The Board of Directors and Management of the BF&M Insurance Group are very pleased to announce that an out of court settlement has been reached between BF&M Limited ("BF&M"), certain of its subsidiaries and its shareholders, and The Liquidators and Creditors of The Bermuda Fire & Marine Insurance Company Limited (In Liquidation) ("BFMIC").
The settlement is subject to approval by BF&M's common shareholders at meetings arranged for Tuesday 14th December. Glenn Titterton, President & Chief Executive Officer of BF&M confirmed that, provided shareholders were happy, "under the terms of the Agreement the parties will apply to the Supreme Court to have the actions dismissed against all of the defendants with no order as to costs." He said that "this settlement is the result of lengthy and complex negotiations." "I am delighted with the outcome, which will bring this unfortunate matter to a conclusion once and for all."
Lt. Col Michael Darling, BF&M's Chairman, said that "the agreement has the full support of the Board of Directors and of Management and will be recommended to common shareholders for their approval at a Special General Meeting on 14th December". He confirmed that notices were currently being delivered to shareholders by hand.
The settlement will also release all members of The BF&M Limited Shareholders' Association from liability without payment or contribution on their part. The Members of the Association will also meet on 14th December to vote on the settlement.
The agreement to settle the matter out of court is on the basis of no wrong-doing by any party. BF&M received strong legal opinion in its favour but it has not been able to ignore the uncertainties inherent in this very complex piece of litigation. The litigation required the close attention of senior management and diverted them from expanding the business to its fullest potential. At the same time BF&M has had to face substantial legal costs and the commercial impact of a prolonged and high-profile court case.
The current trial schedule indicated that the case, which started in May 1999, would not have concluded until at least December 2000. Moreover, there was every likelihood that whichever way the judgment went, it would have been appealed by the losing party, ultimately to the Privy Council in London, a process which would have taken several more years. All parties were acutely aware of the enormous costs involved in this process, which presented an unacceptable diversion of resources for a highly successful business such as BF&M, which places great value on the unfailing support of its shareholders and policyholders.
For these reasons, BF&M has believed for some time that an out of court settlement was the appropriate solution to this action. While BF&M has had great confidence in its defence and pursued it aggressively in court, we have been quietly working behind the scenes toward an out of court settlement. We are therefore very happy that an agreement has now been reached and we are satisfied that the terms of the settlement are appropriate and in line with our approach to valuation.
The settlement provides for the payment by BF&M of US$35 million, in conjunction with additional payments by the other defendants. BF&M's payment is a substantial sum but can be accommodated without impairing the capital and surplus of each of BF&M's operating companies in any way. The financial strength of BF&M Limited and its subsidiaries is such that, after the settlement, the capital and surplus of each of the principal operating companies will exceed requirements not only of the Bermuda legislation, but of the United States and Canada as well.
The settlement agreement also provides an option for BFMIC to purchase up to 1 million common shares of BF&M Limited, during a 3 year period commencing on 1 January 2004, at a price per share of BD$12.40. The subscription price which BFMIC have agreed to pay for Common Shares acquired after 31st December 2003 suggests that after taking into account the payment of US$35 million under the Settlement Agreement, they place a valuation of BD$12.40 on the Common Shares. The Board believes such a valuation of the Common Shares after settlement to be reasonable. If BFMIC takes up this option in full, they will pay to BF&M the sum of BD$12.4 million and will have the opportunity to sell these shares at such price as may then prevail.
In respect of this option, BF&M retains several important safeguards. These include -
· The right to extinguish the options at any time up to 31 December 2003.
· A call option requiring BFMIC, after exercising their option, to sell the shares to BF&M at a prescribed price.
· A right of pre-emption requiring BFMIC, before selling shares to any other party, to offer them to BF&M.
· Restrictions on the number of shares BFMIC can dispose of at any one time.
· A restriction that BFMIC will not increase its holding in BF&M i.e. will not acquire any further shares in addition to the common shares granted under this option and the common shares obtained by converting preference shares that BFMIC already hold.
· A restriction ensuring that BF&M remains not less than 60% Bermudian owned.
BFMIC will be entitled to appoint one person to BF&M's Board for so long as they hold over 200,000 shares or options and it is anticipated that this director will make a welcome contribution to the deliberations of the Board. BFMIC is required to abstain from voting its shares on any resolution to elect, re-elect or remove any other Director of the Company.
The settlement has been approved by the Board of Directors of BF&M Limited and the Boards of each of the subsidiary companies named in the action and will be recommended to meetings of Common and Preference Shareholders of the Company scheduled for 14th December. Notices are currently being sent by hand to all shareholders. The trial of the action has currently been adjourned until after the meetings have been held.
Mr Titterton stresses that there is nothing in the settlement which should cause any concern to the holders of individual policies or contracts entered into by any of BF&M's operating subsidiaries. Policyholders of BF&M Life and BF&M General can be assured that these companies are in a strong financial position. They will maintain the same first class reinsurance treaties and the same segregation of assets as they did before the Agreement. Parties contracting with other BF&M subsidiaries can likewise be assured that there is nothing in this Agreement which will affect the performance of the BF&M company concerned.
BF&M General will, after the settlement, have the optimal capital for a general insurance company of its size, as established by the National Association of Insurance Commissioners in the United States and the Office of the Superintendent of Financial Institutions of Canada, and will meet all of the requirements of the Bermuda regulatory authorities. BF&M Life, after the settlement, will have a strong capital base using measures of solvency established by the Office of the Superintendent of Financial Institutions of Canada. BF&M Life's Independent Consulting Actuary is responsible for ensuring that such minimum requirements are met.
Lt. Col. Darling said that "the effect of the US$35 million settlement on the Company's Balance Sheet at 31st December 1999, will be to decrease Shareholders Equity by a like amount while the Option granted to BFMIC to subscribe for common shares in the Company, will have no effect on that Balance Sheet." He said that "the payment of US$35 million will reduce Earnings for the year ending 31st December 1999 by a like amount and both Earnings per Share and Book Value per Share are expected to decrease by BD$10.88 in 1999 as a result of this one time charge."
Mr. Titterton stressed that the agreement had been struck between the parties as the only sensible way to bring this long-running and disruptive dispute to a final and complete conclusion. He said that "this agreement will enable senior management of BF&M to focus full attention on expanding the Company's strong market position and on returning shareholder value." "Our companies have performed remarkably well over recent years and have expanded under very unusual and trying circumstances". "We now look forward to growing the company's major lines of business and to developing new opportunities." " Our Board, Management and Staff approach the future with enthusiasm and confidence." He confirmed that "Management will be happy to respond to any enquiries from shareholders, policyholders or members of the general public".
Mr. Titterton confirmed that "trading in the common shares in BF&M Limited on the BSX, which has been suspended since October 25th, 1995, will commence as soon as approval is given by the shareholders and the case is formally dismissed by the Supreme Court. I hope that this will occur on December 16th, allowing trading to commence on December 17th."
ENDS
For further information, contact:-
Glenn M. Titterton,
President & Chief Executive Officer
Phone 295-5566, Fax 292-8831, e-mail gmtitterton@bfm.bm