<PAGE> 1
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 (Date of earliest event reported): May 10, 2000
Alleghany Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-9371 51-0283071
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(Commission File Number) (IRS Employer Identification Number)
375 Park Avenue, Suite 3201
New York, New York 10152
--------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 752-1356
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<PAGE> 2
Item 2. Acquisition or Disposition of Assets.
On December 30, 1999, Alleghany Corporation, a Delaware corporation
("Alleghany"), and Swiss Re America Holding Corporation, a Delaware corporation
("Swiss Re"), entered into a Stock Purchase Agreement (as modified by the
Closing Agreement dated May 10, 2000, the "Stock Purchase Agreement"), pursuant
to which Alleghany agreed to sell all of the common stock, par value $.01 per
share, of its subsidiary Underwriters Re Group, Inc. ("URG"), to Swiss Re.
The sale of URG was completed on May 10, 2000. Alleghany received pre-tax
proceeds of the sale of about $650 million in cash (net of a $10 million
holdback). The final purchase price is subject to adjustment as provided by the
terms of the Stock Purchase Agreement. Alleghany retained URG's London-based
Lloyd's operations to be conducted through Alleghany Underwriting Holdings Ltd
(previously referred to as Venton Holdings Ltd). Also, in connection with the
sale, Alleghany purchased from URG 7.425 million shares of common stock of
Burlington Northern Santa Fe Corporation for cash consideration paid to URG of
approximately $188 million.
Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information is attached as
Annex A hereto:
(i) Alleghany Corporation Unaudited Pro Forma Consolidated
Balance Sheet as of March 31, 2000.
(ii) Alleghany Corporation Unaudited Pro Forma Consolidated
Statement of Earnings for the quarter ended March 31, 2000.
(iii) Alleghany Corporation Unaudited Pro Forma Consolidated
Statement of Earnings for the year ended December 31, 1999.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated balance sheet at March 31, 2000
included in Annex A attached hereto gives effect to the disposition by Alleghany
of URG as if the disposition had occurred at March 31, 2000 and the unaudited
pro forma consolidated statements of earnings for the three months ended March
31, 2000 and for the year ended December 31, 1999 included in Annex A attached
hereto give effect to such disposition as if the disposition had occurred on
January 1, 2000. The unaudited pro forma results do not reflect the gain on the
sale of URG of approximately $118 million. Unaudited pro forma financial
information does not purport to be indicative of either the results of future
operations or the results of operations that would have occurred had the
disposition been consummated on the dates indicated.
The unaudited pro forma financial statements included in Annex A
attached hereto should be read in conjunction with Alleghany's historical
consolidated financial statements and notes thereto previously filed in
Alleghany's Annual Report on Form 10-K for the year ended December 31, 1999,
and the Quarterly Report on Form 10-Q for the three months ended March 31,
2000.
(c) Exhibits. The following are filed as exhibits to this Report:
<TABLE>
<CAPTION>
Exhibit Number Exhibit Description
------------- -------------------
<S> <C>
99.1 Stock Purchase Agreement, dated as of December 30,
1999, by and between Alleghany Corporation and Swiss
Re America Holding Corporation, filed as Exhibit
99.1 to Alleghany's Current Report on Form 8-K for
December 30, 1999, is incorporated herein by
reference.
99.2 Closing Agreement, dated May 10, 2000, by and
between Swiss Re America Holding Corporation and
Alleghany Corporation.
</TABLE>
<PAGE> 3
SIGNATURES
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.
<TABLE>
<CAPTION>
ALLEGHANY CORPORATION
<S> <C>
Date: May 25, 2000 By: /s/ Peter R. Sismondo
--------------------------
Name: Peter R. Sismondo
Title: Vice President,
Controller, Treasurer
and Assistant Secretary
</TABLE>
<PAGE> 4
ANNEX A
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated balance sheet at March 31, 2000
gives effect to the disposition by Alleghany of URG as if the disposition had
occurred at March 31, 2000 and the unaudited pro forma consolidated statements
of earnings for the three months ended March 31, 2000 and for the year ended
December 31, 1999 give effect to such disposition as if the disposition had
occurred on January 1, 2000. The unaudited pro forma results do not reflect the
gain on the sale of URG of approximately $118 million. Unaudited pro forma
financial information does not purport to be indicative of either the results
of future operations or the results of operations that would have occurred had
the disposition been consummated on the dates indicated.
The unaudited pro forma financial statements should be read in conjunction with
Alleghany's historical consolidated financial statements and notes thereto
previously filed in Alleghany's Annual Report on Form 10-K for the year ended
December 31, 1999, and the Quarterly Report on Form 10-Q for the three months
ended March 31, 2000.
