<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: September 23, 1998
EXEL Limited
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(Exact Name of Registrant as Specified in Charter)
Cayman Islands 1-10804 98-0191089
- --------------------------- ------------ -------------------
State or Other Jurisdiction (Commission IRS Employer
Of Incorporation) File Number) Identification No.)
Cumberland House, 1 Victoria Street, Hamilton, Bermuda HM 11
- ------------------------------------------------------ ----------
(Address of Principal Executive Offices) (Zip Code)
(441) 292-8515
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(Registrant's telephone number, including area code)
<PAGE>
This amends the Form 8-K filed on August 7, 1998 to provide financial statements
and pro forma financial information.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired
Independent Auditors' Report dated November 21, 1997 (i).
Audited Financial Statements of Mid Ocean Limited and its
subsidiaries:
Consolidated Balance Sheets Years Ended October 31, 1997 and
1996 (ii).
Consolidated Statements of Operations Years Ended October 31,
1997, 1996 and 1995 (ii).
Consolidated Statements of Shareholders' Equity Years Ended
October 31, 1997, 1996 and 1995 (ii).
Consolidated Statements of Cash Flows Years Ended October 31,
1997, 1996, 1995 (ii).
Notes to Consolidated Financial Statements (ii).
Unaudited Financial Statements of Mid Ocean Limited and its
subsidiaries:
Consolidated Balance Sheets Six Months Ended April 30, 1998 and
Year Ended October 31, 1997 (iii).
Consolidated Statements of Operations for the Three Months Ended
April 30, 1998 and 1997, and the Six Months Ended April 30, 1998
and 1997 (iii).
Consolidated Statements of Cash Flows Six Months Ended April 30,
1998 and 1997 (iii).
Notes to Consolidated Financial Statements (iii).
(i) The Independent Auditors' Report of KPMG Peat Marwick is incorporated by
reference herein by reference to page 51 of Mid Ocean Limited's Annual
Report on Form 10K/A for the year ended October 31, 1997 (Commission File
Number 001-14336).
(ii) The Audited Financial Statements of Mid Ocean Limited, including the
Notes thereto, are incorporated by reference to pages 28 through 50 of
Mid Ocean Limited's Annual Report on Form 10K/A for the year ended
October 31, 1997 (Commission File Number 001-14336).
(iii) The Unaudited Financial Statements of Mid Ocean Limited including the
Notes thereto are incorporated by reference to Item 1 of Mid Ocean
Limited's Quarterly Report on Form 10Q/A for the quarter ended April
30,1998 (Commission File Number 001-14336).
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(b) Unaudited Pro Forma Combined Condensed Financial Information
The following unaudited pro forma condensed financial information gives
effect to the Schemes of Arrangement (the "Arrangements") between EXEL Limited
(which has been renamed "EXEL Holdings Limited") ("EXEL") and its shareholders
and between Mid Ocean Limited ("Mid Ocean") and its shareholders. The
Arrangements were consumated on August 7, 1998 and resulted in EXEL and Mid
Ocean becoming wholly-owned subsidiaries of a new holding company. The unaudited
pro forma condensed consolidated balance sheet as at May 31, 1998 gives effect
to the arrangements as if they had occurred on that date. The unaudited pro
forma condensed statements of income for the year ended November 30, 1997 and
the six-month period ended May 31, 1998, respectively give effect to the
arrangements as if they occurred on December 1, 1996. The unaudited pro forma
condensed financial information does not purport to represent the financial
position or operating results that would have been achieved had the Arrangements
been consummated on those dates and should not be construed as projecting the
future financial position or operating results of the combined entity. The
following pro forma financial information does not reflect any projected revenue
increases or cost savings. The pro forma adjustments are applied to the
historical financial statements to account for, among other things, the
Arrangements as a purchase as defined under U.S. generally accepted accounting
principles ("GAAP") whereby the total purchase cost has been allocated to the
assets and liabilities of Mid Ocean based on their fair values. Allocations are
subject to valuation as of the date of acquisition based upon appraisals and
other studies which are substantially complete. Accordingly, final allocations
may be different from the amounts reflected herein. Although the actual
financial statements may differ, the unaudited pro forma combined condensed
financial statements and the pro forma adjustments reflect management's best
estimates, and are based upon available information and certain assumptions that
EXEL and Mid Ocean currently believe are reasonable in the circumstances.
