<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 1997
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
STIRLING COOKE BROWN HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 6411 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD (I.R.S.
JURISDICTION OF INDUSTRIAL EMPLOYER IDENTIFICATION
INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION) NUMBER)
VICTORIA HALL, THIRD FLOOR, 11 VICTORIA STREET
HAMILTON, HM 11, BERMUDA
(441) 295-7556
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
NICHOLAS MARK COOKE
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
STIRLING COOKE BROWN HOLDINGS LIMITED
VICTORIA HALL, THIRD FLOOR, 11 VICTORIA STREET
HAMILTON, HM 11, BERMUDA
(441) 295-7556
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
----------------
COPIES TO:
JOHN M. OLSON, ESQ. LOIS F. HERZECA, ESQ. WARREN CABRAL, ESQ.
FOLEY & LARDNER 777 FRIED, FRANK, HARRIS, APPLEBY, SPURLING & KEMPE
EAST WISCONSIN AVENUE SHRIVER & JACOBSON ONE CEDAR HOUSE, 41 CEDAR
MILWAUKEE, WISCONSIN NEW YORK PLAZA NEW YORK, AVENUE HAMILTON, HM 12,
53202 (414) 271-2400 NEW YORK 10004 (212) BERMUDA (441) 295-2244
859-8000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES TO BE PROPOSED MAXIMUM AMOUNT OF
REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
- -----------------------------------------------------------------------------
<S> <C> <C>
Ordinary Shares,
par value $.25 per
share.................. $50,000,000 $15,152
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
(1) Estimated in accordance with Rule 457(o) under the Securities Act of 1933
solely for the purpose of calculating the registration fee pursuant to
Section 6(b) thereunder.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers the registration of $50 million aggregate
offering price of Ordinary Shares of Stirling Cooke Brown Holdings Limited
(the "Company") to be sold in the offering referred to below. This
Registration Statement also covers the registration of an indeterminate number
of Ordinary Shares for resale by Goldman, Sachs & Co. in connection with
market-making transactions in the United States. (No Ordinary Shares are being
registered for the purpose of sales outside the United States.) The complete
Prospectus relating to the offering (the "IPO Prospectus") follows immediately
after this Explanatory Note. Following the IPO Prospectus are certain pages of
the Prospectus relating solely to such market-making transactions (together
with the remainder of the Prospectus as modified as indicated below, the
"Market-Making Prospectus"), including alternate front and back cover pages, a
section entitled "Principal Shareholders" and a section entitled "Plan of
Distribution". The Market-Making Prospectus will not include the stabilization
legend, which will be deleted from the inside front cover page, or the
sections entitled "Principal and Selling Shareholders" and "Underwriting". All
other sections of the IPO Prospectus are to be used in the Market-Making
Prospectus.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 6, 1997
SHARES
STIRLING COOKE BROWN HOLDINGS LIMITED
ORDINARY SHARES
(PAR VALUE $.25 PER SHARE)
-----------
Of the Ordinary Shares offered hereby, shares are being sold by the
Company and shares are being sold by the Selling Shareholders. See
"Principal and Selling Shareholders". The Company will not receive any of the
proceeds from the sale of the shares being sold by the Selling Shareholders.
Prior to the Offering, there has been no public market for the Ordinary
Shares of the Company. It is currently estimated that the initial public
offering price per share will be between $ and $ . For factors to be
considered in determining the initial public offering price, see
"Underwriting".
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE ORDINARY SHARES.
Application will be made for the quotation of the Ordinary Shares on the
Nasdaq National Market under the symbol "SCBH".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) COMPANY (2) SHAREHOLDERS
-------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C>
Per Share.......... $ $ $ $
Total (3).......... $ $ $ $
</TABLE>
- -----
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting".
(2) Before deducting estimated expenses of $ payable by the Company.
(3) Certain of the Selling Shareholders have granted the Underwriters an option
for 30 days to purchase up to an additional shares at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. If such option is exercised in full, the total
initial public offering price, underwriting discount and proceeds to
Selling Shareholders will be $ , $ , and $ , respectively. See
"Underwriting".
-----------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO. DILLON, READ & CO. INC.
-----------
The date of this Prospectus is , 1997.
<PAGE>
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the ordinary shares,
including over-allotment, stabilizing and short-covering transactions in such
securities, and the imposition of a penalty bid, in connection with the
Offering. For a description of these activities, see "Underwriting".
----------------
For North Carolina investors: These Securities have not been approved or
disapproved by the Commissioner of Insurance for the State of North Carolina,
nor has the Commissioner of Insurance ruled upon the accuracy or the adequacy
of this document.
----------------
Consent under the Exchange Control Act 1972 (and regulations thereunder) has
been obtained from the Bermuda Monetary Authority for the issue of the shares
being offered pursuant to the Offering. In addition, a copy of this document
has been delivered to the Registrar of Companies in Bermuda for filing
pursuant to the Companies Act 1981 of Bermuda. In giving such consent and in
accepting this prospectus for filing, the Bermuda Monetary Authority and the
Registrar of Companies in Bermuda accept no responsibility for the financial
soundness of any proposal or for the correctness of any of the statements made
or opinions expressed herein.
These securities may not be offered or sold to persons in the United Kingdom
except to persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or agent) for the
purposes of their businesses, or otherwise in circumstances which do not
constitute an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995. All applicable provisions of
the Financial Services Act 1986 of the United Kingdom must be complied with in
relation to anything done in relation to these securities in, from or
otherwise involving the United Kingdom. This document may not be issued or
passed on to any person in the United Kingdom unless that person is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom this document
may otherwise lawfully be issued or passed on.
----------------
The Company intends to furnish to its shareholders annual reports containing
consolidated financial statements examined and subject to a written opinion
expressed by an independent public accounting firm and quarterly reports for
the first three quarters of each fiscal year containing unaudited financial
information.
----------------
No purchaser may acquire directly or indirectly 10% or more of the Company's
outstanding ordinary shares without prior approval by the Insurance Department
of the State of New York. See "Business--Regulation".
2
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES LAWS
Stirling Cooke Brown Holdings Limited was organized pursuant to the laws of
Bermuda and certain of the Company's directors and officers and certain of the
experts named herein reside outside of the United States. Moreover, a
significant portion of the assets of the Company is located outside the United
States. Consequently, it may not be possible to effect service of process on
such persons or entities within the United States or to enforce against any of
them judgments of courts in the United States predicated upon the civil
liability provisions of the federal securities laws of the United States. The
Company has been informed by Appleby, Spurling & Kempe, its legal advisor in
Bermuda, that the United States and Bermuda do not currently have a treaty
providing for reciprocal recognition and enforcement of judgments in civil and
commercial matters, and a final judgment for the payment of money rendered by
any federal or state court in the United States based on civil liability,
whether or not predicated solely upon the federal securities laws, would,
therefore, not be automatically enforceable in Bermuda. The Company has also
been advised by Appleby, Spurling & Kempe that a final and conclusive judgment
obtained in federal or state courts in the United States under which a sum of
money is payable as compensatory damages (i.e., not being a sum claimed by a
revenue authority for taxes or other charges of a similar nature by a
governmental authority, or in respect of a fine or penalty or multiple or
punitive damages) may be the subject of an action on a debt in the Supreme
Court of Bermuda under the common law doctrine of obligation. Such an action
should be successful upon proof that the sum of money is due and payable, and
without having to prove the facts supporting the underlying judgment, as long
as (i) the court that gave the judgment was competent to hear the action in
accordance with private international law principles as applied by the courts
in Bermuda and (ii) the judgment is not contrary to public policy in Bermuda,
was not obtained by fraud or in proceedings contrary to natural justice of
Bermuda and is not based on an error in Bermuda law. A Bermuda court may
impose civil liability on the Company or its directors or officers in a suit
brought in the Supreme Court of Bermuda against the Company or such persons
with respect to a violation of federal securities law, provided that the facts
surrounding such violation would constitute or give rise to a cause of action
under Bermuda law.
The Company has been advised by its U.K. counsel, Richards Butler, that the
United States and the United Kingdom do not currently have a treaty providing
for the reciprocal recognition and enforcement of judgments (other than
arbitration awards) in civil and commercial matters. Therefore, a final
judgment for the payment of money rendered by any federal or state court in
the United States based on civil liability, whether or not predicated solely
upon the U.S. federal securities laws, would not be automatically enforceable
in the United Kingdom. In order to enforce in the United Kingdom any U.S.
judgment, proceedings must be initiated before a court of competent
jurisdiction in the United Kingdom. A U.K. court will, under current practice,
normally issue a judgment incorporating the judgment rendered by a U.S. court
if it finds that (i) the U.S. court had, according to English rules of
conflict of laws, jurisdiction over the original proceeding, (ii) the judgment
was obtained without fraud and in accordance with the principles of natural
justice, (iii) the judgment is final and conclusive on the merits, (iv) the
judgment does not contravene the public policy or public order of the United
Kingdom and (v) the judgment is for a debt or a definite sum of money (not
being a penalty, fine, multiple of damages or taxes). Based on the foregoing,
there can be no assurance that U.S. investors will be able to enforce in the
United Kingdom judgments in civil and commercial matters obtained in any
federal or state court in the United States. There is doubt as to whether a
U.K. court would impose civil liability in an original action predicated
solely upon the U.S. federal securities laws brought in a court of competent
jurisdiction in the United Kingdom.
3
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Forward-looking statements are statements other
than historical information or statements of current condition. Some forward-
looking statements may be identified by use of terms such as "believes",
"anticipates", "intends" or "expects". The forward-looking statements
contained and incorporated by reference in this Prospectus are generally
located in the material set forth under the headings "Prospectus Summary",
"Risk Factors", "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business" but may be found in other locations
as well. These forward-looking statements relate to the plans and objectives
of the Company for future operations, including the Company's policy
concerning dividends. In light of the risks and uncertainties inherent in all
future projections, including but not limited to those set forth under the
heading "Risk Factors," the inclusion of the forward-looking statements in
this Prospectus should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.
Many factors could cause the Company's actual results to differ materially
from those in the forward-looking statements, including the following: (i)
loss of the services of any of the Company's key personnel; (ii) increased
competitive pressure caused by increase in the supply of traditional
insurance, new entrants in the alternative market services industry, or the
willingness of existing competitors to accept lower returns in exchange for
market share; (iii) adverse changes in the statutes or regulations under which
the Company's and its subsidiaries' businesses operate in one or more of the
various jurisdictions in which the Company's or its subsidiaries' businesses
are located; (iv) a contention by the United States Internal Revenue Service
that the Company's operations in Bermuda or the United Kingdom are engaged in
the conduct of a trade or business within the U.S.; (v) a competitive
disadvantage resulting from certain of the competitors of Realm National
Insurance Company having higher financial ratings than Realm National
Insurance Company or any future decline in Realm National Insurance Company's
financial ratings; (vi) the termination of the Company's managing general
agency agreements with certain large insurers; (vii) the failure of one or
more of the Company's reinsurers to fulfill their obligations under
reinsurance agreements; (viii) the inability of the Company to obtain adequate
reinsurance coverage at acceptable cost; and (ix) changing rates of inflation
and other economic conditions, which could adversely affect loss payments,
investment returns, and the fundamental financial strength of the Company's
target customer base in the regions in which the Company operates. The
foregoing review of important factors should not be construed as exhaustive
and should be read in conjunction with other cautionary statements that are
included in this Prospectus. The Company undertakes no obligation to release
publicly the results of any future revisions it may make to forward-looking
statements to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements (and the related notes thereto) included elsewhere in this
Prospectus. As used in this Prospectus, unless the context otherwise requires,
the term "Company" includes Stirling Cooke Brown Holdings Limited and all of
its subsidiaries as they have existed from time to time during the periods
covered by this Prospectus, on a consolidated basis. Unless otherwise
indicated, all financial statements used in this Prospectus have been prepared
in accordance with United States generally accepted accounting principles and
all dollar references are to U.S. dollars, which are the Company's functional
currency. Except as otherwise indicated, all information in this Prospectus has
been adjusted to give effect to a four for one split of the Ordinary Shares
which occurred effective June 30, 1997, and assumes no exercise of the
Underwriters' over-allotment option. See "Glossary of Selected Insurance Terms"
for definitions of certain terms used in this Prospectus; such terms are
printed in boldface the first time they appear in the text below. An investment
in the Ordinary Shares offered hereby involves significant risks. See "Risk
Factors".
THE COMPANY
Stirling Cooke Brown Holdings Limited is a Bermuda holding company which,
through its subsidiaries, provides risk management services and products
predominantly to U.S. based small to mid-sized businesses seeking cost-
effective alternatives to traditional WORKERS' COMPENSATION insurance. In
addition, the Company arranges REINSURANCE for its products as well as for
other independent U.S. based insurance carriers active in the workers'
compensation, occupational accident and health insurance markets. Management
believes that its integrated approach, experienced personnel and market
position provide the Company with the ability to offer innovative cost-
effective alternatives to traditional workers' compensation coverage in a
variety of market conditions.
The Company provides most of its services and products to, and derives a
significant portion of its risk management and brokerage fees from, the
workers' compensation insurance market. Workers' compensation is an attractive
market for the structuring of ALTERNATIVE MARKET insurance solutions given the
relatively frequent yet predictable nature of claims, as well as the need to
control costs arising from medical expenses, litigation and other economic
factors. Alternative insurance products typically involve financial
participation by the insured in some or all of the risk, as compared to
traditional insurance products which shift all, or a substantial portion, of
the insured's risk to the insurer. Alternative solutions to traditional
workers' compensation are designed to reduce insurance costs by allowing the
insured to retain a level of risk consistent with the predictable portion of
the loss experience. The Company believes, based upon published industry
reports and its own experience, that alternative market workers' compensation
products comprised at least $16.4 billion in 1996, or approximately 39% of the
estimated $42.4 billion total market for workers' compensation insurance in the
U.S. that year. In recent years, the Company has applied its integrated risk
transfer approach to the development of insurance programs for other SPECIALTY
CASUALTY LINES.
The Company has historically experienced strong growth in revenues and
earnings despite the current prolonged SOFT INSURANCE MARKET. The success of
the Company's risk management services and products has led to an increase in
the Company's net income from $2.6 million in 1993 to $10.3 million in 1996,
representing a compound annual growth rate of 57.5%. The Company's revenues are
predominantly fee based, as the Company earns risk management fees for
providing services and products to insureds, insurers and reinsurers. In 1996,
72.2% of the Company's total revenues were derived from risk management fees
including agency and brokerage fees and commissions, management and
administration fees and other non-risk bearing activities.
5
<PAGE>
In January 1996, certain investment funds affiliated with The Goldman Sachs
Group, L.P. (collectively, the "GS Funds") made an equity investment in the
Company. Consistent with the Company's strategy of providing services and
products at multiple stages in the risk transfer process, the Company used the
proceeds from this investment to acquire and provide additional capital for
Realm National Insurance Company ("Realm"), a New York domiciled insurance
company, in September 1996. The Company is in the process of integrating
Realm's insurance underwriting capabilities with the Company's risk management
services and will seek to earn additional income through a combination of
policy issuance fees and NET PREMIUMS EARNED while retaining a minimum amount
of risk. The net proceeds received by the Company from the offering of the
Ordinary Shares pursuant to this Prospectus (the "Offering") will be used
primarily to provide additional capital to Realm, allowing the Company to
expand its underwriting activities. See "The Company" and "Use of Proceeds".
BUSINESS STRATEGY
The Company believes that growth potential exists in its markets which will
provide opportunities to increase fee-based revenues, net premiums earned and
net investment income. To capitalize on these opportunities, the Company has
established the following strategic priorities which the Company believes will
allow it to maintain and enhance its position as a leading provider of
alternatives to traditional workers' compensation insurance:
. Increase market penetration and extend agency network. The Company, through
its MANAGING GENERAL AGENCY network, typically receives net fee income from
the insurance carrier of between 13% and 17% of the insured's gross premium
on the underlying policy for providing underwriting services, POLICY
ADMINISTRATION and PREMIUM ACCOUNTING, and CLAIMS ADJUSTING and
administrative services. The Company intends to increase the market
penetration of its existing agency network by concentrating its marketing
efforts on the most productive agents and by continuing to use agency
incentive and promotional programs to encourage increased levels of new
business development. In addition, the Company intends to continue to
increase the number of INDEPENDENT PRODUCING AGENTS distributing the
Company's services and products.
. Expand current insurance operations. The Company currently uses independent
primary insurance carriers in connection with most of its existing workers'
compensation business, and expects these arrangements to continue for much of
this existing business. However, through Realm, the Company intends to act as
an issuing carrier for a portion of its new business opportunities and
receive a combination of policy issuance fees (typically 7% of the insured's
gross premiums) and/or net premiums earned. The Company is in the process of
increasing Realm's capital base and expanding the number of states in which
Realm is licensed.
. Expand product offerings through existing distribution network. The Company
seeks to expand its product offerings by developing services and products
that meet the financial and risk management objectives of its clients. For
example, in response to rising workers' compensation costs, the Company was
one of the pioneers in the development of alternative NON-SUBSCRIBER
PROGRAMS, which the Company began to market and sell in Texas in the early
1990s. The Company intends to continue to develop new services and products
to be marketed through its agency distribution network.
. Expand and develop program business. The Company structures and markets
comprehensive programs to transfer risk from an insured to insurers and
ultimately to reinsurers in the workers' compensation market as well as for
other specialty casualty lines. These programs enable the Company to provide
a range of risk management services and products for retail agents, while
also maximizing the Company's revenues at each stage of the risk transfer
process. The Company intends to utilize its existing reinsurance business
relationships to expand the number of programs it
6
<PAGE>
offers and also intends to increase the sale of insurance policies issued
under existing programs through its agency network. The Company expects the
growth of its PROGRAM BUSINESS to increase its revenues generated from
specialty casualty lines relative to its revenues generated from the workers'
compensation market.
. Increase reinsurance brokering revenues. The Company's REINSURANCE BROKERING
subsidiaries arrange for the reinsurance programs associated with the
Company's products, and also arrange reinsurance programs for numerous other
U.S. and European insurance companies. The Company expects that Realm's
expansion will generate additional business for the Company's reinsurance
brokering operations.
. Selectively pursue acquisitions. The Company is continuously looking to
expand its business by selectively acquiring general agencies and books of
insurance business. Given the Company's ability to earn fees throughout the
risk transfer process, the Company believes the selective acquisition of
general agencies and books of insurance business can generate significant
additional profits relative to the costs of such acquisitions.
THE OFFERING
<TABLE>
<S> <C> <C>
Ordinary Shares offered by the Company.................. shares
Ordinary Shares offered by the Selling Shareholders..... shares
---------
Total............................................... shares
=========
Ordinary Shares to be outstanding immediately after the
Offering............................................... shares
</TABLE>
Dividend Policy....... After the Offering, the Company currently intends to
declare quarterly dividends on the Ordinary Shares and
expects that the first quarterly dividend payment will
be $ per Ordinary Share (a rate of $
annually) with an initial dividend to be declared and
paid in the fourth quarter of 1997. The declaration and
payment of future dividends is at the discretion of the
Company's Board of Directors and will depend upon,
among other things, future earnings, capital
requirements, the general financial condition of the
Company, general business conditions and other factors.
The Company, as a holding company, is dependent on the
payment of dividends from its operating subsidiaries.
Certain of the Company's insurance subsidiaries are
subject to regulations and may be subject to certain
taxes that could limit the amount of or restrict the
payment of dividends to the Company. See "Risk
Factors--Holding Company Structure", "Dividend Policy",
"Business--Regulation", and "Management's Discussion
and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
Use of Proceeds....... The proceeds to the Company from the sale of Ordinary
Shares by the Company are expected to be approximately
$ million (net of underwriting discounts and
estimated expenses payable by the Company). The net
proceeds from the sale of shares by the Company will be
used primarily to provide additional capital to the
Company's wholly-owned insurance subsidiary, Realm, and
any remaining funds will be used for general corporate
purposes, which could include acquisitions of general
insurance agencies and books of insurance business.
Pending investment of the net proceeds in Realm, the
7
<PAGE>
Company will invest such net proceeds in short-term
investments. The Company will not receive any proceeds
from the sale of shares by the Selling Shareholders.
See "Principal and Selling Shareholders" and "Use of
Proceeds".
Listing............... Application will be made to have the Ordinary Shares
quoted on the Nasdaq National Market under the symbol
"SCBH". See "Market for the Ordinary Shares".
RISK FACTORS
Prospective purchasers of the Ordinary Shares should consider carefully the
specific investment considerations set forth under the caption "Risk Factors"
as well as the other information set forth in this Prospectus.
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
The historical consolidated balance sheet data presented below as of December
31, 1995 and 1996 and the consolidated income statement data for each of the
years in the three-year period ended December 31, 1996, were derived from the
Company's audited consolidated financial statements included elsewhere in this
Prospectus. The historical consolidated balance sheet data as of December 31,
1992, 1993 and 1994 and the consolidated income statement data for the years
ended December 31, 1992 and 1993 were derived from the Company's unaudited
consolidated financial statements. The consolidated income statement data set
forth below for the six-month periods ended June 30, 1996 and 1997 and the
consolidated balance sheet data at June 30, 1997 have been derived from the
Company's unaudited consolidated financial statements appearing elsewhere in
this Prospectus. In the opinion of the Company, such information reflects all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of operations during, and the financial
condition of the Company at the end of, such periods. Results for interim
periods should not be considered as indicative of results for any other periods
or for the full year. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS
AS OF OR FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Brokerage fees and
commissions........... $ 4,510 $ 10,283 $ 11,670 $ 17,478 $ 20,117 $ 9,144 $ 11,852
Managing general
agency fees........... 0 0 578 2,724 6,016 2,717 5,155
Underwriting
management fees....... 0 718 2,280 3,467 4,045 1,825 1,930
Captive management and
program fees.......... 0 0 0 424 1,625 709 1,314
Loss control and audit
fees.................. 0 0 0 0 2,039 598 1,326
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total risk management
fees................ 4,510 11,001 14,528 24,093 33,842 14,993 21,577
Net premiums earned.... 0 0 0 3,154 8,754 4,846 6,147
Net investment income.. 278 515 770 2,388 3,405 1,349 2,910
Other income........... 0 0 0 0 841 607 389
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues....... 4,788 11,516 15,298 29,635 46,842 21,795 31,023
Expenses
Losses and loss
expenses incurred..... 0 0 0 1,385 6,765 3,664 5,480
Acquisition costs...... 0 0 0 1,345 1,618 1,103 295
Salaries and benefits.. 2,246 3,658 4,872 8,026 13,106 5,064 8,869
General and
administration
expenses.............. 1,386 3,806 4,846 8,398 12,781 5,499 8,807
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses....... 3,632 7,464 9,718 19,154 34,270 15,330 23,451
Income Before Taxation. 1,156 4,052 5,580 10,481 12,572 6,465 7,572
Taxation............... 398 1,419 1,298 2,603 2,281 1,319 1,394
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........... $ 758 $ 2,633 $ 4,282 $ 7,878 $ 10,291 $ 5,146 $ 6,178
========== ========== ========== ========== ========== ========== ==========
Net Income Per
Share(1)(2)........... $ 0.13 $ 0.44 $ 0.71 $ 1.31 $ 1.24 $ 0.63 $ 0.75
Weighted Average
Ordinary Shares
Outstanding(2)........ 6,000,000 6,000,000 6,000,000 6,015,190 8,286,150 8,189,444 8,267,835
BALANCE SHEET DATA:
Cash and marketable
securities............ $ 620 $ 383 $ 4,293 $ 7,581 $ 38,221 $ 27,049 $ 32,775
Total assets(3)........ 13,057 17,156 73,275 120,640 227,986 148,381 343,019
Long-term debt......... 0 0 0 0 0 0 0
Total shareholders'
equity................ 1,520 3,059 6,660 12,403 36,360 32,006 41,683
OTHER SELECTED DATA:
Annualized return on
average shareholders'
equity(4)............. 59.6% 115.0% 88.1% 82.7% 42.2% 46.3% 31.7%
Fee income as a percent
of total revenues..... 94.2% 95.5% 95.0% 81.3% 72.2% 68.8% 69.6%
Number of employees.... 62 75 96 142 235 183 296
</TABLE>
- --------
(1) Net income per share is calculated by dividing net income by the weighted
average number of Ordinary Shares and Ordinary Share equivalents
outstanding during the period. Stock options are considered share
equivalents and are included in the computation of the weighted average
number of Ordinary Shares outstanding using the treasury stock method.
(Continued on following page)
9
<PAGE>
(2) All share and per share data have been retroactively restated to reflect
the four for one stock split effected by the Company on June 30, 1997. See
Note 18 to the Company's Consolidated Financial Statements.
(3) Total assets comprise corporate assets together with cash held and
insurance balances receivable in a fiduciary capacity. See Note 5 to the
Company's Consolidated Financial Statements.
(4) Annualized return on average shareholders' equity is calculated by
annualizing net income for such period and dividing it by the average of
the beginning and ending shareholders' equity. Ending shareholders' equity
is calculated after the declaration of any dividends declared or paid
during such period. The average of beginning and ending shareholders'
equity has not been adjusted to reflect the timing of such dividends.
10
<PAGE>
RISK FACTORS
INDUSTRY CONDITIONS
The business of providing risk management services and products to the
workers' compensation and property and casualty insurance markets is highly
competitive. The Company competes with other providers of alternative market
services (including domestic and foreign insurance companies, reinsurers,
insurance brokers, CAPTIVE insurance companies, RENT-A-CAPTIVES, self-
insurance plans, risk retention groups, state funds, ASSIGNED RISK POOLS and
other risk-financing mechanisms) and with providers of traditional insurance
coverage. Many of the Company's competitors have significantly greater
financial resources, longer operating histories, and better financial ratings
and offer a broader line of insurance products than the Company.
Factors affecting the traditional insurance and reinsurance industry
influence the environment for alternative risk management services and
products. Insurance market conditions historically have been subject to
cyclicality and volatility due to premium rate competition, judicial trends,
changes in the investment and interest rate environment, regulation and
general economic conditions, causing many insurance buyers to search for more
stable alternatives. The traditional insurance and reinsurance industry is in
a protracted period of significant price competition, due in part to excess
capacity in most lines of business. While some form of workers' compensation
insurance is a statutory requirement in most states, the choices exercised by
employers in response to the underwriting cycle in traditional insurance and
reinsurance have had and will continue to have a material effect on the
Company's results of operations. Although most of the Company's revenues are
derived from fees and commissions rather than underwriting activities, a
substantial portion of the Company's fees are calculated as a percentage of
premium volume, and therefore the Company's fee revenues are directly and
adversely affected by highly competitive market conditions. Additionally,
changes in risk retention patterns by purchasers of insurance and reinsurance
products could have an adverse effect upon the Company.
DEPENDENCE ON RELATIONSHIPS WITH INDEPENDENT PRIMARY INSURANCE CARRIERS
The Company's managing general agencies market insurance products and
programs developed by the Company on behalf of independent insurance carriers,
primarily Clarendon National Insurance Company and its affiliates
("Clarendon") and Legion Insurance Company and its affiliates ("Legion"). In
addition, the Company's brokering and reinsurance brokering operations,
managing general underwriters, and claims and loss control servicing
operations provide additional business and services to Clarendon and Legion in
respect of these products and other insurance and reinsurance policies. In
1996, fees received from Clarendon accounted for approximately 55% of the
Company's total revenues, while fees received from Legion accounted for less
than 10% of the Company's total revenues. Historically, the Company has had a
good relationship with both Clarendon and Legion. There can be no assurance,
however, that Clarendon or Legion will not institute changes which affect
their relationships with the Company. The loss of business from Clarendon or
Legion could have a material adverse effect on the Company's results of
operations and financial conditions. Additionally, any decline in or
disruption of Clarendon's or Legion's business could disrupt the Company's
business and could have a material adverse effect on the Company's results of
operations and financial condition. See "Business--Relationships with
Independent Primary Insurance Carriers".
REINSURANCE CONSIDERATIONS; AVAILABILITY AND COSTS; CREDIT RISKS
The Company relies upon the use of reinsurance agreements in its various
programs to limit and manage the amount of risk retained by the Company or its
customers, including insurance companies. The availability and cost of
reinsurance may vary over time and is subject to prevailing market conditions.
A lack of available reinsurance coverage could limit the Company's ability to
continue certain of its insurance programs. When the Company's own insurance
operations are participating in
11
<PAGE>
a program, the lack of available reinsurance or increases in the cost of
reinsurance could also increase the amount of risk retained by the Company. In
addition, while the Company seeks to obtain reinsurance with coverage limits
intended to be appropriate for the risk exposures assumed, there can be no
assurance that losses experienced by the Company will be within the coverage
limits of the Company's reinsurance agreements.
The Company is also subject to credit risk as a result of its reinsurance
arrangements, as the Company is not relieved of its liability to policyholders
by ceding risk to its reinsurers. The Company is selective in regard to its
reinsurers, placing reinsurance with only those reinsurers that it believes
have strong balance sheets. The Company monitors the financial strength of its
reinsurers on an ongoing basis. The insolvency or inability of any reinsurer
of the Company to meet its obligations could have a material adverse effect on
the results of operations and financial position of the Company. No assurance
can be given regarding the future ability of any of the Company's reinsurers
to meet their obligations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a substantial extent on the ability and
experience of its executive officers. See "Management". The loss of the
services of one or more such persons could have a material adverse effect on
the business of the Company and its future operations.
ADEQUACY OF LOSS RESERVES
To the extent its activities involve any retention of risk of loss, the
Company maintains reserves to cover its estimated ultimate liability for
losses and loss adjustment expenses with respect to reported and unreported
claims incurred. Reserves are estimates involving actuarial and statistical
projections at a given time of what the Company expects to be the cost of the
ultimate settlement and administration of claims based on facts and
circumstances then known, estimates of future trends in claims severity and
other variable factors such as inflation. To the extent that reserves prove to
be inadequate in the future, the Company would have to increase such reserves
and incur a charge to earnings in the period such reserves are increased,
which could have a material adverse effect on the Company's results of
operations and financial condition. The establishment of appropriate reserves
is an inherently uncertain process and there can be no assurance that ultimate
losses will not materially exceed the Company's LOSS RESERVES. The Company has
limited historical claim loss experience to serve as a reliable basis for the
estimation of ultimate claim losses. It is possible that the Company will need
to revise the estimate of claim losses significantly in the near term.
ADVERSE EFFECT OF LEGISLATION AND REGULATORY ACTIONS
The Company conducts business in a number of states and foreign countries.
