<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number
December 31, 1995 0-7849
- ------------------------- ----------------------
W. R. BERKLEY CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-1867895
- --------------------------------- ----------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
165 Mason Street, P.O. Box 2518, Greenwich, CT 06836-2518
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 629-3000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $.20 per share
Series A Cumulative Redeemable Preferred Stock, par value $.10 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Aggregate market value of voting stock held by non-affiliates of the registrant
based on the closing price of such stock as of March 4, 1996: $792,852,943.
Number of shares of common stock, $.20 par value, outstanding as of March 4,
1996: 20,179,939
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement, which will be filed with the
Securities and Exchange Commission within 120 days after December 31, 1995
(incorporated by reference under Part III).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
--------
<PAGE> 2
W. R. BERKLEY CORPORATION
ANNUAL REPORT ON FORM 10-K
December 31, 1995
PART I Page
ITEM 1. BUSINESS 3
ITEM 2. PROPERTIES 21
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS 22
ITEM 6. SELECTED FINANCIAL DATA FOR THE FIVE YEARS
ENDED DECEMBER 31, 1995 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 52
ITEM 11. EXECUTIVE COMPENSATION 54
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 54
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K 55
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
General Description of the Company's Business
W. R. Berkley Corporation (the "Company"), a Delaware corporation, is
an insurance holding company which through its subsidiaries, presently operates
in four segments of the insurance business: regional property casualty
insurance; reinsurance (conducted through Signet Star Holdings, Inc.); specialty
lines of insurance (including excess and surplus lines and commercial
transportation); and alternative markets (including the management of
alternative insurance market mechanisms). The Company was founded on the concept
that a group of autonomous regional and specialty insurance entities could
compete effectively in selected markets within a very large industry.
Decentralized control allows each subsidiary to respond to local or specialty
market conditions while capitalizing on the effectiveness of centralized
investment and reinsurance management, and actuarial, financial and legal staff
support.
The Company's regional insurance operations are conducted primarily in
the midwest, southern and northeast sections of the United States. The
reinsurance operations, specialty insurance and alternative markets are
conducted nationwide.
In 1995 the Company established Berkley International, LLC ("Berkley
International"). Berkley International, which is 65% owned by the Company, was
established to acquire interests outside the United States in existing and
start-up property casualty, life insurance and reinsurance businesses, including
insurance-related financial services businesses, located in emerging markets
including Asia and Latin America (see: Other information about the Company's
business, for a further explanation).
Net premiums written, as reported on a generally accepted accounting
principles ("GAAP") basis, by the Company's four major insurance industry
segments for the five years ended December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net premiums written:
Regional insurance operations (1) $477,588 $386,530 $301,890 $257,625 $242,067
Reinsurance operations (2) 195,988 176,699 84,726 -- --
Specialty insurance operations (2) 160,847 134,715 146,101 160,053 169,593
Alternative markets operations (2) 25,998 19,989 4,929 -- --
-------- -------- -------- -------- --------
Total net premiums written $860,421 $717,933 $537,646 $417,678 $411,660
======== ======== ======== ======== ========
Percentage of net premiums written:
Regional insurance operations (1) 55.5% 53.8% 56.2% 61.7% 58.8%
Reinsurance operations (2) 22.8 24.6 15.7 -- --
Specialty insurance operations (2) 18.7 18.8 27.2 38.3 41.2
Alternative markets operations (2) 3.0 2.8 .9 -- --
-------- -------- -------- -------- --------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
======== ======== ======== ======== =========
</TABLE>
(1) Berkley International's results, which to date are immaterial, are included
in Regional insurance operations.
(2) Premiums written by the Company's Reinsurance operations prior to July 1,
1993, including the alternative markets operation, are included in Specialty
insurance operations (see other information about the Company's business).
3
<PAGE> 4
The following sections briefly describe the Company's insurance
segments and subsidiaries. The statutory information contained herein is derived
from that reported to state regulatory authorities in accordance with statutory
accounting practices ("SAP"). The amount of statutory net premiums shown for the
subsidiaries exclude the effects of intercompany reinsurance. In connection with
the acquisition of Midwest Employers Casualty Company ("Midwest") in November
1995, the Company established the alternative markets segment to reflect the
markets served by each of its business segments. The alternative markets segment
consists of Midwest, Signet Star Holding's alternative markets division and the
Company's insurance services units which manage alternative market mechanisms.
The descriptions contain each significant insurance subsidiary's rating by A.M.
Best and Company, Inc. ("A.M. Best"). A.M. Best's Ratings are based upon factors
of concern to policyholders, insurance agents and brokers and are not directed
toward the protection of investors. A.M. Best states: "Best's Ratings reflect
[its] opinion as to the relative financial strength and performance of each
insurer in comparison with others, based on [its] analysis of the information
provided to [it]. These Ratings are not a warranty of an insurer's current or
future ability to meet its contractual obligations."
REGIONAL INSURANCE OPERATIONS
The Company's regional property casualty subsidiaries write standard
commercial and personal lines insurance for such risks as automobiles, homes and
businesses. American West Insurance Company ("American West"), Continental
Western Insurance Company ("Continental Western"), Great River Insurance Company
("Great River"), Tri-State Insurance Company ("Tri-State"), Union Insurance
Company ("Union") and Union Standard Insurance Company ("Union Standard") obtain
their business primarily in the smaller communities of the midwest and southwest
through over 2,000 independent insurance agencies, which represent them on a
non-exclusive basis and are compensated on a commission basis. Firemen's
Insurance Company ("Firemen's") primarily sells its policies through agents in
the District of Columbia, and the States of Maryland, North Carolina,
Pennsylvania and Virginia. Certain of Firemen's commercial lines of business are
marketed principally through brokers in the New York metropolitan area. Acadia
Insurance Company ("Acadia") currently operates in the States of Maine, New
Hampshire and Vermont, and sells its personal and commercial coverages through
independent agencies. Berkley Insurance Company of the Carolinas, formed in
December 1995 and domiciled in North Carolina, will write standard commercial
and personal lines insurance.
Acadia Insurance Company
Acadia was organized by the Company and incorporated in April 1992. It
writes multiple line property and casualty coverages in the States of Maine, New
Hampshire and Vermont. Acadia is rated A+ by A.M. Best. Acadia's statutory
surplus and statutory net premiums written as of December 31, 1995 and for the
year then ended were $29,304,000 and $97,547,000, respectively.
American West Insurance Company
American West is a successor to a company that was organized in 1903 as
a mutual insurance company and converted to a stock company in June 1986. Its
business consists primarily of personal lines in the States of Minnesota,
Montana, Wisconsin and South Dakota. American West is rated A- by A.M. Best.
American West's statutory surplus and statutory net premiums written as of
December 31, 1995 and for the year then ended were $8,358,000 and $19,003,000,
respectively.
Berkley Insurance Company of the Carolinas
In December 1995, the Company organized Berkley Insurance Company of
the Carolinas, a North Carolina domiciled company. It will write personal and
commercial lines in North Carolina. Berkley Insurance Company of the Carolinas
has not been rated by A.M. Best. Berkley Insurance Company of the Carolinas
statutory surplus as of December 31, 1995 was $4,500,000.
4
<PAGE> 5
Continental Western Insurance Company
Continental Western was organized in 1907. It writes a diverse
commercial lines book of business as well as personal lines principally in the
States of Iowa, Nebraska, Kansas, Illinois, Missouri, Wisconsin and Montana.
Continental Western is rated A+ by A.M. Best. Continental Western's statutory
surplus and statutory net premiums written as of December 31, 1995 and for the
year then ended were $81,095,000 and $138,498,000, respectively.
Firemen's Insurance Company of Washington, D.C.
Firemen's was incorporated by an act of Congress in 1836. Firemen's,
through its Habitational Insurance Division, writes commercial business
consisting primarily of multiple dwelling coverages principally in the State of
New York. In addition, it insures homeowners, other personal lines and
commercial risks in the District of Columbia, and in the States of Maryland,
North Carolina and Virginia. In September 1993, Firemen's established Chesapeake
Insurance Division in order to expand its operations in the State of Virginia.
In March 1995, Firemen's established a new division, Presque Isle Insurance
Division, in order to expand its operations into the State of Pennsylvania.
Firemen's is rated A+ by A.M. Best. Firemen's statutory surplus and statutory
net premiums written as of December 31, 1995 and for the year then ended were
$27,346,000 and $39,736,000, respectively.
Great River Insurance Company
In December 1993, the Company organized Great River Insurance Company,
a Mississippi domiciled company. It writes personal and commercial lines in
Mississippi and is expanding to surrounding states. Great River is rated A+ by
A.M. Best. Great River's statutory surplus and statutory net premiums written as
of December 31, 1995 and for the year then ended were $12,731,000 and
$25,673,000, respectively.
Tri-State Insurance Company of Minnesota
Tri-State was organized in 1902 as a mutual insurance company. It
writes various commercial lines (specializing in grain elevator coverages), as
well as personal lines primarily in the States of Minnesota, Iowa, North and
South Dakota, Nebraska, Wisconsin and Illinois. Tri-State is rated A+ by A.M.
Best. Tri-State's statutory surplus and statutory net premiums written as of
December 31, 1995 and for the year then ended were $44,067,000 and $47,909,000,
respectively.
Union Insurance Company
Union was organized in 1886 as a mutual insurance company. Union's
business consists of personal lines as well as commercial lines insurance
concentrated in the States of Nebraska, Kansas, Colorado and South Dakota. Union
is rated A by A.M. Best. Union's statutory surplus and statutory net premiums
written as of December 31, 1995 and for the year then ended were $30,701,000 and
$46,743,000, respectively.
Union Standard Insurance Company
Union Standard is a successor to a company that was organized in 1970.
Union Standard writes personal lines and commercial lines insurance for small
businesses in the States of Texas, Oklahoma, Arkansas and Colorado. Union
Standard is rated A by A.M. Best. Union Standard's statutory surplus and
statutory net premiums written as of December 31, 1995 and for the year then
ended were $28,415,000 and $56,674,000, respectively.
5
<PAGE> 6
Regional operations: Business
The following table sets forth the percentages of direct premiums
written, by line, by the Company's regional insurance operations:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial Multi-Peril 21.1% 22.0% 19.6% 19.0% 18.3%
Workers' Compensation 20.5 18.7 16.9 13.7 12.2
Automobile:
Personal 17.3 17.6 19.4 21.8 22.9
Commercial 15.3 16.4 17.4 17.1 16.7
Homeowners 8.8 9.2 9.8 10.7 11.2
General Liability 6.4 6.6 6.9 7.1 7.8
Fire and Allied Lines 4.5 4.8 5.5 5.9 6.4
Inland Marine 2.5 2.6 2.6 2.8 2.7
Other (1) 3.6 2.1 1.9 1.9 1.8
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
The following table sets forth the percentages of direct premiums
written, by state, by the Company's regional insurance operations:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Maine 10.6% 10.5% 8.3% .9% --%
Iowa 9.2 11.1 13.8 15.7 16.7
Nebraska 8.9 11.0 13.6 16.1 16.3
Texas 7.8 9.2 10.0 9.7 8.7
South Dakota 6.6 4.9 5.7 6.3 6.8
New Hampshire 5.9 4.7 .9 -- --
Minnesota 5.4 6.0 6.6 7.6 8.1
Mississippi 5.3 2.9 -- -- --
Kansas 4.8 5.2 5.7 6.4 6.3
Colorado 4.0 4.5 5.1 5.5 5.1
Missouri 3.7 3.8 3.7 4.0 4.3
Wisconsin 3.5 3.6 4.4 5.0 5.7
Illinois 3.4 3.8 4.2 5.0 4.4
Virginia 3.0 2.1 .6 .3 .4
New York 2.8 2.6 3.0 3.4 3.5
North Dakota 2.5 3.2 3.9 4.3 4.3
Vermont 2.4 1.1 -- -- --
Arkansas 2.1 2.8 3.1 3.1 2.8
District of Columbia 1.8 2.3 2.4 2.4 2.6
Other (1) 6.3 4.7 5.0 4.3 4.0
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
(1) Other includes the direct premiums written by Berkley International.
6
<PAGE> 7
REINSURANCE OPERATIONS
Signet Star, through its broker market reinsurance subsidiary Signet
Star Reinsurance Company, specializes in underwriting property, casualty and
fidelity reinsurance on a treaty basis and casualty reinsurance on a facultative
basis. Signet Star has significant expertise in alternative risk transfer
business and, accordingly, the results of this section are included in the
alternative markets segment. Signet Star's facultative underwriting manager,
Facultative ReSources, Inc., underwrites reinsurance primarily on a risk-by-risk
basis. The Fidelity and Surety Division of Signet Star combines extensive
underwriting and claims expertise with professional treaty design capabilities
to provide customized reinsurance products to fidelity and surety companies.
Signet Star Reinsurance Company is rated A by A.M. Best. Signet Star Reinsurance
Company's statutory surplus and statutory net premiums written as of December
31, 1995 and for the year then ended were $243,729,000 and $217,018,000,
respectively.
Reinsurance Operations: Business
The following table sets forth the percentages of gross premiums
written, by line, by the Company's reinsurance operations:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Treaty:
Specialty and other 46.8% 49.1% 56.4%
Regional 21.0 24.9 22.9
Nonstandard Automobile 10.4 9.5 9.3
----- ----- -----
Total Treaty 78.2 83.5 88.6
Casualty Facultative 14.2 10.9 6.4
Fidelity and Surety 7.6 5.6 5.0
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
SPECIALTY INSURANCE OPERATIONS
The Company's specialty lines of insurance consists primarily of excess
and surplus lines ("E & S"), commercial transportation, professional liability,
directors and officers liability and surety. Specialty lines also included the
results of the Company's Reinsurance Operations through June 30, 1993 (see:
"Other information about the Company's business")
Admiral Insurance Company
The majority of the Company's E & S insurance business is conducted by
Admiral Insurance Company ("Admiral"). Admiral specializes in general liability
coverages, including products liability and professional liability. Admiral
insures risks requiring specialized treatment not available in the conventional
market, with coverage designed to meet the specific needs of the insured.
Business is received from wholesale brokers and general agents via retail
agents, whose clients are the insureds. E & S carriers operate on a non-admitted
basis in the states where they write business. They are generally free from rate
regulation and policy form requirements. Admiral's business is obtained on a
nationwide basis from approximately 190 non-exclusive brokers, who do not have
the authority to commit the Company, and who are compensated on a commission
basis. In November 1992, Admiral began writing directors and officers liability
insurance through operations conducted by Monitor Liability Managers, Inc., an
underwriting manager established by the Company. Admiral is rated A++ by A.M.
Best. Admiral's statutory surplus and statutory net premiums written as of
December 31, 1995 and for the year then ended were $175,596,000 and $57,796,000,
respectively.
7
<PAGE> 8
Carolina Casualty Insurance Company
The Company's commercial transportation operations are primarily
conducted by Carolina Casualty Insurance Company ("Carolina"). Carolina writes
liability, physical damage and cargo insurance for the transportation industry,
concentrating on long-haul trucking companies. Municipal bus lines, charter
buses and school buses also make up a substantial part of Carolina's book of
business. Carolina's business is obtained nationwide from approximately 120
agents and brokers who are compensated on a commission basis. In June 1995,
Carolina began writing surety bonds through operations conducted by Monitor
Surety Managers, Inc., an underwriting manager established by the Company.
Carolina is rated A by A.M. Best. Carolina's statutory surplus and statutory net
premiums written as of December 31, 1995 and for the year then ended were
$59,327,000 and $70,586,000, respectively.
Nautilus Insurance Company
Nautilus Insurance Company ("Nautilus") was established in 1985 to
insure E & S risks which involve a lower degree of expected severity than those
covered by Admiral. Nautilus obtains its business nationwide from approximately
135 non-exclusive brokers, some of which also provide business to Admiral. A
substantial portion of Nautilus' business is written on a binding authority
basis, subject to certain contractual limitations. Nautilus is rated A by A.M.
Best. Nautilus's statutory surplus and statutory net premiums written as of
December 31, 1995 and for the year then ended were $50,446,000 at $27,843,000,
respectively. Great Divide Insurance Company ("Great Divide"), a subsidiary of
Nautilus, writes transportation risks, as well as other specialty lines written
on an admitted basis.
Specialty Operations: Business
The following table sets forth the percentages of gross premiums
written, by line, by the Company's specialty insurance operations:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
General Liability 38.2% 42.2% 37.6% 39.3% 39.9%
Automobile Liability 27.4 28.1 27.9 30.2 32.9
Directors and Officers Liability 9.2 5.8 4.0 -- --
Professional Liability 7.1 6.3 6.3 4.9 4.7
Automobile Physical Damage 6.8 5.9 4.6 4.0 4.6
Fire and Allied Lines 5.0 4.6 3.2 2.5 1.9
Inland Marine 2.1 1.8 1.7 2.0 2.2
Other 4.2 5.3 14.7 17.1 13.8
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
8
<PAGE> 9
ALTERNATIVE MARKETS
The Company's alternative markets operations specializes in insuring,
reinsuring and administering self-insurance programs and other alternative risk
transfer mechanisms for public entities, private employers and associations.
Typical clients are those who are driven by various factors to seek less costly
and more efficient techniques to manage their exposure to claims. The Company's
alternative markets segment consists of: Excess Workers' Compensation insurance
written by Midwest Employers Casualty Company ("Midwest"); reinsurance of
alternative risk business; and insurance services entities which manage
alternative market mechanisms.
Midwest Employers Casualty Company
In November 1995, the Company acquired Midwest (see other information
about the Company's business). Midwest markets and underwrites excess workers'
compensation ("EWC") insurance. EWC insurance is marketed to employers and
employer groups which have elected and have qualified or been approved by state
regulatory authorities to self-insure their workers' compensation programs. EWC
insurance provides coverage to a self-insured employer once the employers'
losses exceed the employer's retention amount. Midwest offers a complete line of
EWC products, including specific and aggregate EWC insurance policies and surety
bonds. Midwest is rated A- by A.M. Best. Midwest's statutory surplus and
statutory net premiums written as of December 31, 1995 and for the year then
ended were $97,676,000 and $67,513,000, respectively.
Signet Star - Alternative Markets Division
Signet Star Reinsurance Company's Alternative Markets Division
specializes in providing custom designed reinsurance products and services to
alternative markets ("ARM") clients, such as captive insurance companies, risk
retention groups, public entity insurance trusts and governmental pools. ARM
clients are generally self insured vehicles which provide insurance buyers with
a mechanism for assuming part of their own risk, managing their exposures,
modifying their loss costs and, ultimately, participating in the underwriting
results. Signet Star has been an active reinsurer of ARM clients for over ten
years and is considered to be one of the leading broker market reinsurers of ARM
business. The Alternative Markets Division will have access to substantial
additional resources within the Company, which will enable it to concentrate and
coordinate the Company's focus on this growing sector of the reinsurance market.
Insurance Services Entities
The Company's insurance service operations offer a variety of products,
which includes underwriting and claims administration and alternative insurance
market mechanisms. In addition, subsidiaries of the Company provide agency and
brokerage services to both affiliated and unaffiliated entities.
Berkley Administrators
Berkley Administrators, headquartered in Minneapolis, Minnesota,
provides risk management and administration services to its clients, including
underwriting, loss control, policy issuance and claims handling. A significant
portion of Berkley Administrators' present business is the administration of the
Minnesota Workers' Compensation Assigned Risk Plan.
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<PAGE> 10
Berkley Risk Services, Inc.
The Company acquired Berkley Risk Services, Inc. and its affiliated
companies in 1988. Berkley Risk, based in Minneapolis, Minnesota, is a property
casualty risk management firm which specializes in the development and
administration of group and single-employer alternative insurance funding
techniques. Subsidiaries of Berkley Risk also manage entities which provide
liability insurance and claim adjusting services to public entities and not for
profit organizations.
Key Risk Services, Inc.
The Company acquired Key Risk Services, Inc. in 1994. Key Risk, based
in Greensboro, North Carolina is a property casualty risk management firm which
specializes in management and administration of group self insured funds. A
significant portion of Key Risk's present business is the administration of the
North Carolina Associated Industries Workers' Compensation Fund.
Berkley Risk Managers
Berkley Risk Managers is a successor to a Company acquired in 1990.
Berkley Risk Managers, based in Somerset, New Jersey, is primarily involved in
the development and administration of self-funded property casualty and health
insurance programs primarily for municipalities and other governmental entities.
All American Agency Facilities, Inc.
All American Agency Facilities, Inc., based in Redmond, Washington,
provides insurance agency and brokerage services on a nationwide basis for
unaffiliated insurance carriers as well as certain of the Company's insurance
subsidiaries.
Berkley Care Network
The Company established Berkley Care Network in 1995. Berkley Care
Network, based in Greensboro, North Carolina, is a managed health care company
offering a preferred provider network, utilization review and case management
services for workers' compensation carriers on a nationwide basis.
Alternative Markets Operations: Business
The following table sets forth the percentages of revenues, by major
source of business, of the alternative markets operations:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Insurance Service operations 63.1% 78.6% 91.6% 100.0% 100.0%
Signet Star - Alternative Markets
division 22.1 21.4 8.4 -- --
Midwest 14.8 -- -- -- --
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
10
<PAGE> 11
Results by Industry Segment
Summary financial information about the Company's operating segments is
presented on a GAAP basis in the following table (all amounts include realized
capital gains and losses):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Regional Insurance Operations (1)
Total revenues $485,860 $376,576 $316,448 $277,112 $261,621
Income before income taxes 40,227 26,669 29,993 26,605 15,681
Reinsurance Operations (2)
Total revenues 212,876 187,304 86,962 -- --
Income (loss) before income taxes 11,205 (14,977) 194 -- --
Specialty Insurance Operations (2)
Total revenues 209,311 184,899 211,129 233,477 229,888
Income before income taxes 43,781 37,452 52,651 38,953 49,569
Alternative Markets Operations (2)
Total revenues 103,656 75,798 53,531 50,553 46,699
Income before income taxes 10,254 7,068 8,058 11,101 9,571
</TABLE>
(1) Berkley International's results, which to date are immaterial, are included
in Regional insurance operations.
(2) Prior to July 1, 1993 the Reinsurance operations, including the alternative
markets operation, are included in Specialty insurance operations (see other
information about the Company's business).
11
<PAGE> 12
The combined ratio represents a measure of underwriting profitability,
excluding investment income. A number in excess of 100 indicates an underwriting
loss; a number below 100 indicates an underwriting profit. Summary information
for the Company's insurance companies and the insurance industry is presented in
the following table (1):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Regional Insurance Operations
Loss ratio 64.9% 65.3% 67.1% 66.5% 69.0%
Expense ratio 34.2 34.3 34.2 33.5 33.0
Policyholders' dividend ratio .9 .9 .9 1.0 1.0
----- ----- ----- ----- -----
Combined ratio 100.0% 100.5% 102.2% 101.0% 103.0%
===== ===== ===== ===== =====
Reinsurance Operations (2)
Loss ratio 78.3% 87.9% 74.1% --% --%
Expense ratio 26.4 27.1 31.4 -- --
Policyholders' dividend ratio -- -- -- -- --
----- ----- ----- ----- -----
Combined ratio 104.7% 115.0% 105.5% --% --%
===== ===== ===== ===== =====
Specialty Insurance Operations (2)
Loss ratio 78.6% 77.6% 77.3% 84.3% 75.6%
Expense ratio 28.3 26.0 26.8 25.9 25.7
Policyholders' dividend ratio -- -- -- -- --
----- ----- ----- ----- -----
Combined ratio 106.9% 103.6% 104.1% 110.2% 101.3%
===== ===== ===== ===== =====
Alternative Markets Operations(2)(3)
Loss ratio 72.3% 72.5% 72.5% --% --%
Expense ratio 31.9 27.7 21.0 -- --
Policyholders' dividend ratio -- -- -- -- --
----- ----- ----- ----- -----
Combined ratio 104.2% 100.2% 93.5% --% --%
===== ===== ===== ===== =====
Combined Insurance Operations
Loss ratio 70.7% 73.7% 71.1% 73.7% 71.7%
Expense ratio 31.3 30.8 31.7 30.6 30.0
Policyholders' dividend ratio .5 .5 .5 .6 .6
----- ----- ----- ----- -----
Combined ratio 102.5% 105.0% 103.3% 104.9% 102.3%
===== ===== ===== ===== =====
Combined Insurance Operations
Premiums to surplus ratio (4) 1.0 1.1 .8 1.0 1.2
===== ===== ===== ===== =====
Industry Ratios
Combined ratio 107.2%(5) 108.9%(6) 107.9%(6) 119.1%(6) 109.5%(6)
Premiums to surplus ratio 1.2 (5) 1.3 (7) 1.3 (7) 1.4 (7) 1.4 (7)
</TABLE>
(1) Based on statutory accounting practices.
(2) Results of the Company's Reinsurance operations prior to July 1, 1993,
including the alternative markets operation, are included in Specialty
insurance operations. (see other information about the Company's business).
(3) The Alternative Markets segments combined ratio reflects the underwriting
results of Midwest, since November 1995, the date it was acquired, and the
Signet Star Alternative Markets division from July 1, 1993. Midwest
discounts its reserves for Losses and loss expenses, and accordingly, the
annual change in the discount is reflected in the loss ratio.
(4) Based on the Company's consolidated net premiums written to statutory
surplus.
(5) Estimated by A.M. Best
(6) Source: A.M. Best Aggregates & Averages, for stock companies.
(7) Source: A.M. Best Aggregates & Averages, for total industry.
12
<PAGE> 13
Investments
Investment results before income tax effects were as follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Average investments, at cost $2,102,647 $1,855,826 $1,547,635 $1,358,366 $1,174,864
========== ========== ========== ========== ==========
Investment income,
before expenses $ 143,527 $ 115,619 $ 98,368 $ 96,960 $ 90,237
========== ========== ========== ========== ==========
Percent earned on
average investments 6.8% 6.2% 6.4% 7.1% 7.7%
========= ========= ========== ========= ==========
Realized gains (losses) $ 10,357 $ (170) $ 23,523 $ 3,356 $ (4,823)
========== ========= ========== ========= ==========
Change in unrealized
investment gains (losses) (1) $ 137,560 $(119,686) $ 13,556 $ 7,743 $ 74,161
========== ========== ========== ====== =======
</TABLE>
(1) The change in unrealized investment gains (losses) represents the difference
between fair value and cost of investments at the beginning and end of the
calendar year, including investments carried at cost.
The percentages of the fixed maturity portfolio categorized by
contractual maturity, based on fair value, on the dates indicated, are set forth
below. Actual maturities may differ from contractual maturities because certain
issuers have the right to call or prepay obligations.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
1 year or less 4.2% 4.0% 3.5% 3.1% 1.6%
Over 1 year through 5 years 17.9 27.6 34.0 32.5 33.3
Over 5 years through 10 years 29.4 21.4 22.8 19.2 25.5
Over 10 years 26.2 27.0 27.5 27.3 18.8
Mortgage-backed securities 22.3 20.0 12.2 17.9 20.8
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Loss and Loss Adjustment Expense Reserves
In the property casualty industry, it is not unusual for significant
periods of time, ranging up to several years or more, to elapse between the
occurrence of an insured loss, the report of the loss to the insurer and the
insurer's payment of that loss. To recognize liabilities for unpaid losses,
insurers establish reserves, which is a balance sheet account representing
estimates of future amounts needed to pay claims and related expenses with
respect to insured events which have occurred. The Company's loss reserves
reflect current estimates of the ultimate cost of closing outstanding claims;
other than its Excess Workers Compensation business, as discussed below, the
Company does not discount its reserves to estimated present value for financial
reporting purposes.
In general, when a claim is reported, claims personnel establish a
"case reserve" for the estimated amount of the ultimate payment. The estimate
represents an informed judgment based on general reserving practices and
reflects the experience and knowledge of the claims personnel regarding the
nature and value of the specific type of claim. Reserves are also established on
an aggregate basis which provide for losses incurred but not yet reported to the
insurer, potential inadequacy of case reserves, the estimated expenses of
settling claims, including legal and other fees and general expenses of
administering the claims adjustment process ("LAE"), and a provision for
potentially uncollectible reinsurance. Each insurance subsidiary's net retention
for each line of insurance is taken into consideration in the computation of
ultimate losses.
13
<PAGE> 14
In examining reserve adequacy, historical data is reviewed and
consideration is given to such factors as legal developments, changes in social
attitudes and economic conditions, including the effects of inflation. The
actuarial process relies on the basic assumption that past experience,
judgmentally adjusted for the effects of current developments and anticipated
trends, is an appropriate basis for predicting future events. Reserve amounts
are necessarily based on management's informed estimates and judgments using
data currently available. As additional experience and other data become
available and are reviewed, these estimates and judgments are revised, resulting
in increases or decreases to reserves for insured events of prior years. The
reserving process implicitly recognizes the impact of inflation and other
factors affecting loss costs by taking into account changes in historic claim
patterns and perceived trends. There is no precise method, however, for
subsequently evaluating the impact of any specific factor on the adequacy of
reserves, because the ultimate cost of closing claims is influenced by numerous
factors.
While the methods for establishing the reserves are well tested over
time, some of the major assumptions about anticipated loss emergence patterns
are subject to fluctuation. In particular, high levels of jury verdicts against
insurers, as well as judicial decisions which "re-formulate" policies to expand
their coverage to previously unforeseen theories of liability, including those
regarding pollution and other environmental exposures, have produced
unanticipated claims and increased the difficulty of estimating the loss and
loss adjustment expense reserves provided by the Company.
Due to the nature of Excess Workers Compensation ("EWC") business and
the long period of time over which losses are paid in this line of business, the
Company discounts its liabilities for EWC losses and loss expenses. Discounting
liabilities for losses and loss expenses gives recognition to the time value of
money set aside to pay claims in the future and is intended to appropriately
match losses and loss expenses to income earned on investment securities
supporting the liabilities. The expected losses and loss expense payout pattern
subject to discounting was derived from Midwest's loss payout experience and is
supplemented with data compiled by insurance companies writing workers'
compensation on an excess-of-loss basis. The expected payout pattern has a very
long duration because it reflects the nature of losses which generally penetrate
self-insured retention limits contained in excess workers' compensation
policies. The Company has limited the expected payout duration to 30 years in
order to introduce an additional level of conservatism into the discounting
process. These liabilities have been discounted using "risk-free" discount rates
determined by reference to the U.S. Treasury yield curve weighted for EWC
premium volume to reflect the seasonality of the anticipated duration of losses
associated with such coverages. The average discount rate for accident years
1995 and prior was approximately 5.80%.
To date, known pollution and environmental claims at the insurance
company subsidiaries have not had a material impact on the Company's operations.
Environmental claims have not materially impacted the Company because our
subsidiaries generally did not insure the larger industrial companies which are
subject to significant environmental exposures.
The Company's net reserves for losses and loss adjustment expenses
relating to pollution and environmental claims were $30.8 million and $22.8
million at December 31, 1995 and 1994, respectively. The Company's gross
reserves for losses and loss adjustment expenses relating to pollution and
environmental claims were $59.4 million and $50.6 million at December 31, 1995
and 1994, respectively. Net incurred losses and loss expenses for reported
pollution and environmental claims were approximately $8.0 million, $5.6 million
and $3.5 million in 1995, 1994 and 1993, respectively. Net paid losses and loss
expenses has averaged approximately $3 million for each of the last three years.
The estimation of these liabilities is subject to significantly greater than
normal variation and uncertainty because it is difficult to make a reasonable
actuarial estimate of these liabilities due to the absence of a generally
accepted actuarial methodology for these exposures and the potential affect of
significant unresolved legal matters, including coverage issues as well as the
cost of litigating the legal issues. Additionally, the determination of ultimate
damages and the final allocation of such damages to financially responsible
parties is highly uncertain.
14
<PAGE> 15
The table below provides a reconciliation of the beginning and ending
reserve balances, on a gross of reinsurance basis (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net reserves at beginning of year $ 895,440 $ 783,218 $ 709,665
---------- ---------- ----------
Net reserves of acquired companies 191,963 -- 20,810
Net provision for losses and loss expenses:
Claims occurring during the current year 580,594 493,418 367,106
Decrease in estimates for claims occurring
in prior years (9,596) (7,269) (5,861)
---------- ---------- ----------
570,998 486,149 361,245
---------- ---------- ----------
Net payments for claims
Current year 228,100 187,295 139,292
Prior years 221,051 186,632 169,210
---------- ---------- ----------
449,151 373,927 308,502
---------- ---------- ----------
Net reserves at end of year 1,209,250 895,440 783,218
Ceded reserves at end of year (1) 450,770 1,175,446 1,233,130
Gross reserves at end of year $1,660,020 $2,070,886 $2,016,348
========== ========== ==========
</TABLE>
A reconciliation, as of December 31, 1995, between the reserves
reported in the accompanying consolidated financial statements which have been
prepared in accordance with GAAP and those reported on a SAP basis is as follows
(in thousands):
<TABLE>
<S> <C>
Net reserves reported on a SAP basis $1,248,606
Additions (deductions) to statutory reserves:
Loss reserve discounting (2) (55,438)
Outstanding drafts reclassified as reserves 15,817
Other 265
----------
Net reserves reported on a GAAP basis 1,209,250
Ceded reserves reclassified as assets 450,770
----------
Gross reserves reported on a GAAP basis $1,660,020
==========
</TABLE>
(1) The 1995 decline in ceded reserves is due to the sale of North Star
Reinsurance Company (see: Other information about the Company's business,
for a further explanation).
