered hereby and that when the same are accepted for payment by the Purchaser, the Purchaser will acquire good, marketable and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances, and the same will not be subject to any adverse claim. The undersigned will, upon request, execute and deliver any additional documents deemed by the Depositary or the Purchaser to be necessary or desirable to complete the sale, assignment, and transfer of the Shares (and any associated Distributions) tendered hereby. In addition, the undersigned shall promptly remit and transfer to the Depositary for the account of the Purchaser any and all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer; and, pending such remittance or appropriate assurance thereof, the Purchaser shall be entitled to all rights and privileges as owner of any such Distributions and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by the Purchaser in its sole discretion. All authority herein conferred or agreed to be conferred shall not be affected by and shall survive the death or incapacity of the undersigned and any obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Subject to the withdrawal rights set forth in the section of the Offer to Purchase entitled "THE OFFER--4. Rights of Withdrawal", the tender of Shares hereby made is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in the section of the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares" and in the Instructions hereto will constitute a binding agreement between the undersigned and the Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein under "Special Payment Instructions", please issue the check for the purchase price and/or return any certificates for Shares not tendered or not accepted for payment in the name(s) of the registered holder(s) appearing under "Description of Shares Tendered". Similarly, unless otherwise indicated under "Special Delivery Instructions", please mail the check for the purchase price and/or return any certificates for Shares not tendered or not accepted for payment (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing under "Description of Shares Tendered". In the event that both the Special Delivery Instructions and the Special Payment Instructions are completed, please issue the check for the purchase price and/or issue any certificates for Shares not so tendered or accepted for payment in the name of, and deliver said check and/or return such certificates to, the person or persons so indicated. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder thereof if the Purchaser does not accept for payment any of the Shares so tendered. SPECIAL PAYMENT INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be issued in the name of someone other than the undersigned. Issue check and/or certificate(s) to: Name: ____________________________________ PLEASE TYPE OR PRINT __________________________________________ Address: __________________________________ __________________________________________ (INCLUDE ZIP CODE) __________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 5, 6 AND 7) To be completed ONLY if certificate(s) for Shares not tendered or not accepted for payment and/or the check for the purchase price of Shares accepted for payment are to be sent to someone other than the undersigned, or to the undersigned at an address other than that shown above. Mail check and/or certificate(s) to: Name: ____________________________________ PLEASE TYPE OR PRINT __________________________________________ Address: __________________________________ __________________________________________ (INCLUDE ZIP CODE) __________________________________________ (TAX IDENTIFICATION OR SOCIAL SECURITY NO.) (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) IMPORTANT SIGN HERE (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) Signature(s) of Stockholders(s)_______________________________________________ ________________________________________________________________________________ Dated: ____________, 1995 (Must be signed by registered Stockholder(s) exactly as name(s) appear(s) on the certificate(s) for the Shares or on a security position listing or by person(s) authorized to become registered holder(s) by certificate(s) and documents transmitted herewith. If signature is by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) Name(s)_________________________________________________________________________ ________________________________________________________________________________ (Please Print) Capacity (Full Title)___________________________________________________________ Address_________________________________________________________________________ ________________________________________________________________________________ (Including Zip Code) Area Code and Telephone Number__________________________________________________ Tax Identification or Social Security No._______________________________________ (ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) Authorized Signature____________________________________________________________ Name and Title__________________________________________________________________ (Please Type or Print) Name of Firm____________________________________________________________________ Address_________________________________________________________________________ (Include Zip Code) Dated: ____________, 1995 INSTRUCTIONS Forming Part of the Terms and Conditions of the Offer 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a financial institution (including most banks, savings and loan associations and brokerage houses) which is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchange Medallion Program (an "Eligible Institution"). Signatures on this Letter of Transmittal need not be guaranteed (a) if this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in one of the Book-Entry Transfer Facilities whose name appears on a security position listing as the owner of Shares) tendered herewith and such holder(s) have not completed the box labeled "Special Payment Instructions" or the box labeled "Special Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are tendered for the account of an Eligible Institution. See Instruction 5 of this Letter of Transmittal. 2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES OR BOOK-ENTRY CONFIRMATIONS; LOST CERTIFICATES. This Letter of Transmittal is to be used either (i) if certificates are to be forwarded herewith or (ii) unless an Agent's Message (as defined in the Offer to Purchase) is used in lieu of this Letter of Transmittal, if delivery of Shares is to be made pursuant to the procedures for book-entry transfer set forth in the section of the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares". Certificates for all physically delivered Shares, or confirmation of any book-entry transfer into the Depositary's account at one of the Book-Entry Transfer Facilities of Shares tendered by book-entry transfer, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of book-entry transfer, an Agent's Message in lieu of this Letter of Transmittal), and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth herein on or prior to the Expiration Date (as defined in the Offer to Purchase). Stockholders whose certificates are not immediately available, or who cannot complete the procedures for book-entry transfer on a timely basis or who cannot deliver their certificates and all other required documents to the Depositary on or prior to the Expiration Date, may nevertheless tender their Shares by properly completing and duly executing the Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedure set forth in the section of the Offer to Purchase entitled "THE OFFER--3. Procedure for Tendering Shares". Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Purchaser must be received by the Depositary on or prior to the Expiration Date; and (iii) certificates for physically delivered Shares (or a Book-Entry Confirmation (as defined in the Offer to Purchase) with respect to such Shares), together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof) with any required signature guarantees (or, in the case of book-entry transfer, an Agent's Message in lieu of this Letter of Transmittal) and any other documents required by this Letter of Transmittal, must be received by the Depositary within three New York Stock Exchange, Inc. trading days after the date of execution of such Notice of Guaranteed Delivery. If any certificate(s) for the Shares tendered hereby have been lost or destroyed, that fact should be indicated on the face of this Letter of Transmittal. In such event, the Depositary will forward additional information and documentation necessary to be completed in order to effectively deliver such lost or destroyed certificate(s). IF SHARE CERTIFICATES ARE DELIVERED SEPARATELY TO THE DEPOSITARY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL MUST ACCOMPANY EACH SUCH DELIVERY. THE METHOD OF DELIVERY OF SHARE CERTIFICATES AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING STOCKHOLDER. THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT SUCH CERTIFICATES AND DOCUMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. By execution of this Letter of Transmittal (or facsimile thereof), a Stockholder waives any right to receive any notice of the acceptance of the Shares for payment. 3. INADEQUATE SPACE. If the space provided herein is inadequate, the certificate numbers and/or the number of Shares should be listed on a separate schedule attached hereto. 4. PARTIAL TENDERS (APPLICABLE TO CERTIFICATE STOCKHOLDERS ONLY). If fewer than all the Shares evidenced by any certificate submitted are to be tendered by a Certificate Stockholder, fill in the number of Shares which are to be tendered in the box entitled "Number of Shares Tendered". In such cases, new certificate(s) for the remainder of the Shares that were evidenced by your old certificate(s) will be sent to you, unless otherwise provided in the appropriate box on this Letter of Transmittal, as soon as practicable after the Expiration Date. All Shares represented by certificates delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holders of the Shares tendered hereby, the signature must correspond with the names as written on the face of the certificate(s) without alteration, enlargement or any change whatsoever. If any of the Shares tendered hereby are owned of record by two or more joint owners, all such owners must sign this Letter of Transmittal. If any of the tendered Shares are registered in different names on several certificates, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of certificates. If this Letter of Transmittal or any certificates or stock powers are signed by trustees, executors, administrators, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and proper evidence satisfactory to the Purchaser of their authority so to act must be submitted. If this Letter of Transmittal is signed by the registered holder(s) of the Shares listed and transmitted hereby, no endorsements of certificates or separate stock powers are required unless payment is to be made to, or certificates for Shares not tendered or purchased are to be issued in the name of, a person other than the registered holder(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder of the certificate(s) listed, the certificate(s) must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name or names of the registered holder or holders appear on the certificates(s). Signatures on such certificates or stock powers must be guaranteed by an Eligible Institution. 6. STOCK TRANSFER TAXES. The Purchaser will pay or cause to be paid any stock transfer taxes with respect to the transfer and sale of Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price is to be made to, or (in the circumstances permitted hereby) if certificates for Shares not tendered or accepted for payment are to be registered in the name of, any person other than the registered holder, or if tendered certificates are registered in the name of any person other than the person(s) signing this Letter of Transmittal, the amount of any stock transfer taxes (whether imposed on the registered holder or such person) payable on account of the transfer to such person will be deducted from the purchase price if satisfactory evidence of the payment of such taxes, or exemption therefrom, is not submitted. EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check is to be issued in the name of, and/or certificates for Shares not tendered or not accepted for payment are to be issued or returned to, a person other than the signer of this Letter of Transmittal or if a check and/or such certificates are to be mailed to someone other than the signer of this Letter of Transmittal or to an address other than that shown above, the appropriate boxes on this Letter of Transmittal should be completed. 8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions or requests for assistance may be directed to, or additional copies of the Offer to Purchase, this Letter of Transmittal, the Notice of Guaranteed Delivery and other tender offer materials may be obtained from, the Information Agent (as defined in the Offer to Purchase) or the Dealer Managers (as defined in the Offer to Purchase) at their respective addresses set forth below or from your broker, dealer, commercial bank or trust company. 9. SUBSTITUTE FORM W-9. Each tendering stockholder is required to provide the Depositary with a correct Taxpayer Identification Number ("TIN"), generally the stockholder's social security or federal employer identification number, on Substitute Form W-9 below. Failure to provide the information on the form may subject the tendering stockholder to 31% federal income tax withholding on the payment of the purchase price. The box in Part 3 of the form may be checked if the tendering stockholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future. If the box in Part 3 is checked and the Depositary is not provided with a TIN within 60 days, the Depositary will withhold 31% of all payments of the purchase price thereafter until a TIN is provided to the Depositary. 10. WAIVER OF CONDITIONS. Subject to the terms of the Offer, the Purchaser reserves the right to waive any of the specified conditions to the Offer, in whole or in part, in the case of any Shares tendered. IMPORTANT: EITHER THIS LETTER OF TRANSMITTAL (OR A FACSIMILE COPY THEREOF), PROPERLY COMPLETED AND DULY EXECUTED, OR, IN THE CASE OF BOOK-ENTRY TRANSFER, AN AGENT'S MESSAGE IN LIEU OF THIS LETTER OF TRANSMITTAL (TOGETHER WITH CERTIFICATES FOR PHYSICALLY DELIVERED SHARES OR CONFIRMATION OF BOOK-ENTRY TRANSFER) AND ALL OTHER REQUIRED DOCUMENTS, OR THE NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE. IMPORTANT TAX INFORMATION Under the federal income tax law, a stockholder whose tendered Shares are accepted for purchase is required by law to provide the Depositary (as payer) with such stockholder's correct TIN on Substitute Form W-9 below. If such stockholder is an individual, the TIN is his or her social security number. If a stockholder fails to provide a TIN to the Depositary, such stockholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such stockholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. Certain stockholders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, that stockholder must submit a Form W-8, signed under penalties of perjury, attesting to that individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional instructions. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the stockholder or payee. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained from the Internal Revenue Service. The box in Part 3 of the Substitute Form W-9 may be checked if the tendering stockholder has not been issued a TIN and has applied for a TIN or intends to apply for a TIN in the near future. If the box in Part 3 is checked, the stockholder or other payee must also complete the Certificate of Awaiting Taxpayer Identification Number below in order to avoid backup withholding. Notwithstanding that the box in Part 3 is checked and the Certificate of Awaiting Taxpayer Identification Number is completed, the Depositary will withhold 31% of all payments made prior to the time a properly certified TIN is provided to the Depositary. WHAT NUMBER TO GIVE THE DEPOSITARY The stockholder is required to give the Depositary the social security number or employer identification number of the record owner of the Shares or of the last transferee appearing on the transfers attached to, or endorsed on, the Shares. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 for additional guidance on which number to report. SUBSTITUTE TO BE COMPLETED BY ALL STOCKHOLDERS (SEE INSTRUCTION 9) FORM W-9 PAYER'S NAME: THE BANK OF NEW YORK PART 1--PLEASE PROVIDE YOUR TIN IN THE _______________ BOX AT RIGHT AND CERTIFY BY SIGNING SOCIAL SECURITY AND DATING BELOW NUMBER OR__________________________ EMPLOYER IDENTIFICATION NUMBER PART 2--CERTIFICATES--UNDER PENALTIES OF PERJURY, I CERTIFY THAT: (1) The number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me); and DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE (2) I am not subject to backup withholding because (i) I am exempt from backup withholding (ii) I have not been notified by the Internal Revenue Service (the "IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (iii) the IRS has notified me that I am no longer subject to backup withholding. Certification Instructions--You must cross out item (2) in Part 2 above if you have been notified by the IRS that you are subject to backup withholding because of under-reporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS stating that you are no longer subject to backup withholding, do not cross out item(2). PAYER'S REQUEST FOR TAXPAYER IDENTIFICATION NUMBER (TIN) PART 3 SIGNATURE ___________________ DATE ____________ AWAITING NAME (PLEASE PRINT)______________________________ TIN / / NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATIONS OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 3 OF SUBSTITUTE FORM W-9 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (i) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (ii) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number within 60 days, 31% of all reportable payments made to me thereafter will be withheld until I provide a number. - ------------------------------------------ ------------- Signature Date - ------------------------------------------ Name (Please Print) The Information Agent for the Offer is: D.F. KING & CO., INC. UNITED STATES EUROPE 77 Water Street Royex House, Aldermarbury Square New York, New York 10005 London, England EC2V 7HR CALL TOLL-FREE: 1-800-714-3313 (44) 171-600-5005 (COLLECT) The Dealer Managers for the Offer are: GOLDMAN, SACHS & CO. 85 Broad Street New York, New York 10004 (Toll Free) 800-323-5678 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens; i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer. - ------------------------------------------------------ FOR THIS TYPE OF ACCOUNT: GIVE THE SOCIAL SECURITY NUMBER OF-- - ------------------------------------------------------ 1. An individual's account The individual 2. Two or more individuals The actual owner of (joint account) the account or, if combined funds, the first individual on the account(1) 3. Husband and wife (joint The actual owner of account) the account or, if joint funds, the first individual on the account(1) 4. Custodian account of a The minor(2) minor (Uniform Gift to Minors Act) 5. Adult and minor (joint The adult or, if the account) minor is the only contributor, the minor(1) 6. Account in the name of The ward, minor, or guardian or committee incompetent person(3) for a designated ward, minor or incompetent person 7. a. The usual revocable The grantor-trustee(1) savings trust account (grantor is also trustee) b. So-called trust The actual owner(1) account that is not a legal or valid trust under State law 8. Sole proprietorship The owner(4) account - ------------------------------------------------------ FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER IDENTIFICATION NUMBER OF-- - ------------------------------------------------------ 9. A valid trust, estate, The legal entity (Do or pension trust not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(5) 10. Corporate account The corporation 11. Religious charitable, The organization or educational organization account 12. Partnership account The partnership held in the name of the business 13. Association, club, or The organization other tax-exempt organization 14. A broker or registered The broker or nominee nominee 15. Account with the The public entity Department of Agriculture in the name of a public entity (such as a State or local government, school district, or prison) that receives agricultural program - ------------------------------------------------------ (1) List first and circle the name of the person whose number you furnish. (2) Circle the minor's name and furnish the minor's social security number. (3) Circle the ward's, minor's or incompetent person's name and furnish such person's social security number. (4) Show the name of the owner. (5) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service and apply for a number. PAYEE EXEMPT FROM BACKUP WITHHOLDING Payees specifically exempted from backup withholding on ALL payments include the following: . A corporation. . A financial institution. . An organization exempt from tax under section 501(a), or an individual retirement plan, or a custodial account under Section 403(b)(7). . The United States or any agency or instrumentality thereof. . A State, the District of Columbia, a possession of the United States, or any subdivision or instrumentality thereof. . A foreign government, a political subdivision of a foreign government, or any agency or instrumentality thereof. . An international organization or any agency, or instrumentality thereof. . A registered dealer in securities or commodities registered in the U.S. or a possession of the U.S. . A real estate investment trust. . A common trust fund operated by a bank under section 584(a). . An exempt charitable remainder trust, or a nonexempt trust described in section 4947(a)(1). . An entity registered at all times under the Investment Company Act of 1940. . A foreign central bank of issue. Payments of dividends and patronage dividends not generally subject to backup withholding include the following: . Payments to nonresident aliens subject to withholding under section 1441. . Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident partner. . Payments of patronage dividends where the amount received is not paid in money. . Payments made by certain foreign organizations. . Payments made to a nominee. Payments of interest not generally subject to backup withholding include the following: . Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payer. . Payments of tax-exempt interest (including exempt-interest dividends under section 852). . Payments described in section 6049(b)(5) to non-resident aliens. . Payments on tax-free covenant bonds under section 1451. . Payments made by certain foreign organizations. . Payments made to a nominee. Exempt payees described above should file a Substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. Certain payments other than interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045, 6049, 6050A, and 6050N, and the regulations under those sections. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payers who must report the payments to IRS. The IRS uses the numbers for identification purposes and to help verify the accuracy of tax returns. Payers must be given the numbers whether or not recipients are required to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.-- Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE Unless otherwise noted herein, all references to section numbers or regulations are references to the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. EX-3 4 Exhibit 3 SCOR U.S. CORPORATION 110 WILLIAM STREET NEW YORK, NEW YORK 10038 April 28, 1995 Dear Stockholder: Your Board of Directors joins us in extending to you a cordial invitation to attend the Annual Meeting of Stockholders of SCOR U.S. Corporation, a Delaware corporation ("SCOR U.S."), to be held at 10:30 a.m. (New York time) on June 16, 1995, at Morgan Guaranty Trust Company of New York, 60 Wall Street, 46th Floor, New York, New York. At this meeting you will be asked to consider and vote upon the election of four Directors and the ratification of the appointment of KPMG Peat Marwick as independent auditors of SCOR U.S. for 1995. Please date, sign and return the enclosed proxy card in the postage paid envelope provided as soon as possible whether or not you plan to attend the meeting. You are, of course, welcome to attend the Annual Meeting and vote in person. The proceedings of the Annual Meeting will be summarized in our second quarter report to stockholders. Very truly yours, /s/ JACQUES P. BLONDEAU JACQUES P. BLONDEAU Chairman of the Board of Directors /s/ JEROME KARTER JEROME KARTER President and Chief Executive Officer SCOR U.S. CORPORATION 110 WILLIAM STREET NEW YORK, NEW YORK 10038 ------------ NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 16, 1995 ------------ The Annual Meeting of the Stockholders of SCOR U.S. Corporation, a Delaware corporation ("SCOR U.S."), will be held on June 16, 1995 at 10:30 a.m. (New York time) at Morgan Guaranty Trust Company of New York, 60 Wall Street, 46th Floor, New York, New York, for the following purposes: (1) To elect four Directors, each for a term of three years; (2) To ratify the appointment of KPMG Peat Marwick as independent auditors of SCOR U.S. for 1995; and (3) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. Only holders of record of shares of SCOR U.S. Common Stock, par value $.30 per share ("Shares") at the close of business on April 18, 1995, the record date for the Annual Meeting, are entitled to notice of and to vote at the Annual Meeting and at any adjournment or postponement thereof. Whether or not you plan to attend the Annual Meeting, we ask you to sign, date and return the enclosed proxy card in the postage paid envelope provided. This will ensure representation of your Shares in the event that you are unable to attend the Annual Meeting. Your proxy may be revoked in the manner described in the accompanying Proxy Statement at any time before it has been voted at the Annual Meeting. By the Order of the Board of Directors /s/ JOHN T. ANDREWS, JR. JOHN T. ANDREWS, JR. Corporate Secretary April 28, 1995 PROXY STATEMENT SCOR U.S. CORPORATION ------------ ANNUAL MEETING OF STOCKHOLDERS TO BE HELD JUNE 16, 1995 ------------ This Proxy Statement is being furnished to stockholders of SCOR U.S. Corporation, a Delaware corporation ("SCOR U.S." or the "Company"), in connection with the solicitation of proxies by its Board of Directors (the "Board") for use at its Annual Meeting of Stockholders to be held at 10:30 a.m. (New York time) on June 16, 1995 at Morgan Guaranty Trust Company of New York, 60 Wall Street, 46th Floor, New York, New York, and at any adjournment or postponement thereof (the "Annual Meeting"). This Proxy Statement and the attached Notice of Annual Meeting of Stockholders and form of proxy are first being mailed to stockholders of SCOR U.S. on or about April 28, 1995. PURPOSE OF THE ANNUAL MEETING At the Annual Meeting, stockholders of SCOR U.S. will be asked: (1) To elect four Directors, each for a term of three years; (2) To ratify the appointment of KPMG Peat Marwick as independent auditors of SCOR U.S. for 1995; and (3) To transact such other business as may properly come before the meeting or any adjournment or postponement thereof. GENERAL INFORMATION DATE, TIME AND PLACE The Annual Meeting will be held at 10:30 a.m. (New York time) on June 16, 1995 at Morgan Guaranty Trust Company of New York, 60 Wall Street, 47th Floor, New York, New York. RECORD DATE; VOTING RIGHTS Stockholders of record at the close of business on April 18, 1995 (the "Record Date") are entitled to notice of the meeting and to vote shares of Common Stock, par value $.30 per share, of SCOR U.S. ("Shares") held on that date at the Annual Meeting. Each Share is entitled to one vote. As of the Record Date, a total of 18,164,620 Shares were outstanding, of which 14,547,756 were owned beneficially or of record by SCOR S.A. This Proxy Statement and the accompanying form of proxy are first being sent to stockholders on or about April 28, 1995. PROXY PROCEDURES Proxies are solicited from stockholders by the Board in order to provide every stockholder an opportunity to vote on all matters scheduled to come before the Annual Meeting, whether or not such stockholder attends in person. When the enclosed proxy card is properly executed and returned, the Shares represented will be voted by the proxyholders named on the card in accordance with the stockholder's directions. Stockholders are urged to indicate their vote on each matter by marking the appropriate box on the card. If no choice is specified, the Shares will be voted as recommended by the Board. The Board and management know of no matters, other than those set forth on the proxy card, that will be presented for consideration at the Annual Meeting. Execution of a proxy, however, confers on the designated proxyholders discretionary authority to vote the Shares represented in accordance with their judgment on other business, if any, that may come before the Annual Meeting. Any stockholder executing a proxy may revoke that proxy at any time before it is voted by a later dated proxy, by written revocation addressed to the Corporate Secretary of SCOR U.S. at 110 William Street, Suite 1800, New York, New York, 10038, or by voting in person at the Annual Meeting. The expense incurred in this solicitation of proxies will be borne by SCOR U.S. Proxies will be solicited on behalf of the Board by Georgeson & Company, Inc. for a fee which is not expected to exceed $6,000. Expenses incurred by Georgeson & Company, Inc. will be reimbursed by SCOR U.S. Proxies may also be solicited in person or by telephone by officers or other employees of SCOR U.S. and its subsidiaries who will not be additionally compensated therefor. VOTE REQUIRED; QUORUM Under the Company's By-laws and the applicable provisions of the Delaware General Corporation Law, the presence in person or by proxy of a majority of the Shares outstanding on the Record Date shall constitute a quorum. The presence of SCOR S.A. at the Annual Meeting will assure the presence of a quorum. Tabulation of proxies and the votes cast at the Annual Meeting will be conducted by an independent agent and certified to by independent election inspectors. The election inspectors will treat abstentions and votes withheld as Shares that are present and entitled to vote for purposes of determining the presence of a quorum and as a non-affirmative vote for purposes of determining the approval of any matter submitted to the stockholders for a vote. If a broker or other nominee physically indicates on the proxy that it does not have discretionary authority as to certain Shares to vote on a particular matter ("broker non-votes"), such Shares will be treated as present and entitled to vote for purposes of determining the presence of a quorum but as not voted and not present for purposes of determining the approval of any matter submitted to the stockholders for a vote. In the election of Directors, Shares present but not voting will be disregarded (except for quorum purposes) and the candidates for election receiving the highest number of affirmatives votes of the Shares entitled to be voted for them, up to the number of nominees, will be elected. With regard to the ratification of the appointment of the independent auditors of the Company, such matter must be approved by the affirmative vote of the holders of a majority of the Shares entitled to vote and present in 2 person or represented by proxy at the Annual Meeting. Broker non-votes will have no effect on the outcome of either such vote. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of the Record Date, SCOR S.A. owned 14,547,756 Shares or approximately 80% of the outstanding Shares. The address of SCOR S.A. is Immeuble SCOR-Cedex 39, 92074 Paris La Defense, France. HCS, a French societe anonyme whose address is that of SCOR S.A., owns approximately 48.5% of the outstanding shares of SCOR S.A. and, consequently, may be deemed to be the beneficial owner of the Shares owned by SCOR S.A. SCOR U.S. is not aware of any other person or group of persons that owns more than 5% of the Shares. The following table reflects information, as of the Record Date, regarding the beneficial ownership of the Company's equity securities individually for each Director and Named Executive Officer and for all Directors and all executive officers as a group: AMOUNT OF BENEFICIAL OWNERSHIP
