PROPOSAL 2
CONCLUSION OF THE LIQUIDATION
The second proposal to be acted upon at the 1992 Annual Meeting calls for the Liquidati on to be
concluded. As described below, the Board recommends that shareholders vote FOR this proposal.
Background of the Liquidation Plan In August 1990 FAC entered into an agreement to sell Fireman's Fund, then FAC's principal
operating business, to a subsidiary of Allianz Aktiengesellschaft Holding, with FAC retaining 95.2% of
the capital stock of SOMSC and the substantial portfolio of common equity securities and certain other
investments previously held by Fireman's Fund (the "Sale"). Of those assets retained by FAC, only
Source One was a substantial operating business. At that time, approximately 759/6, by market value, of
Fund American's investments classified as common equity securities consisted of 13 issuers in the
energy, natural resources and related industries, while another 12% consisted of securities of four issuers
in the newspaper, television and other media industries. See “Common Equity Securities".
In light of the relative magnitudes of the values of the assets that FAC anticipat ed having after
the Sale, the Board determined that tax and other legal and practical constra ints would compel FAC to
follow one of three courses: (1) FAC could have registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"); (2) it could have attempted to sell a large portion of
its assets and reinvest the proceeds in other operating businesses (or distribute all or part of them) within
a year of receiving shareholder approval of the Sale in order to meet an exemption from the requirement
to register as an investment company; or (3) FAC could have commenced to liquidate in an orderly
manner and distribute the liquidation proceeds to its shareholders.
The Board chose the last course of action and on September 26, 1990, adopted the Liquidation
Plan. In reaching its decision, the Board considered the tax and other consequences of continui ng FAC's
operations as a registered investment company and the likelihood that rapid liquidati on of FAC's non-
operating assets to enable FAC to purchase other operating businesses could have caused FAC to fail to
realize fully the inherent value of its assets. For those reasons, among others, the Board concluded that
an orderly liquidation of FAC and the distribution of the liquidation proceeds to shareholders w
preferable to FAC's either remaining in operation as a registered investment company or embarking on
an expedited program of acquiring other operating businesses. At a Special Meeting of sharehol ders held
on December 18, 1990, shareholders approved the Sale and the rest of the Liquidation Plan.
Recommendation of the Board; Reasons for Concluding the Liquidation
The Board, by unanimous vote of those present and voting at a meeting held on April 9, 1992,
has determined that conclusion of the Liquidation is in the best interests of FAC and its shareholders and
recommends to the shareholders that they vote FOR the proposal to conclude the Liquidation.
In making its decision to approve and recommend to FAC's shareholders the conclusion of the
Liquidation, the principal factors considered by the Board were as follows:
1. The Liquidation has already been substantially completed. See "Current Status of the
Liquidation"
2. Upon the conclusion of the Liquidation, FAC will be able to pursue attractive business
opportunities, primarily in the mortgage origination and servicing, insurance and other financi al service
industries, that were unforeseen by management and the Board at the time the Liqui dation Plan was
adopted by the Board and approved by FAC's shareholders. Such opportunities may be currently
available because of the recent public perception of financial problems in those i ndustries, which since
the adoption of the Liquidation Plan may have led to a decrease in the prices of a ttractive acquisition
candidates in those industries.
3. The difficulties associated with further liquidation of FAC's assets, in light of t he
character of many of its remaining portfolio investments, which consist primarily of large, relatively
illiquid blocks of securities of a small number of issuers (many of them in the energy, na tural resources,
media and related industries). See "Common Equity Securities". In the Board's view, based upon
discussions with management and with First Manhattan Co., further liquidation of FAC's assets in
accordance with the Liquidation Plan could cause FAC to fail to realize ful ly the inherent value of such
assets. In addition, and also based upon such discussions, the Board does not expect current adverse
market conditions in the energy and natural resource industries to abate in the near future.
4. The substantial growth in the business of Source One, FAC's principal remaining
operating business, since the adoption of the Liquidation Plan. In order to make Source One a vi able,
stand-alone business and to support such growth, FAE contributed approximately $300 million, a
substantial portion of its assets, to SOMSC in November 1991.
5. The fact that, under applicable rules and regulations of the SEC, FAC has not been an
"investment company" under the 1940 Act since approximately May 31, 1991.
6. The fact that any FAC shareholder not in favor of concluding the Liquidation will be
able (subject to any applicable proration) to receive a final distribution in respe ct of his Shares in FAC's
self-tender offer for up to 4,000,000 Shares at a net purchase price of $70 per Share (the "Final
Distribution"), which FAC currently intends to consummate promptly after the 1992 Annual Meeting if
Proposal 2 is approved. See "Current Status of the Liquidation".
Although it based its conclusion upon the different considerations discussed above, the Board did
not assign any relative weight to the factors considered in reaching its decisi on. The Board, however,
placed special emphasis on its belief, as supported by its experience in 1991 and 1992 to-dat e, that FAC
is likely to be presented with attractive business opportunities that may yield signifi cant returns to FAC
and its shareholders.
For example, during the second half of 1991 FAE was part of an investor group led by a San
Francisco-based investment banking firm which proposed, although unsuccessfully, to acquire an
operating interest in the insurance business and certain investment assets of Executi ve Life Insurance
Company of California. FAE also considered during 1991 the capitalization of an offshore start-up
entity which would have written finite risk life and property/casualty reinsurance. FAC has also received
numerous communications from other parties inquiring as to whether FAC would be interested in
acquiring or becoming an influential investor in various businesses, primarily in the mortgage
origination and servicing, insurance and other financial services industries. FAC has investigat ed certain
of those inquiries to varying degrees. However, FAC has not concluded any agreement with respect to
any such business opportunities and is not currently engaged in any active negotiations with respe ct to
any such opportunities. FAC is continually considering possibilities to develop certain of i ts existing
investment holdings into operating interests in such businesses, however, FAC has not identified any
new business opportunities which it currently intends to pursue.