ALLEGHANY CORPORATION
Pro Forma Balance Sheet
March 31, 2000
(Unaudited)
($ in 000's)
<TABLE>
<CAPTION>
Pro Forma
URG Pro Forma Balance
3/31/2000 Adjustments Adjustments Sheet
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Available for sale securities:
Fixed maturities $ 1,182,660 ($1,152,656) $ -- $ 30,004
Equity securities 450,463 (211,037) 187,900 427,326
Short-term investments 260,961 (117,660) -- 143,301
----------- ----------- ----------- -----------
1,894,084 (1,481,353) 187,900 600,631
Cash 30,980 6,048 462,200 499,228
Cash pledged to secure trust deposits 17,469 -- -- 17,469
Premium trust funds 182,312 (8,085) -- 174,227
Notes receivable 91,535 -- -- 91,535
Funds held, accounts and other receivables 529,685 (303,262) 10,000 236,423
Property and equipment, net 204,592 (10,640) -- 193,952
Reinsurance receivable 882,236 (679,365) -- 202,871
Other assets 663,928 (171,974) -- 491,954
----------- ----------- ----------- -----------
$ 4,496,821 ($2,648,631) $ 660,100 $ 2,508,290
=========== =========== =========== ===========
Liabilities and Common Stockholders' Equity
Property and casualty losses and LAE $ 2,063,387 ($1,608,567) $ -- $ 454,820
Unearned premiums 356,811 (133,876) -- 222,935
Other liabilities 529,097 (327,971) 109,938 311,064
Parent company debt -- -- -- --
Subsidiaries' debt 399,791 (198,012) -- 201,779
Net deferred tax liability 36,746 41,214 (13,300) 64,660
Trust deposits secured by pledged assets 22,910 -- -- 22,910
----------- ----------- ----------- -----------
Total liabilities 3,408,742 (2,227,212) 96,638 1,278,168
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Common stockholders' equity 1,088,079 (421,419) 563,462 1,230,122
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
$ 4,496,821 ($2,648,631) $ 660,100 $ 2,508,290
=========== =========== =========== ===========
See accompanying footnotes.
</TABLE>
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ALLEGHANY CORPORATION
Pro Forma Statement of Earnings
March 31, 2000
(Unaudited)
($ in 000's, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
URG Pro Forma Statement
3/31/00 Adjustments Adjustments of Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Investment management fees $ 44,039 $ -- $-- $ 44,039
Net property and casualty premiums earned 162,656 (97,673) -- 64,983
Interest, dividend and other income 53,488 (20,998) -- 32,490
Net mineral and filtration sales 49,106 -- -- 49,106
Net gain on investment transactions 475 (410) -- 65
----------- ----------- ----- -----------
Total revenues 309,764 (119,081) -- 190,683
----------- ----------- ----- -----------
Costs and expenses:
Commissions and brokerage expenses 40,135 (21,713) -- 18,422
Salaries, administrative and other
operating expenses 86,832 (16,096) -- 70,736
Property and casualty losses & LAE 135,076 (88,789) -- 46,287
Cost of mineral and filtration sales 34,658 -- -- 34,658
Interest expense 7,699 (4,010) -- 3,689
Corporate administration 5,571 -- -- 5,571
----------- ----------- ----- -----------
Total costs and expenses 309,971 (130,608) -- 179,363
----------- ----------- ----- -----------
Earnings before income taxes (207) 11,527 -- 11,320
Income taxes (689) 6,306 -- 5,617
----------- ----------- ----- -----------
Net earnings $ 482 $ 5,221 $-- $ 5,703
=========== =========== ===== ===========
Basic earnings per share * $ 0.07 $ 0.77
=========== ===========
Diluted earnings per share * $ 0.06 $ 0.76
=========== ===========
Average shares outstanding * 7,444,502 7,444,502
=========== ===========
* Adjusted to reflect the dividend of common stock in March 2000.
See accompanying footnotes.
</TABLE>
<PAGE> 6
ALLEGHANY CORPORATION
Pro Forma Statement of Earnings
December 31, 1999
(Unaudited)
($ in 000's, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
URG Pro Forma Statement
12/31/1999 Adjustments Adjustments of Earnings
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Investment management fees $ 165,673 $ -- $ -- $ 165,673
Net property and casualty premiums earned 719,846 (498,662) -- 221,184
Interest, dividend and other income 200,135 (93,037) -- 107,098
Net mineral and filtration sales 208,480 -- -- 208,480
Net gain on investment transactions 82,029 (1,521) 80,508
---------- ---------- ------- ----------
Total revenues 1,376,163 (593,220) -- 782,943
---------- ---------- ------- ----------
Costs and expenses:
Commissions and brokerage expenses 172,527 (110,862) -- 61,665
Salaries, administrative and other
operating expenses 304,197 (43,990) -- 260,207
Property and casualty losses & LAE 548,459 (379,615) -- 168,844
Cost of mineral and filtration sales 139,107 -- -- 139,107
Interest expense 32,337 (16,031) -- 16,306
Corporate administration 17,632 -- -- 17,632
---------- ---------- ------- ----------
Total costs and expenses 1,214,259 (550,498) -- 663,761
---------- ---------- ------- ----------
Earnings before income taxes 161,904 (42,722) -- 119,182
Income taxes 61,799 (4,927) -- 56,872
---------- ---------- ------- ----------
Net earnings $ 100,105 ($ 37,795) $ -- $ 62,310
========== ========== ======= ==========
Basic earnings per share * $ 13.39 $ 9.62
========== ==========
Diluted earnings per share * $ 13.19 $ 9.48
========== ==========
Average shares outstanding * 7,477,200 7,477,200
========== ==========
* Adjusted to reflect the dividend of common stock in March 2000.