PERCENT NUMBER OF SHARES OF OF SHARES NAMED EXECUTIVE OFFICERS COMMON STOCK (1)(2) OUTSTANDING - --------------------------------------------------------------- ------------------- ----------- Jacques P. Blondeau (3)(4)..................................... 75,999 * Jerome Karter (3)(4)........................................... 105,998 * Patrick Peugeot (3)(4)......................................... 105,689 * John T. Andrews, Jr............................................ 31,999 * Jeffrey Cropsey (5)............................................ 4,552 * R. Daniel Brooks............................................... 38,314 * Nolan Asch..................................................... 47,454 * DIRECTORS - --------------------------------------------------------------- John Cox....................................................... 1,000 * Raymond H. Deck................................................ 17,600 * Michel Gudefin (6)............................................. 28,500 * Jean Masse..................................................... 0 * Richard M. Murray.............................................. 13,500 * Serge M.P. Osouf............................................... 0 * John W. Popp................................................... 11,500 * Francois Reach................................................. 900 * David J. Sherwood.............................................. 11,600 * Directors and all executive officers as a group (22 individuals)................................................... 555,196 3.06%
- ------------ * Less than 1% (1) Unless otherwise indicated, the persons named have sole voting and investment power over the number of Shares shown as being beneficially owned by them. The table includes (i) 75,999, 89,789, 105,998, 31,999, 28,332, 33,266 respectively, issuable to Messrs. Blondeau, Peugeot, (Footnotes continued on following page) 3 (Footnotes continued from preceding page) Karter, Andrews, Brooks, and Asch under stock options exercisable within sixty days granted pursuant to the Stock Incentive Plan for Key Executives ("SIP") and the Stock Option Plan for Key Employees ("SOP"), (ii) 10,500 Shares issuable to each of Messrs. Deck, Gudefin, Murray, Popp and Sherwood under stock options exercisable within sixty days granted pursuant to the Stock Option Plan for Directors ("DP") and (iii) 462,153 Shares issuable to all Directors and executive officers as a group under stock options exercisable within 60 days granted pursuant to the SIP, SOP and DP, as the case may be. (2) The shares listed in the table exclude 14,547,756 Shares beneficially owned by SCOR S.A. with respect to which Mr. Blondeau, a director and officer of SCOR S.A., and Messrs. Osouf and Reach, officers of SCOR S.A., disclaim beneficial ownership. (3) Messrs. Blondeau, Karter and Peugeot are also Directors of SCOR U.S. (4) Messrs. Blondeau and Peugeot each served in the position of Chief Executive Officer ("CEO") during the fiscal year ended December 31, 1994 and therefore are included in the category of "Named Executive Officers". Mr. Peugeot held the position of CEO during the period from January 1, 1994 to June 16, 1994, when he resigned. Mr. Blondeau was elected and served as CEO from June 16, 1994 until he resigned on September 30, 1994. Mr. Karter was elected as CEO of SCOR U.S. on September 30, 1994 and continues to serve in that position. (5) Mr. Cropsey received a restricted stock award of 4,552 shares pursuant to the SIP. The shares were awarded on December 16, 1993. One-quarter of the shares (1,138) will vest on the second anniversary of the date of the grant and each one-year anniversary thereafter, starting on December 16, 1995. (6) Includes 10,000 Shares held by Mr. Gudefin's wife. PROPOSAL ONE ELECTION OF DIRECTORS GENERAL At the Annual Meeting, four Directors are to be elected to hold office until the Annual Meeting in 1998. The Board currently consists of 13 Directors including one vacancy due to the resignation of Mr. Elios Pascual on January 1, 1995. The terms of office of Messrs. Blondeau, Cox, Karter, Peugeot and the vacant seat expire at the Annual Meeting. Each of Messrs. Blondeau, Cox, Karter, and Peugeot has been nominated for election. Management knows of no reason why any of these nominees will be unable to serve, but in such event the proxies received will be voted for such substitute nominees as the Board may recommend. The Board intends to elect an additional director to fill the vacant seat in accordance with the terms of the Company's By-Laws. The names, terms of office and certain other information with respect to the persons nominated for election as Directors and other persons serving as Directors are set forth below. 4 INFORMATION CONCERNING NOMINEES FOR TERMS EXPIRING IN 1998 NAME DIRECTOR SINCE: - -------------------------------------------------------------- --------------- Jacques P. Blondeau........................................... 1988 John R. Cox................................................... 1994 Jerome Karter................................................. 1989 Patrick Peugeot............................................... 1983 THE BOARD RECOMMENDS A VOTE FOR ALL NOMINEES. DIRECTORS OF SCOR U.S. The Directors of SCOR U.S. and their respective age and terms of office are as follows:
POSITIONS, OFFICES AND PRINCIPAL TERM NAME AGE OCCUPATIONS WITH SCOR U.S. EXPIRES - ------------------------------------------- ---- -------------------------------- ------- Jacques P. Blondeau (1)(2)................. 50 Chairman of the Board 1995 Serge M.P. Osouf (1)(2).................... 51 Vice Chairman of the Board 1997 John R. Cox (1)(3)......................... 62 Director 1995 Raymond H. Deck (1)(2)(4).................. 72 Director 1997 Michel J. Gudefin (3)(4)................... 71 Director 1996 Director, President and Chief Jerome Karter (1).......................... 57 Executive Officer 1995 Jean Masse (2)............................. 50 Director 1996 Richard M. Murray (3)...................... 72 Director 1997 Patrick Peugeot (2)........................ 57 Director 1995 John W. Popp (3)(4)........................ 72 Director 1996 Francois Reach (2)......................... 46 Director 1996 David J. Sherwood (1)(3)(4)................ 72 Director 1996
- ------------ (1) Executive Committee. (2) Finance Committee. (3) Audit Committee. (4) Compensation Committee. BIOGRAPHICAL SUMMARIES OF THE DIRECTORS OF SCOR U.S. Jacques P. Blondeau has served as Chairman of the Board of SCOR U.S. since September 30, 1994 and as a Director since 1988. Mr. Blondeau is also Chairman of SCOR Reinsurance Company ("SCOR Re"), the Company's principal operating subsidiary. Mr. Blondeau serves as a Trustee of the Voting Trust that holds the stock of SCOR Re on behalf of SCOR U.S. From November, 1988 to September 30, 1994, Mr. Blondeau had been Vice Chairman and President of SCOR U.S. and Vice Chairman of the Board of SCOR Re. He also served as Chief Operating Officer of SCOR U.S. from November, 1988 to June, 1994. From June 16, 1994 to September 30, 1994, he served as Chief Executive Officer of SCOR U.S. He is Chairman of the Board and Chief Executive Officer of SCOR S.A., a French-based global reinsurance company. Prior to being elected to these positions in SCOR 5 S.A., he served as the President and Chief Operating Officer. Mr. Blondeau was President-Operations of Societe Commercial de Reassurance ("SCOR Paris") from 1988 until 1990, when SCOR Paris was merged into SCOR S.A. From 1984 to 1988, Mr. Blondeau was Chairman and President of Pechiney Australia and President of Howmet Resources, Inc. (U.S.), a subsidiary of Pechiney Corporation. From 1980-1984, he held various top-level positions with the Pechiney Corporation. Mr. Blondeau's business address is that of SCOR S.A. Serge M.P. Osouf has served as Vice Chairman of the Board of Directors of SCOR U.S. and SCOR Re since September 30, 1994, and has been a Director of SCOR U.S. since September, 1993, and of SCOR Re since December, 1991. Mr. Osouf serves as the General Manager of SCOR S.A. and prior to taking this position in September, 1994, had been the President-Reinsurance Operations of SCOR S.A. since 1993. He is currently Chairman of SCOR Vie and from 1987 to 1993 was General Manager of SCOR Reassurance, two subsidiaries of SCOR S.A. Mr. Osouf's business address is that of SCOR S.A. Jerome Karter has served as a Director of SCOR U.S. since February, 1989, and as its President and Chief Executive Officer since September 30, 1994. Prior to September, 1994, he had served as Executive Vice President of SCOR U.S. since December, 1989. Mr. Karter has also served as a Director, President and Chief Executive Officer of SCOR Re since February, 1989. Prior to his employment at SCOR, he held various management positions both in the United States and Europe with major domestic and multinational insurance companies since 1961. He held senior management positions for Factory Mutual International in London and Affiliated F.M. Insurance Company in Paris from 1969 to 1978. He subsequently served as General Manager-Europe for the Insurance Company of North America (now CIGNA Corporation) and INA Reinsurance Company S.A. in Brussels from 1978 to 1984. Immediately prior to joining SCOR U.S., Mr. Karter was a Senior Vice President and Manager of the International Department of Johnson & Higgins in New York from 1984 to 1989. Mr. Karter's business address is that of SCOR U.S. John R. Cox has served as a Director of SCOR U.S. and SCOR Re since June, 1994. Mr. Cox has also served as a Director of Firemark Global Insurance Fund since 1993. Until February 3, 1995, he was a Director and a Member of the Audit Committee of ACE Limited ("ACE") and its subsidiary companies. From 1990 to 1993 he was a Director of Bankers Insurance Company Limited. From 1985 to 1991 he was Chairman of the Board and Chief Executive Officer of ACE. From 1983 to 1985, he was Executive Vice President of American Can Company, subsequently known as Primerica Corporation and now The Travelers Corporation, and Chairman and Chief Executive Officer of Associated Madison Companies, Inc., its financial services holding company subsidiary. From 1975 to 1983 Mr. Cox held various key executive positions in CIGNA Corporation. Mr. Cox's business address is 44 Herbert Terrace, West Orange, New Jersey. Raymond H. Deck has been a Director of SCOR U.S. since 1986 and of SCOR Re since 1985. He has been President of Chase Insurance Enterprises, Inc., a division of Chase Enterprises, a private company with investments in real estate, communications and the insurance industry, since 1986. He has also been a Director of Accel International Corporation since 1990. Prior to 1986, he was a Director and Executive Vice President of the Hartford Insurance Group. Mr. Deck's business address is that of Chase Insurance Enterprises, Inc., One Commercial Plaza, Hartford, Connecticut 06103. Michel J. Gudefin has been a Director of SCOR U.S. since 1989 and of SCOR Re since June 1990 and is a Voting Trustee of SCOR Re. Mr. Gudefin is retired. From 1988 to 1989 he was Vice Chairman 6 of Howmet Corporation, the principal operating subsidiary of Pechinery Corporation. From 1976 to 1988, Mr. Gudefin was President and Chief Executive Officer of Pechiney Corporation. Until December 31, 1993, he was a Director of Pechiney Corporation and Howmet Corporation. He is currently a Director of Southwire Corporation and a Vice President and Director of Intrend Corporation. Mr. Gudefin's business address is that of SCOR U.S. Jean P. Masse has been a Director of SCOR U.S. and SCOR Re since March 1995. From June 16, 1994 until March 1995, he was Director Emeritus of SCOR Re after having served as a Director of SCOR Re from 1990 to 1994. He served as a Director and President of The Unity Fire and General Insurance Company from December 1982 until 1990, and during that time also served as President and Treasurer of the Rockleigh Management Corporation, which was merged with and into the Company in 1990. Mr. Masse's business address is Tour Voltaire, 1 place Des Dgres, Cedex 58, 92059 Paris La Defense, France. Richard M. Murray has served as a Director of SCOR U.S. and SCOR Re since 1990. He was Chairman and executive advisor of The Nippon Management Corporation from 1987 to 1991. Since 1990, he has been Vice Chairman of La Prov Corporation, a wholly-owned U.S. subsidiary and liaison office of Grupo Nacional Provincial S.A., a leading Mexican insurance company. He was a Vice President of The Travelers Corporation from 1967 to 1987. Mr. Murray's business address is that of La Prov Corporation, 80 Broad Street, New York, New York 10004-2203. Patrick Peugeot has served as a Director of SCOR U.S. since 1983 and of SCOR Re since 1985. Mr. Peugeot is also a Voting Trustee of SCOR Re. He served as Chairman of the Board of SCOR U.S. from 1983 until September 30, 1994, and as Chief Executive Officer of SCOR U.S. from December 1988 until June 16, 1994. He was also Chairman of the Board of SCOR Re until September 1994. Mr. Peugeot had served as Chairman of the Board and Chief Executive Officer of SCOR S.A. from 1989 until 1994 and of SCOR Paris from 1983 until 1990. Mr. Peugeot was Chairman of Caisse Centrale de Reassurance ("CCR") from 1983 to 1985. He is Honorary Chairman of CCR and has served as Honorary Chairman of SCOR S.A. since August 30, 1994. He is now Vice Chairman and President of La Mondiale, a French mutual life insurance company. He is also Vice Chairman of Partner Europe. Mr. Peugeot's business address is that of La Mondiale, located at 8 boulevard Malesherbes 75008 Paris. John W. Popp, a Director of SCOR U.S. since March 1990 and SCOR Re since 1989, is a business consultant. He was a Partner of Peat, Marwick, Mitchell & Co. (now KPMG Peat Marwick LLP) from 1955 to 1982. Mr. Popp has been a Director of Old Republic International Corporation since 1993. Mr. Popp's business address is that of SCOR U.S. Francois Reach has served as a Director of SCOR U.S. since March 1989 and of SCOR Re since June 1994. Mr. Reach has served as Chairman and CEO of REAFIN, the finance company subsidiary of SCOR S.A. since October 1994. He was Chief Investment Officer and Treasurer of SCOR S.A. from 1983 until October, 1994, when he became Deputy General Manager of SCOR S.A. From 1986 to 1994, he was President of REAFIN. He is also Managing Director of Finimosa (Spain) and of Finimo Kft (Hungary). Mr. Reach's business address is that of SCOR S.A. David J. Sherwood has served as a Director of SCOR U.S. and of SCOR Re since 1987. He is also a Voting Trustee of SCOR Re. Mr. Sherwood has served as Chairman of the Board of Governors of the New York Insurance Exchange since 1985. He was President of The Prudential Insurance Company of America from 1978 to 1984. Mr. Sherwood's business address is that of the New York Insurance Exchange, c/o Willkie Farr & Gallagher, One Citicorp Center, 153 East 53rd Street, New York, New York 10022. 7 EXECUTIVE OFFICERS The executive officers of SCOR U.S. and their respective age and titles are as follows:
NAME AGE OFFICE - ---------------------------------- --- --------------------------------------------------- Louis A. Adanio................... 41 Senior Vice President of SCOR Re John T. Andrews, Jr............... 53 Senior Vice President, General Counsel and Secretary of SCOR U.S. and SCOR Re Nolan E. Asch..................... 45 Senior Vice President and Chief Actuary of SCOR U.S. and SCOR Re Jacques P. Blondeau............... 50 Chairman of the Board of Directors of SCOR U.S. and SCOR Re Jeffrey D. Cropsey................ 52 Senior Vice President and Chief Financial Officer of SCOR U.S. and SCOR Re John D. Dunn, Jr.................. 49 Senior Vice President of SCOR U.S. and SCOR Re Francis J. Fenwick................ 39 Vice President and Controller of SCOR U.S. and SCOR Re Howard B. Fischer................. 35 Vice President, Finance/Planning and Analysis of SCOR U.S. and SCOR Re Linda J. Grant.................... 34 Vice President and Treasurer of SCOR U.S. and SCOR Re Jerome Karter..................... 57 President and Chief Executive Officer of SCOR U.S. and SCOR Re Dominique Lavallee................ 36 Senior Vice President of SCOR U.S. and SCOR Re Serge M.P. Osouf.................. 51 Vice Chairman of the Board of Directors of SCOR U.S. and SCOR Re
SELECTED BIOGRAPHICAL SUMMARIES Louis A. Adanio has served as Senior Vice President and Facultative Manager of SCOR Re since May 1994. From June 1990 to May 1994, Mr. Adanio had been Senior Vice President and Facultative Property Manager of SCOR Re. From June 1989 to June 1990, Mr. Adanio had been Vice President and Facultative Property Manager of SCOR Re. Mr. Adanio's business address is that of SCOR Re. John T. Andrews, Jr. has been Senior Vice President, General Counsel and Secretary of SCOR U.S. and SCOR Re since 1989. He was Senior Vice President and General Counsel of Primerica Corporation now known as The Travelers Corporation from 1987 to 1988, Senior Vice President and General Counsel of Associated Madison Companies, Inc., a subsidiary of Primerica, from 1985 to 1987, and Vice President and General Counsel of Prudential Reinsurance Company from 1977 to 1985. Mr. Andrews' business address is that of SCOR U.S. Nolan E. Asch, a Fellow of the Casualty Actuarial Society, has been Senior Vice President since 1990 and Chief Actuary of SCOR U.S. and SCOR Re since June 1994. Mr. Asch had been Actuary of SCOR U.S. since 1990 and of SCOR Re since 1989. He was Vice President and Actuary of SCOR Re from 1984 to 1989. Previously he was Vice President, Casualty Underwriting of AFIA. Mr. Asch's business address is that of SCOR U.S. Jeffrey D. Cropsey, a certified public accountant, has been Senior Vice President and Chief Financial Officer of SCOR U.S. and SCOR Re since November 1993. From 1990 through part of 1993, he was Chief Financial Officer of Phoenix Re Corporation. From 1988 to 1990, he was a Vice President 8 in the individual insurance operations at The Equitable Life Assurance Society of the United States. From 1984 to 1988, he was a partner with Peat Marwick Main & Co. From 1970 to 1984 he held positions from staff accountant through partner with Touche Ross & Co., except for 1980 to 1982 when, during a leave of absence from Touche Ross, he was a Practice Fellow at the Financial Accounting Standards Board. Mr. Cropsey's business address is that of SCOR U.S. John D. Dunn, Jr. has been Senior Vice President of SCOR U.S. and Senior Vice President and Treaty Manager of SCOR Re since July 1994. From September 1985 to 1994 he was Executive Vice President and a Director of Mercantile and General Reinsurance Company of America and TOA Reinsurance Company of America. He was a Vice President of Winterthur Insurance Company from April to September, 1985. He was a Senior Vice President and a Director of San Francisco Reinsurance Company from 1983 to 1985 and of Buffalo Reinsurance Company from 1976 to 1983. Mr. Dunn's business address is that of SCOR U.S. Francis J. Fenwick has been Vice President and Controller of SCOR U.S. and SCOR Re since October 1994. He was a Vice President and Financial Reporting Manager of Signet Star Reinsurance Company from 1993 to 1994 and held various offices at North Star Reinsurance Company, now known as Signet Star Reinsurance Company from 1987 to 1993. He was a Senior Auditor at American International Group and at Fireman's Fund Insurance Companies from 1986 to 1987 and 1984 to 1986, respectively. Mr. Fenwick's business address is that of SCOR U.S. Howard B. Fischer has been Vice President, Finance/Planning and Analysis of SCOR U.S. since January 1991 and of SCOR Re since October 1993. From November 1988, until January 1991, Mr. Fischer was Vice President/Assistant to the President of SCOR U.S. Mr. Fischer's business address is that of SCOR U.S. Linda J. Grant has served as Vice President and Treasurer of SCOR U.S. and SCOR Re since November 1994. From 1989 to 1994, Ms. Grant was Vice President and Assistant Treasurer of SCOR U.S. and SCOR Re. She also held various positions at SCOR Re from 1984 to 1989. Ms. Grant's business address is that of SCOR U.S. Dominique Lavallee has served as Senior Vice President of SCOR U.S. and SCOR Re and as Manager of SCOR Re's Underwriting Services Department since September 1994. He was Vice President of SCOR Re from 1991 to 1994. From 1988 to 1991 he was a Vice President of SCOR Reinsurance Company of Canada, and from 1984 to 1988 he was an Assistant Vice President of SCOR Paris. Mr. Lavallee's business address is that of SCOR U.S. BOARD OF DIRECTORS MEETINGS AND COMMITTEES The Board held six meetings and acted by unanimous written consent on five occasions during 1994. During 1994 all incumbent directors attended at least 75% of the meetings of the Board and committees thereof on which they served except for two former directors, Mr. David Dillard and Mr. Elios Pascual. Mr. Dillard attended 50% of such meetings prior to his retirement from the Board of Directors on June 16, 1994. Mr. Pascual attended 30% of such meetings, dating from his election in June, 1994, until his resignation on January 1, 1995. For the Board as a whole, including Messrs. Pascual and Dillard, average attendance at the meetings was 87% during 1994. The Board has four standing committees: the Audit Committee, the Compensation Committee, the Executive Committee and the Finance Committee. Only non-employee directors currently serve on the 9 Audit and Compensation Committees. The Board of Directors does not have a nominating committee. The functions normally performed by a nominating committee are performed by the Board. The Audit Committee's functions include: (1) review of the scope and findings of audits conducted by SCOR U.S.'s independent auditors, KPMG Peat Marwick; (2) review of SCOR U.S.'s accounting policies and practices for purposes of making recommendations to the Board and management of SCOR U.S.; (3) review of the actuarial policies and practices of SCOR U.S.'s reinsurance and insurance subsidiaries; and (4) review of significant transactions among SCOR U.S. and its subsidiaries and SCOR S.A. and its other subsidiaries and affiliates. The members of the Audit Committee are Messrs. Sherwood (Chairman), Cox, Gudefin, Murray and Popp. Mr. Dillard retired from the Board and the Audit Committee on June 16, 1994 and Mr. Cox was appointed to the Audit Committee on that same date. The Audit Committee held four meetings during 1994. The Compensation Committee's functions include reviewing compensation policies and practices. Prior to June 16, 1994, the Committee was specifically responsible for: (a) reviewing and approving the compensation of all senior executive officers who do not serve on the Board; (b) reviewing and recommending to the Board the compensation of senior executives who also serve on the Board; (c) reviewing new executive compensation programs or modifications to existing programs; and (d) administering the annual incentive, long-term performance incentive and stock option plans of the Company. On June 16, 1994, the powers of the Committee were amended to modify items (a) and (b) above to provide the Compensation Committee would also be responsible for reviewing and approving the compensation of all individuals at or to be elected to the rank of Vice President or above and/or who have current or proposed salaries of $100,000 or above. The members of the Compensation Committee are Messrs. Deck (Chairman), Gudefin, Popp and Sherwood. Mr. Elios Pascual was elected to the Board and the Compensation Committee upon Mr. Dillard's retirement there in June 1994. Mr. Pascual served on the Board and the Compensation Committee until his resignation on January 1, 1995. The Compensation Committee held eight meetings during 1994. The Executive Committee has the authority to exercise all the powers of the Board in the management of the business and affairs of the company except as limited by applicable laws. The members of the Executive Committee are Messrs. Blondeau (Chairman), Cox, Deck, Karter, Osouf and Sherwood. Mr. Peugeot resigned as a member and Chairman of the Executive Committee on September 30, 1994, and Mr. Blondeau was elected Chairman of the Committee on September 30, 1994. Messrs. Deck and Cox were elected to the Committee on June 16, 1994. The Executive Committee held eight meetings and acted by unanimous written consent on one occasion during 1994. The Finance Committee's functions include: (1) supervising the investment policies and practices of the Company as directed by the Board; (2) providing advice to the Boards of the Company's operating subsidiaries concerning their investment decisions; and (3) designating the officers of the Company who have the authority to effect investment decisions as approved by the Board. The members of the Finance Committee are Messrs. Reach (Chairman), Blondeau, Deck, Osouf, Peugeot and Masse. Upon Mr. Peugeot's resignation from the Board and Committee on September 30, 1994, Mr. Reach was elected Chairman of the Committee. Messrs. Jolivet and Pascual resigned from the Committee and the Board on January 1, 1995, and Messrs. Osouf and Masse were elected to the Committee on September 30, 1994, and March 24, 1995, respectively. The Finance Committee held four meetings during 1994. 10 BOARD OF DIRECTORS RETIREMENT POLICY In June 1992, the Board voted to amend the Company's By-Laws to provide that no individual shall be elected or re-elected as member of the Board subsequent to his or her attaining the age of 72. SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth, for the fiscal years ended December 31, 1992, 1993 and 1994, the cash compensation paid by the Company and its subsidiaries, as well as certain other compensation paid or accrued by such entities for those years, to or with respect to the Chief Executive Officer and each of the persons who were the four most highly compensated executive officers of the Company during its most recent fiscal year (the "Named Officers"), for services rendered in all capacities as executive officers during such period: SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION: ANNUAL COMPENSATION AWARDS ------------------------------------------ ------------------------- OTHER SECURITIES NAME AND ANNUAL RESTRICTED UNDERLYING ALL OTHER PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($) STOCK ($)(2) OPTIONS (#) COMPENSATION ($)(3) - ------------------------ ---- ------------- --------- ---------------- ------------ ----------- ------------------- Jacques Blondeau (4).... 1994 $ 175,000 $ -- $-- $ -- 10,000 -$- Chairman of the 1993 175,000 -- -- -- 24,000 -- Board and Former 1992 174,692 -- -- -- -- -- Chief Executive Officer Jerome Karter........... 1994 $ 301,641 $ -- $ 46,243(5) $ -- 38,000 $43,364 President and Chief 1993 289,112 75,000 39,348(5) -- 33,000 52,044 Executive Officer 1992 290,910 25,000 109,598(5) -- -- 53,367 Patrick Peugeot (4)..... 1994 $ 153,750 $ -- $-- $ -- 3,000 -$- Former Chief 1993 205,000 -- -- -- 24,000 -- Executive Officer 1992 205,846 -- 57,993(6) -- -- -- John T. Andrews, Jr..... 1994 $ 240,913 $ -- $ 48,833(7) $ -- 57,000 $32,799 Senior Vice President, 1993 230,072 65,000 244,883(7) -- 30,000 35,135 General Counsel and 1992 229,787 20,000 -- -- -- 34,251 Secretary Nolan E. Asch........... 1994 $ 180,685 $ -- $ 8,771(8) $ -- 15,071 $12,678 Senior Vice President 1993 172,554 40,000 24,335(8) -- -- 7,703 and Chief Actuary 1992 172,341 -- 27,689(8) -- -- 9,825 R. Daniel Brooks........ 1994 $ 216,300 $ -- $-- $ -- 8,000 $14,669 Senior Vice President 1993 214,846 35,000 -- -- 22,000 13,851 1992 218,711 16,000 -- -- -- 17,779 Jeffrey D. Cropsey 1994 $ 216,544 $ -- $-- $ -- 13,000 $25,980 (9)..................... 1993 36,346 90,000 -- $ 58,607 -- -- Senior Vice President 1992 N/A N/A N/A N/A N/A N/A and Chief Financial Officer
- ------------ (1) Company executives, including the Named Officers, are paid bi-weekly. As a result of this cycle, the Named Officers received 27 payments of base salary in 1992 rather than the usual 26. The data in the table includes the extra payments and, accordingly, overstates the 1992 base salary by 1/26th or 3.8%. (2) Except for that made to Mr. Cropsey, no restricted stock awards were made to any of the Named Officers during the last three fiscal years and none of them owns any shares of restricted stock of the Company. Mr. Cropsey received a restricted stock award of 4,552 shares pursuant to the SIP. The shares were awarded on (Footnotes continued on following page) 11 (Footnotes continued from preceding page) December 16, 1993. One-quarter of the shares (1,138) will vest on the second anniversary of the date of the grant and each one-year anniversary thereafter, starting on December 16, 1995. (3) The amounts shown in this column are derived from the following figures: (A) For 1994: (i) Mr. Karter: $22,016--amount accrued by the Company pursuant to the retirement provisions of Mr. Karter's employment contract with the Company; $21,347--Company contributions and credits to the SCOR U.S. Group Savings Plan ("GSP") and the SCOR U.S. Group Supplemental Retirement Plan ("SRP"), which is provided to certain executives whose benefits under the GSP are capped by federal law; (ii) Mr. Andrews: $15,561-- amount accrued by the Company pursuant to the retirement provisions of Mr. Andrews' employment contract with the Company; $17,238--Company contributions and credits to the GSP and SRP; (iii) Mr. Cropsey: $21,274--amount accrued by the Company pursuant to the retirement provisions of Mr. Cropsey's Special Severance and Pension Benefits Agreement with the Company; $4,733--Company contributions and credits to the GSP; (iv) Mr. Brooks: $14,669--Company contributions and credits to the GSP and SRP; and (v) Mr. Asch: $12,679--Company contributions and credits to the GSP and SRP; (B) for 1993: (i) Mr. Karter: $33,197 - amount accrued by the Company pursuant to the retirement provisions of Mr. Karter's employment contract with the Company; $18,847-- Company contributions and credits to the GSP and the SRP; (ii) Mr. Andrews: $20,131--amount accrued by the Company pursuant to the retirement provisions of Mr. Andrews' employment contract with the Company; $15,004--Company contributions and credits to the GSP and SRP; (iii) Mr. Cropsey: Not-applicable; (iv) Mr. Brooks: $13,851--Company contributions and credits to the GSP and SRP; and (v) Mr. Asch: $7,703--Company contributions and credits to the GSP and SRP; and (C) for 1992: (i) Mr. Karter: $29,374--amount accrued by the Company pursuant to the retirement provisions of Mr. Karter's employment contract with the Company; $23,993--Company contributions and credits to the GSP and the SRP; (ii) Mr. Andrews: $15,320--amount accrued by the Company pursuant to the retirement provisions of Mr. Andrews' employment contract with the Company; $18,931--Company contributions and credits to the GSP and SRP; (iii) Mr. Cropsey: Not-applicable; (iv) Mr. Brooks: $17,779--Company contributions and credits to the GSP and SRP; and (v) Mr. Asch: $9,825--Company contributions and credits to the GSP and SRP. (4) Mr. Peugeot and Mr. Blondeau did not participate in the Company's Annual Incentive Plan, Pension Plan, GSP or SRP due to their participation in equivalent plans at SCOR S.A. (5) Other Annual Compensation for Mr. Karter includes forgiven interest on loans from the Company and certain tax reimbursement payments related thereto of $22,785 and $15,190, respectively, in 1994, $22,400 and $2,682, respectively, in 1993, an adjusted tax reimbursement payment in 1994 of $8,269 relating to 1993, and certain tax reimbursement payments in connection with the exercise of stock options of $109,598 in 1992. (6) Other Annual Compensation for Mr. Peugeot includes $57,993 for certain tax reimbursement payments in 1992 in connection with the exercise of stock options. (7) Other Annual Compensation for Mr. Andrews includes forgiven interest on loans from the Company and certain tax reimbursement payments related thereto of $29,300, and $19,533, respectively, in 1994, and $26,512 and $10,738, respectively in 1993, and certain tax reimbursement payments in connection with the exercise of stock options of $198,423 in 1993. (8) Other Annual Compensation for Mr. Asch includes forgiven interest on loans from the Company and certain tax reimbursement payments related thereto of $5,262 and $3,508, respectively, in 1994, and $5,764 and $2,334, respectively, in 1993. In addition, Mr. Asch received $16,235 and $27,689 in 1993 and 1992 respectively, for tax reimbursement payments in connection with the exercise of stock options. (9) The 1993 figure reflects Mr. Cropsey's pro-rata salary due to a November 1, 1993 date of hire. 12 STOCK OPTIONS The following table contains information regarding the grant of stock options under the Company's SOP and the SIP to the Named Officers during the year ended December 31, 1994. In addition, in accordance with rules of the Commission, the following table sets forth the hypothetical grant date present value with respect to the referenced options, using the Black-Scholes Option Pricing Model. OPTION GRANTS IN 1994
