ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
Agreement and Plan of Amalgamation
Alterra Capital Holdings Limited ("Alterra") announced on December 19, 2012
that, on December 18, 2012, it had entered into an Agreement and Plan of Merger
(the "Merger Agreement ") with Markel Corporation ("Markel") and Commonwealth
Merger Subsidiary Limited, a direct wholly owned subsidiary of Markel ("Merger
Sub "), pursuant to which, subject to the terms and conditions set forth
therein, Merger Sub will merge with and into Alterra (the "Merger"), with
Alterra as the surviving company (the "Surviving Company ") becoming a wholly
owned subsidiary of Markel. A copy of the joint press release of Alterra and
Markel issued on December 19, 2012, announcing the entry into the Merger
Agreement is attached as Exhibit 99.1 and is incorporated by reference herein.
Pursuant to the Merger Agreement, upon the closing of the Merger, each issued
and outstanding Alterra common share (other than any Alterra common shares with
respect to which appraisal rights have been duly exercised under Bermuda law),
will automatically be converted into the right to receive (a) 0.04315 validly
issued, fully paid and nonassessable shares of Markel voting common stock,
without par value (the "Exchange Ratio"), together with any cash paid in lieu of
fractional shares, and (b) $10.00 in cash, without interest (the "Cash
Consideration" and together with the Exchange Ratio, the "Merger
Consideration"). The Merger Agreement is governed by Bermuda law and subject to
the jurisdiction of Bermuda courts. The Merger will be a taxable event for
Alterra shareholders.
Each of the boards of directors of Alterra and Markel unanimously adopted and
approved the Merger Agreement, and deemed it fair to, advisable and in the best
interests of, their respective companies and shareholders to enter into the
Merger Agreement and to consummate the Merger and the other transactions
contemplated thereby. In Markel's case, this includes (among other things) the
issuance of Markel common stock in connection with the Merger. Markel must
obtain the approval of at least a majority of votes cast at a special meeting of
Markel's shareholders in accordance with the rules of the New York Stock
Exchange to authorize the issuance of Markel common stock in the Merger. Under
the Merger Agreement, Alterra's board of directors approved an amendment to
Alterra's bye-laws which would reduce the shareholder vote required to approve a
merger with any other company from the affirmative vote of three-fourths of the
votes cast at a general meeting of the shareholders to a simple majority (the
"Bye-law Amendment"), and recommended that Alterra's shareholders approve the
Bye-law Amendment. If the Bye-law Amendment is approved by Alterra's
shareholders, then Alterra must obtain approval of at least a majority of the
votes cast at a special general meeting of Alterra's shareholders to approve and
adopt the Merger Agreement and the Merger (a "Alterra Special General Meeting").
If the Bye-law Amendment is not approved, then Alterra must obtain approval of
at least three-fourths of the votes cast at a Alterra Special General Meeting.
The Merger is expected to close in first half of 2013, subject to customary
closing conditions, including among others, (i) receiving the required approvals
of Alterra and Markel shareholders, (ii) authorization having been obtained for
listing the Markel common stock to be issued and reserved for issuance to
Alterra shareholders in the Merger on the New York Stock Exchange, (iii) receipt
of required regulatory approvals, including those from applicable insurance
authorities, (iv) effectiveness of the registration statement for the Markel
common stock to be issued in the Merger and (v) the absence of any order or
injunction by a court of competent jurisdiction preventing the consummation of
the Merger, and the absence of any action taken, or any law enacted, entered,
enforced or made applicable to the Merger, by any governmental entity that makes
the consummation of the Merger illegal or otherwise restrains, enjoins or
prohibits the Merger. The parties' obligations to consummate the Merger are also
subject to the condition that A.M. Best Company, Inc. ("A.M. Best") shall have
provided oral or written notice to the parties that certain of Markel's and
Alterra's insurance subsidiaries have been assigned a Financial Strength Rating
of at least "A" on a group basis, after giving effect to the Merger or will be
assigned such rating immediately after the effective time of the Merger (the
"A.M. Best Condition"). In addition, Alterra's obligation to consummate the
Merger is conditioned on the addition of two Alterra nominees to Markel's board
of directors as described in more detail below, and Markel's obligation to
consummate the Merger is conditioned on Alterra having not less than
$500,000,000 in immediately available unrestricted funds on the closing date of
the Merger.