(2) For statutory purposes, Midwest uses a discount rate of 3.0% as permitted
by the Department of Insurance of the State of Ohio. For GAAP purposes,
Midwest uses a discount rate based on the U. S. Treasury yield curve
weighted for the expected payout period, as described above.
The table on page 16 presents the development of net reserves for 1985
through 1995. The top line of the table shows the estimated reserves for unpaid
losses and loss expenses recorded at the balance sheet date for each of the
indicated years. This represents the estimated amount of losses and loss
expenses for claims arising in all prior years that are unpaid at the balance
sheet date, including losses that had been incurred but not yet reported to the
Company. The upper portion of the table shows the re-estimated amount of the
previously recorded reserves based on experience as of the end of each
succeeding year. The estimate changes as more information becomes known about
the frequency and severity of claims for individual years.
The "cumulative redundancy (deficiency)" represents the aggregate
change in the estimates over all prior years. For example, the 1985 reserves
have developed a $92 million deficiency over ten years. That amount has been
reflected in income over the ten years. The impact on the results of operations
of the past three years of changes in reserve estimates is shown in the
reconciliation tables above.
It should be noted that the table presents a "run off" of balance sheet
reserves, rather than accident or policy year loss development. Therefore, each
amount in the table includes the effects of changes in reserves for all prior
years. For example, assume a claim that occurred in 1985 is reserved for $2,000
as of December 31, 1985. Assuming this claim was settled for $2,300 in 1995, the
$300 deficiency would appear as a deficiency in each year from 1985 through
1994.
15
<PAGE> 16
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Amounts in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net reserves for losses
and loss expenses $171 $303 $423 $531 $611 $643 $680 $710 $783 $895 $1,209
Re-estimated as of:
One year later 188 300 419 524 605 635 676 704 776 885 --
Two years later 196 309 413 518 599 632 659 694 755
Three years later 205 309 405 513 596 620 650 665
Four years later 210 311 402 511 587 612 637
Five years later 213 311 402 505 581 603
Six years later 215 312 401 510 585
Seven years later 217 324 405 514
Eight years later 237 330 418
Nine years later 245 349
Ten years later 263
Cumulative redundancy
(deficiency) $(92) $(46) $ 5 $ 17 $ 26 $ 40 $ 43 $ 45 $ 28 $ 10 $ --
==== ==== ==== ==== ==== ==== ==== ==== ==== ==== ======
Cumulative amount of
net liability paid
through:
One year later $ 75 $ 90 $ 91 $114 $158 $139 $160 $169 $186 221 $ --
Two years later 113 138 152 217 234 235 264 275 221
Three years later 144 176 201 262 294 304 332 306
Four years later 164 188 225 295 334 345 346
Five years later 168 203 244 315 358 377
Six years later 176 213 256 331 380
Seven years later 182 221 268 348
Eight years later 187 231 282
Nine years later 196 244
Ten years later 208
Net Reserves $ 783 $ 895 $1,209
Ceded Reserves 1,233 1,176 451
------ ------ ------
Gross Reserves $2,016 $2,071 $1,660
====== ====== ======
Net Re-estimated 776 885 --
Ceded Re-estimated 1,234 1,158
------ ------
Gross Re-estimated as of
One year later 2,010 2,043
Two years later 1,966
Gross cumulative redundancy $ 50 $ 28 $ --
====== ====== ======
</TABLE>
16
<PAGE> 17
Regulation
The Company's insurance subsidiaries are subject to varying degrees of
regulation and supervision in the jurisdictions in which they do business, under
statutes which delegate regulatory, supervisory and administrative powers to
state insurance commissioners. This regulation relates to such matters as the
standards of solvency which must be met and maintained; the licensing of
insurers and their agents; the nature of and limitations on investments;
deposits of securities for the benefit of policyholders; approval of policy
forms and premium rates; periodic examination of the affairs of insurance
companies; annual and other reports required to be filed on the financial
condition of insurers or for other purposes; establishment and maintenance of
reserves for unearned premiums and losses; and requirements regarding numerous
other matters. In general, the Company's regional property casualty subsidiaries
as well as Carolina, Great Divide and Midwest must file all rates for personal
and commercial insurance with the insurance department of each state in which
they operate. The E & S and reinsurance subsidiaries of the Company generally
operate free of rate and form regulation.
In addition to regulatory supervision of its insurance subsidiaries,
the Company is subject to state statutes governing insurance holding company
systems. Typically, such statutes require the Company periodically to file
information with the state insurance commissioner, including information
concerning its capital structure, ownership, financial condition and general
business operations. Under the terms of applicable state statutes, any person or
entity desiring to purchase more than a specified percentage (commonly 10%) of
the Company's outstanding voting securities would be required to obtain
regulatory approval of the purchase. Under Florida law, which is applicable to
the Company due to its ownership of Carolina, a Florida domiciled insurer, the
acquisition of more than 5% of the Company's capital stock must receive
regulatory approval. Further, state insurance statutes typically place
limitations on the amount of dividends or other distributions payable by
insurance companies in order to protect their solvency. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
During the past several years, various regulatory and legislative
bodies adopted or proposed new laws or regulations to deal with the cyclical
nature of the insurance industry, catastrophic events and their effects on
shortage of capacity and pricing. These regulations, which have not had a
material impact on the Company's operations, include (i) the creation of "market
assistance plans" under which insurers are induced to provide certain coverages,
(ii) restrictions on the ability of insurers to cancel certain policies in
mid-term, (iii) advance notice requirements or limitations imposed for certain
policy non-renewals and (iv) limitations upon or decreases in rates permitted to
be charged. The passage of Proposition 103 in the State of California did not
have a material adverse impact on the Company's operations because the Company's
subsidiaries operate in that state primarily on a non-admitted basis. The
non-admitted market in California, however, has been subjected to increased
levels of regulation. Admiral and Nautilus, both of which derive significant
premiums from California, may be adversely impacted by increased regulation
which causes business to remain in the admitted market.
Various state and federal organizations, including Congressional
committees and the National Association of Insurance Commissioners ("NAIC"),
have been conducting investigations into various aspects of the insurance
business. The NAIC has adopted risk based capital ("RBC") requirements that
require insurance companies to calculate and report information under a
risk-based formula which measures statutory capital and surplus needs based on a
regulatory definition of risk in a company's mix of products and its balance
sheet. The implementation of RBC did not effect the operations of the Company's
insurance subsidiaries since all of its subsidiaries have an RBC amount above
the authorized control level RBC, as defined by the NAIC. Federal legislation is
being considered which would either abolish or limit the current exemption of
the insurance industry from portions of the antitrust laws, impose direct
federal oversight or federal solvency standards. No assurance can be given that
future legislative or regulatory
17
<PAGE> 18
changes resulting from such activity will not adversely affect the Company's
insurance subsidiaries.
The Company's insurance subsidiaries are also subject to assessment by
state guaranty funds when an insurer in that jurisdiction has been judicially
declared insolvent and insufficient funds are available from the liquidated
company to pay policyholders and claimants. The protection afforded under a
state's guaranty fund to policyholders of the insolvent insurer varies from
state to state. Generally, all licensed property casualty insurers are
considered to be members of the fund, and assessments are based upon their pro
rata share of direct written premiums. The NAIC Model Post-Assessment Guaranty
Fund Act, which many states have adopted, limits assessments to an insurer to 2%
of its subject premium and permits recoupment of assessments through rate
setting. Likewise, several states (or underwriting organizations of which the
Company's insurance subsidiaries are required to be members) have limited
assessment authority with regard to deficits in certain lines of business. To
date, assessments have not had a material adverse impact on operations.
The Company receives funds from its insurance subsidiaries in the form
of dividends and fees for management services. Annual dividends in excess of
maximum amounts prescribed by state statutes ("extraordinary dividends") may not
be paid without the approval of the insurance commissioner of the state in which
an insurance subsidiary is domiciled. The NAIC has proposed and certain states
have adopted, legislation that lowers the threshold amount for determining what
constitutes an extraordinary dividend. Such legislative changes could make it
more difficult for insurance subsidiaries to pay dividends to their parents.
Similarly, the NAIC has proposed a new model investment law that may affect the
statutory carrying values of certain investments; however, the final outcome of
that proposal is not certain, nor is it possible to predict what impact the
proposal will have on the Company or whether the proposal will be adopted in the
foreseeable future.
Tax Law Changes
For a review of Federal income tax changes and their impact on the
Company see "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
Competition
The property casualty insurance and reinsurance business is
competitive, with over 2,000 insurance companies transacting business in the
United States. The Company competes directly with a large number of these
companies. The Company's strategy in this highly fragmented industry is to seek
specialized areas or geographic regions where its insurance subsidiaries can
gain a competitive advantage by responding quickly to changing market
conditions. Each of the Company's subsidiaries establishes its own pricing
practices. Such practices are based upon a Company-wide philosophy to price
products with the general intent of making an underwriting profit. Competition
in the industry generally changes with profitability.
The regional property casualty subsidiaries compete with mutual and
other regional stock companies as well as national carriers. Direct writers of
property casualty insurance compete with the regional subsidiaries by writing
insurance through their salaried employees, generally at a lower cost than
through independent agents such as those used by the Company.
Signet Star's competition comes from domestic and foreign reinsurers,
some of which have greater financial resources, who place their business either
on a direct basis or through the broker market.
18
<PAGE> 19
The E & S area is a highly specialized segment of the insurance
industry. Admiral and Nautilus compete with other E & S carriers, some of which
are larger and have greater resources. Under certain market conditions, standard
carriers may compete for the types of business written by Admiral and Nautilus.
In addition, there are regional and specialty carriers competing with Admiral
and Nautilus when they underwrite business in their regions or specialties.
Carolina and Great Divide's competition comes mainly from other
specialty transportation insurers and large national multi-line companies.
Midwest's competition comes from insurance and reinsurance companies,
some of which have greater financial resources. Most of theses carriers write
specific EWC coverage, do not offer aggregate EWC coverage and tend to focus on
risks larger than those targeted by Midwest. In addition, Midwest competes with
other specialty EWC insurers.
The insurance services operations face competition from several large
nationally known service organizations as well as local competitors.
Employees
As of February 29, 1996, the Company employed 2,982 persons. Of this
number, the Company's subsidiaries employed 2,948 persons, of whom 1,691 were
executive and administrative personnel and 1,257 were clerical personnel. The
Company employed the remaining 34 persons in its parent company and investment
operations, of whom 27 were executive and administrative personnel and 7 were
clerical personnel.
Other information about the Company's business:
The Company maintains an ongoing interest in acquiring additional
companies and developing new insurance entities, products and packages as
opportunities arise. In addition, the insurance subsidiaries develop new
coverages or lines of business to meet the needs of insureds.
Seasonal weather variations affect the severity and frequency of losses
sustained by the insurance and reinsurance subsidiaries. Although the effect on
the Company's business of such natural catastrophes as tornadoes, hurricanes,
hailstorms and earthquakes is mitigated by reinsurance, they nevertheless can
have a significant impact on the results of any one reporting period.
The Company has no customer which accounts for 10 percent or more of
its consolidated revenues.
Compliance by the Company and its subsidiaries with federal, state and
local provisions which have been enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to protection of the
environment, has not had a material effect upon the capital expenditures,
earnings or competitive position of the Company.
The Company currently does not engage in material operations in foreign
countries nor is a material portion of its revenues derived from customers in
foreign countries. However, the Company's insurance subsidiaries regularly
purchase a portion of their catastrophe reinsurance coverage from foreign
reinsurers, including syndicate members of Lloyd's of London. While Queen's
Island is domiciled in Bermuda, to date its business has exclusively been
reinsurance of its domestic affiliates.
During the last two years the Company has been actively exploring
emerging insurance markets in Latin America and South East Asia. On September
11, 1995, the Company and Northwestern Mutual Life International, Inc. ("NML"),
a wholly-owned subsidiary of Northwestern Mutual Life Insurance Company, entered
into a Subscription
19
<PAGE> 20
Agreement, Operating Agreement and Management Agreement with respect to Berkley
International, a limited liability company. Berkley International was
established as the exclusive vehicle of the Company and NML to acquire interests
outside the United States in existing and start-up property and casualty, life
insurance and reinsurance businesses, including insurance-related financial
services businesses, located in emerging markets including Asia and Latin
America ("Portfolio Companies").
The Company and NML agreed, subject to certain limitations set forth in
the Operating Agreement, that Berkley International would be their exclusive
vehicle for investments in Portfolio Companies of which they from time to time
become aware; provided, however, that as of the end of any fiscal year, the
Company and NML may terminate this exclusivity provision. The Company agreed to
contribute up to $65 million to Berkley International in exchange for a 65%
membership interest and NML agreed to contribute up to $35 million to Berkley
International in exchange for a 35% membership interest. Subsequent to the third
anniversary of the Company's and NML's subscription for interests in Berkley
International, either party upon not less than six months' prior written notice
may terminate its obligation to make any remaining portion of its capital
contribution, such termination to be effective on December 31 of the year in
which the notice is give. The Company and NML may also terminate their
obligations to make any remaining portion of their capital contributions in the
event either party terminates the exclusivity provision referred to above.
During 1995, the Company purchased majority interests in La Union Gremial
Compania de Seguros, S. A. and Independencia Compania Argentina de Seguros, S.
A., two property and casualty companies in Argentina, for approximately $9.2
million, which constituted a portion of the Company's initial contribution to
Berkley International. The Company will act as manager of Berkley International
for a fee based on a percentage of the aggregate commitments of the members. To
date, Berkley International's results have not been material to the Company.
On November 8, 1995 the Company acquired 100% of the stock of MECC,
Inc. the Parent of Midwest Employers Casualty Company for $141,908,000. The
Company also retired approximately $19,590,000 million of MECC, Inc.'s debt. The
purchase was substantially funded by the issuance of 3,450,000 shares of Common
Stock at $43.75 per share.
On July 1, 1993, the Company exchanged all of the outstanding capital
stock of Signet Reinsurance Company (Signet) for 60% of the common stock of
Signet Star Holdings, Inc. ("Signet Star"). Signet Star simultaneously acquired
all of the outstanding capital stock of Signet Star Reinsurance Company ("Signet
Star Reinsurance") from General Re Corporation ("General Re") in exchange for
40% of the common stock of Signet Star and other consideration. Signet Star is
reported as a separate industry segment. Signet's operations through June 30,
1993 are included in the specialty segment.
On December 31, 1995, the Company purchased General Re's interest in
Signet Star by issuing to General Re 458,667 shares of Series B Cumulative
Redeemable Preferred Stock of the Company having an aggregate liquidation
preference of $68,800,000. In addition, the Company guaranteed a senior
subordinated promissory note of Signet Star which was issued to General Re in
exchange for the convertible note which General Re held. As part of this
transaction, Signet Star sold to General Re Signet Star Reinsurance Company and
renamed Signet Reinsurance Company, Signet Star Reinsurance Company.
In February 1996, Signet Star Reinsurance Company established a Latin
American and Caribbean division. The new division, which is located in Coral
Gables Florida, will specialize in providing treaty reinsurance services to a
wide variety of clients in Latin America and the Caribbean.
20
<PAGE> 21
ITEM 2. PROPERTIES
The Company and its subsidiaries own or lease office buildings or
office space suitable to conduct their operations. Owned property is as follows:
<TABLE>
<CAPTION>
Location Company Size (sq. ft.)
-------- ------- --------------
<S> <C> <C>
Austin, Texas J/I Holding Corporation (1) 7,000
Cherry Hill, New Jersey Admiral 30,000
Grand Forks, North Dakota American West 12,000
Jacksonville, Florida Carolina (2) 35,000
Lincoln, Nebraska Union 43,000
Lincoln, Nebraska Continental Western 20,000
Luverne, Minnesota Tri-State 25,000
Meridian, Mississippi Great River 30,000
Scottsdale, Arizona Nautilus 34,000
Urbandale, Iowa Continental Western 80,000
Westbrook, Maine Acadia 54,000
</TABLE>
(1) Occupied by Admiral's branch office.
(2) Presently leased to a third party.
In addition, the Company and its subsidiaries lease office facilities
in various other cities under leases with varying terms and expiration dates.
The Company has executed an agreement for the acquisition of a building
to be used as the Company's headquarters, which is expected to close by June 1,
1996.
ITEM 3. LEGAL PROCEEDINGS
Claims under insurance policies written by the Company's subsidiaries
are investigated and settled either by claims adjusters employed by them, by
their independent agents or by independent adjusters. Each subsidiary employs a
staff of claims adjusters at its home office and at some regional offices. Some
independent agents may have the authority to settle small claims. Independent
claims adjusting firms are used to assist in handling various claims in areas
where insurance volume does not warrant the maintenance of a staff adjuster. If
a claim or loss cannot be settled and results in litigation, the subsidiary
generally retains outside counsel.
At present, neither the Company nor any of its subsidiaries is engaged
in any litigation known to the Company which is expected to have a material
adverse effect upon the Company's business. As is common with property casualty
insurance companies, the Company's subsidiaries are regularly engaged in the
defense of claims arising out of the conduct of the insurance business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1995 to a vote
of holders of the Company's Common Stock.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Common Stock of the Company is traded in the over-the-counter
market and is quoted on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") National Market System under the symbol "BKLY". The
following table sets forth the high and low sale prices for the indicated
periods, all as reported by NASDAQ.
<TABLE>
<CAPTION>
Common
Price Range Dividends Paid
----------- --------------
High Low Per Share
---- --- ---------
<S> <C> <C> <C>
1995:
Fourth Quarter $ 55 1/2 $ 43 $ .12 cash
Third Quarter 47 35 1/2 $ .12 cash
Second Quarter 39 35 $ .12 cash
First Quarter 39 5/8 34 1/2 $ .11 cash
1994:
Fourth Quarter $ 38 1/4 $ 32 1/2 $ .11 cash
Third Quarter 39 35 1/4 $ .11 cash
Second Quarter 42 34 3/4 $ .11 cash
First Quarter 38 32 1/2 $ .10 cash
</TABLE>
The closing price on March 4, 1996, as reported on the NASDAQ National
Market System, was $45 1/4 per share. The approximate number of record holders
of the Common Stock on March 4, 1996 was 915.
22
<PAGE> 23
ITEM 6. SELECTED FINANCIAL DATA FOR THE FIVE YEARS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(Amounts in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net premiums written $ 860,421 $ 717,933 $ 537,646 $ 417,678 $ 411,660
Net premiums earned 803,336 655,038 501,433 416,003 408,133
Net investment income 137,332 109,683 92,773 91,629 85,103
Management fees and commissions 68,457 64,536 54,027 54,734 50,148
Realized investment gains (losses) 10,357 (170) 23,523 3,356 (4,823)
Other income 2,461 1,703 1,550 1,478 2,690
Total revenues 1,021,943 830,790 673,306 567,200 541,251
Interest expense 28,209 27,601 25,275 19,266 10,618
Income before Federal
income taxes 82,747 30,774 61,364 54,521 60,084
Federal income tax (expense)
benefit (17,554) 1,552 (9,181) (8,041) (13,500)
Income before minority interest
and change in accounting 65,193 32,326 52,183 46,480 46,584
Minority interest (4,311) 2,768 (596) -- --
Cumulative effect of change
in accounting principle -- -- -- 5,902 --
Net income before preferred
dividends 60,882 35,094 51,587 52,382 46,584
Preferred dividends 11,062 10,356 -- -- --
Net income attributable to
common stockholders 49,820 24,738 51,587 52,382 46,584
Data per common share:
Income before change
in accounting 2.86 1.44 2.87 2.59 2.61
Net income 2.86 1.44 2.87 2.92 2.61
Stockholders' equity (1) 35.39 26.68 30.36 26.33 23.56
Cash dividends declared $ .48 $ .44 $ .40 $ .36 $ .32
Weighted average shares
outstanding 17,414 17,182 17,946 17,942 17,862
Investments (1) $2,588,346 $1,901,715 $1,748,702 $1,396,082 $1,238,645
Total assets (2) 3,618,684 3,582,291 3,337,705 1,953,294 1,525,975
Reserves for losses
and loss expenses (2) 1,660,020 2,070,886 2,016,348 995,247 680,109
Long-term Debt 290,981 290,798 290,633 205,001 106,090
Stockholders' equity (1) 929,815 597,601 526,281 474,396 421,736
</TABLE>
(1) Investments and stockholders' equity reflect the adoption of SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," as of
December 31, 1993. Included in the calculation of common stockholders'
equity per share are unrealized investments gains (losses), net of federal
income taxes, of $48,450,000, ($33,973,000) and $36,450,000 as of December
31, 1995, 1994 and 1993, respectively.
(2) Total assets and reserves for losses and loss expenses reflect the adoption
of SFAS No. 113, "Accounting and Reporting for Reinsurance of Short Duration
and Long-Duration Contracts," as of December 31, 1992.
23
<PAGE> 24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Industry Overview
The demand for insurance can be characterized as fairly stable and is
influenced primarily by general economic conditions, while the supply of
insurance is directly related to available capacity, i.e., the level of
policyholders' surplus employed in the industry and the willingness of insurance
management to risk that capital. In general, it is believed that the amount of
available capacity changes as the perceived rate of return on capital employed
fluctuates based on the adequacy of premium rates and available investment
returns. The adequacy of premium rates is affected mainly by the severity and
frequency of claims which are influenced by many factors including natural
disasters, regulatory measures and court decisions that define and expand the
extent of coverage and the effects of economic inflation on the amount of
compensation due for injuries or losses. In addition, investment rates of return
may impact policy rates. These factors can have a significant impact on the
ultimate adequacy of premium rates because a property casualty insurance policy
is priced before its costs are known, as premiums usually are determined long
before claims are reported. Over the past several years a trend of increasing
price competition, combined with an increase in the number and size of
catastrophic losses, has produced a significant reduction in underwriting
profitability for the Company and the industry.
Operating Results for the Year Ended December 31, 1995
as Compared to the Year Ended December 31, 1994
Net income attributable to common shareholders ("Net Income") for 1995
was $50 million, or $2.86 per share, compared with 1994 earnings of $25 million,
or $1.44 per share. The 1995 results include after-tax realized investment gains
of $6 million or $.36 per share, compared with after-tax realized investment
losses of $86,000 or $.01 per share recorded in 1994.
Net premiums written in 1995 grew by 20% to $860 million from $718
million written during 1994 due to increases recorded by all four segments of
our operations. Premiums written by the regional segment grew by 24% in 1995 to
$478 million compared to $387 million written during 1994. Approximately 60% of
the growth was from three operations which the Company established in 1992 and
1993. The balance of this increase primarily results from the expansion by the
regional operations into new markets. Premiums written by the reinsurance
segment grew by 11% to $196 million from $177 million written during 1994. The
growth in reinsurance premiums written was mainly due to growth in facultative
and fidelity and surety premiums written. Premiums written by the specialty
segment grew by 19% in 1995 to $161 million from $135 million in 1994. The
growth in the specialty premiums written is due mainly to decreases in the
amounts of business ceded to unaffiliated reinsurers. Premiums written by the
alternative markets segment grew by 30% in 1995, to $26 million from $20 million
in 1994. The growth in this segment's premiums written is due to the inclusion
of Midwest, which was acquired in November 1995, and modest premium growth
recorded by Signet Star's alternative markets division.
Net investment income increased, on a pre-tax basis, to $137 million
from $110 million earned in 1994. The higher level of investment earnings is due
primarily to growth in investable assets generated by an increase in cash flow
from operations and increased portfolio yields. The pretax yield of the
portfolio increased as a result of a change in the mix of fixed maturity
investments, an increase in the duration of the portfolio and an increase in
trading account profits (see "Liquidity and Capital Resources").
24
<PAGE> 25
Management fees and commissions consists primarily of fees and
commissions earned by the alternative markets operating units. These fees and
commissions grew by 6% to $68 million in 1995 from $65 million earned in 1994.
This increase was due mainly to the inclusion of a full year's results for Key
Risk Services, Inc. which was acquired in May 1994 as well as fees earned by
Berkley Care Network which the Company established in June 1995. These increases
were partially offset by a restructuring of one alternative markets operating
unit.
The combined ratio (on a statutory basis) of the Company's insurance
operations decreased to 102.5% in 1995 from 105.0% (101.9% before the Northridge
Earthquake) in 1994 due to an improvement in the consolidated loss ratio which
was partially offset by a slight increase in the expense ratio. The consolidated
loss ratio (losses and loss expenses incurred expressed as a percentage of
premiums earned) decreased to 70.7% from 73.7% primarily due to the effect of
the Northridge Earthquake, which significantly impacted 1994 results. This
improvement was partially offset by an increase in the frequency and severity of
losses incurred by our commercial transportation unit.
Other operating costs and expenses, which consists of the expenses of
the Company's insurance and alternative markets segments as well as the
Company's corporate and investment expenses, increased by 19% to $340 million
from $286 million recorded in 1994. This increase was due primarily to the
substantial growth in premium volume which in turn results in an increase in
variable underwriting expenses. The consolidated expense ratio (underwriting
expenses expressed as a percentage of premiums written) of the Company's
insurance operations increased to 31.3% from 30.8% in 1994. The expense ratio
increased due to the effects of start-up operations which generally incur a
higher expense ratio in the early stages of their development.
Minority interest for 1995 was an expense of $4 million as compared to
income of $3 million reported in 1994. The change in minority interest was due
to earnings generated by Signet Star in 1995 versus a loss in 1994.
Operating Results for the Year Ended December 31, 1994
as Compared to the Year Ended December 31, 1993
Net income for 1994 was $25 million, or $1.44 per share, compared with
1993 earnings of $52 million, or $2.87 per share. The 1994 results include
after-tax realized investment losses of $86,000, or $.01 per share, compared
with after-tax realized investment gains of $15 million, or $.82 per share,
realized in 1993. In addition, the 1994 results were adversely impacted by a
higher level of catastrophes losses including the Company's share of losses
incurred by Signet Star due to the Northridge earthquake in California.
Furthermore, in January 1994 the Company issued $150 million of 7.375% Series A
Cumulative Redeemable Preferred Stock which resulted in preferred dividends of
$10 million and had a negative impact on the comparative results.
Net premiums written in 1994 grew by 33.5% to $718 million from $538
million written during 1993, primarily due to growth in reinsurance premium
volume as a result of the inclusion of Signet Star's results for the entire
year. In addition, premiums written by the Company's regional insurance
operations increased by $85 million. Approximately two thirds of this increase
was due to the three new operations referred to above. The balance of this
increase resulted primarily from the expansion into new markets by the remainder
of the regional group. Premium volume for the alternative markets segment was
$20 million in 1994, compared with $5 million in 1993. The increase is due
primarily to the inclusion of the results of Signet Star's alternative markets
division for the entire year.
25
<PAGE> 26
Net investment income increased, on a pre-tax basis, to $110 million
from $93 million earned in 1993. The higher level of investment earnings is due
to a full year of earnings of Signet Star and growth in investable assets,
generated by cash flow from operations and the issuance of 7.375% Series A
Cumulative Redeemable Preferred Stock. The higher level of interest expense
resulted from the issuance of subsidiary debt in connection with the formation
of Signet Star (see "Liquidity and Capital Resources").
Management fees and commissions increased by 20% to $65 million from
$54 million recorded in 1993 due primarily to a full year's earnings of Signet
Star's alternative markets division and the acquisition of Key Risk in April
1994. The pre-tax earnings of this segment decreased to $7 million from $8
million earned in 1993 due to the affects of the restructuring referred to
above.
The combined ratio (on a statutory basis) of the Company's insurance
operations increased to 105.0% (101.9% before the Northridge Earthquake) in 1994
from 103.3% in 1993 due to an increase in the consolidated loss ratio. The
consolidated loss ratio (losses and loss expenses incurred expressed as a
percentage of premiums earned) increased to 73.7% from 71.1% in 1993. The
increase in the loss ratio was due to a higher level of catastrophes including
after-tax catastrophe losses of $7.5 million resulting from the Northridge
Earthquake.
Other operating costs and expenses increased by 27% to $286 million.
This increase is due to the inclusion of a full year of operating results of
Signet Star, a higher level of costs associated with the three new insurance
operations and increased expenses in the alternative markets segment as a result
of the acquisition of Key Risk Services, Inc. The consolidated expense ratio
(underwriting expenses expressed as a percentage of premiums written) of the
Company's insurance operations decreased to 30.8% in 1994 from 31.7% in 1993 due
primarily to significant increases in the premium volume of Signet Star which
has a lower expense ratio than our other insurance operations.
Liquidity and Capital Resources
General
The Company's subsidiaries are highly liquid, receiving substantial
cash from premiums, investment income, management fees and proceeds from sales
and maturities of portfolio investments. The principal outflows of cash are
payments of claims, taxes, interest and operating expenses. The net cash
provided from operating activities (before trading account transactions) was
$206.6 million in 1995 and $170.3 million in 1994. The increase in cash flow in
1995 was due primarily to additional cash flow generated by the Company's
regional operations due to a significant increase in the premium volume.
As a holding company, the Company derives cash from its subsidiaries in
the form of dividends, tax payments and management fees. The Company is
obligated to service its debt, pay consolidated Federal income taxes and pay its
expenses. Tax payments and management fees from the insurance subsidiaries are
made under agreements which generally are subject to approval by state insurance
departments. Maximum amounts of dividends that can be taken without regulatory
approval are prescribed by statute; to date, cash dividends have not required
regulatory approval (See Note 13 of "Notes to Consolidated Financial
Statements").
Financing Activity
In January 1994, the Company issued 6 million depositary shares each
representing a one-sixth interest in a share of 7.375% Series A Cumulative
Redeemable Preferred Stock and received net proceeds of approximately $145
million. A portion of the proceeds of this offering were contributed to the
start up insurance subsidiaries to support their growth.
26
<PAGE> 27
In March 1995, the Company purchased 117,000 shares of its Common Stock
for approximately $4.1 million. Pursuant to an authorization of the Board of
Directors, up to 334,000 additional shares may be purchased from time to time.
In October 1995, the Company issued 3,450,000 shares of common stock,
and received net proceeds of approximately $145 million which was used to
finance the acquisition of Midwest.
On December 31, 1995, in connection with the acquisition of the
remaining 40% of Signet Star, the Company issued to General Reinsurance
Corporation (General Re), 458,667 shares of Series B Cumulative Redeemable
Preferred Stock having an aggregate liquidation preference of $68,800,000. The
Series B Preferred Stock has a dividend rate increasing up to 6% during the
first twelve months. The rate is subject to readjustment based on certain
predetermined conditions. In addition, the Company guaranteed a senior
subordinated promissory note of Signet Star in the principal amount of
$35,793,085, which matures July 1, 2003 and bears interest at the rate of 6.5%.
This note was issued to General Re in exchange for the convertible note
previously held by General Re. In November 1993, Signet Star borrowed the
maximum amount available under its revolving credit facility and used the
proceeds to redeem senior notes issued in connection with the July 1, 1993
acquisition. The revolving credit facility was repaid on January 19, 1996 as
discussed below.
On January 19, 1996 the Company issued $100 million of 6.25%, ten-year
notes which are not redeemable until maturity and utilized a portion of the
proceeds to retire $28.4 million of Signet Star's bank debt. The balance of the
proceeds from all of the above-mentioned offerings of securities is available
for acquisitions, working capital and other general corporate purposes.
The Company has on file two "shelf" Registration Statements with the
Securities and Exchange Commission with a combined remaining balance of $190
million in additional equity and/or debt securities. The securities may be
offered from time-to-time as determined by funding requirements and market
conditions.
Investments
In its investment strategy, the Company establishes a level of cash and
highly liquid short-term and intermediate-term securities which, combined with
expected cash flow, is believed adequate to meet foreseeable payment
obligations. As part of this strategy, the Company attempts to maintain an
appropriate relationship between the average duration of the investment
portfolio and the approximate duration of its liabilities, i.e., policy claims
and debt obligations.
The Company's investment policy with respect to fixed maturity
securities is generally to purchase instruments with the expectation of holding
them to their maturity. However, active management of the portfolio is
considered necessary to maintain an approximate matching of assets and
liabilities as well as to adjust the portfolio as changes in financial market
conditions alter the assumptions underlying the purchase of certain securities.