Certain of the Company's subsidiaries are subject to comprehensive regulation
and supervision by government agencies in the states and foreign jurisdictions
in which they do business. The primary purpose of such regulation and
supervision is to provide safeguards for policyholders rather than to protect
the interests of shareholders. The laws of the various state jurisdictions
establish supervisory agencies with broad administrative powers with respect
to, among other things, licensing to transact business, licensing of agents,
admittance of assets, regulating premium rates, approving policy forms,
regulating unfair trade and claims practices, establishing reserve
requirements and solvency standards, requiring participation in guarantee
funds and shared market mechanisms, and restricting payment of dividends.
Also, in response to perceived excessive cost or inadequacy of available
insurance, states have from time to time created state insurance funds and
assigned risk pools which compete directly, on a subsidized basis, with
private providers such as the Company. Any such event, in a state in which the
Company has substantial operations, could substantially affect the
profitability of the Company's operations in such state, or cause the Company
to change its marketing focus.
12
<PAGE>
State insurance regulators and the National Association of Insurance
Commissioners (the "NAIC") continually re-examine existing laws and
regulations. It is impossible to predict the future impact of potential state,
federal and foreign country regulations on the Company's operations, and there
can be no assurance that future insurance-related laws and regulations, or the
interpretation thereof, will not have an adverse effect on the operations of
the Company's business.
LICENSING OF REALM
The Company is in the process of seeking the regulatory approvals necessary
to expand Realm's business to include workers' compensation and other
specialty casualty insurance lines in each of the states in which Realm is
currently licensed to offer other insurance products, and intends to license
Realm in substantially all of the remaining 50 states and the District of
Columbia. See "Business--Risk Transfer and Management". The Company expects
that as Realm receives such approvals and licenses, the revenues to be
generated by Realm and its integration into the Company's existing businesses
will become an important component of the Company's future earnings growth.
However, no assurance can be given that Realm will receive such approvals and
licenses, or when such approvals and licenses will be granted if Realm does
receive them. See "Business--Regulation". The failure to receive, or a delay
in receiving, one or more of such approvals and licenses could have a material
adverse impact on Realm's ability to generate future earnings growth for the
Company.
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts no operations of its own and
whose assets essentially consist of its equity interest in its subsidiaries.
The Company will rely on cash dividends and other permitted payments from its
subsidiaries to pay creditors and to pay cash dividends, if any, to the
Company's shareholders. Certain of the Company's subsidiaries are subject to
regulations and may be subject to certain taxes that could limit the amount or
restrict the payment of dividends to the Company. See "Dividend Policy",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources", "Business--Regulation" and Note
17 to the Company's Consolidated Financial Statements.
TAXATION OF THE COMPANY AND CERTAIN OF ITS SUBSIDIARIES
The Company and certain of its subsidiaries are incorporated outside the
United States and, as foreign corporations, do not file United States tax
returns. These entities believe that they operate in such a manner that they
will not be subject to U.S. tax (other than U.S. excise tax on reinsurance
premiums and withholding tax on certain investment income from U.S. sources)
because they do not engage in business in the United States. There can be no
assurance, however, that these entities will not become subject to U.S. tax
because U.S. law does not provide definitive guidance as to the circumstances
in which they would be considered to be doing business in the United States.
If such entities are deemed to be engaged in business in the United States
(and, if the Company were to qualify for benefits under the income tax treaty
between the United States and Bermuda or the United States and the United
Kingdom, such business were attributable to a "permanent establishment" in the
United States), the Company would be subject to U.S. tax at regular corporate
rates on its income that is effectively connected with its U.S. business plus
an additional 30% "branch profits" tax on income remaining after the regular
tax. See "Certain Tax Considerations".
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
The Company is a Bermuda company and the majority of its officers and
directors are residents of various jurisdictions outside the United States. A
significant portion of the assets of the Company and such officers and
directors, at any one time, are or may be located in jurisdictions outside the
United States. It may be difficult for investors to effect service of process
within the United States on
13
<PAGE>
directors and officers of the Company who reside outside the United States or
to enforce against the Company or such directors, and officers, judgments of
United States courts predicated upon civil liability provisions of the United
States federal securities laws. See "Enforceability of Civil Liabilities Under
United States Laws".
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Upon completion of the Offering, there will be Ordinary Shares
outstanding. The shares sold in the Offering will be immediately
tradeable without restriction by persons other than those who may be deemed
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining shares were issued by the Company in
private transactions prior to the Offering and are "restricted securities" as
that term is defined in Rule 144. The holders of these shares, as Selling
Shareholders, have agreed not to sell any Ordinary Shares without the consent
of Goldman, Sachs & Co., on behalf of the Underwriters, for a period of 180
days following the date of this Prospectus. After the Offering, the holders of
Ordinary Shares will have the right to require the Company to
register all or a portion of such shares under the Securities Act to permit
the public sale of such shares. Significant sales of Ordinary Shares under a
registration statement, pursuant to Rule 144 or otherwise in the future, or
the prospect of such sales, may depress the price of the Ordinary Shares or
any market that may develop. See "Shares Eligible for Future Sale" and
"Description of Capital Shares--Registration Rights Agreement".
PRINCIPAL SHAREHOLDERS; POSSIBLE CONFLICTS OF INTEREST
Following the Offering, the Company's officers and directors will
beneficially own approximately % of the outstanding Ordinary Shares.
Accordingly, these officers and directors will have the ability to
significantly influence the election of directors and most other corporate
actions. See "Principal and Selling Shareholders".
The GS Funds own approximately 34.0% of the outstanding Ordinary Shares.
After completion of the Offering, the GS Funds are expected to own
approximately % of the outstanding Ordinary Shares. In addition, of the six
current members of the Company's Board of Directors, two are Managing
Directors of Goldman, Sachs & Co.
Goldman, Sachs & Co. (directly or through affiliates) are engaged in certain
commercial activities and transactions with the Company. See "Certain
Relationships and Related Party Transactions". Goldman, Sachs & Co. are acting
as lead manager of the Offering. Because the GS Funds are affiliates of
Goldman, Sachs & Co. and own in the aggregate more than 10% of the Ordinary
Shares of the Company, the underwriting arrangements for the Offering must
comply with the requirements of Rule 2720 of the National Association of
Securities Dealers, Inc. (the "NASD"). Those requirements provide that, when
an NASD member firm participates in distributing an affiliate's equity
securities, the price of the securities must be no higher than the price
determined by a "qualified independent underwriter". Accordingly, Dillon, Read
& Co. Inc. is acting as a qualified independent underwriter for purposes of
determining the price of the Ordinary Shares offered hereby. See
"Underwriting".
POSSIBLE ISSUANCES OF UNDESIGNATED SHARES; ANTI-TAKEOVER PROVISIONS
The Board of Directors is authorized under the Company's Bye-Laws to issue
up to 5,000,000 preference shares and to determine their relative rights,
preferences, privileges and restrictions, including voting rights. Therefore,
the rights of the holders of Ordinary Shares will be subject to and may be
adversely affected by the rights of the holders of any preference shares that
may be designated and issued in the future. Although there is no current
intention to do so, the issuance of newly designated shares could have the
effect of delaying, deferring or preventing a change in control of the
Company, which could deprive the Company's shareholders of opportunities to
sell their
14
<PAGE>
Ordinary Shares at a premium. The Company's Board of Directors is divided into
three groups serving staggered three-year terms. Additionally, directors may
only be removed by shareholders holding not less than 75% of the outstanding
Ordinary Shares. The Company's Bye-Laws contain certain provisions that may
have the effect of making more difficult the acquisition of control of the
Company by means of a tender offer, open market share purchases, a proxy
contest or otherwise. Such provisions include a restriction on voting of
Ordinary Shares held by certain holders of 10% or more of the Ordinary Shares
("Interested Shareholders") and restrictions on certain business combinations
with certain Interested Shareholders. While these provisions may have the
effect of encouraging persons seeking to acquire control of the Company to
negotiate with the Board of Directors, they could also have the effect of
discouraging a prospective acquiror from making a tender offer or otherwise
attempting to gain control of the Company. See "Description of Capital
Shares".
INTEREST RATE FLUCTUATIONS
The Company maintains most of its cash in the form of short-term, fixed-
income securities, the value of which is subject to fluctuation depending on
changes in prevailing interest rates. The Company generally does not hedge its
cash investments against interest rate risk. Accordingly, changes in interest
rates may result in fluctuations in the income derived from the Company's cash
investments.
NO PRIOR MARKET FOR ORDINARY SHARES; POSSIBLE VOLATILITY OF ORDINARY SHARES
PRICE AND THE SECURITIES MARKETS
Prior to the Offering there has been no public market for the Ordinary
Shares. Application will be made to have the Ordinary Shares quoted on the
Nasdaq National Market. The initial public offering price of the Ordinary
Shares will be determined through negotiations between the Company, the
Selling Shareholders and the representatives of the Underwriters. There can be
no assurance that the initial public offering price will correspond to the
price at which the Ordinary Shares will trade in the public market subsequent
to the Offering or that an active trading market for the Ordinary Shares will
develop and continue after the completion of the Offering. See "Underwriting".
In addition, the market price of the Ordinary Shares upon the completion of
the Offering could be subject to significant fluctuations in response to
variations in the Company's quarterly financial results or other developments,
such as announcements of new products by the Company or the Company's
competitors, enactment of legislation or regulation affecting the insurance
industry, interest rate movements or general economic conditions.
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make
a market in the Ordinary Shares following completion of the Offering. However,
they are not obligated to do so and any market-making may be discontinued at
any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act.
There can be no assurance that an active market for the Ordinary Shares will
develop or, if developed, will continue. Moreover, because of the affiliation
of Goldman, Sachs & Co. with the Company, Goldman, Sachs & Co. are required to
deliver a current prospectus and otherwise comply with the requirements of the
Securities Act in connection with any secondary market sale of the Ordinary
Shares, which may affect their ability to continue market-making activities.
DILUTION
Purchasers of Ordinary Shares in the Offering will incur immediate and
substantial dilution in the net tangible book value of their Ordinary Shares
($ per share assuming an initial public offering price of $ per
share, the midpoint of the range set forth on the cover page of this
Prospectus). See "Dilution".
15
<PAGE>
THE COMPANY
The Company is a Bermuda holding company which, through its subsidiaries,
provides risk management services and products predominantly to U.S. based
small and mid-sized businesses seeking cost-effective alternatives to
traditional workers' compensation insurance. In addition, the Company arranges
reinsurance for its products as well as for other independent U.S. based
insurance carriers active in the workers' compensation, occupational accident
and health insurance markets.
The Company believes that its integrated approach, experienced personnel and
market position provide the Company with the ability to offer innovative cost-
effective alternatives to traditional workers' compensation coverage in a
variety of market conditions. The Company structures and markets comprehensive
programs to transfer risk from an insured to insurers and ultimately to
reinsurers in the workers' compensation market as well as other specialty
casualty lines. The Company is able to offer these programs primarily as a
result of the strong relationships and expertise it has developed through its
reinsurance brokering activities. Furthermore, although certain of the
Company's programs utilize an independent primary insurance carrier, the
Company is capable of providing or obtaining the services and products
required at each stage of the risk transfer process. The Company believes
these programs are cost-effective to the insured and provide additional
business to reinsurers with excess underwriting capacity. Thus, the Company is
able to provide RETAIL AGENTS and insurers with the advantages of being a
single source provider of risk management services and products, while also
maximizing its own revenues at each stage of the risk transfer process.
The Company earns risk management fees and may retain a portion of the
premium paid by the insured on the underlying policy for providing its
services and products. In 1996, 72.2% of the Company's total revenues were
derived from risk management fees including agency and brokerage fees and
commissions, management and administration fees and other non-risk bearing
activities.
The Company provides most of its services and products to, and derives a
significant portion of its risk management and brokerage fees from, the
workers' compensation insurance market. Workers' compensation is an attractive
market for the structuring of alternative market insurance solutions given the
relatively frequent yet predictable nature of claims, as well as the need to
control costs arising from medical expenses, litigation and other economic
factors. Alternative insurance products typically involve financial
participation by the insured in some or all of the risk, as compared to
traditional insurance products which shift all, or a substantial portion, of
the insured's risk to the insurer. Alternative solutions to traditional
workers' compensation are designed to reduce insurance costs by allowing the
insured to retain a level of risk consistent with the predictable portion of
the loss experience. The Company believes, based upon published industry
reports and its own experience, that alternative market workers' compensation
products comprised at least $16.4 billion in 1996, or approximately 39% of the
estimated $42.4 billion total market for workers' compensation insurance in
the U.S. that year. In recent years, the Company has applied its integrated
risk transfer approach to the development of insurance programs for other
specialty casualty lines.
The Company, through its original operating subsidiary, Stirling Cooke Brown
Insurance Brokers Limited, began operations in 1989 as an insurance broker in
London specializing in the placement of alternatives to standard workers'
compensation insurance and the arrangement of associated reinsurance programs.
The Company soon began to develop and market its own innovative services and
products designed for employers seeking effective methods of alleviating
onerous insurance costs.
Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects,
diversify its revenues and increase its overall control of the risk transfer
process. As a result, the Company has expanded its business and services to
include managing general agency services, insurance underwriting, underwriting
management, claims administration, loss and safety control and premium
auditing.
16
<PAGE>
In January 1996, the GS Funds made an equity investment in the Company. In
furtherance of the Company's strategy of providing services and products at
multiple stages in the risk transfer process, the Company used the proceeds
from this investment to acquire and provide additional capital for Realm in
September 1996. The Company is in the process of integrating Realm's insurance
underwriting capabilities with the Company's risk management services and will
seek to earn additional income through a combination of policy issuance fees
and net premiums earned associated with the underwriting function while
retaining a minimum amount of risk. The net proceeds received by the Company
from the Offering will be used primarily to provide additional capital to
Realm, allowing the Company to expand its underwriting activities. See "Use of
Proceeds".
The Company has historically experienced strong growth in revenues and
earnings despite the current prolonged soft insurance market. The success of
the Company's risk management services and products has led to an increase in
the Company's net income from $2.6 million in 1993 to $10.3 million in 1996,
representing a compound annual growth rate of approximately 57.5%. At June 30,
1997, the Company had approximately $343.0 million in assets, approximately
$41.7 million in shareholders' equity and 296 employees.
The Company was incorporated in 1995, its principal offices are located at
Victoria Hall, Third Floor, 11 Victoria Street, Hamilton, HM 11, Bermuda, and
its telephone number at that address is (441) 295-7556. The Company, through
its subsidiaries, also maintains offices in London, England; New York, New
York; and at various locations in Florida and Texas.
USE OF PROCEEDS
The proceeds to the Company from the sale of Ordinary Shares by the Company
are expected to be approximately $ million (net of underwriting
discounts and estimated expenses payable by the Company). The net proceeds
from the sale of shares by the Company will be used primarily to provide
additional capital to the Company's wholly-owned insurance subsidiary, Realm,
and any remaining funds will be used for general corporate purposes, which
could include acquisitions of general insurance agencies and books of
insurance business. Pending investment of the net proceeds in Realm, the
Company will invest such net proceeds in short-term investments. The Company
will not receive any proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders".
MARKET FOR ORDINARY SHARES
Prior to the Offering, there has been no public market for the Ordinary
Shares. Application will be made to have the Ordinary Shares quoted on the
Nasdaq National Market under the symbol "SCBH". The Company has been advised
by Goldman, Sachs & Co. that, subject to applicable laws and regulations,
Goldman, Sachs & Co. currently intend to make a market in the Ordinary Shares
following completion of the Offering. However, they are not obligated to do so
and any market-making may be discontinued at any time without notice. In
addition, such market-making activity will be subject to the limits imposed by
the Securities Act and the Exchange Act. There can be no assurance that an
active market for the Ordinary Shares will develop or, if developed, will
continue. See "Risk Factors--No Prior Market for Ordinary Shares; Possible
Volatility of Ordinary Share Price and the Securities Markets" and
"Underwriting".
17
<PAGE>
DIVIDEND POLICY
After the Offering, the Company currently intends to declare quarterly
dividends and expects that the first quarterly dividend payment will be $
per Ordinary Share (a rate of $ annually) with an initial dividend to be
declared and paid in the fourth quarter of 1997. The declaration and payment
of future dividends is at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, capital
requirements, the general financial condition of the Company, general business
conditions and other factors. The Company, as a holding company, is dependent
on the payment of dividends from its operating subsidiaries. Certain of the
Company's subsidiaries are subject to regulations and may be subject to
certain taxes that could limit the amount of or restrict the payment of
dividends to the Company. See "Business--Regulation", "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and Note 17 to the Company's Consolidated Financial
Statements.
DILUTION
At June 30, 1997, the Company had a net tangible book value of $41.7 million
or $4.91 per Ordinary Share. Net tangible book value per share is determined
by dividing the Company's tangible net book value (total tangible assets less
total liabilities) by the total number of Ordinary Shares outstanding. After
giving effect as of that date to the sale of the Ordinary Shares
offered by the Company hereby, at an assumed initial offering price of $
per share (the mid-point of the range set forth on the cover page of this
Prospectus), and after deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company, the Company's
adjusted net tangible book value would have been approximately $ million,
or $ per Ordinary Share. This represents an immediate increase in net
tangible book value of $ per share to the existing shareholders and an
immediate dilution in net tangible book value of $ per share to new
investors purchasing Ordinary Shares in the Offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Net tangible book value per share before the
Offering......................................... $
Increase per share attributable to new investors..
---------
Net tangible book value per share after the Offering..........
---------
Dilution per share to new investors........................... $
=========
</TABLE>
The following table sets forth the number of Ordinary Shares purchased from
the Company, the total consideration paid and the average price per share paid
by the Company's existing shareholders and to be paid by new investors in the
Offering (assuming an initial public offering price of $ per share, the
mid-point of the range set forth on the cover page of this Prospectus) and
before deduction of estimated underwriting discounts and commissions:
<TABLE>
<CAPTION>
ORDINARY
SHARES TOTAL AVERAGE
PURCHASED (1) CONSIDERATION PRICE
-------------- -------------- PER ORDINARY
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- ------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................
New investors........................
------ ------ ------ ------ ---
Total..............................
====== ====== ====== ====== ===
</TABLE>
- --------
(1) Does not reflect the sale of Ordinary Shares by the Selling
Shareholders in the Offering.
18
<PAGE>
Sales by the Selling Shareholders in the Offering will reduce the number of
shares held by existing shareholders to or approximately % and
will increase the number of shares held by new investors to or
approximately % of the total number of shares of Ordinary Shares
outstanding after the Offering.
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of June 30, 1997, and as adjusted to reflect the sale of the
Ordinary Shares offered by the Company hereby (at an assumed
initial public offering price of $ per share, the mid-point of the range set
forth on the cover page of this Prospectus) and the application of the net
proceeds therefrom, net of estimated underwriting discounts and expenses of
the Offering. See "Use of Proceeds". This table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated Financial Statements and the
Notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
AS
ACTUAL ADJUSTED
------- ----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt............................................. $ 0 $
Shareholders' equity:
Ordinary Shares, $0.25 par value, 20,000,000 shares
authorized, 8,488,372 shares issued and outstanding,
shares issued and outstanding as adjusted........ 2,122
Additional paid in capital............................... 15,448
Notes receivable on exercise of options.................. (1,625)
Unrealized gain on marketable securities................. 42
Retained earnings........................................ 25,696
------- ----------
Total capitalization................................... $41,683 $
======= ==========
</TABLE>
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The historical consolidated balance sheet data presented below as of
December 31, 1995 and 1996 and the consolidated income statement data for each
of the years in the three-year period ended December 31, 1996, were derived
from the Company's audited consolidated financial statements included
elsewhere in this Prospectus. The historical consolidated balance sheet data
as of December 31, 1992, 1993 and 1994 and the consolidated income statement
data for the years ended December 31, 1992 and 1993 were derived from the
Company's unaudited consolidated financial statements. The consolidated income
statement data set forth below for the six-month periods ended June 30, 1996
and 1997 and the consolidated balance sheet data at June 30, 1997 have been
derived from the Company's unaudited consolidated financial statements
appearing elsewhere in this Prospectus. In the opinion of the Company, such
information reflects all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of operations
during, and the financial condition of the Company at the end of, such
periods. Results for interim periods should not be considered as indicative of
results for any other periods or for the full year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Brokerage fees and
commissions........... $ 4,510 $ 10,283 $ 11,670 $ 17,478 $ 20,117 $ 9,144 $ 11,852
Managing general
agency fees........... 0 0 578 2,724 6,016 2,717 5,155
Underwriting
management fees....... 0 718 2,280 3,467 4,045 1,825 1,930
Captive management and
program fees.......... 0 0 0 424 1,625 709 1,314
Loss control and audit
fees.................. 0 0 0 0 2,039 598 1,326
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total risk management
fees................ 4,510 11,001 14,528 24,093 33,842 14,993 21,577
Net premiums earned.... 0 0 0 3,154 8,754 4,846 6,147
Net investment income.. 278 515 770 2,388 3,405 1,349 2,910
Other income........... 0 0 0 0 841 607 389
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues....... 4,788 11,516 15,298 29,635 46,842 21,795 31,023
Expenses
Losses and loss
expenses incurred..... 0 0 0 1,385 6,765 3,664 5,480
Acquisition costs...... 0 0 0 1,345 1,618 1,103 295
Salaries and benefits.. 2,246 3,658 4,872 8,026 13,106 5,064 8,869
General and
administration
expenses.............. 1,386 3,806 4,846 8,398 12,781 5,499 8,807
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses....... 3,632 7,464 9,718 19,154 34,270 15,330 23,451
Income Before Taxation. 1,156 4,052 5,580 10,481 12,572 6,465 7,572
Taxation............... 398 1,419 1,298 2,603 2,281 1,319 1,394
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 758 $ 2,633 $ 4,282 $ 7,878 $ 10,291 $ 5,146 $ 6,178
========== ========== ========== ========== ========== ========== ==========
Net Income Per
Share(1)(2)........... $ 0.13 $ 0.44 $ 0.71 $ 1.31 $ 1.24 $ 0.63 $ 0.75
Weighted Average
Ordinary Shares
Outstanding(2)........ 6,000,000 6,000,000 6,000,000 6,015,190 8,286,150 8,189,444 8,267,835
BALANCE SHEET DATA:
Cash and marketable
securities............ $ 620 $ 383 $ 4,293 $ 7,581 $ 38,221 $ 27,049 $ 32,775
Total assets(3)........ 13,057 17,156 73,275 120,640 227,986 148,381 343,019
Long-term debt......... 0 0 0 0 0 0 0
Total shareholders'
equity................ 1,520 3,059 6,660 12,403 36,360 32,006 41,683
OTHER SELECTED DATA:
Annualized return on
average shareholders'
equity(4)............. 59.6% 115.0% 88.1% 82.7% 42.2% 46.3% 31.7%
Fee income as a percent
of total revenues..... 94.2% 95.5% 95.0% 81.3% 72.2% 68.8% 69.6%
Number of employees.... 62 75 96 142 235 183 296
</TABLE>
(Continued on following page)
20
<PAGE>
- --------
(1) Net income per share is calculated by dividing net income by the weighted
average number of Ordinary Shares and Ordinary Share equivalents
outstanding during the period. Stock options are considered share
equivalents and are included in the computation of the weighted average
number of Ordinary Shares outstanding using the treasury stock method.
(2) All share and per share data have been retroactively restated to reflect
the four for one stock split effected by the Company on June 30, 1997. See
Note 18 to the Company's Consolidated Financial Statements.
(3) Total assets comprise corporate assets together with cash held and
insurance balances receivable in a fiduciary capacity. See Note 5 to the
Company's Consolidated Financial Statements.
(4) Annualized return on average shareholders' equity is calculated by
annualizing net income for such period and dividing it by the average of
the beginning and ending shareholders' equity. Ending shareholders' equity
is calculated after the declaration of any dividends declared or paid
during such period. The average of beginning and ending shareholders'
equity has not been adjusted to reflect the timing of such dividends.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company derives its revenues principally from (i) risk management fees
earned from non-risk bearing services, including the design and administration
of insurance programs; (ii) net premiums earned from providing insurance and
reinsurance coverage and (iii) net investment income. In 1996, the Company's
risk management fees accounted for 72.2% of total revenues. The Company's fees
were generated from brokerage activities, managing general agencies, captive
management and various other services. Net premiums earned accounted for 18.7%
of total revenues in 1996. To date, a substantial majority of the Company's
net premiums earned were generated from Comp Indemnity Reinsurance Company
Limited, the Company's reinsurance subsidiary ("CIRCL"). In September 1996,
the Company acquired Realm, a primary insurance carrier. As a result of this
acquisition, the Company expects that a greater proportion of its net premiums
earned will be derived from insurance business written through Realm. However,
the Company seeks to structure comprehensive reinsurance programs in order to
reduce the Company's participation to a minimal level of risk, subject to
applicable insurance regulations.
Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects,
diversify its revenues and increase its overall control of the risk transfer
process. As a result, the Company has expanded its businesses and services to
include managing general agency services, insurance underwriting, underwriting
management, claims administration, loss and safety control and premium
auditing. While this expansion led to a decrease in return on average equity
from 88.1% in 1994 to 42.2% in 1996, net income increased significantly from
$4.3 million in 1994 to $10.3 million in 1996, representing a compound annual
growth rate of 55.0%.
The Company's ability to achieve profitable growth depends upon, among other
things, (i) its overall volume and mix of business; (ii) its ability to
attract and retain customers; (iii) the size of its investment portfolio; (iv)
pricing of its insurance and reinsurance products (which is primarily a
function of competitive conditions and management's ability to assess and
manage losses) and (v) its effective tax rate, since its subsidiaries are
located in Bermuda, the U.K. and the U.S. Additionally, general economic and
market conditions, including the Company's regulatory environment, will affect
profitability.
In January 1996, the GS Funds made an equity investment in the Company, the
proceeds of which were used to purchase Realm in September 1996. The Company's
1996 consolidated financial statements therefore reflect only three months of
Realm's operations. Following the acquisition, the Company has expanded
Realm's licenses and business to include workers' compensation and other
specialty casualty lines.
The Company earned net income of $10.3 million in 1996, up from $7.9 million
in 1995, marking the seventh consecutive year of growth in net income since
the Company began operations in 1989. The following selected financial data
illustrates the strong growth of the Company's businesses:
22
<PAGE>
SELECTED STATISTICS
<TABLE>
<CAPTION>
AS OF OR FOR
THE
SIX MONTHS
AS OF OR FOR THE YEAR ENDED
ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Risk management fees................ $14,528 $24,093 $33,842 $14,993 $21,577
Year to year change................ 32% 66% 40% -- 44%
Net premiums earned................. 0 3,154 8,754 4,846 6,147
Year to year change................ * * 178% -- 27%
Total revenues...................... 15,298 29,635 46,842 21,795 31,023
Year to year change................ 33% 94% 58% -- 42%
Income before taxation.............. 5,580 10,481 12,572 6,465 7,572
Year to year change................ 38% 88% 20% -- 17%
Net income.......................... 4,282 7,878 10,291 5,146 6,178
Year to year change................ 63% 84% 31% -- 20%
Total assets........................ 73,275 120,640 227,986 148,381 343,019
Year to year change................ 327% 65% 89% -- 131%
Total shareholders' equity.......... 6,660 12,403 36,360 32,006 41,683
Year to year change................ 118% 86% 193% -- 30%
</TABLE>
- --------
* Not material.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net income increased $1.0 million, or 20.1%, to $6.2 million in the first
six months of 1997 from $5.2 million in the same period of 1996. Excluding
exchange gains, net income increased $1.4 million, or 30.7%, to $6.1 million
in the first six months of 1997 from $4.7 million in the same period of 1996.
REVENUES. The components of the Company's revenues are illustrated below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------
1996 1997
------------------ ------------------
TOTAL % OF TOTAL TOTAL % OF TOTAL
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Risk management fees...................... $14,993 68.8% $21,577 69.5%
Net premiums earned....................... 4,846 22.2 6,147 19.8
Net investment income..................... 1,349 6.2 2,910 9.4
Other income.............................. 607 2.8 389 1.3
------- ----- ------- -----
Total revenues.......................... $21,795 100.0% $31,023 100.0%
======= ===== ======= =====
</TABLE>
Total revenues increased $9.2 million, or 42.3%, to $31.0 million in the
first six months of 1997, from $21.8 million in the first six months of 1996.
The increase consisted primarily of a $6.6 million increase in risk management
fees due to increased brokerage fees associated with the Company's U.K.
brokering subsidiaries, increased managing general agency fees as a result of
a greater penetration of existing markets by the Company's managing general
agency network, and additional risk management fees generated by services
provided by North American Risk, Inc. ("North American Risk"). Net investment
income increased $1.6 million, reflecting an increase in the Company's average
cash balances and marketable securities during the first six months of 1997,
primarily as a result of increased cash flow from the Company's operations and
greater retained earnings. Net premiums earned increased $1.3 million
primarily due to the acquisition of Realm in September 1996.
23
<PAGE>
Risk management fees as a percent of total revenues increased to 69.5% from
68.8% while net premiums earned as a percent of total revenues decreased to
19.8% from 22.2% in the first six months of 1997 and 1996, respectively,
reversing a trend that had continued for the previous two years. The Company
expects risk management fees as a percent of total revenues to decrease in
future periods and net premiums earned to increase as a percent of total
revenues as Realm becomes licensed to write insurance in additional states and
increases its policy issuance. This anticipated trend will be partially offset
by an increase in risk management fees associated with the new business
expected to be produced through Realm.
Since net premiums earned are typically offset by losses and expenses
associated with providing insurance, net premiums earned have a much smaller
impact on net income than they do on total revenues. Therefore, the Company
believes total revenues are not the best measure of its performance.
RISK MANAGEMENT FEES. The components of the Company's risk management fees
are illustrated below:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
-------------------------------------
1996 1997
------------------ ------------------
TOTAL % OF TOTAL TOTAL % OF TOTAL
------- ---------- ------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Brokerage fees and commissions............ $ 9,144 61.0% $11,852 54.9%
Managing general agency fees.............. 2,717 18.1 5,155 23.9
Underwriting management fees.............. 1,825 12.2 1,930 8.9
Captive management and program fees....... 709 4.7 1,314 6.1
Loss control and audit fees............... 598 4.0 1,326 6.2
------- ----- ------- -----
Total risk management fees.............. $14,993 100.0% $21,577 100.0%
======= ===== ======= =====
</TABLE>
Risk management fees increased $6.6 million, or 43.9%, to $21.6 million in
the first six months of 1997 from $15.0 million in the first six months of
1996. Brokerage fees and commissions had the most significant impact on the
growth of total risk management fees in the first six months of 1997,
increasing $2.7 million, primarily as a result of increased insurance and
reinsurance brokerage activities from the Company's U.K.-based brokerage
operations. Managing general agency fees increased $2.4 million in the first
six months of 1997, primarily as a result of the Company's expansion of its
managing general agency operations in Florida and, to a lesser extent, Texas.
