UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_____________________
Date of Report (March 28, 1995): March 28, 1995
Alexander & Alexander Services Inc.
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(Exact name of registrant as specified in its charter)
Maryland 1-8282 52-0969822
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
organization)
1185 Avenue of the Americas 10036
New York, New York --------
----------------------------------------- (Zip Code)
(Address of principal executive offices)
(212) 840-8500
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(Registrant's telephone number,
including area code:)
Not Applicable
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(Former name or former address,
if changed since last report.)
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Item 5. Other Events.
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The following events are hereby reported by Alexander & Alexander Services
Inc. (the "Company"):
New Credit Facility
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On March 27, 1995, the Company's existing credit agreement was cancelled and
replaced by a new three-year facility with various banks which expires in
March 1998. The amount of the new credit agreement is $200 million, with a
$100 million letter of credit sublimit. The new agreement provides for
unsecured borrowings and contains various covenants, including minimum
consolidated tangible funds, minimum consolidated tangible net worth, minimum
leverage and minimum cash flow coverage requirements.
A copy of the press release noticing the transaction is attached as Exhibit
20.1.
Mutual Fire and Shand Indemnities
---------------------------------
Reference is made to the Company's discussion concerning the Mutual Fire and
Shand contingencies in Item 5. Other Events, of the Company's Current Report
of Form 8-K, dated March 15, 1995, which is amended in its entirety as
follows:
Mutual Fire Litigation. In 1987, the Company sold Shand Morahan & Company,
Inc. (Shand), its domestic underwriting management subsidiary. Prior to the
sale, Shand and its subsidiaries had provided underwriting management
services for and placed insurance and reinsurance with and on behalf of
Mutual Fire, Marine and Inland Insurance Company (Mutual Fire). Mutual Fire
was placed in rehabilitation by the Courts of the Commonwealth of
Pennsylvania in December 1986. In February 1991, the rehabilitator filed a
complaint in the Commonwealth court against Shand and the Company. The case
was subsequently removed to the U.S. District Court for the Eastern District
of Pennsylvania and is captioned Foster v. Alexander & Alexander Services
Inc., 91 Civ. 1179. The complaint, which seeks compensatory and punitive
damages, alleges that Shand and, in certain respects, the Company breached
duties to and agreements with, Mutual Fire. The rehabilitator, through an
expert's report, indicated that the alleged damages are approximately $234
million, a conclusion with which the Company, based on substantial arguments,
strongly disagreed.
On March 27, 1995, the Company, Shand and the rehabilitator entered into a
settlement agreement which, if approved by the courts, would terminate the
rehabilitator's litigation and release the Company and Shand from any further
claims by the rehabilitator. Under the terms of the settlement, the Company
would pay $12 million in cash and an additional $35 million in the form of a
six-year zero-
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<PAGE>
coupon note with a discounted value of $25.9 million. In addition, Shand is
required to return $4.6 million of trusteed assets to the rehabilitator and
the rehabilitator has eliminated any right of set-offs previously estimated
to be $4.7 million. In the fourth quarter of 1994, the Company increased its
previously established reserves of $10 million based on the estimated
settlement amount, and recorded a pre-tax charge of $37.2 million ($24.2
million after-tax or $0.55 per share).
Indemnity Claims. Under the 1987 agreement with the purchaser of Shand, the
Company agreed to indemnify the purchaser against certain contingencies,
including, among others, (i) losses arising out of pre-sale transactions
between Shand or Shand's subsidiaries, on the one hand, and Mutual Fire, on
the other, and (ii) losses arising out of pre-sale errors or omissions by
Shand or Shand's subsidiaries. The Company's obligations under the
indemnification provisions in the 1987 sales agreement were not limited as to
amount or duration.
Starting in late 1992, the purchaser of Shand has asserted a number of claims
under both the Mutual Fire indemnification provision and the errors-and-
omissions indemnification provision of the sales agreement. Most of those
claims have been resolved by a series of settlement agreements, involving the
settlement or release of (a) claims relating to reinsurance recoverables due
to Shand's subsidiaries from Mutual Fire, (b) claims relating to
deterioration of reserves for business written by Mutual Fire and ceded to
Shand's subsidiaries, and (c) a number of errors-and-omissions claims by
third-party reinsurers against Shand. Under the settlement agreement entered
into in January 1995, covering the errors-and-omissions claims by third-party
reinsurers, the Company obtained a release and limitation of indemnification
obligations relating to certain third-party errors-and-omissions claims, and
restructured the contractual relationship with the purchaser so that the
parties' future interests as to third-party claims are more closely aligned.