In the event the Liquidation is concluded, the Board intends to develop or pursue investment s in
or acquisitions of one or more attractive businesses, primarily in the mortgage origination and servicing,
insurance or other financial service industries. In connection with any such acquisition FAC may incur a
substantial amount of bank or other indebtedness and/or may sell or otherwise dispose of a portion of i ts
assets. The Board does not, however, currently intend to sell Source One. See "Continued Operat ion of
Source One".
The Board also placed special emphasis on the fact that the Liquidation is substa ntially
completed, see "Current Status of the Liquidation", and that, as discussed in the third factor above, in the
Board's view continued operation of the Liquidation Plan could cause FAC to fail to rea lize fully the
inherent value of its assets. Given the current adverse market conditions in the energy and natural
resources market sector, if the Liquidation is concluded pursuant to Proposal 2, FAC currently int ends to
retain most of its existing holdings in that sector at least until relevant m arket conditions improve. FAC
may also attempt to develop certain of such existing investment holdings into operating interests in such
businesses by acquiring additional interests in such businesses. Such acquisitions could be made by
means of purchases of securities for cash or in exchange for certain of FAC's other investment holdings.
FAC currently is not an investment company as determined pursuant to the 1940 Act. The
conclusion of the Liquidation pursuant to Proposal 2 (or otherwise) and the purchase by FAC of up to
4,000,000 Shares in the Final Distribution will not affect FAC's investment company status under the
1940 Act. FAC currently does not foresee any circumstance under which it will become an investment
company in the future because FAC's existing operating business, Source One, is growing. Additionally,
FAC may in the future attempt to develop one or more of its current investment holdings into operating
interests in such businesses.
In light of such factors, the Board determined that concluding the Liquidation is in t he best
interests of FAC and its shareholders.
If the Liquidation is not concluded as of the date of the 1992 Annual Meeting, FAC currently
intends to continue to sell its remaining investment assets and distribute the re sulting proceeds to
shareholders after making adequate provision for its liabilities. However, FAC believes tha t its
remaining investment assets are generally less liquid than those sold to-date in the Liquidation.
Therefore, FAC would expect that the pace of future asset sales pursuant to the Liquidat ion Plan would
not be as rapid as such sales to-date. Alternatively, FAC could decide to distribute "in-kind" to its
shareholders certain of its investment assets, particularly certain oil and natural ga s royalty trust
holdings. FAC does not currently expect that FAE or Source One would be liquidated or sold in the
Liquidation if it continued. Instead, the stock of FAE or SOMSC could be distributed to FAC's
shareholders pursuant to the Liquidation Plan.
Vote Required for ApprovalWhile the Board has the authority under the Liquidation Plan to conclude the Liqui dation
without the approval of shareholders, as described under "'- Principal Terms of the Liquidation Pla n",
the Board has nevertheless decided that the proposal to conclude the Liquidation should be submitted to
shareholders in order to obtain information concerning shareholder preferences. If Proposal 2 is
approved by a majority of the votes actually cast with respect thereto (excluding abste ntions and shares
of Voting Stock not voted), the Liquidation will be concluded effective as of the da te of the 1992
Annual Meeting. In the event Proposal 2 is not approved by a majority of the votes actually cast with
respect thereto, FAC's management, under the general direction of the Board, will cont inue to proceed
with the Liquidation.
No Appraisal Rights
Under the GCL, the holders of shares of Voting Stock are not entitled to appraisal rights with
respect to the conclusion of the Liquidation.
Current Status of the Liquidation
FAC has substantially completed the Liquidation. Pursuant to the Liquidation Plan, duri ng the
period January 2, 1991, through April 8, 1992, the date immediately prior to the announcement of the
1992 Annual Meeting, FAC (i) sold Fireman's Fund, its then principal operating business, (ii)
repurchased and retired all outstanding shares of its Convertible Preferred Stock Series A, (iii ) repaid all
its outstanding short-term debt, (iv) repaid or redeemed all its outstanding long-term debt a nd (v)
repurchased and retired 17,384,011 Shares.
Set forth below are FAC's Parent Only condensed balance sheets as of March 31, 1992, and as of
December 31, 1990 (prior to the sale of Fireman's Fund, the first dispositions of assets and the first
payouts to debtholders and shareholders under the Liquidation Plan). FAC's Parent Only condensed
balance sheet as of December 31, 1990, has been derived from and should*be read in conjunct ion with
FAC's Annual Report on Form 10-K for the year ended December 31, 1991, incorporated by reference
in this Proxy Statement, and the audited consolidated financial statements (inc luding the related notes
thereto) included therein. FAC's Parent Only condensed balance sheet as of March 31, 1992, has be en
derived from and should be read in conjunction with FAC's Quarterly Report on Form 10-Q for the
three-month period ended March 31, 1992, incorporated by reference in this Proxy Statement, and t he
unaudited consolidated financial statements (including the related notes thereto) included therein. See
"Other Matters -Incorporation of Certain Documents by Reference". Such condensed balance sheets are
qualified in their entirety by reference to such reports and all financial statem ents and related notes
contained therein. Such balance sheets do not include any effects of the Final Distribution.
