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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
JUNE 3, 1996
(Date of Report)
CAPSURE HOLDINGS CORP.
(Exact name of Registrant as specified in its charter)
0-3565
(Commission File No.)
DELAWARE 34-1010356
(State or other jurisdiction) (IRS Employer Identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606
(Address of principal executive offices) (Zip code)
(312) 879-1900
(Registrant's telephone number, include area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 29, 1996, Capsure Holdings Corp., a Delaware corporation,
("Capsure," the "Company" or "Registrant"), through its wholly owned subsidiary,
NI Acquisition Corp., a Texas corporation, ("Seller") entered into a Stock
Purchase Agreement (the "Stock Purchase Agreement") with Frontier Insurance
Company, a New York corporation, ("Buyer") pursuant to which Buyer agreed to
purchase all of the issued and outstanding shares of Common Stock and Preferred
Stock (collectively, the "Shares") of United Capitol Holding Company, a Delaware
corporation and wholly owned subsidiary of the Seller, ("UCHC") and its
subsidiaries, United Capitol Insurance Company, United Capitol Managers, Inc.
and Fischer Underwriting Group, Incorporated.
On May 22, 1996 (the "Closing Date"), the sale of UCHC was completed.
In accordance with the Stock Purchase Agreement, Buyer paid to Capsure on the
Closing Date $30.9 million (the "Purchase Price") in cash in consideration of
the sale of the Shares of UCHC. Prior to closing, UCHC released $49.8 million
of excess statutory surplus by payment of a dividend to Capsure.
The Stock Purchase Agreement provides that the Purchase Price is
subject to adjustment for the difference, if any, between the post-closing
adjusted surplus (as defined in the Stock Purchase Agreement) and the estimated
adjusted surplus at closing. Such an adjustment to the Purchase Price will be
determined after completion of a closing balance sheet and closing income
statement. Such closing financial statements must be delivered by Seller to
Buyer within 45 days of the Closing Date. Any unresolved dispute concerning a
possible adjustment to the Purchase Price will be subject to binding
arbitration.
In the Stock Purchase Agreement, Capsure made various representations
and warranties as to itself and UCHC, and has agreed to indemnify Buyer for any
breaches thereof.
On the Closing Date, Capsure entered into various agreements with
Buyer pursuant to the Stock Purchase Agreement including non-competition and
non-solicitation agreements.
In conjunction with the sale of UCHC, Capsure entered into an amended
and restated senior reducing revolving credit facility with a syndicate of banks
led by Chemical Bank. The amendment to the facility reduced the commitment to
$100 million from $135 million and permits an initial draw for a special
dividend of up to $70 million. The remaining $30 million of availability may be
used for additional dividends, stock repurchases, acquisitions, and for general
corporate purposes. Transaction costs totaled approximately $0.5 million. The
credit available under the facility reduces semi-annually commencing March 31,
1997 and expires March 31, 2003. Interest on borrowings under the facility
varies based on leverage.
ITEM 5. OTHER EVENTS
On May 28, 1996, the Company announced that it has retained Smith
Barney Inc. to advise and assist Capsure's Board of Directors in an assessment
of the strategic options available to Capsure to enhance long-term value for its
stockholders. Options being explored include recapitalization of Capsure by
means of the payment of a leveraged, special dividend to stockholders and a
possible sale or merger of Capsure or its subsidiaries. The Board of Directors
has not reached any decision regarding the course of action or combination of
actions.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired
Not applicable.
(b) Pro Forma Financial Information
The following unaudited pro forma condensed consolidated
financial statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of March 31, 1996... Page F-1
Pro Forma Condensed Consolidated Statements of Income:
Year Ended December 31, 1995 .................................. Page F-2
Three Months Ended March 31, 1996.............................. Page F-3
The Pro Forma Condensed Consolidated Balance Sheet of
Registrant as of March 31, 1996 reflects the financial position of
Registrant after giving effect to the Disposition discussed in Item 2
and assumes the Disposition took place on March 31, 1996. The Pro
Forma Condensed Consolidated Statements of Income for the fiscal year
ended December 31, 1995 and the three months ended March 31, 1996
assume that the Disposition occurred on January 1, 1995 and are based
on the operations of Registrant for the year ended December 31, 1995
and the three months ended March 31, 1996.
The unaudited pro forma condensed consolidated financial
statements have been prepared by Registrant based upon assumptions
deemed appropriate. The unaudited pro forma condensed consolidated
financial statements presented herein are shown for illustrative
purposes only and are not necessarily indicative of the future
financial position or future results of operations of Registrant, or
of the financial position or results of operations of Registrant that
would have actually occurred had the transaction been in effect as of
the date or for the periods presented. In addition, it should be
noted that Registrant's financial statements will reflect the
Disposition as of May 22, 1996, the Closing Date.
The unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements and related notes of Registrant.
(c) Exhibits
2.1 Stock Purchase Agreement, dated February 29,
1996, by and among Registrant, Seller and Buyer.
2.2 Credit Agreement, dated March 29, 1994, as
amended and restated as of May 22, 1996.
99 Press Release issued by Registrant, dated May 28,
1996.
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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 thereunto duly authorized.
CAPSURE HOLDINGS CORP.