Captive management and program fees increased $0.6 million due to an increase
in the market penetration of the Company's managing general agency network. In
July 1996, the Company established North American Risk which earns fees by
providing claims administration, safety and loss control services, and premium
audit services. Loss control and audit fees for these services increased $0.7
million in the first six months of 1997. Loss control and audit fees in 1996
include fees for a three month period only as the Company commenced providing
these services in April 1996.
Brokerage fees and commissions comprised 54.9% of risk management fees in
the first six months of 1997 compared to 61.0% in the first six months of
1996. This decrease was primarily a result of the Company's strategy to
further expand and diversify its risk management business through its managing
general agency operations and other service-providing subsidiaries. As a
result, managing general agency fees comprised 23.9% of risk management fees
in the first six months of 1997 compared to 18.1% in the first six months of
1996 and loss control and audit fees (a service provided by North American
Risk) comprised 6.2% of risk management fees in the first six months of 1997
compared to 4.0% in the same period of 1996.
24
<PAGE>
EXPENSES. The components of the Company's expenses are illustrated below:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
JUNE 30,
---------------
1996 1997
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net losses and loss expenses incurred.......................... $ 3,664 $ 5,480
Insurance premium acquisition costs............................ 1,103 295
------- -------
Total insurance costs........................................ $ 4,767 $ 5,775
------- -------
Salaries and benefits.......................................... 5,064 8,869
General and administration expenses............................ 5,499 8,807
------- -------
Total operating expenses..................................... 10,563 17,676
------- -------
Total expenses............................................. $15,330 $23,451
======= =======
</TABLE>
Total expenses increased $8.1 million, or 53.0%, to $23.4 million in the
first six months of 1997 from $15.3 million in the first six months of 1996.
Total insurance costs, which includes net losses and LOSS EXPENSES incurred
and insurance premium acquisition costs, increased $1.0 million. The increase
in total insurance costs from the first six months of 1996 to the first six
months of 1997 was a direct result of the increase in net premiums earned
during those periods. Total operating expenses increased $7.1 million, or
67.3%, to $17.7 million in the first six months of 1997 from $10.6 million in
the first six months of 1996. Salaries and benefits, the largest component of
operating expenses, increased $3.8 million while other general and
administration expenses increased $3.3 million. These increases are primarily
the result of expansion into additional related business lines. The Company
has expanded, and continues to actively seek opportunities to expand, its
operations in order to strengthen its control over the production sources of
its business and to broaden the services it provides to clients.
INCOME. Income before taxation increased $1.1 million, or 17.0%, to $7.6
million in the first six months of 1997 from $6.5 million in the first six
months of 1996. Excluding exchange gains, income before taxation increased
$1.5 million, or 25.2%, to $7.5 million in the first six months of 1997 from
$6.0 million in the first six months of 1996. Provision for income taxes
increased $0.1 million to $1.4 million in the first six months of 1997
compared to $1.3 million in the first six months of 1996, representing
effective tax rates of 18.4% and 20.4%, respectively. This decrease in the
effective tax rate was due to the relative increase in profits from the
Company's Bermuda subsidiaries, together with a decrease in corporate income
tax rates in the U.K. from 33% to 31%. The Company expects its effective tax
rate to increase marginally as the percentage of its revenues earned in the
United States increases.
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Net income increased $2.4 million, or 30.6%, to $10.3 million in 1996 from
$7.9 million in 1995, representing a 42.2% return on average equity in 1996
compared to a 82.7% return on average equity in 1995. Excluding exchange
gains, net income increased $1.9 million, or 24.7%, to $9.8 million in 1996
from $7.9 million in 1995.
Net income increased $3.6 million, or 84.0%, to $7.9 million in 1995 from
$4.3 million in 1994, representing a 82.7% return on average equity in 1995
compared to a 88.1% return on average equity in 1994.
25
<PAGE>
REVENUES. The components of the Company's revenues are illustrated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
% OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Risk management fees............... $14,528 95.0% $24,093 81.3% $33,842 72.2%
Net premiums earned................ 0 0.0 3,154 10.6 8,754 18.7
Net investment income.............. 770 5.0 2,388 8.1 3,405 7.3
Other income....................... 0 0.0 0 0.0 841 1.8
------- ----- ------- ----- ------- -----
Total revenues................... $15,298 100.0% $29,635 100.0% $46,842 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
1996 vs. 1995. Revenues increased $17.2 million, or 58.1%, to $46.8 million
in 1996 from $29.6 million in 1995. The increase was primarily due to a $9.7
million increase in risk management fees, and to a lesser extent, a $5.6
million increase in net premiums earned and a $1.0 million increase in net
investment income. The increase in net premiums earned was primarily a result
of increased premiums earned by the Company's reinsurance subsidiary, CIRCL,
and to a lesser extent, the impact of net premiums earned through Realm. The
increase in net investment income reflects an increase in the Company's cash
balances and marketable securities to $38.2 million in 1996 from $7.6 million
in 1995, primarily as a result of increased cash flow from the Company's
operations, greater retained earnings and, to a lesser extent, the proceeds
from the GS Funds' equity investment.
Total risk management fees as a percent of total revenues declined to 72.2%
from 81.3% while net premiums earned as a percent of total revenues increased
to 18.7% from 10.6% in 1996 and 1995, respectively, as the Company expanded
its insurance and reinsurance operations.
1995 vs. 1994. Revenues increased $14.3 million, or 93.7%, to $29.6 million
in 1995 from $15.3 million in 1994. The increase was the result of a $9.6
million increase in risk management fees, a $1.6 million increase in net
investment income and $3.1 million of net premiums earned by CIRCL, the
Company's reinsurance subsidiary, which was established in 1995.
RISK MANAGEMENT FEES. The components of the Company's risk management fees
are illustrated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
------------- ------------- -------------
% OF % OF % OF
TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
------- ----- ------- ----- ------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Brokerage fees and commissions.... $11,670 80.3% $17,478 72.5% $20,117 59.4%
Managing general agency fees...... 578 4.0 2,724 11.3 6,016 17.8
Underwriting management fees...... 2,280 15.7 3,467 14.4 4,045 12.0
Captive management and program
fees............................. 0 0.0 424 1.8 1,625 4.8
Loss control and audit fees....... 0 0.0 0 0.0 2,039 6.0
------- ----- ------- ----- ------- -----
Total risk management fees...... $14,528 100.0% $24,093 100.0% $33,842 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
1996 vs. 1995. Risk management fees increased $9.7 million, or 40.5%, to
$33.8 million in 1996 from $24.1 million in 1995. Managing general agency fees
had the most significant impact on growth in risk management fees in 1996,
increasing $3.3 million primarily as a result of the Company's expansion of
its managing general agency operations in Florida and, to a lesser extent,
Texas. Brokerage fees and commissions also increased $2.6 million in 1996,
primarily as a result of an increase in the Company's overall insurance and
reinsurance brokering operations. Captive management and captive program fees
earned by Realm Captive Management, Ltd. ("Realm Captive Management")
increased $1.2 million in its first full year of operations. Underwriting
management fees
26
<PAGE>
increased $0.6 million as the Company continued to benefit from the expansion
in 1995 of its underwriting management operations. In July 1996, the Company
established North American Risk, which earns fees by providing claims
administration, safety and loss control services, and premium audit services
to its clients. Fees earned by North American Risk contributed $2.0 million to
the Company's total revenues in 1996.
Brokerage fees and commissions comprised 59.4% of risk management fees in
1996 compared to 72.5% in 1995. This decrease was primarily a result of the
Company's strategy to further expand and diversify its risk management
business through its managing general agency operations and other service-
providing subsidiaries. As a result, managing general agency fees comprised
17.8% of risk management fees in 1996 compared to 11.3% in 1995 and loss
control and audit fees (a service provided by North American Risk) comprised
6.0% of risk management fees in 1996.
1995 vs. 1994. Risk management fees increased $9.6 million, or 65.8%, to
$24.1 million in 1995 from $14.5 million in 1994. Brokerage fees and
commissions had the most significant impact on growth in risk management fees,
increasing by $5.8 million. The increase in brokerage fees and commissions was
primarily due to an increase in the Company's reinsurance brokering operations
and, to a lesser extent, an expansion in the Company's insurance brokering
operations through the formation of a Florida-based insurance brokering
subsidiary. Managing general agency fees increased $2.1 million, reflecting
the first full year of operations for the Company's Texas managing general
agency. Underwriting management fees increased $1.2 million as the Company's
reinsurance underwriting business continued to expand. Captive management and
captive program fees contributed $0.4 million in fees in 1995, as these
operations began in January 1995.
EXPENSES. The components of the Company's expenses are illustrated below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
1994 1995 1996
------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net losses and loss expenses incurred................... $ 0 $ 1,385 $ 6,765
Insurance premium acquisition costs..................... 0 1,345 1,618
------ ------- -------
Total insurance costs................................. 0 2,730 8,383
Salaries and benefits................................... 4,872 8,026 13,106
General and administration expenses..................... 4,846 8,398 12,781
------ ------- -------
Total operating expenses.............................. 9,718 16,424 25,887
------ ------- -------
Total expenses...................................... $9,718 $19,154 $34,270
====== ======= =======
</TABLE>
1996 vs. 1995. Total expenses increased $15.1 million, or 78.9%, to $34.3
million in 1996 from $19.2 million in 1995. Total insurance costs, which
includes net losses and loss expenses incurred and insurance premium
acquisition costs, increased $5.7 million. The increase in total insurance
costs in 1996 was primarily a result of the increase in net premiums earned
during that period. Total operating expenses increased $9.5 million, or 57.6%,
to $25.9 million in 1996 from $16.4 million in 1995. Salaries and benefits,
the largest component of operating expenses, increased $5.1 million while
other general and administration expenses increased $4.4 million. These
increases were primarily the result of the expansion into additional related
business lines. The Company has expanded, and continues to seek opportunities
to expand, its operations in order to strengthen its control over the
production sources of its business and broaden the services it provides to
clients. While this planned expansion led to expected lower operating profit
margins in 1996, the Company believes it has developed the infrastructure
necessary to accommodate expected growth opportunities.
27
<PAGE>
1995 vs. 1994. Total expenses increased $9.5 million, or 97.1%, to $19.2
million in 1995 from $9.7 million in 1994. During 1995, CIRCL, the Company's
newly established reinsurance subsidiary, incurred $2.7 million of net losses
and loss expenses incurred and insurance premium acquisition costs. Total
operating expenses increased $6.7 million, or 69.0%, to $16.4 million in 1995
from $9.7 million in 1994. Salaries and benefits increased $3.2 million while
other general and administration expenses increased $3.5 million. These
increases were primarily the result of the Company's expansion into additional
related business lines.
INCOME. The components of the Company's income are illustrated below:
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER 31,
-----------------------
1994 1995 1996
------ ------ -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C> <C>
Risk management income................................. $4,810 $7,740 $ 8,715
Insurance income (loss)................................ 0 353 (389)
Investment income...................................... 770 2,388 3,405
Other income........................................... 0 0 841
------ ------ -------
Income before taxation............................... 5,580 10,481 12,572
Taxation............................................... 1,298 2,603 2,281
------ ------ -------
Net income......................................... $4,282 $7,878 $10,291
====== ====== =======
Effective tax rate..................................... 23.3% 24.8% 18.1%
</TABLE>
1996 vs. 1995. Income before taxation increased $2.1 million, or 20.0%, to
$12.6 million in 1996 from $10.5 million in 1995. Income before taxation
generated from the Company's risk management operations increased $1.0
million, or 12.6%, to $8.7 million in 1996 from $7.7 million in 1995. The
insurance loss of $0.4 million in 1996 was primarily due to a small number of
underwriting losses incurred by Realm on its existing property insurance
portfolio during the period after its acquisition in September 1996.
Investment income increased $1.0 million reflecting an increase in the
Company's cash balances and marketable securities, primarily as a result of
increased cash flow from the Company's operations and greater retained
earnings and, to a lesser extent, the proceeds from the GS Funds' equity
investment. Other income in 1996 included foreign exchange gains of $0.5
million.
Provision for income taxes decreased $0.3 million, or 12.4%, to $2.3 million
in 1996 from $2.6 million in 1995 representing effective tax rates of 18.1%
and 24.8%, respectively. The decrease in the Company's effective tax rate was
primarily due to the relative increase in the income before taxation earned by
the Company's Bermuda subsidiaries, which are not subject to income tax.
1995 vs. 1994. Income before taxation increased $4.9 million, or 87.8%, to
$10.5 million in 1995 from $5.6 million in 1994. Income before taxation
generated from the Company's risk management operations increased $2.9
million, or 60.9%, to $7.7 million in 1995 from $4.8 million in 1994.
Insurance income before taxation for 1995 did not represent a significant
portion of the Company's income. Investment income increased $1.6 million in
1995 reflecting an increase in the volume of premiums generated by the
Company's operating subsidiaries.
Provision for income taxes increased $1.3 million, or 100.5%, to $2.6
million in 1995 from $1.3 million in 1994 representing effective tax rates of
24.8% and 23.3%, respectively. The increase in the Company's effective tax
rate was primarily due to the relative increase in the income before taxation
earned by the Company's brokerage operations, which are primarily located in
the United Kingdom and subject to income tax.
28
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As a holding company that conducts all its business operations through
subsidiaries based in the United States, England and Bermuda, the Company
relies primarily on dividend payments from its subsidiaries to meet its cash
requirements and to pay dividends to shareholders. The payment of dividends by
certain of the Company's subsidiaries is subject to regulations and may be
subject to certain taxes that could limit the amount or restrict the payment
of such dividends to the Company. See "Risk Factors--Holding Company
Structure", "Business--Regulation" and "Certain Tax Considerations". The
principal uses of funds at the holding company level are the payment of
operating expenses and, following the Offering, the payment of dividends to
shareholders.
During 1996, the Company continued to produce a positive cash flow, with
$14.9 million of net cash provided by operating activities in 1996 compared to
$6.8 million in 1995. The principal sources of funds for the Company are risk
management fees, net premiums earned and net investment income. Operating
funds are used primarily for the payment of operating expenses, claims
payments and reinsurance costs. The Company has raised additional capital in
recent years primarily to support the growth of its insurance operations.
During 1996, the Company raised $14.5 million of additional cash in connection
with the equity investment of the GS Funds. The Company purchased Realm for
$9.0 million, and provided an additional capital contribution to Realm of
$12.1 million in September 1996.
At June 30, 1997, the Company held cash and marketable securities of $32.8
million compared to $38.2 million at December 31, 1996. In addition, the
Company held cash relating to insurance client accounts amounting to $60.3
million at June 30, 1997 compared to $50.2 million at December 31, 1996. These
increased cash balances reflect the growth in the Company's business
activities for the first six months of 1997. Of the $32.8 million of cash and
marketable securities held by the Company at June 30, 1997, $31.9 million were
held by subsidiaries whose payment of dividends to Company was subject to
regulatory restrictions or possible tax liabilities. At June 30, 1997, Realm's
investment portfolio (at fair market value) totaled $21.6 million. The
portfolio consisted primarily of U.S. Treasury and A rated corporate debt
securities.
During the six months ended June 30, 1997, the Company's operating
activities used $2.9 million of net cash, compared to generating $5.7 million
of net cash during the same period of 1996. This reduction is primarily the
result of timing differences in the Company's payment of insurance and
reinsurance balances payable compared to its receipt of insurance and
reinsurance balances receivable. Additionally, the Company used $1.2 million
of cash to acquire a book of insurance business in January 1997 and $0.8
million to repurchase certain of its Ordinary Shares during the first six
months of 1997. The Company expects its operations will generate positive cash
flow for the remainder of fiscal 1997.
The Company does not have any long-term or short-term debt and therefore has
no debt servicing requirements.
The Company believes that the Company's future operating cash flows and the
proceeds of the Offering will be sufficient to meet the Company's presently
expected liquidity needs both on a short-term basis and long-term basis. No
assurance can be given that the Company will not require additional sources of
funding in the future in light of unexpected business developments or
acquisitions not currently contemplated.
29
<PAGE>
BUSINESS
THE COMPANY
The Company is a Bermuda holding company which, through its subsidiaries,
provides risk management services and products predominantly to U.S. based
small to mid-sized businesses seeking cost-effective alternatives to
traditional workers' compensation insurance. In addition, the Company arranges
reinsurance for its products as well as for other independent U.S. based
insurance carriers active in the workers' compensation, occupational accident
and health insurance markets.
The Company believes that its integrated approach, experienced personnel and
market position provide the Company with the ability to offer innovative cost-
effective alternatives to traditional workers' compensation coverage in a
variety of market conditions. The Company structures and markets comprehensive
programs to transfer risk from an insured to insurers and ultimately to
reinsurers in the workers' compensation market as well as other specialty
casualty lines. The Company is able to offer these programs primarily as a
result of the strong relationships and expertise it has developed through its
reinsurance brokering activities. Furthermore, although certain of the
Company's programs utilize an independent primary insurance carrier, the
Company is capable of providing or obtaining the services and products
required at each stage of the risk transfer process. The Company believes
these programs are cost-effective to the insured and provide additional
business to reinsurers with excess underwriting capacity. Thus, the Company is
able to provide retail agents and insurers with the advantages of being a
single source provider of risk management services and products, while also
maximizing its own revenues at each stage of the risk transfer process.
The Company earns risk management fees and may retain a portion of the
premium paid by the insured on the underlying policy for providing its
services and products. In 1996, 72.2% of the Company's total revenues were
derived from risk management fees including agency and brokerage fees and
commissions, management and administration fees and other non-risk bearing
activities.
The Company provides most of its services and products to, and derives a
significant portion of its risk management and brokerage fees from, the
workers' compensation insurance market. Workers' compensation is an attractive
market for the structuring of alternative market insurance solutions given the
relatively frequent yet predictable nature of claims, as well as the need to
control costs arising from medical expenses, litigation and other economic
factors. Alternative insurance products typically involve financial
participation by the insured in some or all of the risk, as compared to
traditional insurance products which shift all, or a substantial portion, of
the insured's risk to the insurer. Alternative solutions to traditional
workers' compensation are designed to reduce insurance costs by allowing the
insured to retain a level of risk consistent with the predictable portion of
the loss experience. The Company believes, based upon published industry
reports and its own experience, that alternative market workers' compensation
products comprised at least $18.5 billion in 1996, or approximately 41% of the
estimated $45.1 billion total market for workers' compensation insurance in
the U.S. that year. In recent years, the Company has applied its integrated
risk transfer approach to the development of insurance programs for other
specialty casualty lines.
The Company, through its original operating subsidiary, Stirling Cooke Brown
Insurance Brokers Limited, began operations in 1989 as an insurance broker in
London specializing in the placement of alternatives to standard workers'
compensation insurance and the arrangement of associated reinsurance programs.
The Company soon began to develop and market its own innovative services and
products designed for employers seeking effective methods of alleviating
onerous insurance costs.
Beginning in 1992, the Company identified a number of opportunities and
undertook certain strategic initiatives to enhance its growth prospects,
diversify its revenues and increase its overall control of the risk transfer
process. As a result, the Company has expanded its business and services
30
<PAGE>
to include managing general agency services, insurance underwriting,
underwriting management, claims administration, loss and safety control and
premium auditing.
In January 1996, the GS Funds made an equity investment in the Company. In
furtherance of the Company's strategy of providing services and products at
multiple stages in the risk transfer process, the Company used the proceeds
from this investment to acquire and provide additional capital for Realm in
September 1996. The Company is in the process of integrating Realm's insurance
underwriting capabilities with the Company's risk management services and will
seek to earn additional income through a combination of policy issuance fees
and net premiums earned while retaining a minimum amount of risk. The net
proceeds received by the Company from the Offering will be used primarily to
provide additional capital to Realm, allowing the Company to expand its
underwriting activities. See "Use of Proceeds".
The Company has historically experienced strong growth in revenues and
earnings despite the current prolonged soft insurance market. The success of
the Company's risk management services and products has led to an increase in
the Company's net income from $2.6 million in 1993 to $10.3 million in 1996,
representing a compound annual growth rate of approximately 57.5%. At June 30,
1997, the Company had approximately $343.0 million in assets, approximately
$41.7 million in shareholders' equity and 296 employees.
INDUSTRY OVERVIEW
The Company's operations focus primarily on the workers' compensation market
within the commercial insurance industry in the United States. The Company's
risk management services and products are designed to offer an alternative to
traditional workers' compensation insurance. Consequently, the Company
competes with traditional providers of workers' compensation insurance as well
as alternative market providers. Based upon published industry reports and its
own experience, the Company believes that the annual amount U.S. employers pay
to provide workers' compensation benefits is at least $57 billion. This total
is comprised of estimated premium (for both private insurance carriers and
state funds) and estimated self insurance costs.
Many commercial insurance buyers seek alternative means of coverage due to
the cyclical nature of the commercial insurance market in the United States
which has, in recent years, resulted in unpredictable and severe swings in the
pricing and availability of coverage. Increasing numbers of buyers recognize
that an effective way to stabilize insurance costs is to retain a portion of
the risk, which traditionally has been fully transferred to insurers. This
trend has led to the development of the alternative market. The alternative
market provides insureds with risk management and financing vehicles,
including captive insurance companies, risk retention groups, rent-a-captive
programs, self-insurance plans, policyholder owned insurance groups, large-
deductible and retrospectively-rated programs, and other non-traditional
insurance products. These risk management and financing vehicles enable the
insured to transfer risk to the various participants in the risk transfer
process in order to obtain the most attractive pricing and coverage terms
under various market conditions. The ability of alternative market providers
to offer coverage terms and attractive pricing depends, in part, upon their
obtaining reinsurance coverage for these vehicles. In the current soft
insurance market, reinsurers with excess underwriting capacity have
increasingly expanded their participation in the risk transfer process through
these vehicles.
Generally, a goal of alternative insurance products is for the insured to
retain, in some manner, those loss events that occur frequently, are low in
severity and are relatively predictable. By retaining such risks, the insured
can (i) obtain a desired level of coverage at an attractive premium; (ii)
eliminate or reduce the transaction costs associated with transferring these
loss events to an insurer, which costs can exceed 30% of the insured's gross
insurance premium; (iii) retain the investment income
31
<PAGE>
produced by the funds set aside to cover these loss events; and (iv) avoid the
cyclical nature of the price demanded by the commercial insurance market to
insure these events. Employers' liability under workers' compensation statutes
closely fits this loss profile, and as a result alternative insurance products
have been widely accepted in the workers' compensation risk management market.
Insurance products in which the insured retains some of the risk also
highlight the benefits of aggressive loss prevention and effective claims
management by aligning the interests of the insurer and the insured to reduce
costs. The Company believes, based upon published industry reports and its own
experience, that alternative market workers' compensation products comprised
at least $16.4 billion in 1996, or approximately 39% of the estimated $42.4
billion total market for workers' compensation insurance in the U.S. that
year. The Company has also begun to apply its integrated risk transfer
approach to the development of alternative market insurance programs for other
specialty casualty lines.
BUSINESS STRATEGY
The Company believes that growth potential exists in its markets which will
provide opportunities to increase fee-based revenues, net premiums earned and
net investment income. To capitalize on these opportunities, the Company has
established the following strategic priorities which the Company believes will
allow it to maintain and enhance its position as a leading provider of
alternatives to traditional workers' compensation insurance.
INCREASE MARKET PENETRATION AND EXTEND AGENCY NETWORK
The Company, through its managing general agency network, typically receives
net fee income from the insurance carrier of between 13% and 17% of the
insured's gross premium on the underlying policy for providing underwriting
services, policy administration and premium accounting, and claims adjusting
and administration services. Business originated in the managing general
agency network is central to the Company's business strategy since the
managing general agencies are able to direct the services and products
provided to the insured. The Company intends to increase the market
penetration of its existing agency network by concentrating its marketing
efforts on the most productive agents and by continuing to use agency
incentive and promotional programs to encourage increased levels of new
business development. In addition, the Company intends to continue to increase
the number of independent producing agents distributing the Company's services
and products.
EXPAND CURRENT INSURANCE OPERATIONS
The Company currently uses independent primary insurance carriers in
connection with most of its existing workers' compensation business, and
expects these arrangements to continue for much of this existing business.
However, through Realm, the Company intends to act as an issuing carrier for a
portion of its new business opportunities and receive a combination of policy
issuance fees (typically 7% of the insured's gross premiums) and/or net
premiums earned. The Company is in the process of increasing Realm's capital
base and expanding the number of states in which Realm is licensed.
EXPAND PRODUCT OFFERINGS THROUGH EXISTING DISTRIBUTION NETWORK
The Company seeks to expand its product offerings by developing services and
products that meet the financial and risk management objectives of its
clients. For example, in response to rising workers' compensation costs, the
Company was one of the pioneers in the development of alternative non-
subscriber workers' compensation programs, which the Company began to market
and sell in Texas in the early 1990s. To better serve client needs, the
Company has expanded its service and product offerings to include loss control
and audit services, premium auditing and claims administration capabilities.
The Company intends to continue to develop new services and products to be
marketed through its agency distribution network.
32
<PAGE>
EXPAND AND DEVELOP PROGRAM BUSINESS
The Company structures and markets comprehensive programs to transfer risk
from an insured to insurers and ultimately to reinsurers in the workers'
compensation market as well as for other specialty casualty lines. These
programs enable the Company to provide a range of risk management services and
products for retail agents, while also maximizing the Company's revenues at
each stage of the risk transfer process. The Company intends to utilize its
existing reinsurance business relationships to expand the number of programs
it offers and also intends to increase the sale of insurance policies issued
under existing programs through its agency network. The Company expects the
growth of its program business to increase its revenues generated from
specialty casualty lines relative to its revenues generated from the workers'
compensation market.
INCREASE REINSURANCE BROKERING REVENUE
The Company's reinsurance brokering subsidiaries arrange for the reinsurance
programs associated with the Company's products, and also arrange reinsurance
programs for numerous other U.S. and European insurance companies. The Company
earns commissions for providing these services. The Company's reinsurance
brokering subsidiaries are located in the key markets of the U.S., Bermuda and
London. The Company expects that Realm's expansion will generate additional
business for the Company's reinsurance brokering operations.
SELECTIVELY PURSUE ACQUISITIONS
The Company is continuously looking to expand its business by selectively
acquiring general agencies and books of insurance business. Given the
Company's ability to earn fees throughout the risk transfer process, the
Company believes the selective acquisition of general agencies and books of
insurance business can generate significant additional profits relative to the
costs of such acquisitions. In January 1997, the Company acquired a book of
insurance business of approximately $20 million of annual written premiums
from a managing general agency for approximately $1.2 million. The Company
expects to earn multiple fees from this book of insurance business, including
managing general agency fees, reinsurance brokerage commissions and other
service fees.
RISK TRANSFER AND MANAGEMENT
As a provider of alternative market services and products, the Company seeks
to develop cost-effective risk transfer solutions for clients with specific
insurance or reinsurance needs. Through customized programs, the Company's
clients are able to participate in certain types of risks and retain certain
levels of risk while insuring or reinsuring the remaining risk. The Company
receives fees and commissions for its services and products and may receive a
portion of the UNDERWRITING PROFIT generated from its programs.
33
<PAGE>
The following diagram and discussion illustrate, in summary form, a typical
risk transfer process wherein the Company participates and generates revenues
from services and products provided at various stages in the risk transfer
process. The amount and type of the revenues generated by the Company depends
on the nature of the risk management services and products provided by the
Company, as well as the point at which the business originates in the risk
transfer process. For example, the Company's participation in the risk
transfer process may begin with a retail agent seeking primary insurance
coverage through one of the Company's managing general agency subsidiaries, or
may begin with an insurance company or reinsurance company seeking reinsurance
coverage through the Company's reinsurance brokering operations.
<TABLE>
<CAPTION>
THE RISK
TRANSFER FUNCTIONS TYPE OF REVENUE COMPANY PROVIDER
PROCESS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Insured (Employer)
Retail Agent
Underwriting,
Policy Fees and Commissions MGAs in Texas,
Administration, Florida and New York
Managing General Premium Collection
General Agent ("MGA") and Claims Management
Captive Management Fees and Commissions MGAs and
Realm Captive Mgmt.
Primary Insurance Direct Insurance Underwriting Profit Realm
Carrier Coverage and Investment Income
Policy Issuance Fees Realm
Premium Auditing, and
Accident and Loss Fees North American Risk
Control
Reinsurance Broker Placement of Risk Commissions Stirling Cooke Brown
Brokers
Managing General
Underwriter Underwriting and Fees and Commissions MGUs in Bermuda
("MGU") Premium Collection
Reinsurance Reinsurance Underwriting Profit and CIRCL
Company Coverage Investment Income
</TABLE>
34
<PAGE>
MANAGING GENERAL AGENT
Typically, when an employer seeks to purchase commercial insurance coverage,
such as workers' compensation insurance or other alternative market products,
it will instruct a local retail insurance agent to survey the market and
obtain the desired coverage at acceptable terms. The retail agent has
established relationships with representatives of insurance carriers known as
managing general agents that have expertise in the relevant property and
casualty program and the ability to offer the requested coverage. Managing
general agents ("MGAs") are authorized to underwrite risks, issue policies,
administer claims and accept associated premiums on behalf of various primary
insurance carriers. The Company's MGA network is an important entry point for
much of the Company's business and typically provides an initial net fee-based
revenue opportunity of between 13% and 17% of the insured's gross premium on
the underlying policy. The Company's MGAs earn fees and commissions for
providing underwriting services, policy administration and premium accounting,
and claims adjusting and administration services. In addition, once an MGA has
secured an account, numerous opportunities exist for the Company to generate
additional revenues at other stages in the risk transfer process, as
illustrated in the preceding diagram.
Through its MGA network, the Company also markets its captive and rent-a-
captive arrangements to larger employers or associations (generating
$1,000,000 or more in standard premium) wishing to use this alternative market
strategy. In these circumstances, the Company earns an MGA fee and, through
its subsidiary Realm Captive Management, a captive program administration fee.