See accompanying footnotes.
</TABLE>
<PAGE> 7
FOOTNOTES
1. The sale of Underwriters Re Group, Inc. (URG) was completed on May 10,
2000. Alleghany retained URG's London-based Lloyd's operations which
will be conducted through Alleghany Underwriting Holdings Ltd.
Accordingly, the accompanying financial statements exclude the results
of URG (URG Adjustments) from the Company's results.
2. The Company received pre-tax proceeds of about $650.1 million in cash
(net of a $10 million holdback) from the sale. In connection with the
sale, the Company paid approximately $187.9 million in cash for the
purchase of 7.425 million shares of Burlington Northern Santa Fe
Corporation from URG. Other pro forma adjustments include a $10 million
holdback pending final settlement of an outstanding issue,
approximately $3.7 million pre-tax of transaction expenses, a $38
million pre-tax accrual relating to loss reserve guarantees, current
taxes of approximately $71 million and a $13.3 million net deferred tax
asset.
3. The pro forma balance sheet reflects the results of the transaction
immediately after the sale and excludes URG's results of operations for
the period April 1, 2000 through the date of the sale. Such results of
operations will include a charge of $18.8 million after tax for an
adverse development cover and special bonuses to URG employees of $11.4
million after tax.
<PAGE> 8
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit Number Description of Exhibit
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<S> <C>
99.1 Stock Purchase Agreement, dated as of December 30,
1999 by and between Alleghany Corporation and Swiss
Re America Holding Corporation, filed as Exhibit
99.1 to Alleghany's Current Report on Form 8-K for
December 30, 1999, is incorporated herein by
reference.
99.2 Closing Agreement, dated May 10, 2000, by and
between Swiss Re America Holding Corporation and
Alleghany Corporation.
</TABLE>
<PAGE> 1
EXHIBIT 99.2
CLOSING AGREEMENT
This Closing Agreement (this "Closing Agreement") is made and entered into
on May 10, 2000 by and between Swiss Re America Holding Corporation, a Delaware
corporation (the "Purchaser"), and Alleghany Corporation, a Delaware corporation
(the "Seller"). Capitalized terms used but not defined herein shall have the
meanings ascribed to them in the Stock Purchase Agreement, dated as of December
30, 1999 (the "Purchase Agreement"), made and entered into by and between the
Purchaser and the Seller.
RECITALS
WHEREAS, the Purchaser has agreed to purchase from the Seller, and the
Seller has agreed to sell to the Purchaser, the Shares, upon the terms and
subject to the conditions set forth in the Purchase Agreement;
WHEREAS, notwithstanding the provisions of Section 2.2 of the Purchase
Agreement, the Purchaser and the Seller desire to cause the Closing to take
place on the date hereof; and
WHEREAS, the Purchaser and the Seller desire to set forth certain
agreements regarding the Closing.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements contained herein, and for other good and valuable consideration the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I.
AGREEMENTS
1.1. Definitions. (a) All references to the following terms are replaced
as follows wherever used in the Purchase Agreement:
(i) "Adjusted Closing Stockholder's Equity" shall be replaced by
"Adjusted April 30 Stockholder's Equity";
(ii) "Closing Balance Sheet" shall be replaced by "April 30
Balance Sheet";
(iii) "Closing Financial Data" shall be replaced by "April 30
Financial Data";
(iv) "Closing Stockholder's Equity" shall be replaced by
"April 30 Stockholder's Equity";
<PAGE> 2
(v) "Estimated Adjusted Closing Stockholder's Equity" shall
be replaced by "Estimated Adjusted April 30 Stockholder's Equity";
and
(vi) "Final Closing Balance Sheet" shall be replaced by
"Final April 30 Balance Sheet".
(b) The following definitions shall be added to Section 1.1 of the
Purchase Agreement:
(i) "April 30 Balance Sheet Adjustments" shall mean any item which
is taken into account under Section 2.4(a) hereof to the extent not
reflected on the April 30 Balance Sheet, other than any item for which a
corresponding deferred Tax asset is reflected on the Final April 30
Balance Sheet.
(ii) "April 30 Financial Data" has the meaning set forth in Section
2.4(a).