Sales of fixed income securities in 1995 were the result of financial
market conditions and the Company's strategy of maintaining an appropriate
balance between the duration of its assets and liabilities.
The investment portfolio, valued on a cost basis, grew in 1995 by
$553.0 million to approximately $2,508 million primarily due to the combined
effects of the acquisition of Midwest and net cash flow from operations.
27
<PAGE> 28
During 1995, the Company invested approximately $66 million of its
available cash inflow in equity securities and $127 million in corporate bonds
(principally mortgage-backed securities). At December 31, 1995, the portion of
the portfolio invested in tax-exempt securities was 32% (36% in 1994) and U.S.
Government securities and cash equivalents comprised 30% (33% in 1994) of
invested assets. Investments in corporate fixed maturity securities (including
mortgage-backed securities) were 28% (24% in 1994) of the portfolio at December
31, 1995, and equity securities represented the balance.
Federal Income Taxes
The Company files a consolidated Federal income tax return with all its
subsidiaries except Signet Star. Federal income tax expense in 1995 was $17.6
million (21% effective rate) as compared to a benefit of $1.6 million recorded
in 1994. The 1995 effective tax rate is lower than the statutory tax rate of 35%
because a substantial portion of investment income is tax-exempt. The 1994 tax
benefit is due to the fact that tax-exempt investment income exceeded total
pre-tax income. At December 1995, the Company had a deferred tax liability of
$57.7 million, which results primarily from unrealized investment gains and
intangible assets, and a deferred tax asset of $43.3 million, which results
primarily from the discounting of loss reserves for Federal income tax purposes.
The realization of the deferred tax asset is dependent upon the
Company's ability to generate sufficient taxable income in future periods. Based
on historical results and the prospects for current operations, management
anticipates that it is more likely than not that future taxable income will be
sufficient for the realization of this asset. In establishing the amount of the
deferred tax asset, management has included a valuation allowance for the future
uncertainty associated with the extended time period required for the complete
reversal of the effects of loss reserve discounting.
Reinsurance
The Company follows the customary industry practice of reinsuring a
portion of its exposures, paying to reinsurers a part of the premiums received
on the policies it writes. Reinsurance is purchased principally to reduce net
liability on individual risks and to protect against catastrophic losses.
Although reinsurance does not legally discharge an insurer from its primary
liability for the full amount of the policies, it does make the assuming
reinsurer liable to the insurer to the extent of the reinsurance ceded. The
Company monitors the financial condition of its reinsurers and attempts to place
its coverages only with substantial, financially sound carriers. The Company has
established reserves for potentially uncollectible reinsurance.
Regional Operations
In 1995, Continental Western and the Habitational Division of Firemen's
generally retained $475,000 on individual risks while the Company's other
regional subsidiaries generally retained $400,000 on individual risks. The
regional group also maintained catastrophe reinsurance protection for
approximately 95% of weather-related losses above $3 million per occurrence up
to a maximum of $35 million and carried additional catastrophe protection on an
aggregate basis for storms resulting in loss events between $500,000 and $6
million ($8 million in 1996).
28
<PAGE> 29
Reinsurance Operations
Signet Star's retrocessional program provides coverage for property
losses in three layers as follows: (i) 100% of $6.5 million in excess of $7
million per occurrence; (ii) 95% of $9 million in excess of $13.5 million per
occurrence; and (iii) 90% of $7.5 million in excess of $22.5 million per
occurrence. In 1995, Signet Star had retrocessional coverage for its casualty
facultative business which provides coverage for 40% (20% in 1996) of $5 million
per certificate on a pro-rata basis; this coverage applies to Signet Star's
individual certificate business only. During 1995, Signet Star had
retrocessional coverage for its fidelity and surety business for approximately
60% (80% in 1996) of each loss up to $2,250,000 in excess of $750,000 per
occurrence.
Specialty Operations
Admiral's retention in 1995 was $170,000 ($175,000 in 1996) per risk
for most classes of business and $2.1 million ($5.0 million in 1996), per
insured, for business written by Monitor Liability Managers. In addition, in
1996 Admiral's Directors and Officer coverage will also include additional
protection on an aggregate basis. Nautilus generally retained $97,500 per risk
in 1995 ($140,000 in 1996) and Carolina maintained its retention at $300,000 on
liability exposures.
Alternative Markets Operations
Midwest's retention is generally $1 million per occurrence above the
self insured's underlying retention.
Capitalization
For the year ended December 31, 1995 as a result of retained earnings
and the transactions discussed above under "Financing Activity", stockholders'
equity increased by approximately $332.2 million and the total amount of capital
employed in the business grew to $1,249.1 million. Accordingly, the percentage
of the Company's capital attributable to debt decreased to 26% at December 31,
1995 from 36% at December 31, 1994. In January 1996 the Company issued $100
million of 6.25% ten-year notes. On a proforma basis, assuming the issuance of
these notes occurred on December 31, 1995, the percentage of the Company's
capital attributable to debt would have been 31%.
29
<PAGE> 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index to Financial Statements Page
----------------------------- ----
<S> <C>
W. R. Berkley Corporation and Subsidiaries:
Independent auditors' report 31
Consolidated balance sheets, December 31, 1995 and 1994 32
Consolidated statements of operations, years ended
December 31, 1995, 1994, and 1993 33
Consolidated statements of stockholders' equity, years
ended December 31, 1995, 1994, and 1993 34
Consolidated statements of cash flows, years ended
December 31, 1995, 1994, and 1993 35
Notes to consolidated financial statements 36
</TABLE>
30
<PAGE> 31
Independent Auditors' Report
Board of Directors and Stockholders
W. R. Berkley Corporation
We have audited the consolidated balance sheets of W. R. Berkley Corporation and
subsidiaries as of December 31, 1995 and 1994, 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, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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 W. R. Berkley
Corporation and subsidiaries at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, W. R. Berkley
Corporation adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" on December 31, 1993.
We have also previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of W. R. Berkley Corporation and
subsidiaries as of December 31, 1993, 1992 and 1991, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years ended December 31, 1992 and 1991 (none of which are presented herein);
and we expressed unqualified opinions on those consolidated financial
statements. In 1992, W. R. Berkley Corporation adopted the provisions of the
Financial Accounting Standards Board's statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
In our opinion, the information set forth in the selected financial data for
each of the years in the five-year period ended December 31, 1995, appearing on
page 23, is fairly presented, in all material respects, in relation to the
consolidated financial statements from which it has been derived.
KPMG Peat Marwick LLP
New York, New York
February 22, 1996
31
<PAGE> 32
W. R. Berkley Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 1995 and 1994
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets
Investments:
Invested cash $ 196,732 $ 214,116
Fixed maturity securities:
Held to maturity, at cost (fair value
$176,193 and $195,983) 169,078 192,827
Available for sale at fair value (cost $1,894,451
and $1,408,063) 1,959,910 1,353,891
Equity securities, at fair value:
Available for sale (cost $92,472 and $68,787) 101,551 69,338
Trading account (cost $155,301 and $71,211) 161,075 71,543
Cash 10,185 5,513
Premiums and fees receivable 231,093 191,418
Due from reinsurers 423,626 1,127,416
Accrued investment income 34,373 27,853
Prepaid reinsurance premiums 77,656 69,169
Deferred policy acquisition costs 89,517 72,026
Excess of cost over net assets acquired 69,600 55,319
Deferred Federal income taxes -- 42,217
Other assets 94,288 89,645
---------- ----------
$3,618,684 $3,582,291
========== ==========
Liabilities, Reserves, Debt and
Stockholders' Equity
Liabilities and reserves:
Reserves for losses and loss expenses $1,660,020 $2,070,886
Unearned premiums 450,522 350,263
Due to reinsurers 65,798 54,845
Deferred Federal income taxes 14,363 --
Other liabilities 169,080 116,983
---------- ----------
2,359,783 2,592,977
---------- ----------
Long-term debt 290,981 290,798
Notes payable to Banks 28,306 40,204
Minority interest 9,799 60,711
Stockholders' equity:
Preferred stock, par value $.10 per share:
Authorized 5,000,000 shares:
7 3/8% Series A Cumulative Redeemable Preferred
Stock 1,000,000 shares issued and outstanding 100 100
Series B Cumulative Redeemable Preferred Stock
458,667 shares issued and outstanding 46 --
Common stock, par value $.20 per share:
Authorized 40,000,000 shares, issued and
outstanding, net of treasury shares,
20,168,167 and 16,777,718 shares 4,854 4,165
Additional paid-in capital 547,068 336,659
Retained earnings 424,261 382,859
Net unrealized investment gains (losses),
net of taxes 48,450 (33,973)
Treasury stock, at cost, 4,101,211 and
4,041,660 shares (94,964) (92,209)
---------- ----------
929,815 597,601
---------- ----------
$3,618,684 $3,582,291
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE> 33
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net premiums written $ 860,421 $ 717,933 $ 537,646
Increase in net unearned premiums (57,085) (62,895) (36,213)
---------- --------- ---------
Premiums earned 803,336 655,038 501,433
Net investment income 137,332 109,683 92,773
Management fees and commissions 68,457 64,536 54,027
Realized investment gains (losses) 10,357 (170) 23,523
Other income 2,461 1,703 1,550
---------- --------- ---------
Total revenues 1,021,943 830,790 673,306
Operating costs and expenses:
Losses and loss expenses (570,998) (486,149) (361,245)
Other operating costs and expenses (339,989) (286,266) (225,422)
Interest expense (28,209) (27,601) (25,275)
---------- --------- ---------
Income before income taxes and
minority interest 82,747 30,774 61,364
Federal income tax (expense) benefit (17,554) 1,552 (9,181)
---------- --------- ---------
Income before minority interest 65,193 32,326 52,183
Minority interest (4,311) 2,768 (596)
---------- --------- ---------
Net income before preferred dividends 60,882 35,094 51,587
Preferred dividends (11,062) (10,356) --
---------- --------- ---------
Net income attributable to
common stockholders $ 49,820 $ 24,738 $ 51,587
========== ========= =========
Net income per share $ 2.86 $ 1.44 $ 2.87
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
33
<PAGE> 34
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1994 and 1993
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Preferred
and Common Net
stock and unrealized
Total additional investment
stockholders' paid-in Retained gains Treasury
equity capital earnings (losses) stock
------------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $474,396 $192,943 $321,252 $ 4,904 $(44,703)
Net income attributable to
common stockholders 51,587 -- 51,587 -- --
Issuance of common shares 1,588 668 -- -- 920
Net change in unrealized
investment gains:
Change in accounting for
investment gains 32,714 -- -- 32,714 --
Other (1,168) -- -- (1,168) --
Purchase of treasury stock (25,688) -- -- -- (25,688)
Dividends to common
stockholders ($.40 per share) (7,148) -- (7,148) -- --
-------- -------- -------- -------- --------
Balance, December 31, 1993 526,281 193,611 365,691 36,450 (69,471)
Net income attributable to
common stockholders 24,738 -- 24,738 -- --
Issuance of common shares 5,657 2,038 -- -- 3,619
Issuance of preferred stock 145,275 145,275 -- -- --
Net change in unrealized
investment (losses) (70,423) -- -- (70,423) --
Purchase of treasury stock (26,357) -- -- -- (26,357)
Dividends to common
stockholders ($.44 per share) (7,570) -- (7,570) -- --
-------- -------- -------- -------- --------
Balance, December 31, 1994 597,601 340,924 382,859 (33,973) (92,209)
Net income attributable to
common stockholders 49,820 -- 49,820 -- --
Issuance of common shares 146,484 145,144 -- -- 1,340
Issuance of preferred stock 66,000 66,000 -- -- --
Net change in unrealized
investment gains 82,423 -- -- 82,423 --
Purchase of treasury stock (4,095) -- -- -- (4,095)
Dividends to common
stockholders ($.48 per share) (8,418) -- (8,418) -- --
-------- -------- -------- -------- --------
Balance, December 31, 1995 $929,815 $552,068 $424,261 $ 48,450 $(94,964)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
34
<PAGE> 35
W. R. Berkley Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 60,882 $ 35,094 $ 51,587
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Minority interest 4,311 (2,768) 596
Increase in reserves for losses and loss expenses,
net of due to/from reinsurers 106,333 117,371 60,111
Depreciation and amortization 14,286 14,989 12,788
Change in unearned premiums and prepaid reinsurance premiums 57,085 62,895 36,213
Change in premiums and fees receivable (20,551) (45,181) (708)
Change in Federal income taxes 491 (9,687) (1,959)
Change in deferred policy acquisition costs (15,607) (13,941) (9,893)
Realized investment (gains) losses (10,357) 170 (23,523)
Other, net 9,722 11,375 19,386
--------- --------- ---------
Net cash provided by operating activities
before trading account sales (purchases) 206,595 170,317 144,598
Trading account sales (purchases), net (47,314) (53,041) 74,846
--------- --------- ---------
Net cash provided by operating activities 159,281 117,276 219,444
--------- --------- ---------
Cash flows used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities available for sale 452,460 415,871 412,866
Equity securities 63,863 181,594 98,289
Proceeds from maturities and prepayments of
fixed maturity securities 159,731 114,200 135,648
Cost of purchases, excluding trading account:
Fixed maturity securities available for sale (690,650) (703,215) (700,243)
Fixed maturity securities held to maturity (30,568) -- --
Equity securities (64,187) (208,257) (102,342)
Cost of acquired companies, net of acquired
cash and invested cash (197,404) -- (112,787)
Change in balances due to/from security brokers (8,098) 12,048 2,481
Other, net (14,472) (34,465) (18,503)
--------- --------- ---------
Net cash used in investing activities (329,325) (222,224) (284,591)
--------- --------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock 144,739 -- --
Net proceeds from issuance of preferred stock 66,000 145,275 --
Net proceeds from issuance of long-term debt -- -- 49,694
Cash dividends to common stockholders (7,844) (7,459) (7,035)
Cash dividends to preferred stockholders (11,062) (8,051) --
Purchase of treasury shares (4,095) (26,357) (25,688)
Issuance of subsidiary common stock in acquisition -- -- 69,931
Issuance of debt in acquisition -- -- 76,180
Proceeds from subsidiary debt -- -- 40,089
Payment of subsidiary debt (31,847) (4,527) (40,387)
Other, net 1,441 156 1,588
--------- --------- ---------
Net cash provided by financing activities 157,332 99,037 164,372
--------- --------- ---------
Net increase (decrease) in cash and invested cash (12,712) (5,911) 99,225
Cash and invested cash at beginning of year 219,629 225,540 126,315
--------- --------- ---------
Cash and invested cash at end of year $ 206,917 $ 219,629 $ 225,540
========= ========= =========
Supplemental disclosure of cash flow information:
Interest paid on debt $ 32,839 $ 24,897 $ 25,463
========= ========= =========
Federal income taxes paid $ 17,064 $ 8,135 $ 10,455
========= ========= =========
Reclassifications from held to maturity to available for sale $ 14,100 $ -- $ --
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE> 36
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the Years Ended December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
(A) Principles of consolidation and basis of presentation
The consolidated financial statements, which include the
accounts of W. R. Berkley Corporation and its subsidiaries ("the
Company"), have been prepared on the basis of generally accepted
accounting principles ("GAAP"). The preparation of financial statements
in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the revenues and expenses reflected during the
reporting period. Actual results could differ from those estimates. All
significant intercompany transactions and balances have been
eliminated. Reclassifications have been made in the 1993 and 1994
financial statements to conform them to the presentation of the 1995
financial statements.
(B) Revenue recognition
Insurance premiums written are recognized as earned generally
on a pro-rata basis over the contract period. Management fees on
insurance services contracts are recorded as earned primarily on a
pro-rata basis over the policy period. Commission income is recognized
as earned on the effective date of the applicable insurance policies.
(C) Investments
The Company has classified its investments into three
categories. Securities that the Company has the positive intent and
ability to hold to maturity are classified as "held to maturity" and
reported at amortized cost. Securities which the Company purchased with
the intent to sell in the near term are classified as "trading" and are
reported at estimated fair value, with unrealized gains and losses
reflected in the statement of operations. The remaining securities are
classified as "available for sale" and carried at estimated fair value,
with unrealized gains and losses, net of applicable income taxes,
excluded from earnings and reported as a separate component of
stockholders' equity.
Realized gains or losses represent the difference between the
cost of securities sold and the proceeds realized upon sale. The cost
of securities is adjusted where appropriate to include provision for
declines in value which are considered to be other than temporary. The
Company uses the specific identification method where possible and the
first-in, first-out method in other instances, to determine the cost of
securities sold. Realized gains or losses, including any provision for
decline in value, are included in the statement of operations.
36
<PAGE> 37
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
(D) Deferred policy acquisition costs
Acquisition costs (primarily commissions and premium taxes)
incurred in writing insurance and reinsurance business are deferred and
amortized ratably over the terms of the related contracts. Deferred
policy acquisition costs are limited to the amounts estimated to be
recoverable from the applicable unearned premiums and the related
anticipated investment income by giving effect to anticipated losses,
loss adjustment expenses and expenses necessary to maintain the
contracts in force.
(E) Reserves for losses and loss expenses
Reserves for losses and loss expenses are an accumulation of
amounts determined on the basis of (1) evaluation of claims for
business written directly by the Company; (2) estimates received from
other companies for reinsurance assumed; and (3) estimates for losses
incurred but not reported (based on Company and industry experience).
These estimates are periodically reviewed and, as experience develops
and new information becomes known, the reserves are adjusted as
necessary. Such adjustments are reflected in results of operations in
the period in which they are determined.
A subsidiary of the Company, Midwest Employers Casualty
Company ("Midwest") which was acquired in November 1995, discounts its
liabilities for excess workers' compensation ("EWC") losses and loss
expenses using a "risk-free" rate. Midwest discounts its EWC
liabilities because of the long period of time over which it pays
losses. The Company believes that utilizing a "risk-free" rate to
discount these reserves more closely reflects the economics associated
with the excess workers' compensation line of business (see Note 11 of
notes to consolidated financial statements).
(F) Reinsurance ceded
Ceded unearned premiums are reported as prepaid reinsurance
premiums and estimated amounts of reinsurance recoverable on unpaid
losses are included in due from reinsurers. To the extent any reinsurer
does not meet its obligations under reinsurance agreements, the
liability must be discharged by the Company. The Company has provided
reserves for this potential uncollectability.
(G) Excess of cost over net assets acquired
Costs in excess of the net assets of subsidiaries acquired are
being amortized on a straight-line basis over 25 to 40 years. The
Company continually evaluates the amortization period of its intangible
assets. Estimates of useful lives are revised when circumstances or
events indicate that the original estimate is no longer appropriate.
37
<PAGE> 38
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, continued
(H) Federal income taxes
The Company and its 80% or more owned subsidiaries file a
consolidated Federal income tax return. In 1995 and prior years, Signet
Star filed its own consolidated Federal income tax return.
The Company's method of accounting for income taxes is the
asset and liability method. Under the asset and liability method,
deferred tax assets and liabilities are measured annually using tax
rates currently in effect or expected to apply in the years in which
those temporary differences are expected to reverse.
(I) Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board
("FASB") issued statements of financial accounting standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation. This statement
addressed the accounting for the cost of stock-based compensation, such
as stock options. SFAS No. 123 permits either expensing the cost of
stock-based compensation over the vesting period or disclosing in the
financial statement footnotes what this expense would have been. This
cost would be measured at the grant date based upon estimated fair
values, using option pricing models. The Company expects to adopt the
disclosure alternative of this statement in 1996.
(2) Acquisitions
On September 11, 1995, the Company formed Berkley
International, LLC ("Berkley International"), a limited liability
company. The Company agreed to contribute up to $65 million to Berkley
International in exchange for a 65% membership interest. During 1995,
the Company purchased majority interests in two property and casualty
companies in Argentina for consideration of approximately $9.2 million,
which constituted a portion of the Company's initial contribution to
Berkley International. The proforma effect of these transactions on the
Company's results of operations is not significant.
On November 8, 1995, the Company acquired 100% of the stock of
MECC, Inc., the Parent of Midwest Employer's Casualty Company, for
$141,908,000. In connection with this acquisition, the Company also
retired approximately $19,590,000 million of MECC, Inc.'s debt. The
purchase was funded by the issuance of 3,450,000 shares of Common Stock
issued at $43.75 per share. On December 31, 1995, the Company acquired
General Re Corporation's ("General Re") 40% interest in Signet Star
Holdings, Inc. ("Signet Star") by issuing to General Re 458,667 shares
of Series B Cumulative Redeemable Preferred Stock of the Company having
an aggregate liquidation preference of $68,800,000. The only
significant effect on the Company's financial statements from this
acquisition is an increase in preferred stock outstanding and the
elimination of the related minority interest because Signet Star's
results of operations were previously consolidated.
All of the acquisitions were accounted for as purchases and,
accordingly, the results of operations of the acquired companies have
been included from the dates of acquisition.
38
<PAGE> 39
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Acquisitions, continued
The net assets acquired in 1995 were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Berkley MECC, Signet
International Inc. Star Total
------------- ---- ---- -----
<S> <C> <C> <C> <C>
Total investments and cash $19,986 $362,120 $ -- $ 382,106
Due from reinsurers 8,338 48,474 (735,144) (678,332)
Deferred policy acquisition costs 2,519 5,606 (6,241) 1,884
Excess of cost over net assets acquired 505 16,541 -- 17,046
Other assets 17,489 18,688 (2,283) 33,894
------- -------- --------- ---------
Total assets $48,837 $451,429 $(743,668) $(243,402)
======= ======== ========= =========
Reserves for losses and loss expenses $14,849 232,985 $(735,144) $(487,310)
Deferred federal income taxes -- 21,599 (5,066) 16,533
Other liabilities 14,841 34,987 6,444 56,272
------- -------- --------- ---------
Total liabilities 29,690 289,571 (733,766) (414,505)
------- -------- --------- ---------
Debt -- 19,950 -- 19,950
Minority interest 9,960 -- (75,902) (65,942)
Net assets acquired $ 9,187 $141,908 $ 66,000 $ 217,095
======= ======== ========= =========
</TABLE>
On July 1, 1993, the Company exchanged all the stock of Signet
Reinsurance Company ("Signet") for 60% of the stock of Signet Star, a
newly formed holding company. Signet Star simultaneously acquired all
the stock of North Star Reinsurance Company ("North Star Reinsurance")
from General Re in exchange for 40% of the stock of Signet Star and
senior and convertible notes. In connection with the formation of
Signet Star, North Star Reinsurance entered into a Retrocessional
Agreement (the "Retrocessional Agreement") with General Reinsurance
Corporation ("GRC"), pursuant to which North Star Reinsurance reinsured
its respective liabilities and assigned its respective rights and
obligations arising from any insurance or reinsurance contracts written
prior to January 1, 1993 with and to GRC.
In connection with the 1995 acquisition of the remaining 40%
interest in Signet Star, North Star Reinsurance was sold to General Re
and all business written subsequent to July 1, 1993 was novated to
Signet Star. As a result, business written by North Star Reinsurance
prior to January 1, 1993, which had been retroceded to General Re, is
no longer reflected in the Company's financial statements. The only
effect on the Company's financial statements resulting from this aspect
of the transaction is that the Company's reserves for losses and loss
expenses is reduced by $735,144,000 and "due from reinsurers" is
reduced by the same amount. This aspect of the transaction does not
effect the Company's cash flow, equity or statements of operations.
39
<PAGE> 40
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(2) Acquisitions, continued
The Company's consolidated Proforma results of operations
assuming the acquisitions of MECC, Inc. and the remaining 40% interest
in Signet Star occurred as of January 1, 1995 and 1994, respectively,
are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Total revenues $1,100,195 $929,405
========== ========
Net income attributable to common shareholders $ 70,102 $ 46,469
========== ========
Net income per share of common stock $ 3.48 $ 2.30
========== ========
</TABLE>
The Proforma consolidated financial data do not purport to
represent what the Company's results of operations actually would have
been had the acquisitions and related financings occurred on the dates
indicated, or to project the Company's results of operations for any
future period. The above amounts primarily reflect adjustments for the
effects of the revaluation of assets and liabilities of the purchased
companies and the financing of such acquisitions on the results of
operations.
(3) Federal Income Taxes
The Federal income tax expense (benefit) consists of (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current expense $17,879 $ 8,020 $8,734
Deferred expense (benefit) (325) (9,572) 447
------- ------- ------
Total expense (benefit) $17,554 $(1,552) $9,181
======= ======= ======
</TABLE>
A reconciliation of the Federal income tax expense (benefit)
and the amounts computed by applying the Federal income tax rate of 35%
to pre-tax income is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Computed "expected" tax expense $ 28,961 $ 10,771 $ 21,478
Tax-exempt investment income (12,938) (12,964) (11,972)
Other, net 1,531 641 (325)
-------- -------- --------
Total expense (benefit) $ 17,554 $ (1,552) $ 9,181
======== ======== ========
</TABLE>
40
<PAGE> 41
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Federal Income Taxes, continued
At December 31, 1995, 1994 and 1993, the tax effects of
differences that give rise to significant portions of the deferred tax
asset and deferred tax liability are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred Tax Asset
Loss reserve discounting $ 46,922 $58,080 $51,904
Realized investment losses -- -- 901
Alternative minimum tax 3,330 6,293 2,760
Deferred taxes on unrealized
investment losses -- 16,783 --
Other 95 1,840 601
-------- ------- -------
Gross deferred tax asset 50,347 82,996 56,166
Less: valuation allowance 7,000 11,179 7,000
-------- ------- -------
Deferred tax asset 43,347 71,817 49,166
======== ======= =======
Deferred Tax Liability
Amortization of intangibles 13,119 13,197 13,493
Expense recognition differences 8,210 8,631 7,250
Realized investment gains 6,511 -- --
Deferred taxes on unrealized
investment gains 26,088 -- 20,898
Other 3,782 7,772 7,185
-------- ------- -------
Deferred tax liability 57,710 29,600 48,826
-------- ------- -------
Net deferred tax asset(liability) $(14,363) $42,217 $ 340
======== ======= =======
</TABLE>
The Federal income tax expense (benefit) applicable to
realized investment gains (losses) was $3,664,000, ($61,000) and
$8,233,000 in 1995, 1994 and 1993, respectively. The Company had a
current income tax receivable of $210,000 and $1,073,000 at December
31, 1995 and 1994, respectively.
The realization of the deferred tax asset is dependent upon
the Company's ability to generate sufficient taxable income in future
periods. Based on historical results and the prospects for current
operations, management anticipates that it is more likely than not that
future taxable income will be sufficient for the realization of this
asset. In establishing the amount of the deferred tax asset, management
has included a valuation allowance for the future uncertainty
associated with the extended time period required for the complete
reversal of the effects of loss reserve discounting. At December 31,
1994, the Company recorded an additional valuation allowance of $4.2
million, which represented the tax benefit the Company would have had
on its share of Signet Star's unrealized investment losses. This
additional valuation allowance was established because Signet Star
filed a separate consolidated return, and no capital loss carryback
benefit was available. At December 31, 1995, Signet Star had an
unrealized investment gain; therefore, the valuation allowance was not
required. The change in the valuation allowance did not affect the
Company's results of operations.
41
<PAGE> 42
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
Carrying
Description Rate Maturity Face Value Value
----------- ---- -------- ---------- -----
<S> <C> <C> <C> <C>
Senior Notes 8.95% May 20, 1998 $ 10,000,000 $ 9,975,000
Senior Notes 6.31% March 6, 2000 25,000,000 24,903,000
Senior Notes 6.71% March 4, 2003 25,000,000 24,878,000
Senior Subordinated Notes 6.5 % July 1, 2003 35,793,000 35,793,000
Senior Notes 9 7/8% May 15, 2008 100,000,000 96,592,000
Senior Debentures 8.7% January 1, 2022 100,000,000 98,840,000
------------ ------------
$295,793,000 $290,981,000
============ ============
</TABLE>
The difference between the face value of long-term debt and
the carrying value is unamortized discount. All outstanding long-term
debt is not redeemable until maturity and ranks on a parity with all
other outstanding indebtedness of the Company.
Notes Payable to Banks
Notes payable to banks represents debt outstanding pursuant to
a revolving credit facility entered into by Signet Star. The face value
of the debt at December 31, 1995 was $28,400,000 and the carrying value
was $28,306,000. The interest rate was based on the London Interbank
offered rate plus .75% to 1.50% and was 5.75% at December 31, 1995. The
debt was retired in January 1996.
(5) Commitments, Litigation and Contingent Liabilities
At present, neither the Company nor any of its subsidiaries
are engaged in any litigation known to the Company which management
believes will have a material adverse effect upon the Company's
business. As is common with other insurance companies, the Company's
subsidiaries are regularly engaged in the defense of claims arising out
of the conduct of the insurance business. In the aggregate, the
Company's commitments for future buildings, land and equipment is
approximately $50 million as of December 31, 1995.
(6) Lease Obligations
The Company and several of its subsidiaries use office space
and equipment under leases expiring at various dates through September
1, 2004. These leases are operating leases for financial reporting
purposes. Some of these leases have options to extend the length of the
leases and contain clauses for cost of living, operating expense and
real estate tax adjustments. Rental expense was approximately;
$9,437,000, $8,000,000 and $6,029,000 for 1995, 1994 and 1993
respectively. Future minimum lease payments (without provision for
sublease income) are: $8,755,000 in 1996; $7,404,000 in 1997;
$6,520,000 in 1998; $5,074,000 in 1999; $3,899,000 in 2000; and
$9,474,000 thereafter.
42
<PAGE> 43
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Stockholders' Equity
Per share data have been computed based on the weighted
average number of common shares outstanding. The assumed dilutive
effect of employee stock options was not material. Treasury shares have
been excluded from average outstanding shares from the date of
acquisition. The number of shares used in the computations was
17,414,000, 17,182,000, and 17,946,000 for 1995, 1994 and 1993,
respectively.
Changes in shares of common stock outstanding, net of treasury
shares, are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year 16,778 17,337 18,020
Shares issued 3,507 179 58
Shares repurchased (117) (738) (741)
------ ------ ------
Balance, end of year 20,168 16,778 17,337
====== ====== ======
</TABLE>
Preferred stock consists of 1,000,000 shares of 7 3/8% Series
A Cumulative Redeemable Preferred Stock and 458,667 shares of Variable
Rate Series B Cumulative Redeemable Preferred Stock.
The Company has the option of redeeming the Series A preferred
stock after January 23, 1999 at the liquidation value of $150 per
share. The Series B preferred stock has a dividend rate increasing up
to 6% during the first twelve months after issuance. The rate is
thereafter subject to readjustment, based on certain predetermined
conditions. The Series B preferred stock is reflected at its estimated
fair value of $66,000,000, based upon the current estimate of the
ultimate effective dividend rate, and will be accreted to its stated
value of $68,800,000 over eighteen months.
(8) Stock Option Plan
The Company adopted the W. R. Berkley Corporation 1992 Stock
Option Plan under which 1,750,000 shares of common stock were reserved
for issuance. Pursuant to the Plan, options may be granted at prices
determined by the Board of Directors but not less than 85% of the fair
market value on the date of grant.
The following table summarizes option information, including
options granted under both the 1992 and prior Plans:
<TABLE>
<CAPTION>
Number of Shares Option Prices
------------------------ ------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares under option 997,637 1,054,952 $22.67-46.88 $22.67-46.88
Options exercisable 267,967 148,191 22.67-44.00 22.67-29.17
Options granted 90,500 435,775 35.18-45.75 33.50-37.94
Options exercised 57,449 28,562 22.67-36.00 20.48-30.50
Options canceled
or expired 90,365 43,074 22.67-46.88 18.00-46.88
Shares available
for future grant 969,192 991,995
</TABLE>
43
<PAGE> 44
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(9) Profit Sharing Retirement Plan
The Company and its subsidiaries have profit sharing
retirement plans in which substantially all employees participate. The
plans provide for minimum annual contributions of 5% of eligible
compensation; contributions above the minimum are discretionary and
vary with each participating subsidiary's profitability. Employees
become eligible to participate in the Retirement Plans on the first day
of the month following the first full three months in which they are
employed. Profit sharing expense amounted to $6,344,000, $5,625,000 and
$4,605,000 for 1995, 1994 and 1993, respectively.