PRIMARY INSURANCE CARRIER AND RELATED SERVICES
PRIMARY INSURANCE CARRIER. Once an MGA has accepted risk on behalf of an
insurance carrier, it issues a policy to the insured, collects the required
premium, retains its agreed fees and/or commissions and remits the balance of
the premium to the insurance carrier. The insurance carrier may receive an
issuance fee and/or may retain a portion of the premium to cover its RETAINED
RISK. The balance of the premium typically passes to the insurance carrier's
participating reinsurers through a prearranged reinsurance contract.
The Company currently uses independent primary insurance carriers in
connection with most of its existing workers' compensation business, and
expects these arrangements to continue for much of this existing business.
However, through Realm, the Company intends to act as an issuing carrier for a
portion of its new business opportunities and receive a combination of policy
issuance fees (typically 7% of the insured's gross premiums) and/or net
premiums earned. Furthermore, Realm provides the Company with the opportunity
to generate business and receive premiums and fees from sources outside the
Company's MGA network as non-affiliated MGAs place business with Realm. The
Company expects the revenues to be generated through the integration of Realm
into the Company's existing businesses to be an important component of future
earnings growth.
Realm had shareholders' equity of approximately $21.5 million at June 30,
1997, net premiums earned of approximately $1.3 million in the six month
period ended June 30, 1997 and a B+ (Very Good) rating from A.M. Best Company.
Prior to its acquisition by the Company, Realm primarily issued property and
casualty insurance in a limited number of states. The Company is in the
process of expanding Realm's business to include workers' compensation and
other specialty casualty insurance lines in each of the states in which Realm
is currently licensed to offer property and casualty insurance. The Company
intends to license Realm in substantially all of the remaining states and the
District of Columbia.
RELATED SERVICES. The Company also provides premium auditing, claims
administration and loss control services to Realm and other issuing carriers
through its subsidiary North American Risk. The Company charges a fee for
providing these services. The Company believes these services are an important
component of its business and allow the Company to provide its customers with
a full range of products.
35
<PAGE>
REINSURANCE BROKERING
Generally, in the risk transfer process, insurance carriers will not offer
direct products at the retail level unless they have effective reinsurance
programs in place. The economics and quality of these reinsurance arrangements
affect the insurance carrier's ability to compete with other insurance
products. Insurance carriers use the services of reinsurance brokers or other
intermediaries to arrange these reinsurance programs. The Company's
reinsurance brokering subsidiary, Stirling Cooke Brown Reinsurance Brokers
Limited ("SCBRIB"), is a leader in the reinsurance marketplace for alternative
and traditional workers' compensation, accident, health, and specialty
casualty lines. SCBRIB operates in the reinsurance markets of London, the U.S.
and Bermuda. Through SCBRIB, the Company generates fee and commission-based
revenues without assuming risk. The Company believes that SCBRIB gives it a
competitive advantage over other industry participants and allows it to
structure more cost-effective alternative products which are then marketed by
its MGAs. SCBRIB also arranges RETROCESSIONAL REINSURANCE coverage for
reinsurers.
MANAGING GENERAL UNDERWRITER
The Company owns a number of reinsurance carrier representatives known as
MANAGING GENERAL UNDERWRITERS ("MGUs"). These MGUs are authorized to
underwrite reinsurance contracts on behalf of a number of reinsurance carriers
and to accept the associated premium. MGUs earn fees and commissions for
providing underwriting and other services related to the reinsurance contract,
including reinsurance claims administration and other services.
REINSURANCE COMPANY
The Company has a Bermuda based reinsurance company, CIRCL, which reinsures
a portion of the underwriting risk on business provided to or by the Company
and receives a reinsurance premium to cover that risk. CIRCL accepts a portion
of the risk as a reinsurer of an independent insurance carrier on programs
managed by the Company, and then purchases reinsurance protection to minimize
such risk.
MARKETING
The Company markets and originates business at various stages in the risk
transfer process, through its MGAs, Realm and its insurance and reinsurance
brokering activities.
MGAS
The Company markets its workers' compensation products and other specialty
lines to retail agents in the U.S. through its three Company-owned MGAs and
through other affiliates. Individual MGA offices market their services and
products through sales representatives, targeted direct mail, local and
regional advertising, seminars, and trade and industry conventions. The
Company advertises in U.S. and international trade journals, and has also
contributed articles to a quarterly trade magazine circulated to agents and
policyholders. Additionally, the Company participates as an exhibitor in the
annual Risk and Insurance Management Society conventions.
Given its general reliance on retail agents as an important source of
business production, the Company places emphasis on building and maintaining
relationships with individual retail agents, and on expanding its network of
retail producers. To encourage loyalty from the retail agents to the Company's
MGAs, the Company seeks to provide a high level of service, offer insurance
products that satisfy the needs of clients and reward increased levels of
production through incentive compensation schedules. The Company believes that
it has successfully developed a reputation for providing quality service,
cost-effective products and strong marketing support which has enabled it to
develop strong relationships with its retail agents and commercial customers.
36
<PAGE>
PRIMARY INSURANCE CARRIERS
The Company's MGAs market insurance products on behalf of both Realm and
independent primary insurance carriers, primarily Clarendon and Legion. In
addition, Realm's insurance products are marketed to independent agents and
other procurers of insurance through other unaffiliated MGA networks. The
Company expects Realm's marketing efforts to increase as it becomes licensed
in additional states.
INSURANCE AND REINSURANCE BROKERING
The Company markets its insurance and reinsurance brokering capabilities in
a number of specialty insurance markets, both alternative and traditional. The
Company focuses its insurance brokering marketing efforts on wholesale and
retail agents, and its reinsurance brokering marketing efforts on a number of
primary insurance and reinsurance companies.
COMPETITION
The business of providing risk management services and products to the
workers' compensation and property and casualty insurance markets is highly
competitive. The Company competes with providers of traditional insurance
coverage and with other providers of alternative market services (including
domestic and foreign insurance companies, reinsurers, insurance brokers,
captive insurance companies, rent-a-captives, self-insurance plans, risk
retention groups, state funds, assigned risk pools and other risk-financing
mechanisms). Many of the Company's competitors have significantly greater
financial resources, longer operating histories and better financial ratings
and offer a broader line of insurance products than the Company. The Company
believes the key factors to effectively compete in the risk management market
are price, the ability to tailor programs to the needs of the insured and the
ability to rapidly develop new solutions to address changing market needs. The
Company believes that its services and products are competitively priced, and
that its combination of MGA, insurance and reinsurance services and products
enables it to rapidly develop tailored programs and act as a single source
provider of risk management services and products. See "Risk Factors--
Competition."
Realm is rated B+ (Very Good) by A.M. Best Company and in certain
circumstances may be at a competitive disadvantage to insurance carriers with
higher ratings. The Company's MGAs also represent carriers with higher ratings
from A.M. Best Company, ensuring that the Company's MGAs are not negatively
impacted in circumstances where Realm is not selected as insurance carrier due
to its rating.
REGULATION
The Company's subsidiaries that are engaged in the underwriting of insurance
(primarily Realm and CIRCL) are subject to regulation by government agencies
in the states and foreign jurisdictions in which they do business. The nature
and extent of such regulation vary from jurisdiction to jurisdiction, but
typically involve prior approval of the acquisition of control of an insurance
company or of any company controlling an insurance company; regulation of
certain transactions entered into by an insurance company with any of its
affiliates; approval of premium rates, forms and policies used for many lines
of insurance; standards of solvency and minimum amounts of capital and surplus
which must be maintained; establishment of reserves required to be maintained
for unearned premium, losses and loss expense or for other purposes;
limitations on types and amounts of investments; restrictions on the size of
risks which may be insured by a single company; licensing of insurers and
agents; deposits of securities for the benefit of policyholders; and the
filing of periodic reports with respect to financial condition and other
matters. In addition, state regulatory examiners perform periodic examinations
of insurance companies. Such regulation is generally intended for the
protection of policyholders rather than security holders.
37
<PAGE>
In addition to the oversight of the Company's insurance subsidiaries, the
Company, as the ultimate parent of a New York domiciled insurer (Realm), is
also subject to regulation under the New York Insurance Holding Company System
Regulatory Act (the "Holding Company Act"). The Holding Company Act contains
certain reporting requirements including those requiring the Company, as the
ultimate parent company, to file information relating to its capital
structure, ownership, and financial condition and general business operations
of its insurance subsidiaries. The Holding Company Act contains special
reporting and prior approval requirements with respect to transactions among
affiliates.
Insurance companies are also affected by a variety of state and federal
legislative and regulatory measures and judicial decisions that define and
extend the risks and benefits for which insurance is sought and provided.
These include redefinitions of risk exposure in areas such as products
liability, environmental damage, and employee benefits, including workers'
compensation and disability benefits. In addition, individual state insurance
departments may prevent premium rates for some classes of insurers from
reflecting the level of risk assumed by the insurer for those classes. Such
developments may result in adverse effects on the profitability of various
lines of insurance. In some cases, these adverse effects on profitability can
be reduced through repricing of coverages, if permitted by applicable
regulations, or limitation or cessation of the affected business.
Certain of the Company subsidiaries are also subject to regulation as
insurance intermediaries. Under the applicable regulations, the intermediary
is responsible as a fiduciary for funds received for the account of the
parties to the insurance or reinsurance transaction and is required to hold
such funds in appropriate bank accounts subject to restrictions on withdrawals
and prohibitions on commingling. The Company's insurance intermediaries
include several MGAs. MGAs produce, underwrite, and manage claims or negotiate
reinsurance for a specific portion of an insurance company's business in
certain states, and they are subject to regulation under state law regarding
insurer fiduciary obligations with respect to premium and concerning the
general management of the insurer's business.
The activities of Stirling Cooke Brown Insurance Brokers Limited as an
insurance broker in the U.K. require it to be authorized under the Insurance
Brokers (Registration) Act of 1977 by the Insurance Brokers Registration
Council (the "Council"). Authorization by this body involves continuing
compliance with rules made by the Council, which require, among other things,
that the company maintain a minimum level of working capital, that it
allocates not more than a specified level of its business to any particular
insurance company or group of insurance companies, that it supply reports to
the Council, and that it conduct its business in accordance with the conduct
of business rules published by the Council. It is a condition of the
maintaining of the authorization from the Council that a majority of the
directors of Stirling Cooke Brown Insurance Brokers Limited are and remain
registered as insurance brokers in the U.K.
INSURANCE REGULATION CONCERNING CHANGE OR ACQUISITION OF CONTROL
Realm is organized under the insurance laws of the State of New York (the
"Insurance Code of New York"). The Insurance Code of New York provides that
the acquisition or change of "control" of a domestic insurer or any person
that controls a domestic insurer cannot be consummated without the prior
approval of the relevant insurance regulatory authority. A person seeking to
acquire control, directly or indirectly, of a domestic insurance company or
any person controlling a domestic insurance company must generally file with
the relevant insurance regulatory authority an application for change of
control (commonly known as a "Form A") containing certain information required
by statute and published regulations and provide a copy of such Form A to the
domestic insurer. Under the Insurance Code of New York, control is presumed to
exist if any person, directly or indirectly, owns, controls, holds with power
to vote or holds proxies representing ten percent or more of the voting
securities of any other person.
38
<PAGE>
In addition, many state insurance regulatory laws contain provisions that
require pre-notification to state agencies of a change in control of a non-
domestic admitted insurance company in that state. While such pre-notification
statutes do not authorize the state agency to disapprove the change of
control, such statutes do authorize issuance of a cease and desist order with
respect to the non-domestic admitted insurer if certain conditions exist such
as undue market concentration.
The foregoing requirements may deter, delay or prevent certain transactions
affecting the control of the Company or the ownership of Ordinary Shares,
including transactions that could be advantageous to the shareholders of the
Company.
MEMBERSHIP IN INSOLVENCY FUNDS AND ASSOCIATIONS
Most states require property and casualty insurers licensed to transact
insurance in the state to become members of insolvency funds or associations
which generally protect policyholders against the insolvency of such insurers.
Members of the fund or association must contribute to the payment of certain
claims made against insolvent insurers. Maximum contributions required by law
in any one year vary between 1% and 2% of annual premiums written by a member
in that state. Assessments from insolvency funds paid by Realm were immaterial
in 1994, 1995, and 1996. The cost of most of these assessments is recoverable
through future policy surcharges and premium tax deductions.
Realm is also required to participate in various mandatory insurance
facilities or in funding mandatory pools, which are generally designed to
provide insurance coverage for consumers who are unable to obtain insurance in
the voluntary insurance market. One such pool is the multi-state workers'
compensation pool operated by the National Council on Compensation Insurance.
These pools typically require all companies writing applicable lines of
insurance in the state for which the pool has been established to fund
deficiencies experienced by the pool based upon each company's relative
premium writings in that state, with any excess funding typically distributed
to the participating companies on the same basis. To the extent that these
assessments are not covered by Realm's reinsurance treaties, they may have an
adverse effect on Realm. Total assessments incurred by Realm from all such
facilities for 1994, 1995, and 1996 were immaterial.
RESTRICTIONS ON DIVIDENDS
Realm is subject to various state statutory and regulatory restrictions,
generally applicable to each insurance company in its state of incorporation,
which limit the amount of dividends or distributions payable by an insurance
company to its shareholders. The restrictions are generally based on certain
levels of surplus, investment income, and operating income, as determined
under statutory accounting practices.
The Insurance Code of New York regulates the distribution of dividends and
other payments to the Company by Realm. Under the applicable New York statute,
unless prior regulatory approval is obtained, an insurer may not declare or
distribute any dividend to shareholders which, together with all dividends
declared or distributed by it during the preceding twelve months, exceeds the
lesser of (i) 10% of its surplus to policyholders as shown by its last
statement on file with the New York Department of Insurance, or (ii) 100% of
adjusted net investment income during such period. Such restrictions or any
additional subsequently imposed restrictions may in the future affect the
Company's ability to pay principal and interest on its debt, expenses, and any
cash dividends to its shareholders. Future dividends from the Company's
subsidiaries may also be limited by business considerations.
Additionally, CIRCL is subject to certain regulations that may restrict its
ability to pay dividends. See "--Bermuda Regulation".
39
<PAGE>
NAIC FORMULAS
The National Association of Insurance Commissioners has adopted a
methodology for assessing the adequacy of statutory surplus of property and
casualty insurers which includes a risk-based capital requirement. Insurance
companies are required to calculate and report information under a risk-based
formula which attempts to measure statutory capital and surplus needs based on
the risks in a company's mix of products and investment portfolio. The formula
is designed to allow state insurance regulators to identify potential weakly
capitalized companies. Under the formula, a company determines its "risk-based
capital" ("RBC") by taking into account certain risks related to the insurer's
assets (including risks related to its investment portfolio and ceded
reinsurance) and the insurer's liabilities (including underwriting risks
related to the nature and experience of its insurance business). The RBC rules
provide for different levels of regulatory attention depending on the ratio of
a company's total adjusted capital to its "authorized control level" of RBC.
Under the formula, a higher ratio reflects a greater adequacy of capital.
Based on calculations made by the Company, the RBC level for the Company's
insurance subsidiaries exceeds levels that would trigger regulatory attention.
At December 31, 1996, Realm's RBC ratio was approximately 1,908, and the
threshold requiring minimum regulatory involvement was 200. Therefore, the
Company's capital exceeds all requirements of the Risk-Based Capital Model
Act. The NAIC has also developed an Insurance Regulatory Information System
("IRIS") to assist state insurance departments in their oversight of the
financial condition of insurance companies operating in their respective
states. IRIS identifies 11 industry ratios and specifies "usual values" for
each ratio. Departure from the usual values in four or more ratios generally
leads to inquiries from individual state insurance commissioners. Management
believes Realm's IRIS ratios are such as to not attract such regulatory
attention.
EFFECT OF FEDERAL LEGISLATION
Although the U.S. federal government does not directly regulate the business
of insurance, federal initiatives often affect the insurance industry in a
variety of ways. Current and proposed federal measures which may significantly
affect the insurance industry include federal government participation in
asbestos and other product liability claims, pension regulation (ERISA),
examination of the taxation of insurers and reinsurers, minimum levels of
liability insurance, and automobile safety regulations.
BERMUDA REGULATION
THE INSURANCE ACT 1978, AS AMENDED, AND RELATED REGULATIONS. As a holding
company, the Company is not subject to Bermuda insurance regulations. However,
the Insurance Act 1978, as amended (the "Insurance Act"), which regulates the
insurance business of CIRCL, an insurance subsidiary of the Company, provides
that no person shall carry on insurance business in or from within Bermuda
unless registered as an insurer under the Insurance Act by the Minister of
Finance (the "Minister"). The registration of an applicant as an insurer is
subject to its complying with the terms of its registration and such other
conditions as the Minister may impose from time to time.
The Insurance Act provides a minimum liquidity ratio for general business.
An insurer engaged in general business is required to maintain the value of
its relevant assets at not less than 75% of the amount of its relevant
liabilities. Relevant assets include cash and time deposits, quoted
investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable,
reinsurance balances received and funds held by ceding reinsurers. There are
certain categories of assets which, unless specifically permitted by the
Minister, do not automatically qualify as relevant assets such as unquoted
equity securities, investments in and advances to affiliates, real estate and
collateral loans. The relevant liabilities are total general business
insurance reserves and total other liabilities less deferred income tax and
sundry liabilities (by interpretation, those not specifically defined),
letters of credit and guarantees.
40
<PAGE>
An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda to oversee the
business of the insurer and to report to the Minister and the Registrar of
Companies in respect of certain events. Unless the approval of the Minister is
obtained, an insurer may not terminate the appointment of its principal
representative, and the principal representative may not cease to act as such,
unless 30 days' notice in writing to the Minister is given of the intention to
do so. Within 30 days of the principal representative's knowing or having
reason to believe that the insurer the representative represents is likely to
become insolvent or that an "event" has occurred, the principal representative
must provide a written report to the Minister setting out all the particulars
of the case that are available to the representative. Examples of such an
"event" include failure by the insurer to comply substantially with a
condition imposed upon the insurer by the Minister relating to a solvency
margin or a liquidity or other ratio.
The Minister may appoint an inspector with extensive powers to investigate
the affairs of an insurer if the Minister believes that an investigation is
required in the interest of the insurer's policyholders or persons who may
become policyholders. In order to verify or supplement information otherwise
provided to him, the Minister may direct an insurer to produce documents or
information relating to matters connected with the insurer's business.
If it appears to the Minister that there is a risk of the insurer becoming
insolvent, the Minister may direct the insurer not to take on any new
insurance business; not to vary any insurance contract if the effect would be
to increase the insurer's liabilities; not to make certain investments; to
realize certain investments; and to maintain in Bermuda, or transfer to the
custody of a Bermuda bank, certain assets and to limit its premium income.
In general, the regulation of insurers in Bermuda relies heavily upon
auditors, loss reserve specialists, directors, and managers, who must certify
that an insurer meets minimum capital and solvency requirements. Every
registered insurer must appoint a government approved auditor who will
annually audit and report on the Statutory Financial Statements and the
Statutory Financial Return of the insurer.
CIRCL is registered as a Class 3 insurer and, as such: (i) is required to
maintain a minimum statutory capital and surplus equal to the greatest of: (a)
$1 million; (b) 20% of the first $6 million of its NET PREMIUMS WRITTEN plus
15% of its net premiums written over $6 million; and (c) 15% of its net
outstanding losses and loss expenses; (ii) is limited in declaring or paying
any dividends during any financial year with respect to a specified minimum
solvency margin or minimum liquidity ratio or if the declaration or payment of
such dividends would cause it to fail to meet such margin or ratio; (iii) is
prohibited, without the approval of the Minister, from reducing by 15% or more
its total statutory capital, as set out in its previous year's financial
statements; and (iv) is required to report its failure to meet its minimum
solvency margin to the Minister within 30 days after becoming aware of such
failure or having reason to believe that such failure has occurred. CIRCL is
also required to obtain an annual loss reserve opinion issued by a government
qualified casualty actuary.
The Bermuda government actively encourages foreign investment in "exempted"
entities like CIRCL that are based in Bermuda but do not operate in
competition with local businesses. As well as having no restrictions on the
degree of foreign ownership, CIRCL is exempted from taxes on its income until
March 28, 2016 and is not subject to tax on its dividends or to any foreign
exchange controls in Bermuda. In addition, there currently is no capital gains
tax in Bermuda, and profits can be accumulated by CIRCL, as required, without
limitation.
EXTRATERRITORIAL REGULATION OF CIRCL
As indicated above, CIRCL is registered as an insurer and is subject to
regulation and supervision in Bermuda. CIRCL is not admitted or authorized to
do business in any jurisdiction except Bermuda. The insurance laws of the
various states of the United States do not directly regulate the sale of
41
<PAGE>
reinsurance within their jurisdictions by alien insurers, such as CIRCL.
Nevertheless, the provision of reinsurance by alien reinsurers, such as CIRCL,
to insurance companies domiciled or licensed in United States jurisdictions is
indirectly regulated by state "credit for reinsurance" laws that operate to
deny financial statement credit to ceding insurers unless the non-admitted
alien reinsurer posts acceptable security for ceded liabilities and agrees to
certain contract provisions (e.g., insolvency and intermediary clauses).
Although the insurance laws of United States jurisdictions generally exempt
the business of reinsurance from "doing business" laws, CIRCL conducts its
business at its principal offices in Bermuda and does not maintain an office
in the United States, and its personnel do not solicit, advertise, settle
claims or conduct other insurance activities in the United States. All
policies are issued and delivered and premiums are received outside the United
States. CIRCL does not believe that it is subject to the insurance laws of any
state in the United States.
From time to time, there have been congressional and other initiatives in
the United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien reinsurers.
While none of these proposals has been adopted to date on either the federal
or state level, there can be no assurance that federal or state legislation
will not be enacted subjecting CIRCL to supervision and regulation in the
United States, which could have a material adverse effect on the Company. In
addition, no assurance can be given that if CIRCL were to become subject to
any laws of the United States or any state thereof or of any other country at
any time in the future, it would be in compliance with such laws.
CIRCL does not intend to maintain an office or to solicit, advertise, settle
claims or conduct other insurance activities in any jurisdiction other than
Bermuda where the conduct of such activities would require that CIRCL be so
admitted. CIRCL is not registered as an insurer in England or in any other
jurisdiction. The Company believes that CIRCL is not required to be registered
as an insurance company in the United Kingdom.
RELATIONSHIPS WITH INDEPENDENT PRIMARY INSURANCE CARRIERS
The Company's MGAs market insurance products and programs developed by the
Company on behalf of independent insurance carriers, primarily Clarendon and
Legion. In addition, the Company's brokering and reinsurance brokering
operations, managing general underwriters, and claims and loss control
servicing operations provide additional business and services to Clarendon and
Legion in respect of these products and other insurance and reinsurance
policies. In 1996, fees received from Clarendon accounted for approximately
55% of the Company's total revenues, while fees received from Legion accounted
for less than 10% of the Company's total revenues. Although the loss of either
Clarendon or Legion could have a material adverse effect on the Company, the
Company believes that Realm and other independent primary insurance carriers
have sufficient underwriting capacity to reduce the impact of such a loss. See
"Risk Factors -- Dependence on Relationships with Independent Primary
Insurance Carriers".
EMPLOYEES
As of June 30, 1997, the Company had 296 employees. The service nature of
the Company's business makes its employees an important corporate asset. While
the market for qualified personnel is extremely competitive, the Company
believes that its relationship with its employees is good. None of the
Company's employees are represented by a union.
42
<PAGE>
FACILITIES
The Company's principal executive offices are located in Hamilton, Bermuda.
This facility currently serves as the headquarters for senior management, the
financial and administrative departments and the Company's Bermuda
subsidiaries. The following table sets forth additional information concerning
the Company's facilities:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
PROPERTY SQUARE FEET EXPIRATION
-------- ----------- ----------
<S> <C> <C>
Hamilton, Bermuda......................... 5,900 March 31, 2000
London, England........................... 12,500 August 10, 2009
Dallas, Texas............................. 14,700 September 30, 2003
New York, New York........................ 7,900 October 3, 2003
Sarasota, Florida......................... 8,300 June 2, 1998
Orlando, Florida.......................... 3,400 June 30, 1999
Fort Lauderdale, Florida.................. 11,100 January 1, 2000
</TABLE>
All of the Company's facilities are leased. Aggregate lease payments for
1996 were $1.3 million. The Company anticipates that it will be able to extend
these leases as they expire or, if necessary or desirable, locate substitute
facilities on acceptable terms.
LEGAL PROCEEDINGS
The Company is not a party to any litigation, and is not aware of any
pending or threatened litigation, that could be expected to have a material
adverse effect on the Company or its business.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are listed below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Nicholas Mark Cooke. 40 Chairman, President, Chief Executive Officer and
Director(1)
Nicholas Brown...... 39 Director(2); Managing Director of Stirling Cooke
Brown Insurance Brokers Limited and Stirling Cooke
Brown Reinsurance Brokers Limited
George W. Jones..... 43 Chief Financial Officer and Director(3)
Warren W. Cabral.... 36 Director(3)
Reuben Jeffery III.. 44 Director(2)
Sanjay H. Patel..... 36 Director(1)
</TABLE>
- --------
(1) Term expires at annual shareholders meeting in 2001.
(2) Term expires at annual shareholders meeting in 2000.
(3) Term expires at annual shareholders meeting in 1999.
NICHOLAS MARK COOKE has been Chief Executive Officer of the Company or its
predecessors since 1990 and Chairman and President and a Director of the
Company since it began operations in January 1996. Prior to 1990, Mr. Cooke
was a director of two Lloyds brokers and has had continuous employment in the
insurance and reinsurance industry in the London market since 1976.
NICHOLAS BROWN has been a Director of the Company since it began operations
in January 1996. Mr. Brown is Managing Director of Stirling Cooke Brown
Insurance Brokers Limited and of Stirling Cooke Brown Reinsurance Brokers
Limited, U.K. subsidiaries of the Company, and has been a Director of these
companies since 1992. Prior to 1992 Mr. Brown was a director of a Lloyds
broker and has had continuous employment in the insurance and reinsurance
industry in the London market since 1977.
GEORGE W. JONES has been Chief Financial Officer and a Director of the
Company since it began operations in January 1996, and Chief Financial Officer
and a Director of Stirling Cooke Brown (U.K.) Holdings Limited since 1992 and
its subsidiaries since 1988.
WARREN W. CABRAL has been a Director of the Company since it was founded in
December 1995. Mr. Cabral has been a partner in Appleby, Spurling & Kempe, a
Bermuda law firm that has provided legal services to the Company since 1992.
REUBEN JEFFERY III has been a Director of the Company since it began
operations in January 1996. Mr. Jeffery has been a member of Goldman, Sachs &
Co.'s Financial Institutions Group since its inception and has been a Managing
Director of such group since 1992.
SANJAY H. PATEL has been a Director of the Company since it began operations
in January 1996. Mr. Patel has been a Managing Director in the Principal
Investment Area of Goldman, Sachs & Co. since 1996. From 1987 to 1996, Mr.
Patel worked in the Leveraged Buyout Group of Goldman, Sachs & Co. Mr. Patel
also serves on the Advisory Committee and Board of Directors of Marcus Cable
Company, L.P. and Recovery Engineering, Inc., respectively.
PROVISIONS GOVERNING THE BOARD OF DIRECTORS
NUMBER AND TERMS OF DIRECTORS
The Board of Directors of the Company (the "Board") currently consists of
six members. Following completion of the Offering, the Company intends to add
an additional independent Director to the Board. Under the Bye-Laws, Directors
are segregated into three classes, with staggered terms whereby one class'
term expires at each annual shareholders meeting, beginning with Class I in
1999. Candidates for election to the Board will be nominated by the Board and,
subject to certain notice and other requirements, may be nominated by
shareholders.
44
<PAGE>
The Bye-Laws provide for a minimum of three and a maximum of eight Directors
and empower the Board to fix the exact number of Directors within these limits
and to appoint persons to fill any vacancies on the Board. Vacancies on the
Board are filled by action of a majority of the Board remaining in office,
with each such appointed Director holding office until the next following
annual shareholders' meeting at which the Class to which such Director is
appointed stands for election, and at which he or his successor will be
elected. Shareholders are not entitled to fill vacancies except upon annual
election. Directors may take action by a majority of their number present at a
duly called and held meeting at which a quorum is present. The quorum
necessary for the transaction of business by the Board may be fixed by the
Board and, unless so fixed at any other number, is two Directors. A Director
who expects to be unable to attend any meeting of the Board or any committee
thereof for any reason may appoint any person as an alternate Director to
attend and act in his place. A Director also may be represented at any meeting
of the Board or any committee by a proxy appointed by him.
The foregoing summarizes certain provisions of the Bye-Laws, which are
subject to Bermuda law. See "Description of Capital Shares".
BOARD COMMITTEES
The Audit Committee is responsible for recommending to the Board the
appointment of independent auditors, reviewing and approving the scope of the
annual audit activities of the auditors, approving the audit fee payable to
the auditors, reviewing audit results and approving related party
transactions. Messrs. Jones, Patel and Cabral have been appointed as members
of the Audit Committee.
The Compensation Committee is responsible for reviewing and recommending to
the Board the compensation structure for the Company's directors, officers and
other managerial personnel, including salaries, bonuses, participation in
incentive compensation and benefit plans, fringe benefits, non-cash
perquisites and other forms of compensation, and will administer the Company's
1997 Equity Incentive Plan. Messrs. Jeffery, Patel and Cabral have been
appointed as members of the Compensation Committee.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth certain information for 1996 concerning
compensation paid to or earned by the Company's Chief Executive Officer and
the Company's other executive officers. The persons named in the table are
sometimes referred to herein as the "named executive officers".
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
1996 ANNUAL
COMPENSATION
----------------- ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(1)
--------------------------- -------- -------- ---------------
<S> <C> <C> <C>
Nicholas Mark Cooke.................. $300,000 $300,000 $24,000
Chairman, President and Chief
Executive Officer
Nicholas Brown....................... $314,160 $405,243 $68,067
Managing Director of Stirling Cooke
Brown Reinsurance Brokers Limited
and Stirling Cooke Brown Insurance
Brokers Limited
George W. Jones...................... $152,109 -- $11,936
Chief Financial Officer
</TABLE>
- --------
(1) Reflects only amounts paid by the Company pursuant to defined contribution
pension plans.
45
<PAGE>
STOCK OPTIONS
OPTION VALUES. The following table sets forth the aggregate value of
unexercised options at December 31, 1996 held by each of the named executive
officers. There were no option exercises during 1996 by any named executive
officer. All of the options listed in the table were exercisable at December
31, 1996 and were exercised on June 30, 1997 at an exercise price of $2.71 per
Ordinary Share. See "Certain Relationships and Related Party Transactions".