1.2. Purchase and Sale of the Shares. Section 2.1(c) of the Purchase
Agreement is replaced in its entirety with the following:
Prior to the Closing Date, the Seller shall deliver to the Purchaser a
statement signed by its chief financial officer setting forth (i) its
reasonable, good faith estimate of Stockholder's Equity as of April 30,
2000 after giving effect to the New Retro in accordance with Exhibit A
and the BN Sale, calculated in accordance with GAAP consistently applied
with the Base Financial Statements as supplemented by the Reserve Study,
(ii) a reconciliation of Stockholder's Equity as of April 30, 2000 to the
consolidated balance sheet of the Company and its Continuing Subsidiaries
for the quarter immediately preceding the Closing Date and (iii) a
schedule of such estimated Stockholder's Equity as of April 30, 2000
calculated as provided in the preceding clause (i) adjusted to exclude
the amount of any Surplus Contribution and the estimated amount of the
Underwriters U.K. Carrying Value (as adjusted, "Estimated Adjusted April
30 Stockholder's Equity"). At the Closing, subject to Section 2.1(d), the
Purchaser shall pay the Seller an amount in cash (the "Estimated Purchase
Price") equal to (x) $725 million, less (y) the amount, if any, by which
(i) Target Stockholder's Equity exceeds (ii) Estimated Adjusted April 30
Stockholder's Equity, plus (z) the amount of the Surplus Contribution
actually made prior to the Closing.
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1.3. Closing. Pursuant to Section 2.2 of the Purchase Agreement, the
parties hereby agree that the Closing shall take place on May 10, 2000 and that
the Closing Date is May 10, 2000.
1.4. Purchase Price Adjustment. (a) Section 2.4(a) of the Purchase
Agreement is replaced in its entirety with the following:
Except in the event of a Required Closing (in which case the Purchase
Price shall be deemed equal to the Estimated Purchase Price for all
purposes of this Agreement, and therefore the provisions of this Section
2.4 shall not apply), as soon as practicable, but in no event later than
sixty (60) days following the Closing Date, the Seller shall prepare and
deliver to the Purchaser (i) a consolidated balance sheet of the Company
and the Continuing Subsidiaries as of April 30, 2000 which shall be
audited by KPMG (the "April 30 Balance Sheet"), (ii) a calculation of
April 30 Stockholder's Equity and (iii) a calculation of Adjusted April
30 Stockholder's Equity ("Adjusted April 30 Stockholder's Equity") which
shall be equal to April 30 Stockholder's Equity adjusted (s) to exclude
the amount of any Surplus Contribution reflected on the April 30 Balance
Sheet, (t) to add an amount (but not less than zero) equal to (I) the sum
of (A) the amount of A&E Reserves carried on the April 30 Balance Sheet
plus (B) any loss and expense paid on A&E claims during the period from
September 30, 1999 through April 30, 2000, less (II) $74,300,000 (the
amount of A&E Reserves carried on the balance sheet included in the
September 30, 1999 Interim Financial Statements (the "September 30 A&E
Reserve Amount")), (u) to decrease April 30 Stockholder's Equity by an
amount equal to the "Total expense - net of tax" of the New Retro
(attached as Exhibit A hereto) accounted for in accordance with the
illustrative accounting treatment set forth in Exhibit A hereto, (v) to
give effect to the BN Sale so that the proceeds of such sale net of Tax
are reflected in the Adjusted April 30 Stockholder's Equity based on the
actual price paid by the Seller for the BN Stock immediately prior to the
Closing, (w) to decrease April 30 Stockholder's Equity by the amount, if
any, of the Underwriters U.K. Carrying Value reflected in April 30
Stockholder's Equity as set forth on the April 30 Balance Sheet, (x) to
reflect any adjustments required pursuant to Section 5.12, (y) to
decrease April 30 Stockholder's Equity by an amount equal to the fees and
expenses incurred by the Company in connection with this Agreement and
the transactions contemplated hereby which are not either paid prior to
April 30, 2000 or accrued on the April 30 Balance Sheet net of Tax, and
(z) to the extent not already reflected in April 30 Stockholder's Equity,
to reflect the effect, net of Tax, of the payment of any success bonuses
to employees of the Company (the April 30 Balance Sheet, April 30
Stockholder's Equity and Adjusted April 30 Stockholder's Equity being
collectively referred to herein as the "April 30 Financial Data"). The
April 30 Balance Sheet shall be prepared in accordance with GAAP
consistently applied with the Base Financial Statements as supplemented
by the Reserve Study; provided, however, that whether or not required by
GAAP, the April 30 Balance Sheet will not give effect to the
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Employment Agreements. The April 30 Balance Sheet shall be audited by KPMG, and
the fees and expenses of KPMG incurred in connection with such audit shall be
borne by the Seller. To the extent that any of the foregoing items are taken
into account net of Tax, without duplication the portion of such Tax
representing the federal income Tax (other than any deferred federal income Tax
resulting from the New Retro or otherwise) shall be treated as reflected in the
Final April 30 Balance Sheet and shall be paid to the Seller pursuant to Section
5.9(i). The remaining portion of such Tax, if any, shall be treated as part of
the provision for such Taxes provided for on the April 30 Balance Sheet.