(10) Investments
At December 31, 1995 and 1994, there were no investments,
other than investments in United States government securities, which
exceeded 10% of stockholders' equity. At December 31, 1995 and 1994,
investments were as follows:
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------------------------------
Amount
Gross Gross at which
unrealized unrealized Fair shown in the
Type of Investment Cost (a) gains losses value balance sheet
------------------ -------- ---------- ---------- ----- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed maturity securities held to maturity:
State and municipal $ 155,518 $ 7,269 $ (154) $ 162,633 $ 155,518
Corporate 13,560 -- -- 13,560 13,560
---------- ------- ------- ---------- ----------
Total fixed maturities
held to maturity 169,078 7,269 (154) 176,193 169,078
---------- ------- ------- ---------- ----------
Fixed maturity securities available for sale:
United States government (b) 552,478 20,617 (307) 572,788 572,788
State and municipal 658,159 26,951 (570) 684,540 684,540
Corporate 683,814 20,635 (1,867) 702,582 702,582
---------- ------- ------- ---------- ----------
Total fixed maturities
available for sale 1,894,451 68,203 (2,744) 1,959,910 1,959,910
---------- ------- ------- ---------- ----------
Common stocks 24,042 9,438 -- 33,480 33,480
Preferred stocks 68,430 669 (1,028) 68,071 68,071
---------- ------- ------- ---------- ----------
Total equity securities
available for sale 92,472 10,107 (1,028) 101,551 101,551
---------- ------- ------- ---------- ----------
Trading account 155,301 6,723 (949) 161,075 161,075
Invested cash (c) 196,732 -- -- 196,732 196,732
---------- ------- ------- ---------- ----------
Total investments $2,508,034 $92,302 $(4,875) $2,595,461 $2,588,346
========== ======= ======= ========== ==========
</TABLE>
(a) Adjusted as necessary for amortization of premium or discount.
(b) Includes United States government agencies and authorities.
(c) Short-term investments which mature within three months of the
date of purchase.
44
<PAGE> 45
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Investments, continued
<TABLE>
<CAPTION>
December 31, 1994
------------------------------------------------------------
Amount
Gross Gross at which
unrealized unrealized Fair shown in the
Type of Investment Cost (a) gains losses value balance sheet
------------------ -------- ---------- ---------- ----- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Fixed maturity securities held
to maturity
State and municipal $ 175,987 $ 4,948 $ (1,792) $ 179,143 $ 175,987
Corporate 16,840 -- -- 16,840 16,840
---------- ------- -------- ---------- ----------
Total fixed maturities
held to maturity 192,827 4,948 (1,792) 195,983 192,827
---------- ------- -------- ---------- ----------
Fixed maturity securities available for sale:
United States government (b) 422,075 1,135 (14,354) 408,856 408,856
State and municipal 528,228 3,619 (16,225) 515,622 515,622
Corporate 457,760 811 (29,158) 429,413 429,413
---------- ------- -------- ---------- ----------
Total fixed maturities
available for sale 1,408,063 5,565 (59,737) 1,353,891 1,353,891
---------- ------- -------- ---------- ----------
Common stocks 13,717 2,887 (134) 16,470 16,470
Preferred stocks 55,070 26 (2,228) 52,868 52,868
---------- ------- -------- ---------- ----------
Total equity securities
available for sale 68,787 2,913 (2,362) 69,338 69,338
---------- ------- -------- ---------- ----------
Trading account 71,211 1,386 (1,054) 71,543 71,543
Invested cash (c) 214,116 -- -- 214,116 214,116
---------- ------- -------- ---------- ----------
Total investments $1,955,004 $14,812 $(64,945) $1,904,871 $1,901,715
========== ======= ======== ========== ==========
</TABLE>
(a) Adjusted as necessary for amortization of premium or discount.
(b) Includes United States government agencies and authorities.
(c) Short-term investments which mature within three months of the
date of purchase.
45
<PAGE> 46
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Investments, continued
The amortized cost and fair value of fixed maturity securities
at December 31, 1995, by contractual maturity, are shown below. Actual
maturities may differ from contractual maturities because certain
issuers may have the right to call or prepay obligations (dollars in
thousands):
<TABLE>
<CAPTION>
1995
---------------------------
Fair
Cost value
---- -----
<S> <C> <C>
Due in one year or less $ 89,209 $89,167
Due after one year through
five years 371,666 382,596
Due after five years
through ten years 608,955 627,437
Due after ten years 532,672 560,290
---------- ----------
1,602,502 1,659,490
Mortgaged-backed securities 461,027 476,613
---------- ----------
Total $2,063,529 $2,136,103
========== ==========
</TABLE>
Realized gains (losses) and the change in difference between
fair value and cost of investments, before applicable income taxes, are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturity securities sold (a) $ 7,819 $ (6,141) $ 21,014
Equity securities sold (976) 1,632 7,041
Net change in provision for
decline in value (b):
Fixed maturity securities (352) 4,697 (3,177)
Equity securities 4,191 -- 354
Other (325) (358) (1,709)
-------- --------- --------
10,357 (170) 23,523
-------- --------- --------
Change in difference between fair value and cost of
investments (c):
Fixed maturity securities 123,590 (122,136) 13,993
Equity securities 13,970 2,450 (437)
-------- --------- --------
137,560 (119,686) 13,556
-------- --------- --------
Total realized gains (losses) and
change in difference between cost
and fair value of investments $147,917 $(119,856) $ 37,079
======== ========= ========
</TABLE>
(a) During 1995, 1994 and 1993, gross gains of $11,570,000, $5,601,000 and
$22,893,000, respectively, and gross losses of $3,751,000, $8,177,000 and
$1,879,000, respectively, were realized.
(b) The provision for decline in value of investments is $3,333,000,
$7,172,000 and $11,869,000 as of December 31, 1995, 1994 and 1993,
respectively. The reductions resulted from the sale of securities.
(c) Parentheses indicate a net unrealized decline in fair value.
46
<PAGE> 47
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Investments, continued
Investment income consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Investment income earned on:
Fixed maturity securities $115,668 $102,826 $92,254
Invested cash 13,000 5,898 4,389
Equity securities 4,418 3,616 1,377
Trading account (a) 9,030 2,058 --
Other 1,411 1,221 348
-------- -------- -------
Gross investment income 143,527 115,619 98,368
Interest on funds held
under reinsurance treaties (6,195) (5,936) (5,595)
-------- -------- -------
Net investment income $137,332 $109,683 $92,773
======== ======== =======
</TABLE>
(a) The primary focus of the trading account activities is merger
arbitrage. Merger arbitrage is the business of investing in the
securities of publicly held companies which are the targets in
announced tender offers and mergers. Merger arbitrage differs from
other types of investments in its focus on transactions and events
believed likely to bring about a change in value over a relatively
short time period (usually four months or less). The Company believes
that this makes merger arbitrage investments less vulnerable to changes
in general financial market conditions. Potential changes in market
conditions are also mitigated by the implementation of short sales.
Short sales of $60,720,000 and $18,500,000 have been included in other
liabilities as of December 31, 1995 and 1994, respectively. Investment
income earned from trading account activity includes unrealized trading
gains of $352,000 and $1,271,000 for 1995 and 1994, respectively.
(11) Reserves for losses and loss expenses
The table below provides a reconciliation of the beginning and
ending reserve balances, on a gross of reinsurance basis, (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net reserves at beginning of year $ 895,440 $ 783,218 $ 709,665
---------- ---------- ----------
Net reserves of companies acquired 191,963 -- 20,810
Net provision for losses and loss expenses:
Claims occurring during the current year 580,594 493,418 367,106
Decrease in estimates for claims occurring
in prior years (9,596) (7,269) (5,861)
---------- ---------- ----------
570,998 486,149 361,245
---------- ---------- ----------
Net payments for claims
Current year 228,100 187,295 139,292
Prior years 221,051 186,632 169,210
---------- ---------- ----------
449,151 373,927 308,502
---------- ---------- ----------
Net reserves at end of year 1,209,250 895,440 783,218
Ceded reserves at the end of year 450,770 1,175,446 1,233,130
---------- ---------- ----------
Gross reserves at the end of year $1,660,020 $2,070,886 $2,016,348
========== ========== ==========
</TABLE>
Due to the nature of Excess Workers Compensation ("EWC")
business and the long period of time over which losses are paid in this
line of business, the Company discounts the liability for losses and
loss expenses established for the excess workers' compensation line of
business. Discounting liabilities for losses and loss expenses gives
recognition to the time value of money set aside to pay claims in the
future and is intended to appropriately match losses and loss expense
to income earned
47
<PAGE> 48
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(11) Reserves for losses and loss expenses, continued
on investment securities supporting the liabilities. The expected
losses and loss expense payout pattern subject to discounting was
derived from Midwest's loss payout experience and is supplemented with
data compiled from insurance companies writing workers' compensation on
an excess-of-loss basis. The expected payout pattern has a very long
duration because it reflects the nature of losses which generally
penetrate self-insured retention limits contained in excess workers'
compensation policies. The Company has limited the payout duration to
30 years in order to introduce an additional level of conservatism into
the discounting process. The liabilities for losses and loss expenses
have been discounted using "risk-free" discount rates determined by
reference to the U.S. Treasury yield curve weighted for the EWC premium
volume to reflect the seasonality of the anticipated duration of losses
associated with such coverages. The average discount rate for accident
years 1995 and prior is 5.80%. The aggregate net discount, after
reflecting the effects of ceded reinsurance, is $152,235,000 at
December 31, 1995. For Statutory purposes, Midwest uses a discount rate
of 3.0% as permitted by the Department of Insurance of the State of
Ohio.
To date, known pollution and environmental claims at the
insurance company subsidiaries have not had a material impact on the
Company's operations. Environmental claims have not materially impacted
the Company because our subsidiaries generally did not insure the
larger industrial companies which are subject to significant
environmental exposures.
The Company's net reserves for losses and loss adjustment
expenses relating to pollution and environmental claims were $30.8
million and $22.8 million at December 31, 1995 and 1994, respectively.
The Company's gross reserves for losses and loss adjustment expenses
relating to pollution and environmental claims were $59.4 million and
$50.6 million at December 31, 1995 and 1994, respectively. Net incurred
losses and loss expenses for reported pollution and environmental
claims were approximately $8.0 million, $5.6 million and $3.5 million
in 1995, 1994 and 1993, respectively. Net paid losses and loss expenses
has averaged approximately $3 million for each of the last three years.
The estimation of these liabilities is subject to significantly greater
than normal variation and uncertainty because it is difficult to make a
reasonable actuarial estimate of these liabilities due to the absence
of a generally accepted actuarial methodology for these exposures and
the potential affect of significant unresolved legal matters, including
coverage issues as well as the cost of litigating the legal issues.
Additionally, the determination of ultimate damages and the final
allocation of such damages to financially responsible parties is highly
uncertain.
(12) Reinsurance Ceded
The Company follows the customary industry practice of
reinsuring a portion of its exposures principally to reduce net
liability on individual risks and to protect against catastrophic
losses. The following amounts arising under reinsurance ceded contracts
have been deducted in arriving at the amounts reflected in the
statement of operations (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums written $212,169 $210,237 $173,470
======== ======== ========
Premiums earned $207,375 $195,313 $162,320
======== ======== ========
Losses and loss expenses $134,120 $149,415 $143,376
======== ======== ========
</TABLE>
48
<PAGE> 49
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Dividends From Subsidiaries and Statutory Financial Information
The Company's insurance subsidiaries are restricted by law as
to the amount of dividends they may pay without the approval of
regulatory authorities. During 1996, the maximum amount of dividends
which can be paid without such approval is approximately $93,361,000.
Combined net income and policyholders' surplus of the
Company's consolidated insurance subsidiaries, as determined in
accordance with statutory accounting practices, are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net income $ 75,587 $ 40,411 $ 58,870
======== ======== ========
Policyholders' surplus $839,890 $669,552 $661,822
======== ======== ========
</TABLE>
The National Association of Insurance Commissioners ("NAIC")
has adopted risk based capital ("RBC") requirements that require
insurance companies to calculate and report information under a
risk-based formula which measures statutory capital and surplus needs
based on a regulatory definition of risk in a company's mix of products
and its balance sheet. The implementation of RBC did not effect the
operations of the Company's insurance subsidiaries since all of its
subsidiaries have an RBC amount above the authorized control level RBC,
as defined by the NAIC.
(14) Supplemental Financial Statement Data
Other operating costs and expenses consist of the following
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Amortization of deferred
policy acquisition costs $228,610 $187,468 $141,880
Other operating costs and
expenses of insurance operations 38,773 35,900 29,333
Other costs and expenses 72,606 62,898 54,209
-------- -------- --------
Total $339,989 $286,266 $225,422
======== ======== ========
</TABLE>
(15) Industry Segments
The Company's operations are presently conducted through four
basic segments: regional property casualty insurance; reinsurance;
specialty lines of insurance; and alternative markets operations. The
Company established an international segment in 1995; the results of
this segment have been included as part of the regional segment, due to
immateriality. Summary financial information about the Company's
operating segments is presented in the following table. Income before
income taxes by segment consists of revenues less expenses related to
the respective segment's operations. These amounts include realized
gains (losses) where applicable. Intersegment revenues consist
primarily of dividends, interest on intercompany debt and fees paid by
subsidiaries for portfolio management and other services to the
Company. Identifiable assets by segment are those assets used in the
operation of each segment.
49
<PAGE> 50
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(15) Industry Segments, continued
<TABLE>
<CAPTION>
Industry Segments
-------------------------------------------------------------------------
Adjust-
Regional Specialty Alternative Corporate ments and
Insurance Insurance Markets and elimina- Consoli-
Operations Reinsurance Operations Operations other tions dated
---------- ----------- ---------- ---------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995:
Revenues:
Unaffiliated customers $ 485,981 $ 212,876 $ 209,153 $103,656 $ 10,277 $ -- $1,021,943
Intersegment revenues (121) -- 158 -- 53,694 (53,731) --
---------- ---------- ---------- -------- -------- -------- ----------
Total revenues $ 485,860 $ 212,876 $ 209,311 $103,656 $ 63,971 $(53,731) $1,021,943
========== ========== ========== ======== ======== ======== ==========
Income (loss) before
income taxes $ 40,227 $ 11,205 $ 43,781 $ 10,254 $ 16,414 $(39,134) $ 82,747
========== ========== ========== ======== ======== ======== ==========
Identifiable assets $1,051,835 $ 560,817 $1,278,883 $579,964 $147,185 $ -- $3,618,684
========== ========== ========== ======== ======== ======== ==========
December 31, 1994:
Revenues:
Unaffiliated customers $ 376,478 $ 187,304 $ 184,911 $ 75,798 $ 6,299 $ -- $ 830,790
Intersegment revenues 98 -- (12) -- 29,960 (30,046) --
---------- ---------- ---------- -------- -------- -------- ----------
Total revenues $ 376,576 $ 187,304 $ 184,899 $ 75,798 $ 36,259 $(30,046) $ 830,790
========== ========== ========== ======== ======== ======== ==========
Income (loss) before
income taxes $ 26,669 $ (14,977) $ 37,452 $ 7,068 $ (5,068) $(20,370) $ 30,774
========== ========== ========== ======== ======== ======== ==========
Identifiable assets $ 809,853 $1,242,202 $1,223,179 $ 87,023 $220,034 $ -- $3,582,291
========== ========== ========== ======== ======== ======== ==========
December 31, 1993:
Revenues:
Unaffiliated customers $ 316,671 $ 86,962 $ 211,530 $ 53,531 $ 4,612 $ -- $ 673,306
Intersegment revenues (223) -- (401) -- 21,354 (20,730) --
---------- ---------- ---------- -------- -------- -------- ----------
Total revenues $ 316,448 $ 86,962 $ 211,129 $ 53,531 $ 25,966 $(20,730) $ 673,306
========== ========== ========== ======== ======== ======== ==========
Income (loss) before
income taxes $ 29,993 $ 194 $ 52,651 $ 8,058 $(13,902) $(15,630) $ 61,364
========== ========== ========== ======== ======== ======== ==========
Identifiable assets $ 704,169 $1,156,372 $1,221,571 $ 77,309 $178,284 $ -- $3,337,705
========== ========== ========== ======== ======== ======== ==========
</TABLE>
50
<PAGE> 51
W. R. BERKLEY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(16) Fair value of Financial Instruments
The following table presents the carrying amounts and
estimated fair values of the Company's financial instruments as of
December 31, 1995 and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount value Amount value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Investments $2,588,346 $2,595,461 $1,901,715 $1,904,871
Long-term debt 290,981 343,244 290,798 296,762
Notes payable to Banks 28,306 28,306 40,204 40,204
</TABLE>
The estimated fair value of investments is based on quoted
market prices as of the respective reporting dates. The fair value of
the long-term debt is based on rates available for borrowings similar
to the Company's outstanding debt as of the respective reporting dates.
(17) Quarterly Financial Information (unaudited)
The following is a summary of quarterly financial data:
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------
March 31, June 30,
---------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues $228,932 $186,326 $247,442 $215,208
======== ======== ======== ========
Net income before preferred
dividends $ 13,573 $ 6,260 $ 15,369 $ 11,114
======== ======== ======== ========
Net income attributable to
common stockholders $ 10,807 $ 4,201 $ 12,604 $ 8,349
======== ======== ======== ========
Net income per share $ .65 $ .24 $ .76 $ .48
======== ======== ======== ========
<CAPTION>
September 30, December 31,
---------------------------- ----------------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $260,893 $210,199 $284,676 $219,057
======== ======== ======== ========
Net income before preferred
dividends $ 14,794 $ 6,136 $ 17,146 $ 11,584
======== ======== ======== ========
Net income attributable to
common stockholders $ 12,028 $ 3,370 $ 14,381 $ 8,818
======== ======== ======== ========
Net income per share $ .72 $ .19 $ .73 $ .53
======== ======== ======== ========
</TABLE>
(18) Subsequent Events
On January 19, 1996 the Company issued $100 million of 6.25% ten-year
notes which are not redeemable until maturity and subsequently retired $28.4
million of outstanding bank debt
51
<PAGE> 52
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is provided as to the Directors and executive
officers of the Company as of March 4, 1996:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William R. Berkley 50 Chairman of the Board and Chief Executive Officer
John D. Vollaro 51 President, Chief Operating Officer and a Director
Sam Daniel, Jr. 57 Senior Vice President, Regional Operations
Anthony J. Del Tufo 51 Senior Vice President, Chief Financial Officer and Treasurer
Robert S. Gorin 60 Senior Vice President, General Counsel and Secretary
E. LeRoy Heer 57 Senior Vice President, Chief Corporate Actuary
Edward A. Thomas 47 Senior Vice President, Specialty Operations
Ira S. Lederman 42 Vice President - Assistant General Counsel and Assistant
Secretary
James G. Shiel 36 Vice President - Investments
Scott M. Cunningham 61 Director
Robert B. Hodes 70 Director
Henry Kaufman 68 Director
Richard G. Merrill 65 Director
Jack H. Nusbaum 55 Director
Mark L. Shapiro 51 Director
Martin Stone 67 Director
</TABLE>
As permitted by Delaware law, the Board of Directors of the Company is
divided into three classes, the classes being divided as equally as possible and
each class having a term of three years. Directors generally serve until their
respective successors are elected at the annual meeting of stockholders which
ends their term. None of the Company's Directors has any family relationship
with any other Director or executive officer. Each year the term of office of
one class expires. In May 1995, the term of a class consisting of three
Directors expired. Henry Kaufman and Martin Stone were elected as Directors to
hold office for a term of three years until the Annual Meeting of Stockholders
in 1998 and until their successors are duly chosen. At a meeting of the Board of
Directors held on September 13, 1995 John D. Vollaro was elected a Director to
the class of Directors which expires at the Annual Meeting of Stockholders in
1998. Officers of the Company are elected annually and serve at the pleasure of
the Board of Directors.
William R. Berkley has been Chairman of the Board and Chief Executive
Officer of the Company since its formation in 1967. He also served as President
at various times from 1967 to 1995. He also serves as Chairman of the Board or
Director of a number of public and private companies. These include Signet Star
Holdings, Inc., a reinsurance holding company owned by the Company; Pioneer
Companies, Inc., a chemical manufacturing and marketing company; Strategic
Distribution, Inc., an industrial products distribution and services company,
and Interlaken Capital, Inc., a private investment firm with interests in
various businesses. His current term as a Director expires in 1997.
John D. Vollaro was elected President and Chief Operating Officer of
the Company effective January 2, 1996 and Director effective September 13, 1995.
He has been Chief Executive Officer of Signet Star Holdings, Inc., an affiliate
of the Company, since July 1993 and President and a Director of Signet Star
Holdings, Inc. since February 1993. He served as Executive Vice President of the
Company from 1991 until 1993 and was, Chief Financial Officer and Treasurer of
the Company from 1983 through 1993; and Senior Vice President, Chief Financial
Officer and Treasurer of the Company from 1983 to 1991. Mr. Vollaro's current
term as a Director expires in 1998.
52
<PAGE> 53
Sam Daniel, Jr. has been Senior Vice President - Regional Operations
since April 1990. Prior thereto, he was employed by Hanover Insurance Company
for more than five years as Vice President.
Anthony J. Del Tufo has been Senior Vice President, Chief Financial
Officer and Treasurer of the Company since September 1993. Before joining the
Company Mr. Del Tufo was a partner with KPMG Peat Marwick from 1975 to 1993.
Robert S. Gorin has been Senior Vice President, General Counsel and
Secretary since July 1989. Prior to joining the Company, Mr. Gorin was Assistant
Secretary and Assistant General Counsel of J.C. Penney Co., Inc., where he had
been employed since 1971.
E. LeRoy Heer has been Senior Vice President - Chief Corporate Actuary
since January 1991. Prior thereto, he had been Vice President - Corporate
Actuary since May 1978.
Edward A. Thomas has been Senior Vice President - Specialty Operations
of the Company since April 1991. Prior thereto, he was President of Signet
Reinsurance Company, a subsidiary of the Company, for more than five years.
Ira S. Lederman has been Vice President and Assistant Secretary since
May 1986. He has also been Assistant General Counsel since July 1989. Prior
thereto he was Insurance Counsel of the Company since May 1986 and Associate
Counsel from April 1983.
James G. Shiel has been Vice President - Investments of the Company
since January 1992. Since February 1994, he has been President of Berkley Dean &
Company, Inc., a subsidiary of the Company, which he joined in 1987.
Scott M. Cunningham has been a Director of the Company since 1986. Mr.
Cunningham is a Managing Director of Interlaken Capital, Inc., which he joined
in January 1987. Mr. Cunningham's current term as a director expires in 1997.
Robert B. Hodes has been a Director of the Company since 1970. Mr.
Hodes is Counsel to the New York law firm of Willkie Farr & Gallagher. He is a
director of Aerointernational, Crystal Oil Company; Global Telecommunications,
Limited.; Loral Corporation; Loral Space & Communications Ltd.; Mueller
Industries, Inc.; R.V.I. Guaranty, Ltd.; LCH Investments N.V. and Restructured
Capital Holdings, Ltd. Mr. Hodes' current term as a Director expires in 1997.
Henry Kaufman has been a Director of the Company since 1994. Dr.
Kaufman is President of Henry Kaufman & Co., Inc., an investment management and
economic and financial consulting company since its establishment in 1988. Dr.
Kaufman serves as Chairman of the Board of Overseers, Stern Schools of Business
of NYU; Member of the Board of Directors, Federal Home Loan Mortgage Corp.;
Member of the Board of Directors, Lehman Brothers Holdings Inc.; Member of the
Board of Trustees, New York University; and Member of the International Capital
Markets Advisory Committee of the Federal Reserve Bank of New York. Dr.
Kaufman's current term as a Director expires in 1998.
Richard G. Merrill has been a Director of the Company since 1994. Mr.
Merrill was Executive Vice President of Prudential Insurance Company of America
from August 1987 to March 1991 when he retired. Prior thereto, Mr. Merrill
served as Chairman and President of Prudential Asset Management Company since
1985. Mr. Merrill is a Director of Sysco Corp. Mr. Merrill's current term as a
Director expires in 1996.
53
<PAGE> 54
Jack H. Nusbaum has been a Director of the Company since 1967. Mr.
Nusbaum is the Chairman in the New York law firm of Willkie Farr & Gallagher
where he has been a partner for more than the last five years. He is a director
of Pioneer Companies, Inc.; Prime Hospitality Corp. and The Topps Company, Inc.
Mr. Nusbaum's current term as a Director expires in 1996.
Mark L. Shapiro has been a Director of the Company since 1974. Mr.
Shapiro is a Managing Director in the investment banking firm of Schroder
Wertheim & Co. Incorporated for more than the past five years. Mr. Shapiro's
current term as a Director expires in 1996.
Martin Stone has been a Director of Berkley since 1990. Mr. Stone is
Chairman of Professional Sports, Inc. (the Phoenix Firebirds AAA baseball team)
and Chairman of Adirondack Corporation, for more than five years. Mr. Stone is
also a director of Canyon Ranch, Inc. and a member of the Advisory Board of
Yosemite National Park. Mr. Stone's current term as a Director expires in 1998.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1995, and which is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1995, and which is incorporated herein by reference.
(b) Security ownership of management
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1995, and which is incorporated herein by reference.
(c) Changes in control
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1995, and which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the registrant's definitive proxy statement, which
will be filed with the Securities and Exchange Commission within 120 days after
December 31, 1995, and which is incorporated herein by reference.
54
<PAGE> 55
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Index to Financial Statements
The financial statements filed as part of this report are listed on the
Index to Financial Statements on page 30 hereof.
<TABLE>
<CAPTION>
Index to Financial Statement Schedules Page
- -------------------------------------- ----
<S> <C>
Independent Auditors' Report on Schedules and Consent 60
Schedule II - Condensed Financial Information of Registrant 61
Schedule III - Supplementary Insurance Information 65
Schedule IV - Reinsurance 66
Schedule VI - Supplementary Information concerning
Property & Casualty Insurance Operations 67
</TABLE>
(b) Reports on Form 8-K
On November 8, 1995 the Company filed a current report on Form 8-K
announcing that it had completed its acquisition of MECC, Inc.
On December 28, 1995 the Company filed a current report on Form 8-k
announcing that it had completed its acquisition of the remaining 40%
interest in Signet Star Holdings, Inc. from General Re Corporation.
(c) Exhibits
The exhibits filed as part of this report are listed on pages 58 and 59
hereof.
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
W. R. BERKLEY CORPORATION
By WILLIAM R. BERKLEY
-------------------------------------------------
William R. Berkley, Chairman of the Board and
Chief Executive Officer
March 7, 1996
56
<PAGE> 57
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
WILLIAM R. BERKLEY Chairman of the Board and
- ----------------------------------------- Chief Executive Officer March 7, 1996
William R. Berkley
Principal executive officer
SCOTT M. CUNNINGHAM Director March 7, 1996
- -----------------------------------------
Scott M. Cunningham
ROBERT B. HODES Director March 7, 1996
- -----------------------------------------
Robert B. Hodes
HENRY KAUFMAN Director March 7, 1996
- -----------------------------------------
Henry Kaufman
RICHARD G. MERRILL Director March 7, 1996
- -----------------------------------------
Richard G. Merrill
JACK H. NUSBAUM Director March 7, 1996
- -----------------------------------------
Jack H. Nusbaum
MARK L. SHAPIRO Director March 7, 1996
- -----------------------------------------
Mark L. Shapiro
MARTIN STONE Director March 7, 1996
- -----------------------------------------
Martin Stone
ANTHONY J. DEL TUFO Senior Vice President, March 7, 1996
- ----------------------------------------- Chief Financial Officer and
Anthony J. Del Tufo Treasurer
Principal financial officer
JOHN D. VOLLARO President, Chief Operating March 7, 1996
- ----------------------------------------- Officer and a Director
John D. Vollaro
</TABLE>
57
<PAGE> 58
ITEM 14. (c) EXHIBITS
Number
(2.1) Agreement and Plan of Merger between the Company, Berkley Newco Corp.
and MECC, Inc. (incorporated by reference to Exhibit 2.1 of the
current reports on Form 8-K (file No. 0-7849) filed with the
Commission September 28, 1995).
(2.2) Agreement and Plan of Restructuring, dated July 20, 1995, by and
among the Company, Signet Star Holdings, Inc., Signet Star
Reinsurance Company, Signet Reinsurance Company and General Re
Corporation (incorporated by reference to Exhibit 2.2 of the
Company's current Report on Form 8-K (file No. 0-7849) filed with the
Commission on September 28, 1995).
(3.1) Restated Certificate of Incorporation, as amended
(3.2) By-laws
(4) The instruments defining the rights of holders of the long-term debt
securities of the Company are omitted pursuant to Section
(b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company agrees to
furnish supplementally copies of these instruments to the Commission
upon request.
(10.1) The Company's 1982 Stock Option Plan, (incorporated by reference to
Exhibit 10.1 of the Company's Registration Statement on Form S-1
(File No. 2-98396) filed with the Commission on June 14, 1985).
(10.2) The Company's 1992 Stock Option Plan, (incorporated by reference to
Exhibit 28.1 of the Company's Registration Statement on Form S-8
(File No. 33-55726) filed with the Commission on December 15, 1992).
(10.2a) Signet Star Holdings, Inc. 1993 Stock Option Plan, (incorporated by
reference to Exhibit 10.14 of Signet Star Holdings, Inc. Registration
Statement on Form S-1 (File No. 33-69964) filed with the Commission
on October 4, 1993).
(10.3) The Company's lease dated June 3, 1983 with the Ahneman, Devaul and
Devaul Partnership, incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement on Form S-1 (File No. 2-98396) filed
with the Commission on June 14, 1985.
(10.4) W.R. Berkley Corporation Deferred Compensation Plan for officers as
amended January 1, 1991.
(10.5) W. R. Berkley Corporation Deferred Compensation Plan for Directors as
adopted March 7, 1996.
(10.6) Sale Agreement by and between the Company and Lembo-Feinerman Fleming
Morell Trust for the acquisition of real property.
(23) See Independent Auditors' report on schedules and consent.
58
<PAGE> 59
(21) Following is a list of the Company's significant subsidiaries.
Subsidiaries of subsidiaries are indented and the parent of each such
corporation owns 100% of the outstanding voting securities of such
corporation except as noted below.
<TABLE>
<CAPTION>
Jurisdiction Percentage
of owned by
incorporation Company
------------- ----------
<S> <C> <C>
Acadia Insurance Company: Maine 100%
Acadia Compensation Insurance
Company Maine 100%
All American Agency Facilities, Inc. Delaware 100%
Berkley International, LLC New York 65%
Berkley Insurance Company of the Carolinas North Carolina 100%
Berkley Risk Services, Inc. Minnesota 100%
Carolina Casualty Insurance Company Florida 100%
Continental Western Insurance Company: Iowa 100%
Continental Western Casualty Company Iowa 100%
Firemen's Insurance Company of Maryland 100%
Washington, D.C.:
FICO Insurance Company Maryland 100%
Great River Insurance Company Mississippi 100%
J/I Holding Corporation: Delaware 100%
Admiral Insurance Company: Delaware 100%
Nautilus Insurance Company: Arizona 100%
Great Divide Insurance Company North Dakota 100%
Key Risk Services, Inc. North Carolina 100%
MECC, Inc.: Delaware 100%
Midwest Employers Casualty Company Ohio 100%
Monitor Liability Managers, Inc. Delaware 100%
Monitor Surety Managers, Inc. Delaware 100%
Queen's Island Insurance Company, Ltd. Bermuda 100%
Rasmussen Agency, Inc. New Jersey 100%
Signet Star Holdings, Inc.: Delaware 100%
Signet Star Reinsurance Company Delaware 100%
Facultative ReSources, Inc. Connecticut 100%
Tri-State Insurance Company of Minnesota: Minnesota 100%
American West Insurance Company North Dakota 100%
Union Insurance Company Nebraska 100%
Union Standard Insurance Company Oklahoma 100%
</TABLE>
(28) Information from reports furnished to state insurance regulatory
authorities.
This exhibit which will be filed supplementally includes the Company's
combined Schedule P as prepared for its 1995 combined Annual Statement
which will be provided to state regulatory authorities. The schedule
has been prepared on a statutory basis. The combined schedule includes
the historical results of the Company's insurance subsidiaries as if
they had been owned from their inception date. It should be noted that
the combined schedule includes data of seventeen operating companies
and, as a result, any statistical extrapolation from the schedule may
not be meaningful.
(The combined Schedule P as filed with the Securities and Exchange
Commission, has been omitted from this copy. It is available upon
request from Mr. Anthony J. Del Tufo, Senior Vice President, Chief
Financial Officer and Treasurer of the Company, at the address shown on
page 1.)
59
<PAGE> 60
INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT
Board of Directors and Stockholders
W. R. Berkley Corporation
The audit referred to in our report dated February 22, 1996 included the related
financial statement schedules as of December 31, 1995 and 1994 and for each of
the years in the three-year period ended December 31, 1995 included in the Form
10-K. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits. In our opinion, such
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in note 1 to the consolidated financial statements, W. R. Berkley
Corporation adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" on December 31, 1993.
We consent to the use of our reports incorporated by reference in the
Registration Statements (No. 2-98396) on Form S-1 and (No. 33-55726) on Form S-8
and (No. 33-30684) and (No. 33-95552) and (No. 333-00459) on Forms S-3 and (No.