INDIVIDUAL GRANTS (1) ---------------------------------------------------------------------------- NUMBER % OF TOTAL OF SECURITIES OPTIONS GRANT UNDERLYING GRANTED TO EXERCISE OR DATE OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT NAME GRANTED (#) FISCAL YEAR (2) ($/SH) (3) DATE VALUE $ (4) - ------------------------------- ------------- --------------- ----------- ---------- ----------- Jacques Blondeau............... 10,000 2.35% $ 9.00 11/30/2004 $ 3,600.00 Chairman of the Board of Directors and Former Chief Executive Officer Jerome Karter.................. 13,000 8.94% $ 9.00 11/30/2004 $ 4,680.00 President and Chief 25,000 $11.125 12/02/2004 $ 7,745.00 Executive Officer Patrick Peugeot (5)............ None N/A N/A N/A N/A Former Chief Executive Officer John T. Andrews, Jr............ 13,000 13.41% $ 9.00 11/30/2004 $ 4,680.00 Senior Vice President, 44,000 $11.125 12/02/2004 $ 13,631.20 General Counsel and Corporate Secretary Nolan E. Asch.................. 6,000 3.54% $ 9.00 11/30/2004 $ 2,160.00 Senior Vice President 9,071 $11.125 11/30/2004 $ 2,810.20 Chief Actuary R. Daniel Brooks............... 8,000 2.81% $ 9.00 11/30/2004 $ 2,880.00 Senior Vice President 3,929 $11.125 12/02/2004 $ 1,217.20 Jeffrey Cropsey................ 13,000 3.06% $ 9.00 11/30/2004 $ 4,680.00 Senior Vice President and Chief Financial Officer
- ------------ (1) The option shown in the above table represent options granted under both the SIP and SOP, respectively. The options were granted on November 30, 1994 under the SOP and November 2, 1994 under the SIP. The SOP is administered by the Board's Compensation Committee. The Compensation Committee determines the eligibility of employees, the number of shares to be granted and the terms of such grants. All stock options granted in fiscal year 1994 are non-qualified options receiving no special tax benefit, have an exercise price equal to the fair market value on the date of grant, vest at a rate of approximately 33.33 percent per year, on the, second, third and fourth anniversary of the grant date and have a term of ten years. No incentive stock options or stock appreciation rights were granted in 1994 pursuant to the SOP. To the extent not already exercisable and not expired upon a Change in Control (as defined), the options become exercisable upon the later of (i) six months after their grant date or (ii) the date of a Change in Control. (Footnotes continued on following page)
13 (Footnotes continued from preceding page) The SIP is also administered by the Compensation Committee. The Committee determines the eligibility of employees, the number of shares to be granted and the terms of such grants. All stock options granted in the fiscal year 1994 are non-qualified stock options, have an exercise price equal to the fair market value on the date of grant, vest on the six month anniversary of the grant date, and have a term of ten years and one month. At the Compensation Committee's discretion, an individual may be eligible for a tax bonus upon the exercise of a stock option grant. (2) Options to purchase an aggregate of 425,175 shares were granted in fiscal year 1994 under the SOP and SIP plans, with 343,175 granted to employees under the SOP and 82,000 granted to key executives under the SIP. (3) Under the SOP, the exercise price may be paid either (i) in cash, (ii) through the delivery of Shares with a Fair Market Value (as defined) on the immediately preceding Trading Day (as defined) equal to the total option price or (iii) by a combination of the methods described in (i) and (ii) for the full purchase price therefor; provided that, in the case of payment pursuant to methods described in (ii) or (iii) above, the Shares delivered to SCOR U.S. shall have been held by the optionee for at least six months and shall not secure any obligation of the optionee to SCOR U.S. If so provided under the terms of a stock option, the Compensation Committee may, at its sole discretion, permit an optionee, in lieu of the methods of payment set forth above, to pay for any portion of the purchase price of the Shares to be issued or transferred that exceeds the par value of such Shares, by delivery of a full-recourse promissory note of the optionee in such form as the Compensation Committee may approve. Under the SOP, any such promissory note shall be secured by Shares having a Fair Market Value on the Trading Day immediately prior to the date of delivery of the note equal to at least two times the principal amount of the note. Under both the SOP and SIP, any such promissory note shall have a maturity of five years or less, as the Compensation Committee may determine in its sole discretion, and shall be payable in equal installments of principal and interest at least annually, or more frequently as the Compensation Committee may determine in its sole discretion. The Compensation Committee shall determine in its sole discretion the interest rate to be charged by SCOR U.S. with respect to the loan evidenced by the promissory note, but such rate shall in no event cause the loan to be considered a below-market loan to which Section 7872 of the Internal Revenue Code of 1986 (the "Code") applies. Payment of the exercise price under the SIP may be made by the same methods as apply to the SOP, except that under the SIP any promissory note shall be secured by shares having a Fair Market Value on the Trading Day immediately prior to the date of delivery of the note that is equal to the principal amount of the note. (4) The estimated fair value of stock options is measured at the grant date in accordance with the Black-Scholes Option Pricing Model. The assumptions used in such option pricing model are: expected volatility, 27.89%; expected dividend yield, 2.01%; expected option term, 10 years; and risk-free rate of return, 7.84%. No adjustments have been made for non-transferability or risk of forfeiture. The actual value, if any, a Named Officer may realize will depend on the excess of the stock price over the exercise a price on the date the option is exercised. Consequently, there is no assurance the value realized by a Named Officer will be at or near the value estimated above. These amounts should not be used to predict stock performance. (5) Mr. Peugeot did not receive any stock options under the SOP or SIP for the fiscal year ended December 31, 1994. He did however receive a non-qualified stock option grant of 3,000 shares under the DP on September 30, 1994, at an grant price of $11.25 per share. The options will vest at a rate of 50% per year, on the first and second anniversary of the grant date, and have a term of ten years. For a more complete description of the DP, see "COMPENSATION OF DIRECTORS". 14 STOCK OPTION EXERCISES AND YEAR-END VALUE TABLE The following table shows stock option exercises by the Named Officers during the fiscal year ended December 31, 1994, including the aggregate value of gains on the date of exercise. In addition, this table includes the number of shares covered by both exercisable and non-exercisable stock options as of December 31, 1994. Values for "in-the money" options represent the positive spread between the exercise price of any such existing stock options and the year-end price of the Common Stock. The market price of the Common Stock as of the close of business on December 31, 1994, was $8.375 per share. AGGREGATED OPTION EXERCISES IN 1994 AND YEAR-END VALUES
VALUE OF UNEXERCISED NUMBER OF UNEXERCISED STOCK IN-THE-MONEY STOCK NUMBER OF VALUED OPTIONS SHARES ACQUIRED REALIZED OPTIONS AT 12/31/94 (#) AT 12/31/94($) (2) UPON EXERCISE OF UPON ------------------------------- --------------------------- NAME OPTION (#) EXERCISE (1) EXERCISABLE UNEXERCISABLE (2) EXERCISABLE UNEXERCISABLE - ------------------------ ---------------- ------------ ----------- ----------------- ----------- ------------- Jacques Blondeau........ -- -- 75,999 26,000 -- -- Chairman and Former Chief Executive Officer Jerome Karter........... -- -- 105,998 60,002 -- -- President and Chief Executive Officer Patrick Peugeot......... -- -- 89,789 19,001 -- -- Former Chief Executive Officer John T. Andrews, Jr..... -- -- 31,999 77,001 -- -- Senior Vice President, General Counsel and Secretary Nolan E. Asch........... -- -- 33,266 28,405 -- -- Senior Vice President and Chief Actuary R. Daniel Brooks........ -- -- 28,332 26,597 -- -- Senior Vice President Jeffrey D. Cropsey...... -- -- -- 13,000 -- -- Senior Vice President and Chief Financial Officer
- ------------ (1) Market value of underlying securities at exercise, minus the exercise price. (2) Based on the December 31, 1994 stock price which was $8.375 per share, there were no "in-the-money" stock options. LONG-TERM INCENTIVES The Company granted no awards to the Named Officers during 1994 under the Performance Incentive Plan, a long-term incentive plan ("PIP"). Participation in the PIP is limited to select senior 15 executives of the Company, including the Named Officers. Under the PIP, grants of performance units ("Units") are made every other year to eligible senior executives. At the time when an award of Units is made, the Compensation Committee must determine a Performance Period (as defined) of at least five years with respect to such Units and must determine a minimum threshold of annual compound appreciation of the adjusted book value per share of the Company's Common Stock. A Unit vests at the end of the applicable Performance Period. If such appreciation exceeds the threshold rate, each Unit has a value, subject to adjustment in certain events, equal to the difference between (i) the adjusted book value per share of Common Stock at the end of the Performance Period plus the dividends paid on a share of Common Stock at the commencement of the Performance Period and (ii) the adjusted book value per share of Common Stock at the commencement of the Performance Period. Participants may receive any payments under the Performance Plan at the end of the applicable Performance Period. They may elect to receive such payments in a lump sum or in periodic installments. Units are non-transferable except to a designated beneficiary at the death of a Participant. Participants leaving the employ of SCOR U.S. for any reason other than death, disability or retirement may receive payments pursuant only to Units that have vested prior to the termination of employment. Participants or their designated beneficiaries may receive partial payment before the end of a Performance Period in the event of death, disability or retirement. In the event of a Change of Control (as defined), Units vest immediately and Participants become entitled to receive awards pursuant thereto. See also, "REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION--PERFORMANCE INCENTIVE PLAN". COMPENSATION OF DIRECTORS Compensation of Directors who are not employees of SCOR U.S. currently consists of an annual retainer of $13,000, a fee of $2,000 for attendance at each quarterly meeting of the Board, $1,500 for attendance at other meetings of the Board (provided that if such a meeting is held jointly with the Board of any subsidiary of which such person is also a Director, the fee is $2,000) and a fee of $1,000 for attendance at each meeting of a committee of the Board. The Chairman of a committee of the Board receives an annual retainer of $1,000. The fees that a Director can receive for attending Board and committee meetings on any one day may not exceed $3,000. Directors who are employees of SCOR U.S. or any of its subsidiaries receive no additional compensation for their services as Directors. In June 1991, the stockholders of the Company approved the DP, which provided for the automatic annual grant to each SCOR U.S. Director who is not an employee of SCOR U.S. or its subsidiaries or affiliates (including SCOR S.A., or any of its respective subsidiaries or affiliates) of a non-statutory stock option to purchase 3,000 shares of SCOR U.S. Common Stock, as of the date which is three business days following the date of each Annual Meeting of Stockholders. In June 1994, the stockholders of the Company approved an amendment to the DP. The DP now provides for the automatic grant to each Eligible Director of a non-statutory option to purchase 3,000 Shares of SCOR U.S. Common Stock as of the following dates: (1) an annual grant on the date that is three business days following the date of each Annual Meeting of Stockholders; and (2) a grant on the date the individual becomes an Eligible Director (unless he or she becomes a Director on the date of the Annual Meeting). An Eligible Director is now defined as a member of the Board of SCOR U.S. or its subsidiaries, who is not an employee of SCOR U.S. or its subsidiaries, but may be a employee or director of SCOR S.A., its subsidiaries, or affiliates. 16 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee during 1994 were: Raymond H. Deck (Chairman), Michel J. Gudefin, Elios Pascual, John W. Popp, and David J. Sherwood. Mr. Dillard resigned from the Board and the Compensation Committee, effective June 16, 1994, and was replaced by Mr. Pascual on that same date. Mr. Pascual subsequently resigned from the Board and the Committee, effective January 1, 1995. No current officer of the Company serves on the Compensation Committee and there are no "interlocks" as defined by the Commission. CERTAIN AGREEMENTS Effective February 27, 1989, SCOR Re entered into a five-year employment agreement with Mr. Karter which provides for a base salary of not less than $240,000. Pursuant to a modification of the agreement in 1991, Mr. Karter agreed to terminate his right to receive annual and long-term bonuses set forth in the agreement in exchange for participation in the SCOR U.S. Annual Incentive Plan and the PIP, plus a payment of $13,332 representing the long-term bonus accrued under the agreement. Under the agreement, SCOR Re is also obligated to provide supplemental retirement benefits to Mr. Karter under a formula that, among other factors, gives Mr. Karter pension credit for five years of service with his prior employer. The agreement is terminable upon death, or by SCOR Re upon disability (exceeding six months), or with or without "Cause" (as defined in the agreement) at any time. In the case of termination by SCOR Re without Cause or if SCOR Re elects not to renew or further renew the agreement, Mr. Karter is entitled to a severance payment equal to (i) his full salary through the date of termination, plus (ii) any annual or long-term bonus payable if not yet paid, plus (iii) an amount equal to the salary payable for the remaining balance of the employment period or, if greater, an amount equal to twice the then annual salary. If payments under the agreement would constitute "excess parachute payments" under the Code, such payments shall be reduced if and to the extent that such a reduction would yield a greater payment to Mr. Karter after payment of all taxes than if such reduction were not made. SCOR Re would also be obligated to provide supplemental pension benefits based on a maximum of ten years' service credit. The agreement is automatically renewable for successive periods of one year, unless Mr. Karter or SCOR Re gives six months' advance notice of intention not to renew. Effective November 13, 1989, SCOR U.S. entered into a three-year employment agreement with Mr. Andrews, which provides for a base salary of at least $200,000, and participation in SCOR U.S.'s bonus and benefit plans. Under the agreement, SCOR U.S. is also obligated to provide supplemental retirement benefits to Mr. Andrews under a formula that, among other factors, gives Mr. Andrews pension credit for an additional five years of service with the Company. The agreement is terminable upon death, or by SCOR U.S. upon disability (exceeding six months), or with or without "Good Cause" (as defined in the Agreement) at any time. In the case of termination by SCOR U.S. without Good Cause, Mr. Andrews is entitled to a severance payment of his monthly salary immediately prior to such termination for the shorter of one year or the balance of the term of the agreement and continued participation in SCOR U.S.'s death and medical insurance plans for such period. The agreement is automatically renewable for successive periods of one year, unless Mr. Andrews or SCOR U.S. gives six months' advance notice of intention not to renew. Effective November 1, 1993, SCOR U.S. entered into a Special Severance and Pension Benefits agreement with Mr. Jeffrey D. Cropsey, Senior Vice President and Chief Financial Officer. Under the 17 agreement, if Mr. Cropsey's employment with SCOR U.S. is terminated for any reason other than death, disability (exceeding six months) or "Good Cause" (as defined in the agreement) prior to November 1, 1996, Mr. Cropsey is entitled to a severance payment of his monthly salary immediately prior to such termination for a period of one year or less depending upon the date of such termination. Under the agreement, SCOR U.S. is also obligated to provide supplemental retirement benefits to Mr. Cropsey under a formula that, among other factors, gives Mr. Cropsey pension credit for five years of service with his former employer. Effective July 25, 1994, SCOR U.S. entered into a two year employment agreement with John Dunn, Jr., which provides for a base salary of at least $215,000 and participation in SCOR U.S.'s bonus and benefit plans. Under the agreement, SCOR U.S. is also obliged to provide supplemental retirement benefits to Mr. Dunn under a formula that, among other factors, gives Mr. Dunn pension credit for an additional five years of service with the company. The agreement is terminable upon death, or by SCOR U.S. upon disability (exceeding six months), or with "Good Cause" (as defined in the Agreement) at any time. In the case of termination by SCOR U.S. without Good Cause, Mr. Dunn is entitled to a severance payment equal to his monthly salary immediately prior to such termination for the longer of one year or the balance of the term of the agreement and continued participation in SCOR U.S.'s death and medical insurance plans for such period. The agreement is automatically renewable for successive periods of one year each, unless Mr. Dunn or SCOR U.S. gives at least three months' advance notice of intention not to renew. PENSION PLANS The following table shows the estimated pension benefits payable to a covered participant at normal retirement age under the Company's Pension Plan, as well as its Supplemental Retirement Plan that provides benefits that would otherwise be denied participants by reason of certain Code limitations on qualified plan benefits, based on remuneration that is covered under the plans and years of service with the Company and its subsidiaries: PENSION PLAN TABLE
GROSS ANNUAL BENEFITS AVERAGE PENSIONABLE COMPENSATION --------------------------------- FOR 5 HIGHEST PAID CONSECUTIVE 15 OR MORE YEARS IN LAST 10 YEARS OF SERVICE 5 YEARS 10 YEARS YEARS - ------------------------------------------------------------- ------- -------- ---------- $ 50,000........................................... $ 7,667 $ 15,333 $ 23,000 75,000............................................. 11,500 23,000 34,000 100,000............................................ 15,333 30,667 46,000 125,000............................................ 19,167 38,333 57,500 150,000............................................ 23,000 46,000 69,000 200,000............................................ 30,667 61,333 92,000 250,000............................................ 38,333 76,667 115,000 300,000............................................ 46,000 92,000 138,000 350,000............................................ 53,667 107,333 161,000 400,000............................................ 61,333 122,667 184,000 450,000............................................ 69,000 138,000 207,000 500,000............................................ 76,667 153,333 230,000
A participant's remuneration covered by the Pension Plan is his or her average base salary (as reported in the Summary Compensation Table) for the five highest paid consecutive calendar plan years 18 during the last ten years of the participant's career. Covered Compensation for Named Officers as of the end of the last calendar year is: Mr. Karter: $376,641; Mr. Andrews: $304,913; Mr. Cropsey: $231,544; Mr. Brooks: $251,300 and Mr. Asch: $223,162. Estimated credited years of service for purposes of the Pension Plan and Supplemental Retirement Plan for each of the named executives is as follows: Mr. Karter: 5; Mr. Andrews: 5; Mr. Cropsey: 1; Mr. Brooks: 18; and Mr. Asch: 10. Benefits shown are computed as a straight single life annuity beginning at age 65. CERTAIN TRANSACTIONS AND RELATIONSHIPS WITH DIRECTORS AND EXECUTIVE OFFICERS On November 2, 1994, SCOR S.A., the majority stockholder of the Company, acquired directly from certain of its Named Executive Officers, 82,000 Shares at the then prevailing market price of $11.125 per Share, specifically: 44,000 Shares from John T. Andrews, Jr., Senior Vice President, General Counsel and Secretary; 9,071 Shares from Nolan E. Asch, Senior Vice President and Chief Actuary; 3,929 Shares from R. Daniel Brooks, Senior Vice President; and 25,000 Shares from Jerome Karter, President and CEO. Each of these senior officers had, at the request of the Company, voluntarily agreed not to sell any Shares held by them in connection with the privately placed offering of convertible subordinated debentures of SCOR U.S. in 1993, and were prevented from selling during certain other periods thereafter in accordance with Company policy. The proceeds from these sales to SCOR S.A. were applied exclusively to reduce indebtedness of the sellers to SCOR U.S. described below. In addition, on November 2, 1994, under the SIP, SCOR U.S. granted to each of such officers options to purchase a corresponding number of Shares at an exercise price of $11.125 per Share, which was equal to the per share market price on that date. Mr. Karter, President and Chief Executive Officer, is indebted to SCOR U.S. in respect of a promissory note executed in connection with his purchase of a new residence. The largest aggregate amount of indebtedness outstanding on the note at any time during 1994 was $100,000. Partial payment has been made and $64,125 is the amount outstanding as of April 18, 1995. The note is due in 1996. He was also indebted to SCOR U.S. in respect of a promissory note executed in connection with the exercise of stock options. The largest amount of indebtedness outstanding on the note at any time during 1994 was $242,250, which amount has been paid in full as of December 31, 1994. Mr. Karter is also indebted to SCOR U.S. in respect of a promissory note executed in connection with certain personal financial requirements. The largest amount of outstanding indebtedness on this note at any time during 1994 was $126,465, which is also the amount outstanding as of April 18, 1995. The note is due in 1996. No interest is charged by the Company on any of the above loans. Mr. Andrews, Senior Vice President, General Counsel and Corporate Secretary, was indebted to SCOR U.S. in respect of two promissory notes executed during 1993 in connection with the exercise of stock options. The largest amount of outstanding indebtedness on the notes at any time during 1994 was $523,000, which amount has been paid in full as of December 31, 1994. Mr. Andrews is also indebted to SCOR U.S. in respect of a promissory note executed in connection with certain personal financial requirements. The largest amount outstanding on these notes at any time during 1994 was $80,000, which is also the amount outstanding as of April 18, 1995. The note is due in 1996. Mr. Andrews is also indebted to SCOR U.S. in respect of a promissory note in the principal amount of $33,800, executed in connection with certain personal financial requirements. The largest amount outstanding on this note at any time during 1994 was $33,800, which is also the amount outstanding as of April 18, 1995. The note is due in 1996. No interest is charged by the Company on any of the above loans. 19 Mr. Asch, Senior Vice President and Actuary, was indebted to SCOR U.S. in respect of various promissory notes executed in connection with the exercise of stock options. The largest aggregate amount outstanding on the notes at any time during 1994 was $108,909, which amount was paid in full as of December 31, 1994. In connection with the relocation to the United States of Sylvain Boueil, a Senior Vice President of the Company until September 30, 1994, the Company serves as guarantor on a primary residence mortgage loan, payable on demand, from Banque Francaise du Commerce Exterieur to Mr. Boueil in the principal amount of $765,000. Also in connection with the purchase of this residence, Mr. Boueil was indebted to SCOR U.S. during 1994 in respect of a demand promissory note in favor of SCOR U.S. The largest amount of indebtedness outstanding on the note at any time during 1994 was $102,408. The amount outstanding as of April 18, 1995 was $103,496. The note bears interest at 5.12%. In connection with the relocation to the United States of Dominique Lavallee, a Senior Vice President of the Company, SCOR Services, Inc., a wholly-owned subsidiary of the Company, is guarantor of a 30-year term home mortgage loan from The Bank of New York to Mr. Lavallee in the principal amount of $224,000. Also in connection with the purchase of this residence, Mr. Lavallee is indebted to SCOR U.S. in respect of a demand promissory note in favor of SCOR U.S. The largest amount of indebtedness outstanding on the note at any time during 1994 was $24,000. The amount outstanding as of April 18, 1995 was $12,469.20. The note bears interest at 7.82%. Mr. Michael Walsh, Senior Vice President and Treasurer until his resignation on November 18, 1994, was indebted to SCOR U.S. in respect of various promissory notes executed in connection with the exercise of stock options. The largest aggregate amount outstanding on the notes at any time during 1994 was $171,289. The amount of the indebtedness was paid in full as of December 31, 1994. Pursuant to a service agreement, SCOR U.S. and SCOR S.A. have agreed to reimburse the other for services provided by various personnel. The amount of the reimbursement for the services provided is determined by allocation of the actual costs, including salary and related expenses. Such payments were immaterial during 1994. SCOR U.S.'s operating subsidiaries assume reinsurance from SCOR S.A. and other affiliated companies primarily on a quota share or surplus share basis. Written premiums assumed from these companies (and the percentage of gross written premiums) were approximately $7,845,000 (2.6%), for the year ended December 31, 1994. Of this amount, approximately $6,959,000 was assumed from SCOR S.A. SCOR U.S.'s operating subsidiaries also retrocede reinsurance to SCOR S.A. and other affiliated companies, primarily on a quota share or surplus share basis. The total written premiums written ceded by SCOR U.S.'s subsidiaries under retrocession agreements to affiliated companies in 1994 were $35,644,000. Pursuant to a Net Aggregate Excess of Loss Retrocessional Agreement dated as of July 1, 1986 ("the 1986 Retrocessional Agreement"), SCOR S.A. reinsured SCOR Re for adverse loss development from pre-1986 business that exceeded the total of loss reserves established as of June 30, 1986, and premiums earned after June 30, 1986, from such pre-1986 business. The 1986 Retrocessional Agreement provided protection to the Company for business underwritten by SCOR Re only and did not provide coverage for pre-1986 business underwritten by General Security Assurance Corporation of 20 New York ("General Security"). However, business underwritten by General Security and The Unity Fire and General Insurance Company ("Unity Fire") is protected against adverse development by a separate net aggregate excess of loss retrocessional agreement, as described below. The 1986 Retrocessional Agreement terminated on December 31, 1993, at which time SCOR S.A.'s liability to SCOR Re was $16,224,000. This amount is the actuarially determined expected ultimate loss from the pre-1986 business in excess of the "aggregate deductible" (which is defined as the total of net outstanding loss and loss expense reserves, net incurred but not reported loss reserves and net unearned premium reserves established as of June 30, 1986 for the pre-1986 business, plus all net premiums and future net premium adjustments earned after June 30, 1986 under retrospectively rated treaties for such business). During the first quarter of 1994, SCOR Re received $16.2 million from SCOR S.A. in settlement of its liability under this agreement. SCOR Re and SCOR S.A. entered into a new Net Aggregate Excess of Loss Agreement (the "1994 Retrocessional Agreement") effective January 1, 1994, which protects the same business covered under the 1986 Retrocessional Agreement. Under this Agreement, SCOR Re is responsible for any further adverse development up to $8,800,000, at which point the 1994 Retrocessional Agreement attaches and provides coverage for up to $10,000,000 of any additional adverse development. SCOR Re paid a premium of $2,000,000 for this coverage, which expires on December 31, 2004. At December 31, 1994, no recovery was recognized under this Agreement. In addition, based on the experience under the 1994 Retrocessional Agreement, SCOR Re is eligible to receive a contingent commission of up to 27.75% of the premium. SCOR S.A. entered into a Net Aggregate Excess of Loss Retrocessional Agreement (the "1990 Retrocessional Agreement") with each of Unity Fire and General Security, pursuant to which SCOR S.A. agreed to reinsure those companies to the extent that their net ultimate incurred losses (as defined in the agreements) arising in 1989 and prior accident years exceed an aggregate deductible. As a result of the January 1, 1991 assumption by General Security of the rights, liabilities and obligations of Unity Fire, the Net Aggregate Excess of Loss Retrocessional Agreement with Unity Fire was terminated and the Net Aggregate Excess of Loss Retrocessional Agreement with General Security was amended (as so amended, the "Agreement") to include the protection formerly provided to Unity Fire by its retrocessional agreement with SCOR S.A. As a result of the merger of General Security into SCOR Re, the protection under the Agreement is now for the benefit of SCOR Re. The aggregate deductible is defined as the sum of net outstanding loss and loss expense reserves and net incurred but not reported loss reserves as of December 31, 1989, for 1989 and prior accident years, as documented in the 1989 statutory financial statements of Unity Fire and General Security. This amount has been established at a combined aggregate of $93,830,000. The annual premium for this protection is $210,000 through 2004. The Agreement continues in force until all covered losses are settled. At December 31, 1994, SCOR S.A.'s estimated liability under the Agreement was approximately $11.7 million. SCOR S.A. provides letters of credit in favor of SCOR U.S.'s operating subsidiary in amounts equal to its estimated liability under its reinsurance agreements with such companies (as re-estimated on a quarterly basis). The amount of letters of credit provided by SCOR S.A. at December 31, 1994 was approximately $134,500,000. 