Riedman Corp. turned up the heat a bit Thursday in its efforts to gain control of Niagara Exchange Corp. through a proxy fight. Riedman revealed that it plans to seek a shareholder vote on the Buffalo insurance company's deal to sell a 35 percent stake it itself to W.R. Berkley Corp.
Riedman, a Rochester-based insurance firm, is trying to take control of Niagara Exchange by asking shareholders to approve measures that would expand the size of the Buffalo company's board of directors and elect a slate of six new directors who are backed by Riedman.
Niagara Exchange, in a move that would effectively thwart Riedman's proxy battle, agreed last month to sell 970,000 shares of new preferred stock to Berkley, a Connecticut insurance firm, in a deal worth $8.245 million.
That move would give 35 percent of the company's voting rights to Berkley, which also signed a standstill agreement that prevents the Connecticut firm from voting for any shareholder proposal that is not supported by Niagara Exchange's management, Riedman charged in a lawsuit it filed to try to block the sale.
Riedman has charged that the Berkley deal is a veiled attempt by Niagara Exchange to block its proxy fight. But Charles J. Claus, Niagara Exchange's president, has said there was "no real relationship" between the stock deal and Riedman's takeover attempt.
Instead, Clauss has described the Berkley deal as a way for Niagara Exchange to gain an infusion of capital that the company needs to recover from the stinging losses stemming from damage caused by Hurricane Hugo.
In a document filed Thursday with the Securities and Exchange Commission, Riedman said the state Insurance Department also is seeking a shareholder vote on the Berkley deal.
"Many of the issues of concern . . . may be resolved if previously existing shareholders are provided with full disclosure of the terms of the undertaking (the Berkley agreement) and they are able to independently act to accept or reject the proposal," the insurance department said in a June 8 letter to Riedman that was quoted in the SEC filing.
A spokesman for the Insurance Department, which would have to approve the Berkley deal, refused to comment. Riedman and Niagara Exchange executives did not return telephone calls seeking their comments.
Niagara Exchange has run into serious financial troubles, mainly because of claims stemming from damage caused by Hurricane Hugo. As a result of the hurricane, which caused extensive damage in parts of South Carolina, nearly 5,000 claims were filed with its Charleston Insurance Co. subsidiary in Charleston, S.C.
The hurricane, which caused its heaviest damage in the Charleston area, caused Niagara Exchange to lose $9.74 million last year. Since then, Niagara Exchange said it has signed a letter of intent to sell Charleston Insurance Co., although it did not identify the potential buyer.
The Riedman group is trying to gain control of Niagara Exchange's board because the dissidents believe the firm's current management must be removed since they are partially responsible for the company's record losses.
Riedman has charged that Niagara Exchange's problems began long before Hurricane Hugo and include its acquisition of Charleston Insurance in 1988.
The SEC filing also disclosed that Richard W. Cutting has been added to Riedman's slate of six nominees for the board of directors, replacing Virgil E. Wenger.