33-88640) on Form S-8 of W. R. Berkley Corporation.
KPMG Peat Marwick LLP
New York, New York
March 22, 1996
60
<PAGE> 61
Schedule II
W. R. Berkley Corporation
Condensed Financial Information of Registrant
Balance Sheets (Parent Company)
(Amounts in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1994
---------- --------
<S> <C> <C>
Assets
Cash (including invested cash) $ 10,669 $ 72,089
Fixed maturity securities:
Held to maturity, at cost
(fair value $10,176 and $10,684) 10,176 10,684
Available for sale at fair value (cost $5,807 and $40,785) 5,807 39,301
Equity securities, at fair value:
Available for sale (cost $1,733 and $22) 2,146 22
Trading account (cost $ 35,053 and $8,988) 35,053 8,988
Investments in subsidiaries 1,136,518 714,523
Due from subsidiaries 42,703 17,542
Current Federal income taxes receivable 35 931
Deferred Federal income taxes -- 31,988
Other assets 4,774 6,024
---------- --------
$1,247,881 $902,092
========== ========
Liabilities, Debt and Stockholders' Equity
Liabilities:
Due to subsidiaries (principally
deferred income taxes) $ 32,590 $ 36,426
Deferred Federal income taxes 14,363 --
Other liabilities 15,925 13,059
---------- --------
62,878 49,485
---------- --------
Long-term debt 255,188 255,006
Stockholders' equity:
Preferred stock 146 100
Common stock 4,854 4,165
Additional paid-in capital 547,068 336,659
Retained earnings (including accumulated
undistributed net income of
subsidiaries of $374,027 and $341,157
in 1995 and 1994, respectively) 424,261 382,859
Equity in net unrealized investment gains
(losses), net of taxes 48,450 (33,973)
Treasury stock, at cost (94,964) (92,209)
---------- --------
929,815 597,601
---------- --------
$1,247,881 $902,092
========== ========
</TABLE>
See note to condensed financial statements.
61
<PAGE> 62
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
Statements of Operations (Parent Company)
(Amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Management fees and investment income
from affiliates, including dividends of
$38,091, $19,520 and $15,020 for 1995,
1994 and 1993, respectively $ 50,839 $ 28,328 $ 22,873
Realized investment losses (306) (1,700) (376)
Other income 5,615 6,190 4,359
-------- -------- --------
Total revenues 56,148 32,818 26,856
Expenses, other than interest expense (12,256) (10,772) (13,637)
Interest expense (22,907) (22,892) (22,300)
-------- -------- --------
Income (loss) before Federal
income taxes 20,985 (846) (9,081)
-------- -------- --------
Federal income taxes:
Federal income taxes provided by
subsidiaries on a separate return
basis 22,481 13,513 23,215
Federal income tax provision on a
consolidated return basis (15,454) (5,370) (9,590)
-------- -------- --------
Net benefit 7,027 8,143 13,625
-------- -------- --------
Income before undistributed equity
in net income of subsidiaries 28,012 7,297 4,544
Equity in undistributed net income
of subsidiaries 32,870 27,797 47,043
-------- -------- --------
Income before preferred dividends 60,882 35,094 51,587
Preferred dividends (11,062) (10,356) --
-------- -------- --------
Net income attributable to
common stockholders $ 49,820 $ 24,738 $ 51,587
======== ======== ========
</TABLE>
See note to condensed financial statements.
62
<PAGE> 63
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
Statement of Cash Flows (Parent Company)
(Amounts in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before preferred dividends $ 60,882 $ 35,094 $ 51,587
Adjustments to reconcile net income to net
cash flows provided by used in
operating activities:
Equity in undistributed net
income of subsidiaries (32,870) (27,797) (47,043)
Tax payments from subsidiaries 17,104 14,614 15,883
Federal income taxes provided by subsidiaries (22,481) (13,513) (23,215)
Change in Federal income taxes 3,654 (2,765) 705
Realized investment losses 306 1,700 376
Other, net 4,087 (404) 9,832
--------- --------- --------
Net cash provided by operating activities
before trading account sales (purchases) 30,682 6,929 8,125
Trading account sales (purchases), net (26,065) -- 8,208
--------- --------- --------
Net cash provided by (used in)
operating activities 4,617 6,929 16,333
--------- --------- --------
Cash flow used in investing activities:
Proceeds from sales, excluding trading account:
Fixed maturity securities available for sale 23,158 77,613 81,022
Equity securities 1 832 --
Proceeds from maturities and prepayments of
fixed maturity securities 15,206 521 114
Cost of purchases, excluding trading account:
Fixed maturity securities (3,452) (106,600) (52,979)
Equity securities (1,733) (425) --
Cost of companies acquired (217,096) -- --
Investments in and advances to
subsidiaries, net (70,972) (31,242) (57,424)
Other, net (328) (596) (661)
--------- --------- --------
Net cash used in investing activities (255,216) (59,897) (29,928)
--------- --------- --------
Cash flows from financing activities:
Net proceeds from issuance of common stock 144,739 -- --
Net proceeds from issuance of preferred stock 66,000 145,275 --
Net proceeds from issuance of
long-term debt -- 49,694
Purchase of treasury shares (4,095) (26,357) (25,688)
Cash dividends to common stockholders (7,844) (7,459) (7,035)
Cash dividends to preferred shareholders (11,062) (8,051) --
Payment of subsidiary debt -- (4,527) --
Other, net 1,441 156 1,588
--------- --------- --------
Net cash provided by financing activities 189,179 99,037 18,559
--------- --------- --------
Net increase in cash and invested cash (61,420) 46,069 4,964
Cash and invested cash at beginning of year 72,089 26,020 21,056
--------- --------- --------
Cash and invested cash at end of year $ 10,669 $ 72,089 $ 26,020
========= ========= ========
</TABLE>
See note to condensed financial statements.
63
<PAGE> 64
Schedule II, Continued
W. R. Berkley Corporation
Condensed Financial Information of Registrant, Continued
December 31, 1995, 1994 and 1993
Note to Condensed Financial Statements (Parent Company)
The accompanying condensed financial statements should be read in
conjunction with the notes to consolidated financial statements included
elsewhere herein. Reclassifications have been made in the 1994 and 1993
financial statements as originally reported to conform them to the presentation
of the 1995 financial statements.
The Company and its 80% or more owned subsidiaries file a consolidated
federal tax return with the results of its domestic insurance subsidiaries
included on a statutory basis. Under present Company policy, Federal income
taxes payable by (or refundable to) subsidiary companies on a separate-return
basis are paid to (or refunded by) W. R. Berkley Corporation, and the Company
pays the tax due on a consolidated return basis.
64
<PAGE> 65
Schedule III
W. R. Berkley Corporation and Subsidiaries
Supplementary Insurance Information
December 31, 1995, 1994 and 1993
(Amounts in thousands)
<TABLE>
<CAPTION>
Regional Specialty Alternative Corporate and
Insurance Reinsurance Insurance Markets adjustments Total
--------- ----------- --------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1995:
Deferred policy acquisition costs $ 60,680 $ 8,388 $ 15,265 $ 5,184 $ -- $ 89,517
Reserves for losses and loss 357,265 234,811 805,072 262,872 -- 1,660,020
expenses
Unearned premiums 256,343 55,539 109,089 29,551 -- 450,522
Premiums earned 441,182 185,244 145,322 31,588 -- 803,336
Net investment income 41,204 26,186 54,118 6,978 8,846 137,332
Losses and loss expenses 288,597 145,094 116,211 21,096 -- 570,998
Amortization of deferred policy
acquisition costs 134,884 48,239 39,105 6,382 -- 228,610
Other operating costs and expenses 22,152 3,036 10,214 70,373 5,604 111,379
Net premiums written 477,588 195,988 160,847 25,998 -- 860,421
December 31, 1994:
Deferred policy acquisition costs $ 48,709 $ 10,482 $ 11,138 $ 1,697 $ -- $ 72,026
Reserves for losses and loss 285,024 962,663 810,526 12,267 406 2,070,886
expenses
Unearned premiums 205,130 43,725 94,963 6,445 -- 350,263
Premiums earned 343,123 168,239 128,939 14,737 -- 655,038
Net investment income 32,897 19,034 49,949 1,795 6,008 109,683
Losses and loss expenses 225,650 147,894 101,921 10,684 -- 486,149
Amortization of deferred policy
acquisition costs 105,539 43,698 36,534 1,697 -- 187,468
Other operating costs and expenses 18,519 7,845 8,992 58,370 5,072 98,798
Net premiums written 386,530 176,699 134,715 19,989 -- 717,933
December 31, 1993:
Deferred policy acquisition costs $ 37,920 $ 9,072 $ 10,853 $ 240 $ -- $ 58,085
Reserves for losses and loss 250,860 972,142 789,850 3,090 406 2,016,348
expenses
Unearned premiums 157,687 33,752 82,401 1,192 -- 275,032
Premiums earned 279,102 77,148 141,192 3,991 -- 501,433
Net investment income 30,170 8,022 49,919 715 3,947 92,773
Losses and loss expenses 189,520 57,145 111,686 2,894 -- 361,245
Amortization of deferred policy
acquisition costs 81,479 22,021 37,661 719 -- 141,880
Other operating costs and expenses 15,456 4,626 9,131 41,861 12,468 83,542
Net premiums written 301,890 84,726 146,101 4,929 -- 537,646
</TABLE>
(1) Net investment income and other operating expenses, as presented above,
are based on actual amounts recorded by each operating unit.
65
<PAGE> 66
Schedule IV
W. R. Berkley Corporation and Subsidiaries
Reinsurance
Years ended December 31, 1995, 1994 and 1993
(Amounts in thousands)
<TABLE>
<CAPTION>
Assumed Percentage
Ceded from of amount
Direct to other other Net assumed to
Amount Companies Companies Amount net
------ --------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
Premiums written:
Year ended December 31, 1995:
Regional insurance $536,424 $ 74,052 $ 15,216 $477,588 3.2%
Reinsurance -- 12,464 208,452 195,988 106.4%
Specialty insurance 277,752 123,585 6,680 160,847 4.2%
Alternative Markets 4,980 2,068 23,086 25,998 88.8%
-------- -------- -------- --------
Total $819,156 $212,169 $253,434 $860,421 29.5%
======== ======== ======== ========
Year ended December 31, 1994:
Regional insurance $431,103 $ 53,458 $ 8,885 $386,530 2.3%
Reinsurance -- 17,834 194,533 176,699 110.1%
Specialty insurance 264,747 138,759 8,727 134,715 6.5%
Alternative Markets -- 186 20,175 19,989 100.9%
-------- -------- -------- --------
Total $695,850 $210,237 $232,320 $717,933 32.4%
======== ======== ======== ========
Year ended December 31, 1993:
Regional insurance $333,972 $ 38,886 $ 6,804 $301,890 2.3%
Reinsurance -- 9,547 94,273 84,726 111.3%
Specialty insurance 235,974 124,987 35,114 146,101 24.0%
Alternative Markets -- 50 4,979 4,929 101.0%
-------- -------- -------- --------
Total $569,946 $173,470 $141,170 $537,646 26.3%
======== ======== ======== ========
</TABLE>
66
<PAGE> 67
Schedule VI
W. R. Berkley Corporation and Subsidiaries
Supplementary Information Concerning Property-Casualty Insurance Operations
December 31, 1995, 1994 and 1993
(Amounts in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deferred policy acquisition costs $ 89,517 $ 72,026 $ 58,085
Reserves for losses and loss expenses 1,660,020 2,070,886 2,016,348
Unearned premium 450,522 350,263 275,032
Premiums earned 803,336 655,038 501,433
Net investment income 137,332 109,683 92,773
Losses and loss expenses incurred:
Current Year 580,594 493,418 367,106
Prior Years (9,596) (7,269) (5,861)
Amortization of deferred policy
acquisition costs 228,610 187,468 141,880
Paid losses and loss expenses 449,151 373,927 308,502
Net premiums written 860,421 717,933 537,646
</TABLE>
67
<PAGE> 1
EXHIBIT 10.4
<PAGE> 2
W. R. BERKLEY CORPORATION
DEFERRED COMPENSATION PLAN FOR OFFICERS
AS AMENDED JANUARY 1, 1991
Section 1. Effective Date
The effective date of this Plan is September 1, 1986. The Plan was subsequently
amended on January 1, 1989 and January 1, 1991.
Section 2. Eligibility
Any officer of W. R. Berkley Corporation (the "Company"), or any President or
Executive Vice President of any subsidiary or any officer of any subsidiary
whose base salary is greater than or equal to $65,000, is eligible to
participate in the Plan.
Section 3. Amount of Deferral
Prior to the beginning of each calendar year, a Participant may elect to defer
receipt of:
(a) all or a portion of the Bonus Pay Compensation payable to the Participant
for that year;
and/or
(b) all or a portion of the Base Salary of the Participant for that year;
and/or
(c) all or part of the Profit Sharing Excess Contributions (as defined below).
For the purposes hereof, a Participant's "Profit Sharing Excess
Contributions" for any year means the excess of (a) the contributions that
would be made by the Company to the W. R. Berkley Corporation Profit Sharing
Plan (the "Profit Plan") on behalf of the Participant for such year
(exclusive of any pre-tax (401(k)) contributions), without taking into
account the Profit Plan's limitations on a participant's earnings and
maximum annual additions under Sections 401(a) (17) and 415 of the Internal
Revenue Code, over (b) the actual amount of Company contributions (exclusive
of pre-tax (401(k))contributions) allocated to the Participant under the
Profit Plan for such year.
All amounts deferred will be classified as "Deferred Compensation."
Section 4. Type of Plan
The Plan is a non-qualified voluntary deferred compensation type of plan.
Section 5. Funding
The Company will not fund the amount of any Participant's Deferred Compensation.
The amount of Deferred Compensation is secured only by the Company's promise to
pay it from the assets of the Company
Section 6. Investment Income
A reasonable rate of interest will be credited to a Participant's account, from
the first of the month following the date of the deferral, and will be
compounded quarterly. The interest rate will be established by the Compensation
Committee of the Board of Directors prior to the beginning of each year.
<PAGE> 3
Section 7. Deferral Period
A Participant may elect to defer his/her Bonus Pay Compensation and/or his/her
Base Salary and/or his/her Excess Profit Sharing Contribution either (a) until a
specified year in the future (but not later than his/her termination of
employment) or (b) until his/her termination of service or retirement. The
actual payment will be made or will commence within sixty days after the date
specified or the actual date of termination of service or retirement.
Section 8. Form of Payment
A Participant may elect to receive his/her Deferred Compensation under the Plan
in either a lump sum or in annual installments (not to exceed five), as
specified by the Participant at the time the election to defer is made.
Section 9. Death Prior to Receipt
In the event that a Participant dies prior to receipt of any or all of the
amounts payable to him/her pursuant to this Plan, any amounts that are then
credited as Deferred Compensation will be paid to his/her designated beneficiary
in a lump sum within sixty days following the Company's notification of the
Participant's death.
At the time the election to defer is made, a Participant may designate a
beneficiary under this Plan. The Participant may change the beneficiary by
writing to the General Counsel of the Company. If a beneficiary is not named,
the value of the Participant's Deferred Compensation Account will be paid to
his/her estate.
Section 10. Effect of Election
An election to defer Compensation for any year will be irrevocable once the term
to which it applies has commenced, and can be revoked or modified only on a
showing of severe financial hardship as a result of an unanticipated emergency,
as determined by the Compensation Committee of the Board of Directors of the
Company.
Section 11. Participant's Rights Unsecured
The right of any Participant to receive future payments under the provisions of
the Plan will be an unsecured contractual claim against the general assets of
the Company. The Plan will not be funded. The Company will not be required to
establish any special or separate fund or to make any segregation of assets to
assure the payment of any amounts under the Plan.
Section 12. Statement of Account
Statements will be sent to each Participant by February 15th each year as to the
value of his/her Deferred Compensation Account as of the end of the preceding
December.
Section 13. Assignability
No right to receive payments hereunder will be transferable or assignable by a
Participant, except by will or by the laws of descent and distribution.
Section 14. Administration
This Plan will be administered on a day-to-day basis on behalf of the
Compensation Committee of the Board of Directors of the Company by the General
Counsel of the Company, who will have the authority to adopt rules and
regulations for carrying out the Plan. The Compensation Committee of the Board
of Directors of the Company will have the authority to interpret, construe and
implement the provisions of the Plan and to prescribe the form of the request
for deferral of compensation under the Plan.
<PAGE> 4
Section 15. Amendment/Termination
This Plan may at any time or from time to time be amended, modified or
terminated by the Board of Directors of the Company. No amendment, modification
or termination will, without the consent of the Participant, adversely affect
any amounts credited to such Participant's Deferred Compensation Account.
Section 16. Tax Treatment
Deferred Compensation and credited interest are taxed as ordinary income when
payment is actually received. Distributions received from the Plan are not
eligible for favorable tax treatment or rollovers as permitted under qualified
plans.
Section 17. Other Benefits
The computation and basis for other Company provided benefits may be affected if
a Participant elects to defer a portion of his/her Base Salary.
<PAGE> 5
W. R. BERKLEY CORPORATION
DEFERRED COMPENSATION PLAN FOR OFFICERS
ELECTION FORM
In accordance with and subject to the W. R. Berkley Corporation Deferred
Compensation Plan for Officers (the "Plan"), I hereby request to defer the
receipt of compensation for the year ending December 31, , as follows:
Amount of Bonus Pay to be Deferred:
_____ (a) ALL (100%) OR
_____ (b) ___ % (multiples of 10%) OR
_____ (c) $__ (multiples of $1,000)
Amount of Base Salary to be Deferred:
_____ (a) 25% (maximum) OR
_____ (b) ___ % (multiples of 10%) OR
_____ (c) $__ (multiples of $1,000)
Amount of Excess Profit Sharing Contribution to be Deferred:
_____ (a) ALL (100%) OR
_____ (b) ___ % (multiples of 10%) OR
_____ (c) $__ (multiples of $1,000)
Period of Deferral:
_____ (a) Year in which payments should be made or commence
(not later than termination of service) _____ OR
_____ (b) Until termination of service or retirement
Form of Distribution:
_____ Lump sum OR
_____ Annual installments ____________
(not to exceed 5)
A Participant should contact his/her Tax Advisor prior to making an election to
defer compensation.
I have received a copy of the Plan. I understand that, in the event of my death
prior to receipt of all amounts payable to me pursuant to the Plan, the amount
credited to my Deferred Compensation Account will be paid to my designated
beneficiary in the form of a lump sum.
Beneficiary Name __________________________ Officer Name ______________________
Address ___________________________________ Address ___________________________
Beneficiary Officer
Social Security No. _______________________ Social Security No.________________
_____________________________________ Date ____________________________________
Signature of Officer
<PAGE> 1
EXHIBIT 10.5
<PAGE> 2
W. R. BERKLEY CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
AS ADOPTED MARCH 7, 1996
Section 1. Effective Date
The effective date of this Plan is March 7, 1996.
Section 2. Eligibility
Any member of the Board of Directors of W. R. Berkley Corporation (the
"Company"), including any person otherwise participating in the W. R. Berkley
Corporation Deferred Compensation Plan for Officers, is eligible to participate
in the Plan.
Section 3. Amount of Deferral
Prior to the beginning of each calendar year, a member of the Board of Directors
may elect to defer receipt of all of a portion of the retainer and/or meeting
fees otherwise payable to such person for that year on account of serving on the
Board of Directors.
Notwithstanding the foregoing, for the 1996 calendar year only, a member of the
Board of Directors may elect, not later than thirty days after the Effective
Date, to defer the receipt of all or a portion of the retainer and/or meeting
fees otherwise payable to such person for serving on the Board of Directors
subsequent to the date of making such election through December 31, 1996.
Notwithstanding the foregoing, for the calendar year in which a person first
becomes a member of the Board of Directors, such person may elect, not later
than thirty days after the date such person first becomes a member of the Board
of Directors to defer the receipt of all or a portion of the retainer and/or
meeting fees otherwise payable to such person for serving on the Board of
Directors subsequent to the date of making such election through December 31st
of such year.
Members of the Board of Directors who choose to defer amounts pursuant to this
Section 3 will be "Participants." All amounts deferred, and interest credited
thereon, will be classified as "Deferred Compensation."
Section 4. Type of Plan
The Plan is a non-qualified voluntary deferred compensation type of plan. The
Plan is not intended to be subject to the provisions of the Employee Retirement
Income Security Act of 1974 ("ERISA"). To the extent the Plan is determined to
be so subject, it is intended, to the extent that any Participant is otherwise
an employee of the Company or of any subsidiary to constitute a "plan which is
unfunded and is maintained by the employer primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees," as such phrase is used in ERISA, and the terms of the
Plan shall be interpreted consistent with such intent.
Section 5. Funding; Participant's Rights Unsecured
The Company will not fund the amount of any Participant's Deferred Compensation.
The amount of each Participant's Deferred Compensation will be separately
accounted for in the bookkeeping records of the Company by setting up for each
Participant a Deferred Compensation account ("Deferred Compensation Account").
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The amount of Deferred Compensation is secured only by the Company's promise to
pay it from the assets of the Company and Participants will have the status of
general unsecured creditors of the Company with respect to their Deferred
Compensation. The Company will not be required to establish any special or
separate fund or to make any segregation of assets to assure the payment of any
amounts under the Plan.
Section 6. Investment Income
A reasonable rate of interest will be credited to a Participant's Deferred
Compensation Account, from the first of the month following the date of the
deferral, and will be compounded quarterly. The interest rate which shall apply
with respect to each year shall be such rate of interest which is in effect for
such year under Section 6 of the W. R. Berkley Corporation Deferred Compensation
Plan for Officers.
Section 7. Deferral Period
A Participant who is not otherwise an employee of the Company or of any
subsidiary may elect to defer the receipt of his/her Deferred Compensation until
a specified date in the future, but not later than such person's termination as
a member of the Board of Directors. A Participant who is otherwise an employee
of the Company or of any subsidiary may elect to defer the receipt of his/her
Deferred Compensation until a specified date in the future, but no later than
his/her termination as an employee. A separate such election will be made with
respect to that portion of his/her Deferred Compensation attributable to
retainer and/or meeting fees otherwise deferred with respect to each separate
year. The actual payment will be made or will commence within sixty days after
the earlier of (i) the date specified or (ii) the date of termination as a
member of the Board of Directors or termination of employment, as the case may
be.
Section 8. Form of Payment
A Participant may elect to receive his/her Deferral Compensation under the Plan
attributable to his/her retainer and/or meeting fees otherwise deferred with
respect to each separate year in either a lump sum or in annual installments
(not to exceed five), as specified by the Participant at the time the election
to defer is made.
Section 9. Death Prior to Receipt
In the event that a Participant dies prior to receipt of any or all of the
amounts payable to him/her pursuant to this Plan, any amounts that are then
credited as Deferred Compensation will be paid to his/her designated beneficiary
in a lump sum within sixty days following the Company's notification of the
Participant's death.
At the time the election to defer is made, a Participant may designate a
beneficiary under this Plan. The Participant may change the beneficiary by
writing to the General Counsel of the Company. If a beneficiary is not named,
the value of the Participant's Deferred Compensation Account will be paid to
his/her estate.
Section 10. Effect of Election
An election to defer retainer and/or meeting fees for any year will be
irrevocable once the term to which it applies has commenced, and can be revoked
or modified only on a showing of severe financial hardship as a result of an
unanticipated emergency, as determined by the Compensation Committee of the
Board of Directors of the Company; provided, however, that a Participant who is
also a member of the Compensation Committee shall not participate in any
determination by the Compensation Committee as to whether such Participant in
fact has such a severe financial hardship.
Section 11. Statement of Account
Statements will be sent to each Participant by February 15th each year as to the
value of his/her Deferred Compensation Account as of the end of the preceding
December.
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Section 12. Assignability
No right to receive payments hereunder will be transferable or assignable by a
Participant, except by will or by the laws of descent and distribution.
Section 13. Administration
This Plan will be administered on a day-to-day basis on behalf of the
Compensation Committee of the Board of Directors of the Company by the General
Counsel of the Company, who will have the authority to adopt rules and
regulations for carrying out the Plan. The Compensation Committee of the Board
of Directors of the Company will have the authority to interpret, construe and
implement the provisions of the Plan and to prescribe the form of the request
for deferral of compensation under the Plan. Notwithstanding the foregoing, in
the case of any Participant who is also a member of the Compensation Committee,
such person shall not participate in any action by the Compensation Committee
which affects only such individual Participant's rights under the Plan.
Section 14. Amendment/Termination
This Plan may at any time or from time to time be amended, modified or
terminated by the Board of Directors of the Company. No amendment, modification
or termination will, without the consent of the Participant, adversely affect
any amounts credited to such Participant's Deferred Compensation Account.
Section 15. Tax Treatment
Deferred Compensation and credited interest are taxed as ordinary income when
payment is actually received. Distributions received from the Plan are not
eligible for favorable tax treatment or rollovers as permitted under qualified
plans.
Section 16. Other Benefits
The compensation and basis for other Company provided benefits in the case of
any member of the Board of Directors who is also an employee of the Company or
of any affiliate may be affected if a Participant elects to defer a portion of
his/her retainer and/or meeting fees.
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W. R. BERKLEY CORPORATION
DEFERRED COMPENSATION PLAN FOR DIRECTORS
ELECTION FORM
In accordance with and subject to the W. R. Berkley Corporation Deferred
Compensation Plan for Directors (the "Plan"), I hereby request to defer the
receipt of my annual retainer and/or meeting fees for the year ending December
31, ____, as follows:
Amount to be Deferred:
I. Annual Retainer:
__ (a) ALL (100%), OR
__ (b) $___ (multiples of $1,000)
II. Meeting Fees:
__ (a) ALL (100%), OR
__ (b) $___ (multiples of $1,000)
Period of Deferral:
__ (a) Year in which payments should be made or commence (not later
than the date of termination as a member of the Board of
Directors (if I am not otherwise an employee of W. R. Berkley
Corporation or any affiliate) or termination of employment (if I
am otherwise an employee of W. R. Berkley Corporation or any
affiliate)) _______, OR
__ (b) Until termination as a member of the Board of Directors (if I am
not otherwise an employee of W. R. Berkley Corporation or any
affiliate) or termination of employment (if I am otherwise an
employee of W. R. Berkley Corporation or any affiliate)
Form of Distribution:
__ Lump sum, OR
__ Annual installments __________________
(not to exceed 5)
A Participant should contact his/her Tax Advisor prior to making an election to
defer his/her annual retainer and/or meeting fees. I have received a copy of the
Plan. I understand that, in the event of my death prior to receipt of all
amounts payable to me pursuant to the Plan, the amount credited to my Deferred
Compensation Account will be paid to my designated beneficiary in the form of a
lump sum.
Beneficiary Name ________________________ Participant Name __________________
Address _________________________________ Address ___________________________
Beneficiary Participant
Social Security No. _____________________ Social Security No. _______________
_________________________________________ Date ______________________________
Signature of Participant
<PAGE> 1
EXHIBIT 10.6
<PAGE> 2
SALE AGREEMENT
475 STEAMBOAT ROAD
GREENWICH, CONNECTICUT
BY AND BETWEEN
LEMBO-FEINERMAN FLEMING MORELL TRUST
AND
W. R. BERKLEY CORPORATION
<PAGE> 3
AGREEMENT
THIS SALE AGREEMENT (THE "AGREEMENT") IS made as of the 15th
day of March, 1996, by and between LEMBO-FEINERMAN FLEMING MORELL TRUST, a
Florida Trust ("Seller"), with an address at c/o Ackerman, Levine & Cullen, 175
Great Neck Road, Great Neck, NY 11021, and W. R. BERKLEY CORPORATION, a Delaware
corporation ("Buyer") with an address at 165 Mason Street, Greenwich,
Connecticut 06830.
W I T N E S S E T H :
THAT, WHEREAS, Seller desires to sell and the Buyer desires to
purchase the property described in Section 1.01 below and the Buyer desires to
purchase said property on the terms and subject to the conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and the
respective undertakings of the parties hereinafter set forth, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed:
ARTICLE I
AGREEMENT TO SELL
SECTION 1.01. SALE OF BUSINESS PROPERTY. On the terms and
conditions hereinafter set forth, Seller agrees to sell and convey to Buyer and
Buyer agrees to purchase and accept from Seller, subject only to the "Permitted
Title Exceptions", the "Business Property" consisting of:
<PAGE> 4
A. (a) the land situated in the Town of Greenwich, County of
Fairfield and State of Connecticut, more particularly described in Schedule A
attached hereto and incorporated herein by reference, together with all and
singular the appurtenances, tenaments, hereditaments, rights-of-way, littoral
and riparian rights, privileges, benefits and easements belonging to or in
anywise appertaining to the same (all of the foregoing being hereinafter
referred to as the "Land"), and the office building and all buildings,
structures, improvements, fixtures and other items of real property situated on
the Land (collectively, the "Improvements") (the "Land" and the "Improvements"
are hereinafter collectively referred to as the "Premises");
(b) all of Seller's right, title and interest into and under
the agreement of lease described in Schedule B attached hereto (the "Existing
Lease") and all security deposits, advance rentals and other payments made or to
be made under the Existing Lease, together with the right to receive and collect
the same;
(c) all of Seller's right, title and interest in and to the
subleases described in Schedule C attached hereto (collectively, the "Existing
Subleases");
(d) all of Seller's right, title and interest in and to all
tangible personal property and equipment now located on or about the Land or
Improvements or attached or appurtenant thereto or used in connection with the
operation thereof, including, but not limited to, the items described in
Schedule D attached hereto and incorporated herein by reference (all such
tangible personal property and equipment are hereinafter referred to as the
"Personal Property");
<PAGE> 5
(e) any and all transferable governmental licenses,
certificates, permits and approvals relating to the construction, occupancy, use
or operation of the Premises (collectively, the "Permits").
(f) all of Seller's right, title and interest in and to all
intangible property now or on the Closing Date (as hereinafter defined) owned,
or used in connection with, the Land, the Improvements and the Personal
Property, or any business or businesses now or hereafter conducted thereon or
with the use thereof (other than those businesses conducted by tenants of the
Building and/or the Land under Tenant Leases in their capacity as tenants),
including all contract rights and agreements, business licenses, warranties,
guaranties, telephone exchange numbers, advertising materials, books and records
(or photocopies thereof), plans, specifications and surveys, related to the
Land, the Improvements or the Personal Property or any part thereof.
ARTICLE II
PURCHASE PRICE
SECTION 2.01. AMOUNT. Subject to the prorations,
apportionments, credits and adjustments to be made in accordance with the
provisions of this Agreement, the purchase price (the "Purchase_Price") to be
paid by the Buyer to the Seller for the Business Property shall be EIGHTEEN
MILLION TWO HUNDRED THOUSAND DOLLARS ($18,200,000.00).
SECTION 2.02. MANNER OF PAYMENT. The Purchase Price shall be
paid as follows:
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A. Deposit. Upon the execution of this Agreement by both
Seller and Buyer, Buyer shall deliver to Chicago Title Insurance Company,
Stamford, Connecticut (the "Escrow Agent") the sum of TWO HUNDRED THOUSAND
DOLLARS ($200,000.00) (the "Deposit") by wire transfer or certified funds, as
determined by Buyer. The Deposit shall be held in escrow by the Escrow Agent in
accordance with the provisions of Section 2.03 hereof, and upon the Closing (as
herein defined), the Deposit shall be applied against the payment of the
Purchase Price. All sums paid on account hereof are hereby made liens upon the
Seller's interest in the Premises.
B. Purchase Price Balance. The balance of the Purchase Price,
$18,000,000.00, plus or minus the net amount of all prorations, apportionments,
credits and adjustments to be made in accordance with the provisions of this
Agreement (the "Purchase Price Balance") shall be paid (at the option of the
Buyer) by cashier's or certified check or wire transfer upon the Closing.
SECTION 2.03. RECEIPT, MAINTENANCE AND DISPOSITION OF DEPOSIT; ESCROW.
A. Receipt of Deposit. By the execution of this Agreement,
the Escrow Agent acknowledges receipt of the Deposit and its agreement to
maintain and dispose of the Deposit in accordance with the provisions of this
Agreement.
B. Maintenance of Deposit. The Escrow Agent shall hold the
Deposit at all times in a separate, interest-bearing account at Fleet Bank,
N.A., 1 Atlantic Street, Stamford, Connecticut. All interest and income accruing
on the Deposit prior to the Closing Date shall belong to Buyer and shall be paid
periodically or upon demand to Buyer.
<PAGE> 7
C. Disposition of Deposit. (a) In the event the purchase of
the Business Property by Buyer is consummated, then, at the Closing, the Deposit
shall constitute a part of and be applied against the Purchase Price and shall
be paid over to the Seller.