1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF DOLLAR VALUE
SHARES OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, DECEMBER 31,
NAME 1996 1996(1)
---- ------------ ------------
<S> <C> <C>
Nicholas Mark Cooke............................. 120,000
Nicholas Brown.................................. 319,800
George W. Jones................................. 40,200
</TABLE>
- --------
(1) Determined by subtracting the option exercise price per Ordinary Share
from an assumed initial public offering price per share of $ (the
mid-point of the range set forth on the cover page of this Prospectus) and
multiplying by the number of shares subject to purchase upon option
exercise.
DIRECTOR COMPENSATION
Prior to the Offering, the directors of the Company received no compensation
for service as members of either the Board or committees thereof, other than
reimbursement for out-of-pocket expenses. Effective after the Offering,
directors who are not officers of the Company will be entitled to receive an
annual retainer fee of $ , in addition to reimbursement of out-of-pocket
expenses. Directors who are officers of the Company will not be compensated
for service as members of either the Board or committees thereof after the
Offering, but will be reimbursed for out-of-pocket expenses.
EMPLOYMENT CONTRACTS
Each of the named executive officers has an employment contract with a
subsidiary of the Company. Each employment contract runs through January 1,
1999, and thereafter for one-year terms unless terminated by either party on
twelve months prior written notice. The contracts provide for 1997 annual
salaries of $330,000, (Pounds)225,000 and (Pounds)95,000 for Messrs. Cooke,
Brown and Jones, respectively. Each contract also requires the applicable
subsidiary to pay for a car and for certain medical and pension benefits. Each
executive officer agrees to maintain the confidentiality of the Company's
business affairs both during and after his employment, to not solicit any
employees of the Company for one year after his termination, and to not
compete with the Company during his employment and for one year after his
termination. Each executive officer's employment automatically terminates if
he ceases to be a Director of the Company, and may be terminated by the
Company if, among other things, he becomes incapacitated, becomes of unsound
mind, is prohibited by law from being a Director of the Company, is guilty of
misconduct or commits a serious or persistent breach of his obligations to the
Company or fails to perform his duties competently as reasonably determined by
the Board.
1997 EQUITY INCENTIVE PLAN
GENERAL
The purpose of the Stirling Cooke Brown Holdings Limited 1997 Equity
Incentive Plan (the "Plan") is to promote the best interests of the Company
and its shareholders by providing key employees of the Company and its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company.
46
<PAGE>
The Plan is intended to promote continuity of management and to provide
increased incentive and personal interest in the welfare of the Company by
those key employees who are primarily responsible for shaping and carrying out
the long-range plans of the Company and securing the Company's continued
growth and financial success.
ADMINISTRATION AND ELIGIBILITY
The Plan is required to be administered by a committee of the Company's
Board (the "Committee") consisting of no less than two "outside directors"
within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"). In the event that the Committee is not appointed, the
functions of the Committee will be exercised by those members of the Board who
qualify as "outside directors" within the meaning of Section 162(m), or if no
such members are so qualified, by the Board. The Compensation Committee has
been designated as the current administrator of the Plan. Among other
functions, the Committee has the authority to establish rules for the
administration of the Plan; to select the key employees of the Company and its
subsidiaries to whom awards will be granted; to determine the types of awards
to be granted to key employees and the number of shares covered by such
awards; and to set the terms and conditions of such awards. The Committee may
also determine whether the payment of any proceeds of any award shall or may
be deferred by a key employee participating in the Plan. Subject to the
express terms of the Plan, determinations and interpretations with respect
thereto will be in the sole discretion of the Committee, whose determinations
and interpretations will be binding on all parties.
Any key employee of the Company and its subsidiaries, including any
executive officer or employee-director of the Company who is not a member of
the Committee, is eligible to be granted awards by the Committee under the
Plan.
AWARDS UNDER THE PLAN; AVAILABLE SHARES
The Plan authorizes the granting to key employees of: (a) stock options,
which may be either incentive stock options meeting the requirements of
Section 422 of the Code ("ISOs") or non-qualified stock options; (b) stock
appreciation rights ("SARs"); (c) restricted stock; and (d) performance
shares. The Plan provides that up to a total of 500,000 Ordinary Shares
(subject to adjustment as described below) will be available for the granting
of awards thereunder. No awards have been granted to date under the Plan.
If any Ordinary Shares subject to awards granted under the Plan, or to which
any award relates, are forfeited or if an award otherwise terminates, expires
or is canceled prior to the delivery of all of the Ordinary Shares or other
consideration issuable or payable pursuant to the award, such Ordinary Shares
will be available for the granting of new awards under the Plan. Any Ordinary
Shares delivered pursuant to an award may be either authorized and unissued
Ordinary Shares or treasury shares held by the Company.
TERMS OF AWARDS
OPTIONS. Options granted under the Plan to key employees may be either ISOs
or non-qualified stock options. No individual key employee may be granted
options to purchase in excess of 100,000 Ordinary Shares under the Plan
(subject to adjustment as described below).
The exercise price per Ordinary Share subject to options granted to key
employees under the Plan will be determined by the Committee, provided that
the exercise price may not be less than 100% of the fair market value of an
Ordinary Share on the date of grant. The term of any option granted to a key
employee under the Plan will be as determined by the Committee, provided that
the term of an ISO may not exceed ten years from the date of its grant.
Options granted to key employees under the
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Plan will become exercisable in such manner and within such period or periods
and in such installments or otherwise as determined by the Committee. Options
may be exercised by payment in full of the exercise price, either (at the
discretion of the Committee) in cash or in whole or in part by tendering
Ordinary Shares or other consideration having a fair market value on the date
of exercise equal to the option exercise price. All ISOs granted under the
Plan will also be required to comply with all other terms of Section 422 of
the Code.
SARS. An SAR granted under the Plan will confer on the key employee holder a
right to receive, upon exercise thereof, the excess of (a) the fair market
value of one Common Share on the date of exercise over (b) the grant price of
the SAR as specified by the Committee. The grant price of an SAR under the
Plan will not be less than 100% of the fair market value of an Ordinary Share
on the date of grant. The grant price, term, methods of exercise, methods of
settlement (including whether the holder of an SAR will be paid in cash,
Ordinary Shares or other consideration), and any other terms and conditions of
any SAR granted under the Plan will be determined by the Committee at the time
of grant. Pursuant to the terms of the Plan, no individual key employee may be
granted SARs thereunder with respect to in excess of 100,000 Ordinary Shares
(subject to adjustment as described below).
RESTRICTED STOCK. Restricted Ordinary Shares granted to key employees under
the Plan will be subject to such restrictions as the Committee may impose,
including any limitation on the right to vote such Ordinary Shares or receive
dividends thereon. The restrictions imposed on the Ordinary Shares may lapse
separately or in combination at such time or times, or in such installments or
otherwise, as the Committee may deem appropriate. Except as otherwise
determined by the Committee, upon termination of a key employee's employment
for any reason during the applicable restriction period, all Ordinary Shares
of restricted stock still subject to restriction will be subject to forfeiture
by the key employee.
The Plan limits the total number of Ordinary Shares of restricted stock that
may be awarded thereunder to 150,000 Ordinary Shares. In addition, no
individual key employee may be granted in excess of 100,000 shares of
restricted stock under the Plan. The foregoing numerical limitations on the
issuance of shares of restricted stock are subject to adjustment as described
below.
PERFORMANCE SHARES. The Plan also provides for the granting of performance
shares to key employees. The Committee will determine the applicable
performance period, the performance goal or goals (and the performance level
or levels related thereto) to be achieved during any performance period, the
proportion of payments, if any, to be made for performance between the minimum
and full performance levels for any performance goal and, if applicable, the
relative percentage weighting given to each of the selected performance goals,
the restrictions applicable to shares of restricted stock received upon
payment of performance shares if payment is made in such manner, and any other
terms, conditions and rights relating to the grant of performance shares.
Under the terms of the Plan, the Committee may select from various performance
goals, including return on equity, return on investment, return on net assets,
economic value added, earnings from operations, pre-tax profits, net earnings,
net earnings per Ordinary Share, net cash provided by operating activities,
market price for the Ordinary Shares and total shareholder return. In
conjunction with selecting the applicable performance goal or goals, the
Committee will also fix the relevant performance level or levels which must be
achieved with respect to the goal or goals in order for the performance shares
to be earned by the key employee. The performance goals selected by the
Committee under the Plan may, to the extent applicable, relate to a specific
division or subsidiary of the Company or apply on a Company-wide basis.
Following completion of the applicable performance period, payment on
performance shares granted to and earned by key employees will be made in
Ordinary Shares (which, at the discretion of the Committee, may be shares of
restricted stock) equal to the number of performance shares payable. The
Committee may provide that, during a performance period, key employees will be
paid cash
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<PAGE>
amounts with respect to each performance share granted to such key employees
equal to the cash dividend paid on a Ordinary Shares. Pursuant to the terms of
the Plan, no key employee may receive more than 100,000 performance shares
thereunder (subject to adjustment as described below).
ADJUSTMENTS. If any dividend or other distribution, recapitalization, stock
split, reverse stock split, reorganization, merger, consolidation, split-up,
spin-off, combination, repurchase, or exchange of Ordinary Shares or other
securities of the Company, issuance of warrants or other rights to purchase
Ordinary Shares or other securities of the Company, or other similar corporate
transaction or event affects the Ordinary Shares so that an adjustment is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee will generally have the authority to, in such manner as it deems
equitable, adjust (a) the number and type of shares subject to the Plan and
which thereafter may be made the subject of awards, (b) the number and type of
shares subject to outstanding awards, and (c) the grant, purchase or exercise
price with respect to any award, or may make provision for a cash payment to
the holder of an outstanding award.
LIMITS ON TRANSFERABILITY. Except as specifically provided for by the
Committee at the time an award is made, no award granted under the Plan (other
than an award of restricted stock on which the restrictions have lapsed) may
be assigned, sold, transferred or encumbered by any participant, otherwise
than by will, by designation of a beneficiary, or by the laws of descent and
distribution. Each award will be exercisable during the participant's lifetime
only by such participant or, if permissible under applicable law, by the
participant's guardian or legal representative.
AMENDMENT AND TERMINATION. The Board may amend, suspend or terminate the
Plan at any time, except that no such action may adversely affect any award
granted and then outstanding thereunder without the approval of the respective
participant. The Plan further provides that shareholder approval of any
amendment thereto must also be obtained if required by (a) the rules and/or
regulations promulgated under Section 16 of the Exchange Act (in order for the
Plan to remain qualified under Rule 16b-3), (b) the Code or any rules
promulgated thereunder (in order to allow for ISOs to be granted thereunder)
or (c) the quotation or listing requirements of any exchange or market on
which the Ordinary Shares is then traded (in order to maintain the trading of
the Ordinary Shares on such exchange or market).
WITHHOLDING. Not later than the date as of which an amount first becomes
includable in the gross income of a key employee for United States federal
income tax purposes with respect to any award under the Plan, the key employee
will be required to pay to the Company or one of its subsidiaries, or make
arrangements satisfactory to the Company or one of its subsidiaries regarding
the payment of, any United States federal, state, local or other taxes of any
kind required by law to be withheld with respect to such amount. Unless
otherwise determined by the Committee, withholding obligations arising with
respect to awards under the Plan may be settled with Ordinary Shares (other
than shares of restricted stock), including Ordinary Shares that are part of,
or are received upon exercise of, the award that gives rise to the withholding
requirement. The obligations of the Company under the Plan are conditional on
such payment or arrangements, and the Company and its subsidiaries will, to
the extent permitted by law, have the right to deduct any such taxes from any
payment otherwise due to the key employee. The Committee may establish such
procedures as it deems appropriate for the settling of withholding obligations
with Ordinary Shares.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
STOCK OPTIONS. The grant of a stock option under the Plan will create no
United States income tax consequences to the key employee. A key employee who
is granted a non-qualified stock option will generally recognize ordinary
income at the time of exercise in an amount equal to the excess of the fair
market value of the Ordinary Shares at such time over the exercise price. The
Company will be entitled to a deduction in the same amount and at the same
time as ordinary income is recognized by the key employee. A subsequent
disposition of the Ordinary Shares will give rise to capital gain or
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loss to the extent the amount realized from the sale differs from the key
employee's tax basis for the Ordinary Shares, i.e., the fair market value of
the Ordinary Shares on the date of exercise. This capital gain or loss will be
a long-term capital gain or loss if the Ordinary Shares have been held for
more than one year from the date of exercise.
In general, a key employee will recognize no United States income or gain as
a result of exercise of an ISO (except that the United States alternative
minimum tax may apply). Except as described below, any gain or loss realized
by the key employee on the disposition of the Ordinary Shares acquired
pursuant to the exercise of an ISO will be treated as a long-term capital gain
or loss and no deduction will be allowed to the Company. If the key employee
fails to hold the Ordinary Shares acquired pursuant to the exercise of an ISO
for at least two years from the date of grant of the ISO and one year from the
date of exercise, the key employee will recognize ordinary income at the time
of the disposition equal to the lesser of (a) the gain realized on the
disposition, or (b) the excess of the fair market value of the Ordinary Shares
on the date of exercise over the exercise price. The Company will be entitled
to a deduction in the same amount and at the same time as ordinary income is
recognized by the key employee. Any additional gain realized by the key
employee over the fair market value at the time of exercise will be treated as
a capital gain. This capital gain will be a long-term capital gain if the
Ordinary Shares have been held for more than one year from the date of
exercise.
STOCK APPRECIATION RIGHTS. The grant of an SAR will create no United States
income tax consequences for the key employee or the Company. Upon exercise of
an SAR, the key employee will recognize ordinary income equal to the amount of
any cash and the fair market value of any Ordinary Shares or other property
received, except that if the key employee receives an option or shares of
restricted stock upon exercise of an SAR, recognition of income may be
deferred in accordance with the rules applicable to such other awards. The
Company will be entitled to a deduction in the same amount and at the same
time as income is recognized by the key employee.
RESTRICTED STOCK. A key employee will not recognize income for United States
income tax purposes at the time an award of restricted stock is made under the
Plan, unless the election described below is made. However, a key employee who
has not made such an election will recognize ordinary income at the time the
restrictions on the stock lapse in an amount equal to the fair market value of
the restricted stock at such time. The Company will be entitled to a
corresponding deduction in the same amount and at the same time as the key
employee recognizes income. Any otherwise taxable disposition of the
restricted stock after the time the restrictions lapse will result in capital
gain or loss (long-term or short-term depending on the length of time the
restricted stock is held after the time the restrictions lapse). Dividends
paid in cash and received by a participant prior to the time the restrictions
lapse will constitute ordinary income to the participant in the year paid. The
Company will be entitled to a corresponding deduction for such dividends. Any
dividends paid in stock will be treated as an award of additional restricted
stock subject to the tax treatment described herein.
A key employee may, within 30 days after the date of the award of restricted
stock, elect to recognize ordinary income as of the date of the award in an
amount equal to the fair market value of such restricted stock on the date of
the award. The Company will be entitled to a corresponding deduction in the
same amount and at the same time as the key employee recognizes income. If the
election is made, any cash dividends received with respect to the restricted
stock will be treated as dividend income to the key employee in the year of
payment and will not be deductible by the Company. Any otherwise taxable
disposition of the restricted stock (other than by forfeiture) will result in
capital gain or loss (long-term or short-term depending on the holding
period). If the key employee who has made an election subsequently forfeits
the restricted stock, the key employee will not be entitled to deduct any
loss. In addition, the Company would then be required to include as ordinary
income the amount of the deduction it originally claimed with respect to such
shares.
PERFORMANCE SHARES. The grant of performance shares will create no United
States income tax consequences for the key employee or the Company. Upon the
receipt of Ordinary Shares at the end of the applicable performance period,
the key employee will recognize ordinary income equal to the
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fair market value of the Ordinary Shares received, except that if the key
employee receives shares of restricted stock in payment of performance shares,
recognition of income may be deferred in accordance with the rules applicable
to such restricted stock. In addition, the key employee will recognize
ordinary income equal to the dividend equivalents paid on performance shares
prior to or at the end of the performance period. The Company will be entitled
to a deduction in the same amount and at the same time as income is recognized
by the key employee.
PLAN BENEFITS. No awards have been made to date under the Plan and the
Company cannot currently determine the awards that may be granted in the
future to key employees thereunder. Such determinations will be made from time
to time by the Committee.
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PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Ordinary Shares as of July 31, 1997, and after
giving effect to the Offering, by (i) each of the Company's directors and
executive officers, (ii) all directors and executive officers as a group,
(iii) all selling shareholders, and (iv) each person known by the Company to
own beneficially more than 5% of the Ordinary Shares outstanding. Except as
otherwise noted, each of the holders listed below has sole voting and
investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
PRIOR TO THE
OFFERING NUMBER OF AFTER THE OFFERING
-------------------- ORDINARY --------------------
SHARES SHARES SHARES
BENEFICIALLY BEING BENEFICIALLY
NAME OWNED(1) PERCENT OFFERED OWNED(1) PERCENT
---- ------------ ------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
The Goldman Sachs Group,
L.P.(2)................. 2,888,888 34.0
Nicholas Brown(3)........ 1,148,808 13.5
Penelope Atteline
Cooke(4)................ 1,036,204 12.2
Nicholas Mark Cooke(5)... 730,956 8.6
George William Jones(6).. 566,700 6.7
Jacques Georges Sacy(7).. 562,516 6.6
Mark Kerr-Smiley(8)...... 272,268 3.2
David Terrell Colley(8).. 265,032 3.1
Richard John Wells(8).... 153,468 1.8
Jeffrey Ronald Butler(8). 149,832 1.8
Paul Ian Pearson(8)...... 149,832 1.8
Orion Nominees Limited
a/c 703(9).............. 135,000 1.6
Christopher James Blois
Needham(8).............. 125,984 1.5
David Maxwell Tarsh(8)... 129,500 1.5
Dominic Hagger(8)........ 40,200 *
Duncan Vere Hopegood(8).. 40,200 *
Allan Cooper(8).......... 27,000 *
Paul Murray(8)........... 25,984 *
Sanjay Patel(10)......... -- *
Reuben Jeffery III(11)... -- *
Warren Cabral............ -- *
All executive officers
and directors as a group
(6 persons)............. 2,446,464 28.8
</TABLE>
- --------
*Less than 1%.
(1) In accordance with Securities and Exchange Commission rules, each
beneficial owner's holdings have been calculated assuming full exercise of
outstanding options exercisable by such owner within 60 days after the
date of this Prospectus, but no exercise of outstanding options held by
any other person. The table set forth above assumes that the over-
allotment option is not exercised by the Underwriters. For further
information about the calculation of beneficial ownership, see the
footnotes below.
(2) Represents shares owned by the GS Funds, which are affiliated with The
Goldman Sachs Group, L.P. (the "GS Group"). Includes 1,852,852 shares
beneficially owned by GS Capital Partners II, L.P.; 122,372 shares
beneficially owned by Bridge Street Fund 1995, L.P.; 108,740 shares
beneficially owned by Stone Street Fund 1995, L.P.; 736,588 shares
beneficially owned by GS Capital Partners II Offshore, L.P.; and 68,336
shares beneficially owned by GS Capital Partners II Germany Civil Law
Partnership. The GS Group disclaims beneficial ownership of the shares
owned by the GS Funds to the extent attributable to equity interests
therein held by persons other than the GS Group and its affiliates. Each
of the GS Funds shares voting and investment power
(Continued on following page)
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<PAGE>
with certain of its respective affiliates. The address of the GS Group is
85 Broad Street, New York, New York 10004.
(3) Mr. Brown is Managing Director of Stirling Cooke Brown Reinsurance
Brokers Limited and Stirling Cooke Brown Insurance Brokers Limited and a
Director of certain other subsidiaries of the Company and is a Director
of the Company. Mr. Brown's address is c/o Stirling Cooke Brown
Reinsurance Brokers Limited, 65 Leadenhall Street, London, EC3A 2AD,
England.
(4) Ms. Cooke is Secretary of the Company and her address is c/o the Company
at Victoria Hall, Third Floor, 11 Victoria Street, Hamilton, HM-11,
Bermuda. Ms. Cooke is married to Nicholas Mark Cooke.
(5) Mr. Cooke is the Chairman, President and Chief Executive Officer and a
Director of the Company and his address is c/o the Company at Victoria
Hall, Third Floor, 11 Victoria Street, Hamilton, HM-11, Bermuda. Mr.
Cooke is married to Penelope Atteline Cooke.
(6) Mr. Jones is Chief Financial Officer and a Director of the Company and
his address is c/o the Company at Victoria Hall, Third Floor, 11 Victoria
Street, Hamilton, HM-11, Bermuda.
(7) Mr. Sacy is an employee of the Company and his address is c/o Stirling
Cook Brown Insurance Brokers Limited, 65 Leadenhall Street, London EC3A
2AD, England.
(8) The indicated individual is an employee of the Company.
(9) Orion Nominees Limited a/c 703 holds such shares as nominee of Orion
Trust Limited as Trustee of the Nightingale Trust.
(10) Mr. Patel, who is a Managing Director of Goldman, Sachs & Co., disclaims
beneficial ownership of the 2,888,888 Ordinary Shares owned by the GS
Funds, except to the extent of his pecuniary interest therein.
(11) Mr. Jeffery, who is a Managing Director of Goldman, Sachs & Co.,
disclaims beneficial ownership of the 2,888,888 Ordinary Shares owned by
the GS Funds, except to the extent of his pecuniary interest therein.
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<PAGE>
CERTAIN RELATIONSHIPS AND
RELATED PARTY TRANSACTIONS
In January, 1996, the GS Funds purchased 2,000,000 newly issued Ordinary
Shares from the Company and purchased 600,000 outstanding Ordinary Shares from
certain shareholders, for an aggregate purchase price of $19.3 million. As a
result of those purchases, at December 31, 1996 the GS Funds held an aggregate
of 2,600,000 Ordinary Shares, representing 32.5% of the issued and outstanding
Ordinary Shares. Pursuant to that purchase the GS Funds obtained certain anti-
dilution rights in the event specified options (discussed below) were
exercised. Such options have been exercised with the result that the GS Funds
received an additional 288,888 Ordinary Shares. As of the date hereof, the GS
Funds hold an aggregate of 2,888,888 Ordinary Shares, representing 34.0% of
the issued and outstanding Ordinary Shares. After completion of the Offering,
the GS Funds are expected to own approximately % of the Outstanding Shares.
In connection with the subscription and purchase described above, the
Company and its shareholders entered into a Shareholders Agreement dated
January 24, 1996 (the "Shareholders Agreement") and the GS Funds, the Company
and its other shareholders entered into a Registration Rights Agreement, also
dated January 24, 1996 (the "Registration Rights Agreement"). Pursuant to the
Shareholders Agreement, the Board is to consist of a maximum of six directors
of which the GS Funds have the sole right to appoint, remove and replace two
directors. The other shareholders have the sole right to appoint, remove and
replace the other four directors. The GS Funds also have the right, with
certain limitations, to appoint one director to the Board of each of the
Company's subsidiaries. The Shareholders Agreement terminates on the effective
date of the Offering. Pursuant to the Registration Rights Agreement, the GS
Funds are entitled to certain rights with respect to the registration of
Ordinary Shares under the Securities Act. The Offering is not being made
pursuant to any demand under the Registration Rights Agreement. See
"Description of Capital Shares--Registration Rights".
Goldman, Sachs & Co. or certain of their affiliates maintain certain
contractual relationships with the Company and have provided, and currently
provide, investment banking services to the Company. Goldman, Sachs & Co. also
provide investment management services to Realm pursuant to a Corporate
Account Agreement dated December 24, 1996 and has received customary fees and
expenses of approximately $52,000 from January 1 through June 30, 1997 for
such services. See "Underwriting".
On June 29, 1995, the Company entered into Option Agreements with certain
officers and employees of the Company for the purchase of an aggregate of
600,000 Ordinary Shares at a subscription price of $2.71 per Ordinary Share.
The Option Agreements provided a six-year exercise period beginning on the
first anniversary of the date of the Option Agreements. Such options were
exercised in full in June 1997. Simultaneously with the exercise of the
options, a subsidiary of the Company loaned each officer an amount equal to
the aggregate exercise price of such officer's options. Such loans bear
interest at 7% per annum and mature in June 1998. Pursuant to such loans, the
named executive officers, Mr. Cooke, Mr. Brown and Mr. Jones, borrowed
$324,900, $865,858 and $108,841, respectively.
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DESCRIPTION OF CAPITAL SHARES
The following description of the capital shares of the Company summarizes
certain provisions of the Memorandum of Association and the Bye-Laws of the
Company. Such summary does not purport to be complete or to give full effect
to Bermuda statutory or common law and in all respects is qualified by
reference to the applicable provisions of the Bermuda Companies Act 1981 and
is subject to and qualified in its entirety by reference to all of the
provisions of the Memorandum of Association and the Bye-Laws. Copies of the
Memorandum of Association and the Bye-Laws are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
The authorized capital stock of the Company consists of 20,000,000 Ordinary
Shares, par value $0.25 per share, and 5,000,000 preference shares, par value
$0.01 per share, the rights, preferences and powers of which may be designated
by the Board. Upon completion of the Offering, there will be
Ordinary Shares outstanding. On June 30, 1997 there were 22 holders of record
of Ordinary Shares.
ORDINARY SHARES
Holders of the Ordinary Shares have no pre-emptive, redemption, conversion
or sinking fund rights. Holders of Ordinary Shares are generally entitled to
one vote per share on all matters submitted to a vote of holders of Ordinary
Shares and do not have any cumulative voting rights. The Bye-Laws restrict the
voting rights of Ordinary Shares held by certain holders of 10% or more of the
outstanding Ordinary Shares. See "--The Bye-Laws". In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Ordinary
Shares are entitled to share equally and ratably in the assets of the Company,
if any, remaining after the payment of all debts and liabilities of the
Company. The outstanding Ordinary Shares are, and the Ordinary Shares offered
by the Company hereby when issued will be, fully paid and nonassessable.
Additional authorized but unissued Ordinary Shares may be issued by the Board
of the Company without the approval of the shareholders.
Holders of the Ordinary Shares will receive such dividends, if any, as may
be declared by the Board out of funds legally available for such purposes.
Under the Bermuda Companies Act 1981, dividends can only be paid out of the
profits of the Company available for that purpose. The Bermuda Companies Act
1981 defines the profits of a company available for the payment of dividends
as its accumulated, realized profits, so far as not previously utilized by
distribution or capitalization, less its accumulated realized losses, so far
as not previously written off in a reduction or reorganization of capital duly
made by the Company. Bermuda law currently imposes no restrictions on the
payment of dividends to residents of other countries. Tax and insurance
regulatory limitations on the payment of dividends by the Company's
subsidiaries might impair the ability of the Company to pay dividends in the
future. See "Business--Regulation--Restrictions on Dividends".
PREFERRED SHARES
The Board is authorized to provide for the issuance of preferred shares in
one or more series and to fix the designations, preferences, powers, and
relative, participating, optional or other rights and restrictions thereof
(including without limitation the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference), to fix the number of
shares constituting any such series and to increase and decrease the number of
shares of any such series. The Company has no present plans to issue any
preferred shares.
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<PAGE>
THE BYE-LAWS
The provisions of the Company's Bye-Laws summarized in the succeeding
paragraphs may be deemed to have an anti-takeover effect and may delay, defer,
or prevent a tender offer or takeover attempt that a shareholder might
consider in such shareholder's best interest, including those attempts that
might result in shareholders receiving a premium over the market price for the
shares.
The Board of the Company is divided into three classes that are elected for
staggered three-year terms. Shareholders may only remove a director at a
general meeting of shareholders and only if (i) such director has received
fourteen days prior written notice of such intended removal prior to such
general meeting and (ii) such removal is approved by shareholders holding not
less than 75% of the shares entitled to vote at such meeting.
Pursuant to the Company's Bye-Laws, the Company's Board may divide its
preferred shares into several classes and attach thereto preferences,
designations, relative voting rights, dividend rights, liquidation and other
rights, preferences and limitations as may be fixed by the Board without any
further shareholder approval. Such rights, preferences, powers and limitations
as may be established could have the effect of impeding or discouraging the
acquisition of control of the Company.
The Bermuda Companies Act of 1981 provides that the Bye-Laws may only be
amended by a Board resolution that is subsequently approved by the Company's
shareholders. The Company's Bye-Laws provide that (i) the Board has the
authority to issue share purchase rights to specific classes of shareholders,
which may exclude certain persons or groups holding large blocks of Ordinary
Shares without the prior approval of the Board; (ii) no person or group (other
than the existing shareholders) may exercise the right to vote more than 10%
of the outstanding voting shares of the Company without receiving the approval
of the Board prior to the acquiring the shares in excess of 10%; and (iii)
certain "business combinations" (as defined below) with certain "interested
persons" (as defined below) require the favorable vote at a shareholders'
meeting of the holders of 75% or more of the shares entitled to vote at such
meeting, unless, among other things, such interested person enters into
certain agreements with the Company and a proxy statement meeting certain
requirements is mailed to holders of all shares carrying voting rights. A
"business combination" is (a) any scheme, arrangement, reconstruction,
amalgamation or similar business combination involving the Company or any of
its subsidiaries that is proposed or initiated by an interested person or an
affiliate of an interested person, (b) any sale, purchase, lease, exchange,
mortgage, pledge, transfer or other disposition or other encumbrance of assets
between the Company and an interested person involving in excess of 5% of the
consolidated book value of the Company prior to such transaction and (c)
certain other transactions or events, including certain issuances or transfers
of Company securities to an interested person, the liquidation or dissolution
of the Company, and certain reclassifications of the Company's securities
involving an interested person. An "interested person" is generally any
shareholder of the Company deemed to hold 10% or more of the outstanding
Ordinary Shares, except for the shareholders of the Company holding in excess
of such amount on July 30, 1997.
DIFFERENCES IN CORPORATE LAW
The Bermuda Companies Act 1981 (the "Act") differs in certain material
respects from laws generally applicable to United States corporations and
their shareholders. Set forth below is a summary of certain significant
provisions of the Act (including modifications adopted pursuant to the Bye-
Laws) applicable to the Company, which differ in certain respects from
provisions of Delaware corporate law. The following statements are summaries,
and do not purport to deal with all aspects of Bermuda law that may be
relevant to the Company and its shareholders.