THE FUND AMERICAN COMPANIES, INC
PARENT ONLY CONDENSED BALANCE SHEETS
(in millions, except per share amounts) March 31, 1992 Dec. 31, 1990
Assets:
Common equity securities and other
investme
nts $436.0$971.5
Short-term
investments 403.6225.9
Other assets 3.0226.4Inv
e
st
m
en
ts
in
aff
il
ia
tes
7
3
8.
0
2,
3
6
8.
8
Total Assets$1580.6
$ 3792.6
Liabilities & Shareholders' Equity: Liabilities $ 77.7 $
2,201.1
Preferred
shareholders'
equity 342.0 642.0
Common shareholders’ equity 1,160.9 949.5
Total Liabilities and Shareholders' Equity $ 1,580.6 $3,792.6
Book value per common and
equivalent share $ 76.05 $ 30.65
Outstanding Shares 13.9 31.0
The Liquidation Plan does not contemplate the liquidation of FAE, which is FAC's only direct
remaining subsidiary. FAC's assets, exclusive of its investment in FAE, totaled $842.6 mil lion as of
March 31, 1992. Of that amount, $77.7 million and $342.0 million must be reserved for FACs existing
liabilities and the Series D Stock, respectively. Although Fund American is not a ware of any other
liabilities or contingencies which have not been properly provided for in its financial st atements in
accordance with generally accepted accounting principles, Fund American believes that an additional
$100.0 million of FAC's assets should be held in reserve for future unforeseen events, which would
leave $322.9 million of FAC's assets, exclusive of its investment in FAE, available for di stributions to
holders of Shares on a pro forma basis as of March 31, 1992.
So that the Final Distribution can be consummated as soon as possible after the 1992 Annual
Meeting, FAC is implementing the Final Distribution through a self-tender offer for up to 4,000,000
Shares at a net price of $70 per Share. FAC has reserved the right to purchase more than 4,000,000
Shares in the tender offer. The tender offer commenced on May 20,1992, and is scheduled to expire at
the close of business on June 17,1992, the date of the 1992 Annual Meeting. The self-tender offer is
conditioned, among other things, upon shareholder approval of Proposal 2. The detailed terms and
provisions of the self-tender offer are contained in FAC's Offer to Purchase dated May 20, 1992, and in
the related Letter of Transmittal, which documents have been mailed to e ach shareholder. If
shareholders do not approve Proposal 2 the Board will consider whether the self-tender offer should be
abandoned. If the Board were instead to waive the Proposal 2 condition, the self-tender offer would be
extended at least five business days.
A fully subscribed tender for up to 4,000,000 Shares would result in an aggregate distribution of
approximately $280.2 million including related fees and expenses. Following such a distributi on, on a
pro forma basis as of March 31, 1992, $42.7 million of FAC's assets (exclusive of its investment in FAE
and net of its requirements for liabilities, preferred stock and future unforeseen events) woul d remain
undistributed. Such assets would be available for additional distributions to the remaining holde rs of
Shares pursuant to the Liquidation Plan if it is not concluded. The $42.7 million pro forma undistributed
amount compares to aggregate pro forma payouts to FAC's debtholders and shareholders since incepti on
of the Liquidation of $3,877.7 million, calculated as follows (in millions):
Actual payouts during the period January 1, 1991, through March 31, 1992:
Redemption of
preferred
stock $434.0
Repayments of short-term debt 1,523.9
Repayments of long-term debt 565.2
Repurchases of common stock retired 1,029.6
Dividends paid to shareholders 44.8
Total actual payouts during period3,597.5
Add pro forma effect of Final Distribution 280.2
Total pro forma payouts$ 3,877.7
If shareholders do not approve the conclusion of the Liquidation at the 1992 Annual Meeting and
FAC thereafter determines that the tender offer should be abandoned, then assets representi ng the $280.2
million Final Distribution would also remain undistributed and, therefore, available for fut ure
distributions to shareholders pursuant to the Liquidation Plan.
On the basis of FAC's present holdings of cash and short-term investments, it is anticipa ted that
FAC would not have to borrow money or sell assets (other than short-term investments) in order to
make the Final Distribution.
As of April 9,1992, FAC had authorization to repurchase 3,506,552 Shares pursuant to the
Liquidation Plan (in addition to any Shares repurchased in the Final Distribution). Such exi sting
authorization is premised upon the continuation of the Liquidation Plan and thus would expire upon the
conclusion of the Liquidation. In any event, other than the repurchase of Shares pursuant to the Final
Distribution, FAC will not repurchase any additional Shares until at least ten business days following
termination of the tender offer, which will expire no earlier than June 17,1992, the date of t he 1992
Annual Meeting.
In December 1991 FAC suspended payment of its regular quarterly dividend on Shares. It is currently
anticipated that FAC will continue such suspension at least through 1992, regardless of whether the
Liquidation is concluded. The Board currently does not intend to reinstate the regular quart erly dividend
on Shares. However, in the event Proposal 2 is approved and the Liquidation is concluded as of the date
of the 1992 Annual Meeting, the Board currently intends to reconsider from time to tim e the declaration
of regular periodic dividends on Shares with due consideration given to the financial charac teristics of
Fund American's remaining invested assets and operations and the amount and regularity of it s cash
flows as of that time. There can be no assurance, therefore, as to when or whether the Board will declare
additional dividends on Shares.