(b) The fifth sentence of Section 2.4(c) of the Purchase Agreement is
replaced in its entirety with the following:
The Company will continue to establish and book reserves through April 30,
2000 in a manner consistent with the Reserve Study; provided, that total
A&E Reserves at April 30, 2000 will be not less than (x) the September 30
A&E Reserve Amount less (y) the amount of any loss and expense paid on A&E
claims during the period from September 30, 1999 through April 30, 2000.
(c) The seventh sentence of Section 2.4(c) of the Purchase Agreement is
replaced in its entirety with the following:
The Seller agrees that the amount of carried Reserves relating to the
Center E&S Business as of April 30, 2000 must be confirmed by PwC.
1.5. Employee Benefit Plans. The phrase "or the April 30 Balance Sheet"
is added after the phrase "in the Audited Financial Statements" in clause (ii)
of Section 3.24(b) of the Purchase Agreement.
1.6. Investment Portfolio. The last sentence of Section 5.8(b) of the
Purchase Agreement is replaced in its entirety with the following:
The Seller shall deliver to the Purchaser prior to the Closing a true and
complete statement of the securities and other investments in the
Investment Portfolio as of April 30, 2000.
1.7. Intercompany Accounts; Affiliate Agreements. Section 5.12(a) of the
Purchase Agreement is replaced in its entirety with the following:
Except as set forth in Schedule 5.12, the Seller shall cause all
intercompany accounts receivable or payable (whether or not currently due
or payable) between (x) the Company or the Continuing Subsidiaries, on the
one hand, and (y) the Seller or any of its Affiliates (other than the
Company and the Continuing Subsidiaries), or any of the officers or
directors of any of the Seller and any of its Affiliates (other than the
Company and the Continuing Subsidiaries, or any of the officers or
directors of the Company or any of the Continuing Subsidiaries), on
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<PAGE> 5
the other hand, to be settled in full (without any premium or penalty, and
at values mutually agreed upon by the parties hereto) at or prior to the
Closing and reflected in the April 30 Balance Sheet or Adjusted April 30
Stockholder's Equity, except that none of the foregoing shall apply to any
intercompany accounts in respect of Contracts between the Company or any
of the Continuing Subsidiaries, on the one hand, and Underwriters U.K. and
any of its Subsidiaries, on the other hand, the disposition of which shall
be in accordance with the provisions of Section 5.12(b) below.
1.8. Notices. Section 10.1(b) of the Purchase Agreement is changed to
replace David J. Walsh, Esq. with Peter J. Paternostro, Esq. as the person to
receive notices sent to the Purchaser. Notices for Mr. Paternostro shall be
directed to the same address and the same telecopy number as are set forth for
Mr. Walsh in Section 10.1(b) of the Purchase Agreement.
1.9. Exhibit A. The Purchaser and the Seller agree that Exhibit A to the
Purchase Agreement shall be changed as follows:
(a) All references to "the Closing Date", "the Closing" or "Closing" in
clause (I)(a) or subclauses (I)(b)(i), (I)(b)(ii) and (I)(b)(v) shall be
replaced with "April 30, 2000".
(b) The second sentence of the paragraph immediately following clause
(I)(b)(v) shall be replaced in its entirety with the following sentence:
An estimate of the premium less 1% Federal Excise Tax will be paid by the
Company to London Life on May 11, 2000, with the remaining final amount
being determined and settled promptly after the determination of the Final
April 30 Balance Sheet.
(c) The third sentence of clause (II) shall be replaced in its entirety
with the following sentence:
Actual amounts will be determined promptly after the determination of the
Final April 30 Balance Sheet.
1.10. Taxes. The Purchaser and the Seller intend that for federal income
Tax purposes, the sale of the Company shall be deemed to occur on the Closing
Date, and that the Seller shall be responsible for the federal income Taxes of
the Company and the Continuing Subsidiaries through the Closing Date. For
purposes of all other Tax (i.e., other than federal income Taxes) (hereinafter
"Other Taxes"), the Closing shall be deemed to have occurred on April 30, 2000,
and the Seller shall be responsible for all Other Taxes of the Company and the
Continuing Subsidiaries only through April 30, 2000; provided that, in
determining the Seller's responsibility for Other Taxes, any income, gain, loss,
deduction or credit for any item constituting an April 30 Balance Sheet
Adjustment shall be treated as if such item were received, realized or paid or
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<PAGE> 6
accrued on April 30, 2000. To effectuate the foregoing, the following provisions
of the Purchase Agreement shall be modified as follows:
(a) Except as otherwise specifically provided herein, references in the
Purchase Agreement to the "Closing Date" for both federal income Tax and all
Other Tax purposes means May 10, 2000.