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<PAGE>
INTERESTED DIRECTORS
The Bye-Laws provide that any transaction entered into by the Company in
which a director has an interest is not voidable by the Company nor can such
director be liable to the Company for any profit realized pursuant to such
transaction provided the nature of the interest is disclosed at the first
opportunity at a meeting of directors, or in writing to the directors. Under
Delaware law, such transaction would not be voidable if (i) the material facts
as to such interested director's relationship or interests are disclosed or
are known to the board of directors and the board in good faith authorizes the
transaction by the affirmative vote of a majority of the disinterested
directors, (ii) such material facts are disclosed or are known to the
stockholders entitled to vote on such transaction and the transaction is
specifically approved in good faith by vote of the stockholders or (iii) the
transaction is fair as to the corporation as of the time it is authorized,
approved or ratified. Under Delaware law, such interested director could be
held liable for any transaction for which such director derived an improper
personal benefit.
MERGERS AND SIMILAR ARRANGEMENTS
The Company may acquire the business of another Bermuda company similarly
exempt from Bermuda taxes or a company incorporated outside Bermuda and carry
on such business when it is within the objects of its Memorandum of
Association. The Company may also amalgamate with another Bermuda company or
with a body incorporated outside Bermuda upon the approval of the board of
directors and the holders of 75% of the outstanding shares of the Company,
including any shares that would otherwise be non-voting shares. In the case of
an amalgamation, a shareholder may apply to a Bermuda court for a proper
valuation of such shareholder's shares if such shareholder is not satisfied
that fair value has been paid for such shares. The court ordinarily would not
set aside the transaction on that ground absent evidence of fraud or bad
faith. Under Delaware law, with certain exceptions, any merger, consolidation
or sale of all or substantially all the assets of a corporation must be
approved by the board of directors and the holders of a majority of the
outstanding shares entitled to vote. Under Delaware law, a stockholder of a
corporation participating in certain major corporate transactions may, under
varying circumstances, be entitled to appraisal rights pursuant to which such
stockholder may receive cash in the amount of the fair value of the shares
held by such stockholder (as determined by a court or by agreement of the
corporation and the stockholder) in lieu of the consideration such stockholder
would otherwise receive in the transaction. Delaware law does not provide
stockholders of a corporation with voting or appraisal rights when the
corporation acquires another business through the issuance of its stock or
other consideration (i) in exchange for the assets of the business to be
acquired, (ii) in exchange for the outstanding stock of the corporation to be
acquired or (iii) in a merger of the corporation to be acquired with a
subsidiary of the acquiring corporation.
TAKEOVERS
Bermuda law provides that where an offer is made for shares of another
company and, within four months of the offer, the holders of not less than 90%
of the shares which are the subject of the offer accept, the offeror may by
notice require the nontendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. The burden is on the dissenting
shareholders to show that the court should exercise its discretion to enjoin
the required transfer, which the court will be unlikely to do unless there is
evidence of fraud or bad faith or collusion between the offeror and the
holders of the shares who have accepted the offer as a means of unfairly
forcing out minority shareholders. Delaware law provides that a parent
corporation, by resolution of its board of directors and without any
stockholder vote, may merge with any 90% or more owned subsidiary. Upon any
such merger, dissenting stockholders of the subsidiary would have appraisal
rights.
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SHAREHOLDER'S SUIT
A shareholder who considers that the affairs of the Company are being
conducted in a manner which is unfairly prejudicial or oppressive to the
interests of some of the shareholders may apply to the Bermuda court for
relief under the Act. The court may grant such relief as it considers fit.
Class actions and derivative actions are generally not available to
shareholders under the laws of Bermuda. However, the Bermuda courts ordinarily
would be expected to follow English case law precedent, which would permit a
shareholder to commence an action in the name of the Company to remedy a wrong
done to the Company where the act complained of is alleged to be beyond the
corporate power of the Company or is illegal or would result in the violation
of the Memorandum of Association or Bye-Laws. Furthermore, consideration would
be given by the court to acts that are alleged to constitute a fraud against
the minority shareholders or where an act requires the approval of a greater
percentage of the Company's shareholders than actually approved it. The
winning party in such an action generally would be able to recover a portion
of attorneys' fees incurred in connection with such action. Class actions and
derivative actions generally are available to stockholders under Delaware law
for, among other things, breach of fiduciary duty, corporate waste and actions
not taken in accordance with applicable law. In such actions, the court has
discretion to permit the winning party to recover attorneys' fees incurred in
connection with such action.
INDEMNIFICATION OF DIRECTORS
The Company may indemnify its directors or officers in their capacity as
such in respect of any loss arising or liability attaching to them by virtue
of any rule of law in respect of any negligence, default, breach of duty or
breach of trust of which a director or officer may be guilty in relation to
the Company other than in respect of his own fraud or dishonesty. Under
Delaware law, a corporation may adopt a provision eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
breaches of the director's duty of loyalty, for acts or omissions not in good
faith or which involve intentional misconduct or knowing violations of law,
for improper payment of dividends or for any transaction from which the
director derived an improper personal benefit. Delaware law has provisions and
limitations similar to Bermuda regarding indemnification by a corporation of
its directors or officers, except that under Delaware law the statutory rights
to indemnification may not be as limited.
INSPECTION OF CORPORATE RECORDS
Members of the general public have the right to inspect the public documents
of the Company available at the office of the Registrar of Companies in
Bermuda, which will include the Memorandum of Association (including its
objects and powers) and any alteration to the Memorandum of Association and
documents relating to any increase or reduction of authorized capital. The
shareholders have the additional right to inspect or obtain copies of the Bye-
Laws, minutes of general meetings and audited financial statements of the
Company, which must be presented to the annual general meeting of
shareholders. The register of shareholders of the Company is also open to
inspection by shareholders without charge, and to members of the public for a
fee. The Company is required to keep at its registered office a register of
its directors and officers which is open for inspection by members of the
public without charge. Bermuda law does not, however, provide a general right
for shareholders to inspect or obtain copies of any other corporate records.
Delaware law permits any stockholder to inspect or obtain copies of a
corporation's stockholder list and its other books and records for any purpose
reasonably related to such person's interest as a stockholder. Delaware law
does not permit inspection by the public of the register of stockholders.
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REGISTRATION RIGHTS
After the Offering, the GS Funds, which will hold in the aggregate
Ordinary Shares, and certain executives of the Company, who will hold
Ordinary Shares, are entitled to certain rights with respect to the
registration of such shares under the Securities Act. See "Certain
Relationships and Related Party Transactions". Under the terms of the
Registration Rights Agreement, the GS Funds may demand registration, on five
separate occasions, of all or any of their Ordinary Shares and all signatories
to the Registration Agreement have piggy-back rights to such demand
registration. All registration rights are subject to certain conditions and
limitations. With certain exceptions, the Company is required to bear the
expenses of the first three of such registrations. The registration rights of
each of the holders expire at such time that all registrable Ordinary Shares
held by such holder have been effectively registered and disposed of pursuant
to such registration or sold pursuant to Rule 144. Goldman, Sachs & Co. have
the right to act as the lead managing underwriter in any registration pursuant
to the Registration Agreement. The Offering is not being made pursuant to any
demand under the Registration Rights Agreement.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Ordinary Shares is
Firstar Trust Company.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering there has been no public market for the Ordinary
Shares of the Company and no prediction can be made as to the effect, if any,
that market sales of shares or the availability of such shares for sale will
have on the market price of the Ordinary Shares prevailing from time to time.
Future sales of substantial numbers of Ordinary Shares in the public market,
however, could adversely affect prevailing market prices and impair the
Company's future ability to raise capital through the sale of its equity
securities.
Upon completion of the Offering, the Company will have outstanding
Ordinary Shares. Of these shares, the sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act, except for any Ordinary Shares purchased by
"affiliates" of the Company (as defined under the Securities Act). Ordinary
Shares purchased by affiliates may not be sold unless the sale is registered
under the Securities Act or unless they are sold pursuant to Rule 144 under
the Securities Act or another exemption from registration.
Of the Ordinary Shares outstanding at the date of this Prospectus,
are held by persons not deemed by the Company to be affiliates.
Of these Ordinary Shares, are subject to 180 day lock-up
agreements. See "Underwriting". These shares are "restricted securities"
within the meaning of Rule 144 and will be tradeable without restriction under
Rule 144(k) after the end of the 180 day lock-up. The remaining
outstanding Ordinary Shares are held by persons deemed to be affiliates, all
of whom have also entered into 180 day lock-up agreements with the
Underwriters. These shares will be available for sale in the public market
beginning 180 days after the date of this Prospectus (or earlier with the
consent of the Underwriters), subject to the restrictions imposed by Rule 144.
In general, under Rule 144 as in effect on the date of this Prospectus, an
affiliate of the Company, or person (or persons whose shares are aggregated)
who has beneficially owned restricted securities for at least one year, will
be entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding Ordinary Shares of the
Company (approximately shares immediately after the Offering) or
(ii) the average weekly trading volume during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned restricted shares for at least two years is entitled to
sell shares pursuant to Rule 144(k) without regard to the limitations above.
The GS Funds which hold an aggregate of 2,888,888 Ordinary Shares have
certain demand registration rights with respect to such shares. See
"Description of Capital Shares--Registration Rights". Such rights are not
exercisable during the 180-day lockup period beginning on the date of this
Prospectus.
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make
a market in the Ordinary Shares. However, they are not obligated to do so and
any market-making may be discontinued at any time without notice. In addition,
such market-making activity will be subject to the limits imposed by the
Securities Act and the Exchange Act. The Company will maintain a registration
statement under the Securities Act as required in order to permit market-
making activities by Goldman, Sachs & Co. See "Underwriting".
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CERTAIN TAX CONSIDERATIONS
The following discussion of taxation of the Company and the taxation of
shareholders of the Company is based upon current law, and summarizes the
principal Bermuda, United Kingdom and United States federal income tax
consequences of the Company's operations and of the ownership and disposition
of the Company's Ordinary Shares. Legislative, judicial or administrative
changes may be forthcoming that could affect this summary.
This summary does not purport to be a complete analysis of all of the tax
considerations that may be applicable to a decision to acquire Ordinary Shares
of the Company and, unless explicitly noted to the contrary, deals only with
investors who are U.S. Persons (as defined below) who will hold the Ordinary
Shares as "capital assets" within the meaning of Section 1221 of the Code. In
addition, except as explicitly provided below, the summary does not apply to a
10% U.S. shareholder (as defined below) of the Company. The tax treatment of
any particular shareholder may vary depending on such shareholder's particular
tax situation or status. Consequently, each prospective shareholder is urged
to consult his or its own tax advisors as to the particular tax consequences
of the ownership and disposition of the Ordinary Shares to such shareholder,
including the effect and applicability of federal, state, local and foreign
income and other tax laws.
Statements made below as to Bermuda tax law are based on the opinion of
Appleby, Spurling & Kempe, Bermuda counsel to the Company, and are subject to
the qualifications and assumptions set forth in such statements. Statements
below as to the United Kingdom tax law are based on the opinion of Richards
Butler, United Kingdom counsel to the Company, and are subject to the
qualifications and assumptions set forth in such statements. Statements made
below as to United States federal income tax law are based upon the opinion of
Foley & Lardner, U.S. counsel to the Company ("U.S. Counsel"), and are subject
to the qualifications and assumptions set forth in such statements. The
statements as to the Company's beliefs and conclusions as to the application
of such tax laws to the Company represent the views of the Company's
management as to the application of such laws and do not represent legal
opinions of the Company or its counsel.
BERMUDA
Under current Bermuda law, there is no Bermuda income tax, withholding tax,
capital gains tax or capital transfer tax levied on the Company or its
shareholders.
The Company and its Bermuda subsidiaries have obtained a written undertaking
from the Minister of Finance of Bermuda under the Exempted Undertakings Tax
Protection Act 1966 (as amended) that, in the event of there being enacted in
Bermuda any legislation imposing tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature
of estate duty or inheritance tax, such tax shall not, until March 28, 2016,
be applicable to the Company or any of its operations, or to the shares,
debentures or other obligations of the Company, except insofar as such tax
applies to persons ordinarily resident in Bermuda and holding such shares,
debentures or other obligations of the Company or to any land leased or let to
the Company.
UNITED KINGDOM
The following discussion is intended only as a general guide to the current
tax position under the tax legislation of the United Kingdom at the date of
this document. A shareholder who is in any doubt as to his tax position should
consult his professional advisers in the jurisdiction in which he is resident.
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U.K. SUBSIDIARIES
Stirling Cooke Brown Holdings (U.K.) Limited and its subsidiaries (the "U.K.
Subsidiaries") are subject to corporation tax on their worldwide income
profits and gains in the United Kingdom.
Under current U.K. legislation no tax is withheld from any dividend paid by
Stirling Cooke Brown Holdings (U.K.) Limited to the Company. However, when
dividends are paid Stirling Cooke Brown Holdings (U.K.) Limited must make a
prepayment of corporation tax to the Inland Revenue (advance corporation tax
or "ACT") at the rate of 20% of the aggregate of the dividend paid and the
ACT, equating to 25% of the cash dividend paid. Stirling Cooke Brown Holdings
(U.K.) Limited can set off this ACT against its mainstream corporation tax
liabilities subject to various limits and any excess may be carried back to be
set against earlier years' tax bills, carried forward to be set off against
future tax bills or surrendered to the U.K. Subsidiaries.
Stirling Cooke Brown Holdings (U.K.) Limited may elect to pay a dividend as
a foreign income dividend ("FID") out of foreign source profits (if any),
enabling it to recover all or a portion of the ACT which it has remitted to
the Inland Revenue in respect of the dividend subject to certain conditions.
On 2nd July 1997, the Chancellor of the Exchequer announced the intention to
abolish the FID regime referred to above with effect from 6th April 1999.
The U.K. Subsidiaries must deduct tax at the specified rate (currently 20%)
from any payments of interest made by the U.K. Subsidiaries to the Company and
account to the Inland Revenue for such sums.
The United Kingdom has not entered into a tax treaty with Bermuda.
UNITED KINGDOM INSURANCE PREMIUM TAX
The United Kingdom imposes an insurance premium tax ("IPT") on premiums paid
in respect of taxable insurance contracts. Premiums are taxed at a standard
rate of 4% but for some insurance contracts the rate is 17.5%. It is the duty
of the insurer to collect this tax and remit the IPT to the Inland Revenue.
UNITED STATES
The following discussion summarizes the principal United States federal tax
considerations relating to the taxation of the Company and its subsidiaries,
and to the ownership of Ordinary Shares. This discussion is based upon the
existing method of operations of the Company and its subsidiaries as described
in this Prospectus. It is also based on applicable provisions of the Code, the
regulations promulgated by the United States Treasury Department thereunder,
rulings of the United States Internal Revenue Service (the "Service") and
decisions of United States courts, all as currently existing and in effect.
The statements made below as to United States tax law are based upon the
opinion of U.S. Counsel, subject to the qualifications and assumptions set
forth in such statements. The statements as to the Company's beliefs and
conclusions regarding the application of such tax laws to the Company
represent the views of the Company's management and do not represent legal
opinions of the Company or U.S. Counsel.
For purposes of this discussion, the term "Domestic Subsidiaries" means
those subsidiaries of the Company that are created or organized under the laws
of the United States or any state thereof, within the meaning of Section
7701(a)(4) of the Code, and the term "Foreign Subsidiaries" means those
subsidiaries of the Company that are not Domestic Subsidiaries. The term "U.S.
Person" means (i) an individual who is a citizen or resident of the United
States or any political subdivision thereof, (ii) a corporation or partnership
created or organized in or under the laws of the United States or any state
thereof, or (iii) an estate or trust the income of which is subject to United
States federal income taxation
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regardless of its source. The term "Foreign Person" means a person other than
a U.S. Person. The term "United States corporation" means a corporation
created or organized in or under the laws of the United States or any state
thereof, and the term "foreign corporation" means a corporation other than a
United States corporation.
The Company has not applied for, and does not intend to apply for, a ruling
from the Service with regard to any of the matters discussed below. The
opinion of U.S. Counsel is not binding on the Service.
FEDERAL TAXES IMPOSED ON THE COMPANY AND ITS SUBSIDIARIES
UNITED STATES TAXATION OF DOMESTIC SUBSIDIARIES. The Domestic Subsidiaries
are subject to United States federal income tax on their worldwide income. The
highest marginal federal income tax rate currently is 35% for corporations.
UNITED STATES TAXATION OF FOREIGN COMPANIES WITH INCOME EFFECTIVELY
CONNECTED WITH THE CONDUCT OF A TRADE OR BUSINESS IN THE UNITED STATES. If a
foreign corporation is engaged in a trade or business in the United States,
then, unless otherwise provided under the terms of an applicable income tax
treaty: (i) the income of the corporation that is effectively connected with
this trade or business is subject to United States federal income tax (at a
current maximum rate of 35%); and (ii) the corporation is subject to an
additional 30% United States "branch profits tax" on its effectively connected
earnings and profits (with certain adjustments) that are deemed repatriated.
Although the federal income tax and branch profits tax imposed on effectively
connected income are generally computed on a "net basis" (after allowance for
deductions), no deductions are allowed to a foreign corporation for a taxable
year unless a federal income tax return is filed on a timely basis for that
taxable year.
The Company believes that neither it nor any of the Foreign Subsidiaries is
engaged in a trade or business in the United States. The Company and the
Foreign Subsidiaries have not and do not intend to file United States income
tax returns. Current law does not provide a comprehensive definition of the
activities that constitute being engaged in a trade or business in the United
States, and the determination is essentially factual in nature. There can be
no assurance that the Service could not contend successfully that the Company
and/or one or more Foreign Subsidiaries are engaged in a trade or business in
the United States. If the Company and/or one or more Foreign Subsidiaries were
found to be engaged in a trade or business in the United States, deficiencies
for federal income taxes and branch profits taxes (together with penalties and
interest) could be assessed against such company. In addition, a failure to
file United States federal income tax returns on a timely basis would result
in a disallowance of deductions, as described above.
The United States has entered into a tax treaty with Bermuda (the "Bermuda
Treaty") relating to certain "enterprises of insurance". An enterprise of
insurance is defined to be an enterprise the predominant business activity of
which consists of issuing insurance contracts or acting as a reinsurer. An
entity that is a resident of Bermuda is not entitled to the benefits of the
Bermuda Treaty unless (i) more than 50% of the beneficial ownership of such
entity is beneficially owned, directly or indirectly, by individuals who are
Bermuda residents or United States citizens or residents, and (ii) the
entity's income is not used in substantial part, directly or indirectly, to
make disproportionate distributions to, or to meet certain liabilities to,
persons who are not Bermuda residents or United States citizens or residents
(the "Bermuda Treaty Benefits Test").
A resident of Bermuda that is an "enterprise of insurance" and that is
entitled to the benefits of the Bermuda Treaty is not subject to United States
federal income tax or branch profits tax on its business profits, unless the
business profits are attributable to a United States permanent establishment
maintained by the resident. Because the Company is not itself engaged in an
insurance
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business, the Company is not an "enterprise of insurance" within the meaning
of the Bermuda Treaty. It is uncertain whether, upon completion of the
Offering or at any time thereafter, any Foreign Subsidiary that is
incorporated in Bermuda and that is an "enterprise of insurance" (such as
CIRCL) can satisfy the Bermuda Treaty Benefits Test. Even if a Foreign
Subsidiary (such as CIRCL) does satisfy the Bermuda Treaty Benefits Test and
even if the Foreign Subsidiary does not maintain a permanent establishment in
the United States, the Foreign Subsidiary may be subject to United States
federal income tax and branch profits tax on any investment income (whether
from United States sources or foreign sources) that is effectively connected
with a trade or business conducted in the United States. Furthermore, even if
a Foreign Subsidiary (such as CIRCL) does satisfy the Bermuda Treaty Benefits
Test, and even if this Foreign Subsidiary is exempt from United States tax on
its business profits (on the ground that the Foreign Subsidiary does not
maintain a United States permanent establishment), the Bermuda Treaty does not
prevent the United States from imposing a "second-tier" gross-basis tax on
dividends paid by this Foreign Subsidiary in the event that the Foreign
Subsidiary is engaged in a trade or business in the United States. In
particular, a portion of any dividends paid by CIRCL to CIRCL Holdings Ltd.
will be subject to the second-tier gross-basis United States tax (at a rate of
30%) if CIRCL is engaged in a trade or business in the United States but is
protected by the Bermuda Treaty from United States taxation on its business
profits.
Under the income tax treaty between the United Kingdom and the United States
(the "U.K. Treaty"), a Foreign Subsidiary that is resident in the United
Kingdom for United Kingdom tax purposes and that is entitled to the benefits
of the U.K. Treaty is not subject to United States federal income tax or
branch profits tax on its business profits, unless the business profits are
attributable to a permanent establishment maintained in the United States.
PERSONAL HOLDING COMPANY RULES. In general, a corporation is a "personal
holding company" (a "PHC") for a taxable year if (i) at any time during the
last half of the taxable year, more than 50% of its shares (by value) are
owned, directly or indirectly, by five or fewer individuals, and (ii) at least
60% of its "adjusted ordinary gross income" for the taxable year consists of
"personal holding company income" (such as dividends, interest, royalties and
certain other types of passive investment income). A corporation that is a PHC
for a taxable year is subject to a 39.6% federal tax on its undistributed
income for the taxable year, in addition to being subject to regular federal
income tax.
The Company believes that, for purposes of the PHC provisions, more than 50%
of the stock (by value) of the Company and of each subsidiary is likely to be
treated after the Offering as being owned, directly or indirectly, by five or
fewer individuals.
With respect to United States corporations (such as the Domestic
Subsidiaries) that are members of a group filing a consolidated federal income
tax return, the "60% income" test is generally applied to the group as a
whole, and no member of the group of United States corporations is considered
to meet the 60% income test unless the group meets the 60% income test. The
Company believes that the group of Domestic Subsidiaries has not met, and is
not expected to meet, the 60% income test. Accordingly, the Company believes
that no Domestic Subsidiary has been or is expected to be a PHC.
In determining the "adjusted ordinary gross income" of a foreign
corporation, the only income that is taken into account is income that is
effectively connected with the conduct of a trade or business in the United
States, and income from United States sources. For example, if the Company
receives a dividend from a Domestic Subsidiary, and if the Company does not
receive any other income that is effectively connected with a United States
trade or business or that is derived from United States sources, 100% of the
Company's "adjusted ordinary gross income" for the taxable year will consist
of "personal holding company income", and the Company will be subject to the
PHC tax in the taxable year unless it redistributes to its shareholders the
amount received as a dividend from the Domestic Subsidiary.
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The Company believes that, as a result of dividend distributions paid by it
and by its subsidiaries, neither the Company nor any subsidiary has had, or
will have, any "undistributed personal holding company income" for any taxable
year during which the respective corporation is a PHC.
UNITED STATES TAX ON U.S.-SOURCE INVESTMENT INCOME. If a foreign corporation
receives "fixed or determinable annual or periodical gains, profits and
income" (such as dividends and certain types of interest) from sources within
the United States, and if this income is not effectively connected with the
conduct of a United States trade or business (or is not attributable to a
United States permanent establishment, in the event that the recipient is
entitled to the benefits of a United States income tax treaty), such income is
generally subject to a "gross basis" United States tax. The rate of this tax
is 30%, unless the rate is reduced under an applicable tax treaty. The 30% tax
does not apply to "portfolio interest" (within the meaning of Sections 871(h)
and 881(c) of the Code). If a Domestic Subsidiary pays a dividend to the
Company, such dividend will be subject to the 30% United States tax.
UNITED STATES FEDERAL EXCISE TAX ON INSURANCE PREMIUMS. The United States
imposes a federal excise tax on premiums paid to foreign insurers or
reinsurers with respect to risks located in the United States. This excise tax
is imposed at the rate of 4% on premiums for direct coverage and 1% for
reinsurance coverage.
FEDERAL TAX CONSEQUENCES OF OWNERSHIP OF THE ORDINARY SHARES
This discussion summarizes the federal income tax consequences of the
ownership of Ordinary Shares that are held as capital assets within the
meaning of Section 1221 of the Code. It does not discuss all of the tax
consequences that may be relevant to holders in light of their particular
circumstances or to holders subject to special rules (such as financial
institutions, insurance companies, broker-dealers, tax-exempt organizations,
or persons who hold Ordinary Shares as part of a straddle or conversion
transaction).
Prospective purchasers of Ordinary Shares should consult their own tax
advisors with regard to the application of the United States federal income
tax laws to their particular situations and any other tax consequences arising
under the laws of any state, local or foreign taxing jurisdiction.
U.S. PERSONS.
Dividends and Gains on Sale. Except as described below with respect to the
"controlled foreign corporation", "related person insurance income", and
"passive foreign investment company" rules, distributions by the Company to a
U.S. Person with respect to the Ordinary Shares will be treated as ordinary
dividend income to the extent of the Company's current and accumulated
earnings and profits. Such dividends will not be eligible for the dividend-
received deduction generally allowed under the Code to dividend recipients
that are United States corporations. The amount of any distribution in excess
of the Company's current and accumulated earnings and profits will first be
applied to reduce the holder's tax basis in the Ordinary Shares, and any
amount in excess of tax basis will be treated as gain from the sale or
exchange of the Ordinary Shares. Except as described below with respect to the
"controlled foreign corporation", "related person insurance income", and
"passive foreign investment company" rules, any gain recognized by a U.S.
Person on a sale or exchange of Ordinary Shares (or on a distribution treated
as a sale or exchange) will be treated as capital gain. Capital gains of
corporations are taxable at the same rate as ordinary income. With respect to
non-corporate taxpayers, the excess of net long-term capital gain over net
short term capital loss may be taxed at a substantially lower rate than
ordinary income. A capital gain or loss is long-term if the asset has been
held for more than one year and short-term if held for one year or less. In
addition, the distinction between capital gain or loss and ordinary income or
loss is relevant for purposes of, among other things, limitations on the
deductibility of capital losses.
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Indirect Taxation of 10% Shareholders of Controlled Foreign Corporations.
With respect to any foreign corporation that is a "controlled foreign
corporation" (a "CFC") for an uninterrupted period of 30 days or more during a
taxable year, each U.S. Person that, on the last day of the corporation's
taxable year, is a "10% U.S. Shareholder" (as defined below) and owns,
directly or indirectly through foreign entities, any shares in the foreign
corporation must include in its gross income for United States federal income
tax purposes a pro rata share of the corporation's "Subpart F" income for such
taxable year, whether or not such income is distributed. A "10% U.S.
Shareholder" is a U.S. Person that owns, directly or indirectly, shares
possessing 10% or more of the voting power in the foreign corporation. Subpart
F income includes insurance income (underwriting income and investment income)
relating to risks located outside the country in which the foreign corporation
is incorporated ("Subpart F Insurance Income"), and also includes passive
investment income (such as interest and dividends).
If a U.S. Person recognizes gain from the sale or exchange of Ordinary
Shares, and if at any time during the five years preceding the sale or
exchange such person was a 10% U.S. Shareholder of the Company at a time when
the Company was classified as a CFC, a portion of the gain will be
recharacterized under Section 1248 of the Code as dividend income, rather than
as capital gain. The amount of the gain that is so recharacterized will depend
on the amount of accumulated earnings and profits of the Company and its
Foreign Subsidiaries.
In general, a foreign corporation is classified as a CFC if more than 50% of
the corporation's shares (by vote or value) are owned directly or indirectly
by 10% U.S. Shareholders. A foreign insurance corporation that is not a CFC
under this general rule is treated as a CFC, however, for the sole purpose of
taking into account the corporation's Subpart F Insurance Income if (i) more
than 25% of such corporation's shares (by vote or value) are owned directly or
indirectly by 10% U.S. Shareholders, and (ii) the foreign corporation realizes
in excess of 75% of its gross premium income from the insuring or reinsuring
of risks outside the country in which the foreign corporation is incorporated.
The Company anticipates that over 75% of CIRCL's gross premium income will be
written on risks outside of Bermuda.
The Company anticipates that, because of the dispersion of ownership of its
shares, the Company will not be a CFC after the Offering. In any event, the
characterization of the Company as a CFC does not give rise to a tax on the
Company, and is relevant only to a 10% U.S. Shareholder of the Company. No
assurance can be given, however, that relationships among holders of shares,
or future changes in ownership, will not cause the Company to be or become a
CFC, with the result that any 10% U.S. Shareholder of the Company or of a
Foreign Subsidiary would be required to include in its gross income its pro
rata share of any Subpart F income of the Company or the Foreign Subsidiary.
Even if the Company or a Foreign Subsidiary is determined to be a CFC, no
purchaser of Ordinary Shares will be responsible for the payment of United
States tax with respect to any Subpart F income earned by the Company and the
Foreign Subsidiaries, unless such purchaser is a 10% U.S. Shareholder. Any 10%
U.S. Shareholder of the Company should consult its own tax advisor.
Indirect Taxation Attributable to RPII. If a foreign corporation earns
"related person insurance income" ("RPII"), and if 25% or more (by vote or
value) of the shares of the foreign corporation are owned directly or
indirectly by U.S. Persons for an uninterrupted period of 30 days or more
during the relevant taxable year, then unless one of the exceptions described
below applies, each U.S. Person that owns, directly or indirectly through
foreign entities, any stock in the foreign corporation on the last day of the
taxable year must include in its gross income for United States federal income
tax purposes its allocable share (calculated as if the only stock outstanding
were the stock held by U.S. Persons) of the RPII, whether or not such income
is distributed. RPII consists of insurance income (underwriting and investment
income) relating to policies issued for the benefit of (i) any U.S. Person
that owns, directly or indirectly through foreign entities, any shares in the
foreign corporation, or (ii) any person related to such a U.S. Person.
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Under one exception to the RPII rules, no income inclusion is required if at
all times during the taxable year less than 20% of the voting power and value
of the shares in the foreign corporation are owned, directly or indirectly
through foreign entities, by persons who are, or who are related to persons
who are, directly or indirectly insured by the foreign corporation. Under
another exception to the RPII rules, no income inclusion is required if the
gross amount of RPII of the foreign corporation for the taxable year is less
than 20% of the gross insurance income of the foreign corporation.
The Company anticipates that in each taxable year ending after the Offering
the gross amount of any RPII earned by the Company and each Foreign Subsidiary
will be less than 20% of the gross insurance income earned by the respective
company. Nevertheless, there can be no assurance that RPII income inclusions
will be avoided with respect to holders of Ordinary Shares, particularly
because any Foreign Subsidiary that conducts a reinsurance business may not be
in a position to prove that the persons whose risks the Foreign Subsidiary
indirectly reinsures do not own, directly or indirectly, Ordinary Shares.