Awards Under the 1985 Long-Term Incentive Plan
In connection with its approval of Proposal 2, the Board considered whether shareholder approval of
Proposal 2 would cause accelerated vesting of awards issued under the Incentive Plan. The B oard
concluded that it would be consistent with the wording and purposes of grants under the Incentive Plan
to administer the Incentive Plan to treat approval of Proposal 2 as the "'end" of the Li quidation.
Therefore, upon the conclusion of the Liquidation as contemplated by Proposal 2, 50,000, 50,000,15,000
and 145,000 performance shares granted to Messrs. Byrne, Marto, Wyper and all executive officers as a
group, respectively, will become distributable as of January 15, 1993, subject to a requirement that the
executive officer remains continuously employed by Fund American through January 14, 1993. As of
May 1, 1992, the Shares potentially issuable pursuant to such performance shares had an aggrega te
market value of $3,200,000, $3,200,000, $960,000 and $9,280,000, respectively, based on a closing
price for the Shares on that day of $64 per Share. The corporate financial requirement for a distribution
of 100% of such performance shares is a 15% annual return on common shareholders' equity, as
measured by growth in book value per common and equivalent share plus dividends paid per Share, for
the period January 2, 1991 (immediately following the sale of Fireman's Fund and certain re lated
transactions) through the earlier of the conclusion of the Liquidation or December 31, 1995. During t he
period January 2, 199 1, through April 30, 1992, FAC's annualized return on equity was 17.5% and,
therefore, the Board has determined that 100% of the performance shares currently outstanding wi ll
become distributable upon the conclusion of the Liquidation as contemplated by Proposal 2. If the
Liquidation is not concluded as of the date of the 1992 Annual Meeting, there would be no cert ainty as
to the attainment of the 15% return on equity goal as of the date of any subsequent concl usion of the
Liquidation or December 31, 1995, and, therefore, no certainty regarding the Board's determinat ion as to
what portion, if any, of the performance shares would become distributable as of such date.
In addition to the performance shares discussed above, 40,000 Options previously awarded to Mr. Marto
would become exercisable upon the conclusion of the Liquidation as contemplated by Proposal 2. Such
Options currently have an exercise price of $54.11 per Share which is to be increased by 7% per annum
until exercise or expiration.
See "Compensation Plans - FAC Plans - 1985 Long-Term Incentive Plan.
Continued Operation of Source One Source One engages primarily in the business of producing, selling and servicing residential mort gage
loans. Its sources of revenue are mortgage servicing fees, net interest revenue, net gain on sa les of
mortgages and other revenue (including underwriting and appraisal fees). Source One is also engaged,
through its subsidiaries, in the sale of credit-related insurance products (such as life, disability, health,
accidental death, and property/casualty insurance) and bi-weekly payment services.
Source One currently operates 71 retail branch offices in 14 states and plans to open addi tional offices in
the future. Each office has sales representatives who originate mortgage loans through conta cts with real
estate brokers, builders and developers, and others, as well as through direct contact with hom ebuyers.
Source One also conducts a program through which it agrees to purchase mortgage loans from a network
of banks thrift institutions and other mortgage lenders. In 1989 Source One commenced a program
through which it closes loans originated by a network of mortgage brokers. The funding price for such
loans is set by Source One on a daily basis. During 1991 Source One"s aggregate loan production
arising from its retail branch office operations, its correspondent branch network and its brokera ge
network was $1,829 million, $1,908 million and $290 million, respectively, as compared with $1,17,
million, $1,874 million and $143 million, respectively, in 1990. Loans produced, whether through
origination or purchase, include conventional residential mortgage loans as well as mortga ge loans that
are either insured by the Federal Housing Association ("FHA"') or partially guaranteed by the Vetera n's
Administration ("VA").
Mortgage loans originated by Source One are subject to a defined underwriting process in order to
assess each prospective borrower's ability to repay and the adequacy of each property as coll ateral for
the loan requested. In addition, Source One is subject to the underwriting guidelines of the FHA, VA,
Federal Home Loan Mortgage Corporation and Federal National Mortgage Association ("FNMA"'), as
well as specific contractual requirements of institutional investors that have a greed to acquire mortgage
loans originated by Source One.
Source One sells loans either through mortgage-backed securities issued pursuant to programs of the
Government National Mortgage Association ("GNMA") and FNMA or to institutional investors. Most
loans are aggregated in pools of $1 million or more, which are purchased by institutional i nvestors after
having been guaranteed by GNM.A or FNMA. Source One, primarily through investment bankers,
arranges to sell mortgage-backed securities to investors. Source One, through private placement s and
public offerings, has also sold mortgage loans through issuance of its mortgage pass-through certificates.
In addition, Source One acquires the rights to service or sub-service mortgage portfolios without
acquiring the underlying mortgage loans. Source One customarily makes such purchases of servicing
rights from banks, thrift institutions and other mortgage lenders. The fees paid to acquire such servicing
rights are negotiated on a case-by-case basis. Source One acquired the servicing rights wi th respect to
$6,756 million of mortgage loans during 1991, as compared with $5,905 million of mortgage loans
during 1990.
In conjunction with its origination activities and portfolio servicing, Source One sells certain credit-
related insurance products (such as life, disability, health, accidental death and prope rty/ casualty
insurance) and provides bi-weekly payment services through its subsidiaries. Source One's insurance
subsidiaries act as agents and receive fees based on premium but do not assume any insurance risk.