(b) For purposes of applying the definitions in Section 1.1 of the
Purchase Agreement of "Pre-Closing Tax Period," Post-Closing Tax Period" or
"Straddle Period" or the terms "Closing Date," "Pre-Closing Tax Period,"
Post-Closing Tax Period" or "Straddle Period" when used in Sections 5.9(d),
5.9(e), 5.9(h), 8.2(b), 8.2(c), 8.2(d) and 8.5 of the Purchase Agreement, when
such provision is referred or applying to a Tax which is the federal income Tax,
such term shall be applied as if the Closing Date is May 10, 2000, and when such
provision is referring or applying to any Other Tax, such term shall be applied
as if the Closing Date is April 30, 2000, except that such Other Taxes shall be
treated as including any income, gain, loss, deduction or credit for any item
constituting an April 30 Balance Sheet Adjustment.
(c) The second sentence of Section 5.9(e) of the Purchase Agreement is
amended to read as follows:
No election shall be made under Treasury Regulation Section
1.1502-76(b)(2)(ii) (relating to ratable allocation of a year's items).
1.11. Certain Matters. (a) The parties agree that the references to
Carnegie Holdings, Inc. in Schedule 3.5, Schedule 3.7 and Schedule 3.23 of the
Purchase Agreement are deleted.
(b) The parties agree, with regard to Section 5.12 of the Purchase
Agreement, that (i) the reference to footnote (4) in Schedule 5.12 following
each of: (x) Non-Discretionary Trust Agreement dated as of June 1, 1999 between
URG and the Chicago Trust Company ("CTC"), (y) 401(k) Incentive Savings Plan
Custody Agreement dated as of December 10, 1997 between URG and CTC and (z)
Value Plan Custody Agreement dated as of December 10, 1997 between URG and CTC,
shall be replaced by a reference to footnote (1) of Schedule 5.12, (ii) the
reference to footnote (3) in Schedule 5.12 following the description of the
insurance coverages provided to URC Representatives Ltd. by Underwriters Re
Services Limited shall be replaced by a reference to footnote (1) of Schedule
5.12 and (iii) solely for purposes of the items referred to in clauses (i) and
(ii) above of this Section 1.11(b) (collectively, the "Arrangements"), said
footnote (1) of Schedule 5.12 shall be amended to read as follows: "(1) To
continue after Closing in accordance with their terms until such time as the
Purchaser determines to terminate such arrangements". The parties further agree
that Schedule 5.12 is amended to add a reference to "Administrative Services
Agreement effective as of May 1, 1999 by and between URG and CTC" followed by a
reference to footnote (1). The Seller agrees to cooperate with the Purchaser to
effect the termination of the Arrangements following the Closing.
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<PAGE> 7
(c) The parties agree that the Maximum Parachute Payment shortfall set
forth for Michael D. Price in Schedule 5.21 to the Purchase Agreement is changed
from $1,200,000 to $1,000,000.
(d) The Purchaser agrees that the requirement pursuant to Section 6.2 of
the Purchase Agreement to obtain Consents to the assignment of certain contracts
identified as having change of control provisions in Appendices B, E and H to
Schedule 3.19 is waived to the extent that such Consents have not been obtained
prior to the date hereof.
(e) The Seller agrees to indemnify the Purchaser, the Company and their
successors, permitted assigns, directors, officers, employees and Affiliates
from and against any and all Adverse Consequences or Liabilities arising out of,
resulting from or under the Credit Agreement except for any such Adverse
Consequences or Liabilities that relate to the following Letters of Credit
issued by Mellon Bank, N.A. for the account of Underwriters Reinsurance Company:
(i) Irrevocable Standby Letter of Credit No. S8663910, in a stated
amount of USD129,465.00 for which the beneficiary is Trustees
of Surplus Lines Trust Fund 839;
(ii) Irrevocable Standby Letter of Credit No. S8663920, in a stated
amount of USD966,567.00 for which the beneficiary is Trustees
of Surplus Lines Trust Fund 839;
(iii) Irrevocable Standby Letter of Credit No. S8663950, in a stated
amount of USD246,823.50 for which the beneficiary is Cigna
Reinsurance Co.; and
(iv) Irrevocable Standby Letter of Credit No. S8670290, in a stated
amount of USD2,094,294.00 for which the beneficiary is Markel
Corporation.
The obligations of the Seller under this Section 1.11(e) shall survive
the Closing and shall be subject to the provisions of Section 8.4 of the
Purchase Agreement.