As described above with respect to the CFC rules, Section 1248 will apply on
a sale or exchange of Ordinary Shares by a U.S. Person (and will
recharacterize a portion of any gain on the sale or exchange as a dividend) if
at any time during the five years preceding the sale or exchange the U.S.
Person was a 10% U.S. Shareholder at a time when the Company was a CFC.
Section 953(c)(7) of the Code generally provides that Section 1248 also
applies if a U.S. Person sells or exchanges shares in a foreign corporation
that earns RPII and that, at any time in the five years preceding the sale or
exchange, was 25%-or-more owned (directly or indirectly) by U.S. Persons and
would have been taxed as an insurance company under Subchapter L of the Code
if the corporation were a domestic corporation. Section 1248 would apply in
such a case even if the RPII represents less than 20% of the corporation's
insurance income. Furthermore, it is possible that the Service could contend
successfully that Sections 953(c)(7) and 1248 also apply if the foreign
corporation whose shares are sold or exchanged by the U.S. Person has never
been engaged in the insurance business but is the parent of a foreign
corporation that is or has been engaged in an insurance business.
The Company itself has never been engaged, and does not anticipate being
engaged, in an insurance business. Assuming that the Company itself never
engages in an insurance business in the future, the provisions of Section
953(c)(7) should not apply under current law to any holder of Ordinary Shares.
This conclusion is not free from doubt, however. Because one or more of the
Foreign Subsidiaries are and will be engaged in an insurance business, it is
possible that the Service could contend successfully that Section 1248 should
apply to a sale or exchange of Ordinary Shares by a U.S. Person (which would
result in a portion of any gain on the sale or exchange being recharacterized
as a dividend) if, at any time during the five years preceding the sale or
exchange, this U.S. Person owned, directly or indirectly, shares in the
Company at a time when 25% or more (by vote or value) of shares in the Company
were owned, directly or indirectly, by U.S. Persons.
Passive Foreign Investment Company Rules. In general, a foreign corporation
is a "passive foreign investment company" ("PFIC") during a taxable year if
75% or more of its gross income for the taxable year constitutes "passive
income" or if 50% or more of its assets held during the taxable year produce,
or are held for the production of, passive income. In general, any U.S. Person
who holds, directly or indirectly, any Ordinary Shares will be subject to
penalty taxes (under Section 1291 of the Code) upon the disposition of, or
receipt of "excess distributions" with respect to, such Ordinary Shares if the
Company is a PFIC during the taxable year in which such income is realized by
the U.S. Person, or if the Company was a PFIC during any prior taxable year
that is included in whole or in part in the U.S. Person's "holding period"
(within the meaning of Section 1223 of the Code) for the Ordinary Shares. In
addition to the penalty taxes, there exist several other adverse tax
consequences to any U.S. Person that holds shares in a PFIC.
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The penalty taxes and these other adverse tax consequences do not apply,
however, if the U.S. Person makes a "qualified electing fund" ("QEF") election
with respect to its Ordinary Shares for the first taxable year included in
whole or in part in the U.S. Person's "holding period" in which the Company is
a PFIC. If a QEF election is made by the U.S. Person, then with respect to
each taxable year that the Company is a PFIC, the U.S. Person will have to
include in its gross income for United States federal income tax purposes its
allocable share of the Company's earnings for such taxable year, whether or
not these earnings are distributed.
For purposes of the PFIC rules, "passive income" generally includes
interest, dividends, and other investment income. The PFIC statutory
provisions contain an express exception for income "derived in the active
conduct of an insurance business by a corporation which is predominantly
engaged in an insurance business . . ." (the "Insurance Company Exception").
This exception is intended to ensure that income derived by a bona fide
insurance company is not treated as passive income. However, to the extent
such income is attributable to financial reserves in excess of the reasonable
needs of the insurance business, it may be treated as passive income for
purposes of the PFIC rules. The PFIC statutory provisions also contain a look-
through rule that states that, for purposes of determining whether a foreign
corporation is a PFIC, such foreign corporation shall be treated as if it
"received directly its proportionate share of the income . . ." and as if it
"held its proportionate share of the assets . . ." of any other corporation in
which it owns at least 25% of the value of the stock.
The Company believes that, as a result of the Insurance Company Exception,
CIRCL is not a PFIC. The Company anticipates that CIRCL will not have
financial reserves in excess of the reasonable needs of its insurance
business, and will continue to meet the requirements of the Insurance Company
Exception. The Company anticipates further that, as a result of the look-
through rules, the Company will not be classified as a PFIC. Nevertheless,
there can be no assurance that the Company will not be classified as a PFIC.
The United States Treasury has not yet promulgated final regulations regarding
the application of the Insurance Company Exception and the look-through rules,
and there exists substantial uncertainty regarding the interpretation of these
rules. In addition, it is unclear whether the coverages or services provided
under a rent-a-captive program are to be characterized as "passive" activities
(rather than as non-passive management and related services) for PFIC
purposes.
Foreign Personal Holding Company Rules. In general, a foreign corporation is
a "foreign personal holding company" (a "FPHC") during a taxable year if (i)
at any time during the taxable year, more than 50% of the shares (by vote or
value) of the corporation are owned, directly or indirectly, by five or fewer
individuals who are U.S. Persons, and (ii) at least 50% of the gross income of
the corporation for the taxable year consists of "foreign personal holding
company income" (such as dividends, interest, royalties, and certain other
types of passive investment income). If a foreign corporation is a FPHC for a
taxable year, each U.S. Person who owns, directly or indirectly through
foreign entities, any stock of the corporation is required to recognize, as a
dividend, the U.S. Person's share of the undistributed FPHC income of the
foreign corporation.
The Company believes that neither the Company nor any Foreign Subsidiary has
met or is expected to meet the stock ownership threshold requirement for
classification as a FPHC.
Foreign Tax Credit Treatment of Income Earned With Respect to Ordinary
Shares. If the Company is engaged in a trade or business in the United States
at any time during the three taxable years preceding the taxable year in which
it pays a dividend on its Ordinary Shares to a U.S. Person, and if 25% or more
of the Company's gross income during this three year period was effectively
connected with the United States trade or business, a portion of such dividend
will be treated as United States source income for purposes of computing the
foreign tax credit limitation of the U.S Person that receives the dividend.
Any portion of a dividend received by a U.S. Person that is not treated as
United States source income under the rule described above will nevertheless
be recharacterized in part as
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United States source income if U.S. Persons own, directly or indirectly, 50%
or more of the voting power or value of the shares of the Company. In such an
event, the amount that is so recharacterized will depend on the amount of
United States source income earned by the Company and its subsidiaries. (This
type of recharacterization will also apply to any income inclusion to a U.S.
Person under the CFC, RPII, and QEF rules with respect to the Company or its
Foreign Subsidiaries.) A substantial part of the income earned by the Company
and its subsidiaries is anticipated to be from United States sources.
With respect to the portion of the dividends, and income inclusions received
by a U.S. Person under the CFC, RPII, and QEF rules, that constitute foreign
source income, the Company anticipates that substantially all of this foreign
source income received by the U.S. Person will constitute either "passive"
income or "financial services" income for foreign tax credit limitation
purposes. Thus, it may not be possible for most U.S. Persons who hold Ordinary
Shares to utilize excess foreign tax credits to reduce United States tax on
such income.
Form 5471 Reporting. Any U.S. Person who owns, directly or indirectly, any
shares on the last day of a taxable year of a foreign corporation must
generally file an information report on Form 5471 with respect to such
person's interest in the foreign corporation if: (i) the U.S. Person is a 10%
U.S. Shareholder of the foreign corporation, and the foreign corporation is a
CFC for an uninterrupted period of 30 days or more during the taxable year; or
(ii) 25% or more (by vote or value) of the shares of the foreign corporation
are owned directly or indirectly by U.S. Persons for an uninterrupted period
of 30 days or more during the taxable year, and the gross amount of RPII
earned by the foreign corporation during the taxable year represents 20% or
more of the foreign corporation's gross insurance income. The filing of a Form
5471 is also required in other situations, including the acquisition by a U.S.
Person of 5% or more of the value of the shares of a foreign corporation. The
Company will provide information to assist in the completion of Form 5471 in
situations where such form is required. However, the Company will not itself
determine whether or when such filing is required.
Backup Withholding. Information reporting to the Service by paying agents
and custodians located in the United States will be required with respect to
payments of dividends on the Ordinary Shares to U.S. Persons. A U.S. Person
who holds Ordinary Shares may be subject to backup withholding at a 31% rate
with respect to dividends paid by paying agents or custodians, or proceeds
received on the sale or exchange of Ordinary Shares through a broker, unless
the holder (i) demonstrates that it qualifies for an applicable exemption
(such as the exemption for holders that are corporations), or (ii) provides a
taxpayer identification number and complies with certain other requirements.
Holders of Ordinary Shares should consult their own tax advisors regarding
their qualification for exemption from backup withholding and the procedure
for obtaining such an exemption. The amount of any backup withholding from a
payment to a holder will generally be allowed as credit against such holder's
United States federal income tax liability and may entitle such holder to a
refund, provided that the required information is furnished to the Service.
FOREIGN PERSONS.
U.S. Income Tax. A holder of Ordinary Shares who is a Foreign Person (other
than a former United States citizen described in Section 877(a) of the Code or
a former resident of the United States described in Sections 877(e) or
7701(b)(10) of the Code) will not be subject to United States federal income
tax upon any dividend received on the Ordinary Shares, unless the dividend
income is effectively connected with a United States trade or business
conducted by the Foreign Person. In addition, such a Foreign Person will not
be subject to United States federal income tax upon any gain realized on the
sale or exchange of Ordinary Shares, unless (i) such gain is effectively
connected with a trade or business in the United States conducted by the
holder or (ii) in the case of an individual holder, the holder is present in
the United States for 183 days or more in the taxable year of the sale or
exchange, and either the holder has a "tax home" (as defined in Section
911(d)(3) of the Code) in
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the United States or the gain is attributable to an office or other fixed
place of business maintained in the United States by such holder.
Backup Withholding. If a Foreign Person sells Ordinary Shares through a
United States office of a broker, the broker is required to file an
information report and is required to withhold 31% of the sale proceeds unless
the Foreign Person certifies its non-United States status or otherwise
establishes an exemption. If a Foreign Person sells Ordinary Shares through a
foreign office of a broker, backup withholding is not required; but
information reporting is required if the broker does not have documentary
evidence that the holder is a Foreign Person and if (i) the broker is a U.S.
Person, (ii) the broker is a CFC, or (iii) the broker derives 50% or more of
its gross income for a specified three year period from the conduct of a trade
or business in the United States.
Foreign Persons holding Ordinary Shares should consult their own tax
advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available.
Any amount withheld from payment to a Foreign Person holding Ordinary Shares
under the backup withholding rules will generally be allowed as credit against
such holder's United States federal income tax liability, if any, and may
entitle such holder to a refund, provided that the required information is
furnished to the Service.
U.S. Estate Tax. Any Ordinary Shares held by an individual who is neither a
United States citizen, nor a former United States citizen, nor a resident
(within the meaning of Section 2101 of the Code) of the United States will be
exempt from the United States estate tax.
* * * * *
The foregoing discussion is based upon current law and is for general
information only. The tax treatment of a holder of Ordinary Shares may vary
depending on the holder's particular tax situation. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could be
retroactive and could affect the tax consequences to holders of Ordinary
Shares.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES TO THEM OF ACQUIRING,
OWNING AND DISPOSING OF THE ORDINARY SHARES.
EXPERTS
The financial statements and schedules of Stirling Cooke Brown Holdings
Limited as of December 31, 1996 and 1995, and for each of the years in the
three year period ended December 31, 1996, have been included herein and in
the registration statement in reliance upon the reports of KPMG Peat Marwick,
independent auditors, appearing elsewhere herein, and upon the authority of
said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Ordinary Shares under Bermuda law will be passed upon
for the Company by its Bermuda counsel, Appleby, Spurling & Kempe, Hamilton,
Bermuda. Warren Cabral, a Partner of Appleby, Spurling & Kempe, is a director
of the Company. See "Management". Certain legal matters in connection with the
Offering will be passed upon for the Company with respect to matters of United
States federal law by Foley & Lardner, Milwaukee, Wisconsin, and for the
Company and the Selling Shareholders by Appleby, Spurling & Kempe with respect
to matters of Bermuda law and Richards Butler, London, with respect to matters
involving the laws of the United Kingdom. Certain legal matters will be passed
upon for the Underwriters with respect to matters of United States federal law
by Fried, Frank, Harris, Shriver & Jacobson (a partnership including
professional corporations), New York, New York, and with respect to matters of
Bermuda law by Appleby, Spurling & Kempe.
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ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (herein, together with all
amendments thereto, called the "Registration Statement") under the Securities
Act with respect to the Ordinary Shares offered hereby. Reference is made to
the Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. This Prospectus,
which is a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect
to the Company and the Ordinary Shares offered hereby, reference is made to
the Registration Statement and to the financial statements, schedules, and
exhibits filed as a part thereof. The Registration Statement, including all
schedules and exhibits thereto, may be inspected without charge at the public
reference facilities maintained by the Commission at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. and at the
Commission's regional offices at 7 World Trade Center, 13th floor, New York,
New York and 500 West Madison Street, Suite 1400, Chicago, Illinois. Copies of
such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates or may be accessed electronically by means of the Commission's home page
on the Internet at http://www.sec.gov.
Statements contained in this Prospectus concerning the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or otherwise with the Commission, each
such statement being qualified in all respects by such reference.
The Company is, and after the completion of the Offering expects to continue
to be, a "foreign private issuer" as defined in Rule 3b-4 promulgated under
the Exchange Act. As such, the Company will be exempt from certain rules and
reporting requirements under the Exchange Act, including the proxy rules under
Section 14 and the short-swing profit rules under Section 16.
The Company has also filed this Prospectus with the Bermuda Registrar of
Companies in compliance with Part III of the Bermuda Companies Act, 1981.
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GLOSSARY OF SELECTED INSURANCE TERMS
Alternative market........... The segment of the insurance market that has
developed in response to volatility in the cost
and availability of traditional insurance
coverages and that consists of retrospectively
rated programs, deductible policies and various
risk financing mechanisms including self
insurance, captives, rent-a-captives, risk
retention groups and government pools and
trusts.
Assigned risk pool........... A state mandated workers' compensation
insurance program whereby all workers'
compensation insurers in such state are
required to share in the provision of workers'
compensation insurance to those employers in
the state who are unable to obtain such
insurance in the open market.
Captive...................... An insurance or reinsurance company that is
controlled by the insured or a group of
insurers, and is formed for the purpose of
insuring or reinsuring risks associated with
the activities of its shareholders or members.
Claims adjusting............. The service, provided on behalf of insurers, of
examining the circumstances giving rise to a
claim under a policy of insurance, determining
the validity or otherwise of the claim,
deciding the amount of benefits payable and
associated claim costs in accordance with
policy conditions as a result of the claims
events, paying valid claims, and calculating
the level of reserving required of an insurer
to pay future benefits and associated claim
costs as a result of valid claims.
Independent producing agent.. See definition of "retail agent".
Loss expense................. The expense of investigating, adjusting,
defending and settling claims including legal
and other fees and the portion of general
expenses allocated to claim settlement costs.
Loss reserves................ Liabilities established by insurers and
reinsurers to reflect the estimated cost of
claims payments that the insurer or reinsurer
ultimately will be required to pay in respect
of insurance or reinsurance it has written.
Reserves are estimated for losses and loss
expenses, and consist of case reserves for
specific known losses and incurred but not
reported (IBNR) reserves based on claims
history and statistical data.
Managing general agency A person, firm or corporation that has
("MGA")..................... supervisory responsibility for the local agency
and field operations of an insurance company or
is authorized by an insurance company to accept
and process on its behalf insurance policies
sold by other agents. A managing general agency
may typically perform any of the following acts
for an insurance company: underwrite and accept
risks to be bound by the insurance company;
receive and process reports and accounts;
receive and be responsible for balances; claims
adjusting; and appoint or direct other agents.
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Managing General Underwriter
("MGU").....................
A person, firm or corporation that is
authorized by a reinsurer to accept and process
on its behalf a reinsurance contract. A
managing general underwriter may typically
perform any of the following acts for a
reinsurer: underwrite and accept risks to be
bound by the reinsurer; receive and process
reports and accounts; receive and be
responsible for balances; claims approval and
management.
Net premiums earned.......... The pro rata portion of the written premium
covering that part of the policy term that
expired during a specified accounting period
and therefore is recognized for accounting
purposes as income in that period less premiums
ceded to reinsurers with respect to such
period.
Net premiums written......... Gross premiums written during a given period
less premiums ceded to reinsurers during such
period.
Non-subscriber programs...... Programs designed for employers in the state of
Texas that have elected to opt out of or not
subscribe to the insurance provisions of the
Texas Workers' Compensation Act. It is not
mandatory for employers to purchase workers'
compensation insurance in Texas, and there are
a number of occupational accident insurance
coverages available in that state as
alternatives to workers' compensation
insurance.
Policy administration........ The performance of all the tasks surrounding
the production of policy documents, delivery of
policy documents to the insured at the
inception of a policy period, production and
delivery to the insured of any amendments to
the documents during the course of the policy
period, due performance of any undertakings in
the policy documents in connection with renewal
or cancellation of the policy, filing of policy
documents with state departments of insurance
or departments of labor as may be required, and
the maintenance of accurate records of all
policies for the insurer.
Premium accounting........... The reporting and remitting to the insurance
carrier of all premium monies and adjustments
due an insurer in respect of all insurance
policies for risks accepted on behalf of that
insurer.
Program business or Structured insurance products that are each
programs.................... designed for a particular group of insureds.
Each program has its own rates, underwriting
guidelines and reinsurance arrangements,
specialized for that program in order to meet
the particular needs of such group.
Reinsurance.................. A transaction in which one party ("reinsurer"),
in consideration of payment of a premium,
agrees to indemnify another party ("reinsured")
for a specified part or all of the reinsured's
risk under a policy or policies of insurance
written or assumed by the reinsured. The
reinsured may be referred to as the "ceding
company". The purchase of reinsurance does not
legally discharge the ceding company from its
liability to its
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insurers. Reinsurance of all or a portion of a
single insurance policy is known as
"facultative reinsurance"; reinsurance of all
or a portion of a specified group of policies
is known as "treaty reinsurance".
Reinsurance brokering........ The design and/or arranging, for a fee or
commission, of a program which transfers risk
and associated premium from an insurance
company or reinsurance company to another
reinsurance company.
Rent-a-captive............... An insurance or reinsurance company formed for
the purpose of insuring risks associated with
the activities of a group of unrelated
shareholders and which is controlled not by its
insurers but by an insurer, a broker or an
entity seeking to profit from operating the
rent-a-captive.
Retail agent or independent
producing agent.............
A person, firm or corporation appointed and
authorized by a managing general agent or
insurer to transact insurance business on
behalf of such managing general agent or
insurer. A retail agent typically deals
directly with the insured (i.e. retails the
insurance business) while a managing general
agent typically only deals through retail
agents (i.e., wholesales the insurance
business). An independent producing agent is an
unaffiliated retail agent producing insurance
business to a managing general agent.
Retained risk................ The portion of risk which is not transferred by
the insured or the reinsured to an insurer or
reinsurer.
Retrocessional reinsurance... A type of reinsurance whereby a reinsurer cedes
to another reinsurer, the retrocessionaire, all
or part of the reinsurance that the first
reinsurer has assumed. Retrocessional
reinsurance does not legally discharge the
ceding reinsurer from its liability with
respect to its obligations to the reinsured.
Reinsurance companies cede risks to
retrocessionaires for reasons similar to those
that cause primary insurers to purchase
reinsurance: to reduce net liability on
individual risks, to protect against
catastrophic losses, to stabilize financial
ratios and to obtain additional underwriting
capacity.
Soft insurance market........ The period of the insurance market cycle which
is characterized by excessive capital and
competition, resulting in an increased
availability of coverage and decreased prices.
Specialty casualty lines..... Insurance primarily intended to cover entities
against certain types of damages and economic
losses arising out of certain actions or
omissions. Specialty casualty lines typically
include certain types of property damage
coverage, combined general liability coverage
and various professional indemnity coverages.
Underwriting profit..........
The amount of earned premiums less all
associated losses and expenses (including
additions to reserves) for a given period.
Underwriting profit does not include investment
income associated with the investment of
insurance premiums.
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Workers' compensation........ Workers' compensation is a statutory system
that provides medical treatment, wage
replacement, and return to work for employees
injured on the job. Under workers' compensation
laws, employees do not have the right to sue
employers under common law for damages suffered
in workplace accidents, but in exchange receive
a specified and statutorily guaranteed set of
benefits, regardless of fault. It is mandatory
in all but two states (New Jersey and Texas)
for employers to provide workers' compensation,
which they generally do by purchasing workers'
compensation insurance from the commercial
insurance market, from a state fund, or from an
assigned risk pool, or by qualifying as self-
insurers.
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STIRLING COOKE BROWN HOLDINGS LIMITED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AUDITED FINANCIAL STATEMENTS
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996............ F-3
Consolidated Statements of Income for the Years Ended December 31, 1994,
1995 and 1996.......................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity for the Years
Ended December 31, 1994, 1995 and 1996................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1994, 1995 and 1996.................................................... F-6
Notes to Consolidated Financial Statements for the Years Ended December
31, 1994, 1995 and 1996................................................ F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet as of June 30, 1997................ F-26
Unaudited Consolidated Statements of Income for the Six Months Ended
June 30, 1996 and 1997................................................. F-27
Unaudited Consolidated Statements of Changes in Shareholders' Equity for
the Six Months Ended June 30, 1996 and 1997............................ F-28
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 1996 and 1997................................................. F-29
Notes to Unaudited Consolidated Financial Statements.................... F-30
</TABLE>
F-1
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Stirling Cooke Brown Holdings Limited
We have audited the consolidated financial statements of Stirling Cooke
Brown Holdings Limited and subsidiaries as listed in the accompanying index.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Stirling
Cooke Brown Holdings Limited and subsidiaries as at December 31, 1995 and 1996
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with United
States generally accepted accounting principles.
KPMG Peat Marwick
Chartered Accountants
Hamilton, Bermuda
April 23, 1997 except as to Note 18
which is as of June 30, 1997
F-2
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Marketable securities, at fair value (amortized cost--
$22,397) (Note 6).......................................... $ -- $ 22,619
Cash and cash equivalents................................... 7,581 15,602
Fiduciary funds (Notes 4 and 5)............................. 31,891 50,240
Insurance and reinsurance balances receivable (Note 4)...... 69,977 103,755
Outstanding losses recoverable from reinsurers (Notes 9 and
10)........................................................ 806 16,588
Deferred acquisition costs.................................. 1,582 171
Deferred reinsurance premiums ceded (Note 9)................ 600 7,223
Deferred tax asset (Note 13)................................ 55 264
Other assets (Note 7)....................................... 4,680 7,477
Assets related to deposit liabilities (Note 8).............. 3,468 4,047
-------- --------
Total assets............................................ $120,640 $227,986
======== ========
LIABILITIES
Outstanding losses and loss expenses (Note 10).............. $ 2,076 $ 24,301
Unearned premiums........................................... 4,090 12,515
Deferred income............................................. 1,271 1,793
Insurance and reinsurance balances payable.................. 92,046 141,483
Funds withheld.............................................. -- 1,384
Accounts payable and accrued liabilities.................... 2,551 3,927
Income taxes payable (Note 13).............................. 2,735 2,176
Deposit liabilities (Note 8)................................ 3,468 4,047
-------- --------
Total liabilities....................................... 108,237 191,626
-------- --------
SHAREHOLDERS' EQUITY
Share capital
Authorized 8,048,000 ordinary shares of par value $0.25
each and 25 Class "A' convertible shares of par value
$1.00 each
Issued and fully paid 6,000,000 and 8,000,000 ordinary
shares respectively, and Nil and 25 Class "A' convertible
shares, respectively (Note 11)........................... 1,500 2,000
Additional paid in capital.................................. 88 14,045
Unrealized gain on marketable securities (Note 6)........... -- 147
Retained earnings........................................... 10,815 21,106
-------- --------
12,403 37,298
Less: 202,784 ordinary shares in treasury, at cost (Note
11)........................................................ -- (938)
-------- --------
Total shareholders' equity.............................. 12,403 36,360
-------- --------
Total liabilities and shareholders' equity.............. $120,640 $227,986
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Risk management fees............................. $ 14,528 $ 24,093 $ 33,842
Net premiums earned (Note 9)..................... -- 3,154 8,754
Net investment income (Note 6)................... 770 2,388 3,405
Other income..................................... -- -- 841
--------- --------- ---------
Total revenues............................... 15,298 29,635 46,842
--------- --------- ---------
EXPENSES
Net losses and loss expenses incurred (Note 10).. -- 1,385 6,765
Acquisition costs................................ -- 1,345 1,618
Depreciation and amortization of capital assets.. 542 766 1,018
Amortization of goodwill......................... -- 55 50
Operating expenses............................... 9,176 15,603 24,819
--------- --------- ---------
Total expenses............................... 9,718 19,154 34,270
--------- --------- ---------
Income before taxation........................... 5,580 10,481 12,572
Taxation (Note 13)............................... 1,298 2,603 2,281
--------- --------- ---------
Net income....................................... $ 4,282 $ 7,878 $ 10,291
========= ========= =========
Net income per share............................. $ 0.71 $ 1.31 $ 1.24
--------- --------- ---------
Weighted average number of shares and ordinary
share equivalents outstanding................... 6,000,000 6,015,190 8,286,150
--------- --------- ---------
</TABLE>
All per share data has been restated to reflect the four for one stock split
discussed in Note 18.
See accompanying notes to consolidated financial statements
F-4
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
ORDINARY SHARES OF PAR VALUE $0.25 EACH AND CLASS
"A' CONVERTIBLE SHARES OF PAR VALUE $1.00 EACH
Balance at beginning of year...................... $1,500 $ 1,500 $ 1,500
Issuance of shares (Note 11)...................... -- -- 500
------ ------- -------
Balance at end of year............................ $1,500 $ 1,500 $ 2,000
------ ------- -------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of year...................... $ -- $ 88 $ 88
Proceeds from shares issued in excess of par...... -- -- 13,957
Share capital subscription prior to
reorganization................................... 88 -- --
------ ------- -------
Balance at end of year............................ $ 88 $ 88 $14,045
------ ------- -------
UNREALIZED GAIN ON MARKETABLE SECURITIES
Balance at beginning of year...................... $ -- $ -- $ --
Unrealized gain in year........................... -- -- 147
------ ------- -------
Balance at end of year............................ $ -- $ -- $ 147
------ ------- -------
RETAINED EARNINGS...................................
Balance at beginning of year...................... $1,559 $ 5,072 $10,815
Net income........................................ 4,282 7,878 10,291
Dividends......................................... (769) (2,135) --
------ ------- -------
Balance at end of year............................ $5,072 $10,815 $21,106
------ ------- -------
TREASURY STOCK
Balance at beginning of year...................... $ -- $ -- $ --
Purchase of ordinary shares in treasury........... -- -- (938)
------ ------- -------
Balance at end of year............................ $ -- $ -- $ (938)
------ ------- -------
TOTAL SHAREHOLDERS' EQUITY.......................... $6,660 $12,403 $36,360
====== ======= =======
</TABLE>
Dividends per share were $0.13, $0.36 and $Nil for the years ended December
31, 1994, 1995 and 1996, respectively.
All per share data has been restated to reflect the four for one stock split
discussed in Note 18.
See accompanying notes to consolidated financial statements
F-5
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income......................................... $ 4,282 $ 7,878 $10,291
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 542 766 1,018
Amortization of goodwill......................... -- 55 50
Equity in income of affiliates................... -- -- (282)
Changes in non cash operating assets and
liabilities:
Fiduciary funds.................................. (5,013) (13,741) (18,349)
Insurance and reinsurance balances receivable.... (46,234) (23,338) (31,023)
Outstanding losses recoverable from reinsurers... -- (806) (5,160)
Deferred acquisition costs....................... -- (1,582) 1,436
Deferred reinsurance premiums ceded.............. -- (600) (762)
Other assets..................................... 713 (592) (942)
Deferred tax asset............................... -- (55) 217
Assets related to deposit liabilities............ (687) (2,781) (579)
Outstanding losses and loss expenses............. -- 2,076 9,916
Unearned premiums................................ -- 4,090 938
Insurance and reinsurance balances payable....... 51,485 30,017 47,065
Funds withheld................................... -- -- (355)
Accounts payable and accrued liabilities......... (282) 968 894
Income taxes payable............................. 75 972 (559)
Deferred income.................................. 552 719 522
Deposit liabilities.............................. 687 2,781 579
------- ------- -------
Net cash provided by operating activities...... 6,120 6,827 14,915
------- ------- -------
INVESTING ACTIVITIES
Purchase of capital assets......................... (1,460) (1,384) (1,446)
Sale of capital assets............................. 213 -- 58
Purchase of debt securities........................ -- -- (13,837)
Purchase of equity securities...................... -- -- (39)
Purchase of short-term investments, net............ -- -- (120)
Proceeds on sale of debt securities................ -- -- 2,273
Proceeds on sale of equity securities.............. -- -- 15
Purchase of subsidiaries, net of cash acquired..... -- -- (7,183)
Investments in affiliates.......................... (282) (20) (134)
------- ------- -------
Cash used by investing activities.............. (1,529) (1,404) (20,413)
------- ------- -------
FINANCING ACTIVITIES
Dividends.......................................... (769) (2,135) --
Net proceeds of subscription to share capital...... -- -- 14,457
Share capital subscription prior to reorganization. 88 -- --
Purchase of common shares in treasury.............. -- -- (938)
------- ------- -------
Cash (used) provided by financing activities... (681) (2,135) 13,519
------- ------- -------
Increase in cash and cash equivalents.............. 3,910 3,288 8,021
Cash and cash equivalents at beginning of year..... 383 4,293 7,581
------- ------- -------
Cash and cash equivalents at end of year........... $ 4,293 $ 7,581 $15,602
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for income taxes..... $ 580 $ 1,718 $ 1,928
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE DATA)
1. GENERAL
Stirling Cooke Brown Holdings Limited (the "Company") was incorporated in
Bermuda on December 12, 1995. The Company is a holding company engaged,
through its subsidiaries, in providing insurance services primarily in the
United States, Bermuda and Europe. The Company's activities include insurance
and reinsurance brokering, underwriting management, risk management, claims
control, loss and safety prevention, third party administration and managed
care services. The Company also acquired, in September 1996, its own United
States domiciled insurance company which, together with the Company's Bermuda
based reinsurance company, writes insurance and reinsurance business. The
Company specializes in the North American occupational accident and workers'
compensation alternative risk transfer markets.