In 1991 FAE contributed to the capital of SOMSC $300 million of common equity securities at market
value in order to position Source One as a "stand-alone" entity and to permit it to grow i ts business
further.
For a more complete description of the business, operations and policies of Source One, see Source
One's Annual Report on Form 10-K for the year ended December 31, 1991, and its Quarterly Report on
Form 10-Q for the three-month period ended March 31, 1992, which documents are incorporated by
reference in this Proxy Statement as set forth under "Other Matters - Incorporation of Certain
Documents by Reference". Copies of such reports are available as described under "Other Matte rs -
Available Information".
Upon conclusion of the Liquidation, Source One would continue to operate in the ordinary course. In
addition, Source One (or FAE) may acquire or invest in one or more financial service companie s; such
acquisitions would be made with Source One's (or FAE's) own capital resources or resources advanced
or contributed to Source One (or FAE) by FAC.
In the event the Liquidation is not concluded, it is not anticipated that Sourc e One (or FAE) will be
liquidated. Under the Liquidation Plan, it is possible that the stock of SOMSC (or FAE) would be sold
or distributed to shareholders of FAC.
Common Equity Securities
The table on the following page summarizes Fund American's portfolio of common equity securi ties as
of March 31, 1992, and December 31, 1990. Because many of the common equity securities in Fund
American's portfolio are relatively illiquid, the ultimate amounts that FAC would realize upon the sale
of its investment securities in the near-term pursuant to the Liquidation Plan could be significantly less
than the quoted values of such securities on the markets on which they are traded. Fund Ame rican's
portfolio of common equity securities generated $29.2 million of net realized and unrealized gains after
tax during the period April 1, 1992, through April 30, 1992. After April 30, 1992, the value of Fund
American's portfolio of common equity securities and other investments may increase or dec rease,
depending on market conditions and other relevant factors.
COMMON EQUITY SECURITIES
March 31, 1992 December 31, 1990
Percent Percent
of total of total
Market market Market market
(Dollars in millions) Cost value value Cost value value
Energy, natural resources and related
industries:
The Louisiana Land & Exploration Company $172.7 $149.9
23.1%
$172.7
$221.3 22.4%
San Juan Basin Royalty Trust
134.7 108.2 16.7
138.8 101.2 10.2
Permian Basin Royalty Trust 99.9 85.1 13.1 108.3 90.4 9.1 Murphy Oil Corporation (a)
85.5 75.6
11.7
32.6
30.0 3.0
Sabine Royalty Trust 15.6 31.4
4.8
20.3
27.7 2.8
Mesa Royalty Trust
24.0 23.7 3.7
25.6
31.4 3.2
Energy Service Company, Inc. (b) 19.6
14.7 2.3
--- --- ---
Digicon, Inc.
5.8 12.5 1.9
--- --- ---
Lone Star Technologies, Inc.
43.6 10.8
1.7
43.6
8.5 0.9
Mesa Inc. 22.8 3.6 0.6 28.4(c)
14.9(c) 1.5(c)
British Petroleum Ltd. Warrants
2.3 0.1
--- 49.0
52.8 5.3
Ocean Drilling &
Exploration
Co. (a) --- ---
---
84.9
68.7 6.9
Placer Dome, Inc. --- ---
---
29.3
27.7 2.7
Aggregate holdings of less than $10 million 17.0 12.8 1.8 15.0 13.6 1.5
Total energy, natural
resources
and related643.5528.481.4748.5688.269.6
Newspapers, television and other media: A.H. Belo
Corp.
Classes A
& B
22.8
31.0
4.8 52.762.96.3
Lee
Enterprises
, Inc.
26.0
29.2
4.5 64.562.06.3
Central
Newspaper
s Inc. -
Class A
20.8
22.0
3.4 34.6 26.02.6
Media General - Class A --- --- --- 60.0 29.5 3.0
Total newspapers, television
and other
media69.682.212.7211.8180.418.2
All other: MBIA Inc.7.514.72.3(d)(d)(d)
Texas
Pacific
Land Trust 9.56.81.011.48.20.8
Texas
Industries,
Inc.6.0 5.10.814.08.70.9
PSI
Holdings,
Inc. ---------77.084.48.5
Aggregate holdings of less than $10 million 12.1 11.6 1.8 25.8 19.7 2.0
Total common equity
securities$748.2$648.8
100% $1,089.
4
$989.6 100%
(a) On July 5,1991, Fund American exchanged all its holdings of Ocean Drilling & Exploration C o. for
additional shares of Murphy Oil Corporation.
(b) Shares of common stock of Energy Service Company, Inc. were acquired in exchange for beneficial
interests in bankruptcy claims of Penrod Drilling, which interests were classified as other
investments.
(c) Represents units of Mesa Limited Partnership which were exchanged on January 7, 1992, into shares
of Mesa Inc. . pursuant to a conversion of the partnership to corporate form.
(d) As of December 31, 1990, securities of MBIA Inc. (then with a market value of $255.4 milli on) were
carried on FAC's balance sheet using the equity method of accounting and classified as other
investments.
Federal Income Tax Considerations
The following is a brief summary of the principal Federal income tax consequences to FAC's
shareholders of the proposed conclusion of the Liquidation. In view of the complex Federal, state ,
local and other tax consequences of the proposed conclusion and of potential changes in appl icable
law, SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES OF THE PROPOSED CONCLUSION OF THE
LIQUIDATION AS IT MAY AFFECT THEM INDIVIDUALLY. FAC has not requested a ruling
from the Internal Revenue Service as to any tax consequence of the proposed conclusion of the
Liquidation.