(b) In the event Buyer elects to terminate this Agreement
pursuant to any provision of this Agreement giving Buyer such a right or option,
or in the event the purchase of the Business Property by Buyer hereunder is not
consummated for any reason except as provided in subparagraph (c) of this
subsection (C), then the Deposit shall be returned to Buyer.
(c) In the event the sale of the Business Property
provided in this Agreement shall not take place by reason of the default by
Buyer under this Agreement, then, in such event, Seller shall be entitled to
recover the Deposit as full compensation and liquidated damages under and in
connection with this Agreement. The parties recognize that it is extremely
difficult and impracticable to ascertain the extent of detriment to Seller
caused by the default by Buyer under this Agreement and the failure of the
consummation of the transaction contemplated by this Agreement or the amount of
compensation Seller should receive as a result of Buyer's default. In the event
the sale of the Business Property herein provided shall not be consummated by
reason of the default by Buyer under this Agreement, then such recovery of the
Deposit shall be the sole and exclusive remedy of Seller by reason of such
default by Buyer, under this Agreement or, without limitation, by reason of any
matter and shall be in lieu of any other monetary relief or, without limitation,
any other relief to which Seller may otherwise be entitled by virtue of this
Agreement or under law or at equity and in all events the liability of Buyer or
loss or
<PAGE> 8
damage resulting from or in any way connected with this Agreement or any default
or defaults by Buyer hereunder in the event such sale shall not be consummated
shall be limited to the sum of the Deposit.
(d) If for any reason the Closing does not occur, the
Escrow Agent shall deliver the Deposit to Seller or Buyer, as provided herein,
only upon receipt of a written demand therefor from such party, subject to the
following provisions: If for any reason the Closing does not occur and either
party makes a written demand upon the Escrow Agent for payment of the Deposit,
the Escrow Agent shall give written notice to the other party of such demand. If
the Escrow Agent does not receive a written objection from the other party to
the proposed payment within fifteen (15) days after the giving of such notice,
the Escrow Agent is hereby authorized to make such payment. If the Escrow Agent
does receive such written objection within such period, the Escrow Agent, at
Escrow Agent's election, shall (1) continue to hold such amount until otherwise
directed by written instructions signed by Seller and Purchaser or a final
judgment of a court, or (2) pay the Deposit into a Connecticut court of
competent jurisdiction, and thereafter the Escrow Agent shall be deemed
discharged from any further obligation under this Agreement.
(e) The parties acknowledge that the Escrow Agent is
acting solely as a stakeholder, at their request and for their convenience, and
without compensation, and that the Escrow Agent shall not be deemed to be the
agent of either of the parties, and that the Escrow Agent shall not be liable to
either of the parties for any action or omission on its part taken or made in
good faith, and not in disregard of this Agreement, but shall be liable for its
negligent acts or omissions and for any loss, cost or expense incurred by Seller
or Buyer resulting from actions taken by the Escrow Agent in
<PAGE> 9
bad faith, in disregard of this Agreement or involving negligence on the part of
the Escrow Agent. Seller and Buyer shall jointly and severally indemnify and
hold the Escrow Agent harmless from and against all costs, claims and expenses,
including reasonable attorneys' fees, incurred in connection with the
performance of the Escrow Agent's duties hereunder, except with respect to
actions taken by the Escrow Agent in bad faith, in disregard of this Agreement
or involving negligence on the part of the Escrow Agent. Buyer and Seller shall
share equally in the payment of any out-of-pocket expenses of the Escrow Agent.
Seller and Buyer agree that, except as otherwise expressly provided in this
Agreement, the Escrow Agent shall hold, maintain and dispose of the Deposit in
accordance with the Escrow Receipt and Instructions attached hereto as Exhibit
1.
ARTICLE III
DELIVERIES BY SELLER
SECTION 3.01. DOCUMENTS. At or before the Closing, Seller shall deliver
to Buyer the following items:
A. Certificates of Occupancy. Final, unqualified and
unconditional certificates of occupancy relating to the Premises which, to the
best of Seller's knowledge, information and belief, represent all of the
certificates of occupancy issued with respect to all construction and tenant
work upon the Premises.
B. Permits and Authorizations. Copies of all Permits and
authorizations of which Seller has knowledge and which are required in
connection with the construction, occupancy, use or operation of the Business
Property.
<PAGE> 10
C. Plans. Current, updated copies of the As-Built plans and
specifications ("Plans") for the Land and Improvements showing all the utilities
and the Building.
D. Asbestos Report. The 475 Steamboat Road Record of
Encapsulation & Removal of Asbestos as of 1995, a copy of which has been
delivered to Buyer (the "Asbestos Report").
E. Existing Lease; Existing Subleases and Other Documents. Copies
of the Existing Lease, Existing Subleases, and any other contracts, agreements
and documents affecting the Business Property.
F. (Intentionally omitted).
G. Rent Roll. A complete rent roll pertaining to the Premises.
The Seller represents that the information contained in the Rent Roll is the
same as that set forth in Paragraph B of Section 5.01 hereof.
H. [This paragraph intentionally left blank]
ARTICLE IV
CLOSING
SECTION 4.01. CLOSING. Except as otherwise provided in this Agreement,
the delivery of the deed or deeds to be delivered as hereinafter provided, the
payment of the Purchase Price Balance and the consummation of the transactions
contemplated in this Agreement (the "Closing") shall take place on June 3, 1996
(as such date may be extended
<PAGE> 11
pursuant to the terms of this Agreement), or on such other date as Buyer and
Seller may agree upon (the "Closing Date"). The Closing shall be held at 10:00
a.m. (Eastern Standard Time) on the Closing Date, at the offices of Cummings &
Lockwood, Two Greenwich Plaza, Greenwich, Connecticut 06830, or such other place
as Buyer and Seller may agree upon.
SECTION 4.02. CLOSING STATEMENTS. Prior to the Closing, Seller and
Buyer shall each submit tentative closing statements to the other party
reflecting proposed prorations, apportionments, credits and adjustments to be
made at the Closing, and Seller and Purchaser shall mutually agree upon the
appropriate total amount to be credited to Seller or to Buyer at the Closing
pursuant to Section 4.07 hereof.
SECTION 4.03. DELIVERY AT CLOSING. At the Closing:
A. Seller shall deliver or cause to be delivered to Buyer and
Chicago Title Insurance Company (the "Title Company"), the Assignment and
Assumption Agreement, duly executed, witnessed and acknowledged by Seller and
the deed or deeds described in Section 5.01 hereof, each duly executed,
witnessed and acknowledged by the grantor therein, together with releases (the
"Releases") duly executed, witnessed and acknowledged by the holders of any
encumbrances, which are not Permitted Title Exceptions, all in form and content
acceptable to Buyer and the Title Company.
B. Buyer shall deliver to Seller the Purchase Price Balance.
SECTION 4.04. CONVEYANCE TAXES. A. Seller shall pay all conveyance
taxes payable in connection with this transaction, including any conveyance
taxes which may be
<PAGE> 12
payable in connection with the conveyance of title to the Seller as provided in
Section 5.01 hereof, and at the Closing, Seller shall deliver to Buyer or the
Title Company:
(a) All necessary state and local conveyance tax forms
and statements signed by or on behalf of the Seller; and
(b) All necessary state and local conveyance tax forms
and statements signed by or on behalf of the Fee Owner in connection with the
conveyance of title to the Seller pursuant to the provisions of Section 5.01
hereof; and
(c) Certified or bank checks(s) payable to the order
of (i) the Connecticut Department of Revenue Services, in the amount of all
applicable Connecticut conveyance taxes payable in connection with this
transaction including any conveyance taxes which may be payable in connection
with the conveyance of title to the Seller as provided in Section 5.01 hereof;
and (ii) the Town Clerk, Town of Greenwich, in the amount of all applicable
local conveyance taxes payable in connection with this transaction, including
any conveyance taxes which may be payable in connection with the conveyance of
title to the Seller as provided in Section 5.01 hereof.
SECTION 4.05. ADDITIONAL ITEMS TO BE DELIVERED BY SELLER. At the
Closing, Seller shall deliver to Buyer:
A. An assignment and assumption of the Existing Lease (the
"Assignment and Assumption of Lease"), substantially in the form of Exhibit 2
attached hereto and incorporated herein by reference, executed, witnessed and
acknowledged by Seller.
<PAGE> 13
B. If requested by the Buyer, an assignment of Seller's interest
in and to the Existing Subleases duly executed, witnessed and acknowledged by
Seller.
C. The landlord's fully executed counterparts (or, where
originals are unavailable, copies thereof) of the Existing Lease and any
amendments, guarantees and other documents relating thereto, a Rent Roll,
updated as of the Closing Date, together with a schedule of any security
deposits and/or prepaid rentals paid by the tenant thereunder, and a separate
certified or official bank check payable to the order of Buyer, in the aggregate
amount of the security deposits and/or prepaid rentals under the Existing Lease.
In the event any security deposits and/or prepaid rentals are held by a bank,
savings bank, trust company or savings and loan association, at Buyer's option,
Seller shall deliver to Buyer, in lieu of such check, an assignment to Buyer of
such deposits and all interest thereon and written instructions to the holder
thereof to transfer such deposits and interest to Buyer. With respect to any
security deposits which are letters of credit, Seller shall deliver to Buyer at
the Closing such letters of credit and shall execute and deliver such other
instruments as the issuers of such letters of credit shall reasonably require
and shall cooperate with Buyer to change the named beneficiary under such
letters of credit to Buyer, which obligations of Seller shall survive the
Closing.
D. A bill of sale (the "Bill of Sale") substantially in the form
of Exhibit 4 attached hereto and incorporated herein be reference, executed by
Seller, conveying to Buyer any Personal Property to be conveyed pursuant to this
Agreement..
E. Notices to the tenants under the Existing Leases ("Notice to
Tenants"), substantially in the form of Exhibit 5 attached hereto and
incorporated herein by reference, executed by Seller.
<PAGE> 14
F. All keys in the possession of Seller and its building manager
to all entrance doors to, and equipment and utility rooms (and other secured
areas) located in, the Premises, which keys shall be properly tagged for
identification.
G. A FIRPTA Certificate substantially in the form attached hereto
as Exhibit 6 and incorporated herein by reference, executed by Seller.
H. The Certificate of Seller substantially in the form attached
hereto as Exhibit 7 and incorporated herein by reference, executed by Seller.
I. An estoppel certificate from Pechiney Packaging Corporation
("Pechiney"), duly executed by Pechiney, in the form attached hereto and
incorporated herein by reference as Exhibit 9 (the "Pechiney Estoppel
Certificate"), which shall, inter alia, confirm that all of the Seller's
representations contained in subsection 5.01(c) of this Agreement are true and
correct as of the Closing.
J. Executed counterparts (or, where unavailable, copies thereof
certified by Seller) of all Service Contracts affecting the Premises.
K. An Affidavit executed by the Trustee or Trustees of the Seller
in the form attached hereto as Exhibit 10, and such other documents executed by
said Trustee or Trustees as may be required by the Title Company (as herein
defined).
L. A certificate of the Corporate Clerk or Secretary of the Fee
Owner evidencing (a) resolutions of the Fee Owner's Board of Directors
authorizing the conveyance of the Fee Owner's interest in the Business Property
and the transactions contemplated in this Agreement and (b) the incumbency of
the Fee Owner's Officers
<PAGE> 15
executing any documents in connection with said conveyance and the transactions
contemplated in this Agreement, and such other documents executed by the Fee
Owner regarding the Fee Owner and said conveyance by the Fee Owner and the
transactions contemplated in this Agreement as may be required by the Title
Company.
M. Authorization Documents. Corporate and/or trust resolutions,
partnership and/or trust certificates, good standing certificates, certified
entity formation documents and any other documentation, reasonably requested by
the Title Company or Buyer, relating to Seller and the Fee Owner and any
entities which own or control Seller or the Fee Owner, as the case may be, which
evidence the right, power and authority of Seller and the Fee Owner to
consummate the transactions contemplated by this Agreement.
N. Title Affidavits. Separate affidavits by the Trustee or
Trustees of the Seller and by a duly authorized Office of the Fee Owner (i) to
the extent required by the Title Company (as hereinafter defined) in order to
insure title to the Premises without exception for (a) mechanic's and
materialmen's liens; (b) tenants' rights except those under the Existing Leases;
(c) any security interest in any Personal Property and fixtures being sold with
the Premises; and (ii) to verify that the party signing each such affidavit has
no notice of any facts or circumstances not of record which could give rise to
the claim of any third party to rights of adverse possession or use over the
Premises or any part thereof in derogation of the rights of the owner of the
Premises; (d) updating any available survey; and (iii) to confirm such
additional facts regarding the Premises as may be required by the Title Company.
<PAGE> 16
O Other Documents. All documents listed in Article III of this
Agreement, which were not previously delivered to Buyer prior to Closing.
P. Seller will use its best efforts to obtain duly executed
estoppel certificates in form and substance satisfactory to Buyer from all
tenants under the Existing Subleases.
SECTION 4.06. ADDITIONAL ITEMS TO BE DELIVERED BY BUYER.
A. At the Closing, Buyer shall deliver to Seller:
(a) The Assignment and Assumption Agreement, executed
by Buyer.
(b) Any conveyance tax forms required to be signed by or on
behalf of Buyer.
(c) The Certificate of Buyer ("Certificate of Buyer") in the
form of Exhibit 11 attached hereto.
(d) Documentation to establish to Seller's reasonable
satisfaction the due authorization of Buyer's acquisition of the Business
Property and delivery of the documents required to be delivered by Buyer
pursuant to this Agreement.
The documents referred to in subsections (a) through (d) hereof shall
be signed by Buyer or Buyer's assignee as permitted under the provisions of this
Agreement.
<PAGE> 17
SECTION 4.07. CLOSING COSTS.
A. Shared Costs. Seller and Buyer shall share and split equally
any costs and expenses for the services of the Escrow Agent.
B. Buyer's Costs. Buyer shall pay Buyer's legal fees and
expenses, all premiums for the issuance of any policy or policies of title
insurance, the cost of the survey, and the costs of all opinions, certificates,
instruments, documents and papers required to be delivered, or to cause to be
delivered, by Buyer hereunder, and, without limitation, the cost of all
performance by Buyer of its obligations hereunder. Buyer shall pay the recording
fees in connection with the recording of the Assignment of Leasehold Interest
(as hereinafter defined) and the Deeds from the Seller to the Buyer.
C. Seller's Costs. Seller shall pay Seller's legal fees and
expenses and the cost of all opinions, certificates, instruments, documents and
paper required to be delivered, or to cause to be delivered, by Seller
hereunder, and, without limitation, the cost of all performances by Seller of
its obligations hereunder. Seller shall pay at the Closing all Connecticut
conveyance tax and local conveyance tax imposed as a direct result of the sale
of the Business Property and all recording fees for any deeds or other documents
from the Fee Owner and for any other documents (other than the Assignment of
Leasehold Interest and the Deed from Seller to Buyer) recorded to render and
convey title to the Business Property in compliance with the provisions of this
Agreement.
SECTION 4.08. PRORATIONS AND ADJUSTMENTS. A. The only items to be
prorated and adjusted are as follows, with such prorations made between Seller
and Buyer
<PAGE> 18
at the Closing, computed as of the Closing Date, with income and expenses for
the Closing Date itself being allocated to Buyer:
(1) Income. Rentals and, without limitation, other payments
(other than percentage rent) payable by tenants, licensees, concessionaires and
other persons using or occupying the Business Property or any part thereof, for
or in connection with such use or occupancy; provided, however, Buyer shall not
be obligated to make any payment or give any credit to Seller on account of or
by reason of any rental or other payments which are unpaid as of the Closing
Date, but shall be required merely to turn over to Seller its share of the same
if, as and when received by Buyer. All payments received by Buyer from a tenant,
licensee, concessionaire or other person shall be applied first to Buyer's
collection costs (if any) with respect thereto and then against the most
recently accrued obligation or obligations of the payor. In addition, in the
event that as of the Closing Date there shall exist any rebate, rental
concession, free-rent period, credit, set-off or rent reduction under or with
respect to any Existing Lease which extends to or beyond the Closing Date, then
Seller shall pay Buyer as of the Closing Date (and the prorations in favor of
Buyer hereunder shall include an amount equal to) the aggregate amount of all
such rebates, rental concessions, free-rent periods, credits, setoffs or rent
reductions applicable to any period or periods on or after the Closing Date. In
the event that Buyer receives checks payable to Seller with respect to the
Business Property, Seller hereby authorizes Buyer to endorse Seller's name on
the checks without recourse and apply the proceeds in accordance with the
foregoing; similarly, any checks received by Seller with respect to the Business
Property shall be endorsed by Seller without recourse and promptly forwarded to
Buyer, who shall apply the proceeds thereof in accordance with the foregoing.
<PAGE> 19
(2) Ground Rent. Any rents, charges and obligations payable under
the Ground Lease.
B. There shall be no other prorations or adjustments between
Seller and Buyer. Seller represents that all real and personal property taxes
and assessments, sewer charges, sewer taxes and other applicable municipal taxes
imposed with respect to the Business Property are payable by Pechiney directly
to the appropriate taxing authorities pursuant to the Pechiney Sublease, and
accordingly these items will not be adjusted by Seller and Buyer.
C. Certain Expenses not to be Prorated. Seller and Buyer agree
that none of the insurance policies relating to the Business Property will be
assigned to Buyer (and Seller shall pay any cancellation fees resulting from the
termination of such policies).
D. Prepaid Rent and Deposits. All prepaid rentals, prepaid
payments and security deposits (including all accrued interest on the foregoing)
made under Existing Lease, license agreements or concession agreements relating
to the Business Property or any part thereof shall belong to Buyer and shall be
delivered to Buyer at the Closing.
SECTION 4.09. IRS COMPLIANCE. The parties agree to cooperate in
requiring their respective attorneys to comply with Internal Revenue Service
requirements as to filing 1099-S forms. The provisions of this paragraph shall
survive the Closing.
<PAGE> 20
ARTICLE V
TITLE
SECTION 5.01. TITLE TO THE PREMISES.
A. Ground Lease. Seller represents (a) that Seller is the owner
of the Improvements and is the sole ground lessee and sole owner of a leasehold
estate in the Business Property pursuant to a certain Agreement of Lease between
the Mutual Life Insurance Company of New York, as ground lessor, and The
Fleming-Morell Corporation, as ground lessee, dated March 26, 1970, (the "Ground
Lease"); (b) that Pacific Beach Company, Inc., a Delaware corporation, (the "Fee
Owner") is the owner of a fee simple interest in the Business Property, subject
to the Ground Lease; (c) the Ground Lease has not been modified or amended and
is in good standing and is in full force and effect; a true, correct and
complete copy of the Ground Lease has been delivered to Buyer; (d) there are no
other agreements or other arrangements with respect to the Premises or the
ownership thereof between the Lessor and Lessee under the Ground Lease, or with
respect to the Ground Lease or the leasing of the Premises; (e) the current term
of the Ground Lease commenced on March 26, 1970, and will terminate on March 25,
2020, and none of the options to renew or extend the term of the Ground Lease
has been exercised; (f) no security deposit has been paid under the Ground Lease
and no security deposit is being held by the Lessor under the Ground Lease; (g)
the "Stated Annual Rent" as defined in and payable under the Ground Lease is
currently $72,000.00 per year, payable at the rate of $6,000.00 per month, in
advance, and has been timely paid in full for all months of the term through and
including February 29, 1996); (h) the amount of "Percentage Rent" as defined in
and payable under the Ground Lease is currently $20,125.00 per year, payable at
the rate of
<PAGE> 21
$1,677.08 per month, in advance, and there currently exists no overpayment or
underpayment of the Percentage Rent (which has been timely paid in full for all
months of the term through and including February 29, 1996); (i) all other
obligations of the Lessee under the Ground Lease have been paid or performed by
the Lessee as of the date hereof; (j) to the best of Seller's knowledge,
information and belief, there are no defaults of the Lessor under the Ground
Lease nor any existing conditions which upon the giving of notice or lapse of
time or both would constitute a default by the Lessor under the Ground Lease;
and (k) there are no defaults of the Lessee under the Ground Lease nor any
existing conditions upon which the giving of notice or lapse of time or both
would constitute a default by the Lessee under the Ground Lease, and there are
no set-offs, defenses or counterclaims against the enforcement of Lessee's
obligations under the Ground Lease.
Simultaneously with the execution and delivery of this Agreement,
Seller will enter into a duly executed, valid and enforceable Contract with the
Fee Owner for the purchase of the Fee Owner's fee interest in the Premises which
will have been approved in writing by Buyer (the "Contract"), a true and
complete copy of which has been delivered to Buyer. At the request of Buyer, at,
or at any time prior to, the Closing, Seller shall assign all of Seller's right,
title and interest in and to the Contract to Buyer pursuant to assignment
documentation which is satisfactory to Buyer. At or prior to the Closing, Seller
shall acquire from the Fee Owner the fee simple interest in the Premises, and at
the Closing Seller shall convey title to the Business Property to Buyer by a
Bargain and Sale Deed with covenants against Grantor's Acts substantially in the
form attached hereto as Exhibit 13 (the "Seller's Deed") and an Assignment and
Assumption Agreement substantially in the form attached hereto as Exhibit 14
(the "Assignment and Assumption Agreement"); provided, however, that if, with
the advance consent of the Buyer (the granting of which such consent
<PAGE> 22
shall be in the sole discretion of the Buyer) the Seller, pursuant to the
Contract directs the Fee Owner to convey the Fee Owner's fee title to the
Premises to Buyer at the Closing by a special or limited warranty deed, as
provided in the Contract, which shall be acceptable to Buyer and the Title
Company (the "Fee Owner's Deed to Buyer") and the Seller shall thereupon convey
and transfer Seller's leasehold interest in the Premises by the Assignment of
Leasehold Interest and by a QuitClaim Deed from the Seller to the Buyer which
shall be acceptable to the Buyer and the Title Company (the "Seller's QuitClaim
Deed"). Notwithstanding anything contained herein to the contrary, the Seller
confirms and agrees that the Contract and any deed from the Fee Owner to the
Seller, any deed from the Fee Owner to the Buyer, any deed from the Seller to
the Buyer, and the Assignment and Assumption Agreement shall each specifically
provide that there shall be no merger of the leasehold interest in the Premises
under the Ground Lease or the ownership interest in the Improvements with the
fee estate interest in the Premises for any reason, including, but not limited
to by reason of the same; corporation, partnership, or other entity acquiring or
holding, directly or indirectly, the Ground Lease and the leasehold estate
created thereby or any interest in the Ground Lease or in such leasehold estate
as well as the fee estate in the Premises, and shall further provide that the
foregoing conveyance or conveyances of the Premises and the interests therein
shall not extinguish said leasehold interest in the Premises or any subordinate
leases or subleases affecting the Premises (including, without limitation, the
Pechiney Sublease, as hereinafter defined, and any sub-subleases subordinate
thereto). The obligations of the Buyer under this Agreement are conditioned upon
and subject to the conveyance to Buyer of the Fee Owner's fee interest in the
Premises as herein provided.
B. Pechiney Sublease. Seller represents that the Premises are
currently subject to a valid and enforceable sublease from Fleming-Morell
Associates to
<PAGE> 23
Pechiney Ugine Kuhlman Corporation dated November 6, 1981, described in Schedule
B attached hereto (the "Pechiney Sublease"); and that a true, correct and
complete copy of the Pechiney Sublease has been delivered to Buyer. On or before
the Closing, Seller shall (i) enter into an agreement with the current tenant
under the Pechiney Sublease, Pechiney Packaging Corporation ("Pechiney") to
amend the Pechiney Sublease, effective as of the closing of this transaction,
which such agreement shall be acceptable to, and shall have been approved in
advance in writing by, Buyer; and (ii) shall deliver a fully executed copy of
such agreement to Buyer. If, on or before the Closing, Seller and Pechiney have
not entered into such an agreement which shall be acceptable to, and shall have
been approved in advance in writing by, Buyer, and Seller has not delivered a
fully executed copy of such agreement to Buyer, then Buyer may elect to
terminate this Agreement, in which case the Seller shall (i) cause the Escrow
Agent to refund the Deposit to Buyer with all accrued interest thereon, and (ii)
reimburse Buyer for any expenses incurred by Buyer for the examination of title
to the Premises, for Buyer's legal fees and survey costs, and for Buyer's due
diligence inspection of the Premises as provided in Section 10.01 hereof
(provided, that the amount of such reimbursement shall not exceed $35,000.00)
and upon Buyer's receipt of said Deposit and said reimbursement all rights and
liabilities of the parties hereto shall be terminated. At the request of Buyer,
at or at any time prior to the Closing, Seller shall assign to Buyer (in
assignment documentation satisfactory to Buyer) all of Seller's rights under
such agreement with Pechiney. The obligations of the Buyer under this Agreement
are conditioned upon and subject to the amendment of the Pechiney Sublease
pursuant to such agreement with Pechiney. Seller further represents as follows
regarding the Pechiney Sublease:
<PAGE> 24
(a) The Pechiney Sublease has not been modified or amended
(other than as provided in the above-referred-to agreement to be entered into
with Pechiney) and is in good standing and in full force and effect, and there
are no other agreements or other arrangements between the Seller and Pechiney
with respect to the Premises, or with respect to the Pechiney Sublease or the
subleasing of the Premises.
(b) The current term of the Pechiney Sublease commenced on
November 6, 1981, and will terminate on December 31, 2000. No options which the
Lessee has under the Pechiney Sublease to extend or renew the Pechiney Sublease
have been exercised and no option to purchase the Premises under the Pechiney
Sublease has been exercised:
(c) No security deposit has been paid under the Pechiney
Sublease and no security deposit is held by the Seller.
(d) The amount of the basic rent payable under the Pechiney
Sublease (which has been timely paid in full for all months of the Pechiney
Sublease term through and including February 29, 1996) is currently
$1,200,000.00 per year, ($100,000.00 per month), payable in advance.
(e) The amount of additional rent currently payable under the
Pechiney Sublease through and including February 29, 1996) is $0 per month.
(f) Pursuant to the Pechiney Sublease, Pechiney has paid all
real estate taxes and assessments upon the Premises and all "Impositions" as
defined in the Pechiney Sublease for the period ending December 31, 1995.
<PAGE> 25
(g) All other obligations, conditions and requirements of
Pechiney under the Pechiney Sublease (including, but not limited to, all
expenses and charges for utilities, and fuel, building security and maintenance)
have been paid or performed by or complied with by Pechiney and by Seller as of
the date hereof.
(h) All obligations, conditions and requirements of the Seller
under the Pechiney Sublease have been performed by the Seller as of the date
hereof, and will be performed by the Seller through and including the date of
the Closing. The Seller has complied with and is in compliance with all
"Requirements" as defined in the Pechiney Sublease.
(i) There are no defaults of the Seller or Pechiney under the
Pechiney Sublease and no existing conditions which upon the giving of notice or
lapse of time or both would constitute a default under the Pechiney Sublease.
There are no set-offs, defenses or counterclaims against enforcement of
Pechiney's obligations under the Pechiney Sublease.
(j) Pechiney has not entered into any currently effective
subleases, assignments, mortgages or other agreements transferring Pechiney's
interest in the Pechiney Sublease or the Premises, other than the sublease
agreements which are described in Schedule G attached hereto and copies of which
have been delivered to Buyer.
C. Permitted Title Exceptions. At the Closing, Seller
shall convey the Business Property, or cause the Business Property, to be
conveyed to Buyer, subject only to the following Permitted Title Exceptions:
(1) any regulations, ordinances, rules and
statutes governing or affecting the Premises imposed or to be imposed by any
governmental
<PAGE> 26
authority, including the wetlands, zoning & planning rules and regulations of
the Town of Greenwich, Connecticut, provided the same are not violated and do
not prohibit the present use of the Premises.
(2) taxes of the Town of Greenwich and/or any
region or district in which the Premises are situated which become due and
payable after the Closing Date.
(3) municipal assessments and public improvement
assessments, and/or unpaid installments thereof, which assessments and/or
installments thereof become due and payable after the date of the delivery of
the Deed or Deeds.
(4) any effect on the Premises of the fact that
the same are or may be located in an area which qualifies the Premises for
government subsidized insurance under the National Flood Insurance Act of 1968,
as amended, and the maps promulgated or to be promulgated pursuant thereto.
(5) the rights of the Lessor, and the obligations
of the Seller, under the Ground Lease (which is to be transferred and assigned
to Buyer as a part of this transaction pursuant to this Section 5.01).
(6) the rights of the tenant (as tenant only)
under the Existing Lease (sometimes also referred to herein as the "Pechiney
Sublease", as same shall be amended pursuant to the terms hereof).
(7) such exceptions to title and the matters set
forth in Schedule F attached hereto and made a part hereof.
<PAGE> 27
D. Title Documents. Title to the Premises shall be conveyed
by Seller to Buyer at the Closing, pursuant to the provisions of Section 5.01
hereof, by (a) the Assignment and Assumption Agreement and (b) either (i) the
Seller's Deed; or (ii) the Fee Owner's Deed to Buyer and Seller's QuitClaim Deed
from Seller to the Buyer, all of which documents are to be in form acceptable to
Buyer and the Title Company and properly executed, witnessed and acknowledged.
E. Violations. Violations at the time of the Closing of any
governmental (including zoning and planning) rules and regulations shall
constitute exceptions to title for the purposes of subsection H hereof.
F. New Leases. During the period from the date hereof until
the Closing, Seller shall not, without Buyer's prior consent in each instance,
which consent may be withheld or granted in Buyer's sole discretion, enter into
any new leases or subleases, or consent to any subleases or assignments, for
space in the Building, or terminate, amend, renew or extend the Existing Lease,
with the exception of the amendment of the Existing Lease (the Pechiney
Sublease), which may be amended only as specifically provided in the Pechiney
Agreement.
G. Title Insurance Policy. It shall be a condition of
Buyer's obligations to close and consummate the purchase herein contemplated
that Seller shall receive good and marketable title to the Premises, subject
only to the Permitted Title Exceptions and that, Buyer shall receive at the
Closing a title insurance policy or policies in the current ALTA form (or an
equivalent form acceptable to Buyer) issued by Chicago Title Insurance Company
(the "Title Company") at standard rates, in the amount of the Purchase Price,
and complying with the requirements of the paragraph, insuring to Buyer both the
fee
<PAGE> 28
simple title to the Premises and the leasehold interest under the Ground Lease,
free from all exceptions, other than the Permitted Title Exceptions. An
agreement by the Title Company to provide affirmative insurance against
forfeiture or loss by reason of a title defect shall not be deemed in compliance
with this subsection or a cure of such title defect, unless Buyer accepts such
agreement in writing. Said title insurance policy or policies (a) shall delete
the standard printed exceptions for (1) rights or claims of parties in
possession not shown by the public records; (2) encroachments, overlaps,
boundary line disputes, and any matters which would be disclosed by an accurate
survey and inspection of the premises; (3) easements, or claims of easements,
not shown by the public records; (4) any lien, or right to a lien, for services,
labor, or material heretofore or hereafter furnished, imposed by law and not
shown by the public records; (5) taxes or special assessments which are not
shown as existing liens by the public records, and shall contain the following
endorsements:
(a) an endorsement insuring contiguity between any parcels
constituting the Premises and between the Land and the easement area described
in the Grant recorded in Book 794 at Page 625 of the Greenwich Land Records,
without any strips, gores or like intrusions;
(b) an endorsement insuring access and contiguity to all
adjacent highways, roads, streets and alleys which are necessary for access to
the Premises for their intended purposes without any strips, gores, or like
intrusions;
(c) an endorsement insuring Buyer's rights to use all of
the easements and grants appurtenant to the Premises and structures thereon;
<PAGE> 29
(d) an endorsement insuring that no utility or other lines,
pipes or conduits necessary for the use or operation of the Premises are
situated over, under or in any property other than the Premises, any adjoining
public way or a recorded utility easement benefiting the Premises;
H. Title Defects. In the event that on the Closing Date Seller is
unable to convey title to the Premises to Buyer in accordance with the terms of
this Agreement, Seller shall
(i) have a further period of sixty (60) days within which
to perfect title. Seller agrees to use its best efforts to remove any defects or
exceptions to title. If, at the end of said period, Seller is still unable to
convey title to the Premises in accordance with the terms of this Agreement,
Buyer can elect to either accept such title as Seller can convey, upon the
payment of the Purchase Price, or Buyer shall reject such title, and upon such
rejection, Seller shall cause the Escrow Agent to refund to Buyer the Deposit,
and
(ii) reimburse Buyer for any expenses incurred by Buyer for
the examination of title to the Premises, for survey costs, and for Buyer's due
diligence inspection of the Premises as provided in Section 10.01 hereof
(provided, that the amount of such reimbursement shall not exceed $35,000.00)
and upon Buyer's receipt of said Deposit, with all accrued interest thereon, and
said reimbursement, all rights and liabilities of the parties hereto shall be
terminated.