21 COMPENSATION POLICIES AND PERFORMANCE GRAPH The disclosure contained in this section of the Proxy Statement shall not be deemed incorporated by reference into any prior filing by the Company pursuant to the Securities Act of 1933 or the Securities Exchange Act of 1934 that incorporates future filings or portions thereof (including this Proxy Statement or any part thereof). REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION During 1994, the Compensation Committee (the "Committee") of the Board of Directors of SCOR U.S. was composed of five non-employee directors who have never served as officers of or been employed by the Company. The Committee met eight times during 1994. Mr. Karter, the Chief Executive Officer, and certain other executive officers of the Company may attend meetings of the Committee, but are not present during discussions or deliberations regarding their own compensation. The Compensation Committee reviews compensation policies and practices and prior to June 16, 1994 was specifically responsible for (a) reviewing and approving the compensation of all senior executive officers who do not serve on the Board; (b) reviewing and recommending to the Board the compensation of senior executives who also serve on the Board; (c) reviewing new executive compensation programs or modifications to existing programs; and (d) administering the annual incentive, long-term performance incentive and stock option plans of the Company. On June 16, 1994, the powers of the Committee were amended to modify items (a) and (b) above to provide that it is responsible for reviewing and approving the compensation of all individuals at or to be elected to the rank of Vice President or above and/or who have current or proposed salaries of $100,000 or above. The Committee approved base salary levels, annual incentive awards and stock option grants for all executive officers, except the CEO, prior to June 16, 1994. Subsequent to that date, the Committee assumed the responsibility of approving all actions relating to the compensation of all executives officers, including the CEO. Prior to the amendment of the Committee's powers on June 16, 1994, the Board approved without modification all compensation recommendations of the Committee in 1994 relating to the CEO. COMPENSATION PHILOSOPHY. The overall compensation program is designed to motivate executives to achieve short and long-term business objectives, reward executives for their achievements and align the interests of executives and shareholders. As such, the total compensation package emphasizes variable incentive pay contingent on Company and individual performance. As the executive's responsibility level within the Company increases, the portion of the total compensation package based on Company performance and long-term equity based awards increases. Compensation opportunities provided to executive officers are competitive with similar positions in the industry in order to attract and retain executives of superior talent who are critical to the Company's success. The Committee reviews the results of an annual comparison of company performance and executive compensation levels of a group of domestic publicly-held professional reinsurance companies (the "Peer Group") and other companies in the property/casualty industry. The Peer Group of ten reinsurance companies used in 1994 for compensation comparisons is identical to the group of companies included in the peer index of the shareholder return performance 22 graph included in this proxy statement. This Peer Group may change as the Company or its competitors change their focus, merge or are acquired, or as new competitors emerge. The Peer Group used in 1994 is identical to the Peer Group used in the 1993 review. As a matter of Company policy, Jacques P. Blondeau, Chairman, and Serge Osouf, Vice Chairman, do not participate in the Company's Annual Incentive, Pension, Savings and Supplemental Retirement Plans due to their participation in similar plans at SCOR S.A., the principal shareholder of the Company. For other officers of the Company, the executive compensation program at present comprises base salary, annual incentive awards and stock options. In addition, certain senior executives receive long-term performance unit incentives. BASE SALARY. To attract and retain superior talent, salaries are managed at a percentile level above the median of the Peer Group and broader industry market data. The Committee reviews and approves (or recommends to the Board as noted above) base salaries annually and considers competitive salary levels, individual contributions and individual responsibility levels. The total compensation program is designed to limit fixed base salary increases and place greater emphasis on performance-based incentives. The Committee approved or recommended a base salary level to be effective April 1, 1994 for each executive officer. ANNUAL INCENTIVES. The 1994 Annual Incentive Plan (the "Plan") was designed to reward participating executives for annual company performance and individual contribution towards the Company's success. Company performance factors upon which the Plan is based include return on equity, combined ratio and expense control. These factors are weighted 45%, 45% and 10%, respectively, in determining an overall company performance award factor. Specific threshold, target and superior performance levels are defined for each of these three measures at the beginning of each annual performance period. Individual performance is based on predetermined criteria relative to business/functional goals and individual position responsibilities. Company and individual performance components of the annual incentive award are weighted according to the participant's level and function. The more senior executive levels are rewarded relatively more on the basis of Company performance. The corresponding Company and individual performance weightings for the Named Officers annual incentive awards were 80% and 20%, respectively. Target awards, representing the pre-established guideline amount to be paid each year if annual goals are achieved, are set to reflect competitive peer group and industry practices. The target award for the Named Officers is 35% of base salary. Actual annual incentive payments may range from 0% to 150% of target awards to the extent that Company and individual performance meet the identified goals. Awards under the annual incentive plan are made in March of each year for performance in the prior year. The 1994 Annual Incentive Plan provides that if the Company has no net income for the year under generally accepted accounting principles ("GAAP") no payments will be made under the Plan design. Since the Company had a net loss for 1994, no payments were made under the Plan to any participant, including the Named Officers. LONG-TERM INCENTIVE PROGRAM. SCOR's Long-Term Incentive Program consists of stock options and a long-term performance incentive plan. Stock option awards constitute 100% of the long-term incentive compensation for all participants, except certain senior executives. Such senior executives, 23 including the Named Officers, receive 50% of long-term incentive compensation opportunity in stock options and 50% in performance incentive units. Target award guidelines for all long-term plans have been established so that the total long-term incentive award opportunities for senior executives are competitive with peer group levels, with actual award values varying with Company performance. STOCK OPTION PLANS. Stock option awards are intended to reinforce the importance of shareholder value creation and allow key employees to accumulate equity ownership in the Company. Target option award guidelines reflect competitive peer group practices and have been established as a percentage of base salary representing a targeted gain from options. The targeted gain amount is divided by the projected gain in value per option (based on an assumed stock price growth rate) to determine the target number of options to award the executive. The Committee may also consider Company and individual performance assessments when determining the actual number of shares granted and increase or decrease individual awards accordingly. The number of options previously awarded to and currently held by executive officers is reviewed but is not an important factor in determining the size of current grants. Stock option grants were made in 1994 to select senior executives, including the Named Officers, under the SIP, adopted in 1986. The term of each option is ten years and one month. Options from the 1994 grant vest is six months from the date of grant. The exercise price of each option is equal to 100% of the fair market value of a share of the Company's common stock on the business day immediately prior to the date of the option grant. Stock option grants under the SOP, adopted in 1991, were also made in 1994 to all employees of SCOR U.S., including the Named Officers. The term of each option is ten years and options from the 1994 grant vest over a four year period. The exercise price of each option is equal to 100% of the fair market value of a share of the Company's common stock on the date of the option grant. These option grants were awarded to promote a stronger relationship between key employees and the Company's strategic business goals, as well as shareholder value creation. PERFORMANCE INCENTIVE PLAN. The performance incentive plan is limited in participation to select senior executives, including the Named Officers, whose decisions have the greatest potential to impact long-term Company performance. Performance units are designed to link a portion of executive compensation to the Company's growth in book value over a five year period. The target award guidelines for this group of executives reflect competitive compensation practices and represent a targeted gain from the performance units of 42.5% of base salary. This percentage amount of salary is divided by a targeted 5 year growth in book value per share and accrued dividends to determine the target number of units to be awarded to the executive. The Committee may also consider Company and individual performance assessments when determining the actual number of units granted and increase or decrease individual awards accordingly. The number of performance units previously awarded to and currently held by executive officers is reviewed but is not an important factor in determining the size of current awards. Grants are made every other year with a unit base value equal to the book value per share of Company common stock on December 31 of the preceding year. Depending on actual growth in book value at the end of the five year performance period, targeted gains may or may not be realized. A 24 minimum threshold growth in book value that is established by the Committee at the beginning of the performance period must be reached in each performance period before any cash awards are made, and executives must remain with the Company until the end of the five year period (excluding death, disability or normal retirement). Since the inception of the plan in 1991, grants have been made to executives, including the Named Officers, in 1991 and 1993, and the first plan payout, if any, would be for the performance period ending December 31, 1995. Total executive compensation is highly dependent upon achievement of performance goals and actual Company performance and, thus, may fall above or below the targeted levels. CEO COMPENSATION. On September 30, 1994, Mr. Jerome Karter became Chief Executive Officer and President of SCOR U.S. Prior to that appointment, Mr. Karter was Executive Vice President of SCOR U.S. Prior to Mr. Karter being named CEO, Mr. Patrick Peugeot and Mr. Jacques Blondeau, currently Chairman of the Board of SCOR S.A., each held the position. Mr. Peugeot served as CEO of the Company until his resignation therefrom on June 16, 1994. Mr. Blondeau then served as CEO from June 16, 1994 to September 30, 1994. Mr. Peugeot remained as Chairman of the Board until September 30, 1994 when he resigned from that position. Mr. Blondeau was elected Chairman of the Board on September 30, 1994. During the time in 1994 when Mr. Peugeot and Mr. Blondeau served as CEO, no compensation actions were taken with respect to Mr. Peugeot. Mr. Blondeau's base salary was increased to $205,000 in September, 1994, representing a 17% increase from 1992. This increase was made in consideration of his responsibilities with the Company, as well as the fact that his base salary had not been increased since April, 1992. The compensation of the Company's current Chief Executive Officer, Mr. Karter, consists of base salary, annual incentive, stock options and performance incentive units, and is based on the policies and programs as described above. In 1994, Mr. Karter's annual base salary was $304,623, representing a 4.4% increase from 1993 that reflected his responsibilities as Executive Vice President, prior to being named CEO. No action was taken with respect to Mr. Karter's base salary at the time of his appointment as CEO. As previously described, Mr. Karter did not receive an annual incentive award for 1994 performance. Under the SIP, Mr. Karter was awarded a stock option grant on November 2, 1994 of 25,000 shares of Common Stock with an exercise price of $11.125 . Mr. Karter also received a stock option grant on November 30, 1994 under the SOP of 13,000 shares of Common Stock with an exercise price of $9.00. This award was a part of the option grants made by the Company to all employees. Both stock option grants were awarded to align the CEO's interests with the shareholders of the Company and increase the CEO's stake in long term company success. The Compensation Committee believes that compensation decisions made with respect to the current CEO, Mr. Karter, and the other executive officers, including the Named Officers, are consistent with the Company's compensation philosophy and appropriately tie 1994 compensation to Company business objectives, absolute and relative Company performance and competitive market practices, as defined by the Peer Group and broader property/casualty insurance industry data. 25 Section 162(m) of the Code, enacted in 1993, generally disallows a tax deduction to public companies for compensation over $1 million paid to the Company's Chief Executive Officer and four other most highly compensated executive officers. Qualifying performance based compensation will not be subject to the deduction limit if certain requirements are met. It is the intent of the Committee to have the Company provide compensation, to the extent possible, that is tax deductible in compliance with the new section 162(m) of the Internal Revenue Code. At this time the Committee is not amending any compensation plans to maintain deductibility under the definition of "performance based compensation" as none of the SCOR U.S. executives, including the CEO, are expected to receive non-qualifying performance based compensation above the $1 million cap. COMPENSATION COMMITTEE Raymond H. Deck, Chairman (1) Michel J. Gudefin John W. Popp David J. Sherwood - ------------ (1) Appointed Committee Chairman on September 30, 1993. 26 CORPORATE PERFORMANCE GRAPH The following graph compares the Company's Common Stock performance with the performance of the Standard & Poor's 500 Stock Index ("S&P 500"), and the current Peer Group Index (" Peer Group"), by measuring the changes in common stock prices from December 31, 1989 plus reinvested dividends. The Current Peer Index includes the following publicly traded reinsurance companies: American Re Corporation, General Re Corporation, NAC Re Corporation, National Re Corporation, PXRE Corporation (name changed from Phoenix Re Corporation in 1994), Piedmont Management Company, Inc., Re Capital Corporation, Transatlantic Holdings Inc., Trenwick Group Inc. and Zurich Reinsurance Centre Holdings, Inc. Total return indices reflect reinvested dividends and are weighted on a market capitalization basis at the beginning of each relevant time period. COMPARISON OF FIVE YEAR CUMULATIVE TOTAL SHAREHOLDER RETURN AMONG SCOR U.S., S&P 500 AND PEER GROUP 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 SCOR U.S. $100 $89 $113 $130 $99 $66 S&P 500 $100 $97 $126 $135 $149 $150 Peer Group* $100 $107 $123 $148 $135 $153 * Market capitalization weightings for peer group companies were made as of the beginning of each year, per SEC regulations. The graph assumes $100 invested on 12/31/89 in the Company's Common Stock, S&P 500 Index, and the Peer Group Index. Values are as of December 31 of specified year assuming that dividends are reinvested. PROPOSAL TWO RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS While stockholder approval is not required, the Board has determined to submit to stockholders for their ratification the appointment of KPMG Peat Marwick as independent auditors of SCOR U.S. for the year 1995. In the event of a negative vote on this proposal, the Board may nevertheless appoint 27 KPMG Peat Marwick as independent auditors of SCOR U.S. for the year 1995 unless the Board finds other compelling reasons for making a change. Disapproval of this resolution will be considered as advice to the Board to select other independent auditors for the year 1996. Representatives of KPMG Peat Marwick will be present at the Annual Meeting and will be given an opportunity to make a statement and answer any questions at such time. THE BOARD RECOMMENDS A VOTE FOR RATIFICATION. COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's common stock, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the New York Stock Exchange. Based on the Company's review of all insider's filings and written representations from reporting persons, the Company believes there were no Section 16(a) violations for 1994, except for Mr. R. Daniel Brooks, who at the time of the filing was a Section 16(a) officer and on whose behalf one report on Form 4, reporting one transaction, was inadvertently not timely filed by the Company. STOCKHOLDERS PROPOSALS Any holder of Shares desiring to make a proposal for inclusion in proxy material for the Annual Meeting of SCOR U.S. stockholders to be held in June 1996 must ensure that such proposal is received by the Secretary of SCOR U.S. at the address set forth above no later than December 29, 1995. OTHER BUSINESS The Board does not intend to bring any other business before the Annual Meeting and does not know of any matters to be brought before the Annual Meeting by others. If any other matter should come before the Annual Meeting, it is the intention of the persons named in the accompanying proxy to vote the proxy on behalf of the stockholders they represent in accordance with their judgment. By Order of the Board of Directors /s/ JOHN T. ANDREWS, JR. JOHN T. ANDREWS, JR. Corporate Secretary April 28, 1995 PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND MAIL IT PROMPTLY. NO POSTAGE STAMP IS NECESSARY IF MAILED IN THE UNITED STATES. 28 PROXY 1995 ANNUAL MEETING OF STOCKHOLDERS THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS The undersigned hereby authorizes John T. Andrews, Jr., Jeffrey D. Cropsey and Maxine H. Verne, or any one of them, with full power of substitution, to represent the undersigned and to vote all Common Stock of SCOR U.S. Corporation, a Delaware corporation ("SCOR U.S."), owned by the undersigned at the Annual Meeting of Stockholders of SCOR U.S. to be held at 10:30 a.m., New York time, on June 16, 1995, at Morgan Guaranty Trust Company of New York, 60 Wall Street, 47th floor, New York, New York, and any adjournment thereof, as provided on the reverse side hereof. The Board of Directors favors the appointment of proxies with authority to vote FOR the election as directors of all nominees named in the proxy statement and FOR proposal (2). This proxy will be voted in accordance with any specification made on the reverse side hereof. Where no contrary specification is made hereon, this proxy will be voted FOR the election as directors of all nominees named on the reverse side hereof, FOR approval of proposal (2), and in accordance with the discretion of the proxy holders on any other matters or proposals (not known at the time of solicitation) which may properly come before the meeting or any adjournment thereof. The undersigned hereby revokes any proxies heretofore given by the undersigned. (Continued and to be dated and signed on the reverse side.) SCOR U.S. CORPORATION P.O. BOX 11286 NEW YORK N.Y. 10203-0286 (1) Election of Directors FOR all nominees WITHHOLD AUTHORITY to vote *EXCEPTIONS listed below listed below for all nominees listed below Jacques P. Blondeau, John R. Cox, Jerome Karter, Patrick Peugeot (INSTRUCTION: To withhold authority to vote for any individual nominee mark the "EXCEPTION" box and write that nominee's name on the line provided below.) EXCEPTIONS ------------------------------------------------------------------------------------------- (2) Proposal to ratify the appointment of KPMG Peat FOR AGAINST ABSTAIN Marwick as independent Auditors of the Corporation for the fiscal year ending December 31, 1995 Address Change and/or Comments Signature should conform exactly to the name shown on this proxy. Executors, administrators, guardians, trustees, attorneys, officers signing for corporations should give full titles. ---------------------------------------- Dated , 1995 ---------------------------------------- (Signature of Shareholder) ---------------------------------------- (Signature of Shareholder) Votes must be indicated X (x) in Black or Blue ink. Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.
EX-5 5 Exhibit 5 SCOR U.S. -------------------- SCOR November 9, 1995 Dear Stockholders: I am pleased to inform you that on November 2, 1995, SCOR U.S. Corporation (the "Company") entered into an Agreement and Plan of Merger (the "Merger Agreement") providing for the acquisition of all publicly held shares of common stock of the Company by SCOR S.A. SCOR S.A. currently beneficially owns approximately 80% of the outstanding shares of the Company. Pursuant to the Merger Agreement, SCOR Merger Sub Corporation, a wholly owned subsidiary of SCOR S.A., commenced today a tender offer to purchase any and all outstanding shares of the Company's common stock at a price of $15.25 per share in cash. Following completion of the tender offer and satisfaction of certain other conditions, SCOR Merger Sub Corporation will be merged with and into the Company and each share of the Company's common stock then outstanding (other than shares of stockholders properly exercising appraisal rights under Delaware law and shares owned by SCOR S.A., SCOR Merger Sub Corporation or any other direct or indirect subsidiary of SCOR S.A.) will be converted into the right to receive $15.25 per share in cash. Following consummation of the merger, the Company will no longer be publicly owned, but will be wholly owned by SCOR S.A. A Special Committee of the Company's Board of Directors consisting of seven directors unaffiliated with SCOR S.A. carefully considered SCOR S.A.'s proposal and determined that the SCOR S.A. offer and the merger are fair to and in the best interests of the Company's public stockholders. The Company's Board of Directors, based upon the recommendation of the Special Committee, unanimously approved and adopted the Merger Agreement and the transactions contemplated thereby, and recommends that stockholders accept the offer and tender their shares. In arriving at its determinations, the Special Committee and the Company's Board gave careful consideration to a number of factors, including the opinion of the Special Committee's financial advisor that the consideration to be received by the Company's public stockholders in the offer and merger is fair to such stockholders from a financial point of view as of the date thereof. Detailed information about the deliberations of the Special Committee and the Board of Directors and their determinations and recommendations are contained in the enclosed offering materials. Accompanying this letter is SCOR Merger Sub Corporation's Offer to Purchase, dated November 9, 1995, together with related materials, including a Letter of Transmittal to be used for tendering your shares. These documents set forth the terms and conditions of the offer and provide instructions as to how to tender your shares. I urge you to read the enclosed material carefully before making your decision with respect to tendering your shares in the offer. Sincerely, /s/ JEROME KARTER -------------------------------------- JEROME KARTER President and Chief Executive Officer SCOR U.S. CORPORATION TWO WORLD TRADE CENTER NEW YORK, NEW YORK 10048-D178 TELEPHONE (212) 390-5200 FAX (212) 390-5415 EX-6 6 Exhibit 6 LOGO NEWS RELEASE FOR IMMEDIATE RELEASE Contact: John T. Andrews, Jr. Jean Alisse General Counsel General Counsel SCOR U.S. Corporation SCOR S.A. (212) 390-5224 (33-1) 46-98-73-63 SCOR U.S. BOARD AGREES TO SCOR S.A. $15.25 PER SHARE OFFER New York, N.Y./Paris, France, November 3, 1995--SCOR U.S. Corporation (NYSE:SUR) ("SCOR U.S.") and SCOR S.A. announced today that they have entered into a definitive agreement (the "Merger Agreement") providing for the merger (the "Merger") of SCOR Merger Sub Corporation ("Merger Sub"), a newly organized Delaware corporation and a wholly owned subsidiary of SCOR S.A., into SCOR U.S. upon the terms and subject to the conditions contained in the Merger Agreement. Pursuant to the Merger Agreement, Merger Sub has agreed to commence a tender offer (the "Offer") for all of the outstanding shares of common stock, par value $0.30 per share, of SCOR U.S. at a price of $15.25 per share, net to the seller in cash, without interest thereon, subject to terms and conditions set forth in the Merger Agreement and to be set forth in the tender offer documents. If the Offer is successfully completed, holders of the 5-1/4% Convertible Subordinated Debentures due April 1, 2000 of SCOR U.S. would have the right to require SCOR U.S. to repurchase such Convertible Debentures at a price equal to 100% of the principal amount thereof, together with accrued and unpaid interest to the repurchase date. The Board of Directors, and Special Committee of the Board of Directors, of SCOR U.S. have unanimously approved the Merger Agreement, the Offer and the Merger - more- and determined that the terms of the Offer and the Merger are fair to, and in the best interest of, the stockholders of SCOR U.S. The Board of Directors has recommended that all stockholders of SCOR U.S. accept the Offer and tender their shares. Dillon, Read & Co. Inc. has acted as financial advisor to the Special Committee of the Board of Directors of SCOR U.S. and has advised the Special Committee that the consideration to be received by the stockholders of SCOR U.S. is fair to the stockholders (other than SCOR S.A.) from a financial point of view as of the date hereof. SCOR S.A. currently owns approximately 80% of the outstanding shares of common stock of SCOR U.S. Approximately 3.6 million shares of SCOR U.S. common stock are owned by the public. SCOR U.S. Corporation, a holding company, provides property and casualty insurance and reinsurance in the treaty and facultative market through its operating subsidiaries. All of SCOR U.S. Corporation's operating insurance and reinsurance subsidiaries are rated "A" (excellent) by A.M. Best Company. SCOR S.A., a French company, operates principally as a reinsurance company. Together with its subsidiaries, it ranks as the largest professional reinsurer in France and among the largest in the world. Goldman, Sachs & Co. are acting as dealer managers for the Offer and Goldman Sachs International has acted as financial advisor to SCOR S.A. EX-7 7 Exhibit 7 [ Dillon, Read & Co. Inc. Letterhead ] November 2, 1995 SCOR U.S. Corporation Two World Trade Center, 23rd Floor New York, New York 10048-0178 Attention: Special Committee of the Board of Directors Gentlemen: You have advised us that SCOR S.A. ("SCOR S.A.") proposes to acquire all of the publicly held outstanding common stock, par value $0.30 per share, (the "Shares") of SCOR U.S. Corporation (the "Company") not currently held by SCOR S.A. from the holders thereof (the "Selling Shareholders") at a purchase price of $15.25 per share (the "Transaction"). You have requested our opinion as to whether the consideration to be paid pursuant to the Transaction is fair to the Selling Shareholders, from a financial point of view, as of the date hereof. In arriving at our opinion, we have, among other things: (i) reviewed certain publicly available business and financial information relating to the Company; (ii) reviewed the reported price and trading activity for the Shares of the Company; (iii) reviewed certain internal financial information and other data provided to us by the Company relating to the business and prospects of the Company, including financial projections prepared by the management of the Company; (iv) conducted discussions with members of the senior management of the Company; (v) reviewed the financial terms, to the extent publicly available, of certain acquisition transactions which we considered relevant; (vi) reviewed publicly available financial and securities market data pertaining to certain publicly-held companies in lines of business generally comparable to those of the Company; and (vii) conducted such other financial studies, analyses and investigations, and considered such other information as we deemed necessary and appropriate. In connection with our review, with your consent, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied upon it being complete and accurate in all material respects. We have not been requested to and have not made an independent evaluation or appraisal of any assets or liabilities (contingent or otherwise) of the Company or any of its subsidiaries, nor have we been furnished with any such evaluation or appraisal. Further, we have assumed, with your consent, that all of the information, including the projections provided to us by the Company's management, was prepared in good faith and was reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company's management as to the future financial performance of the Company, and was based upon the historical performance and certain estimates and assumptions which were reasonable at the time made. In addition we have not been asked to, and do not express any opinion as to the after-tax consequences of the Transaction to any Selling Shareholder. In addition, our opinion is based on economic, monetary and market conditions existing on the date hereof. In rendering this opinion, we are not rendering any opinion as to the value of the Company or making any recommendation to the Selling Shareholders with respect to the advisability of voting in favor of the Transaction. Dillon, Read & Co. Inc. ("Dillon Read"), as part of its investment banking business, is engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwriting, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations of estate, corporate and other purposes. Dillon Read has received a fee for rendering this opinion. This opinion is being rendered solely to the Special Committee of the Board of Directors of the Company for its use in evaluating the Transaction and is not for the benefit of, nor being rendered to, the Selling Shareholders or any other person. Based upon and subject to the foregoing, we are of the opinion that the consideration to be received in the Transaction by the Selling Shareholders is fair to the Selling Shareholders, from a financial point of view, as of the date hereof. Very truly yours, DILLON, READ & CO. INC. /s/William P. Powell By: William P. Powell Managing Director EX-8 8 Exhibit 8 Dillon, Read & Co. Inc. 535 Madison Avenue New York, New York 10022 212-906-7000 October 10, 1995 SCOR U.S. Corporation 110 William Street New York, NY 10038-3995 Attention: Special Committee of the Board of Directors Gentlemen: 1. We understand that the Board of Directors of SCOR U.S. Corporation (the "Company") has received from SCOR S.A. a proposal whereby SCOR S.A. would acquire all of the publicly held outstanding shares of common stock, par value $0.30 per share (the "Common Shares"), of the Company not currently owned by SCOR S.A. at a purchase price of $14.00 in cash per Common Share. As used in this letter, the term "Transaction" refers to any transaction pursuant to which SCOR S.A. or any other affiliated entity acquires the outstanding minority interest in the capital stock or assets of the Company, whether by way of merger, consolidation, reorganization or other business combinations, a tender or exchange offer, a recapitalization or otherwise. 