Prior Quarterly Distributions. Since the adoption of the Liquidation Plan on December 18, 1990, FAC
has made quarterly distributions of cash to its shareholders as part of the Liquidation Plan. For a
shareholder who owned Shares throughout 1991, such cash distributions totalled $.68 per Share. See
"Current Status of the Liquidation". Shareholders were previously advised as to the antici pated treatment
of such distributions as a return of capital to the extent of tax basis in the FAC share s (determined on a
per-share basis), with any excess of distributions over tax basis being treated as gain (capita l gain if the
shares were a capital asset). See "'The Overall Transaction - Federal Income Tax Considerations - Tax
Consequences to the Shareholders - Gain and Loss as to Liquidating Distributions" in FAC's Proxy
Statement dated November 16, 1990, with respect to the Special Meeting of FACs shareholde rs held on
December 18, 1990.
If the Liquidation is concluded, such distributions would generally be treated as dividends taxa ble as
ordinary income (thus not affecting a shareholder's tax basis in his FAC shares), rather than a s return of
capital distributions as would be the case if the Liquidation was to continue t o the dissolution of FAC.
Further, if the Liquidation is concluded, corporate shareholders may be entitled to a di vidends received
deduction for such distributions.
The foregoing tax consequences of concluding the Liquidation apparently would apply even with
respect to distributions made in 1991. In accordance with applicable information reporting requi rements
under the IRC, FAC has previously provided shareholders with Forms 1099-DIV describing the 1991
distributions made pursuant to the Liquidation Plan as liquidating distributions. If the Liqui dation is
concluded, FAC will provide a replacement Form 1099-DIV to each shareholder characterizing the
amounts of 1991 distributions as dividends. Shareholders are advised to consult with their own tax
advisors as to the amendment of any tax returns that they have filed to resta te the tax consequences of
distributions as summarized above.
The 1991 Offer to Purchase. In addition to making quarterly distributions to shareholders under the
Liquidation Plan, on January 14,1991, FAC made an offer to purchase 12,500,000 Shares for cash (the
"1991 Offer,"). Pursuant to the 1991 Offer, FAC purchased 9,057,816 Shares for a price of $56 per
Share. If the Liquidation continues to the dissolution of FAC, a shareholder that participat ed in the 1991
Offer generally should realize gain (or loss) based on the difference between the amount of c ash
received in respect of the 1991 Offer and such shareholder's tax basis in the Shares acquired by FAC.
Such gain (or loss) should be capital gain (or loss), assuming that the Shares sold pursuant to the 1991
Offer were held as a capital asset, and should be long-term capital gain (or loss) if such Shares had been
held for more than one year at the time of sale.
If the Liquidation is concluded, the Federal income tax consequences to a shareholder that participated
in the 1991 Offer should generally be the same as if the Liquidation continued to t he dissolution of FAC.
However, the amount received by a tendering shareholder would be treated as a dividend taxa ble as
ordinary income if the 1991 Offer did not result in (i) a complete termination of his st ock interest in
FAC, (ii) a more than 20% decrease in such shareholder's ownership of Shares and other Voting Stock
of FAC or (iii) a "meaningful reduction" in such shareholder's proportionate interest in FAC. The re are
no precise rules on what constitutes a "meaningful reduction"' in a shareholder's proportionate i nterest,
but the Internal Revenue Service has ruled that even a small reduction is meani ngful where the stock
owned by the shareholder prior to reduction represents a "minimal" interest in the corporation (only
0.0001118% in the ruling) and the shareholder does not exercise any control over the affairs of the
corporation. The extent to which a shareholder's proportionate interest was reduced depended upon t he
extent to which other shareholders tendered Shares in the 1991 Offer. In determining the extent to which
a shareholder's proportionate interest was reduced, the shareholder must take into account a ny Shares
owned by related persons that such shareholder was deemed to own under the constructive ownership
rules of Sections 302(c) and 318 of the IRC.
The Final Distribution. The Federal income tax consequences to a shareholder that participates
in the Final Distribution should generally be the same as described in the first para graph of "The 1991
Offer to Purchase" above, but if the Liquidation is concluded it would be possible that the amount
received would be treated as a dividend as described in the second paragraph of "The 1991 Offer to
Purchase" above.
State and Local Income Tax. The foregoing discussion relates only to Federal income tax
consequences of the proposed conclusion of the Liquidation. Shareholders should consult their own tax
advisors regarding the possible state and local income tax consequences of the proposed conclusi on of
the Liquidation.
THE FOREGOING DISCUSSION DOES NOT ATTEMPT TO COMMENT UPON ALL THE
VARIOUS PROVISIONS OF THE IRC THAT MAY BE APPLICABLE TO FAC OR ITS
SHAREHOLDERS WITH RESPECT TO THE PROPOSED CONCLUSION OF THE LIQUIDATION.
EACH SHAREHOLDER IS ADVISED TO CONSULT SUCH SHAREHOLDER'S OWN TAX
ADVISOR WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND OTHER TAX
CONSEQUENCES TO SUCH SHAREHOLDER OF THE PROPOSED CONCLUSION OF THE
LIQUIDATION IN LIGHT OF SUCH SHAREHOLDER'S OWN PARTICULAR TAX SITUATION.