I. Curing Title Defects. Notwithstanding anything contained
herein to the contrary, the Seller (a) shall pay off and satisfy and obtain the
release of any liens,
<PAGE> 30
judgments, attachments, mortgages or other financial encumbrances upon the
Premises which may be removed, satisfied or released by the payment of money,
and (b) shall undertake to remove, discharge or otherwise cure any other
exceptions to title that are not Permitted Title Exceptions provided, however,
that the Seller shall not be required to expend more than $100,000 for the
removal or satisfaction of such other exceptions to title, and shall be entitled
to a reasonable adjournment of the Closing (not to exceed 60 days) for the
purpose thereof. If, on the Closing Date, there may be any liens, judgments,
attachments, mortgages or other financial encumbrances upon the Premises which
may be removed, satisfied or released by the payment of money, Seller may use
any portion of the Purchase Price Balance to satisfy the same, provided Seller
shall deliver to Buyer at Closing, instruments in recordable form sufficient to
release, satisfy and discharge such other liens, together with the cost of
recording and filing said instruments which are acceptable to Buyer and the
Title Company. Seller shall not be excused from performing its obligations under
the Agreement by reason of the existence of any exception to title or
encumbrance of the type described in this paragraph 5.01(I).
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents, warrants and covenants as follows:
SECTION 6.01. TITLE. Buyer will acquire hereunder good,
marketable and insurable fee simple title to the Business Property, free and
clear or all liens, judgments, encumbrances, liabilities, agreements, leases,
claims, rights, easements, restrictions or other matters affecting title, except
the Permitted Title Exceptions.
<PAGE> 31
SECTION 6.02. CONSENTS. Seller has obtained all consents, approvals and
permissions related to the transactions hereby contemplated and required under
any covenant, agreement, encumbrance, law or regulation.
SECTION 6.03. ENVIRONMENTAL MATTERS.
A. As used in this Article VI, the term "Leasehold Owner" shall
mean any owner of the leasehold interest in the Premises under the Ground Lease
(as herein defined). No notice, demand, request for information, citation,
summons or other communication has been received by the Leasehold Owner, no
penalty has been assessed, and the Leasehold Owner has received no notice of any
pending investigation or review by any governmental or other entity (a) with
respect to any alleged violation of any Environmental Laws (as hereinafter
defined) in connection with the Business Property, (b) with respect to any
alleged failure by the Leasehold Owner to have any environmental permit required
in connection with the Business Property or (c) with respect to any Release (as
hereinafter defined) in, upon or under the Business Property. For the purpose of
this Agreement, "Environmental Laws" means all Laws relating to the environment
or to emissions, discharges or releases of asbestos, pollutants, contaminants,
petroleum or petroleum products, chemicals or industrial, toxic, radioactive or
hazardous materials, substances or wastes into the environment, including
without limitation ambient air, surface water, ground water or land, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
contaminants, petroleum or petroleum products, chemicals or industrial, toxic
radioactive or hazardous materials, substances or wastes or the clean-up or
other remediation thereof, and "Release" means the treatment, storage,
recycling, transportation, disposal or release of Hazardous Substances.
<PAGE> 32
B. Negative Declaration. The Premises are not an
"Establishment," as defined by Connecticut General Statutes Section 22a-134,
requiring the filing of a negative declaration or other form, or, if the
Premises are an Establishment, Seller will execute the applicable certification
as the Certifying Party, pay all filing fees, and timely file the required forms
in connection with the transfer of such Establishment.
C. Hazardous Materials. There has been no storage, use,
discharge or release of hazardous materials on, in or under the Premises. As
used in this Agreement, the term "hazardous materials" means any hazardous,
regulated or toxic chemical, agent, sub stance, material or waste, including any
petroleum based substance, which is regulated by any local governmental
authority, the State of Connecticut, the United States or any agency thereof,
including, but not limited to substances defined by the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), the Resource
Conservation and Recovery Act, or under Connecticut General Statutes Title 22a,
or any regulations promulgated under any of the foregoing statutes. The Premises
(i) are currently in compliance with (and there is no condition existing which,
with the passage of time, will cause the Premises not to comply with) all
applicable health, safety, ecological, environmental, inland wetland, flood
control, pollution control and other similar laws, codes, regulations,
standards, and orders applicable to the Premises and (ii) are free from asbestos
(except as provided in subparagraph D hereof), PCBs and all hazardous materials
and all other effluent and debris of any type which would constitute a health
hazard or risk or would otherwise interfere with the current or intended use of
the Premises. No portion of the Premises have ever been used in the past for
activities which, either directly or indirectly, involved the generation, use,
storage, transportation or disposal of any hazardous
<PAGE> 33
materials and the Premises do not contain, nor are they emitting any hazardous
materials. There are no and have been no underground storage tanks located on
the Premises.
D. Asbestos Removal. Prior to the Closing Seller shall, in
accordance with all applicable laws, codes, regulations and guidelines, remove
all asbestos and asbestos containing material from the Premises, other than such
asbestos and asbestos containing material which is shown to be located upon the
Premises in the Asbestos Report; or, at Seller's election, or at the Closing,
Seller shall give to Buyer a credit against the Purchase Price in an amount
equal to the cost of the removal of such asbestos and asbestos containing
material shown to be located upon the Premises in the Asbestos Report in
accordance with Buyer's cost estimate.
E. Representations to Survive Closing. The representations
and warranties by Seller contained in this Section 6.03 are true, accurate and
complete, as of the day Seller executes this Agreement, shall be deemed made as
of the date of the Closing, shall be deemed continuing until the date of the
Closing and shall survive the Closing and the passage of title.
SECTION 6.04. UTILITIES; ACCESS. To the best of Seller's
knowledge, the Business Property has adequate water supply, storm and sanitary
sewage facilities, telephone, gas, electricity, fire protection, means of
ingress and egress to and from public highways and, without limitation, other
required public utilities. All streets and roads necessary for access to or full
utilization of the Business Property or any part thereof have been completed,
dedicated and accepted for maintenance and public use by the appropriate
governmental authorities or are otherwise owned and maintained by local
governments for
<PAGE> 34
public use. No easements are required by the owner of the Business Property for
such access and full utilization or in connection with any utilities.
SECTION 6.05. SOIL CONDITIONS; ENCROACHMENTS; FLOOD AND MUDSLIDE
HAZARDS. To the best of Seller's knowledge, there are no soil conditions
adversely affecting the Business Property. The Improvements do not encroach onto
adjoining land or onto any easements, and there are no encroachments of
improvements from adjoining land onto the Business Property. The location or
configuration of the Improvements does not violate any applicable setback
requirements or restrictive or leasehold covenants or applicable laws or codes.
The Land is not in an area identified by an agency or department of the federal
government as having special flood or mudslide hazards.
SECTION 6.06. PECHINEY SUBLEASE. Between the date hereof and the
Closing Seller shall comply with and enforce all provisions of the Pechiney
Sublease, and if Pechiney shall fail to perform any of its obligations under the
Pechiney Sublease, Seller shall perform such obligations.
SECTION 6.07. DUE AUTHORIZATION, EXECUTION. ORGANIZATION, ETC.
(SELLER) This Agreement and all agreements, instruments and documents herein
provided to be executed or to be caused to be executed by Seller are and on the
Closing Date will be duly authorized, executed and delivered by and are binding
upon the same. Seller is a trust established under a Trust Agreement dated June
3, 1986 and is duly organized, validly existing and in good standing under the
laws of the State of Florida, and is duly authorized and qualified to do all
things required of it under this Agreement. Seller has the capacity and
authority to enter into this Agreement and consummate the transactions herein
provided and
<PAGE> 35
nothing prohibits or restricts the right or ability of Seller to close the
transactions contemplated hereunder and carry out the terms hereof. Samuel
Feinerman is the sole trustee of Seller. Neither this Agreement nor any
agreement, document or instrument executed or to be executed in connection with
the same, nor anything provided in or contemplated by this Agreement or any such
other agreement, document or instrument, does now or shall hereafter breach,
invalidate, cancel, make inoperative or interfere with, or result in the
acceleration of maturity of, any contract, agreement, lease, easement, right or
interest, affecting or relating to Seller, any of the trustees of Seller or the
Business Property.
SECTION 6.08. FINANCIAL INFORMATION. Attached hereto as Exhibit
17 are financial statements with respect to the Business Property for the period
from January 1, 1992 through December 31, 1995, which financial statements are
prepared by an independent certified public accountant. All financial statements
and information delivered to Buyer at any time or times heretofore or hereafter
or concurrently herewith are and shall be full, true and correct in all material
respects and have been and will be prepared in accordance with generally
accepted accounting principles and practices. All such financial statements have
fairly presented and will fairly present the respective financial conditions of
the subjects thereof as of the respective dates thereof, and no material adverse
change has occurred or shall have occurred from the respective dates thereof to
the date hereof or, if later, the dates of delivery of the same to Buyer except
as noted therein. No material adverse change has occurred in the condition
(financial or otherwise) of the Business Property, or of Seller since the dates
of the statements annexed as Exhibit 17.
SECTION 6.09. EXISTING AGREEMENTS. There are no agreements or
understandings relating to the Business Property, except for this Agreement, the
Contract,
<PAGE> 36
the Permitted Title Exceptions, and the Existing Lease (and, without limitation
on the foregoing, there are no existing management agreements affecting the
Business Property). No alterations, amendments or waivers pertaining to the
foregoing will be made prior to the Closing Date.
SECTION 6.10. DEFAULT. Seller is not in default in respect of any
of its obligations or liabilities pertaining to the Business Property. Without
limitation on the foregoing, the Service Contracts, the Permitted Title
Exceptions, the Ground Lease and the Existing Lease are free from default by
Seller and, to the best knowledge of Seller, by any other party thereto; and
there does not exist any state of facts or circumstances or conditions or event
which, after notice or lapse of time or both, would constitute or result in any
such default by Seller or, to the best knowledge of Seller, by any other party.
SECTION 6.11. LITIGATION; CONDEMNATION. There are no actions,
suits or proceedings pending or, to the best knowledge of Seller, threatened,
before or by any judicial, administrative or union body, any arbiter or any
governmental agency or authority, against or affecting Seller or the Business
Property. There is no existing, proposed or contemplated eminent domain or
similar proceeding which would affect the Land or Improvements in any way
whatsoever.
SECTION 6.12. ADVERSE INFORMATION. Seller has no information or
knowledge of any change contemplated in any applicable laws, codes, ordinances
or restrictions, or any judicial or administrative action, or any action by
adjacent landowners, or natural or artificial conditions upon the Business
Property, or any other fact, circumstance or condition, financial or otherwise,
which would prevent, limit, impede or render more costly Buyer's contemplated
use of the Business Property.
<PAGE> 37
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. CONDITIONS TO BUYER'S OBLIGATIONS.
Buyer's obligations to perform its undertakings provided in this
Agreement (including its obligation to purchase the Business Property) and to
close the transactions contemplated herein are conditioned upon and subject to
the fulfillment and satisfaction of all conditions provided in other provisions
of this Agreement and the following conditions:
A. Operation of Business Property. (i) That the
Premises shall be managed and operated in the ordinary course of business and
shall be maintained in no less satisfactory condition than the same exists as of
the signing of this Agreement, normal wear and tear and damage by casualty
excepted, and (ii) That Pechiney is not in default under the Pechiney Lease and
has not breached any of its obligations under the Pechiney Lease.
B. Use, Occupancy, Licenses, Permits, CO's, Zoning.
(i) that all building permits, certificates of occupancy, business licenses and,
without limitation, all other notices, licenses, permits, certificates and
authority required in connection with the construction, use or occupancy of the
Business Property have been obtained and are in effect and in good standing;
(ii) that valid and final certificates of occupancy have been issued for the
Improvements and each part and portion thereof and no space has been leased in
violation of any such certificates; and (iii) that the Land is zoned for the
buildings and businesses included and to be included in the Business Property.
<PAGE> 38
Seller represents (i) that the Leasehold Owner has
received no notice and that the Seller has no other knowledge that any
government agency or any employee or official thereof considers the construction
of the Business Property or the operation or use of the same to have failed to
comply with any law, ordinance, regulation or order or that any investigation
has been commenced or is contemplated respecting any such possible failure of
compliance; and (ii) that there are no unsatisfied requests for repairs,
restorations or improvements to the Premises from any person, entity or
authority, including any tenant, lender, insurance carrier or government
authority.
C. Performance by Seller and Truth of Seller's
Representations and Warranties. The due performance by Seller of each and every
undertaking and agreement to be performed by it hereunder and the truth of each
representation and warranty made by Seller in this Agreement at the time as of
which the same is made and as of the Closing Date as if made on and as of the
Closing Date. Without limitation on the foregoing, there shall be no defaults or
exceptions noted in the Certificate of Seller (Exhibit 7).
D. No Bankruptcy or Dissolution. That at no time on
or before the Closing Date shall any of the following ("Bankruptcy/Dissolution
Event") have been done by, against or with respect to Seller: (a) the
commencement of a case under Title 11 of the U.S. Code, as now constituted or
hereafter amended, or under any other applicable federal or state bankruptcy law
or other similar law; (b) the appointment of a trustee or receiver of any
property interest; (c) an assignment for the benefit of creditors; (d) an
attachment, execution or other judicial seizure of a substantial property
interest; (e) the taking of, failure to take, or submission to any action
indicating an inability to meet its
<PAGE> 39
financial obligations as they accrue; or (f) a dissolution or liquidation of the
Seller, or the death or incapacity of any trustees of the Seller.
E. No Damage. That there shall not have occurred
between the date hereof and the Closing Date, inclusive, destruction of or
damage or loss to the Business Property from any cause whatsoever, according to
Buyer's best estimate, which would cost more than $100,000 or take longer than
thirty (30) days to fully repair, restore and replace.
F. No Taking. That there shall not have occurred at
any time or times on or before the Closing Date any taking of the Business
Property or any part thereof by eminent domain, and there shall have been no
notice of such taking given by any governmental authority .
G. Survey. That Buyer shall have obtained an update
of the survey of the Premises by S. E. Minor & Co., Inc. entitled "Property To
Be Conveyed To Pacific Beach Company, Inc. A Delaware Corporation Greenwich,
Conn." dated Feb. 23, 1984 and last revised Sept. 8, 1992 (as so updated, the
"Survey") of the Land and Building, certified to Buyer and the Title Company,
qualifying as an ALTA certified completion survey (with all matters shown
thereon or omitted therefrom being reasonably satisfactory to Buyer and the
Title Company), which such Survey shall confirm the following:
(a) that all buildings and improvements on the
Land, (including without limitations, the Improvements, and any driveways and
other means of access), shall be completely within the boundary lines of the
Premises and shall not encroach upon or under the property of any other person
or entity;
<PAGE> 40
(b) that no building or structure or other improvement
belonging to any other person or entity shall encroach upon or under the
Premises;
(c) that the Premises shall abut a public street or highway;
and
(d) that no facts are disclosed by the Survey for which the
Title Company will take exception in the title insurance policy to be issued to
Buyer.
H. Pechiney Sublease Status. That (i) the Pechiney Sublease shall
be in full force and effect and all obligations and requirements of Pechiney
under the Pechiney Sublease to be paid and performed as of the date of the
Closing shall have been paid or performed or complied with by Pechiney, and all
taxes and assessments, sewer charges, sewer taxes and other municipal taxes,
imposed with respect to the Business Property shall have been paid by Pechiney
as required pursuant to the Pechiney Sublease, and (ii) Seller shall have
entered into an agreement with Pechiney to amend the Pechiney Sublease,
effective as of the closing of this transaction, which such agreement shall be
acceptable to, and shall have been approved in advance in writing by, Buyer, and
Seller shall have delivered a fully executed copy of such agreement to Buyer.
I. The conveyance to Buyer of the Fee Owner's fee interest in the
Premises as provided in Section 5.01 of this Agreement.
SECTION 7.02. BUYER'S WAIVER OF CONDITIONS. At any time or times
on or before the Closing, Buyer may elect to waive in writing the benefit of any
condition to its obligations hereunder. In the event that any of such conditions
are neither waived nor fulfilled or satisfied, Buyer may terminate this
Agreement and upon such termination, the
<PAGE> 41
Deposit and all interest accrued thereon shall be refunded to Buyer, and Seller
shall have the obligation to reimburse Buyer for any expenses incurred by Buyer
in accordance with any specific provisions contained herein which require such
reimbursement.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.01. INDEMNIFICATION BY SELLER.
A. Seller shall hold harmless, indemnify and defend Buyer and the
Business Property from and against: (a) any and all "Claims" (as hereinafter
defined) whether direct, contingent or consequential and no matter how arising,
in any way related to the Business Property and arising or accruing on or before
the Closing, including any Claim arising or accruing under any Existing Lease,
the Contract or any other agreement on or before the Closing, and (b) any Claim
that (i) is inconsistent with (or results from any actual or alleged fact that
is inconsistent with) any representation or warranty of Seller or (ii) results
from any breach or default by Seller under this Agreement or under the Contract.
SECTION 8.02. INDEMNIFICATION BY BUYER. Buyer shall hold
harmless, indemnify and defend Seller from and against any Claim that results
from any breach or default by Buyer under this Agreement.
SECTION 8.03. GENERAL INDEMNITY PROVISIONS. Each indemnity
provided for under this Agreement shall be subject to the following provisions:
<PAGE> 42
A. The indemnity shall cover the costs and expenses of the
indemnity, including reasonable attorneys' fees, related to any actions, suits
or judgments incident to any of the matters covered by such indemnity.
B. The indemnitee shall notify the indemnitor of any Claim
against the indemnitee covered by the indemnity within ten (10) days after it
has notice of such Claim, but failure to notify the indemnitor shall in no case
prejudice the rights of the indemnitee under this Agreement unless the
indemnitor shall be prejudiced by such failure and then only to the extent the
indemnitor shall be prejudiced by such failure. Should the indemnitor fail to
discharge or undertake to defend the indemnitee against such liability upon
learning of the same, then the indemnitee may settle such liability, and the
liability of the indemnitor hereunder shall be conclusively established by such
settlement, the amount of such liability to include both the settlement
consideration and the reasonable costs and expenses, including attorneys' fees,
incurred by the indemnitee in effecting such settlement.
C. Each party's indemnification obligations under this Agreement
shall also extend to any present or future advisor, trustee, director, officer,
partner, employee, beneficiary, shareholder, participant or agent of or in the
indemnitee or any entity now or hereafter having a direct or indirect ownership
interest in the indemnitee.
SECTION 8.04. DEFINITION. "Claim" means any obligation, liability,
claim (including any claim for damage to property or injury to or death of any
persons), lien or encumbrance, loss, damage, cost or expense.
<PAGE> 43
ARTICLE IX
CONDEMNATION AND DESTRUCTION OR DAMAGE
SECTION 9.01. CONDEMNATION.
A. If, prior to the Closing, any portion of the Business Property
is taken by eminent domain (or is the subject of a pending taking which has not
yet been consummated), Seller shall notify Buyer of such fact promptly after
obtaining knowledge thereof, and Buyer shall have the right to terminate this
Agreement by giving notice to the Seller not later than ten (10) business days
after the receipt of Seller's notice. If Buyer elects to terminate this
Agreement as aforesaid, the provisions of Section 9.04 shall apply.
B. If Buyer does not exercise its right to terminate this
Agreement under subsection 9.01A, there shall be no abatement of the Purchase
Price and Seller shall assign to Buyer at the Closing all rights of Seller to,
and Buyer shall be entitled to receive and keep, all compensation, damages or
awards for the taking of the Property or such portion thereof. Seller shall not
settle any proceedings relating to such taking without Buyer's prior written
consent which shall not be unreasonably withheld.
SECTION 9.02. DESTRUCTION OR DAMAGE.
A. In the event that the Improvements, or any part thereof, shall
be damaged or destroyed by fire or any other casualty ("Casualty") prior to the
Closing, Seller shall promptly give Buyer written notice of such event. In the
event that the Improvements shall suffer a Casualty, Buyer shall have the option
(a) to proceed with the Closing and acquire the Business Property as affected by
such Casualty, in which event
<PAGE> 44
Buyer shall proceed to accept title to the Business Property and Seller shall,
on the Closing transfer and/or assign to Buyer any and all compensation, damages
and insurance proceeds or the rights to receive such compensation, damages and
proceeds (including proceeds covering loss of rents for the period after the
Closing) received by or accrued to Seller on account of such Casualty, less such
sums, if any, as shall have been expended by Seller prior to Closing in
connection with the repair or restoration of the Building or controlling the
damage or in making claim for, or collecting, any of said monies, or (b) to
terminate this Agreement by delivery written notice to Seller within ten (10)
business days of Buyer's receipt of Seller's written notice concerning the
Casualty. Seller shall not settle any proceedings relating to such Casualty
without Buyer's prior written consent.
SECTION 9.03. INSURANCE. Seller, at Seller's cost and expense, shall
maintain until Closing, the fire, casualty, environmental, liability and rental
loss insurance coverages which Seller presently maintains with respect to
Business Property. Seller shall not assign to Buyer any insurance policies in
connection with the Business Property.
SECTION 9.04. TERMINATION UNDER THIS ARTICLE. If this Agreement is
terminated pursuant to Section 9.01 or 9.02, Seller shall within five (5)
business days cause the Deposit to be refunded to Buyer, with all interest
earned thereon. Upon such refund, this Agreement shall terminate and neither
party to this Agreement shall have any further rights or obligations hereunder.
<PAGE> 45
ARTICLE X
BUYER'S DUE DILIGENCE; CONDITION OF PROPERTY
SECTION 10.01. BUYER'S DUE DILIGENCE; INSPECTION OF PROPERTY;
INSPECTION PERIOD. During the period commencing upon the date hereof until 5
p.m. Eastern Standard Time on May 3, 1996 (the "Inspection Period"), Seller
shall permit Buyer to complete Buyer's due diligence relating to the Business
Property, at Buyer's sole cost and expense, and shall allow Buyer or Buyer's
counsel, engineers, consultants, agents, accountants and architects or
representatives, as a part of such due diligence, to have reasonable access to
and review and inspect the Business Property, to review applicable land use and
zoning laws and other governmental laws, rules and regulations, and to review
all leases and contracts affecting the Business Property and such other matters
related to the Business Property as Buyer deems relevant. Seller shall make
available to Buyer, its agents and representatives, any environmental reports,
asbestos reports, ADA reports and studies regarding the Business Property, all
assessments and tax bills, notices or correspondence from governmental agencies
pertaining to the Business Property, and any books, records, files, plans, and
related items pertaining to the Business Property, if any.
All such inspections shall be performed at Buyer's sole cost and
expense, and Buyer agrees to keep the Business Property free and clear of any
liens which may arise as a result of such inspections. Buyer agrees to restore
and repair promptly any physical damage caused by any inspection or testing of
the Business Property. Buyer agrees to keep confidential any information Buyer
and/or its agents or representatives have obtained or developed during or as a
result of its inspection; provided, however, it is hereby agreed and understood
by and between Seller and Buyer that Buyer may, without the prior approval of
<PAGE> 46
Seller, reveal the results of its inspections to its attorneys and potential
financial advisors, lenders, investors, joint venturers, partners and/or persons
or entities that Buyer's financial advisors or attorneys deem reasonably
necessary.
SECTION 10.02. BUYER'S RIGHT OF TERMINATION. If, during the
Inspection Period, Buyer shall, for any reason, in Buyer's sole discretion,
judgment and opinion, be dissatisfied with any aspect of the Business Property
or any documents examined by Buyer during Buyer's inspection of the Business
Property, Buyer may elect to terminate this Agreement by giving written notice
to Seller that Buyer elects to terminate this Agreement, on or before the
expiration of the Inspection Period, whereupon, notwithstanding anything
contained herein to the contrary, the Deposit and all interest accrued thereon
shall be promptly returned to Buyer, and thereupon neither party have any
liability, right or obligation hereunder, except for any of the same which
expressly survive the termination of this Agreement.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. BROKERS. Seller represents and warrants to
Buyer that no broker or finder has been engaged by Seller in connection with any
of the transactions contemplated by this Agreement. Buyer represents and
warrants to Seller that no broker or finder has been engaged by Buyer in
connection with any of the transactions contemplated in this Agreement, other
than Albert B. Ashforth, Inc. (Belinda Scanlon) and Buyer agrees to pay said
Albert B. Ashforth, Inc. for its services to Buyer an amount mutually agreeable
to Buyer and said broker pursuant to their separate agreement.
<PAGE> 47
SECTION 11.02. FURTHER INSTRUMENTS. Each party will, whenever and as
often as it shall be requested so to do by the other, cause to be executed,
acknowledged and delivered any and all such further reasonable instruments and
documents as may be necessary or proper, in the reasonable opinion of the
requesting party, in order to carry out the intent and purpose of this
Agreement, provided that the obligations of any such party are not increased
thereby (or the rights of such party decreased thereby).
SECTION 11.03. MATTERS OF CONSTRUCTION.
A. Incorporation of Exhibits. All Exhibits and Schedules attached
and referred to in this Agreement are hereby incorporated herein as fully set
forth in and shall be deemed to be a part of this Agreement.
B. Entire Agreement. This Agreement contains the entire agreement
between the parties respecting the matters herein set forth and supersedes all
prior agreements between the parties hereto respecting such matters.
C. Non-Business Days. Whenever action must be taken (including the
giving of notice or the delivery of documents) under this Agreement during a
certain period of time (or by a particular date) that ends (or occurs) on a
non-business day, then such period (or date) shall be extended until the
immediately following business day. As used herein, "business day" means any day
other than a Saturday, Sunday or federal or Connecticut or New York State
holiday.
D. Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term or
<PAGE> 48
provision to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each such term and
provision of this Agreement shall be valid and be enforced to the fullest extent
permitted by law.
E. Certain Terminology.
(a) Whenever the words "including," "include" or "includes"
are used in this Agreement, they shall be interpreted in a non-exclusive manner
as though the words, "without limitation," immediately followed the same.
(b) Except as otherwise indicated, all Exhibit, Schedule,
Article and Section references in this Agreement shall be deemed to refer to the
Exhibits, Schedules, Articles and Sections in this Agreement.
F. Captions. Article and section headings shall not be used in
construing this Agreement.
G. Cumulative Remedies. No remedy conferred upon a party in this
Agreement is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law, in
equity or by statute (except as otherwise expressly herein provided).
H. No Waiver. No waiver by a party of any breach of this Agreement
or of any warranty or representation hereunder by the other party shall be
deemed to be a waiver of any other breach by such other party (whether preceding
or succeeding and whether or not of the same or similar nature), and no
acceptance of
<PAGE> 49
payment or performance by a party after any breach by the other party shall be
deemed to be a waiver of any breach of this Agreement or of any representation
or warranty hereunder by such other party, whether or not the first party knows
of such breach at the time it accepts such payment or performance. No failure or
delay by a party to exercise any right it may have by reason of the default of
the other party shall operate as a waiver of default or modification of this
Agreement or shall prevent the exercise of any right by the first party while
the other party continues to be so in default.
I. Consents and Approvals. Except as otherwise expressly provided
herein, any approval or consent provided to be given by a party hereunder may be
given or withheld in the absolute discretion of such party.
J. Governing Law. This Agreement shall be construed and enforced
in accordance with the internal laws of the State of Connecticut (without regard
to conflicts of law).
K. No Third Party Beneficiaries. Nothing in this Agreement,
expressed or implied, is intended to confer any rights or remedies upon any
person, other than the parties hereto and, subject to the other restrictions on
assignment herein contained, their respective successors and assigns.
L. Amendments. This Agreement may be amended by written agreement
or amendment executed by Seller and Buyer, but not otherwise.
SECTION 11.04. ATTORNEYS' FEES. If any party obtains a judgment against
any other party by reason of any breach or default of this Agreement, reasonable
attorneys' fees (and costs) as fixed by the court shall be included in such
judgment.
<PAGE> 50
SECTION 11.05. SUCCESSORS AND ASSIGNS. Seller may not assign or
transfer its rights or obligations under this Agreement or the Contract without
the prior written consent of Buyer in each instance (in which event such
assignee or transferee shall assume in writing all of the assignor's or
transferor's obligations hereunder, but such assignor or transferor shall not be
released from its obligations hereunder). No consent given by Buyer to any
transfer or assignment of Seller's rights or obligations hereunder or under the
Contract shall be construed as a consent to any other transfer or assignment of
Seller's rights or obligations hereunder. No transfer or assignment in violation
of the provisions hereof shall be valid or enforceable. Except for any
assignment by Buyer (or any assignee of Buyer) to any subsidiary, affiliated
company or any entity controlling controlled by or under common control with
Buyer, which assignments are not restricted under this Agreement, Buyer may not
assign or transfer its rights or obligations under this Agreement prior to the
Closing Date without the prior written consent of Seller (which Seller agrees
not to unreasonably withhold), and in the event of such transfer or assignment
such transferee or assignee shall assume in writing all of the transferor's or
assignor's obligations hereunder, but such transferor or assignor shall not be
released from its obligations hereunder.
SECTION 11.06. NOTICES. Any notice, consent or request which a party is
required or may desire to give the other shall be in writing and may be sent by
(i) personal delivery,
(ii) United States certified mail, return receipt requested,
postage prepaid,
<PAGE> 51
(iii) Federal Express or similar generally recognized
overnight carrier regularly providing proof of delivery, or
(iv) telecopy, provided that the party giving such telecopy
notice also sends confirmed written notice by next business day courier (such as
Federal Express or the like), to the respective addresses and telecopy numbers
(as applicable) of the parties set forth below:
to Seller:
Lembo-Feinerman Fleming Morell Trust
Summit Realty & Development
200 West Palmetto Park Road
Boca Raton, Florida 33432
Attention: Samuel Feinerman
Telecopy No. 407-392-2551
Confirmation No. 407-368-2043
with a copy to:
Ackerman, Levine & Cullen, L.L.P.
175 Great Neck Road
Great Neck, New York 11021
Attention: William Ackerman, Esq.
Telecopy No. 516-829-6966
Confirmation No. 516-829-6900
to Buyer:
W. R. Berkley Corporation
165 Mason Street
P.O. Box 2518
Greenwich, CT 06836-2518
Attention: Robert Gorin, Esq.
Telecopy No. 203-629-8336
Confirmation No. 203-629-3026
<PAGE> 52
with a copy to:
Robert F. Grele, Esq.
Cummings & Lockwood
Two Greenwich Plaza
P.O. Box 2505
Greenwich, CT 06836
Telecopy No. 203-869-3120
Confirmation No. 203-863-6518
Any notice so given by mail shall be deemed to have been given
as of the date of delivery (whether accepted or refused) established by U.S.
Post Office return receipt or the overnight carrier's proof of delivery, as the
case may be. Any such notice not so given shall be deemed given upon receipt of
the same by the party to whom the same is to be given.
SECTION 11.07. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, provided each of the parties hereto executes at
least one counterpart; each such counterpart hereof shall be deemed to be an
original instrument, but all such counterparts together shall constitute but one
agreement.
SECTION 11.08. RIGHT OF WAIVER. Each and every condition of
the Closing other than the tender of the payments by Buyer is intended for and
is for the sole and exclusive benefit of Buyer. Accordingly, Buyer may at any
time and from time to time waive each and any condition of Closing, without
waiver of any other condition or other prejudice of its rights hereunder. Such
waiver by Buyer shall be in writing signed by Buyer and delivered to Seller.
SECTION 11.09. DISCUSSIONS WITH TENANTS. Seller acknowledges
and agrees that Buyer may contact any and all tenants and/or subtenants under
the Existing Lease and the Existing Subleases to discuss (and possibly agree on)
any such tenant's/subtenant's lease
<PAGE> 53
and/or a potential termination and/or modification of such tenant's/subtenant's
lease in the event Buyer closes on the acquisition contemplated under this
Agreement. In no event shall any such discussions (and/or agreements) be binding
on Seller.
<PAGE> 54
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year first above written.
BUYER: W. R. BERKLEY CORPORATION
DATE OF EXECUTION
BY BUYER: By: /s/ W. R. Berkley
---------------------------
Its
3/15/96
- --------------
SELLER: LEMBO-FEINERMAN FLEMING
MORELL TRUST
DATE OF EXECUTION
BY SELLER: By /s/ Samuel Feinerman
---------------------------
Samuel Feinerman, Trustee
2/15/96
- --------------
ESCROW AGENT: CHICAGO TITLE INSURANCE COMPANY
By: /s/ Thomas M. Ferraro
---------------------------
Its
<PAGE> 55
CHICAGO TITLE INSURANCE COMPANY
COMMITMENT FOR TITLE INSURANCE
SCHEDULE A
(LEGAL DESCRIPTION)
Title Number: 954202337
Those certain pieces or parcels of land, together with the buildings and
improvements located thereon, situated in the town of Greenwich, County of
Fairfield and State of Connecticut and more particularly described as follows:
FIRST TRACT:
Beginning at a point on the easterly line of Steamboat Road formed by the
intersection of the division line between the premises herein described and land
now or formerly of Mary W. Knapp with said easterly line of Steamboat Road;
thence along said easterly line of Steamboat Road N 0 degrees 26' E. 101.4 feet
to land of the Town of Greenwich; thence along land of said Town of Greenwich S
89 degrees 03' E. 177.9 feet and S 89 degrees 58' E. 358.1 feet to land now or
formerly of Tunick; thence along said land now or formerly of Tunick S 37
degrees 05' W. 90.3 feet; S 20 degrees 43' W. 118.4 feet; S 16 degrees 10' E.