2. This letter confirms the agreement of the Company to engage Dillon, Read & Co. Inc ("Dillon Read") to serve as financial advisor to the Special Committee of the Company's Board of Directors (the "Special Committee") with respect to the proposed Transaction. If requested, Dillon Read shall render a written opinion (the "Opinion") relating to the fairness from a financial point of view of the consideration to be received by the public holders of Common Shares pursuant to the proposed Transaction, which Opinion shall be updated in connection with obtaining approval from shareholders of the Company in connection with the Transaction. 3. For Dillon Read's services hereunder, the Company agrees to pay fees to Dillon Read in cash as follows: (a) $250,000 upon the execution of this Agreement, and Dillon Read & Co. Inc. (b) $250,000 upon the completion or abandonment of this Transaction, which for purposes of this subsection (b) shall be the earliest of (i) the successful completion of the Transaction, (ii) the date the Company or SCOR S.A. abandons or terminates the Transaction, (iii) the date the Special Committee advises Dillon Read that it does not require Dillon Read's Opinion and (iv) October 10, 1996. This additional fee shall be payable whether or not a Transaction is consummated. No additional fee shall be paid in connection with any reconsideration pursuant to Paragraph 7 below. Whether or not (i) a Transaction is consummated or (ii) an Opinion is required, the Company will reimburse Dillon Read, upon its demand from time to time, for the expenses reasonably incurred and adequately documented by it on or after October 10, 1995 in entering into and performing services pursuant to this Agreement (including the fees and disbursements of Dillon Read's counsel). 4. In the ordinary course of its business, Dillon Read may trade the securities of both the Company and the acquiror for its own account and for the accounts of customers, and it may at any time hold a long or short position in such securities. In doing so, Dillon Read is aware of its duties and responsibilities under applicable law. 5. The Company will make available to Dillon Read all information concerning the Company's business, assets, operations or financial condition which Dillon Read reasonably requests in connection with the performance of its services hereunder. The Company will make its management and other personnel and appropriate representatives of its independent public accountants and its advisors available to Dillon Read for discussions and consultations at such times as Dillon Read may reasonably request in connection with the performance of its services hereunder. The Company understands that in rendering services hereunder Dillon Read will be relying, without independent verification, upon the accuracy and completeness of all information that is or will be furnished to Dillon Read by or on behalf of the Company and Dillon Read will not in any respect be responsible for the accuracy or completeness thereof. As a condition to Dillon Read's being furnished such information, Dillon Read agrees to treat such information confidentially and to use such information solely for the purpose of performing its responsibilities hereunder and such information will not be disclosed except to employees who need such information in connection with the Transaction or as required by law. 6. The written Opinion rendered by Dillon Read pursuant to this Agreement may be reproduced in full in any disclosure document relating to the Transaction that is mailed by the Company, SCOR S.A. or its affiliates to its shareholders; provided, however, that all reference to Dillon Read in any such disclosure document and the description or inclusion of its Opinion and advice shall be subject to Dillon Read's prior written consent with respect to form and substance. Except (a) as permitted by the immediately preceding sentence or (b) to the extent legally required (after consultation with Dillon Read and its counsel, none of (a) the name of Dillon Read, (b) any advice Dillon Read & Co. Inc. rendered by Dillon Read to the Company or the Special Committee or (c) any communication from Dillon Read in connection with the services performed by Dillon Read pursuant to this Agreement will be quoted or referred to orally or in writing by the Company or any of its affiliates or any of their agents, without Dillon Read's prior written consent. 7. With respect to any opinion delivered prior to the completion of the Transaction, it is understood that Dillon Read may reconsider its opinion upon review of any disclosure document relating to the Transaction in final form and any report, document, release or communication published or filed by or on behalf of the Company in connection with the Transaction and upon review of such other information as may hereafter be disclosed or otherwise becomes available to Dillon Read. 8. In the event that Dillon Read becomes involved in any action, proceeding, investigation or inquiry in connection with any matter referred to in this Agreement or arising out of the matters contemplated by this Agreement, the Company will reimburse Dillon Read for its legal and other expenses (including the cost of any investigation and preparation) as they are incurred by Dillon Read in connection therewith provided that such legal and other expenses do not arise primarily out of a final judicial determination of gross negligence or bad faith on the part of Dillon Read in performing the services which are the subject of this Agreement. The Company also agrees to indemnify Dillon Read and hold it harmless against any losses, claims, damages or liabilities in connection with any matter referred to in this Agreement or arising out of the matters contemplated by this Agreement, unless it shall be finally judicially determined that such losses, claims, damages or liabilities arise primarily out of the gross negligence or bad faith of Dillon Read in performing the services which are the subject of this Agreement; and if such indemnification were for any reason not to be available, to contribute to the losses, claims, damages and liabilities involved in the proportion that the Company's interest bears to Dillon Read's interest in the matters contemplated by this Agreement. For purposes of this paragraph, the term Dillon Read shall include Dillon Read, its officers, directors, employees, agents and controlling persons. The foregoing agreement shall be in addition to any rights that any indemnified party may have at common law or otherwise. 9. Dillon Read's services hereunder may be terminated by the Special Committee at any time without liability or continuing obligation of the Special Committee except that Dillon Read's fees pursuant to Section 3 hereof shall become immediately payable in full and except for expenses incurred by Dillon Read as a result of services rendered prior to the date of termination and provided that the provisions of Sections 5, 6, 7 and 8 hereof shall remain operative and in full force and effect regardless of any termination. 10. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of law. 11. This Agreement shall be binding upon Dillon Read and the Company and the successors and assigns of both and any successor of any substantial portion of the Company's and Dillon Read's respective businesses and/or assets. Dillon Read & Co. Inc. If the foregoing correctly sets forth our understanding, please indicate your acceptance thereof in the space provided below, whereupon this Agreement and your acceptance shall constitute a binding agreement between us. Very truly yours, DILLON, READ & CO INC. By: /s/ David M. Dickson, Jr. ------------------------- David M. Dickson, Jr. Senior Vice President Accepted and agreed to as of the date first above written: SCOR U.S. CORPORATION By: /s/ David J. Sherwood ------------------------ David J. Sherwood On behalf of the Company and the Special Committee of the Board of Directors EX-9 9 CONFIDENTIAL SCOR U.S. Corporation Presentation to the Special Committee of the Board of Directors November 2, 1995 Dillon, Read & Co. Inc. Confidential TABLE OF CONTENTS Tab --- Overview . . . . . . . . . . . . . . . . . . . . . . . . . . A Overview of SCOR U.S. Corporation . . . . . . . . . . . . . . B SCOR U.S. Valuation Indicators . . . . . . . . . . . . . . . C Exhibits -------- Analysis of Comparable Trading Companies . . . . . . . . . . 1 Analysis of Comparable Acquisitions . . . . . . . . . . . . . 2 Premiums Paid in Minority "Close Outs" . . . . . . . . . . . 3 Discounted Cash Flow Analysis . . . . . . . . . . . . . . . . 4 Weighted Average Cost of Capital Analysis . . . . . . . . . . 5 Dillon, Read & Co. Inc. SCOR U.S. Corporation OVERVIEW Confidential SUMMARY OF THE OFFER - Shareholders of SCOR U.S. Corporation ("SCOR") other than SCOR S.A. will receive $15.25 per share in cash - SCOR S.A. currently owns 80% of the outstanding shares of common stock of SCOR - Including the assumption of SCOR debt, the implied valuation of the offer is as follows: (Dollars in Millions) Implied SCOR Cash Offer Valuation --------- ------------ Equity Value $55.4(a) $277.0(a) Convertible Subordinated Debentures 76.0 Notes Payable 25.0 Commercial Paper 20.6 ------------ Total Asset Valuation $398.6 ============ - -------------------- (a) Assumes the acquisition of 20% of SCOR, or 3,632,924 common shares. Excludes 1,576,951 stock options outstanding at option price per share ranges of $8.00 - $17.00. Dillon, Read & Co. Inc. A - 1 SCOR U.S. Corporation
Confidential PROPOSAL MULTIPLES Sensitivity Analysis Offer Offer Price $14.00 $15.00 $15.25 $16.00 ---------- ---------- ---------- ---------- Total Equity Value ($MM) $254.3 $272.5 $277.0 $290.6 P/E: SCOR Statistic - ------------------------------------- ---------------- 1995E E.P.S.(a) $0.92 15.2x 16.3x 16.6x 17.4x 1996E E.P.S.(a) 0.97 14.4 15.5 15.7 16.5 1995E E.P.S.(b) $1.01 13.9x 14.9x 15.1 15.8x 1996E E.P.S.(b) 1.19 11.8 12.6 12.8 13.4 Price as a Multiple of: - ------------------------------------- Book Value (9/30/95) (Primary)(c) $15.27 0.91x 0.98x 1.00x 1.05x (F-D)(c) 15.03 0.93 0.99 1.01 1.06 Surplus (9/30/95) (Primary)(c) 14.13 0.99 1.06 1.08 1.13 (F-D)(c) 13.96 1.00 1.07 1.09 1.14 Premium Over Market: - ------------------------------------- Day before Offer $11.125 25.8% 34.8% 37.1% 43.8% 52-Week High, Pre-Offer 11.625 20.4 29.0 31.2 37.6 52-Week Low, Pre-Offer 7.500 86.7 100.0 103.3 126.7
- -------------------- (a) Source: I/B/E/S. (b) Based on management October projections. (c) Based on primary book value of $277.4MM, surplus of $256.8MM, options of 1,066,789 (under $15.25) and exercise proceeds of $11.849MM. Dillon, Read & Co. Inc. A - 2 SCOR U.S. Corporation OVERVIEW OF SCOR U.S. Confidential REINSURANCE INDUSTRY - Primary insurance companies continue to direct business towards financially secure reinsurers who are perceived to be long-term players. - Increasing consolidation is evident - Ceding companies flight to quality is also evident - Since 1987, increasing global competition, including from Bermuda based reinsurers (established after Hurricane Andrew in 1992) together with increasing retention by primary insurance companies, has resulted in generally soft market conditions across many lines of business. - Supply of reinsurance is directly related to levels of surplus in the industry, which was expanded in the early 1990's as a response to many catastrophes - Cyclicality in the reinsurance industry is now experienced in different lines and regions at different times - The Bermuda companies may become more broad - based competitors for all reinsurers (including casualty) depending on a number of competitive factors. - To the extent the Bermudians become more broad - based, the increased competition could intensify market competition and create pricing pressure Dillon, Read & Co. Inc. B - 1 SCOR U.S. Corporation
Confidential COMPETITIVE POSITION 1994 6/30 Premiums 1995 Combined Ratio -------------- Broker Market Earned Surplus 1994 1995 - ------------------------------------- --------- ---------- -------- -------- Transatlantic Re/Putnam Re $851,183 $668,494 105.7% 103.1% Zurich Reinsurance Centre 221,814 645,621 114.6 108.0 Prudential Reins. 722,454 639,693 118.4 107.2 Kemper Reinsurance 317,399 451,627 108.8 104.5 NAC Reins. 375,870 435,607 105.7 103.9 Underwriters Reins 182,282 409,038 107.0 102.4 TIG Reinsurance 394,458 402,246 104.4 103.3 Skandia Ameriaca Reins. 164,026 347,093 124.6 124.4 Constitution Reins. 466,103 290,413 101.0 104.2 SCOR U.S. 229,904 251,890 118.7 105.7 Trenwick America Reins. 132,683 243,739 103.1 96.9 Signet Star Reins. 182,976 224,221 113.8 103.1 Winterthur Reins. 207,880 222,919 109.1 106.7 Gerling Global 92,772 141,597 112.8 105.4 Folksamerica Group 154,070 117,252 109.2 103.8 Chartwell 101,632 115,101 105.7 104.4 Frankona 111,424 114,481 103.3 104.3 Christiania General 140,592 113,550 111.7 104.8 Generali 110,391 105,375 114.7 107.9 Reinsurance Corp. of N.Y. 129,372 97,379 120.4 109.7 Direct-Writer Market - ------------------------------------ General Re $2,417,071 $4,227,923 101.2% 99.3% Employers Reins. 2,100,119 2,808,540 104.6 102.7 American Re 1,442,571 1,120,108 103.8 99.4 Swiss Re NA 831,014 NA NA Munich Re Group 666,908 783,999 116.7 105.2 National Reins. 333,123 386,374 98.4 98.1
Dillon, Read & Co. Inc. B - 2 SCOR U.S. Corporation
Confidential RELATIONSHIP WITH BROKERS - SCOR's relationship with the intermediaries appears well diversified and balanced 1991 to July 1995 Written Premiums -------------------------------------------------------------- Broker Treaty % of Total Facultative % of Total - ----------------------------- --------- ---------- ----------- ----------- Blanch $154,085 15.9% -- -- John P. Woods 118,480 12.2 -- -- Guy Carpenter 114,996 11.8% $3,352 4.5% Sedgwick Re 83,259 8.6% 11,270 15.1% Bails 73,271 7.5% 58 0.1% Alexander Re 62,159 6.4% 3,584 4.8% Intere 44,523 4.6% 59 0.1% Aon 43,859 4.5% 6,614 8.9% Wilcox 35,977 3.7% 3 0.0% Towers Perrin 31,869 3.3% -- -- Marsh & McLennan -- -- 11,077 14.9% RFC Intermediaries Inc. -- -- 6,581 8.8% Willis Corroon Corporation -- -- 5,132 6.9% Alexander Howden -- -- 3,603 4.8% Willis Faber 18,516 1.9% 3,289 4.4% Alexander & Alexander -- -- 2,703 3.6%
Dillon, Read & Co. Inc. B - 3 SCOR U.S. Corporation
Confidential CEDING COMPANY BUSINESS - SCOR U.S. has a number of large ceding company relationships which account for a relatively large percentage of its business 1992 1993 1994 1995 Through July 1 ------------------------------ -------------------------- --------------------------- --------------------------- N $25,120 19.3% N $27,000 16.5% A $26,896 16.4% A $31,014 25.8% A 15,238 11.7% A 17,285 10.5% K 18,001 11.0% B 15,375 12.8% Q 14,079 10.8% K 17,241 10.5% C 18,000 11.0% C 10,000 8.3% B 9,550 7.3% O 16,425 10.0% B 17,375 10.6% D 8,893 7.4% R 6,191 4.8% M 10,000 6.1% L 10,341 6.3% E 8,145 6.8% O 5,734 4.4% B 8,526 5.2% D 9,329 5.7% F 5,308 4.4% F 5,703 4.4% D 8,078 4.9% E 8,495 5.2% G 4,669 3.9% G 5,391 4.1% E 7,641 4.7% M 5,327 3.3% H 4,275 3.6% K 5,098 3.9% P 5,390 3.3% F 5,209 3.2% I 3,900 3.3% S 5,000 3.8% G 5,277 3.2% H 5,200 3.2% J 3,761 3.1% Other 32,874 25.3% Other 41,256 25.1% Other 39,515 24.1% Other 24,642 20.5% -------- ------ -------- ------ -------- ------ -------- ------ Total $129,978 100.0% Total $164,119 100.0% Total $163,689 100.0% Total $119,981 100.0% ======== ====== ======== ====== ======== ====== ======== ======
Dillon, Read & Co. Inc. B - 4 SCOR U.S. Corporation Confidential RECENT DEVELOPMENTS Date Event - ------- ------------------------------------------------------------- 9/26/95 Offer by SCOR to acquire 20% of SCOR U.S. Corporation that it doesn't already own at $14/share 3/10/95 SCOR U.S. reduces regular quarterly dividend from $0.36 to $0.20 annually 3/09/95 SCOR S.A. postpones capital reorganization 1/30/95 SCOR U.S. management sale of stock to SCOR S.A. 8/94 SCOR S.A. CEO resigns Dillon, Read & Co. Inc. B - 5 SCOR U.S. Corporation Confidential
SCOR PRINCIPAL OPERATING UNITS Audit SCOR U.S. Committee | of the Board | | | | | | ------------------------------------------|----------------------------------------Reserving | | Committee | | | | | | | | | SUPPORT | UNDERWRITING | ----------------------------------------------------------------------------------------------------------- | | | | | | | | | | | | Chief | Underwriting | Facultative/ | | General Chief Info Financial | Services Treaty Alt. Risk Bonds | Counsel Officer Officer | SCOR Re SCOR Re SCOR Re SCOR Re | | | | | -Law -Information -Finance | -Actuarial -Treaty Prop/Cas -Facultative Prop/Cas -Surety & Fidelity | -Human Services -Accounting | -Claims -Treaty Catastrophe -Alternative Risk | Resources -Investments| -Retro -Insurance | & Administration | Management | -Investor | -Underwriting | Relations | Stds | --------|--------- Communications/ | | Risk Morgard, SCOR Re Management Inc. California Re
Dillon, Read & Co. Inc. B - 6 SCOR U.S. Corporation Confidential NET PREMIUMS EARNED (Dollars in 000s) Year Ended December 31, Nine Months Ended ----------------------- ------------------- 1993 1994 1994 1995 TREATY - ------ Property Pro Rata NA NA $47,366 $41,351 Property per Risk NA NA 4,226 3,072 Property Catastrophe NA NA 9,233 4,580 Non-Standard Auto $33,944 $40,107 27,005 32,694 Casualty NA NA 38,643 40,651 Other NA NA 17,995 21,559 FACULTATIVE - ----------- Property 29,240 32,878 8,935 10,740 Casualty 29,549 30,300 16,139 20,764 Other NA NA 920 1,562 OTHER NA NA 2,747 5,364 - ----- TOTAL $236,051 $228,244 $173,209 $182,337 ----- Dillon, Read & Co. Inc. B - 7 SCOR U.S. Corporation Confidential NET LOSS RATIO (Dollars in 000s) Year Ended December 31, Nine Months Ended ----------------------- ------------------ 1993 1994 1994 1995 ---------- ----------- --------- -------- TREATY - ------ Property Pro Rata NA NA 125.4% 77.4% Property per Risk NA NA 54.2 31.4 Property Catastrophe NA NA 70.7 14.8 Non-Standard Auto 64.4% 83.9% 78.1 72.1 Casualty NA NA 89.9 62.0 Other NA NA 63.5 61.9 FACULTATIVE - ----------- Property 38.8% 65.0% 44.5% 53.0% Casualty 70.9 70.0 50.4 48.4 Other NA NA 177.8 126.4 OTHER NA NA 120.5% 157.9% - ----- TOTAL 66.2% 83.8% 88.1% 66.9% ----- Dillon, Read & Co. Inc. B - 8 SCOR U.S. Corporation Confidential NET COMBINED RATIO (Dollars in 000s) Year Ended December 31, Nine Months Ended ----------------------- --------------------- 1993 1994 1994 1995 --------- --------- -------- ---------- TREATY - ------ Property Pro Rata NA NA 164.5% 120.6% Property per Risk NA NA 35.7 93.5 Property Catastrophe NA NA 84.3 94.1 Non-Standard Auto 97.7% 120.4% 118.4 107.1 Casualty NA NA 127.9 90.4 Other NA NA 99.8 103.4 FACULTATIVE - ----------- Property 66.4% 94.0% 89.4% 98.8% Casualty 97.7 98.8 84.5 79.9 Other NA NA 191.6 149.9 OTHER NA NA 166.3% 194.0% - ----- TOTAL 105.1% 123.0% 123.3% 103.9% ----- Dillon, Read & Co. Inc. B - 9 SCOR U.S. Corporation Confidential PROPERTY PRO RATA - The Company totally readjusted its strategy with regard to this market - Historically, Property pro rata been responsible for largest share of CAT losses - Competitors are not writing new proportional business - SCOR reduced its exposure over 50% and will continue to reallocate volume - Reduce CAT exposures dramatically and capped most treaties
(Dollars in 000s) Year Ended Nine Months December 31, Ended Projected -------------- ----------------------- ---------------------------------- 1993 1994 1994 1995 1995 1996 1997 ----- ----- ----------- ---------- --------- --------- ---------- Premiums Earned NA NA $47,366 $41,351 $78,199 $52,430 $41,369 Expense Ratio NA NA 125.4% 77.4% 57.0% 64.0% 63.1% Combined Ratio NA NA 164.5 120.6 92.5 100.2 99.9 Dillon, Read & Co. Inc. B - 10 SCOR U.S. Corporation Confidential PROPERTY PER RISK - Highly competitive market due to excess capacity in broker and direct market and Bermuda and London. - Ceding companies having trouble in the pro rata market have increased reinsurance opportunities in excess market - SCOR has small and profitable niche here - Difficult to expand due to expanding direct writers
(Dollars in 000s) Year Ended Nine Months December 31, Ended Projected -------------- ------------------- ---------------------------------- 1993 1994 1994 1995 1995 1996 1997 Premiums Earned NA NA $4,226 $3,072 $7,510 $11,671 $15,916 Expense Ratio NA NA 54.2% 31.4% 82.2% 85.6% 85.3% Combined Ratio NA NA 35.7 93.5 124.1 123.1 97.0
Dillon, Read & Co. Inc. B - 11 SCOR U.S. Corporation Confidential PROPERTY CATASTROPHE - Lower rates on line renewals will be evident this renewal season due to increased capital and competition - Bermuda continues to increase its involvement on programs - Bermuda capital appears likely to remain in place - Business is still adequately priced and SCOR appears able to manage its CAT exposure
(Dollars in 000s) Year Ended Nine Months December 31, Ended Projected 1993 1994 1994 1995 1995 1996 1997 Premiums Earned NA NA $9,233 $4,580 $7,987 $7,987 $7,987 Expense Ratio NA NA 70.7% 14.8% 59.8% 59.9% 59.9% Combined Ratio NA NA 84.3 94.1 92.6 90.1 88.1 Dillon, Read & Co. Inc. B - 12 SCOR U.S. Corporation Confidential NON STANDARD AUTO - - Increased primary and reinsurer competition have resulted in pricing pressure recently - SCOR has developed this line well but profitability has attracted competition - Construction Re has lion's share of market while Hartford and Gerling Global have become active (Dollars in 000s) Year Ended Nine Months December 31, Ended Projected -------------------- ------------------- ----------------------------------- 1993 1994 1994 1995 1995 1996 1997 Premiums Earned $33,944 $40,107 $27,005 $32,694 $64,984 $84,098 $105,984 Expense Ratio 64.4% 83.9% 78.1% 72.1% 66.3% 65.7% 65.2% Combined Ratio 97.7 120.4 118.4 107.1 101.3 100.3 99.2
Dillon, Read & Co. Inc. B - 13 SCOR U.S. Corporation Confidential CASUALTY ALL OTHER - - SCOR's desire to balance its casualty and property books requires greater participation in this line of business - Casualty is currently underpriced and highly competitive - Competitive conditions will limit growth opportunities in commercial and private auto and excess liability covers - More MGA proposals and programs being written and SCOR is expected to participate
(Dollars in 000s) Year Ended Nine Months December 31, Ended Projected ------------- -------------------- --------------------------------- 1993 1994 1994 1995 1995 1996 1997 ----- ----- ------- -------- -------- ------- ------- Premiums Earned NA NA $38,643 $40,651 $46,006 $51,035 $55,379 Expense Ratio NA NA 89.9% 62.0% 81.6% 71.2% 68.0% Combined Ratio NA NA 127.9 90.4 112.1 100.3 95.3
Dillon, Read & Co. Inc. B - 14 SCOR U.S. Corporation Confidential PROPERTY FACULTATIVE - - Considered SCOR's core business; the Company has an excellent record focusing on energy, petrochemicals and chemicals - Excellent historical loss ratio - Recent downward pressure on rates due to increased retentions and more capacity - General property market may be reaching bottom - SCOR plans a steady expansion of the facultative franchise
(Dollars in 000s) Year Ended Nine Months December 31, Ended Projected --------------------- -------------------- -------------------------------- 1993 1994 1994 1995 1995 1996 1997 -------- -------- -------- ------- -------- -------- -------- Premiums Earned $29,240 $32,878 $8,935 $10,740 $17,818 $21,911 $25,502 Expense Ratio 38.8% 65.0% 44.5% 53.0% 56.5% 55.5% 55.4% Combined Ratio 66.4 94.0 89.4 98.8 107.2 101.5 97.9
Dillon, Read & Co. Inc. B - 15 SCOR U.S. Corporation Confidential CASUALTY FACULTATIVE - - Extremely heavy competition has limited growth - Pricing improvement not evident in this line of business - Company will concentrate on smaller lines of buffer layer business in the automobile or general liability lines - Intent to focus on developing niches of expertise; will achieve better spread of risk and less volatility
(Dollars in 000s) Year Ended Nine Months December 31, Ended Projected --------------------- -------------------- -------------------------------- 1993 1994 1994 1995 1995 1996 1997 -------- -------- -------- ------- -------- -------- -------- Premiums Earned $29,549 $30,300 $16,139 $20,764 $25,969 $29,739 $35,819 Expense Ratio 70.9% 70.0% 50.4% 48.4% 87.0% 83.6% 85.0% Combined Ratio 97.7 98.8 84.5 79.9 123.7 115.9 114.3
Dillon, Read & Co. Inc. B - 16 SCOR U.S. Corporation Confidential EXPENSE RATIO (GAAP)(a) YEAR EXPENSE RATIO WRITTEN PREMIUMS PER EMPLOYEE ---- ------------- ----------------------------- 1990 40.5% $1.3 MM 1991 38.9 1.3 1992 43.8 1.7 1993 38.9 1.8 1994 38.6 1.9 1995E 36.7 2.0 --------- a) U/W year; includes commission ratio Dillon, Read & Co. Inc. B - 17 SCOR U.S. Corporation Confidential INCOME STATEMENT
Year Ended December 31, LTM Ended --------------------------------------------- Sept 30, (Dollars in 000s, except per share data) 1992 1993 1994 1995 --------- -------- -------- --------- Revenues: Net Premiums Earned $192,050 $236,051 $228,244 $237,374 Net Investment Income 42,880 42,044 40,990 42,378 Net Realized Investment Gains/(Losses) 15,048 12,930 984 638 --------- -------- -------- --------- Net Revenues 249,978 291,025 270,218 280,390 Losses and Expenses: Losses and Expenses, net 160,545 156,292 191,270 160,664 Commissions, net 55,960 61,324 59,434 60,311 Other Operating Expenses 23,918 26,420 26,009 27,206 Other 4,346 4,073 4,039 2,014 --------- -------- -------- --------- Interest Expense 4,579 8,005 8,920 8,844 Pretax Income 630 34,911 (19,454) 21,351 Income Taxes (Benefit) (3,771) 6,983 (11,262) 4,674 --------- -------- -------- --------- Net Income from Continuing Operations $4,401 $27,928 ($8,192) $16,677 ========= ======== ======== ========= Extraordinary Items -- -- 351 903 Cumulative Effect of Accounting Change 2,848 (2,600) -- -- --------- -------- -------- --------- Net Income $7,249 $25,328 ($7,841) $17,580 ========= ======== ======== ========= Average Shares Outstanding (000s) 18,256 18,395 18,166 18,248 Fully Diluted E.P.S. from Continuing Operations $0.25 $1.45 ($0.45) $0.91 Fully Diluted E.P.S. 0.40 1.33 (0.43) 0.96 GAAP Operating Ratios: Loss Ratio 83.6% 66.2% 83.8% 67.7% Commissions Ratio 29.1% 26.0% 26.0% 25.4% Expense Ratio 14.7% 12.9% 13.2% 12.3% --------- -------- -------- --------- Combined Ratio 127.5% 105.1% 123.0% 105.4% Return on Average Equity 1.7% 10.0% -3.1%
Dillon, Read & Co. Inc. B - 18 SCOR U.S. Corporation Confidential NET ASSETS
(Dollars in 000s) As of December 31, As of ------------------------ Sept 30, ASSETS 1993 1994 1995 -------- ---------- -------- Investments: Fixed Maturities: Available for Sale at Fair Value $581,104 $563,656 $563,515 Held to Maturity at Amortized Cost 24,876 22,871 22,155 Equity Securities at Fair Value 18,951 1,738 204 Short-term Investments at Cost 90,642 83,303 122,794 Other Long Term Investments 1,081 1,225 1,374 ---------- ---------- ---------- Total Investments 716,654 672,793 710,042 Cash 17,096 4,763 13,318 Reinsurance Recoverable on Unpaid Losses 221,843 222,672 226,544 Reinsurance Recoverable on Paid Losses 36,827 23,755 19,939 Premiums Receivable 80,319 72,019 80,996 Investment in Affiliates 10,789 11,532 12,360 Other Assets 110,583 136,181 117,973 ---------- ---------- ---------- Total Assets $1,194,111 $1,143,715 $1,181,172 ========== ========== ========== LIABILITIES OTHER THAN DEBT Reserves for Losses and Loss Expenses $562,209 $604,787 $618,738 Unearned Premiums 114,376 110,082 99,955 Funds Held Under Reinsurance Treaties 39,602 20,758 18,571 Reinsurance Balances Payable 60,233 43,685 27,000 Other Liabilities 10,031 11,348 17,933 ---------- ---------- ---------- Total Liabilities Other than Debt 786,451 790,660 782,197 ---------- ---------- ---------- TOTAL NET ASSETS $407,660 $353,055 $398,975 ========== ========== ==========
Dillon, Read & Co. Inc. B - 19 SCOR U.S. Corporation Confidential CAPITALIZATION
(Dollars in 000s) As of December 31, As of ----------------------- Sept 30, CAPITALIZATION 1993 1994 1995 ------- ------- ------- Debt: Convertible Subordinated Debentures $86,250 $82,350 $75,950 Notes Payable 20,000 20,000 25,000 Commercial Paper 10,721 11,310 20,639 ------- ------- ------- Total Debt 116,971 113,660 121,589 Stockholders' Equity Common Stock 5,490 5,507 5,507 Additional Paid in Capital 112,670 114,556 114,669 Unrealized Appreciation/(Depreciation) of Investments, Net of Deferred Tax Effect 16,634 (21,640) 4,752 Foreign Currency Translation Adjustments 12 (414) (252) Retained Earnings 157,532 143,153 154,482 Treasury Stock (1,649) (1,767) (1,774) ------- ------- ------- Total Stockholders' Equity 290,689 239,395 277,386 ------- ------- ------- TOTAL CAPITALIZATION $407,660 $353,055 $398,975 -------- -------- -------- Total Debt to Capitalization 28.7% 32.2% 30.5% Net Debt to Capitalization 24.5 30.8 27.1
Dillon, Read & Co. Inc. B - 20 SCOR U.S. Corporation Confidential LOSS RESERVES - THE COMPANY HAS TAKEN A CONSERVATIVE APPROACH TOWARD ESTABLISHING PROVISIONS FOR LOSS RESERVES. THE MAJORITY OF SCOR'S BUSINESS IS GENERALLY "SHORTER TAIL" PROPERTY, AND THEREFORE, IT IS GENERALLY EASIER TO DETERMINE LOSS AMOUNTS ON A TIMELY BASIS
($ in millions) Year ended December 31, ________________________________________________________________________________________________________________________________ 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 ________________________________________________________________________________________________________________________________ Initial Reserves For Losses and loss expenses $87 $104 $138 $192 $241 $289 $319 $324 $341 $340 $382 Re-estimated as of: One Year Later $89 $116 $139 $192 $239 $301 $326 $319 $337 $338 Two Years Later 98 115 132 183 234 297 318 302 335 Three Years Later 101 115 123 185 225 292 300 302 Four Years Later 106 120 133 180 223 274 298 Five Years Later 108 137 134 178 213 275 Six Years Later 123 137 131 171 212 Seven Years Later 119 135 127 173 Eight Years Later 118 131 129 Nine Years Later 118 133 Ten Years Later 117 Cumlative amount of liability paid through: One Year Later $33 $33 $30 $42 $59 $62 $85 $92 $121 $94 Two Years Later 48 53 48 73 89 113 139 145 161 Three Years Later 62 66 65 93 115 149 176 159 Four Years Later 71 80 79 106 139 174 180 Five Years Later 81 92 88 123 151 173 Six Years Later 87 100 98 131 143 Seven Years Later 93 107 104 118 Eight Years Later 97 111 91 Nine Years Later 100 101 Ten Years Later 92 Cumulative ($30) ($29) $9 $19 $29 $14 $21 $22 $6 $2 Redemption (Deficiency) -35% -28% 6% 10% 12% 5% 7% 7% 2% 1% Percentage _________________________________________________________________________________________________________________________________
Dillon, Read & Co. Inc. B - 21 SCOR U.S. Corporation Confidential LOSS RESERVES (CONT'D) - - As of 12/31/94, SCOR U.S. studied its IBNR (only facultative casualty and treaty) using alternative methods of analysis (Alternative Method Study) - SCOR typically utilizes Incurred Loss Development method to estimate reserves - The Alternative Method Study utilized the Bornheutter-Ferguson Method Gross IBNR ---------- 12/31/94 (Dollars in Millions)
Alt. Method IBNR Type Estimated Actual Difference - ------------------------------------ ----------- --------- ---------- Property Pro-Rata excl. Catastrophes $11.8 $14.5 $2.7 Property per Risk Excl. Catastrophes 0.9 2.4 1.4 Property Catastrophe 11.1 11.1 0.0 Non-Standard Auto 12.7 12.1 (0.7) Standard Auto 22.1 18.8 (3.3) General Liability 63.7 52.3 (11.3) Professional Liability 10.7 9.3 (1.4) Workers' Compensation 9.1 10.1 1.0 Bonds; Fidelity & Surety 3.2 4.0 0.8 Marine 2.7 0.0 (2.7) Inherent Defect Insurance 0.5 0.0 (0.5) Agricultural 0.1 0.0 (0.1) Facultative Casualty 85.7 80.7 (5.0) ------ ------ ------- Total $243.3 $215.2 ($19.1) ====== ====== =======
Dillon, Read & Co. Inc. B - 22 SCOR U.S. Corporation Confidential LOSS RESERVES (CONT'D) - - KPMG Peat Marwick has periodically reviewed the Loss and Loss Adjustment Expense Reserve - - The last review was December 31, 1993 (no rating agency need in 1994) and resulted in the following analysis: ($ in millions) Low Selected High -------- ---------- -------- Case Reserves $170.4 $170.4 $170.4 IBNR 137.6 154.6 173.6 ----- ----- ----- Total 308.0 325.0 344.0 Covered Reserves 340.4 Differential $32.4 $15.4 $(3.6) ===== ===== ====== Dillon, Read & Co. Inc. B - 23 SCOR U.S. Corporation Confidential RETROCESSION ($ in millions) - - SCOR U.S.'s retrocession program appears adequate in relation to its surplus capacity, gross line capacity and changing market conditions - Record of recovery is excellent - Pricing is independent of SCOR S.A.