The Company will pay $14 million in cash, issue a five-year interest bearing
note in the principal amount of $14 million and expects to pay a contingent
obligation of $4.5 million. In the fourth quarter of 1994, the Company
recorded a pre-tax charge of $32.5 million ($21.1 million after-tax, or $0.48
per share) associated with this settlement. Notwithstanding these
settlements, the limitation of certain contract obligations and the
restructuring of the parties' relationship, some of the Company's
indemnification provisions under the 1987 agreement are still in effect. As
a result, there remains the possibility of substantial exposure under the
indemnification provisions of the 1987 agreement, although the Company, based
on current facts and circumstances, believes the possibility of a material
loss resulting from these exposures is remote.
A copy of the press release noticing the settlement is attached hereto as
Exhibit 20.2.
3
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New Directors
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Effective March 21, 1995 Edward F. Kosnik was elected to the board of
directors, increasing the board from 16 to 17 directors. Mr. Kosnik joined
the Company in August 1994 as executive vice president and chief financial
officer.
Item 7. Exhibits
20.1 Press Release, dated March 27, 1995, noticing the Company's
new credit facility.
20.3 Press Release, dated March 27, 1995, noticing the settlement
respecting the Mutual Fire litigation and related disputes.
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4
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
ALEXANDER & ALEXANDER SERVICES INC.
By: /s/ Donna Somma
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Donna Somma
Assistant Vice President
& Corporate Counsel
Dated: March 28, 1995
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Exhibit Index
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Exhibit No. Description Page
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20.1 Press Release, dated March 27, 1995, noticing the
Company's new credit facility.
20.2 Press Release, dated March 27, 1995, noticing the
settlement respecting the Mutual Fire litigation and
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related disputes.
6
Exhibit 20.1
A&A ESTABLISHES $200 MILLION CREDIT FACILITY
FOR GENERAL CORPORATE PURPOSES
NEW YORK, March 27 -- Alexander & Alexander Services Inc. (A&A) today
announced that it has entered into a new $200 million, three-year revolving
credit facility that will be available for general corporate purposes.
Chemical Bank and J.P. Morgan acted as agents for an international group
that included 11 other banks. The new facility replaces a $150 million
revolving credit line, which had no borrowings outstanding. In addition, the
Company had more than $300 million in operating funds at year-end 1994.
A&A Chairman & CEO Frank G. Zarb said, "The agreement is part of our plans
to continue strengthening A&A's financial position. The larger credit
facility further improves our financial flexibility and expands our options
for growing the Company."
Alexander & Alexander Services Inc. [NYSE: AAL] provides professional
risk management consulting, insurance brokerage and human resource consulting
services from offices in 80 countries.
Exhibit 20.2
A&A ENTERS AGREEMENT TO SETTLE
MUTUAL FIRE LITIGATION, RELATED DISPUTES
NEW YORK, March 27 -- As part of its program addressing longstanding
litigation and other contingencies, Alexander & Alexander Services Inc. (A&A)
has agreed to settle a lawsuit and other disputes between A&A, a former A&A
subsidiary, and the rehabilitator of Mutual Fire, Marine and Inland Insurance
Co. The agreement is subject to court approval.
Mutual Fire was placed in rehabilitation in 1986 by a Pennsylvania
court. The rehabilitator subsequently alleged that the former A&A
subsidiary, Shand Morahan & Co., and in certain respects A&A, breached duties
to Mutual Fire.
The settlement, if approved by the court, will:
- Terminate litigation in which the Mutual Fire rehabilitator is suing A&A
and Shand for alleged damages of approximately $234 million.
- End any claims between the rehabilitator and Shand as well as all
related Shand entities, including claims made under insurance policies.
- Terminate litigation relating to certain trusteed assets and
receivables.
Terms of the agreement include a payment of $12 million in cash and an
additional $35 million in the form of a six-year zero coupon note with a
discounted value of $25.9 million. The settlement is fully covered by a
$47.2 million reserve established by A&A, including $37.2 million added in
the fourth quarter of 1994.
Alexander & Alexander Services Inc. [NYSE: AAL] provides professional
risk management consulting, insurance brokerage and human resource consulting
services from offices in 80 countries.