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All options to purchase Alterra common shares that are outstanding and
unexercised will automatically be converted into options to acquire a number of
Markel common stock adjusted on an exchange ratio equal to the sum of the
Exchange Ratio plus the quotient of $10.00 divided by the weighted average share
price of Markel common stock for the five consecutive trading days immediately
preceding the second trading day before the closing of the Merger (the
"Incentive Award Exchange Ratio"), at an equitably adjusted exercise price and
otherwise on the same terms and conditions.
Awards of restricted Alterra common shares which automatically vest upon a
change of control will automatically vest upon the closing of the Merger
(generally restricted Alterra common shares granted on or before December 31,
2010, other than performance based awards) and holders of such Alterra
restricted common shares will receive the Merger Consideration, plus any other
amounts payable under the terms of the corresponding grant upon the exercise of
such restricted Alterra common shares. Awards of restricted Alterra common
shares that do not automatically vest upon a change of control (generally
restricted Alterra common shares granted after January 1, 2011 or performance
based awards of restricted Alterra common shares granted on or before
December 31, 2010) will automatically be converted into the right to receive
similarly restricted Markel common stock based on an exchange ratio equal to the
Incentive Award Exchange Ratio and otherwise on the same terms and conditions.
Holders of warrants to purchase Alterra common shares that are outstanding and
unexercised ("Alterra Warrants") will have the option to either (i) surrender
the warrant to Markel for an amount equal to the Merger Consideration multiplied
by the number of Alterra common shares the holder of such warrant would have
received had such holder exercised such warrant immediately prior to
effectiveness of the Merger through a cashless exercise, plus any other amounts
payable under the terms of the warrant upon its exercise, or (ii) have such
Alterra Warrant remain outstanding in accordance with its terms. Upon the
effective time of the Merger, such Alterra warrants (such warrants, the
. . .
ITEM 5.02 Departure of Directors or certain Officers; Election of Directions;
Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers
In connection with the proposed Merger, on December 18, 2012, Alterra adopted a
change in control severance plan, which will provide severance payments and
benefits to eligible employees of Alterra and its subsidiaries, including
Alterra's executive officers, in connection with certain terminations of
employment (the "Change in Control Severance Plan"). The Change in Control
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Severance Plan was unanimously approved by Alterra's board of directors. Under
the Change in Control Severance Plan, in the event that an employee's employment
is terminated without cause or the employee resigns for good reason, in each
case, within twelve (12) months following a change in control (a "Qualifying
Event"), the employee would be entitled to severance consisting of continued
base salary and health benefits at active employee rates for a minimum of six
(6) weeks and a maximum of fifty-two (52) weeks, based on the employee's years
of service and position with Alterra, and a pro-rated bonus for the year in
which the Qualifying Event occurs. The severance payments are payable in a lump
sum if the employee is entitled to twelve (12) weeks or less of continued base
salary.
For purposes of the Change in Control Severance Plan, the completion of the
Merger will constitute a change in control. An employee will not be entitled to
severance benefits under the Change in Control Severance Plan if the employee's
employment is terminated for any reason other than a Qualifying Event,
including, without limitation, (i) by the employer for cause, (ii) by the
employee without good reason or (iii) due to the employee's death or
disability. An employee's entitlement to payments and benefits under the plan is
subject to the employee's execution and non-revocation of a general release of
claims against the employer and its affiliates. In the event that the employee
is party to an employment agreement with Alterra that provides severance, the
employee will only be provided with severance payments and benefits under the
Change in Control Severance Plan to the extent they are greater than those
provided under such employment agreement.
In addition, on December 18, 2012, Alterra's board of directors unanimously
approved the establishment of a pool in respect of retention awards with an
aggregate award amount equal to approximately $23.6 million. Employees of
Alterra, including executive officers, will generally be eligible to receive
cash retention awards from this pool. However, individual award amounts, if any,
for employees, including executive officers, have not yet been determined. The
retention awards will be paid in cash on the first anniversary of the completion
of the Merger, subject to the recipient's continued service with Markel on such
date. In the event that a recipient's employment is terminated without cause or
due to the recipient's death or disability or the recipient's resignation for
good reason prior to such first anniversary date, the recipient or the
recipient's estate will receive the retention award upon such termination. In
the event that a recipient's employment is terminated for cause, by reason of
the recipient's voluntary resignation without good reason or retirement prior to
such first anniversary date, or the Merger is not consummated for any reason,
the recipient's retention award will be forfeited.