Treaty Facultative Catastrophe --------------------------- --------------------------- --------------------- Property $3 SCOR S.A. $13.0 SCOR S.A. (Prop.) - (Proportional) 4.0 X/S 3.0 Non-Affiliate 2.0 X/S 4.0 SCOR S.A. Casualty - $2.5 X/S 2.5 SCOR S.A. - 1.5 X/S 1.0 SCOR S.A. (experience rated) Prop. CAT $6 SCOR S.A. - $6X/S $20 Pre (Lead) (Proportional) 6X/S 26 Lloyds 6X/S 32 Lasalle 10X/S 38 Non-Affiliate 12X/S 48 PXRE 8X/S 60 Zurich (Sale)
Dillon, Read & Co. Inc. B - 24 SCOR U.S. Corporation Confidential EXPOSURE MANAGEMENT - - SCOR U.S. monitors its total exposure to various catastrophic events quarterly - Company has continued to reduce its estimated exposures primarily through a reduction in its property pro-rata book - Company diversifying its aggregate exposures - - Estimated exposures are in line with SCOR U.S.'s surplus capacity (net of CAT) ($ in Millions) Wind (25 Year Event) Earthquake ($80b Event) -------------------- ----------------------- 1/1/94 $28.6 MM $118.0 MM 7/1/95 21.8 MM 112.5 MM Dillon, Read & Co. Inc. B - 25 SCOR U.S. Corporation Confidential INVESTMENT PORTFOLIO (Dollars in 000s) As of 9/30/95 ------------------------------ Amount % Total ----------- ------------ Taxable Bonds $341,997 48% Tax-Exempt Bonds 210,184 30 ----------- ------------ Total Bonds $552,181 78% Preferred Stock 33,521 5 Common Stock 170 0 Short-Term Investments 122,794 17 Other 1,374 0 ----------- ------------ Total Investments $710,040 100% =========== ============ Average Maturity 4.81 Average Rating Aaa Yield: - ------ Bond Portfolio 6.2% Equity Portfolio 5.3 Dillon, Read & Co. Inc. B - 26 SCOR U.S. Corporation Confidential INVESTMENT PORTFOLIO (CONT'D) - - As of December 1994, the ratings of SCOR's bond portfolio were as follows: (Dollars in 000s) Carrying % Total Bond Portfolio Value Portfolio ------------------------------------------ ---------- ---------- U.S. Treasuries and Agencies $158,571 28.6% Foreign Government and Agencies 14,636 2.6% Aaa 202,626 36.5% Aa 89,607 16.2% A 86,346 15.6% Baa 2,787 0.5% ---------- -------- Total $554,573 100% Dillon, Read & Co. Inc. B - 27 SCOR U.S. Corporation Confidential PRINCIPAL SHAREHOLDERS (a) Shares Held Institution as of 6/95 % of Outstanding - --------------------------------------- ----------- ---------------- Tweedy Browne 949,533 5.2% Dimensional Fund 611,700 3.4 Prudential 213,900 1.2 Wilshire Associates 204,100 1.1 Wells Fargo 184,429 1.0 Sanford Bernstein 106,600 0.5 J.P. Morgan 56,000 0.3 Brandywine Asset Management 53,900 0.3 Mellon Bank 53,621 0.3 California State 51,463 0.3 ---- 13.7% ===== - ------------- (a) Source: Technimetrics, Inc. Dillon, Read & Co. Inc. B - 28 SCOR U.S. Corporation SCOR U.S. VALUATION INDICATORS Confidential VALUATION APPROACH Valuation Approach Proxy - - Comparable Trading Analysis - Trading multiples of comparable reinsurance companies - Correlation of price-to-book trading multiples to ROE for reinsurance comparables - - Comparable Merger Analysis - Multiples and premiums paid for acquisitions in the reinsurance industry - - Economic Book Value Analysis - Adjustments to reported book value - - Discounted Cash Flow Analysis - Based on 1995 - 2000 projections of cash flows - - Premium Analysis - Premiums paid in comparable minority "close out" transactions Dillon, Read & Co. Inc. C - 1 SCOR U.S. Corporation Confidential SCOR U.S. ONE YEAR PRICE AND VOLUME HISTORY
DAILY STOCK PRICE JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC $ 8.50 $ 8.00 $ 8.00 $ 7.50 $ 8.00 $ 9.00 $ 9.00 $ 9.00 $11.00 $11.50 $11.50 $15.50
DAILY VOLUME 1/2/95 0 1/18/95 18,000 2/3/95 5,000 2/21/95 2,500 3/9/95 2,000 3/27/95 2,000 4/12/95 1,500 4/28/95 1,500 5/16/95 1,500 6/1/95 1,500 6/19/95 1,500 7/5/95 1,500 7/21/95 1,500 8/8/95 1,500 8/24/95 1,500 9/11/95 1,500 9/27/95 180,000 10/13/95 1,500 11/1/95 1,500 Dillon, Read & Co. Inc. C - 2 SCOR U.S. Corporation Confidential TRADING VOLUME SINCE ANNOUNCEMENT OF TRANSACTION Rolling Average since Date SUR Volume Announcement ---------- ---------- --------------------- 11/1 2,900 16,646 10/31 13,700 17,156 10/31 13,700 17,288 10/30 5,400 17,432 10/27 800 17,933 10/26 5,100 18,678 10/25 2,600 19,295 10/24 6,700 20,090 10/23 600 20,760 10/20 0 21,821 10/19 11,600 24,388 10/18 4,000 25,188 10/17 11,200 26,600 10/13 1,000 27,700 10/12 1,500 29,754 10/11 4,000 32,108 10/10 14,000 34,664 10/9 5,000 36,730 10/6 4,900 40,256 10/5 1,500 44,675 10/4 2,600 50,843 10/3 3,000 58,883 10/2 13,900 70,060 9/29 44,900 84,100 9/28 34,300 97,167 9/27 73,000 128,600 9/26 184,200 184,200 ----------- Total 466,100 Dillon, Read & Co. Inc. C - 3 SCOR U.S. Corporation Confidential STOCK PRICE PERFORMANCE OF COMPARABLE COMPANIES Pricing Date
American Re Corp General Re Corp NAC Re Corp S&P 500 S&P Financial Transatlantic Hldgs Inc SCOR PXRE 8/31/90 100% 100% 100% 100% 100% 100% 100% 100% 9/28/90 100% 93% 95% 87% 96% 92% 99% 69% 10/31/90 102% 102% 94% 79% 95% 108% 97% 72% 11/30/90 121% 114% 100% 93% 123% 115% 130% 82% 12/31/90 126% 117% 102% 98% 124% 127% 139% 86% 1/31/91 122% 123% 107% 105% 127% 129% 138% 94% 2/28/91 131% 131% 114% 116% 141% 144% 154% 103% 3/29/91 134% 134% 116% 123% 163% 147% 162% 97% 4/30/91 122% 143% 116% 124% 167% 160% 161% 104% 5/31/91 128% 141% 121% 130% 169% 144% 159% 106% 6/28/91 129% 130% 115% 121% 155% 155% 141% 104% 7/31/91 128% 142% 120% 128% 157% 152% 151% 94% 8/30/91 120% 133% 123% 133% 157% 146% 154% 106% 9/30/91 119% 122% 120% 132% 151% 145% 177% 106% 10/31/91 128% 135% 122% 133% 155% 136% 175% 100% 11/29/91 121% 129% 116% 124% 155% 145% 173% 100% 12/31/91 138% 167% 129% 142% 177% 156% 173% 117% 1/31/92 123% 157% 127% 140% 176% 161% 100% 196% 119% 2/28/92 128% 159% 128% 145% 169% 162% 100% 204% 104% 3/31/92 126% 150% 125% 142% 163% 158% 82% 200% 119% 4/30/92 110% 138% 129% 143% 149% 151% 80% 182% 106% 5/29/92 110% 138% 129% 146% 151% 145% 81% 185% 124% 6/30/92 115% 137% 127% 149% 149% 152% 80% 190% 128% 7/31/92 118% 153% 132% 153% 167% 160% 84% 185% 133% 8/31/92 123% 157% 128% 145% 163% 160% 87% 168% 111% 9/30/92 140% 178% 130% 150% 205% 190% 104% 182% 139% 10/30/92 150% 210% 130% 154% 234% 221% 125% 214% 142% 11/30/92 150% 208% 134% 164% 234% 214% 122% 203% 147% 12/31/92 156% 215% 135% 170% 255% 223% 127% 197% 175% 1/29/93 100% 162% 228% 136% 176% 249% 245% 156% 210% 221% 2/26/93 100% 158% 218% 138% 179% 241% 247% 152% 225% 286% 3/31/93 105% 158% 223% 140% 186% 245% 258% 145% 223% 275% 4/30/93 104% 156% 210% 137% 180% 226% 256% 170% 213% 339% 5/31/93 94% 154% 193% 140% 179% 226% 232% 153% 199% 325% 6/30/93 93% 154% 189% 140% 188% 251% 232% 141% 189% 339% 7/30/93 99% 164% 179% 139% 192% 247% 242% 147% 187% 325% 8/31/93 98% 178% 189% 144% 196% 272% 238% 159% 177% 386% 9/30/93 95% 166% 191% 142% 200% 259% 260% 142% 189% 386% 10/29/93 78% 156% 163% 145% 188% 240% 230% 144% 172% 381% 11/30/93 73% 149% 150% 143% 181% 234% 220% 137% 159% 333% 12/31/93 77% 145% 158% 145% 185% 238% 214% 133% 146% 303% 1/31/94 80% 154% 167% 149% 194% 242% 201% 125% 132% 286% 2/28/94 70% 143% 158% 145% 183% 213% 182% 123% 127% 278% 3/31/94 72% 145% 138% 138% 175% 210% 188% 120% 117% 231% 4/29/94 76% 151% 143% 140% 181% 210% 199% 118% 138% 261% 5/31/94 92% 162% 155% 142% 190% 248% 229% 126% 127% 292% 6/30/94 85% 147% 157% 138% 184% 238% 218% 111% 124% 292% 7/29/94 76% 156% 149% 142% 188% 254% 214% 113% 132% 292% 8/31/94 79% 151% 141% 147% 194% 245% 216% 109% 131% 294% 9/30/94 82% 143% 135% 143% 180% 229% 203% 109% 127% 322% 10/31/94 79% 151% 137% 146% 182% 231% 200% 105% 125% 274% 11/30/94 70% 159% 134% 141% 171% 237% 204% 102% 100% 289% 12/30/94 87% 167% 178% 142% 173% 254% 232% 113% 94% 314% 1/31/95 83% 175% 175% 146% 183% 250% 237% 119% 96% 272% 2/28/95 92% 176% 177% 151% 193% 261% 241% 131% 94% 261% 3/31/95 95% 178% 161% 155% 193% 278% 229% 126% 89% 268% 4/28/95 103% 172% 175% 160% 200% 289% 244% 130% 90% 269% 5/31/95 101% 183% 156% 165% 214% 289% 238% 132% 101% 240% 6/30/95 101% 181% 165% 169% 215% 296% 233% 144% 101% 261% 7/31/95 102% 179% 195% 174% 221% 300% 255% 146% 114% 288% 8/31/95 108% 201% 194% 174% 247% 318% 290% 134% 124% 279% 9/30/95 104% 204% 193% 181% 233% 306% 259% 153% 175% 303% 10/31/95 103% 196% 187% 180% 240% 306% 254% 160% 173% 283%
Dillon, Read & Co. Inc. C - 4 SCOR U.S. Corporation Confidential
PRICE-TO-BOOK VALUE RATIOS FOR COMPARABLE COMPANIES(a) Date American Re General Re NAC Re Transatlantic PXRE SCOR 12/31/89 NA 2.67 NA NA 1.05 1.22 3/31/90 NA 2.63 1.85 NA 0.86 1.03 6/30/90 NA 2.51 1.84 1.59 0.85 0.83 9/30/90 NA 2.18 1.38 1.19 0.48 0.72 12/31/90 NA 2.6 1.7 1.48 0.58 0.98 3/31/91 NA 2.48 1.84 1.86 0.65 1.1 6/30/91 NA 2.33 1.72 1.7 0.68 0.94 9/30/91 NA 2.07 1.55 1.59 0.7 1.13 12/31/91 NA 2.26 2.01 1.78 0.79 1.07 3/31/92 NA 2.01 1.62 1.59 0.79 1.19 6/30/92 NA 1.82 1.45 1.41 0.57 1.11 9/30/92 NA 2.16 1.94 1.91 0.66 1.09 12/31/92 NA 2.32 2.33 2.28 0.87 1.19 3/31/93 2.64 2.28 2.31 1.95 1.3 1.29 6/30/93 2.23 2.16 1.9 1.93 1.54 1.07 9/30/93 2.14 2.22 1.87 1.92 1.74 1.04 12/31/93 1.67 1.88 1.41 1.55 1.24 0.81 3/31/94 1.59 1.86 1.3 1.43 0.96 0.74 6/30/94 1.85 1.9 1.49 1.61 1.15 0.81 9/30/94 1.8 1.79 1.32 1.51 1.19 0.83 12/31/94 1.92 2.08 1.84 1.68 1.13 0.64 3/31/95 1.89 2.06 1.45 1.69 0.94 0.55 6/30/95 1.84 1.92 1.12 1.67 1.07 0.61 11/1/95 1.89 2.1 1.56 1.74 1.14 1.02
- ------------ (a) Source: Compustat Industrial. Dillon, Read & Co. Inc. C - 5 SCOR U.S. Corporation Confidential
ONE-YEAR FORWARD P/E RATIOS FOR COMPARABLE COMPANIES (a) (FY + 1 P/E) 12/31/89 3/31/90 6/30/90 9/30/90 12/31/90 3/31/91 6/30/91 9/30/91 12/31/91 3/31/92 6/30/92 9/30/92 -------- ------- ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- General Re 15x 12.5x 13.5x 12x 14x 14x 13x 14x 15x 13.5x 13.5x 15x NAC Re 17 12.5 15 11 14 14 14 13 15 15 12.5 14.5 Transatlantic 8 12 13 13 13 14 12 9 11.5 SCOR 17 8 8 7 9 9 7.5 7.5 8 10 9 7.5 PXRE 13 7.5 25 35 30 20 8 9 19 9 9.5 12 12/31/92 3/31/93 6/30/93 9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94 3/31/95 6/30/95 9/30/95 11/1/95 -------- ------- ------- ------- -------- ------- ------- ------- -------- ------- ------- ------- ------- General Re 21x 17x 16x 19x 17x 14.5x 17x 15x 17x 15x 15x 16x 15.5x NAC Re 16 18 17 20 18 13.5 15 14 14 14 14 13.5 15 Transatlantic 19 14 14 16 14.5 12 14 13.5 13 12.5 13 12.5 13 SCOR 36 12 9.5 11.5 12 8 21 16 13 9 9.5 17.5 16.5 PXRE 12 19 14.5 15 12.5 7.5 5.5 6.5 6 5 5 5 5
- ------------ (a) One year forward P/E ratios taken from IBES database (based on median EPS estimates). Dillon, Read & Co. Inc. C - 6 SCOR U.S. Corporation Confidential COMPARABLE COMPANIES - OBSERVATIONS - - Public market valuations of U.S. reinsurers are analyzed on forward price/earnings multiples and on price/book value multiples - Reasonably good correlation between return on equity and price-to-book multiples - Book value multiples distorted due to possible under-reserving by the sector in general and FASB115 - - Historically, significant movements in stock prices have been the result of several factors - Perceived change in industry fundamentals, i.e., an expected turn in P/C pricing - Secular interest rate movements/expectations - Earnings surprises - - Trading multiples suggest that the stronger reinsurers with certain characteristics have achieved premium valuation relative to their peers - Direct reinsurers more profitable than broker reinsurers - Property reinsurers have more volatility in earnings and therefore lower relative P/E - Larger casualty companies with greater market share, and to some extent greater pricing power, more profitable than smaller companies - Non-proportional reinsurers have been more profitable than proportional reinsurers Dillon, Read & Co. Inc. C - 7 SCOR U.S. Corporation Confidential CURRENT 1995E P/E MULTIPLES
Prudential NAC Re Transatlantic Trenwick PXRE General American National 1995E P/E(a) 15.7x 14.7x 13.2x 13.1x 5.2x 15.8x 12.8x 12.0x Broker Average 14.2x(b) Direct Average 13.5x
- ------------- (a) E.P.S. estimates based on I/B/E/S, based on 11/1/95 Stock prices (b) Excludes PXRE Dillon, Read & Co. Inc. C - 8 SCOR U.S. Corporation Confidential CURRENT 1996E P/E MULTIPLES
NAC Re Trenwick Transatlantic Prudential PXRE General American National 1995E P/E(a) 12.6x 11.8x 11.3x 11.3x 5.0x 14.1x 10.7x 10.7x Broker Average 11.8x(b) Direct Average 11.8x
- -------------- (a) E.P.S. estimates based on I/B/E/S, based on 11/1/95 Stock prices (b) Excludes PXRE Dillon, Read & Co. Inc. C - 9 SCOR U.S. Corporation Confidential CURRENT BOOK VALUE TRADING MULTIPLES
Transatlantic NAC Re Trenwick Prudential PXRE General American National Price-to-Book Multiple(a) 1.7x 1.6x 1.5x 1.2x 1.1x 2.1x 1.9x 1.6x Broker Average 1.4x(b) Direct Average 1.9x
- -------------- (a) Based on 11/1/95 Stock price and latest book value Dillon, Read & Co. Inc. C - 10 SCOR U.S. Corporation Confidential COMPARISON OF CURRENT FINANCIAL STATISTICS ($ in millions)
Broker Companies Direct Companies ----------------------------------------------------------- ---------------------------- SCOR U.S. NAC Re PXRE Prudential Transatlantic Trenwick American General National --------- ------ ---- ---------- ------------- -------- -------- ------- -------- PARENT Capitalization - --------------------- Total Debt $121.3 $218.0 $69.7 $19.3 $0.0 $103.5 $450.0 $156.0 $100.0 Preferred 0.0 0.0 0.0 0.0 0.0 0.0 225.0 0.0 0.0 Shareholders' Equity 272.7 405.8 192.4 877.4 894.1 218.8 953.1 5,708.0 346.0 ------- ------- ------ ------ ------ ------ -------- -------- ------ Total Capitalization $394.0 $623.8 $262.1 $896.7 $894.1 $322.3 $1,628.1 $5,864.0 $446.0 ======= ======= ====== ====== ====== ====== ======== ======== ====== Shareholders' Equity/ Total 69.2% 65.1% 73.4% 97.9% 100.0% 67.9% 72.4% 97.3% 77.6% Capitalization Business - -------- % of 1994 Property Business 53% 20% 100% 51% 35% 25% 35% 25% 26% INSURANCE Company - ----------------- Statutory Surplus @ 6/30/95 $243(a) $436 $212(a) $640 $591(a) $244 $1,120 $4,228(a) $386(a) 1994 Statutory Net Income (1) 27 34 3 86 20 130 511 41 LTM Premiums/Surplus(b) 1.0x 1.1x 0.5x 1.4x 1.6x 0.7x 1.5x 1.1x 0.8x LTM Premiums/Reserves 0.4 0.4 1.4 0.4 0.4 0.3 0.4 0.3 0.3 RATINGS - ------- Moody's Senior Debt Rating A3 Baa2 Ba2 NA NA Baa3 Baa2 Aa1+ Baa1 S&P Senior Debt Rating A+ A- BB- NA NA BBB(cvt.) BBB+(sub) AAA A+ S&P Claims-Paying Rating A+ AA- A- A NR A AA AAA NA
- -------------------------------- (a) As of December 31, 1994. (b) As of most recent quarter. Dillon, Read & Co. Inc. C - 11 SCOR U.S. Corporation Confidential
COMPARISON OF CURRENT TRADING LEVELS Broker Companies ---------------------------------------------------------------- SCOR U.S. NAC Re PXRE Prudential Transatlantic Trenwick ---------- -------- ------------ --------------- ---------- Current Price (11/1/95) $15.250 $36.000 $25.125 $20.375 $68.000 $49.500 Year High 15.750 39.000 29.750 20.750 70.375 53.000 % of Year High 96.8% 92.3% 84.5% 98.2% 96.6% 93.4% Equity Value(MM) $277.0 $632.3 $219.2 $1,018.8 $1,560.1 $321.3 Adjusted LTM P/E(a) 20.1x 16.4x 5.5x 16.5x 13.1x 11.9x 1995 E 16.6 14.7 5.2 15.7 13.2 13.1 1996 E 15.7 12.6 5.0 11.3 11.3 11.8 Projected 5 year EPS Growth NA 16.0% 15.0% NA 15.0% 14.0% Rate(b) Market/Book Value 1.0x 1.6x 1.1x 1.2x 1.7x 1.5x Market/Adjusted Book Value(c) 0.8 1.1 1.0 0.9 1.4 1.2 Market/Statutory Surplus 1.1 1.5 1.0 1.6 2.6 1.3 Dividend Yield 1.3% 0.4% 2.4% 0.6% 0.6% 2.3% ROAE 5.5% 12.1% 25.0% 2.9% 14.5% 13.2% Adjusted ROAE (a) 5.3% 10.2% 25.3% 2.5% 14.5% 13.2%
Direct Companies ------------------------------- American General National ---------- --------- --------- Current Price (11/1/95) $38.375 $146.375 $33.625 Year High 43.125 153.250 35.375 % of Year High 89.0% 95.5% 95.1% Equity Value(MM) $1,805.5 $12,006.9 $567.1 Adjusted LTM P/E(a) 14.8x 16.3x 14.5x 1995 E 12.8 15.8 12.0 1996 E 10.7 14.1 10.7 Projected 5 year EPS Growth 15.0% 14.0% 13.0% Rate(b) Market/Book Value 1.9x 2.1 1.6x Market/Adjusted Book Value(c) 1.1 1.6 1.3 Market/Statutory Surplus 1.6 3.2 1.5 Dividend Yield 1.0% 1.3% 0.5% ROAE 14.2% 15.1% 7.9% Adjusted ROAE (a) 14.0% 14.0% 12.2% - -------------------------------- (a) Adjusted earnings exclude the after-tax effect of net investment gains. (b) Source: I/B/E/S. (c) Adjusted book value includes unearned premiums reserve net of after-tax deferred acquisition cost. Dillon, Read & Co. Inc. C - 12 SCOR U.S. Corporation Confidential PRICE-TO-BOOK VS. RETURN ON EQUITY Pretax tax return Multiple of Book Value NRC 14.60% 1.6x ARN 18.20% 2 GRN 18.50% 2.1 TRH 17.40% 1.8 Trenwich 12.90% 1.58 SUR 0.055 1 Dillon, Read & Co. Inc. C - 13 SCOR U.S. Corporation Confidential VALUATION BASED ON TRADING COMPARABLES (Dollars in millions, except per share data) SCOR US Multiple Range Per Share Value Reference Figure Low High Low High - ------------------------- -------- ---- ---- ---- ---- 1996E E.P.S.(a) $1.19 11.0x 15.0x $13.09 $17.85 Latest Book Value(b) $15.03 1.0x 1.3x $15.03 $19.55 Latest Surplus(b) 13.96 1.1 1.4 15.35 19.54 Average $14.49 - $18.98 - -------------------------------- (a) Company projections. (b) Fully diluted, as of September 30, 1995. Dillon, Read & Co. Inc. C - 14 SCOR U.S. Corporation Confidential COMPARISON OF ACQUISITIONS Approach: - -------- - - Reviewed 32 mergers and acquisitions of property/casualty reinsurance companies in the U.S. and in Europe. - - Summarized financial ratios and statistics for 9 most comparable U.S. transactions and reviewed multiples of net income, multiples of book value and tangible book value. Limitations: - ----------- - - Declines in interest rates and other economic factors, including an upturn in the property/catastrophe cycle, fueled a strong market for insurance companies in 1992 and 1993 which didn't exist to the same extent in 1994 and 1995. - - Previous acquisitions generally occurred in different stock market, economic environments and property/casualty cycles. Dillon, Read & Co. Inc. C - 15 SCOR U.S. Corporation Confidential PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS
($ in millions) Price Paid as a multiple of Acquiree Announcement Aggregate Net Book Net Market ROAE of Date Acquiree/Acquiror Value Income Value Premiums Value Acquiree - ----------- ----------------------------------- --------- -------- ------- ---------- ------- --------- 08/07/95 Piedmont Management Company $85.4 24.6x 1.1x 0.6x 1.3x N.A. Inc./Chartwell Re Corporation 01/06/95 Re Capital/ 131.6 18.0 1.0 1.7 1.4 6.8% Zurich Centre Re 12/21/94 Constitution Re/ 400.0 N.A. 1.4 N.A. N.A. N.A. Exor America Inc. 07/29/93 Underwriters Reinsurance Co. 216.1(1) N.A. 1.4 N.A. N.A. 19.0 (Sub. of Underwriters Re Holding)/ Allegheny Corp. 03/22/93 Kemper Re/Lumbermens Mutual 610.2 N.M. 1.8 N.A. N.A. N.M. 06/09/92 American Re-Insurance Corp. (Aetna) 1,429.5(2) 9.6x 1.2 1.4 N.A. 17.2 American Re Corp. (Formed by KKR.) 03/20/92 Belvedere Corp./ 37.4(3) 18.1 0.8 1.4 1.6x 4.5 Christiana General Insurance (Sub. of UNI Storebrand AS) 01/10/92 Chartwell Re Corp. 71.0 8.9 1.1 N.A. N.A. N.A. (Sub. of NWNL Companies)/ Wand Partners/Michigan Mutual 08/29/89 National Reinsurance Corp./ 395.1 10.4 1.4 N.A. N.A. 13.4 Robert M. Bass & Acadia
Notes: - -------------------------------- Notes: (1) Actual purchase is $201 MM for a 93% interest. Value is grossed up for multiple purposes. (2) GAAP financial data for multiples is as of 12/31/91. (3) Actual purchase is $16.9MM for remaining 45.2% interest. Value is grossed up for multiple purposes. Dillon, Read & Co. Inc. C - 16 SCOR U.S. Corporation Confidential SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS (millions(1))
Implied Price Price/ --------------------------- Announcement % for Net Net Book Date Acquiree/Acquiror Deal Size Acquired 100% Premiums Income Value - ------------ ------------------------------------- ---------- -------- -------- -------- ------ ----- 09/23/94 Cologne Re/General Re DM 902 50.1% 1,800.4 0.4x 13.7x 2.6x 09/02/93 Francaise d'Assurance pour le FF 370.0 20.0% 1,850.0 2.8 12.9 1.0 Commerce Exterieur SA (COFACE)/ Societe Commerciale de Reassurance (SCOR) 25/11/91 Lincoln European Reinsurance USD 11.0 96.6% 11.4 0.7 --- 0.8 Company/ Mapfre SA 16/11/91 Nederlandse Reassurantie Groep DF 1,113 41.0% 276 0.3 9.9 0.8 (NRG)/ Internationale Nederlanden Groep (ING) 17/09/91 Pinnacle Reinsurance Co. Ltd/ USD 63.7 100.0% 63.7 -- 8.0 1.2 Zurich Versicherungs-Gesellschaft 16/05/91 Societe Anonyme Francaise de FF 463 100.0% 463 N.A. N.A. 0.7 Reassurance/ AGF Re 10/07/90 Legal & General (Victory Re)/NRG/ GBP 122 100.0% 122 0.7 N.A. N.A. Nationale Nederlanden 08/05/88 Skandia International Holding AB/ SEK3,600.0 54.0% 6,666.7 0.9 15.2 2.8 Skandia AB 04/01/88 Vittoria Riassicurazioni/ USD 121.2 100.0% 121.2 1.0 N.M. N.M. Societe Commerciale de Reassurance 02/10/87 Baltica Nordisk-Re/ DKR 1,200 100.0% 1,200 108 N.A. 1.6 Employers Re
- --------------- (1) $ Values converted at historic exchange rate existing at time of transaction Dillon, Read & Co. Inc. C - 17 SCOR U.S. Corporation Confidential VALUATION BASED ON ACQUISITION COMPARABLES (Dollars in millions, except per share data) SCOR US Multiple Range Per Share Value Figure --------------- --------------- Reference Low High Low High LTM Net Premiums (a) $237.4 1.1x 1.5x $14.37 $19.60 Latest Book Value (a) $15.03 1.0x 1.4x $15.03 $21.05 Average $14.70 - $20.32 - -------------------------------- (a) Fully diluted, as of September 30, 1995. Dillon, Read & Co. Inc. C - 18 SCOR U.S. Corporation Confidential ECONOMIC BOOK VALUE ANALYSIS (Dollars in millions, except per share data) 9/30/95 ----------- GAAP Equity $277.4 MM Goodwill (6.0) Investment Portfolio 0.5 EDP System and Leasehold Improvements (11.0) Deferred Income Tax Benefit (22.5) Market Adjustment for Debt 7.6 Net Present Value of: Prepaid Reinsurance (3.0) - (2.0) Discount on Reserves 41.4 - 54.2 Imbedded Value of Unearned Prem. 18.0 - 19.6 Reserve Deficiency (20.0) - 0 ------------------ Estimated Economic Book Value $281.4 - 316.8 MM ================== Primary Per Share $15.49 - 17.43 ================== Fully Diluted Per Share $15.24 - 17.08 ================== Dillon, Read & Co. Inc. C - 19 SCOR U.S. Corporation Confidential DISCOUNTED CASH FLOW ANALYSIS - - We have also reviewed a valuation of SCOR based on a discounted cash flow analysis - Discounts cumulative stream of dividends to the present - Assumes a terminal value based on a multiple of earnings in the future - - The discounted cash flow analysis, however, has certain shortcomings relative to the other analyses we have reviewed - Difficulty in projecting earnings beyond one year in the insurance industry - The majority of the value resides in the terminal value - - The key assumptions utilized were as follows: Terminal Year: 2000 Premiums Earned Growth beyond 1997: 7% Investment Income Growth beyond 1997: 8% Discount Rate: 11% - 13% Terminal Multiple of Earnings: 10.5x - 12.5x SAP Tax Rate: 20% Dillon, Read & Co. Inc. C - 20 SCOR U.S. Corporation Confidential