The unaudited pro forma combined condensed financial statements combines
the historical balance sheets and statements of income of EXEL and Mid Ocean as
at the dates indicated, including their respective subsidiaries and should be
read in conjunction with the accompanying notes, the historical consolidated
financial statements of EXEL as of and for the year ended November 30, 1997 and
as of the six-month period ended May 31, 1998, and the historical statements of
Mid Ocean as of and for the year ended October 31, 1997 and as of and for the
six-month period ended April 30, 1998.
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7 (c) EXHIBITS
Exhibit Description
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23.1 Consent of KPMG Peat Marwick.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
As at May 31, 1998
------------------------------------------------------------
(in thousands of U.S. dollars)
EXEL Mid Ocean Pro Forma Pro Forma
(Historical) (Historical) Adjustments Note 4 Combined
----------- ---------- ----------- ------ ---------
<S> <C> <C> <C> <C> <C>
Total investments and cash 5,077,079 1,802,985 5,841 (i) 6,885,905
Unquoted investments 29,970 11,839 3,527 (a) 45,336
Investments in affiliates 541,297 0 (376,791) (b) 164,506
Insurance and reinsurance balances
receivable (including reinsurance
recoveries) 526,029 482,540 (7,817) (c) 1,000,752
Prepaid reinsurance 108,967 39,917 (1,741) (c) 147,143
1,264,729 (h)
Goodwill 260,843 108,781 (108,781) (d) 1,525,572
Other assets 133,376 131,046 104 (c) 264,526
--------- --------- --------- ----------
Total assets 6,677,561 2,577,108 779,071 10,033,740
========= ========== ========= ==========
Unpaid losses and loss expenses 2,452,289 546,772 (1,474) (c) 2,997,587
Unearned premiums 605,904 469,277 (1,240) (c) 1,073,941
Loan notes 126,000 10,767 300,000 (g) 436,767
(6,740) (c)
Other liabilities and minority interest 686,539 98,500 62,749 (e) 841,048
--------- --------- --------- ----------
Total liabilities 3,870,732 1,125,316 353,295 5,349,343
--------- --------- --------- ----------
Share capital and additional paid in 1,910,096 (g)
capital 300,859 754,393 (754,393) (f) 2,210,955
(32,528) (g)
Retained earnings 2,255,346 689,657 (689,657) (f) 2,222,818
Other shareholders' equity components 250,624 7,742 (7,742) (f) 250,624
--------- --------- --------- ----------
Total shareholders' equity 2,806,829 1,451,792 425,776 4,684,397
--------- --------- --------- ----------
Total liabilities and shareholders' equity 6,677,561 2,577,108 779,071 10,033,740
========= ========= ========== ==========
</TABLE>
This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Year Ended November 30, 1997
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(in thousands of U.S. dollars)
EXEL Mid Ocean Pro Forma Pro Forma
(Historical) (Historical) Adjustments Note 4 Combined
------------ ------------ ------------ ------ ------------
<S> <C> <C> <C> <C> <C>
Net premiums earned 540,653 486,741 5,727 (c) 1,033,121
Net investment income 216,552 103,429 0 319,981
Net realized gains on investments 335,939 9,603 0 345,542
Equity in net income of affiliates 65,882 0 (62,134) (b) 3,748
Other income 0 19,598 0 19,598
---------- --------- --------- ----------
Total revenues 1,159,026 619,371 (56,407) 1,721,990
---------- --------- --------- ----------
Losses and loss expenses 365,325 216,171 5,918 (c) 587,414
Acquisition costs and administration
expenses 98,665 141,970 (794) (c) 239,841
Interest expense 7,176 0 17,400 (g) 24,576
31,618 (h)
Amortization of intangible assets 5,844 2,777 (2,777) (d) 37,462
---------- --------- --------- ----------
Total expenses 477,010 360,918 51,365 889,293
---------- --------- --------- ----------
Income before minority interest and 682,016 258,453 (107,772) 832,697
income tax expense
Minority interest and income tax (5,055) (13,445) 0 (18,500)
---------- --------- --------- ----------
Net income 676,961 245,008 (107,772) 814,197
========== ========= ========= ==========
Net income per share
Basic $ 7.95 $ 7.29
Diluted $ 7.84 $ 7.19
Weighted average shares outstanding (000's)
Basic 85,120 111,699
Diluted 86,296 113,245
</TABLE>
This unaudited condensed pro forma financial information should be read in
conjunction with the following explanatory notes.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended May 31, 1998
-------------------------------------------------------------
(in thousands of U.S. dollars)
EXEL Mid Ocean Pro Forma Pro Forma
(Historical) (Historical) Adjustments Note 4 Combined
----------- ----------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Net premiums earned 277,669 245,804 1,259 (c) 524,732
Net investment income 117,980 54,393 0 172,373
Net realized gains on investments 137,492 25,907 0 163,399
Equity in net income of affiliates 34,935 0 (35,450) (b) (515)
Other income 4,145 9,545 0 13,690
-------- -------- ------- --------
Total revenues 572,221 335,649 (34,191) 873,679
-------- -------- ------- --------
Losses and loss expenses 165,243 109,538 526 (c) 275,307
Acquisition costs and administration
expenses 67,628 74,152 (91) (c) 141,689
Interest expense 3,650 0 8,700 (g) 12,350
15,807 (h)
Amortization of intangible assets 6,677 3,746 (3,746) (d) 22,484
-------- -------- ------- --------
Total expenses 243,198 187,436 21,196 451,830
-------- -------- ------- --------
Income before minority interest and 329,023 148,213 (55,387) 421,849
income tax expense
Minority interest and income tax (3,051) (4,843) 0 (7,894)
-------- -------- ------- --------
Net income 325,972 143,370 (55,387) 413,955
======== ======== ======= ========
Net income per share
Basic $ 3.85 $ 3.72
Diluted $ 3.78 $ 3.66
Weighted average shares outstanding (000's)
Basic 84,603 111,182
Diluted 86,193 113,142
</TABLE>
This unaudited condensed pro forma financial information should be
read in conjunction with the following explanatory notes.
<PAGE>
NOTES TO THE UNAUDITED PROFORMA COMBINED CONDENSED FINANCIAL INFORMATION
1. Basis of Presentation
On March 16, 1998, the combination of EXEL (which has been renamed "EXEL
Holdings Limited") and Mid Ocean was announced. The shareholders approved the
Arrangements on August 3, 1998 and the Grand Court of Cayman approved the
Arrangements on August 7, 1998. EXEL Limited (formerly EXEL Merger Company Ltd.)
("New EXEL") is the holding company for the new organization and the reinsurance
operations of both companies was combined on August 7, 1998. The new combined
organization will have assets in excess of $9 billion (taking into account the
recent decline in the investment markets). The transaction, detailed in the
joint proxy statement filed with the Securities and Exchange Commission on July
2, 1998 (hereby incorporated by reference), resulted in New EXEL issuing 1.0215
shares for each Mid Ocean share (other than Mid Ocean shares held by EXEL and
its subsidiaries), subject to the cash election rights of the two companies'
shareholders described therein. Prior to this transaction, EXEL owned
approximately 25% of Mid Ocean Class A shares.
2. Accounting for the Arrangements
(a) The combination of EXEL and Mid Ocean is being accounted for under
purchase accounting rules, in accordance with generally accepted
accounting practice, whereby the total purchase cost is allocated to
the assets and liabilities acquired based on their relative values at
the date of acquisition, and the excess of that total purchase cost
over the fair values is recorded as goodwill. The fair values ascribed
to the individual assets and liabilities are based upon management
studies and appraisals. The pro forma financial statements represent
management's best estimate based on currently available information,
and the differences are not expected to be material.
(b) The historical components of Mid Ocean's shareholders' equity,
including retained earnings, have been eliminated in accordance with
purchase accounting practices.
(c) The pro forma balance sheet also reflects the issue of New EXEL shares
in exchange for Mid Ocean shares, net of shares acquired through the
cash election process, resulting in additions to share capital and
additional paid in capital. These New EXEL shares have been included
in the calculation of pro forma net income per share.
(d) Included in the pro forma income statements for the year ended
November 30, 1997 and the six months ended May 31, 1998 is the
financial information of Mid Ocean for the year ended October 31, 1997
and the six months ended April 30, 1998, respectively. No adjustments
have been made to take account of these differing period ends as, in
the opinion of management, any such adjustments would not be material.
3. Allocation of Purchase Price Consideration:
<TABLE>
<S> <C>
The allocation of the purchase price is as follows:
Book value of net assets based upon historical Mid Ocean information $1,451,792
Increase in fair value of unquoted investments 3,527
Increase in cash and investments following exercise of options 5,841
Liability established under liability and severance agreements (6,722)
Elimination of goodwill carried by Mid Ocean (108,781)
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Fair value of assets 1,345,657
Equity value of Mid Ocean assets already held (376,791)
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Fair value of share of net assets acquired by EXEL 968,866
Goodwill relating to acquisition 1,264,729
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2,233,595
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The consideration for the arrangements is as follows:
Issue of new EXEL shares 2,107,211
Issue of New EXEL options 26,800
Mid Ocean shares purchased for cash 85,607
Cost of acquisition 13,977
----------
2,233,595
----------
</TABLE>
<PAGE>
4. Pro Forma Financial Statements
The following adjustments have been made to present the financial
information for the combined entities on a pro forma basis:
(a) Restatement of the unquoted investments of Mid Ocean to estimated fair
value.
(b) Elimination of the equity investment by EXEL in Mid Ocean prior to
this transaction.
(c) Elimination of common reinsurance arrangements between EXEL and Mid
Ocean.
(d) The elimination of goodwill previously carried by Mid Ocean relating
to the 1996 and 1997 acquisition of Brockbank.
(e) Recording of the liability for costs of certain executives and
employees of Mid Ocean arising on the change of control of the company
and the liability for legal and accounting costs relating to the
acquisition.
(f) Elimination of the shareholders' equity of Mid Ocean as at assumed
date of acquisition.
(g) The issue of New EXEL shares net of shares acquired through the cash
election. The cash elections were financed through $300 million of
debt at a rate of 5.8%.
(h) The recognition of the goodwill on acquisition, being the excess of
the purchase price paid by New EXEL through the issue of shares over
the fair value of the assets of Mid Ocean. Amortization of goodwill
arising on the acquisition on a straight-line basis over 40 years.
(i) Receipt of option proceeds resulting from the exercise of options
subsequent to the reported date.
5. Future Cost Savings and Non-Recurring Costs
New EXEL anticipates realizing future cost savings relating to the
elimination of duplicate facilities and corporate overheads. These
anticipated cost savings have not been reflected in the unaudited pro forma
financial information as there can be no assurance that they will be
realized in the expected amounts or in the time frames anticipated by
management. The amounts are not expected to be material. Similarly,
anticipated non-recurring exit costs incurred relating to duplicate
business areas have not been reflected in the pro forma statement of
income.
6. Share Options of Mid Ocean
Mid Ocean's 1993 Long-Term Incentive and Share Award Plan and certain
employment agreements of Mid Ocean provide that (unless otherwise agreed to
by the employee) all grants of restricted shares and options vest
immediately upon a Change of Control (as defined herein), rather than over
the original vesting period defined when the options were granted. All
outstanding Mid Ocean options were replaced at the time of consummation of
the Arrangements by fully vested and exercisable (unless otherwise agreed
by the holders thereof) options to acquire New EXEL shares, with
appropriate adjustments to reflect the exchange ratio. Each Mid Ocean share
purchased through the exercise of a Mid Ocean option prior to the
consummation of the Arrangements was converted to 1.0215 New EXEL shares,
as provided in the Agreement. Options exercised prior to the consummation
totaled 184,000 shares with proceeds of $5.8 million.
The remaining options that were not exercised were converted into
options of the New EXEL. The fair value of those options of $26.8 million
has been accounted for as part of the purchase consideration.
<PAGE>
7. Cash Election
EXEL shareholders and Mid Ocean shareholders were provided the opportunity
to make a cash election, whereby their entitlement to New EXEL shares would be
satisfied by the payment to them of cash rather than by the issue of New EXEL
shares, up to an aggregate of $300 million. The subscription was taken up as
follows:
<TABLE>
<CAPTION>
EXEL Mid Ocean
------------ -----------
<S> <C> <C>
Available funds $204,000,000 $96,000,000
Average price 81.23125 81.23125
Exchange ratio 1.00000 1.02150
Effective price per share 81.23125 82.97772
Maximum allowed shares 2,511,349 1,156,937
Number of shares subscribing cash 3,391,148 4,906,430
Acceptance ratio 74.056% 23.580%
</TABLE>
8. Severance Payments
Included in the liability established for severance agreements as described
in note 4(e) are amounts of $3.5 million and $1.4 million representing severance
payments to Messrs. Newhouse and Butt.
<PAGE>
The Board of Directors
Mid Ocean Limited
We consent to incorporation by reference in the registration statement on Form
8-K/A of EXEL Limited of our report dated November 21, 1997, relating to the
consolidated balance sheets of Mid Ocean Limited and subsidiaries as of October
31, 1997 and 1996, and the related consolidated statements of earnings, retained
earnings, and cash flows for each of the years in the three-year period ended
October 31, 1997 and all related schedules, which report appears in the October
31, 1997 annual report on Form 10-K (as amended by Form 10-K/A filed June 26,
1998) of Mid Ocean Limited.
/s/ KPMG Peat Marwick
Hamilton, Bermuda
October 5, 1998