By: /s/ John S. Heneghan
-----------------------------
John S. Heneghan
Vice President and Controller
Dated: June 3, 1996
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CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
Pro Forma
Adjustments
-----------------------
Historical UCHC (a) Other Pro Forma
---------- -------- ---------- ---------
ASSETS
Invested assets and cash:
Fixed maturities, at fair value .......... $ 201,485 $ 76,194 $ $ 125,291
Equity securities, at fair value ......... 13,720 -- 13,720
Short-term investments, at cost which
approximates fair value ................ 67,379 45,083 67,664 (b) 89,960
Other investments, at fair value ......... 3,275 -- 3,275
Cash ..................................... 4,089 2,726 1,363
--------- --------- -------- ---------
289,948 124,003 67,664 233,609
Deferred policy acquisition costs ......... 28,570 459 28,111
Reinsurance receivable .................... 40,645 33,269 7,376
Intangible assets, net of amortization .... 15,289 -- 15,289
Excess cost over net assets acquired,
net of amortization ...................... 68,016 4,805 63,211
Deferred income taxes, net of valuation
allowance ................................ 27,030 5,212 21,818
Other assets .............................. 36,985 12,704 24,281
--------- --------- -------- ---------
$ 506,483 $ 180,452 $ 67,664 $ 393,695
========= ========= ======== =========
LIABILITIES
Reserves:
Unpaid losses and loss adjustment
expenses................................. $ 125,940 $ 84,428 $ $ 41,512
Unearned premiums ........................ 82,385 12,405 69,980
--------- --------- -------- ---------
208,325 96,833 111,492
Reinsurance payable ....................... 701 701 --
Long-term debt ............................ 9,000 -- (9,000)(b) --
Other liabilities ......................... 27,115 6,254 -- 20,861
--------- --------- -------- ---------
Total liabilities ........................ 245,141 103,788 (9,000) 132,353
Total stockholders' equity ............... 261,342 76,664 76,664 261,342
--------- --------- -------- ---------
$ 506,483 $ 180,452 $ 67,664 $ 393,695
========= ========= ======== =========
______________________________
(a) To eliminate the assets and liabilities of UCHC as of March 31, 1996.
(b) The estimated net proceeds on the sale are expected to approximate the
net assets of UCHC at March 31, 1996. The $76.7 million in net proceeds
from the sale of UCHC are invested in short-term investments after
retiring $9.0 million of outstanding long-term debt.
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CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
Adjustments
--------------------
Historical UCHC (a) Other Pro Forma
---------- --------- --------- ---------
Revenues:
Net earned premiums ....................... $ 98,692 $ 13,709 $ $ 84,983
Net investment income ..................... 20,471 9,257 4,196(b) 15,410
Net investment gains (losses) ............. (1,653) (1,030) (623)
Other income .............................. 6 -- 6
-------- -------- ------ --------
117,516 21,936 4,196 99,776
-------- -------- ------ --------
Expenses:
Net losses and loss adjustment expenses ... (7,451) (15,030) 7,579
Net commissions, brokerage and other
underwriting .............................. 61,312 3,142 58,170
Interest expense .......................... 4,103 -- 4,103
Amortization of goodwill and intangibles .. 16,853 13,952 2,901
Other ..................................... 2,448 -- 2,448
-------- -------- ------ --------
77,265 2,064 75,201
-------- -------- ------ --------
Income before income taxes ................. 40,251 19,872 4,196 24,575
Income taxes ............................... 19,721 11,215 1,469(c) 9,975
-------- -------- ------ --------
Net income ................................. $ 20,530 $ 8,657 $2,727 $ 14,600
======== ======== ====== ========
Weighted average shares outstanding:
Primary ................................... 15,404 15,404
========= ========
Fully Diluted ............................. 15,917 15,917
========= ========
Earnings per share:
Primary ................................... $ 1.33 $ .95
========= ========
Fully Diluted ............................. $ 1.29 $ .92
========= ========
______________________________
(a) To eliminate the operations of UCHC for the entire period.
(b) To reflect the investment of the net proceeds from the sale of UCHC,
assuming a yield of 5.5%.
(c) To reflect the tax effect of pro forma adjustments, calculated at the
statutory rate of 35%.
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CAPSURE HOLDINGS CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Pro Forma
Adjustments
-------------------
Historical UCHC (a) Other Pro Forma
---------- -------- --------- ---------
Revenues:
Net earned premiums ....................... $23,349 $1,972 $ $21,377
Net investment income ..................... 5,034 2,262 1,107(b) 3,879
Net investment gains ...................... 523 297 226
Other income .............................. 1 -- 1
------- ------ ------ -------
28,907 4,531 1,107 25,483
------- ------ ------ -------
Expenses:
Net losses and loss adjustment expenses ... 3,396 431 2,965
Net commissions, brokerage and other
underwriting ............................. 14,756 (83) 14,839
Interest expense .......................... 506 -- 506
Amortization of goodwill and intangibles .. 713 -- 713
Other ..................................... 619 -- 619
------- ------ ------ -------
19,990 348 19,642
------- ------ ------ -------
Income before income taxes ................. 8,917 4,183 1,107 5,841
Income taxes ............................... 3,397 1,487 387(c) 2,297
------- ------ ------ -------
Net income ................................. $ 5,520 $2,696 $ 720 $ 3,544
======= ====== ====== =======
Weighted average shares outstanding:
Primary ................................... 15,906 15,906
======= =======
Fully Diluted ............................. 15,907 15,907
======= =======
Earnings per share:
Primary ................................... $ .35 $ .22
======= =======
Fully Diluted ............................. $ .35 $ .22
======= =======
______________________________
(a) To eliminate the operations of UCHC for the entire period.
(b) To reflect the investment of the net proceeds from the sale of UCHC,
assuming a yield of 5.5%.
(c) To reflect the tax effect of pro forma adjustments, calculated at the
statutory rate of 35%.
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