DISCOUNTED CASH FLOW VALUATION - PROJECTIONS (Dollars in millions) SCOR U.S. Projections Dillon Read Projections --------------------------------------------- ------------------------------------ 1995 1996 1997 1998 --- 2000 ---------- ----------- ---------- ----------- ----------- Net Premiums Earned $259.3 $279.5 $329.2 $352.2 $403.3 Net Investment Income 42.4 44.8 47.2 51.0 59.5 Pretax Income(a) 29.3 33.7 41.7 46.8 54.6 Net Income(b) 23.4 27.0 33.4 37.4 40.4 SAP Dividends 24.3 24.3 24.5 25.4 28.0 Growth in Net Premiums Earned 13.6% 7.8% 17.8% 7.0% 7.0% Growth in Investment Income 3.5 5.6 5.4 8.0 8.0 Loss Ratio 67.3 67.2 65.9 65.9 65.9 Commission Ratio 26.7 26.5 27.2 27.2 27.2 Expense Ratio 11.4 10.3 8.6 8.6 8.6 -------- -------- -------- -------- -------- Combined Ratio 105.3 104.0 101.7 101.7 101.7 Net Premiums/End of Year Surplus 1.1x 1.3x 1.3x 1.4x 1.4x
- -------------------------------- (a) Excludes interest expense. (b) Assures a 20% SAP Fox rate Dillon, Read & Co. Inc. C - 21 SCOR U.S. Corporation Confidential
DISCOUNTED CASH FLOW VALUATION (Dollars in millions) - - Per Share Valuation: Multiple of 2000 Earnings --------------------------------------------------------------------------- Discount Rate 10.5x 11.5x 12.5x ----------------- --------------------- ---------------------------- -------------------- 11.0% $15.88 $17.47 $19.05 12.0% 15.17 16.70 18.22 13.0% 14.48 15.95 17.43 - - Indicative Valuation Range: $14.48 - $19.05 per Share
Dillon, Read & Co. Inc. C - 22 SCOR U.S. Corporation Confidential
CLOSE OUT PREMIUM ANALYSIS Value Common Price of Shares % of Date Per Deal Aquired Shares Announced Target Name Acquiror Name Share ($mil) (mil) Acq. - --------- -------------------------- -------------------------- ------ ------- ------- ------- 12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc $20.00 $188.1 9.4 19.0 % 09/08/94 Contel Cellular Inc GTE Corp 25.50 254.3 10.0 10.0 08/24/94 Castle & Cooke Homes Inc Dole Food Co Inc 15.75 81.5 5.6 17.0 07/28/94 Chemical Waste Management Inc WMX Technologies Inc 8.85 397.4 44.9 21.4 06/06/94 Ogden Projects Inc Ogden Corp 18.38 110.3 6.0 15.8 03/01/94 FoxMeyer Corp National Intergroup Inc 14.46 79.7 5.5 19.5 06/17/93 Hadson Energy Resources Corp Apache Corp 15.00 39.3 2.6 33.5 04/26/93 Southeastern Public Service Co DWG Corp 25.60 86.1 3.4 29.0 11/13/92 Brand Cos Inc Rust International Inc 18.75 185.0 9.9 44.0 08/17/92 PHLCORP Inc Leucadia National Corp 25.78 139.9 5.4 36.9 03/02/92 Grace Energy Corp WR Grace & Co 19.00 77.3 4.1 16.6 02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 7.25 43.0 5.8 18.0 09/18/91 Arkla Exploration Co Arkla Inc 15.44 92.6 6.0 18.0 08/02/91 Envirosafe Services Inc EnviroSource Inc 11.69 16.8 1.4 37.4 07/28/91 Country Lake Foods Inc Land O' Lakes Inc 15.30 22.6 1.6 34.5 06/13/91 Weigh-Tronix Staveley Industries PLC 22.00 25.3 1.2 44.3 03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 19.25 51.0 2.7 18.0 01/25/91 Medical Management of America Investor Group 8.25 12.9 1.6 23.7 01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 19.39 391.8 20.1 39.0 11/11/90 US WEST NewVector Group Inc US WEST Inc 45.03 437.5 9.7 19.0 10/23/90 ERC Environmental and Energy Ogden Corp 15.13 33.6 2.2 38.8 07/31/90 Freeport-McMoRan Oil and Gas Freeport McMoRan Inc 10.88 46.2 4.3 18.5 07/19/90 Caesars New Jersey Inc Ceasars World Inc 22.58 48.4 2.2 13.4 07/12/90 TVX Broadcast Group Inc Paramount Communications 9.50 61.4 6.5 21.0 07/06/90 Mack Trucks Inc Renault Vehicules Industriels 6.25 103.7 16.6 40.0 05/17/90 DST Systems Inc Kansas City Southern Inds Inc 15.85 39.1 2.2 11.5 05/08/90 ISS International Service Sys ISS International Service A/S 12.00 15.4 1.3 34.0 03/02/90 Shearson Lehman Brothers Hldgs American Express Co 12.90 360.0 27.9 39.0 01/24/90 Copperweld Corp Imetal SA 17.00 78.0 4.6 44.4 % Owned Premium Premium Premium After 1 Day 1 Week 4 Weeks Date Trans- Prior Prior Prior Announced action to Deal to Deal to Deal - --------- ------- -------- ------- ------- 12/28/94 100 % 19.4% 18.5% 18.5% 09/08/94 100 43.7% 37.8% 36.0% 08/24/94 100 35.4% 41.5% 55.5% 07/28/94 100 10.6% 8.9% 1.1% 06/06/94 100 5.8% 17.6% 20.5% 03/01/94 100 7.1% 9.1% 11.2% 06/17/93 100 26.3% 27.7% 25.0% 04/26/93 100 65.2% 63.8% 86.2% 11/13/92 100 4.9% 13.6% 4.9% 08/17/92 100 12.1% 15.2% 28.9% 03/02/92 100 24.6% 21.6% 7.8% 02/06/92 100 52.6% 45.0% 45.0% 09/18/91 100 8.4% 28.7% 30.0% 08/02/91 100 16.9% 11.3% -2.6% 07/25/91 100 39.1% 45.7% 53.0% 06/13/91 98 41.9% 41.9% 44.3% 03/01/91 100 22.2% 16.7% 24.2% 01/25/91 100 65.0% 65.0% 65.0% 01/03/91 100 14.1% 24.1% 9.2% 11/11/90 100 47.6% 58.0% 83.8% 10/23/90 100 37.5% 44.1% 44.1% 07/31/90 100 36.0% 42.6% 47.4% 07/19/90 100 40.0% 49.2% 44.5% 07/12/90 100 26.7% 90.0% 85.2% 07/06/90 100 19.0% 19.0% 21.8% 05/17/90 99 24.3% 40.9% 51.0% 05/08/90 100 54.8% 60.0% 60.0% 03/02/90 100 -0.8% 18.6% 7.5% 01/24/90 100 47.8% 41.7% 33.3% - ------------------------------------------------------- All Close outs: Average 29.2% 35.1% 35.9% Median 26.3% 37.8% 33.3% High 65.2% 90.0% 86.2% Low -0.8% 8.9% -2.6% - -------------------------------------------------------
Dillon, Read & Co. Inc. C-23 SCOR U.S. Corporation Confidential CLOSE OUT PREMIUM VALUATION SUR Implied Stock Applicable Offer Price Premium Price ----------- ---------------- ----------- 1 Day Prior to Transaction $11.125 29.2% $14.37 1 Week Prior to Transaction 11.500 35.1% 15.54 4 Weeks Prior to Transaction 11.500 35.9% 15.63 Valuation Based on Premium Analysis $14.37 - $15.63 Dillon, Read & Co. Inc. C - 24 SCOR U.S. Corporation Confidential SUMMARY OF VALUATION INDICATORS PRICE PER SHARE HIGH LOW Comparable Trading $18.98 $14.49 Comparable Acquisitions 20.32 14.70 Economic Book Value Analysis 17.08 15.24 Discounted Cash Flow 19.05 14.48 Premium Analysis 15.63 14.37 Dillon, Read & Co. Inc. C - 25 SCOR U.S. Corporation
Dillon, Read & Co. Inc. SCOR U.S. Corporation Analysis of Comparable Companies CURRENT TRADING STATISTICS (Dollars in millions) Broker Companies ------------------------------------------------------------------------- SCOR U.S. NAC Re PXRE Corp. Prudential Re Transatlantic Trenwick ----------- ----------- ----------- ---------------- --------------- ---------- Current Price as of 11/01/95 $15.250 $36.000 $25.125 $20.375 $68.000 $49.500 52 week High 15.750 39.000 29.750 20.750 70.375 53.000 % of Year High 96.8% 92.3% 84.5% 98.2% 96.6% 93.4% % of 52 week spectrum 93.9% 79.7% 47.1% 83.3% 89.5% 79.1% Number of shares Outstanding MM 18.2 17.6 8.7 50.0 22.9 6.5 Equity Value $277.0 $632.3 $219.2 $1,018.8 $1,560.1 $321.3 ====== ====== ====== ======== ======== ====== - ------------------------------------------------------------------------------------------------------------------------------------ Market Value of Equity to: Adjusted P/E 20.1 x 16.4 x 5.1 x 16.5 x 13.1 x 11.9 x 1995 E 16.6 14.7 5.2 15.7 13.2 13.1 1996 E 15.7 12.6 5.0 11.3 11.3 11.8 - ------------------------------------------------------------------------------------------------------------------------------------ Projected 5 year EPS Growth Rate NA 16.0 % 15.0 % NA 15.0 % 14.0 % Dividend Yield 1.3% 0.4% 2.4% 0.6% 0.6% 2.3% ROAE 5.5% 12.1% 25.0% 2.9% 14.5% 13.2% Adjusted ROAE 5.3% 10.2% 25.3% 2.5% 14.5% 13.2% - ------------------------------------------------------------------------------------------------------------------------------------ Market/Book Value 1.0 x 1.6 x 1.1 x 1.2 x 1.7 x 1.5 x Market/Adjusted Book Value 0.8 1.1 1.0 0.9 1.4 1.2 Market/Statutory Surplus 1.1 1.5 1.0 1.6 2.6 1.3 - ------------------------------------------------------------------------------------------------------------------------------------ Direct Companies ----------------------------------------------- American Re General Re National Re ---------------- ------------- ------------- Current Price as of 11/01/95 $38.375 $146.375 $33.625 52 week High 43.125 153.250 35.375 % of Year High 89.0% 95.5% 95.1% % of 52 week spectrum 73.4% 84.9% 86.7% Number of shares Outstanding MM 47.1 82.0 16.9 Equity Value $1,805.5 $12,006.9 $567.1 ======== ========= ====== - ---------------------------------------------------------------------------------------------- Market Value of Equity to: Adjusted P/E 14.8 x 16.3 x 14.5 x 1995 E 12.8 15.8 12.0 1996 E 10.7 14.1 10.7 - ---------------------------------------------------------------------------------------------- Projected 5 year EPS Growth Rate 15.0 % 14.0 % 13.0 % Dividend Yield 1.0% 1.3% 0.5% ROAE 14.2% 15.1% 7.9% Adjusted ROAE 14.0% 14.2% 12.2% - ---------------------------------------------------------------------------------------------- Market/Book Value 1.9 x 2.1 x 1.6 x Market/Adjusted Book Value 1.1 1.6 1.3 Market/Statutory Surplus 1.6 3.2 1.5 - ----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------ Dillon, Read & Co. Inc. SCOR U.S. Corporation Analysis of Comparable Companies - ------------------------------------------------------------------------------------------------------------------------------------ Comparative Analysis (Dollars in millions) Broker Companies -------------------------------------------------------------------------------- SCOR U.S. NAC Re PXRE Corp. Prudential Re Transatlantic Trenwick ----------- ----------- --------------- --------------- --------------- ------------- Size: Total Assets $1,187.6 $2,138.8 $183.6 $4,363.6 $3,674.9 $796.7 Book Value of Common 272.7 405.8 192.4 877.4 894.1 218.8 LTM Total Revenues 282.1 544.3 126.1 1,035.8 1,101.5 192.7 - ------------------------------------------------------------------------------------------------------------------------------------ Performance: LTM Pretax Return on Average Equity 6.6% 14.6% 36.5% 2.8% 17.4% 16.4% LTM Pretax Margin 6.0% 10.1% 49.6% 6.6% 12.9% 17.3% Net Revenues 3 Year C.A.G.R. 4.0% 21.3% 53.9% -0.8% 28.6% 21.3% Pretax Income 3 Year C.A.G.R. NM 242.5% NM -67.5% 18.7% -47.8% Direct Companies ------------------------------------------------- American Re General Re National Re ----------------- -------------- ------------- Size: Total Assets $7,071.4 $34,810.0 $1,641.6 Book Value of Common 953.1 5,708.0 346.0 LTM Total Revenues 1,809.2 5,067.0 340.0 - ---------------------------------------------------------------------------------------- Performance: LTM Pretax Return on Average 18.2% 18.5% 10.9% LTM Pretax Margin 8.8% 19.0% 10.3% Net Revenues 3 Year C.A.G.R. NA 6.4% 4.8% Pretax Income 3 Year C.A.G.R. NA 4.9% -18.4%
Credit Analysis (Dollars in millions) SCOR U.S. NAC Re PXRE Corp. Prudential Re Transatlantic Trenwick ----------- ----------- --------------- --------------- --------------- ------------ Total Assets $1,187.6 $2,138.8 $183.6 $4,363.6 $3,674.9 $796.7 LT Debt 101.0 200.0 69.7 19.3 0.0 103.5 Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 Common Equity 272.7 405.8 192.4 877.4 894.1 218.8 ----- ----- ----- ----- ----- ----- Total capitalization $373.7 $605.8 $262.1 $896.7 $894.1 $322.3 ====== ====== ====== ====== ====== ====== LT Debt/Total capitalization 27.0% 33.0% 26.6% 2.2% 0.0% 32.1% - ------------------------------------------------------------------------------------------------------------------------------------ Net premiums/Statutory surplus 1.0 x 1.1 x 0.5 x 1.4 x 1.6 x 0.7 x Total assets/Common equity 4.4 x 5.3 x 1.0 x 5.0 x 4.1 x 3.6 x Total assets/Statutory surplus 4.9 4.9 0.9 6.8 6.2 3.3 - ------------------------------------------------------------------------------------------------------------------------------------ American Re General Re National Re ----------------- -------------- ------------- Total Assets $7,071.4 $34,810.0 $1,641.6 LT Debt 600.0 156.0 100.0 Preferred Stock 0.0 1.0 0.0 Common Equity 953.1 5,708.0 346.0 ----- ------- ----- Total capitalization $1,553.1 $5,865.0 $446.0 ======== ======== ====== LT Debt/Total capitalization 38.6% 2.7% 22.4% - ---------------------------------------------------------------------------------------- Net premiums/Statutory surplus 1.5 x 1.1 x 0.8 x Total assets/Common equity 7.4 x 6.1 x 4.7 x Total assets/Statutory surplus 6.3 9.2 4.2 - ----------------------------------------------------------------------------------------
Confidential
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS ($ in millions) Announcement Aggregate Date Acquiree/Acquiror Deal Description Value - ------------ ---------------------------- --------------------------------- --------- 08/07/95 Piedmont Management Company/ Chartwell announced it was $85.4 Chartwell Re Corp. acquiring RECO for $85.4MM from Piedmont after Piedmont completed its spin-off of Lexington, an asset-manager. 01/06/95 Re Capital/ Zurich Centre Re acquired 131.6 Zurich Centre Re publicly-traded Re Capital in a public auction. (John Deere owned a 40% stake) 12/21/94 Constitutional Re/ Xerox Corp. sold its reinsurance 400.0 Exor America Inc. unit, Constitution Re., to Exor American Inc. (an affiliate of IFI) 10/25/93 American Skandia Life Hartford Life acquired the life 19.1 Reinsurance/Hartford Life reinsurance business of Skandia (ITT Corporation) (Sweden), which specializes in risk analysis and financial reinsurance . 09/09/93 American Royal Reinsurance Australian insurer QBE Ins. 59.0 Co. Group acquired Royal (Sub. of Royal Insurance)/QBE Insurance's U.S. reinsurance Insurance subsidiary. American Royal Rewrites property (50%), casualty (30%), and accident and health (20%) through intermediaries on a treaty and facultative basis. Price Paid as a Multiple of Acquiree -------------------------------------------- GAAP/Statutory --------------------------------- Announcement Net Book Net Market ROAE of Date Income Value Premiums Value Acquiree - ------------ -------- ------- ---------- -------- --------- 08/07/95 24.6x 1.1x 0.6x 1.3x N.A. 01/06/95 18.0 1.0 1.7 1.4 6.8% 12/21/94 N.A. 1.35 N.A. N.A. N.A. 10/25/93 N.A. N.A. N.A. N.A. N.M. N.M. 1.2 0.7 09/09/93 N.A. N.A. N.A. N.A. N.A. N.M. 1.09 142.6
- ------------------------- (1) Actual purchase is $201 MM for a 93% interest. Value is grossed up for multiple purposes. Dillon, Read & Co. Inc. 2 - 1 SCOR U.S. Corporation Confidential
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS ($ in millions) Announcement Aggregate Date Acquiree/Acquiror Deal Description Value - ------------ ---------------------------- --------------------------------- --------- 07/29/93 Underwriters Reinsurance Co. Allegheny Corporation purchased 216.1(1) (Sub. of Underwriters Re the remaining 93% of Holding)/ Alleghany Corp. Underwriters Re, which had been in registration. Underwriters was owned by a consortium led by Goldman Sachs and Continental Corporation, and wrote multi- line insurance and specialized coverages. 03/22/93 Kemper Re/Lumbermens Mutual Kemper swapped Kemper Re and its 610.2 50% interest in a risk management company to Lumbermens in exchange for Lumbermens 35% stake in Kemper. 06/09/92 American Re-Insurance Corp. A KKR Fund purchased American 1,429.5(2) (Sub. of Aetna) Re, the third largest P&C American Re Corp. (Formed by Reinsurance Company in the U.S., KKR.) a direct writer, from Aetna. 05/14/93 Skandia America Reinsurance Centre Reinsurance Holdings, N.A. Corp/ Bermudan subsidiary of Zurich Zurich Versicherungs- Versicherungs-Gesellschaft, has Gesellschaft acquired the reinsurance business of Skandia America Reinsurance (SARC) of the US from Skandia. Terms were not disclosed. SARC conducts non life reinsurance business in the US, Canada and Bermuda. Price Paid as a Multiple of Acquiree -------------------------------------------- GAAP/Statutory --------------------------------- Announcement Net Book Net Market ROAE of Date Income Value Premiums Value Acquiree - ------------ -------- ------- ---------- -------- --------- 07/29/93 N.A. 1.41 N.A. N.A. 19.04 6.4x 1.20 153.2 03/22/93 N.M. 1.8 N.A. N.A. N.M. N.M. 1.4 N.A. 06/09/92 9.6 1.2 142.3 N.A. 17.15 9.1 1.9 169.6 05/14/93 N.A. N.A. N.A. N.A. N.A.
- -------------------------------- (2) GAAP financial data for multiples is as of 12/31/91. Dillon, Read & Co. Inc. 2 - 2 SCOR U.S. Corporation Confidential
PREMIUMS PAID IN SELECTED U.S. REINSURANCE TRANSACTIONS ($ in millions) Announcement Aggregate Date Acquiree/Acquiror Deal Description Value - ------------ ---------------------------- --------------------------------- --------- 03/20/92 Belvedere Corp./ Norwegian Unistorebrand 37.4(3) Christiana General Insurance purchased US treaty property & (Sub. of UNI Storebrand AS>) casualty reinsurer Belvedere Corp. 02/18/92 Global Insurance Company/ Lawrence acquired this reinsurer 8.9 Lawrence Insurance Group of small/medium sized insurance companies, which additionally has small primary operations. 01/10/92 Chartwell Re Corp. Chartwell, a property casualty 71.0 (Sub. of NWNL Companies)/ reinsurance subsidiary of NWNL, Wand Partners/Michigan Mutual was sold to an investor group led by Wand Partners, an SG Warburg affiliate, and Michigan Mutual. 09/17/91 Mony Re Inc./ Folksamgruppen has acquired Mony 21.0 Folksamgruppen Re, a US life reinsurer, from Mutual of NY. 05/17/90 Metropolitan Reinsurance Skandia, via its US subsidiary, 65.0 Company/ acquired the Reinsurance Skandia AB Business Unit from Metropolitan Reinsurance Company, subsidiary of Metropolitan Life Insurance. 08/29/89 National Reinsurance Corp./ National Re, a multi-line P&C 395.1 Robert M. Bass & Acadia treaty reinsurer, was sold to a management and Bass Acadia Fund partnership. National Re had been owned by Lincoln National. 08/03/88 General Reinsurance/Insurance General Re sold its life 300.0 Investment Associates reinsurance subsidiary to an investment group. Price Paid as a Multiple of Acquiree -------------------------------------------- GAAP/Statutory --------------------------------- Announcement Net Book Net Market ROAE of Date Income Value Premiums Value Acquiree - ------------ -------- ------- ---------- -------- --------- 03/20/92 18.1 0.79 136.2 1.58x 4.50 19.4 1.12 N.A. 02/18/92 N.A. 0.80 N.A. N.A. N.A. 9.6 0.67 39.8 01/10/92 8.9 1.08 N.A. N.A. N.A. 7.7 1.31 389.3 09/17/91 N.A. N.A. N.A. N.A. N.A. 05/17/90 N.A. N.A. N.A. N.A. N.A. 08/29/89 10.4 1.41 N.A. N.A. 13.4 11.7 1.98 140.6 16.9 08/03/88 11.0 0.9 N.A. N.A. 8.7 9.4 2.0 20.3 - -------------------------------- (3) Actual purchase is $16.9MM for remaining 45.2% interest. Value is grossed up for multiple purposes.
Dillon, Read & Co. Inc. 2 - 3 SCOR U.S. Corporation Confidential
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS (LCL/$MILLIONS, EXCEPT LIT BILLIONS (1)) Implied Announcement % Price for Net Net Book Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value - ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ ----- 09/23/94 Cologne Re/General General Re and Colonia formed a DM 902 50.1% 1,800.0 $4,073 $131 $695 Re new company that acquired 75% of the common and 30% of the preferred shares (66% economic interest) in Cologne Re. General Re contributed $884MM for the class of shares of the new company while Colonia contributed the Cologne Re shares in exchange for the Class A shares. 09/02/93 Francaise SCOR has acquired a 20% stake FF 370.0 20.0% 1,850.0 665.6 143.0 1,798.3 d'Assurance pour in COFACE from UAP and Caisse USD 67.0 335.0 le Commerce des Depots et Consignations, Exterieur SA who hold 5% and 15%, (COFACE)/ respectively. Under the terms Societe of the deal, the sellers Commerciale de exchanged 3 of their shares for Reassurance (SCOR) every 31 SCOR shares, which were valued at FF 600. COFACE insures certain risks for the French Government including political, catastrophic and monetary risks, certain organized commercial risks, political risks in connection with overseas investment by exporters, and exchange guarantees. The company has an international spread. 25/11/91 Lincoln European Mapfre of Spain has agreed to USD 11.0 96.6% 11.4 17.1 (1.8) 14.0 Reinsurance buy 96.6% of Lincoln European BFR 359.1 371.8 611.0 (66.0) 499.0 Company/ Reinsurance Company, the Mapfre SA Brussels-based arm of Lincoln National Corporation of the US. The company underwrites property and casualty lines, the majority of which is proportional reinsurance. 16/11/91 Nederlandse ING has bid for the remaining DF 1,113 41.0% 276 1,085.0 27.8 353 Reassurantie Groep 41% of shares in NRG (leading ($62) ($150) ($592) (NRG)/ Dutch reinsurer) which it does Internationale not already own. ING will pay Nederlanden Groep DFl 113MM to minority (ING) shareholders and make a capital contribution to NRG of DFl 500MM. Price/ --------------------------- Announcement Net Net Book Date Premiums Income Value - ------------ -------- ------ ----- 09/23/94 0.4x 13.7x 2.6x 09/02/93 2.8 12.9 1.0 25/11/91 0.7 N.M. 0.8 16/11/91 0.25x 9.93x 0.78x
_________ (1) $ Values converted at historic exchange rate existing at time of transaction. Dillon, Read & Co. Inc. 2 - 4 SCOR U.S. Corporation Confidential
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS (LCL/$MILLIONS, EXCEPT LIT BILLIONS (1)) Implied Announcement % Price for Net Net Book Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value - ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ ----- 17/09/91 Pinnacle CE Health has sold Pinnacle USD 63.7 100.0% 63.7 -- 8.0 53.7 Reinsurance Co. reinsurance to Centre STG 36.8 36.8 -- 4.6 31.0 Ltd/ Reinsurance, subsidiary of Zurich Zurich Insurance. To allow Versicherungs- Centre Re to buy Pinnacle's Gesellschaft business and not the whole company, Pinnacle was first sold to Vertex and then transferred to Centre Re. 16/05/91 Societe Anonyme AGF Re is to merge with SAFR, FF 463 100.0% 463 N.A. N.A. 629 Francaise de which is 27% controlled by AGR ($78) ($107) Reassurance/ Group, to form the second AGF Re largest reinsurance company in France. As the merger will not give AGF a majority stake in SAFR's capital, it will remain independent. The deal is to be carried out via a capital raising operation on the part of SAFR, which then absorbed AGF Re through a share swap. 17/01/91 Hamburger Hannover Ruckversicherungs, DM N.A. N.A. N.A. N.A. N.A. N.A. Internationale/ subsidiary of HDI, acquired the Haftlichtverbrand reinsurance business of der Deutschen Hamburger Internationale Industrie VAG Rucksversicherung, from Wolksfursoge Holding AG. Terms were not disclosed. 10/07/90 Legal & General Legal and General sold Victory GBP 122 100.0% 122 173.7 N.A. N.A. (Victory Re)/NRG/ Reinsurance to Netherlands USD ($227) ($227) Nationale Reinsurance Group (NRG) for Nederlanden B.P.122MM. The deal made NRG the 11th biggest reinsurer. This transaction comprises proceeds in cash of GBP 122MM for NGR and the release of GBP 18MM of further capital resources held within L&G subsidiary companies. Price/ --------------------------- Announcement Net Net Book Date Premiums Income Value - ------------ -------- ------ ----- 17/09/91 -- 8.0 1.2 16/05/91 N.A. N.A. .74 17/01/91 N.A. N.A. N.A. 10/07/90 0.70x N.A. N.A.