1.12. Superior National. (a) At the Closing, $10 million of the Estimated
Purchase Price shall be retained by the Purchaser (the "Holdback") as security
for possible losses in respect of collectibility of premium and reinsurance
recoverables under the Quota Share Reinsurance Agreement between Underwriters
Insurance Company ("UIC"), a wholly-owned subsidiary of the Company, as ceding
company, and Superior National Insurance Company and its insurance affiliates,
as reinsurers (the "Superior National Quota Share"). The Holdback shall be in
addition to the Company's allowance (the "Superior Reserve") for collectibility
of premiums ceded under the Superior National Quota Share and reinsurers
obligations (as defined in the Superior National Quota Share) (collectively,
"premium and additional security") and reinsurance recoverables (as defined in
the Superior National Quota Share) at March 31, 2000. $4.3 million of the
foregoing $10 million Holdback is designated as allowance for risk of collection
of premiums on the subject business under the Quota Share Reinsurance Agreement
and is
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hereinafter referred to as the "Premium Reserve Amount". $5.7 million of the
foregoing $10 million Holdback is designated as allowance for reinsurance
recoverables on the subject business and is hereinafter referred to as the
"Underwriting Reserve Amount". The Holdback shall be disposed of as provided
below in this Section 1.12.
(b) Promptly after August 30, 2000, Purchaser shall pay to Seller an
amount equal to the product of the Premium Reserve Amount multiplied by a
fraction, the numerator of which is the aggregate amount of premiums and
additional security billed and collected by UIC from April 16, 2000 through
August 30, 2000 (and retained as of August 30, 2000) plus the amount of premiums
relating to canceled policies attributable to the canceled portion of such
policies, and the denominator of which is $26 million. The foregoing formula
will be remeasured as of December 20, 2000 using as the numerator the aggregate
amount of premiums collected from April 16, 2000 through December 20, 2000 (and
retained as of December 20, 2000) in respect of premiums billed prior to August
30, 2000 and the aggregate amount of any additional security collected from
April 16, 2000 through December 20, 2000 (and retained as of December 20, 2000)
plus the amount of premiums relating to canceled policies attributable to the
canceled portion of such policies and using as the denominator $26 million, and
Purchaser shall make an additional payment no later than December 31, 2000 to
Seller equal to the difference between the aggregate amount payable as so
remeasured and the aggregate payments made pursuant to the measurement as of
August 30, 2000. Purchaser shall not be required to make payments under this
subparagraph (b) in an aggregate amount in excess of the Premium Reserve Amount.
(c) On or before November 15, 2000, Seller shall prepare and deliver to
Purchaser a calculation of the loss and loss adjustment expense ratio (the
"September 30 Loss Ratio") based on the premiums earned through September 30,
2000 on subject business . The September 30 Loss Ratio shall be based upon a
reserve study prepared by KPMG or other nationally recognized actuarial
consultants selected by Seller and reasonably acceptable to Purchaser (the
"Actuarial Consultants"). Purchaser shall be entitled to freely observe and
review the reserve study, including the related workpapers, with full access to
the Actuarial Consultants during the entirety of the study. The fees and
expenses relating to the work performed by the Actuarial Consultants shall be
shared equally by the Seller and the Purchaser.
(d) During the preparation of the reserve study and the calculation of
the September 30 Loss Ratio contemplated by subparagraph (c) above and during
the period of any review or dispute contemplated by this Section 1.12, the
Purchaser shall (i) provide the Seller, the Seller's authorized Representatives
and the Actuarial Consultants with reasonable access to all relevant books,
records, workpapers and Employees, and (ii) cooperate with the Seller, the
Seller's authorized Representatives and the Actuarial Consultants, including the
provision of all information necessary or useful in the preparation of the
reserve study and the calculation of the September 30 Loss Ratio contemplated by
subparagraph (c) above.
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(e) After receipt by Purchaser of the calculation of the September 30
Loss Ratio, the Purchaser shall have twenty (20) days to review such calculation
and related reserve study. Unless the Purchaser delivers written notice to the
Seller on or prior to the twentieth day after the Purchaser's receipt of the
calculation of the September 30 Loss Ratio stating that the Purchaser objects to
such calculation, and specifying the nature of such objections and the reasons
therefor, the Purchaser shall be deemed to have accepted and agreed to the
calculation of the September 30 Loss Ratio. If the Purchaser so notifies the
Seller of that it objects to the calculation of the September 30 Loss Ratio, the
parties shall, within the five (5) business days following such notice, attempt
to agree upon the calculation of the September 30 Loss Ratio. If the parties are
unable to agree during such five (5) business day period, the matter shall be
shall be submitted to Arthur Andersen or to such other nationally recognized
actuarial consultants as the Purchaser and the Seller shall agree (the "Neutral
Actuarial Consultants"). Each party agrees to execute, if requested by the
Neutral Actuarial Consultants, a reasonable engagement letter. All fees and
expenses relating to the work, if any, to be performed by the Neutral Actuarial
Consultants shall be shared equally by the Seller and the Purchaser. The Neutral
Actuarial Consultants final determination of the September 30 Loss Ratio shall
be set forth in a written statement delivered to the Seller and the Purchaser on
or prior to January 31, 2001, and the Neutral Actuarial Consultant's
determination of the September 30 Loss Ratio shall be final, binding and
conclusive for purposes of determining what additional payments (if any) are to
be made by Purchaser to Seller under this Section 1.12.