Alterra has previously granted certain performance share awards to employees in
2010 and 2012, including Alterra's named executive officers W. Marston Becker,
Joseph W. Roberts, Peter A. Minton, Thomas C. Wafer and D. Andrew Cook. On
December 18, 2012, in connection with the Merger, for purposes of determining
the number of Alterra's common shares deliverable upon vesting of the
performance share awards (other than certain performance share awards granted to
employees in Brazil), the compensation committee of Alterra's board of directors
has determined, subject to the completion of the Merger, that the
performance-based vesting criteria has been satisfied to the maximum extent
possible. The time-based vesting criteria applicable to the performance share
awards remain unchanged
ITEM 8.01 OTHER EVENTS.
(a) On December 19, 2012, Alterra and Markel issued a joint press release
announcing the execution of the Merger Agreement. A copy of the joint press
release is attached hereto as Exhibit 99.1 and is incorporated by reference
herein.
(b) In connection with the announcement of the Merger Agreement, Alterra is
filing as Exhibit 99.2 to this Current Report on Form 8-K the materials being
used in connection with presentations to and conversations with investors
beginning the date hereof.
(c) Alterra's initial estimate for losses from Hurricane Sandy is in the range
of $90 million to $120 million, before tax and net of reinsurance and
reinstatement premiums. This estimate is within Alterra's normal risk tolerances
for natural catastrophe events in the Mid-Atlantic and Northeastern United
States.
Alterra's loss estimates are based on proprietary modeling analyses, industry
assessments of exposure, claims information obtained from Alterra's clients and
brokers to date, and a review of in-force contracts. Alterra's actual losses
from these events may vary materially from the estimates due to the inherent
uncertainties in making such determinations resulting from several factors,
including the preliminary nature of available information, the potential
inaccuracies and inadequacies in the data provided by clients and brokers, the
modeling techniques employed and the application of such techniques, the
contingent nature of business interruption exposures, the effects of any
resultant demand surge on claims activity, and attendant coverage issues. In
addition, actual losses may increase if Alterra's reinsurers fail to meet their
obligations to Alterra or the reinsurance protections purchased by Alterra are
exhausted or are otherwise unavailable.
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ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(d) Exhibits
Exhibit
No. Description
2.1 Agreement and Plan of Merger, dated as of December 18, 2012, by and
among Alterra Capital Holdings Limited, Markel Corporation and
Commonwealth Merger Subsidiary Limited
10.1 Form of Company Shareholder Voting Agreement, dated as of December 18,
2012, by and among Markel Corporation and each of the shareholders of
Alterra Capital Holdings Limited listed on Schedule A thereto
10.2 Form of Parent Shareholder Voting Agreement, dated as of December 18,
2012, by and among Alterra Capital Holdings Limited, and each of the
shareholders of Markel Corporation listed on Schedule A thereto
99.1 Joint Press Release dated December 19, 2012
99.2 Investor presentation slides dated December 19, 2012, to be used in
connection with investor presentations
99.3 Letter to Business Partners dated December 19, 2012
99.4 Letter to Employees dated December 19, 2012
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This filing includes statements about future economic performance, finances,
expectations, plans and prospects of Alterra and Markel, both individually and
on a combined basis, that are forward-looking statements for purposes of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
There are risks and uncertainties that could cause actual results to differ
materially from those expressed in or suggested by such statements. For further
information regarding factors affecting future results of Alterra and Markel,
please refer to their Annual Report on Form 10-K for the year ended December 31,
2011 and Quarterly Reports on Form 10-Q and other documents filed by Alterra and
Markel since March 1, 2012 with the Securities Exchange Commission ("SEC").
These documents are also available free of charge, in the case of Alterra, by
directing a request to Alterra through Joe Roberts, Chief Financial Officer, or
Susan Spivak Bernstein, Senior Vice President, Investor Relations, at
441-295-8800 and, in the case of Markel, by directing a request to Bruce Kay,
Investor Relations, at 804-747-0136. Neither Alterra nor Markel undertakes any
obligation to update or revise publicly any forward-looking statement whether as
a result of new information, future developments or otherwise.