Principal Terms of the Liquidation Plan
The following is a brief summary of certain provisions of the Liquidation Plan. This summary is
qualified in its entirety by reference to the Liquidation Plan which is atta ched as Exhibit I to this Proxy
Statement. Pursuant to the Liquidation Plan:
(a) FAC has engaged in the transactions described in "- Current Status of the Liquidation"
and will sell, exchange or otherwise dispose of all its assets during the "Liquidation Pe riod", which
began on December 18, 1990, the date the Liquidation Plan was approved by FAC's shareholders, and is
currently scheduled to end on January 2, 1996. The sales, exchanges or other dispositions will be made
upon such terms and conditions as the Board (or officers, employees or agents of FAC acting pursuant to
authority delegated by the Board) determines. Sales of assets that are securities c ould take the form of
registered public offerings, sales on securities exchanges or in the over-the-counter market, privat ely
negotiated sales to, or exchanges with, third parties or resales of the securities to, or exchanges with,
their issuers. (b) FAC will, within the Liquidation Period, pay or discharge, or set aside a reserve fund
for, or otherwise provide for, all its liabilities and obligations, including contingent lia bilities. In
connection therewith, FAC may, if in the judgment of the Board such a course appears de sirable, cause
one or more subsidiaries of FAC or Transferee Entities (as defined below) to assume (whether or not for
consideration) some of or all the liabilities and obligations of FAC.
(c) FAC will distribute its assets to its shareholders from time to time to the end that, by
the end of the Liquidation Period, it will have distributed all its assets, inc luding the proceeds of sales,
exchanges and other dispositions, to its shareholders. All such distributions will,be subject to certain
limitations imposed by the GCL.
(d) FAC's distributions to its shareholders may take the form of pro rata dividends or
other distributions of cash, securities or other property, tender or exchange offers for shares of FACs
capital stock or repurchases or redemptions of, or privately negotiated exchanges of FAC's asset s for,
such shares. Repurchases of shares could take place on securities exchanges or in privatel y negotiated
transactions. Any dividend or other pro rata distribution to shareholders will be made to share holders of
record as of a date selected by the Board. In the case of a dividend or other distri bution of securities of
subsidiaries of FAC or of Transferee Entities, FAC may, subject to eligibility standards, se ek to list such
securities on a national securities exchange or qualify such securities for inclusion i n the NASDAQ
System, although there can be no assurance that such listing or qualification will occur.
(e) If the Board deems it desirable, FAC may distribute assets to its shareholders by
transferring the assets to one or more partnerships, trusts, corporations or other entities ("Transferee
Entities") and distributing interests in the Transferee Entities to FAC's shareholders in one or more of
the ways described above. The Liquidation Plan specifically permits, although it does not require,
officers, directors and employees of FAC and its subsidiaries, or persons or entities (including
subsidiaries) controlling, controlled by or under common control with FAC to be general partners (or
directors or officers of corporate general partners) of partnership Transferee Entities and trustee s of trust
Transferee Entities, officers or directors of corporate Transferee Entities or persons with compa rable
roles in any other type of Transferee Entity.
(f) If the Board deems it advisable, FAC may incur indebtedness to make distributions of
cash to its shareholders.
(g) During the Liquidation Period and if the Board determines that the dissolution of FAC
will not materially interfere with the conduct of the Liquidation Plan and is otherwise in the best
interests of FAC's shareholders, the Board will adopt a resolution deeming the dissolution of FAC
advisable and will submit the dissolution to a vote of FAC's shareholders pursuant to the GCL - If
shareholders approve dissolution, a certificate of dissolution with respect to FAC will be executed and
filed under the GCL.
The Liquidation Plan provides that the Board may modify or amend the Liquidation Plan at any
time without shareholder approval if it determines that such action would be in the best interests of FAC
or its shareholders. If any amendment or modification appears necessary and, in the judgment of the
Board, will materially and adversely affect the interests of FAC's shareholders, the am endment or
modification will be submitted to the shareholders for approval. The Board has the authori ty to conclude
the Liquidation without shareholder approval at any time within the Liquidation Period, if it determines
on the basis of subsequent events unforeseen at the time of adoption of the Liquidation Plan that
conclusion thereof would be in the best interests of FAC or its shareholders. However, the Board ha s
determined not to cause the Liquidation to be concluded if shareholders do not approve suc h conclusion
at the 1992 Annual Meeting. See" Recommendation of the Board; Reasons for Concluding the
Liquidation".
Exhibit IPLAN OF COMPLETE LIQUIDATION
OF
THE FUND AMERICAN COMPANIES, INC
This Plan of Complete Liquidation (the "Plan") of The Fund American Companies, Inc., a
Delaware corporation ("FAC"), has been approved by the Board of Directors of FAC (the "Board") as
being expedient and in the best interests of FAC and the holders of its capital stock (the "Shareholders").
The Board has directed that this Plan be submitted to the Shareholders for its adopt ion or rejection at a
special meeting of Shareholders and has authorized the distribution of a Proxy Statement (t he"Proxy
Statement") in connection with the solicitation of proxies for such meeting. Upon such adopti on, FAC
shall completely liquidate over a period currently anticipated to be of approxim ately three to five years
in duration in accordance with Section 271 and other applicable sections of the General Corporation
Law of the State of Delaware (the "GCL"), as follows:
1. Adoption of Plan . The effective date of this Plan (the "'Effective Date") shall be the
date on which it is approved and adopted by the Shareholders.