(f) After final determination of the September 30 Loss Ratio, Purchaser
shall pay to Seller an amount, not to exceed the Underwriting Reserve Amount,
equal to the product of (x) the excess, if any, of (i) 115% over (ii) the
September 30 Loss Ratio multiplied by (y) $38 million. To the extent that the
September 30 Loss Ratio is greater than or equal to 115%, the Purchaser shall be
entitled to retain the entire Underwriting Reserve Amount.
(g) Each time a payment is made by Purchaser to Seller pursuant to this
Section 1.12, such payment shall include payment of interest on the amount of
such payment (x) in the case of payments in respect of the Premium Reserve
Amount, at the six month treasury rate in effect on the Closing Date and (y) in
the case of payments in respect of the Underwriting Reserve Amount, at the nine
month treasury rate in effect on the Closing Date, in each case from May 10,
2000 through the date of payment.
(h) Any of the Holdback not required to be paid to the Seller pursuant
to Sections 1.12(b) or (f) shall be retained by the Purchaser.
(i) For purposes of calculating the Adjusted April 30 Stockholder's
Equity, the Superior Reserve shall be fixed at $1.75 million ($2.7 million
pre-tax), the amount of the Superior Reserve at March 31, 2000, irrespective of
the amount recorded in respect thereof on the Final April 30 Balance Sheet.
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ARTICLE II.
MISCELLANEOUS
2.1. Entire Agreement; Waivers and Amendments. This Closing Agreement
(together with the Purchase Agreement, the Schedules and Exhibits thereto and
the documents and instruments referred to therein) contains the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes all prior written or oral agreements and understandings with respect
thereto. This Closing Agreement may be amended or modified, and the terms hereof
may be waived, only by a writing signed by all parties hereto or, in the case of
a waiver, by the party entitled to the benefit of the terms being waived.
2.2. Assignment; Binding Effect. This Closing Agreement may not be
assigned or delegated, in whole or in part, by any party hereto without the
prior written consent of the other party hereto, except that the Purchaser shall
have the right at any time, without such consent, to assign, in whole or in
part, its rights hereunder to any wholly owned Subsidiary of Swiss Reinsurance
Company, provided that such assignment shall not relieve the Purchaser of any of
its obligations hereunder. Subject to the foregoing, this Closing Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
2.3. Severability. If any provision of this Closing Agreement shall be
declared invalid or unenforceable by a court of competent jurisdiction in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent declared invalid or unenforceable without affecting the validity or
enforceability of the other provisions of this Closing Agreement, and the
remainder of this Closing Agreement shall remain binding on the parties hereto.
However, if any such provision shall be declared unenforceable due to its scope,
breadth or duration, then it shall be modified to the scope, breadth or duration
permitted by law or Governmental Entities and shall continue to be fully
enforceable as so modified.
2.4. No Third-Party Beneficiaries. This Closing Agreement is for the
benefit of the parties hereto and is not intended to confer upon any other
Person any rights or remedies hereunder.
2.5. Governing Law. This Closing Agreement shall be governed by and
construed in accordance with the internal laws of the State of New York, without
giving effect to the principles of conflicts of law thereof.
2.6. Consent to Jurisdiction. Except as otherwise expressly provided in
this Closing Agreement, the parties hereto agree that any suit, action or
proceeding seeking to enforce any provision of, or based on any matter arising
out of or in connection with, this Closing Agreement or the transactions
contemplated hereby shall be brought in the United States District Court for the
Southern District of New York or any New York State court sitting in Manhattan,
and each of the parties hereby consents to the exclusive jurisdiction of such
courts (and of the appropriate appellate courts therefrom) in any such suit,
action or proceeding and irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of
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the venue of any such suit, action or proceeding in any such court or that any
such suit, action or proceeding which is brought in any such court has been
brought in an inconvenient forum. Process in any such suit, action or proceeding
may be served on any party anywhere in the world, whether within or without the
jurisdiction of any such court. Without limiting the foregoing, each party
agrees that service of process on such party as provided in this Section 2.6
shall be deemed effective service of process on such party.
2.7. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATED TO THIS CLOSING AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
2.8. Interpretation. This Closing Agreement is the result of arms-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Closing Agreement,
there shall be no presumption that the Closing Agreement was prepared by any one
party or that the Closing Agreement shall be construed in favor of or against
any one party.
2.9. Reference to and Effect on the Purchase Agreement. Upon the
effectiveness of this Closing Agreement, each reference in the Purchase
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of like
import shall mean and be a reference to the Purchase Agreement giving effect to
the modifications and amendments set forth in this Closing Agreement.
2.10. Captions. The Article and Section headings in this Closing Agreement
are inserted for convenience of reference only, and shall not affect the
interpretation of this Closing Agreement.
2.11. Counterparts. This Closing Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Closing
Agreement to be signed by its respective officers thereunto duly authorized, all
as of the date first written above.
SWISS RE AMERICA HOLDING CORPORATION
By:
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Name:
Title:
ALLEGHANY CORPORATION
By:
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Name:
Title:
