SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-KA
AMENDED CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 1996
GORAN CAPITAL INC.
(Exact name of registrant as specified in its charter)
Canada 000-24366 Not Applicable
(State or other jurisdiction of (Commission (I.R.S. Employer
Incorporation or organization) File Number) Identification No.)
181 University Avenue, Suite 1101 - Box 11, Toronto, Ontario, Canada M5H 3M7
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (416) 594-1155 (Canada)
(317) 259-6300 (USA)
(Former name or former address, if changed since last report) Not Applicable
<PAGE>
ITEM 2. Acquisition or Disposition of Assets
In June, 1995, the Company's 100% owned subsidiary, Symon's International Group,
Inc., ("SIG") entered into a letter of intent to acquire Superior Insurance
Company ("Superior")from Fortis, Inc. ("Fortis"), and in January, 1996, SIG
secured a commitment from the GS Capital Partners II, L.P.; GS Capital Partners
II Offshore, L.P.; Stone Street Funds, L.P.; Bridge Street Funds, L.P.; and
Goldman Sachs & Co. VerwaltungsGmblt, five investment funds affiliated with
Goldman, Sachs & Co. (collectively, the "GS Funds") to invest equity capital. On
January 31, 1996, the Company, SIG, Fortis and its wholly-owned subsidiary,
Interfinancial, Inc. ("Interfinancial"), a holding company for Superior, entered
into a Stock Purchase Agreement (the "Superior Purchase Agreement") pursuant to
which SIG agreed to purchase Superior from Interfinancial (the "Acquisition")
for a purchase price of approximately $66 million. Simultaneously with the
execution of the Superior Purchase Agreement, the Company, SIG, GGS Management
Holdings, Inc. ("GGS Holdings") and GS Capital Partners II, L.P., a Delaware
limited partnership, entered into an agreement (the "GGS Agreement") to
capitalize GGS Holdings and to cause GGS Holdings to issue its capital stock to
SIG and to the GS Funds, so as to give SIG a 52% ownership interest and the GS
Funds a 48% ownership interest (the "Formation Transaction"). Pursuant to the
GGS Agreement, (a) SIG contributed to GGS Holdings (i) Pafco General Insurance
Company ("Pafco") common stock with a book value determined in accordance with
U.S. GAAP of at least $15.3 million as reflected on an audited post-closing
balance sheet of Pafco, (ii) its right to acquire Superior pursuant to the
Superior Purchase Agreement and (iii) certain fixed assets, including office
furniture and equipment, having a value of approximately $350,000 and (b) the GS
Funds contributed to GGS Holdings $21.2 million in cash. If the book value of
Pafco as reflected on the final post-closing balance sheet is less than $15.3
million, SIG will be required to contribute the amount of the deficiency in cash
to GGS Holdings no later than December 31, 1996, plus interest at the prime rate
from the date of closing of the Formation Transaction to date of payment. The
Formation Transaction and the Acquisition were completed on April 30, 1996. GGS
Management Inc. "(GGS Management"), a wholly owned subsidiary at GGS Holdings
funded the purchase price with a combination of the $21.2 million contributed by
the GS Funds and the proceeds of $48.0 million senior bank facility extended to
GGS Management (the "GGS Senior Credit Facility").
Pursuant to the GGS Agreement, Pafco transferred all of the outstanding
capital stock of IGF (the "Transfer") in order to improve the risk-based capital
rating of Pafco and to permit GGS Holdings to focus exclusively on the
nonstandard automobile insurance business. Pafco accomplished the Transfer by
forming a wholly-owned subsidiary, IGF Holdings, Inc. ("IGF Holdings"), to which
Pafco contributed all of the outstanding shares of capital stock of IGF. Prior
to the distribution of the IGF Holdings capital stock to the Company, IGF
Holdings paid to Pafco a dividend in the aggregate amount of approximately $11.0
million (the "Dividend"), consisting of $7.5 million in cash and a subordinated
promissory note in the principal amount of approximately $3.5 million (the "IGF
Note"). Pafco then distributed the outstanding capital stock of IGF Holdings to
the Company. IGF Holdings funded the cash portion of the Dividend with bank debt
in the principal amount of $7.5 million (the "IGFH Bank Debt"). The IGFH Bank
Debt and the IGF Note will be repaid with a portion of the proceeds from the
Offering.
Prior to January 1, 1996, SIG, through Symons International Group, Inc.
(Florida) ("SIGF"), its specialized surplus lines brokerage unit based in
Florida, provided certain commercial insurance products through retail agencies,
principally in the southeast United States. SIGF writes these specialty products
through a number of different insurers including Pafco, United National
Insurance Group, Munich American Reinsurance Corp. and Lloyd's of London.
Effective January 1, 1996, SIG transferred to the Company all of the issued and
outstanding shares of capital stock of SIGF (the "Distribution").
The following pro-forma financial statements amend and restate the pro
forma financial statements included in Goran Capital Inc.'s Form 8-K originally
filed as of May 14, 1996 and amended as of July 15, 1996:
1. Unaudited pro-forma consolidated financial statements of Goran Capital Inc.
<PAGE>
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.
GORAN CAPITAL INC.
(Registrant)
July 31, 1996 By: /s/ Alan G. Symons
President and Chief Executive Officer
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS OF GORAN CAPITAL, INC.
The following unaudited pro forma consolidated statements of operations of
the Company for the year ended December 31, 1995 and the three months ended
March 31, 1996 present results for the Company as if the Acquisition, Formation
Transaction, Transfer and Distribution (collectively, the "Transactions") had
occurred as of January 1, 1995 and January 1, 1996, respectively. The
accompanying unaudited pro forma consolidated balance sheet as of March 31, 1996
gives effect to the Transactions as if they had occurred as of March 31, 1996.
The pro forma adjustments are based on available information and certain
assumptions that the Company currently believes are reasonable in the
circumstances. The unaudited pro forma consolidated financial statements have
been derived from and should be read in conjunction with the historical
Consolidated Financial Statements and Notes of the Company for the year ended
December 31, 1995 and as of and for the unaudited three months ended March 31,
1996 and the historical Consolidated Financial Statements and Notes of Superior
for the year ended December 31, 1995 and as of and for the unaudited three
months ended March 31, 1996, and should be read in conjunction with the
accompanying Notes to Unaudited Pro Forma Consolidated Financial Statements. The
pro forma adjustments and pro forma consolidated amounts are provided for
informational purposes only.
The pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the results of operations or financial position
that would have occurred had the Transactions described above been consummated
on the dates assumed; nor is the pro forma information intended to be indicative
of the Company's future results of operations or financial position.
<PAGE>
Goran Capital Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Pro Forma
Goran Superior for the
Historical Historical Adjustments (1) Transactions
---------- ---------- --------------- ------------
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross premiums written........... $151,790 $94,756 $--- $246,546
-------- ------ -------- -------
Net premiums written............. 86,360 94,070 --- 180,430
-------- ------ -------- -------
Net premiums earned.............. 76,102 97,614 --- 173,716
Net investment income
and other income.............. 5,872 11,264 280 C.3 17,416
Net realized capital gain (loss). --- 1,954 --- 1,954
-------- ------ -------- -------
Total revenues................ 81,974 110,832 280 193,086
Losses and loss adjustment
expenses...................... 54,193 72,343 --- 126,536
Policy acquisition and general
and administrative expenses 16,352 32,705 101 A.1- 49,158
A.3,
B.3
Interest expense................ 1,761 -- 4,963 A.4, 6,724
-------- ------ -------- C.2 -------
Total expenses................ 72,306 105,048 5,064 182,418
-------- ------ -------- -------
Income before income taxes
and minority interest......... 9,668 5,784 (4,784) 10,668
Provision for income taxes....... 2,497 1,649 (1,565) D 2,581
Minority interest................ --- --- 136 B.2 136
-------- ------ -------- -------
Net income.................. $ 7,171 $4,135 $ (3,355) $ 7,951
======== ====== ======== =======
Net income per common share...... $ 1.43 $ 1.59
===== =======
Weighted average shares
outstanding................... 5,012 5,012
===== =====
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
<PAGE>
Goran Capital Inc.
Unaudited Pro Forma Consolidated Statement of Operations
For the Three Months Ended March 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Goran Superior for the
Historical Historical Adjustments (1) Transactions
---------- ---------- --------------- ------------
(amounts in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross premiums written .......... $41,422 $32,289 $ --- $73,711
-------- ------ ------- ------
Net premiums written............. 25,339 32,126 $ --- 57,465
-------- ------ ------- ------
Net premiums earned ............. 24,518 28,659 $ --- 53,177
Net investment income
and other income.............. 1,464 3,280 70 C.3 4,814
Net realized capital
gain (loss)................... --- 29 --- 29
-------- ------ ------- ------
Total revenues.............. 25,982 31,968 70 58,020
Losses and loss
adjustment expenses........... 16,597 19,511 --- 36,108
Policy acquisition and general
and administrative expenses... 5,993 8,188 25 A.1- 14,206
A.3,
B.3
Interest expense................. 337 --- 1,240 A.4, 1,577
-------- ------ ------- C.2 ------
Total expenses................ 22,927 27,699 1,265 51,891
-------- ------ ------- ------
Income before income taxes
and minority interest......... 3,055 4,269 (1,195) 6,129
Provision for income taxes....... 851 1,455 (394) D 1,912
Minority interest................ --- --- 1,304 B.2 1,304
-------- ------ ------- ------
Net income.................. $ 2,204 $2,814 $(2,105) $2,913
======== ====== ======= ======
Net income per
common share.................. $ .43 $0.57
===== =====
Weighted average
shares outstanding............ 5,085 5,085
===== =====
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
<PAGE>
Goran Capital Inc.
Unaudited Pro Forma Consolidated Balance Sheet
At March 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Goran Superior for the
Historical Historical Adjustments (1) Transactions
---------- ---------- --------------- ------------
(amounts in thousands, except per share amounts)
Assets
<S> <C> <C> <C> <C>
Total invested assets and cash... $50,698 $120,886 $7,692 A.1 $179,276
C.1
Receivables...................... 43,234 32,530 --- 75,764
Other assets..................... 12,795 12,598 2,617 A.1 28,010
B.3
Goodwill......................... --- --- 3,638 A.2 3,638
-------- -------- ------- --------
Total Assets ................. $106,727 $166,014 $13,947 $286,688
======== ======== ======= ========
Liabilities
Losses and loss
adjustment expenses........... $42,889 $45,700 $--- $88,589
Unearned premiums................ 27,636 44,516 --- 72,152
Payables......................... 9,071 12,222 --- 21,293
Federal income taxes payable..... 927 823 --- 1,750
Subordinated dibentures.......... 11,013 --- --- 11,013
Notes payable and line of credit. 250 --- 7,500 C.1 7,750
Term loan........................ --- --- 48,000 A.1 48,000
Minority interest................ --- --- 21,200 B.1 21,200
-------- -------- ------- --------
Total liabilities........... 91,786 103,261 76,700 271,147
-------- -------- ------- --------
Shareholders' equity ............ 14,941 62,753 (62,753) A.5 14,941
-------- -------- ------- --------
Total liabilities and
shareholders' equity........ $106,727 $166,014 $13,947 $286,688
======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of the pro forma consolidated
financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANACIAL STATEMENTS
(1) Pro Forma Adjustments Relating to the Transactions
Acquisition of Superior
The acquisition of Superior will be accounted for under the purchase method of
accounting. Under this method, the total cost to acquire Superior will be
allocated to the assets and liabilities based on their fair values as of the
date of the acquisition with any excess of the total purchase price over the
fair value of the assets acquired less the fair value of the liabilities assumed
recorded as goodwill. Under the terms of the Superior Purchase Agreements the
total purchase price for Superior was approximately $66 million. The GAAP
carrying value of assets acquired and liabilities assumed at the Acquisition
date approximated fair value. There were not significant indentifiable
intangible assets. Therefore, the excess cost of the total purchase price was
recorded as goodwill.
The Acquisition was funded with (i) $21,200,000 of cash contributions from the
GS Funds in exchange for a 48% minority interest in GGS Holdings; and (ii)
$48,000,000 in cash from a senior bank facility. Funds received in excess of the
total purchase price of Superior plus acquisition costs financed, estimated to
be $192,000, are reflected as cash until final determination of the Acquisition
purchase price. No additional investment income is assumed to be earned on the
excess cash retained from the proceeds of the Acquisition financing.
Pro forma adjustments to give effect to the Acquisition and related transactions
are summarized as follows:
A1. Notes payable is adjusted to reflect the Acquisition financing of the
$48,000,000 GGS Senior Credit Facility as at March 31, 1996, and total
invested assets and cash are adjusted by $192,000 for funds received in
excess of the total purchase price.
Policy acquisition and general and administrative expenses for the
periods prior to the Acquisition is adjusted by $232,000 for the year
ended December 31, 1995 and by $58,000 for the three months ended March
31, 1996 to reflect the amortization of deferred loan origination costs
of $1,397,000 incurred related to the GGS Senior Credit Facility. The
debt issuance costs are amortized over six years, the term of the GGS
Senior Credit Facility.
A2. Goodwill related to the Acquisition on a pro forma basis is $3,638,000
and is based on a preliminary valuation of the total purchase price.
Accordingly, the allocation of the excess purchase price may be
adjusted upon final determination of such value.
Policy acquisition and general and administrative expenses for the
periods prior to the Acquisition is adjusted by $146,000 for the year
ended December 31, 1995 and by $36,000 for the three months ended March
31, 1996 to reflect the amortization of goodwill. Goodwill is
amoritized over a 25-year period on a straight line basis based on
management's estimate of the expected benefit period.
A3. Policy acquisition and general and administrative expenses for the
periods prior to the Acquisition is adjusted by $521,000 for the year
ended December 31, 1995 and by $130,000 for the three months ended
March 31, 1996 to reflect the elimination of management fees charged by
Superior's former parent, Fortis, for corporate expenses. Subsequent to
the Acquisition date, no such management fees have or will be charged
to Superior by the Company.
A4. Interest expense for the periods prior to the Acquisition is adjusted
by $3,989,000 for the year ended December 31, 1995 and by $997,000 for
the three months ended March 31, 1996 to reflect the GGS Senior Credit
Facility financing of $48,000,000 related to the Acquisition. It is
assumed that the interest rate on the GGS Senior Credit Facility was
8.31% percent. The Company entered into an interest rate swap to
effectively fix its borrowing costs at 8.31% through November 15, 1996.
A5. Shareholder's equity at March 31, 1996 has been adjusted to reflect the
elimination of Superior's historical shareholder's equity of
$62,753,000 as of March 31, 1996.
<PAGE>
The Formation Transaction
B1. In connection with the financing of the Acquisition, GGS Holdings was
formed, and $21,200,000 of cash contributions from GS Funds was
provided in exchange for a 48% minority interest in GGS Holdings. As
part of the Formation Transaction, the Company contributed Pafco to GGS
Holdings in exchange for a 52% controlling interest.
B2. Minority interest for the periods prior to the Formation Transaction
has been adjusted by $136,000 for the year ended December 31, 1995 and
by $1,304,000 for the three months ended March 31, 1996 to reflect the
48% minority interest in GGS Holdings.
B3. Other assets has been adjusted to reflect the capitalization of
organizational costs of $1,220,000 incurred in connection with the
Formation Transaction, consisting principally of legal, accounting and
finders fees.
Policy acquisition and general and administrative expenses for the
periods prior to the Formation Transaction is adjusted by $244,000 for
the year ended December 31, 1995 and by $61,000 for the three months
ended March 31, 1996 to reflect the amortization of organizational
costs. Organizational costs are amoritized over a 5-year period on a
straight line basis.
The Transfer
In connection with the Transfer and immediately prior to the Formation
Transaction, IGF Holdings distributed to Pafco a dividend of $7,500,000 in cash
and the IGF Note of $3,500,000. IGF Holdings funded the cash portion of the
distribution to Pafco with the proceeds of the $7,500,000 IGFH Bank Debt.
Pro forma adjustments to give effect to the Transfer and related transactions
are summarized as follows:
C1 Notes payable and line of credit is adjusted to reflect the financing
of the dividend to Pafco for the IGFH Bank Debt of $7,500,000, as at
March 31, 1996. Pro forma notes payable and line of credit is not
adjusted to reflect the issuance of the IGF Note of $3,500,000 to
Pafco, in accordance with GAAP, since such intercompany transactions
are eliminated in consolidation.
C2 Interest expense for the periods prior to the Transfer is adjusted to
reflect the financing of the dividend to Pafco. It is assumed that the
interest rate on the IGFH Bank Debt was 9.25 percent (prime rate plus
1%). This rate reflects the interest rate enviornment which existed at
the Transfer date. The stated interest rate on the IGF Note is 8.0
percent. Pro forma adjustments to give effect to the financing are
summarized as follows:
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, 1995 March 31, 1996
----------------- ------------------
<S> <C> <C>
IGFH Bank Debt .................... $694,000 $173,000
IGF Note........................... 280,000 70,000
-------- --------
$974,000 $243,000
======== ========
</TABLE>
C3 Other income has been adjusted by $280,000 for the year ended December
31, 1995 and by $70,000 for the three months ended March 31, 1996 to
reflect the interest income Pafco would earn which is derived from the
IGFH Note of $3,500,000, at a stated rate of 8%. No additional
investment income is assumed to be earned on the cash retained in Pafco
from the proceeds of the IGF Note.
D. All applicable pro forma adjustments to operations are tax effected at
the appropriate rate.