_________ (1) $ Values converted at historic exchange rate existing at time of transaction. Dillon, Read & Co. Inc. 2 - 5 SCOR U.S. Corporation Confidential
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS (LCL/$MILLIONS, EXCEPT LIT BILLIONS (1)) Implied Announcement % Price for Net Net Book Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value - ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ ----- 22/01/90 Atersforsakerings/ Wasa AB has acquired SEK 34.0 100.0% 34.0 -- -- -- Wasa Forsakring AB Aterforsakrings AB, Swedish USD 5.6 5.6 reinsurance company, from Skandia, Trygg-Hansa and Folksam. 28/07/89 Societe SCOR is to merge with UAP FF -- 100.0% -- 5,857.4 238.1 2,761.5 Commerciale de Reassurance. The merger will Reassurance/ be executed through a paper bid Union des for SCOR & UAP Re from Assurances de Compagnie Generales de Paris Voitures, a shell listed company in which UAP and Assurances Generales de France each own 40%. 01/05/89 Deutsche Continental Corporation of the DEM -- 100.0% -- 198.8 2.6 63.5 Continental US has sold its German USD 111.7 1.5 35.7 Ruecksversi- subsidiary for an undisclosed cherung/ amount. Societe Commerciale de Reassurance 24/09/88 Copenhagen Re/ The acquisition was made by FFR 560.0 85.0% 658.8 85.5 (0.6) 100.4 Groupama creating a reinsurance holding USD 83.1 97.8 12.4 (0.1) 14.6 co in which Groupama has an 85% stake. The holding co will have capital of USD 100MM of which Copenhagen Re (parent company) will contribute USD 15MM. 26/06/88 Imperial Chemicals ICI has agreed to sell its STG 10.0 100.0% 10.0 12.0 2.0 -- Reinsurance/ reinsurance subsidiary to QBE. USD 17.3 17.3 20.8 3.4 -- QBE Insurance Group Price/ --------------------------- Announcement Net Net Book Date Premiums Income Value - ------------ -------- ------ ----- 22/01/90 -- -- -- 28/07/89 -- -- -- 01/05/89 -- -- -- 24/09/88 7.7 N.M. 6.6 26/06/88 0.8 5.1 --
_________ (1) $ Values converted at historic exchange rate existing at time of transaction. Dillon, Read & Co. Inc. 2 - 6 SCOR U.S. Corporation Confidential
SUMMARY OF SELECTED EUROPEAN REINSURANCE TRANSACTIONS (LCL/$MILLIONS, EXCEPT LIT BILLIONS (1)) Implied Announcement % Price for Net Net Book Date Acquiree/Acquiror Deal Description Deal Size Acquired 100% Premiums Income Value - ------------ ------------------- ------------------------------- --------- -------- --------- -------- ------ ----- 08/05/88 Skandia Skandia acquired the SEK3,600.0 54.0% 6,666.7 7,609.0 438.0 2,342.0 International outstanding shares of Skandia USD 556.8 1,031.1 Holding AB/ International Holding Skandia AB reinsurance concern spun off 3 years ago. The offer to Skandia International shareholders is SEK 60 in cash and 1 Skandia Insurance share. The new shares issued will represent 22.4% of its expanded equity of 77.3MM shares. 04/01/88 Vittoria SCOR acquired practically the USD 121.2 100.0% 121.2 117.2 1.4 17.3 Riassicurazioni/ only large Italian reinsurer. Societe Through the sale the divestor Commerciale de Toro Assicurazioni recentered Reassurance its activities on direct insurance. 02/10/87 Baltica Nordisk- Baltica, a Danish insurance DKR 1,200 100.0% 1,200 $109 754 Re/ group, sold Baltica-Nordiske, ($173) ($173) ($109) N.A. ($109) Employers Re its reinsurance business, to Employers Re, a subsidiary of General Electric Company, based in Kansas. The acquisition does not include Baltica-Skandinavia (UK). Price/ --------------------------- Announcement Net Net Book Date Premiums Income Value - ------------ -------- ------ ----- 08/05/88 0.9 15.2 2.8 04/01/88 1.0 N.M. N.M. 02/10/87 108 N.A. 1.59
_________ (1) $ Values converted at historic exchange rate existing at time of transaction. Dillon, Read & Co. Inc. 2 - 7 SCOR U.S. Corporation
- ------------------------------------------------------------------------------------------------------------------------------ Dillon, Read & Co., Inc. SCOR U.S CORP. Selected Minority Close Out Transactions - ------------------------------------------------------------------------------------------------------------------------------ Value Common % Owned Price of Shares % of After Date Per Deal Aquired Shares Trans- Announced Target Name Acquiror Name Share ($mil) (mil) Acq. action - --------- -------------------------- -------------------------- -------- ------- ------- ------ ------- 12/28/94 Fleet Mortgage Group Inc Fleet Financial Group Inc $20.00 $188.1 9.4 19.0 % 100 % 09/08/94 Contel Cellular Inc GTE Corp 25.50 254.3 10.0 10.0 100 08/24/94 Castle & Cooke Home Inc Dole Food Co Inc 15.75 81.5 5.6 17.0 100 07/28/94 Chemical Waste Management Inc WMX Technologies Inc 8.85 397.4 44.9 21.4 100 06/06/94 Ogden Projects Inc Ogden Corp 18.38 110.3 6.0 15.8 100 03/01/94 FoxMeyer Corp National Intergroup Inc 14.46 79.7 5.5 19.5 100 06/17/93 Hadson Energy Resources Corp Apache Corp 15.00 39.3 2.6 33.5 100 04/26/93 Southeastern Public Service Co DWG Corp 25.60 86.1 3.4 29.0 100 11/13/92 Brand Cos Inc Rust International Inc 18.75 185.0 9.9 44.0 100 08/17/92 PHLCORP Inc Leucadia National Corp 25.78 139.9 5.4 36.9 100 03/02/92 Grace Energy Corp WR Grace & Co 19.00 77.3 4.1 16.6 100 02/06/92 Spelling Entertainment Inc Charter Co(American Financial) 7.25 43.0 5.8 18.0 100 09/18/91 Arkla Exploration Co Arkla Inc 15.44 92.6 6.0 18.0 100 08/02/91 Envirosafe Services Inc EnviroSource Inc 11.69 16.8 1.4 37.4 100 07/25/91 Country Lake Food Inc Land O' Lakes Inc 15.30 22.6 1.6 34.5 100 06/13/91 Weigh-Tronix Staveley Industries PLC 22.00 25.3 1.2 44.3 98 03/01/91 Metcalf & Eddy Cos Inc Air & Water Technologies Corp 19.25 51.0 2.7 18.0 100 01/25/91 Medical Management of America Investor Group 8.25 12.9 1.6 23.7 100 01/03/91 Ocean Drilling & Exploration Murphy Oil Corp 19.39 391.8 20.1 39.0 100 11/11/90 US WEST NewVector Group Inc US West Inc 45.03 437.5 9.7 19.0 100 10/23/90 ERC Environmental and Energy Ogden Corp 15.13 33.6 2.2 38.8 100 07/31/90 Freeport-McMoRan Oil and Gas Freeport McMoRan Inc 10.88 46.2 4.3 18.5 100 07/19/90 Caesars New Jersey Inc Caesars World Inc 22.58 48.4 2.2 13.4 100 07/12/90 TVX Broadcast Group Inc Paramount Communications 9.50 61.4 6.5 21.0 100 07/06/90 Mack Trucks Inc Renault Vehicules Industriels 6.25 103.7 16.6 40.0 100 05/17/90 DST Systems Inc Kansas City Southern Inds Inc 15.85 39.1 2.2 11.5 99 05/08/90 ISS International Service Sys ISS International Service A/S 12.00 15.4 1.3 34.0 100 03/02/90 Shearson Lehman Brothers Hldgs American Express Co 12.90 360.0 27.9 39.0 100 01/24/90 Copperweld Corp Imetal SA 17.00 78.0 4.6 44.4 100
Premium Premium Premium 1 Day 1 Week 4 Weeks Date Prior Prior Prior Announced to Deal to Deal to Deal - --------- -------- ------- ------- 12/28/94 19.4% 18.5% 18.5% 09/28/94 43.7% 37.8% 36.0% 08/24/94 35.4% 41.5% 55.5% 07/28/94 10.6% 8.9% 1.1% 06/06/94 5.8% 17.6% 20.5% 03/01/94 7.1% 9.1% 11.2% 06/17/93 26.3% 27.7% 25.0% 04/26/93 65.2% 63.8% 86.2% 11/13/92 4.9% 13.6% 4.9% 08/17/92 12.1% 15.2% 28.9% 03/02/92 24.6% 21.6% 7.8% 02/06/92 52.6% 45.0% 45.0% 09/18/91 8.4% 28.7% 30.0% 08/02/91 16.9% 11.3% -2.6% 07/25/91 39.1% 45.7% 53.0% 06/13/91 41.9% 41.9% 44.3% 03/01/91 22.2% 16.7% 24.2% 01/25/91 65.0% 65.0% 65.0% 01/03/91 14.1% 24.1% 9.2% 11/11/90 47.6% 58.0% 83.8% 10/23/90 37.5% 44.1% 44.1% 07/31/90 36.0% 42.6% 47.4% 07/19/90 40.0% 49.2% 44.5% 07/12/90 26.7% 90.0% 85.2% 07/06/90 19.0% 19.0% 21.8% 05/17/90 24.3% 40.9% 51.0% 05/08/90 54.8% 60.0% 60.0% 03/02/90 -0.8% 18.6% 7.5% 01/24/90 47.8% 41.7% 33.3% - ------------------------------------------------------- All Close Outs: Average 29.2% 35.1% 35.9% Median 26.3% 37.8% 33.3% High 65.2% 90.0% 86.2% Low -0.8% 8.9% -2.6% - ------------------------------------------------------- - ------------------------------------------------------- Purchase 15-25% Average 27.8% 35.6% 38.1% Median 24.6% 28.7% 30.0% High 65.0% 90.0% 85.2% Low 5.8% 8.9% 1.1% - -------------------------------------------------------
DILLON, READ & CO. INC. 11/02/95 - --------------------------------------------------------------------------------------------------------------------- Preliminary & Confidential SCOR U.S. CORPORATION Discounted Cash Flow Analysis (Dollars in millions) - --------------------------------------------------------------------------------------------------------------------- Actual Company Projections ------ ------------------- INCOME PROJECTIONS 1992 1993 1994 1995 1996 1997 -------- -------- ------- -------- ------- ------- Revenues: Net Premiums Earned $192.1 $236.1 $228.2 $259.3 $279.5 $329.2 Net Investment Income 42.9 42.0 41.0 42.4 44.8 47.2 Net Investment Gains/(Losses) 15.0 12.9 1.0 0.7 -- -- -------- -------- ------- -------- ------- ------- Net Revenues 250.0 291.0 270.2 302.4 324.3 376.4 Losses and Expenses: Losses and Expenses, net 160.5 156.3 191.3 174.4 187.7 216.8 Commissions, net 56.0 61.3 59.4 69.1 74.1 89.5 Other Operating Expenses 23.9 26.4 26.0 29.0 29.0 30.0 Other 4.3 4.1 4.0 0.6 (0.2) (1.6) Interest Expense 4.6 8.0 8.9 -- -- -- -------- -------- ------- -------- ------- ------- Pretax Income 1995-2004 0.6 34.9 (19.5) 29.3 33.7 41.7 Income Taxes 20.0% (3.8) 7.0 (11.3) 5.9 6.7 8.3 -------- -------- ------- -------- ------- ------- Net Income from Continuing Ops. $4.4 $27.9 ($8.2) $23.4 $27.0 $33.4 ======== ======== ======= ======== ======= ======= Extraordinary Items -- -- 0.4 -- -- -- Cum. Effect of Accting Change 2.8 (2.6) -- -- -- -- -------- -------- ------- -------- ------- ------- Net Income $7.2 $25.3 ($7.8) $23.4 $27.0 $33.4 ======== ======== ======= ======== ======= ======= Annual Growth -87.5% 249.4% -131.0% -398.8% 15.1% 23.6% Less: Preferred Dividends -- -- -- -- -- -- Net Income to Common $7.2 $25.3 ($7.8) $23.4 $27.0 $33.4 ======== ======== ======= ======== ======= ======= - --------------------------------------------------------------------------------------------------------------------- Growth in Net Premiums Earned 22.91% -3.31% 13.61% 7.79% 17.77% Growth in Investment Income -1.95% -2.51% 3.51% 5.66% 5.35% Loss Ratio 83.6% 66.2% 83.8% 67.3% 67.2% 65.9% Commission Ratio 29.1% 26.0% 26.0% 26.7% 26.5% 27.2% Expense Ratio 14.7% 12.9% 13.2% 11.4% 10.3% 8.6% Combined Ratio 127.5% 105.1% 123.0% 105.3% 104.0% 101.7% Return on Average Equity 9.6% 11.1% 13.4% - --------------------------------------------------------------------------------------------------------------------- Dividends ($24.3) ($24.3) ($24.5) Dividend Payout Ratio 103.9% 89.9% 73.5% Retained Earnings ($0.9) $2.7 $8.8 Surplus: Beginning Statutory Surplus $243.4 $242.5 $245.2 Plus: Retained Earnings (0.9) 2.7 8.8 Other -- -- -- -------- ------- ------- Ending Statutory Surplus $242.5 $245.2 $254.1 ======== ======= ======= Average Surplus $243.0 $243.9 $249.7 10% of Beginning Surplus 24.3 24.3 24.5 Minimum EOY Surplus (Multiple of Net Premiums) 1.7 x $152.5 $164.4 $193.6 Total Dividends Allowable 105.1 85.0 Net Premiums/End of Year Surplus 1.1 x 1.3 x Projected --------- INCOME PROJECTIONS 1998 1999 2000 2001 2002 2003 2004 ------- ------- ------- --------- ------- ------- ------- Revenues: Net Premiums Earned $352.2 $376.9 $403.3 $431.5 $461.7 $494.0 $528.6 Net Investment Income 51.0 55.1 59.5 64.3 69.4 74.9 80.9 Net Investment Gains/(Losses) -- -- -- -- -- -- -- ------- ------- ------- --------- ------- ------- ------- Net Revenues 403.2 432.0 462.8 495.7 531.1 569.0 609.5 Losses and Expenses: Losses and Expenses, net 232.0 248.2 265.6 284.2 304.0 325.3 348.1 Commissions, net 95.8 102.5 109.7 117.3 125.5 134.3 143.7 Other Operating Expenses 30.4 32.6 34.8 37.3 39.9 42.7 45.7 Other (1.7) (1.8) (1.9) (2.1) (2.2) (2.4) (2.5) Interest Expense -- -- -- -- -- -- -- ------- ------- ------- --------- ------- ------- ------- Pretax Income 1995-2004 46.8 50.5 54.6 59.1 63.8 69.0 74.6 Income Taxes 20.0% 9.4 10.1 10.9 11.8 12.8 13.8 14.9 ------- ------- ------- --------- ------- ------- ------- Net Income from Continuing Ops. $37.4 $40.4 $43.7 $47.2 $51.1 $55.2 $59.7 ======= ======= ======= ========= ======= ======= ======= Extraordinary Items -- -- -- -- -- -- -- Cum. Effect of Accting Change -- -- -- -- -- -- -- ------- ------- ------- --------- ------- ------- ------- Net Income $37.4 $40.4 $43.7 $47.2 $51.1 $55.2 $59.7 ======= ======= ======= ========= ======= ======= ======= Annual Growth 12.2% 8.1% 8.1% 8.1% 8.1% 8.1% 8.1% Less: Preferred Dividends -- -- -- -- -- -- -- Net Income to Common $37.4 $40.4 $43.7 $47.2 $51.1 $55.2 $59.7 ======= ======= ======= ========= ======= ======= ======= - ---------------------------------------------------------------------------------------------------------------------------------- Growth in Net Premiums Earned 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% Growth in Investment Income 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Loss Ratio 65.9% 65.9% 65.9% 65.9% 65.9% 65.9% 65.9% Commission Ratio 27.2% 27.2% 27.2% 27.2% 27.2% 27.2% 27.2% Expense Ratio 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% 8.6% Combined Ratio 101.7% 101.7% 101.7% 101.7% 101.7% 101.7% 101.7% Return on Average Equity 14.4% 14.8% 15.2% 15.5% 15.8% 16.0% 16.3% - ---------------------------------------------------------------------------------------------------------------------------------- Dividends ($25.4) ($26.6) ($28.0) ($29.6) ($31.3) ($33.3) ($35.5) Dividend Payout Ratio 67.9% 65.8% 64.0% 62.6% 61.4% 60.3% 59.5% Retained Earnings $12.0 $13.8 $15.7 $17.7 $19.7 $21.9 $24.2 Surplus: Beginning Statutory Surplus $254.1 $266.1 $279.9 $295.6 $313.3 $333.0 $354.9 Plus: Retained Earnings 12.0 13.8 15.7 17.7 19.7 21.9 24.2 Other -- -- -- -- -- -- -- ------- ------- ------- --------- ------- ------- ------- Ending Statutory Surplus $266.1 $279.9 $295.6 $313.3 $333.0 $354.9 $379.1 ======= ======= ======= ========= ======= ======= ======= Average Surplus $260.1 $273.0 $287.8 $304.5 $323.2 $344.0 $367.0 10% of Beginning Surplus 25.4 26.6 28.0 29.6 31.3 33.3 35.5 Minimum EOY Surplus (Multiple of Net Premiums) $207.2 $221.7 $237.2 $253.8 $271.6 $290.6 $310.9 Total Dividends Allowable 84.3 84.8 86.4 89.1 92.8 97.6 103.7 Net Premiums/End of Year Surplus 1.3 x 1.3 x 1.4 x 1.4 x 1.4 x 1.4 x 1.4 x - ----------------------------------------------------------------------------------------------------------------------------------
DILLON, READ & CO. INC. - ----------------------------------------------------------------------------------------------------------------------------------- Preliminary & Confidential SCOR U.S. CORPORATION Discounted Cash Flow Analysis (Dollars in millions) - ----------------------------------------------------------------------------------------------------------------------------------- PRESENT VALUE OF DIVIDENDS - -------------------------- ------------------------------------------------------------ Discount 1996 1997 1998 1999 2000 NPV Value of Dividends Discounted to Rate ---------- ----------- --------- ---------- ------------ 1/1/96 at Equity Discount Rates of: -------- - ------------------------------------------ 11.0% $21.8 $19.9 $18.6 $17.5 $16.6 12.0% 21.7 19.6 18.1 16.9 15.9 13.0% 21.5 19.2 17.6 16.3 15.2 NPV Value of Cumulative Dividends Disc. 1/1/96 at Equity Discount Rates of: - ------------------------------------------ 11.0% $21.8 $41.8 $60.3 $77.9 $94.5 12.0% 21.7 41.2 59.3 76.2 92.1 13.0% 21.5 40.7 58.3 74.6 89.8 - ----------------------------------------------------------------------------------------------------------------------------------- NPV Value of Dividends and Equity Disc. Discount P/E 1996 1997 1998 1999 2000 to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- ---- - ------------------------------------------ --------- -------- 11.0% 10.5 x $305.1 $357.3 $379.2 $388.3 $396.8 11.0% 11.5 332.1 387.3 409.5 417.9 425.6 11.0% 12.5 359.1 417.4 439.9 447.5 454.4 UNLEVERED PRESENT VALUE 12.0% 10.5 x $305.0 $353.9 $372.4 $378.4 $383.8 - ----------------------- 12.0% 11.5 331.9 383.7 402.3 407.2 411.5 12.0% 12.5 358.9 413.5 432.1 436.0 439.3 13.0% 10.5 x $304.8 $350.6 $365.9 $368.9 $371.3 13.0% 11.5 331.7 380.1 395.2 396.9 398.1 13.0% 12.5 358.7 409.6 424.5 424.9 424.9 ---------------------------------------------------- NPV per Share of Dividends and Equity Disc. Discount P/E 1996 1997 1998 1999 2000 to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- ---- - ------------------------------------------ --------- -------- Net Debt (9/30/95) $108.3 11.0% 10.5 x $196.9 $249.0 $270.9 $280.1 $288.5 11.0% 11.5 223.9 279.1 301.2 309.6 317.3 11.0% 12.5 250.8 309.1 331.6 339.2 346.1 PRESENT VALUE OF EQUITY 12.0% 10.5 x $196.7 $245.6 $264.2 $270.2 $275.5 - ----------------------- 12.0% 11.5 223.7 275.4 294.0 298.9 303.3 12.0% 12.5 250.6 305.2 323.8 327.7 331.0 13.0% 10.5 x $196.5 $242.3 $257.6 $260.6 $263.0 13.0% 11.5 223.5 271.9 286.9 288.6 289.8 13.0% 12.5 250.4 301.4 316.2 316.6 316.6 NPV per Share of Dividends and Equity Disc. Discount P/E 1996 1997 1998 1999 2000 to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- ---- - ------------------------------------------- -------- -------- Shares (MM) 18.2 11.0% 10.5 x $10.84 $13.71 $14.91 $15.42 $15.88 11.0% 11.5 12.32 15.36 16.58 17.05 17.47 11.0% 12.5 13.81 17.02 18.26 18.67 19.05 PV PER SHARE 12.0% 10.5 x $10.83 $13.52 $14.54 $14.87 $15.17 - -------------------------------- 12.0% 11.5 12.31 15.16 16.19 16.46 16.70 12.0% 12.5 13.80 16.80 17.83 18.04 18.22 13.0% 10.5 x $10.82 $13.34 $14.18 $14.35 $14.48 13.0% 11.5 12.30 14.97 15.80 15.89 15.95 13.0% 12.5 13.79 16.59 17.41 17.43 17.43 PRESENT VALUE OF DIVIDENDS As of Year - -------------------------- Discount 2001 2002 2003 2004 NPV Value of Dividends Discounted to Rate ------------ ------------- ------------- ------------ 1/1/96 at Equity Discount Rates of: -------- - ------------------------------------------ 11.0% $15.8 $15.1 $14.5 $13.9 12.0% 15.0 14.2 13.5 12.8 13.0% 14.2 13.3 12.5 11.8 NPV Value of Cumulative Dividends Disc. 1/1/96 at Equity Discount Rates of: - ------------------------------------------ 11.0% $110.3 $125.4 $139.8 $153.7 12.0% 107.1 121.2 134.7 147.5 13.0% 104.0 117.3 129.8 141.6 - ----------------------------------------------------------------------------------------------------------------------------------- Assuming Sale at the End of --------------------------- NPV Value of Dividends and Equity Disc. Discount P/E 2001 2002 2003 2004 to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- - ------------------------------------------ --------- -------- 11.0% 10.5 x $404.7 $412.0 $419.0 $425.5 11.0% 11.5 432.7 439.3 445.6 451.4 11.0% 12.5 460.7 466.6 472.1 477.3 UNLEVERED PRESENT VALUE 12.0% 10.5 x $388.5 $392.9 $396.8 $400.5 - ----------------------- 12.0% 11.5 415.4 418.8 421.8 424.6 12.0% 12.5 442.2 444.6 446.6 448.7 13.0% 10.5 x $373.2 $374.9 $376.2 $377.3 13.0% 11.5 398.9 399.4 399.6 399.7 13.0% 12.5 424.5 423.9 423.1 422.2 Assuming Sale at the End of NPV per Share of Dividends and Equity Disc. Discount P/E 2001 2002 2003 2004 to 1/1/96 at Equity Discount Rates of: Rate Multiple - ------------------------------------------ --------- -------- Net Debt (9/30/95) $108.3 11.0% 10.5 x $296.4 $303.8 $310.7 $317.2 11.0% 11.5 324.4 331.1 337.3 343.1 11.0% 12.5 352.5 358.4 363.9 369.0 PRESENT VALUE OF EQUITY 12.0% 10.5 x $280.3 $284.6 $288.6 $292.2 - ----------------------- 12.0% 11.5 307.1 310.5 313.5 316.3 12.0% 12.5 333.9 336.4 338.5 340.4 13.0% 10.5 x $265.0 $266.6 $267.9 $269.0 13.0% 11.5 290.6 291.1 291.4 291.5 13.0% 12.5 316.3 315.6 314.8 313.9 Assuming Sale at the End of --------------------------- NPV per Share of Dividends and Equity Disc. Discount P/E 2001 2002 2003 2004 to 1/1/96 at Equity Discount Rates of: Rate Multiple ---- ---- ---- ---- - ------------------------------------------- -------- -------- Shares (MM) 18.2 11.0% 10.5 x $16.32 $16.72 $17.10 $17.47 11.0% 11.5 17.86 18.23 18.57 18.89 11.0% 12.5 19.40 19.73 20.03 20.32 PV PER SHARE 12.0% 10.5 x $15.43 $15.67 $15.89 $16.09 - --------------------------------- 12.0% 11.5 16.91 17.09 17.26 17.41 12.0% 12.5 18.38 18.52 18.64 18.74 13.0% 10.5 x $14.59 $14.68 $14.75 $14.81 13.0% 11.5 16.00 16.03 16.04 16.05 13.0% 12.5 17.41 17.38 17.33 17.28
Preliminary & Confidential 10:56 AM 02-Nov-95 SCOR U.S. CORPORATION Weighted Average Cost of Capital (Dollars in millions) Dillon, Read & Co. Inc. Estimation of Unlevered Asset Beta Company Equity Total Market Debt/ Ticker Beta (a) Debt Equity Capitalization Capitalization - ------------- ---------- -------- --------- -------------- -------------- SCOR U.S. 0.49 $121.3 $277.0 $398.3 30.4% NAC Re 0.79 200.0 632.3 832.3 24.0% PXRE Corp 1.04 69.7 219.2 288.9 24.1% Transatlantic 0.74 0.0 1,560.1 1,560.1 0.0% Trenwick 0.65 103.5 321.3 424.8 24.4% American Re 1.05 600.0 1,805.5 2,405.5 24.9% General Re 0.83 157.0 12,006.9 12,163.9 1.3% National Re 0.82 100.0 567.1 667.1 15.0% Company Equity/ Unlevered Ticker Capitalization Beta(b) - ------------- -------------- --------- SCOR U.S. 69.6% 0.39 NAC Re 76.0% 0.64 PXRE Corp 75.9% 0.83 Transatlantic 100.0% 0.74 Trenwick 75.6% 0.53 American Re 75.1% 0.83 General Re 98.7% 0.82 National Re 85.0% 0.72 Average Unlevered Asset Beta 0.73 ===== - -------------------------------------------------------------------------------------------------------------------------- Weighted Average Cost of Capital under Hypothetical Capital Structures (D+P)/(ME+D+P) 4.8% 8.8% 12.8% 16.8% (D+P)/ME 5.0% 9.6% 14.6% 20.1% D/(ME+D+P) 4.8% 8.8% 12.8% 16.8% ME/(ME+D+P) 95.3% 91.3% 87.3% 83.3% Equity Beta (b) 0.76 0.79 0.81 0.84 Cost of Equity Over Bills (c) 11.8% 12.1% 12.3% 12.6% Cost of Equity Over Bonds (d) 11.6% 11.8% 12.0% 12.2% Average Cost of Equity 11.7% 11.9% 12.1% 12.4% (D+P)/(BV+D+P) (g) 7.3% 13.2% 18.8% 24.2% Cost of Debt 6.8% 7.0% 7.1% 7.3% After-tax Cost of Debt (e) 4.4% 4.6% 4.6% 4.7% Weighted Average Cost of Capital Based on Bills 11.5% 11.4% 11.3% 11.2% Based on Bonds 11.2% 11.1% 11.0% 10.9% -------------------------------------------------------------------------------------------------------------- Average 11.36% 11.27 11.17% 11.08% -------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------ Weighted Average Cost of Capital under Hypothetical Capital Structures (D+P)/(ME+D+P) 20.8% 24.7% 28.8% 32.8% 36.7% (D+P)/ME 26.2% 32.9% 40.4% 48.7% 58.1% D/(ME+D+P) 20.8% 24.7% 28.8% 32.8% 36.7% ME/(ME+D+P) 79.3% 75.3% 71.3% 67.3% 63.3% Equity Beta (b) 0.88 0.92 0.96 1.00 1.06 Cost of Equity Over Bills (c) 12.8% 13.2% 13.5% 13.9% 14.3% Cost of Equity Over Bonds (d) 12.4% 12.7% 13.0% 13.3% 13.7% Average Cost of Equity 12.6% 12.9% 13.2% 13.6% 14.0% (D+P)/(BV+D+P) (g) 29.4% 34.3% 39.1% 43.6% 48.0% Cost of Debt 7.5% 8.0% 9.0% 11.0% 13.0% After-tax Cost of Debt (e) 4.9% 5.2% 5.9% 7.2% 8.5% Weighted Average Cost of Capital Based on Bills 11.2% 11.2% 11.3% 11.7% 12.2% Based on Bonds 10.9% 10.8% 10.9% 11.3% 11.8% ------------------------------------------------------------------------------------------------------------ Average 11.02% 11.01% 11.11% 11.49% 11.96% ------------------------------------------------------------------------------------------------------------
- -------------------- Notes (a) Source Bloomberg 11/2/95 calculated daily over two years over the S&P 500. (b) Assumes a debt beta of 0.17 as given by Reilly and Joehnk in the Journal of Finance, December, 1976. Unlevered asset beta calculated as: [((D+P)/(ME+D+P)) Debt Beta + (ME/Me+D+P)*Equity Beta]. Equity Beta under the hypothetical capital structures calculated as: [Asset Beta +((D+P)/ME) *(Asset Beta - Debt Beta)] (c) Cost of equity over bills calculated as: (Equity Beta*8.40%+5.46%) The 8.40% figure is the estimated historical arithmetic mean, from 1926 to 1994, returns over bills demanded by investors to invest in equities according to Ibbotson Associates. The 5.46% figure our proxy for the risk free rate, is the average yield on 3-Month Treasury Bills on November 2, 1995. (d) Cost of equity over bonds calculated as (Equity Beta*7.00%+6.27%). The 7.00% figure is the estimated historical arithmetic mean, from 1926 to 1994, rate over bonds demanded by investor to invest in equities according to Ibbotson Associates. The 6.27% figure our proxy for the risk free rate, is the average yield on 30 year Treasury Bond on November 2, 1995 (e) Using a tax rate of 35% which approximates that average combined federal and state tax rates. (f) Liquidation Value (g) (D+P)/(BV+D+P)=[(D+P)/(ME+D+P)]*[{MBV*(1+[(D+P)/(ME])}/{1+(MBV*[(D+P)/ME])} ] where MBV=trading multiple of book value EX-10 10 Exhibit 10 November 8, 1995 SCOR U.S. Corporation Two World Trade Center New York, New York 10177 Dear Sirs: By this letter agreement, each of the undersigned hereby confirms that, notwithstanding the introductory language contained in Annex A to the Agreement and Plan of Merger, dated as of November 2, 1995 (the "Merger Agreement"), by and among SCOR U.S. Corporation, SCOR S.A. and SCOR Merger Sub Corporation, the Minimum Tender Condition shall be satisfied if there shall have been validly tendered and not withdrawn prior to the expiration date of the Offer a number of Shares that, together with any Shares currently beneficially owned directly or indirectly by Purchaser, constitutes at least 90% of the total Shares outstanding as of the date the Shares are accepted for payment pursuant to the Offer. Terms used but not defined in this letter agreement shall have the meanings given such terms in the Merger Agreement. Except as expressly set forth in this letter agreement, the Merger Agreement, as originally executed, shall remain in full force and effect. This letter agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. Please confirm your agreement to the provisions of this letter agreement by signing in the space provided below. Very truly yours, SCOR S.A. By:/s/ Jacques Blondeau -------------------------- Name : Jacques Blondeau Title: Chairman and Chief Executive Officer SCOR Merger Sub Corporation By:/s/ Jacques Blondeau --------------------- Name : Jacques Blondeau Title: President Agreed and confirmed: SCOR U.S. Corporation By: /s/ Jerome Karter -------------------------- Name : Jerome Karter Title: President and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----