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This filing contains certain forward-looking statements within the meaning of
the U.S. federal securities laws. Statements that are not historical facts,
including statements about Alterra's and Markel's beliefs, plans or
expectations, are forward-looking statements. These statements are based on
Alterra's or Markel's current plans, estimates and expectations. Some
forward-looking statements may be identified by use of terms such as "believe,"
"anticipate," "intend," "expect," "project," "plan," "may," "should," "could,"
"will," "estimate," "predict," "potential," "continue," and similar words, terms
or statements of a future or forward-looking nature. In light of the inherent
risks and uncertainties in all forward-looking statements, the inclusion of such
statements in this filing should not be considered as a representation by
Alterra, Markel or any other person that Alterra's or Markel's objectives or
plans, both individually and on a combined basis, will be achieved. A
non-exclusive list of important factors that could cause actual results to
differ materially from those in such forward-looking statements includes the
following: (a) the occurrence of natural or man-made catastrophic events with a
frequency or severity exceeding expectations; (b) the adequacy of loss reserves
and the need to adjust such reserves as claims develop over time; (c) the
failure of any of the loss limitation methods the parties employ; (d) any
adverse change in financial ratings of either company or their subsidiaries;
(e) the effect of competition on market trends and pricing; (f) cyclical trends,
including with respect to demand and pricing in the insurance and reinsurance
markets; (g) changes in general economic conditions, including changes in
interest rates and/or equity values in the United States of America and
elsewhere; and (h) other factors set forth in Alterra's and Markel's recent
reports on Form 10-K, Form 10-Q and other documents filed with the SEC by
Alterra and Markel.
* * * * *
Risks and uncertainties relating to the proposed transaction include the risks
that: (1) the parties will not obtain the requisite shareholder or regulatory
approvals for the transaction; (2) the anticipated benefits of the transaction
will not be realized or the parties may experience difficulties in successfully
integrating the two companies; (3) the parties may not be able to retain key
personnel; (4) the conditions to the closing of the proposed merger may not be
satisfied or waived; (5) the outcome of any legal proceedings to the extent
initiated against Alterra or Markel or its respective directors and officers
following the announcement of the proposed merger is uncertain; (6) the
acquisition may involve unexpected costs; and (7) the businesses may suffer as a
result of uncertainty surrounding the acquisition. These risks, as well as other
risks of the combined company and its subsidiaries may be different from what
the companies expect, or have previously experienced, and each party's
management may respond differently to any of the aforementioned factors. These
risks, as well as other risks associated with the merger, will be more fully
discussed in the joint proxy statement/prospectus that will be included in the
Registration Statement on Form S-4 to be filed by Alterra and Markel with the
SEC. Readers are cautioned not to place undue reliance on any forward-looking
statements, which speak only as of the date on which they are made.
ADDITIONAL INFORMATION ABOUT THE PROPOSED MERGER AND WHERE TO FIND IT:
This filing relates to a proposed transaction between Alterra and Markel that
will become the subject of a registration statement, which will include a joint
proxy statement/prospectus, to be filed by Alterra and Markel with the SEC. This
material is not a substitute for the joint proxy statement/prospectus that
Alterra and Markel will file with the SEC or any other document that Alterra or
Markel may file with the SEC or Alterra or Markel may send to its shareholders
in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE
URGED TO READ THE JOINT PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT
DOCUMENTS THAT MAY BE FILED WITH THE SEC OR SENT TO SHAREHOLDERS, INCLUDING THE
DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS THAT WILL BE PART OF THE
REGISTRATION STATEMENT ON FORM S-4, AS THEY BECOME AVAILABLE BECAUSE THEY WILL
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED MERGER. All documents, when
filed, will be available free of charge at the SEC's website (www.sec.gov) or,
in the case of Alterra, by directing a request to Joe Roberts, Chief Financial
Officer, or Susan Spivak Bernstein, Senior Vice President, Investor Relations,
at 441-295-8800 and, in the case of Markel, by directing a request to Bruce Kay,
Investor Relations, at 804-747-0136.
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PARTICIPANTS IN THE SOLICITATION:
Alterra and Markel and their respective directors and executive officers may be
deemed to be participants in any solicitation of proxies from both Alterra's and
Markel's shareholders in favor of the proposed transaction. Information about
Alterra's directors and executive officers and their ownership in Alterra common
stock is available in the proxy statement dated March 26, 2012 for Alterra's
2012 annual general meeting of shareholders. Information about Markel's
directors and executive officers and their ownership of Markel common stock is
available in the proxy statement dated March 16, 2012 for Markel's 2012 annual
general meeting of shareholders.
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