2. Sale of Assets . Within the period (the "Liquidation Period") beginning on the Effective
Date and ending on the fifth anniversary of the "closing of the Sale", as defined in the Proxy Statement,
FAC shall have the authority to engage in such transactions as may be appropriate t o its complete
liquidation, including, without limitation, the "Sale" and other transactions described i n the Proxy
Statement, and to sell, exchange or otherwise dispose of all or any part of its other assets for cash,
shares, bonds or other securities or property, or any combination of the foregoing, in one or more
transactions, to such persons or entities and upon such terms and conditions as the Board (or offi cers,
employees or agents of FAC acting pursuant to authority duly delegated by the Board), shal l determine,
with no further approvals by the Shareholders except as required by law. FAC shall cause the a doption
of a plan of complete liquidation by such subsidiaries of FAC as shall be deemed necessary or desirable.
3. Provision for Liabilities . Within the Liquidation Period, FAC shall pay or discharge,
or set aside a reserve fund for, or otherwise provide for, all its liabilities and obligat ions, including
contingent liabilities. In connection therewith, FAC may, if in the judgment of the Board such a course
appears desirable, cause one or more subsidiaries of FAC or Transferee Entities (as define d below) to
assume (whether or not for consideration) some of or all the liabilities and obligations of FAC, including
contingent liabilities.
4. Distributions to Shareholders . Subject to the limitations on the declaration and
payment of dividends and the repurchase of capital stock and, after the dissolution of FAC, the
limitations on distributions to shareholders contained in the GCL, FAC shall complete the "IFINT
Repurchase" described in the Proxy Statement and otherwise shall, at such times and in such manner as
the Board shall deem appropriate, but in any event within the Liquidation Period, distribute its assets to
the Shareholders to the end that, by the end of the Liquidation Period, FAC shall have distributed all its
assets, including proceeds of sales, exchanges or other dispositions, to the Shareholders. If, in the
judgment of the Board, such a course appears advisable, FAC may incur indebtedness to such persons
and entities, in such amounts and on such terms and conditions as the Board shall determine, to permit
FAC to make distributions of cash to Shareholders. The preceding sentence shall not operate to limit the
power of FAC to incur indebtedness under any other circumstances.5. Transfer of Assets to Transferee Entities . If in the judgment of the Board such a course
appears advisable, FAC may distribute assets of FAC to the Shareholders by transferring such a ssets to
one or more partnerships, trusts, corporations or other entities (each, a "Transferee Entity"') and
distributing interests in such Transferee Entity or Entities to the Shareholders. If t he Board deems it to
be advisable, the general partner (or its directors or officers, if any) of any Transferee Entity that is a
partnership, the trustees of any Transferee Entity that is a trust, the directors or offi cers or any
Transferee Entity that is a corporation or the persons with comparable roles in a ny other type of
Transferee Entity may be officers, directors or employees of FAC or any of its subsidiari es or persons or
entities (including subsidiaries) otherwise controlling, controlled by or under common control wit h
FAC.
6. Methods for Distributions to Shareholders . Any distributions made to Shareholders
may be by way of pro rata dividends or other distributions of cash, securities or other property, t ender or
exchange offers for shares of FAC's capital stock or repurchases or redemptions of, or privately
negotiated exchanges of FAC's assets for, such shares.
7. Dissolution . During the Liquidation Period and upon the determination of the Board
that the dissolution of FAC would not materially interfere with the conduct of this Plan and is otherwise
in the best interests of the Shareholders, the Board currently intends to adopt a resolution deeming the
dissolution of FAC to be desirable and to submit the dissolution of FAC to a vote of the Sha reholders
pursuant to Section 275 of the GCL. If the Shareholders approve such dissolution, then the appropriate
officers of FAC shall execute, acknowledge and file a certificate of dissolution of FAC in accordance
with Section 275 of the GCL, thereby terminating the corporate existence of FAC exc ept for the limited
purposes described in Section 278 of the GCL. Following the filing of such certificate a nd for so long as
FAC shall continue to exist pursuant to Section 278 of the GCL, FAC shall, to the maxim um extent
permitted by the GCL, continue to have the power and authority to take any of the actions that fl-is, Plan
would authorize FAC to take during the Liquidation Period.
8. Amendment or Abandonment of Plan . The Board may modify or amend this Plan at
any time without Shareholder approval if it determines that such action would be i n the best interests of
FAC or the Shareholders. If any amendment or modification appears necessary and, in the judgm ent of
the Board, will materially and adversely affect the interests of the Share holders, such an amendment or
modification s be submitted to the Shareholders for approval. The Board may abandon this Plan without
Shareholder approval at any time within the Liquidation Period, if it determines on the basis of
unforeseen subsequent events that abandonment would be in the best interests of FAC or the
Shareholders; provided, however, that such abandonment shall not affect FAC's obligations under any
contract for the sale, exchange or other disposition of any of its assets except to the extent such contract
otherwise provides.
9. Termination of Plan . This Plan shall terminate if the "Stock Purchase Agreement", as
defined in the Proxy Statement, shall have been terminated prior to the "closing of the Sale". as defined
in the Proxy Statement; prov , however, that such termination shall not affect any c ontract entered into
or other action taken pursuant to this Plan prior to such termination.
10. Authorization to Board and Officers . The Board and the officers of FAC are
authorized to approve such changes to the terms of any of the transactions referred to he rein, to interpret
any of the provisions of this Plan, and to make, execute and deliver such other agreement s, conveyances,
assignments, transfers, certificates and other documents and take such other act ions as the Board and
such officers deem necessary or desirable in order to carry out the provisions of this Pla n and effect the
complete liquidation of FAC in accordance with Section 271 and other applicable Sections of the GCL.