54.1 feet; S 13 degrees 55' E. 35.5 feet to land now or formerly of Stempien;
thence along said land now or formerly of Stempien to and along the northerly
line of Davenport Avenue N 89 degrees 37' W. 315.7 feet to the Second Tract
herein described; thence along said Second Tract to and along land now or
formerly of Mary W. Knapp N 0 degrees 8' E. 166.9 feet; thence still along said
land now or formerly of Mary W. Knapp N 89 degrees 39' W. 148.9 feet to point or
place of beginning.
NORTHERLY: by land of the Town of Greenwich;
EASTERLY: by land now or formerly of Tunick;
SOUTHERLY: by land now or formerly of Stempien and Davenport Avenue and in
part by land now or formerly of Mary W. Knapp;
WESTERLY: by the Second Tract herein described, land now or formerly of
Mary W. Knapp and Steamboat Road.
<PAGE> 56
CHICAGO TITLE INSURANCE COMPANY
COMMITMENT FOR TITLE INSURANCE
SCHEDULE A
(LEGAL DESCRIPTION)
Title Number: 954202337
SECOND TRACT
Beginning at a point formed by the intersection of the northerly line of
Davenport Avenue with the easterly line of Steamboat Road and running thence
along Steamboat Road N 0 degrees 55' E. 66.74 feet to land now or formerly of
Mary W. Knapp; thence along said land now or formerly of Mary W. Knapp S 89
degrees 02' E. 150.7 feet to the First Tract herein described; thence along said
First Tract S 0 degrees 08' W. 64.15 feet to the northerly line of Davenport
Avenue thence along said northerly line of Davenport Avenue S 89 degrees 59' W.
151.6 feet to the point or place of beginning bounded:
NORTHERLY: by land now or formerly of Mary W. Knapp;
EASTERLY: by the First Tract herein described;
SOUTHERLY: by Davenport Avenue;
WESTERLY: by Steamboat Road.
Together with all of the right, title and interest in and to a certain right of
way as set forth in an instrument from the Town of Greenwich to the
Fleming-Morell Corporation dated November 17, 1969 and recorded in Volume 794 at
Page 625 of the Greenwich Land Records.
<PAGE> 57
SCHEDULE B
EXISTING LEASE
AGREEMENT OF LEASE between FLEMING-MORELL ASSOCIATES,
Landlord, and PECHINEY UGINE KUHLMANN CORPORATION dated November 6, 1981 (the
"Pechiney Sublease"), as evidenced by a Notice of Lease between Felming-Morell
Associates and Pechiney Ugine Kuhlmann Corporation dated November 6, 1981 and
recorded on November 9, 1981 in Volume 1240 at Page 213 of the Greenwich Land
Records.
FLEMING-MORELL ASSOCIATES assigned its rights and interest
under the Pechiney Sublease to the Lembo-Feinerman Fleming Morell Trust by an
instrument of assignment dated May 10, 1989, recorded in Volume 1973 at Page 61
of the Greenwich Land Records.
PECHINEY UGINE KUHLMANNN CORPORATION assigned its rights and
interest under the Pechiney Sublease to Howmet Turbine Components Corporation by
an instrument of assignment and assumption dated August 29, 1983 recorded on
September 1, 1983 in Volume 1335 at Page 141 of the Greenwich Land Records;
Howmet Turbine Components Corporation assigned its rights and interest under the
Pechiney Sublease to Pechiney Corporation by an instrument dated June 1, 1994
recorded on ______________ _______, 19___ in Volume ________ at Page ______ of
the Greenwich Land Records; and Pechiney Corporation assigned its rights and
interest under the Pechiney Sublease to Pechiney Packaging Corp. by an
instrument dated _____________ _______, 19___ recorded on ________________
______, 19____ in Volume ____________ at Page _________ of the Greenwich Land
Records.
<PAGE> 58
SCHEDULE C
EXISTING SUBLEASES
Sublease dated December 7, 1995 by and between Pechiney Packaging Corporation
("Landlord") and Howmet Corporation ("Tenant").
Sublease dated December 15, 1993 by and between Pechiney Corporation
("Landlord") and T.M.G. Financial Products, Inc. ("Tenant").
Sublease dated August 24, 1984 by and between Pechiney Corporation ("Landlord")
and Dynamics Corporation of America ("Tenant"), as amended by Letter Agreement
dated December 15, 1993.
Sublease dated March 11, 1985 by and between Pechiney Corporation ("Landlord")
and First Reserve Capital Management Corp. ("Tenant"), as amended by an
Amendment to Sublease dated March 27, 1995.
<PAGE> 59
SCHEDULE D
PERSONAL PROPERTY
All tangible personal property located upon the Premises owned by the Seller
<PAGE> 60
SCHEDULE E
[Intentionally Left Blank]
<PAGE> 61
SCHEDULE F
TITLE EXCEPTIONS
1. Taxes of the Town of Greenwich on the List of October 1, 1995, not yet due
and payable as of the date of the Closing.
2. Terms and Provisions of a Ground Lease by and between The Mutual Life
Insurance Company of New York (Landlord) and the Fleming-Morell Corporation
(Tenant) dated March 26, 1970, a notice of which is dated March 26, 1970 and is
recorded in Volume 797 at Page 500 and re-recorded in Volume 809 at Page 75 of
the Greenwich Land Records. Said Lease was assigned to Lembo-Feinerman
Fleming-Morell Trust by Assignment of Lease and Consent of Lessor dated May 10,
1989 and recorded on September 18, 1989 in Volume 1973 at Page 61 of said Land
Records, and now in favor of Pacific Beach Company, Inc. as per Assignment and
Assumption of Ground Lease Agreement dated November 17, 1992 and recorded on
November 20, 1992 in Volume 2319 at Page 252 of said Land Records.
3. Provisions set forth in a Warranty Deed from The Fleming-Morell Corporation
to The Mutual Life Insurance Company of New York dated March 26, 1970 and
recorded in Volume 797 at Page 491 of said Land Records.
4. Provisions contained in the Warranty Deed from Fleming-Morell Corporation to
Fleming-Morell Associates dated April 6, 1981 and recorded November 9, 1981 in
Volume 1240 at Page 208 of said Land Records.
5. Conditions of grant from the Town of Greenwich to The Fleming-Morell
Corporation dated November 17, 1969 and recorded on November 17, 1969 in Volume
794 at Page 625 of the Greenwich Land Records.
6. Lease by and between Fleming-Morell Association and Pechiney Ugine Kuhlmann
Corporation dated November 6, 1981, a Notice of which is dated November 6, 1981
and is recorded on November 9, 1981 in Book 1240 at Page 213 of the Greenwich
Land Records; Assignment of Lease and Assumption Agreement from Pechiney Ugine
Kuhlmann Corporation to Howmet Turbine Components Corporation dated August 29,
1983 and recorded in the Greenwich Land Records on September 1, 1983 in Book
1335 at Page 141.
7. Terms and Provisions of a Sublease, as evidenced by a Notice of Sublease by
and between Pechiney Corporation and TMG Financial Products, Inc. (as subtenant)
dated December 15, 1993 and recorded January 11, 1994 in Volume 2493 at Page 295
of said Land Records.
<PAGE> 62
EXHIBIT 1
ESCROW RECEIPT AND INSTRUCTIONS
<PAGE> 63
EXHIBIT 2
ASSIGNMENT AND ASSUMPTION OF LEASE
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT, made this _________
day of ________________, 1996, by and between LEMBO-FEINERMAN FLEMING MORELL
TRUST, a Florida Trust established under a Trust Agreement dated ______________
between _______________ and _________________, and having an address at
____________________________, ___________________________, ("Seller"), and W. R.
BERKLEY CORPORATION, a Delaware corporation, having an address at 165 Mason
Street, Greenwich, Connecticut ("Buyer").
WHEREAS, by Sale Agreement dated as of January _______, 1996,
Seller agreed to sell to Buyer and Buyer agreed to buy from Seller, certain real
property, together with the building and other improvements thereon located at
475 Steamboat Road, Greenwich, Connecticut, all as more fully described in said
Sale Agreement (the "Premises"); and
WHEREAS, said Sale Agreement provides, inter alia, that Seller
shall assign to Buyer a certain lease and Buyer shall assume all of the
obligations of Seller under said lease, all as more fully provided in said Sale
Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereto hereby agree as follows:
1. Seller hereby assigns, sets over and transfers to Buyer all of
Seller's right, title and interest as landlord in, to and under the lease listed
on Schedule B annexed hereto and made a part hereof (the "Lease"), and Buyer
hereby accepts such assignment and assumes all of the landlord's liabilities and
obligations under the Lease accruing or to be performed from and after the date
hereof.
2. This Assignment and Assumption Agreement and the obligations
of the parties hereunder shall survive the closing of the transaction referred
to in said Sale Agreement, shall be binding upon and inure to the benefit of the
parties hereto, their respective successors and assigns, shall be governed by
and construed in accordance with the laws of the State of Connecticut and may
not be modified or amended in any manner other than by a written agreement
signed by the party to be charged therewith.
<PAGE> 64
3. Seller agrees to indemnify and hold Buyer harmless from and against
any and all claims, debts and liabilities including, without limitation,
reasonable attorneys' fees, arising out of any claims made by the tenant under
the Lease hereby assigned for any breach or default by Seller in the performance
of, or the failure of Seller to perform, its obligations under the Lease prior
to the date hereof.
4. Buyer agrees to indemnify and hold Seller harmless from and against
any and all claims, debts and liabilities including, without limitation,
reasonable attorneys' fees, arising out of any claims made by the tenant under
the Lease hereby assigned for any breach or default by Buyer in the performance
of, or the failure of the Buyer to perform, its obligations under the Lease
after the date hereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Assignment and Assumption Agreement as of the day and year first above written.
Signed, Sealed and Delivered
in the presence of:
LEMBO-FEINERMAN FLEMING
MORELL TRUST
- ----------------------------
By:
----------------------------
Samuel Feinerman, Trustee
- ----------------------------
W. R. BERKLEY CORPORATION
- ----------------------------
By:
----------------------------
- ----------------------------
Its
<PAGE> 65
STATE OF CONNECTICUT )
) ss: , 1996
COUNTY OF FAIRFIELD )
On this __________ day of ________________________, 1996, before me, the
undersigned officer, personally appeared Samuel Feinerman, Trustee of the Lembo-
Feinerman Fleming Morell Trust, signer of the foregoing instrument, who
acknowledged the same to be his free act and deed and the free act and deed of
said trust.
__________________________
Notary Public
STATE OF CONNECTICUT )
) ss: , 1996
COUNTY OF FAIRFIELD )
On this __________ day of _______________________, 1996, before me, the
undersigned officer, personally appeared ___________________________________ of
W. R. Berkley Corporation, signer of the foregoing instrument, who acknowledged
the same to be his free act and deed and the free act and deed of said
corporation.
__________________________
Notary Public
<PAGE> 66
EXHIBIT 3
[Intentionally Left Blank]
<PAGE> 67
EXHIBIT 4
BILL OF SALE
KNOW ALL THESE MEN BY THESE PRESENTS THAT:
LEMBO-FEINERMAN FLEMING MORELL TRUST, a Florida Trust
established under a Trust Agreement dated ______________ between _______________
and _________________, and having an address at ____________________________,
___________________________,("Seller"), for the consideration of One Dollar
($1.00) and other good and valuable consideration received to Seller's full
satisfaction from W. R. BERKLEY CORPORATION, a Delaware corporation, having an
address at 165 Mason Street, Greenwich, Connecticut ("Buyer") does hereby sell,
transfer, and convey unto the Buyer all of the Seller's interest in the tangible
personal property and equipment identified in Schedule C attached hereto and
made a part hereof.
TO HAVE AND TO HOLD the same to the Buyer and Buyer's
successors and assigns forever, to the Buyer and their proper use and behoof.
IN WITNESS WHEREOF, the Seller has signed this instrument as
of this ___________day of ____________________________, 1996.
LEMBO-FEINERMAN FLEMING MORELL TRUST
By: _______________________________
Samuel Feinerman, Trustee
<PAGE> 68
EXHIBIT 4
BILL OF SALE
KNOW ALL THESE MEN BY THESE PRESENTS THAT:
LEMBO-FEINERMAN FLEMING MORELL TRUST, a Florida Trust
established under a Trust Agreement dated ______________ between _______________
and _________________, and having an address at ____________________________,
___________________________,("Seller"), for the consideration of One Dollar
($1.00) and other good and valuable consideration received to Seller's full
satisfaction from W. R. BERKLEY CORPORATION, a Delaware corporation, having an
address at 165 Mason Street, Greenwich, Connecticut ("Buyer") does hereby sell,
transfer, and convey unto the Buyer all of the Seller's interest in the tangible
personal property and equipment identified in Schedule C attached hereto and
made a part hereof.
TO HAVE AND TO HOLD the same to the Buyer and Buyer's
successors and assigns forever, to the Buyer and their proper use and behoof.
IN WITNESS WHEREOF, the Seller has signed this instrument as
of this ___________day of ____________________________, 1996.
LEMBO-FEINERMAN FLEMING MORELL TRUST
By: _______________________________
Samuel Feinerman, Trustee
<PAGE> 69
EXHIBIT 5
NOTICE TO TENANTS
LEMBO-FEINERMAN FLEMING MORELL TRUST
W. R. BERKLEY CORPORATION
_____________________, 1996
[Tenant's Name and Address]
Re: 475 Steamboat Road
Greenwich, Connecticut
(the "Building")
Gentlemen:
With reference to your lease of space in the Building, please
be advised that LEMBO-FEINERMAN FLEMING MORELL TRUST has this day sold,
transferred and assigned the Building and your lease to W. R. BERKLEY
CORPORATION ("Buyer").
Until you receive further notice from Buyer, all rent checks
and other payments under your lease should henceforth be made payable to W. R.
Berkley Corporation and mailed or delivered to their office at 165 Mason Street,
Greenwich, Connecticut, and all notices to the landlord under your lease should
also be addressed to the Buyer at the foregoing address.
Very truly yours,
LEMBO-FEINERMAN FLEMING
MORELL TRUST
By: __________________________
Samuel Feinerman, Trustee
W. R. BERKLEY CORPORATION
By: _________________________
Its
<PAGE> 70
EXHIBIT 6
FIRPTA CERTIFICATE
Section 1145 of the Internal Revenue Code (the "Code")
provides that a transferee of a U.S. real property interest must withhold tax if
the transferor is a foreign person. To inform the transferee that the
withholding of tax is not required upon the disposition of a U.S. real property
interest, the undersigned, LEMBO-FEINERMAN FLEMING MORELL TRUST, a Florida Trust
established under a Trust Agreement dated ______________ between _______________
and _________________ ("Seller"), hereby certifies to W. R. BERKLEY CORPORATION
(the "Buyer") the following:
1. Neither the Seller nor any Trustee or beneficiary of the
Seller is a foreign corporation, foreign partnership, foreign
trust, or foreign estate (as those terms are defined in
Internal Revenue Code and Income Tax Regulations).
2. Seller's U.S. tax identification number is ____________.
3. Seller's office address is:
Seller understands that this certification may be disclosed to
the Internal Revenue Service by the Buyer and that any false statements
contained herein could be punished by fine, imprisonment or both.
Under penalty of perjury, the undersigned declares that it has
examined this certificate and to the best of its knowledge and belief, it is
true, correct and complete, and the undersigned further declares that the person
signing below has the authority to sign this document on behalf of Seller.
LEMBO-FEINERMAN FLEMING
MORELL TRUST
By: __________________________
Samuel Feinerman, Trustee
<PAGE> 71
EXHIBIT 7
CERTIFICATE OF SELLER
THIS CERTIFICATE, made this ____ day of _________________,
1996, by LEMBO-FEINERMAN FLEMING MORELL TRUST, a Florida Trust established under
a Trust Agreement dated ______________ between _______________ and
_________________, and having an address at ____________________________,
___________________________, ("Seller"), and W. R. BERKLEY CORPORATION, a
Delaware corporation, having an address at 165 Mason Street, Greenwich,
Connecticut ("Buyer").
W I T N E S S E T H
WHEREAS, by Sale Agreement, dated as of __________________,
1996, Seller agreed to sell to Buyer, and Buyer agreed to purchase from Seller
certain real property, together with the building and other improvements
thereon, known as and located at 475 Steamboat Road, Greenwich, Connecticut, as
more fully described in said Sale Agreement; and
WHEREAS, said Sale Agreement requires that Seller deliver this
Certificate as a condition to Closing (as defined in said Sale Agreement).
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in said Sale Agreement, Seller hereby certifies that
the warranties and representations of Seller set forth in said Sale Agreement
are true, accurate and complete on and as of the day and year first above
written.
LEMBO-FEINERMAN FLEMING
MORELL TRUST
By: ___________________________
Samuel Feinerman, Trustee
<PAGE> 72
EXHIBIT 8
[Intentionally Omitted]
<PAGE> 73
EXHIBIT 9
PECHINEY ESTOPPEL CERTIFICATE
W.R. Berkley Corporation
165 Mason Street
Greenwich, CT 06830
Re: Property located at 475 Steamboat Road
Greenwich, Connecticut
Gentlemen:
We understand that you, W. R. Berkley Corporation ("Berkley")
have contracted to purchase the above-referred-to property which is more
specifically described in Schedule A attached hereto (the "Property"). With
respect to that certain Agreement of Lease dated November 6, 1981, between
Fleming-Morell Associates, as landlord, and Pechiney Ugine Kuhlmann Corporation,
as tenant, as amended by an Amendment of Lease Agreement dated _____________
______, 1996, between Tenant, Lembo-Feinerman Fleming Morell Trust and Berkley
(the "Amendment of Lease Agreement"), (as so amended, herein referred to as the
"Lease") the undersigned, Pechiney Packaging Corp., the current Tenant under the
Lease (the "Tenant"), hereby certifies as follows:
(a) the Lease has not been modified or amended, except as
provided in the Amendment of Lease Agreement, and is in full force and effect,
and a true, correct and complete copy of the Lease is attached hereto;
(b) there are no other agreements or other arrangements with
respect to the Property between the Lessor under the Lease and the Tenant, or
with respect to the Lease or the leasing of the Property;
(c) the current term of the Lease will terminate on December
31, 2000; no options under the Lease to extend or renew the Lease have been
assigned, transferred or exercised; the option under the Lease to purchase the
Property has not been assigned, transferred or exercised; the Tenant has,
pursuant to the Amendment of Lease Agreement waived, released and terminated all
of said options; and the Tenant has waived its right of first refusal under
Section 27 of the Lease with respect to the sale of the Property by
Lembo-Feinerman Morell Trust to Berkley;
<PAGE> 74
(d) the Tenant has not delivered any security deposit to the
Landlord under the Lease and no security deposit under the Lease is being held
by the Landlord;
(e) the amount of the basic rent currently payable under the
Lease (which has been paid for all months of the term of the Lease through and
including _______________, 1996) is $________________ per month, payable in
advance;
(f) pursuant to the Lease, the Tenant has paid all real estate
taxes and assessments upon the Property and all "Impositions" as defined in the
Lease for the period ending ____________________________________;
(g) all obligations, conditions and requirements of the Tenant
under the Lease have been paid or performed or complied with by the Tenant as of
the date hereof;
(h) all obligations, conditions and requirements of the
Landlord under the Lease have been performed by the Landlord as of the date
hereof and the Landlord has complied with and is in compliance with all
"Requirements" as defined in the Lease;
(i) there are no defaults of the Tenant or the Landlord under
the Lease and no existing conditions which, upon the giving of notice or lapse
of time or both, would constitute a default under the Lease, and there are no
set-offs, defenses or counterclaims against the enforcement of the Tenant's
obligation under the Lease;
(j) the Tenant has not entered into any currently effective
subleases, assignments, mortgages or other agreements transferring or
encumbering the Tenant's interest in the Lease or the Property, other than the
sublease agreements which are described in Schedule G attached hereto;
(k) all representations of the Tenant made in the Amendment of
Lease Agreement are true as of the date hereof.
Very truly yours,
TENANT:
PECHINEY PACKAGING CORP.
By: ______________________
Its___________________
<PAGE> 75
EXHIBIT 10
AFFIDAVIT
SAMUEL FEINERMAN, being duly sworn, deposes and says:
1. I reside at 4580 Bocaire Boulevard, Boca Raton, Florida
33487.
2. Pursuant to Trust Agreement dated June 3, 1986, (a copy of
which is annexed hereto), I was appointed as Co-Trustee of the Lembo-Feinerman
Fleming Morrell Trust (the "Trust") which was formed on that date. Michael J.
Lembo was appointed as Co-Trustee pursuant to that instrument.
3. By instrument dated April 4, 1990, (a copy of which is
annexed hereto) Michael J. Lembo resigned as Co-Trustee. I became the remaining
and sole Trustee of the Trust. In that instrument the beneficiaries of the Trust
consented to the resignation of Michael J. Lembo, as Co-Trustee and further
agreed that Samuel Feinerman was to continue to serve as the remaining and sole
Trustee of the Trust. Other than said instrument dated April 4, 1990, there have
been no further amendments to the Trust Agreement dated June 3, 1986.
4. I presently serve as Trustee of the Lembo-Feinerman Fleming
Morrell Trust, which trust was organized pursuant to the laws of the State of
Florida. The Trust conducts its business and maintains its offices in the State
of Florida.
5. The Trust is in full force and effect and is in good
standing in the State of Florida and is the owner of certain premises located at
475 Steamboat Road, Greenwich, Connecticut, and has all necessary power and
authority to sell and convey said property pursuant to the Sale Agreement
referred to in paragraph 6 hereof and to perform all of the obligations of the
Trust under said Sale Agreement without the necessity of obtaining any
government or court approval of any kind.
<PAGE> 76
6. I have full authority to execute and deliver on behalf of
the Trust a certain Sale Agreement dated February _____, 1996 by and between the
Trust, as Seller, and W. R. Berkley Corporation Purchaser, and all of the
documents discussed in said Sale Agreement, and to undertake and perform all of
the obligations of the Trust under said Sale Agreement without the necessity of
obtaining the authorization or direction of any beneficiaries of the Trust and
without the necessity of obtaining any governmental or court approval of any
kind.
___________________________
SAMUEL FEINERMAN
Sworn to before me this
________ day of February, 1996.
___________________________
Notary Public
<PAGE> 77
EXHIBIT 11
CERTIFICATE OF BUYER
THIS CERTIFICATE, made this ________ day of ____________,
1996, by LEMBO-FEINERMAN FLEMING MORELL TRUST, a Florida Trust established under
a Trust Agreement dated ______________ between _______________ and
_________________, and having an address at ____________________________,
___________________________, ("Seller"), and W. R. BERKLEY CORPORATION, a
Delaware corporation, having an address at 165 Mason Street, Greenwich,
Connecticut ("Buyer").
W I T N E S S E T H
WHEREAS, by Sale Agreement, dated as of __________________,
1996, Seller agreed to sell to Buyer, and Buyer agreed to purchase from Seller,
certain real property, together with the building and other improvements,
thereon known as and located at 475 Steamboat Road, Greenwich, Connecticut, as
more fully described in said Sale Agreement; and
WHEREAS, said Sale Agreement requires that Buyer deliver this
Certificate as a condition to Closing (as defined in said Sale Agreement).
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in said Sale Agreement, Buyer hereby certifies that
the warranties and representations of Buyer set forth in said Sale Agreement
are, subject to their terms and conditions, true, accurate and complete on and
as of the day and year first above written.
W. R. BERKLEY CORPORATION
By: __________________________
Its
<PAGE> 78
EXHIBIT 12
[Intentionally Left Blank]
<PAGE> 79
EXHIBIT 13
TO ALL PEOPLE TO WHOM THESE PRESENTS SHALL COME, GREETING:
KNOW YE, that ____________________________, a _______________
corporation, having its principal place of business at
______________________________, acting herein by ______________________, its
_______________________, hereunto duly authorized, hereinafter referred to as
the Grantor, for the consideration of ONE DOLLAR ($1.00) and other good and
valuable considerations, received to its full satisfaction of
_______________________________, a ___________________ corporation, having its
principal place of business at _______________________________, hereinafter
referred to as the Grantee, does give, grant, bargain, sell and confirm unto the
said Grantee the following described premises:
SAID premises are conveyed subject to the following:
TO HAVE AND TO HOLD the above granted and bargained premises,
with the appurtenances thereof, unto the said Grantee, its successors and
assigns forever, to it and their own and proper use and behoof.
THE GRANTOR covenants and agrees with the Grantee, its
successors and assigns, that it has not done or suffered any thing whereby the
title to the premises has or might become encumbered or defective in any manner
whatsoever except as aforesaid.
IN WITNESS WHEREOF the Grantor has hereunto set its corporate
hand and seal as of the ____ day of _____________, 1996.
Signed, Sealed and Delivered
in the Presence of:
______________________________ By:_________________________________L.S.
Its
Hereunto Duly Authorized
______________________________
<PAGE> 80
STATE OF }
} ss.: , 1996
COUNTY OF }
Before me personally appeared _________________________, a
_________________ of _______________________________, signer and sealer of the
foregoing instrument, who acknowledged the same to be his free act and deed, and
the free act and deed of said corporation.
___________________________________
Notary Public
My Commission Expires:
<PAGE> 81
EXHIBIT 14
ASSIGNMENT AND ASSUMPTION AGREEMENT
KNOW ALL MEN BY THESE PRESENTS, that for and in consideration
of the mutual covenants and conditions hereinafter set forth and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, SAMUEL FEINERMAN, Trustee of the LEMBO-FEINERMAN FLEMING MORELL
TRUST, a Florida Trust, having an address c/o Ackerman, Levine & Cullen, 175
Great Neck Road, Great Neck, New York 11021 ("Assignor") hereby bargains, sells,
assigns, transfers and conveys to W. R. BERKLEY CORPORATION, a Delaware
corporation having an address at 165 Mason Street, Greenwich, Connecticut 06830
("Assignee"), all of Assignor's right, title and interest in and to the Ground
Lease, as hereinafter defined, the Property, as hereinafter defined, and the
Lease, as hereinafter defined, subject to the Exceptions, as hereinafter
defined.
IN CONSIDERATION of the assignment herein made by Assignor,
Assignee hereby accepts said assignment and assumes all of Assignor's
obligations arising or accruing from and after the date hereof under the Ground
Lease.
ASSIGNOR agrees to indemnify and hold Assignee harmless from
and against any and all claims, debts and liabilities, including, without
limitation, reasonable attorneys fees, arising or accruing prior to the date
hereof for any breach or default by Assignor under the Ground Lease.
ASSIGNEE agrees to indemnify and hold Assignor harmless from
and against any and all claims, debts and liabilities, including, without
limitation, reasonable attorneys' fees, arising or accruing after the date
hereof for any breach or default by Assignee under the Ground Lease.
FOR PURPOSES of this Agreement, the following terms shall have
the meanings ascribed thereto:
"Exceptions" shall mean all those agreement, covenants,
restrictions or encumbrances which are specifically set forth in Schedule B
attached hereto and made a part hereof.
"Ground Lease" shall mean that certain Agreement of Lease
between Mutual Life Insurance Company of New York, as ground lessor, and The
Fleming-Morell Corporation, as ground lessee, dated March 26, 1970, for which a
Notice of Lease was recorded in the Greenwich Land Records in Book _______ at
Page _______, as the same
<PAGE> 82
may have been modified or affected by an Assignment by The Fleming Corporation
to [insert assignment information, etc.]
"Property" shall mean those two certain pieces or parcels of
land located in the Town of Greenwich, County of Fairfield and State of
Connecticut described in Schedule A attached hereto and made a part hereof (the
"Land"), together with the buildings and improvements thereon.
This Agreement and the assignment of the Ground Lease
hereunder to the Assignee, who has acquired or may acquire fee title to the Land
and/or the Property, shall not result in or cause a merger of the leashhold
interest in the Land created under the Ground Lease and being transferred to
Assignee, or of the interest in the buildings and improvements upon the Land,
with such fee title in the Land and/or the Property.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Agreement as of the ____ day of , 1996.
Signed, Sealed and delivered
in the presence of: LEMBO-FEINERMAN FLEMING
MORELL TRUST
__________________________ By:__________________________
Samuel Feinerman, Trustee
__________________________
__________________________ W. R. BERKLEY CORPORATION
__________________________ By:__________________________
Its
<PAGE> 83
STATE OF CONNECTICUT )
) ss: , 1996
COUNTY OF FAIRFIELD )
On this __________ day of ________________________, 1996, before me, the
undersigned officer, personally appeared Samuel Feinerman, Trustee of the Lembo-
Feinerman Fleming Morell Trust, signer of the foregoing instrument, who
acknowledged the same to be his free act and deed and the free act and deed of
said trust.
________________________
Notary Public
STATE OF CONNECTICUT )
) ss: , 1996
COUNTY OF FAIRFIELD )
On this __________ day of _______________________, 1996, before me, the
undersigned officer, personally appeared ___________________________________ of
W. R. Berkley Corporation, signer of the foregoing instrument, who acknowledged
the same to be his free act and deed and the free act and deed of said
corporation.
________________________
Notary Public
<PAGE> 84
EXHIBIT 15
[Intentionally Left Blank]
<PAGE> 85
EXHIBIT 16
KNOW ALL MEN BY THESE PRESENTS, that _______________________,
a ____________________________, having its principal place of business at
______________________________________, acting herein by ______________________,
its _______________________, hereunto duly authorized, hereinafter referred to
as the Releasor, for the consideration of One Dollar ($1.00) and other good and
valuable consideration, received to its full satisfaction of
__________________________________, a ___________________ corporation, having
its principal place of business at
_______________________________________________, hereinafter referred to as the
Releasee, does by these presents remise, release and forever QUITCLAIM unto the
said Releasee all right, title, interest, claim and demand whatsoever which the
said Releasor has or ought to have in and to:
TO HAVE AND TO HOLD the premises, with all the appurtenances,
unto the said Releasee, its successors and assigns forever, so that neither the
said Releasor, nor its successors and assigns, nor any person under it or them,
shall hereafter have claim, right or title in or to the premises, or any part
thereof, but therefrom the said Releasor is and they are by these presents
forever barred and excluded.
IN WITNESS WHEREOF the Releasor has hereunto set its corporate
hand and seal as of the ____ day of ___________________________, 1996.
Signed, Sealed and Delivered
in the Presence of:
______________________________ By:_________________________________L.S.
Its
Hereunto Duly Authorized
______________________________
<PAGE> 86
STATE OF }
} ss.: , 1996
COUNTY OF }
Before me personally appeared _________________________, a
_________________ of _______________________________, signer and sealer of the
foregoing instrument, who acknowledged the same to be his free act and deed, and
the free act and deed of said _____________________________.
____________________________________
Notary Public
My Commission Expires:
<PAGE> 87
EXHIBIT 17
FINANCIAL STATEMENTS
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 1959910
<DEBT-CARRYING-VALUE> 169078
<DEBT-MARKET-VALUE> 176193
<EQUITIES> 262626
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 2391614
<CASH> 206917
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 89517
<TOTAL-ASSETS> 3618684
<POLICY-LOSSES> 1660020
<UNEARNED-PREMIUMS> 450522
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 319287
0
146
<COMMON> 4854
<OTHER-SE> 924815
<TOTAL-LIABILITY-AND-EQUITY> 3618684
803336
<INVESTMENT-INCOME> 137332
<INVESTMENT-GAINS> 10357
<OTHER-INCOME> 2461
<BENEFITS> 570998
<UNDERWRITING-AMORTIZATION> 228610
<UNDERWRITING-OTHER> 38773
<INCOME-PRETAX> 82747
<INCOME-TAX> 17554
<INCOME-CONTINUING> 65193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49820
<EPS-PRIMARY> 2.86
<EPS-DILUTED> 0
<RESERVE-OPEN> 895440
<PROVISION-CURRENT> 580594
<PROVISION-PRIOR> (9596)
<PAYMENTS-CURRENT> 228100
<PAYMENTS-PRIOR> 221051
<RESERVE-CLOSE> 1209250
<CUMULATIVE-DEFICIENCY> 9596
</TABLE>