Stirling Cooke Brown Holdings (UK) Limited was incorporated in England on
February 5, 1990 and formerly acted as the ultimate holding company for a
number of United Kingdom subsidiaries involved in the insurance brokering
industry. Realm Investments Limited was incorporated in Bermuda on September
1, 1993 and formerly acted as the ultimate holding company for a number of
Bermuda and United States subsidiaries involved in the insurance industry. On
January 23, 1996 under the terms of separate Share Purchase Agreements, the
Company exchanged 4,000,020 and 1,999,980 of its newly issued common shares
for 100% of the outstanding share capital of Stirling Cooke Brown Holdings
(UK) Limited and Realm Investments Limited, respectively.
As the exchange of shares represents a business combination of companies
under common control, it has been recorded at historical cost as if it were a
pooling of interests. The consolidated financial statements have been restated
to include the accounts and operations of Stirling Cooke Brown Holdings (UK)
Limited and Realm Investments Limited for all periods presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The following are the significant
accounting policies adopted by the Company:
a) Basis of presentation
These consolidated financial statements include the financial statements of
the Company and all of its subsidiaries (collectively referred to as the
"Company"). All significant intercompany balances and transactions have been
eliminated on consolidation. The results of a number of subsidiaries have been
included from the dates of their acquisition.
b) Marketable securities
Marketable securities comprise investments in debt and equity securities and
short term investments. All investments are classified as available for sale
and are carried at fair value. The difference between fair value and cost is
included as a separate component of shareholders' equity, net of applicable
deferred income taxes. Bond discounts and premiums are amortized over the
remaining term of the securities. Such amortization is included as a component
of net investment income in the consolidated statements of income.
F-7
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Realized gains and losses are determined on the basis of specific
identification. Investment income is recorded as earned and accrued to the
balance sheet date.
c) Premiums written, assumed and ceded
Premiums written and assumed are recorded on the accruals basis and included
in income on a pro-rata basis over the life of the policies or reinsurance
agreements to which they relate, with the unearned portion deferred in the
consolidated balance sheets. Reinsurance premiums ceded are similarly pro-
rated over the terms of the reinsurance contract with the unearned portion
being deferred in the consolidated balance sheets as deferred reinsurance
premiums ceded.
d) Acquisition costs
Acquisition costs associated with the acquisition of new or renewal
business, including commissions and brokerage, are deferred and amortized to
income over the periods in which the premiums are earned. The method followed
in determining the deferred acquisition expenses limits the amount of the
deferral to its realizable value by giving consideration to losses and
expenses expected to be incurred as premiums are earned. Future investment
income is anticipated in determining whether a premium deficiency exists.
e) Losses and loss expenses
Losses and related loss adjustment expenses are charged to income as they
are incurred and are net of losses recovered and recoverable of $Nil, $806 and
$6,775 for the years ended December 31, 1994, 1995 and 1996 respectively.
Amounts recoverable from reinsurers are estimated in a manner consistent with
the underlying liability associated with the reinsured policy. Outstanding
losses recoverable are shown separately on the consolidated balance sheets.
Reserves are established for losses and loss expenses relating to claims
which have been reported. In addition, reserves are established, in
consultation with the Company's independent actuaries, for losses which have
occurred but have not yet been reported to the Company and for adverse
development of reserves on reported losses. Management believes that the
resulting provision for outstanding losses and loss expenses is adequate to
cover the ultimate net cost of losses and loss expenses incurred, however,
such a provision is necessarily an estimate and may ultimately be settled for
a significantly greater or lesser amount. The Company has limited historical
loss experience available to serve as a reliable basis for the estimation of
ultimate losses. It is at least reasonably possible that management will
revise the estimate of outstanding losses and loss expenses significantly in
the near term. Any subsequent differences arising are recorded in the period
in which they are determined.
f) Risk management fees
The components of the Company's risk management fees are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Brokerage fees and commissions................... $11,670 $17,478 $20,117
Managing general agency fees..................... 578 2,724 6,016
Underwriting management fees..................... 2,280 3,467 4,045
Captive management and program fees.............. 0 424 1,625
Loss control and audit fees...................... 0 0 2,039
------- ------- -------
Total risk management fees..................... $14,528 $24,093 $33,842
======= ======= =======
</TABLE>
F-8
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(i) Brokerage fees and commissions are recorded and earned as premiums
are billed.
(ii) Managing general agency fees are reported net of commission expense
to agents and are initially recorded as of the effective date of the
related insurance policy. Fee income on instalment premiums is recognized
periodically when the instalment is billed. Such fees are recognized in
income over the period that services are performed in accordance with the
Company's contractual obligations. Any subsequent adjustments, including
policy cancellation and premium rate adjustments, are recorded when
determined. The portion that will be earned in the future is deferred and
reported as deferred income in the consolidated balance sheets.
(iii) Underwriting management fees are initially recorded when premium is
billed in accordance with terms of trade. Fee income on instalment premiums
is recognized periodically when the instalment is billed. Fees are
recognized in income over the period that services are performed in
accordance with the Company's contractual obligations. Any subsequent
adjustments, including policy cancellations, are recorded when determined.
The portion of recorded management fees that will be earned in the future
is deferred and reported as deferred income in the consolidated balance
sheets.
(iv) Captive management and program fees are initially recorded as of the
effective date of the insurance policy. Fee income on installment premiums
is recognized periodically when the installment is billed. Fees are
recognized in income over the period that services are performed in
accordance with the Company's contractual obligations. Certain fees are
adjustable based on the final level of premium written. Such adjustments
are recorded when determined. The portion of recorded management fees that
will be earned in the future is deferred and reported as deferred income in
the consolidated balance sheets.
(v) Loss control and audit fees comprise claims administration handling,
loss and safety control fees and premium audit fees. Such fees are
recognized as the fee is billed. A portion of such fees is deferred, and
reported as deferred income in the consolidated balance sheets, until
future periods to recognize ongoing contractual service obligations.
g) Cash and cash equivalents
The Company considers time deposits with original maturity dates of three
months or less to be equivalent to cash. Fiduciary funds are restricted from
use and are not considered cash equivalents.
h) Investments in affiliates
The Company's investments in affiliated companies which are not majority
owned or controlled are accounted for using the equity method if the Company
is able to exert significant influence. Other investments in affiliates are
carried at cost. Investments in affiliates of $111 and $526 for the years
ended December 31, 1995 and 1996, respectively, are recorded in other assets.
The Company's equity share in the net income of affiliates, for the years
ended December 31, 1994, 1995 and 1996 of $Nil, $Nil and $282 respectively is
included in other income. No dividends have been received from affiliates in
the three year period ended December 31, 1996.
i) Goodwill
Goodwill in the amount of $227 and $1,025 at December 31, 1995 and 1996
respectively is recorded in other assets and represents the excess of purchase
price over fair value of net assets acquired. Goodwill is amortized on a
straight-line basis over the expected periods to be benefitted, generally 5 to
15 years. Accumulated amortization at December 31, 1995 and 1996 is $55 and
$105, respectively. The Company assesses the recoverability of this intangible
asset by determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future operating cash
flows of the acquired operation. The amount of goodwill impairment, if any, is
F-9
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
measured based on projected discounted future operating cash flows using a
discount rate reflecting the Company's average cost of funds. The assessment
of the recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
j) Capital assets and depreciation
Capital assets are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over four to five
years, which is the estimated useful lives of the related assets.
k) Earnings per share
Net income per common share is calculated by dividing net income by the
weighted average number of common shares and common share equivalents
outstanding during the period. Stock options are considered common share
equivalents and are included in the computation of weighted average number of
common shares outstanding using the treasury stock method. There is no
material difference between primary and fully diluted net income per common
share.
l) Income taxes
Under the asset and liability method used by the Company, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the consolidated financial
statements carrying amounts of existing assets and liabilities and their
respective tax bases. A valuation allowance is provided for a portion or all
of the deferred tax assets when it is more likely than not that such portion
or all such deferred assets will not be realized.
m) Foreign exchange
The United States Dollar is the Company's functional currency. Foreign
currency monetary assets and liabilities are translated at exchange rates in
effect at the balance sheet date. Fixed assets and deferred income are
translated at the historical exchange rate. Foreign currency revenues and
expenses are translated at the exchange rates in effect at the date of the
transaction. Net exchange gains of $Nil, $Nil and $559 are included in other
income for the years ended December 1994, 1995 and 1996 respectively.
n) Derivative financial instruments
The Company is party to certain derivative financial instruments, being
forward foreign exchange contracts which are used to manage foreign currency
exposures on non-U.S. dollar denominated assets and liabilities. The Company
does not engage in derivatives for any other purpose. The carrying amounts of
derivative financial instruments, which comprise accrued gains and losses not
yet realized, are included in other assets, in the case of contracts in a gain
position, and in accounts payable and accrued liabilities in the case of
contracts in a loss position.
o) Stock compensation plans
The Company adopted FASB Statement No. 123, "Accounting for Stock-Based
Compensation", on January 1, 1996. As permitted by the statement, the Company
has elected to continue to account for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees, and,
accordingly, recognizes compensation expense for stock option grants to the
extent that the fair value of the stock exceeds the exercise price of the
option at the measurement date. Any resulting compensation expense is recorded
over the shorter of the vesting or service period.
F-10
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. ACQUISITIONS
On September 5, 1996, the Company completed the acquisition of 100% of the
outstanding share capital of Lloyd's New York Insurance Company which
subsequently changed its name to Realm National Insurance Company ("Realm
National"). The total purchase price of $8,986 comprised a cash payment to the
former owners of $8,783 and legal and other costs associated with the
acquisition of $203. The purchase price is subject to adjustment based on the
ultimate settlement of loss reserves and the collection of receivables. Such
adjustments are recorded when determined.
During 1996 the Company incorporated a new subsidiary, North American Risk,
Inc., which effective July 1, 1996, acquired the assets and liabilities of
North American Risk Limited (a limited partnership) ("NAR") for a total cash
cost of $94.
The acquisitions have been accounted for by the purchase method of
accounting and, accordingly, the purchase prices have been allocated to the
assets acquired and the liabilities assumed based on the estimated fair values
at the dates of acquisition. The excess of purchase price over the estimated
fair values of the net assets acquired has been recorded as goodwill, which is
being amortized over 15 years and 5 years for Realm National and NAR,
respectively.
The estimated fair values of assets acquired and liabilities assumed are
summarized as follows:
<TABLE>
<CAPTION>
REALM
NATIONAL NAR
-------- -----
<S> <C> <C>
Cash..................................................... $ 1,621 $ 276
Marketable securities.................................... 10,764 --
Insurance balances receivable............................ 2,485 270
Outstanding losses recoverable from reinsurers........... 10,623 --
Deferred acquisitions costs.............................. 26 --
Deferred reinsurance premiums ceded...................... 5,861 --
Other assets and prepayments............................. 112 12
Deferred tax asset....................................... 426 --
Capital assets........................................... 52 94
Intangible assets........................................ 766 83
Outstanding losses and loss expenses..................... (12,309) --
Unearned premiums........................................ (7,487) --
Funds held............................................... (1,739) --
Insurance and reinsurance balances payable............... (1,927) (445)
Other liabilities........................................ (288) (196)
------- -----
$ 8,986 $ 94
======= =====
</TABLE>
Operating results of Realm National and NAR are included in the Company's
consolidated results of operations from the effective dates of the
acquisitions.
Proforma financial information prepared as if the acquisitions had occurred
at the beginning of the periods presented has not been provided since the
effects would not be material due to the run-off nature of Realm's business
pending its sale. Realm National formerly provided property, marine and
agricultural coverages. Realm National is expected to be used in the future as
a policy issuing company in conjunction with the Company's workers'
compensation programs.
4. CONTINGENT LIABILITIES
In the normal course of reinsurance operations the Company's bankers have
issued letters of credit totaling $2,118 and $7,015 at December 31, 1995 and
1996 respectively in favor of the ceding
F-11
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
insurance companies. At December 31, 1995 and 1996, $2,144 and $7,015 of cash
and cash equivalents were pledged as collateral for these letters of credit
respectively.
One of the Company's subsidiaries is registered with the Society of Lloyd's
as a registered Lloyd's Broker. As required by Lloyd's Brokers Byelaw (No. 5
of 1998), the subsidiary has entered into a trust deed under which all
insurance broking account assets are subject to a floating charge held in
trust for the Society of Lloyd's for the benefit of the insurance creditors
which, at December 31, 1995 and 1996, amounted to $53,249 and $80,070
respectively including relevant creditors of other subsidiaries.
The charge only becomes enforceable under certain circumstances as set out
in the deed. The assets which were subject to this floating charge at December
31, 1995 and 1996 were:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Fiduciary funds.......................................... $ 8,097 $13,925
Insurance and reinsurance balances receivable............ 51,670 67,749
------- -------
$59,767 $81,674
======= =======
</TABLE>
5. FIDUCIARY FUNDS
In its various capacities, the Company collects premiums from insureds and
their brokers, and after deducting its management fee, surplus lines taxes and
stamping fees, remits the premiums to the respective insurance underwriters;
the Company also collects claims or refunds from underwriters on behalf of
insureds. Unremitted insurance premiums, claims and refunds are held in a
fiduciary capacity. Interest income on these fiduciary funds is recorded in
net investment income.
6. MARKETABLE SECURITIES
a) The cost/amortized cost and estimated fair value of marketable securities
held as available for sale at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
-----------------------------------------
COST/ GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. Government
agencies............................ $ 6,963 $ 75 $-- $ 7,038
Foreign government................... 1,063 1 3 1,061
Obligations of states and political
subdivisions........................ 1,090 -- -- 1,090
Corporate securities................. 9,866 -- 22 9,844
------- ---- ---- -------
Debt securities...................... 18,982 76 25 19,033
Equity securities.................... 3,295 236 65 3,466
Short term investments............... 120 -- -- 120
------- ---- ---- -------
Total.............................. $22,397 $312 $ 90 $22,619
======= ==== ==== =======
</TABLE>
A deferred tax liability of $75 at December 31, 1996, has been provided
against unrealized gains on marketable securities held as "available for sale"
which has been presented net as a separate component of shareholders' equity.
F-12
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
b) The amortized cost and estimated fair value of debt securities at
December 31, 1996, by contractual maturity are shown in the following table.
Actual maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
1996
-------------------
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less............................... $ 4,180 $ 4,179
Due after one year through five years................. 14,261 14,300
Due after five years through ten years................ 541 554
------- -------
$18,982 $19,033
======= =======
</TABLE>
c) Proceeds from sales of investments in debt securities during 1996 were
$2,273. Proceeds from sales of investments in equity securities during 1996
were $15. There were no realized gains or losses on the sale of marketable
securities during 1996.
d) At December 31, 1996, debt securities having an amortized cost of $2,563
were on deposit with government authorities as required by law.
e) At December 31, 1996, there were no individual investments, other than
investments in U.S. Government securities, which exceeded 10% of shareholders'
equity.
f) Net investment income by source is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Bonds............................................... $ -- $ -- $ 134
Common stock........................................ -- -- 67
Cash, cash equivalents and short-term
investments........................................ 770 2,388 3,216
Other............................................... -- -- 1
------ ------ ------
Total investment income........................... 770 2,388 3,418
Less applicable expenses.......................... -- -- 13
------ ------ ------
Net investment income............................. $ 770 $2,388 $3,405
====== ====== ======
</TABLE>
7. OTHER ASSETS
Included within other assets are capital assets as follows:
<TABLE>
<CAPTION>
1995
----------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------ ------------ --------
<S> <C> <C> <C>
Furniture and fixtures....................... $ 819 $ 364 $ 455
Computer equipment........................... 1,909 771 1,138
Office equipment............................. 452 136 316
Motor vehicles............................... 945 357 588
------ ------ ------
Total...................................... $4,125 $1,628 $2,497
====== ====== ======
</TABLE>
F-13
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1996
----------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
------ ------------ --------
<S> <C> <C> <C>
Furniture and fixtures...................... $1,217 $ 502 $ 715
Computer equipment.......................... 2,542 1,229 1,313
Office equipment............................ 649 256 393
Motor vehicles.............................. 1,092 500 592
------ ------ ------
Total..................................... $5,500 $2,487 $3,013
====== ====== ======
</TABLE>
8. DEPOSIT LIABILITIES AND RELATED ASSETS
Certain of the Company's reinsurance contracts, referred to as rent-a-
captive programs, do not satisfy the conditions for reinsurance accounting as
the maximum exposure to loss is fully funded by premium, cash and other
collateral and indemnity agreements. Accordingly, these contracts are
accounted for as deposit liabilities. The Company agrees to return the
underwriting and investment earnings realized on the programs to the insured.
Premiums and other consideration received, together with net investment income
earned on the underlying assets, are recorded as a deposit liability and loss
payments made under the contracts are recorded as a deduction from the
deposit. The assets related to these programs represent funds under management
as the insured retains the risks and rewards of ownership. Such assets are
recorded as assets related to deposit liabilities in the consolidated balance
sheets. These assets comprised cash and short-term deposits at December 31,
1995 and 1996. The Company receives a fee based on a percentage of premiums
written and investment income earned for structuring and providing ongoing
management of the programs.
In addition, deposit liabilities and related assets include $1,680 and
$2,216 of deposits received from customers as security for the timely payment
of premiums for workers' compensation insurance at December 31, 1995 and 1996,
respectively. The deposit is restricted from use by the Company, and is the
property of the customer. The deposit is refunded to the customer after the
policy expires or is canceled and all claims related to the insurance policy
have been settled. The interest income earned by these restricted deposit
accounts is the property of the customer, and is therefore excluded from the
Company's operating results.
9. REINSURANCE ASSUMED AND CEDED
The Company accounts for reinsurance assumed and ceded in accordance with
SFAS 113 "Accounting and Reporting for Reinsurance of Short-Duration and Long-
Duration Contracts".
Net premiums earned are the result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Premiums written................................ $ -- $ -- $ 4,009
Premiums assumed................................ -- 7,774 12,467
Change in unearned premiums..................... -- (4,090) (938)
------- ------- -------
Premiums earned................................. -- 3,684 15,538
------- ------- -------
Premiums ceded.................................. -- 1,130 7,546
Change in deferred reinsurance premiums ceded... -- (600) (762)
------- ------- -------
Net premiums ceded.............................. -- 530 6,784
------- ------- -------
Net premiums earned............................. $ -- $ 3,154 $ 8,754
======= ======= =======
</TABLE>
F-14
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company, in the ordinary course of business, reinsures certain risks
with other companies. Such arrangements serve to enhance the Company's
capacity to write business and limit the Company's maximum loss on large or
unusually hazardous risks.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of the reinsurers
to minimize its exposure to significant losses from reinsurer insolvencies.
At December 31, 1995 and 1996, there were no amounts due from any individual
reinsurer in excess of 10% of the Company's shareholders' equity.
10. OUTSTANDING LOSSES AND LOSS EXPENSES
Outstanding losses and loss expenses relate to the insurance activities of
Comp Indemnity Reinsurance Company Limited ("CIRCL") and Realm National, which
was acquired on September 5, 1996.
The changes in outstanding losses and loss expenses are summarized as
follows:
<TABLE>
<CAPTION>
1995 1996
------ -------
<S> <C> <C>
Balance for CIRCL at start of year........................ $ -- $ 2,076
Less reinsurance recoverables............................. -- 806
------ -------
Net balance for CIRCL, at start of year................... -- 1,270
Net balance for Realm National, at acquisition............ -- 1,687
------ -------
-- 2,957
Incurred related to:
Current year............................................ 1,385 6,515
Prior years............................................. -- 250
------ -------
Total incurred........................................ 1,385 6,765
------ -------
Paid related to:
Current year............................................ 115 1,334
Prior years............................................. -- 675
------ -------
Total paid............................................ 115 2,009
------ -------
Net balance............................................... 1,270 7,713
Plus reinsurance recoverable.............................. 806 16,588
------ -------
Balance at end of year.................................... $2,076 $24,301
====== =======
</TABLE>
11. SHARE CAPITAL AND ADDITIONAL PAID IN CAPITAL
The Company's authorized share capital at December 31, 1996, comprised
8,048,000 ordinary shares of par value $0.25 each and 25 Class "A' non-voting
convertible shares, with a par value of $1.00 each, of which 6,000,000 and
8,000,000 of the ordinary shares and nil and 25 Class "A' non-voting
convertible shares are issued and fully paid at December 31, 1995 and 1996
respectively.
F-15
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As discussed in note 1 to the consolidated financial statements, during
1996, the Company issued 4,000,020 and 1,999,980 shares in exchange for 100%
of the share capital of Stirling Cooke Holdings (UK) Limited and Realm
Investments Limited, respectively. The Company also issued 2,000,000 ordinary
shares and 25 Class "A' convertible shares to a private investor group.
Contemporaneously, the private investor group also acquired additional
ordinary shares from existing shareholders on a pro-rata basis, such that the
private investor group's total ownership represented 32.5% of the total number
of issued ordinary share capital at that time.
The 2,000,000 ordinary shares issued to the private investor group are
subject to a put option whereby, after 2004, the holders of such shares could
request that the Company repurchase the shares for fair market value at that
date.
This put option expires upon consummation by the Company of an initial
public offering ("IPO"). The ordinary shares have been reclassified into
shareholders' equity in anticipation of the IPO and resulting termination of
the put option.
The ordinary shares are entitled to one vote per share. The Class "A' shares
entitle the holder to such number of bonus and fully paid up ordinary shares
as will ensure that the holder retains 32.5% of the total number of issued
ordinary shares of the Company in the event that any of the stock options
discussed in note 12 to the consolidated financial statements are exercised.
The Class "A' shares are non-voting and are not entitled to any dividend or
distribution of the Company's assets in excess of their par value.
During 1996 the Company repurchased 202,784 of its ordinary shares from one
of its founding shareholders. Treasury stock is recorded at cost as a
deduction from shareholders' equity. Under certain circumstances the Company
may purchase a further 40,000 shares. The purchase price for such shares
varies but will not be material to the Company.
The share amounts have been retroactively restated to reflect the four-for-
one stock split effective June 30, 1997 (see note 18).
12. STOCK OPTIONS
On June 29, 1995, the Company granted 600,000 options to certain employee
shareholders. The terms of the options were subsequently amended in 1996 to
reflect the share exchange factor in the Share Purchase Agreements discussed
in note 1.
The options have an exercise price of $2.71 per share, which reflects the
estimated fair value of the options at the original grant date as updated for
the exchange factor. The options may be exercised at any time prior to January
23, 2003.
As the exercise price approximated the fair value of the Company's shares at
the grant, no compensation expense has been recorded in connection with the
grants.
13. TAXATION
Under current Bermuda law, the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company has received an
undertaking from the Minister of Finance in Bermuda that in the event of any
such taxes being imposed the Company will be exempted from taxation until the
year 2016.
F-16
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Total income tax expense for the years ended December 31, 1994, 1995 and
1996 was allocated as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Income from continuing operations................... $1,298 $2,603 $2,281
Shareholders' equity (for unrealized gains on
marketable securities)............................. -- -- 75
------ ------ ------
$1,298 $2,603 $2,356
====== ====== ======
</TABLE>
Income tax expense attributable to income from continuing operations
consists of:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Year ended December 31, 1994
US Federal and State........................... $ -- $ -- $ --
Foreign (UK)................................... 1,298 -- 1,298
------ ----- ------
$1,298 -- $1,298
====== ===== ======
Year ended December 31, 1995
US Federal and State........................... $ 98 $ (55) $ 43
Foreign (UK)................................... 2,560 -- 2,560
------ ----- ------
$2,658 $ (55) $2,603
====== ===== ======
Year ended December 31, 1996
US Federal and State........................... $ 572 $(284) $ 288
Foreign (UK)................................... 1,993 -- 1,993
------ ----- ------
$2,565 $(284) $2,281
====== ===== ======
</TABLE>
Income tax expense attributable to income from continuing operations was
$1,298, $2,603 and $2,281 for the years ended December 31, 1994, 1995 and 1996
respectively, and differed from the amounts computed by applying the US
federal income tax rate of 34% to income before taxation as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
<S> <C> <C> <C>
Computed expected tax expense................... $1,897 $ 3,564 $ 4,274
Foreign income not subject to US taxes.......... (550) (1,131) (1,939)
Income subject to tax at foreign rates.......... (106) 138 (55)
Change in valuation allowance................... 57 6 127
Miscellaneous permanent differences............. -- 26 56
Acquired temporary difference................... -- -- (257)
State taxes..................................... -- -- 75
------ ------- -------
Actual tax expense.............................. $1,298 $ 2,603 $ 2,281
====== ======= =======
</TABLE>
F-17
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred liabilities at December 31,
1995 and 1996, are presented below:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred revenue........................................... $118 $339
Discount on unearned premiums and outstanding loss
reserves.................................................. -- 190
Valuation allowance........................................ (63) (190)
---- ----
55 339
Deferred tax liabilities:
Unrealized investment gains................................ -- (75)
---- ----
Net deferred tax asset....................................... $ 55 $264
==== ====
</TABLE>
Valuation allowances of $63 and $190 have been established against the
deferred tax asset as of December 31, 1995 and 1996 respectively. The ultimate
realization of this deferred tax asset depends on the ability of the Company
and its subsidiaries to generate sufficient taxable income during the periods
in which those temporary differences become deductible.
The Company has not recognized a deferred tax liability for the
undistributed earnings of its United States subsidiaries. (A 30% tax is
generally imposed in the United States on dividends paid by United States
corporations to non-United States shareholders). The Company does not expect
those unremitted earnings to become taxable in the foreseeable future. A
deferred tax liability will be recognized when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as the
receipt of dividends.
14. FINANCIAL INSTRUMENTS
a) Fair value
The carrying values of all financial instruments, as defined by SFAS 107 and
as recorded in the consolidated balance sheets approximate their fair value.
The Company does not have any significant off-balance sheet financial
instruments. The following methods and assumptions were used by the Company in
estimating fair values:
Cash and cash equivalents and fiduciary funds: The fair values for these
instruments approximate their carrying amounts because of the short
maturity of such instruments.
Marketable securities: The fair values of debt and equity securities are
based on quoted market prices and dealer quotes at the consolidated balance
sheet dates.
Deposit liabilities and related assets: Underlying assets comprise mainly
cash and deposits. The fair values of these assets and related liabilities
approximate their carrying value due to the short maturity of these
instruments.
Forward foreign exchange contracts: The fair values of such contracts are
based on quoted forward rates available for the remaining duration of the
contracts at the balance sheet dates.
Other assets and liabilities: The fair values of all other financial
instruments, as defined by SFAS 107, approximate their carrying values due
to their short-term nature.
The estimates of fair values presented herein are subjective in nature and
are not necessarily indicative of the amounts that the Company would actually
realize in a current market exchange. Any differences would not be expected to
be material. Certain instruments such as prepaid expenses, other
F-18
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
assets, goodwill and deferred expenses, deferred fee income and outstanding
losses and loss expenses are excluded from fair value disclosure. Thus the
total fair value amounts cannot be aggregated to determine the underlying
economic value of the Company.
b) Concentrations of credit risk
The Company's financial instruments exposed to possible concentrations of
credit risk consist primarily of its cash and cash equivalents, outstanding
losses recoverable from reinsurers and insurance and reinsurance balances
receivable.
The Company maintains a substantial portion of its cash and cash equivalents
in two financial institutions which the Company considers of high credit
quality.
Concentrations of credit risk with respect to other financial instruments
are limited due to the large number of reinsurers, agents and customers
comprising the Company's receivable base. Management does not anticipate
significant credit losses from such financial instruments.
c) Forward foreign exchange contracts
The Company's functional currency is the U.S. dollar; however, as the
Company operates internationally, it has exposure to changes in foreign
currency exchange rates. These exposures include net cash inflows on non-U.S.
dollar denominated transactions.
To manage the Company's exposure to these risks, the Company enters into
forward foreign exchange contracts in the currencies to which the Company is
exposed. These contracts generally involve the exchange of one currency for
another at some future date. The Company has a notional principal amount
outstanding of (Pounds)Nil and (Pounds)2,000, at December 31, 1995 and 1996
respectively, relating to contracts to buy British Pounds Sterling in the
future. Net unrealized gains on these forward contracts of $Nil, $Nil and $170
for the years ended December 31, 1994, 1995 and 1996 respectively, have been
accrued in other income and included in other assets in the consolidated
balance sheets. A net realized gain of $Nil, $Nil and $465 is included in
other income in the consolidated statements of income in respect of such
contracts during the years ended December 31, 1994, 1995 and 1996
respectively.
15. SEGMENTAL INFORMATION
a) The Company's two business segments are Risk Management, which represents
the Company's fee income less operating expenses, and Underwriting which
represents the Company's income from underwriting risks it retains. Summarized
financial information by business segment for the years ended December 31,
1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994
-------------------------------------------------
ADJUSTMENTS
RISK AND
MANAGEMENT UNDERWRITING ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $15,298 $-- $ -- $15,298
======= ==== ======= =======
Income before taxation.. $ 5,580 $-- $ -- $ 5,580
======= ==== ======= =======
Identifiable assets..... $82,300 $-- $(9,025) $73,275
======= ==== ======= =======
</TABLE>
F-19
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1995
-------------------------------------------------
ADJUSTMENTS
RISK AND
MANAGEMENT UNDERWRITING ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $ 26,469 $ 3,233 $ (67) $ 29,635
======== ======= ========= ========
Income before taxation.. $ 9,982 $ 432 $ 67 $ 10,481
======== ======= ========= ========
Identifiable assets..... $179,095 $10,151 $ (68,606) $120,640
======== ======= ========= ========
<CAPTION>
1996
-------------------------------------------------
ADJUSTMENTS
RISK AND
MANAGEMENT UNDERWRITING ELIMINATIONS CONSOLIDATED
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues................ $ 37,448 $ 9,394 $ -- $ 46,842
======== ======= ========= ========
Income before taxation.. $ 12,589 $ 251 $ (268) $ 12,572
======== ======= ========= ========
Identifiable assets..... $303,890 $68,221 $(144,125) $227,986
======== ======= ========= ========
</TABLE>
Significantly all of the amounts charged for depreciation and amortization,
and capital expenditures relate to the Risk Management segment for all years.
The revenue of each industry segment includes revenues both from services to
unaffiliated customers and from intersegment sales. Interest income from
services outside the Company is included in revenue if the asset on which the
interest is earned is included among the segment's identifiable assets.
b) Summarized financial information by geographic location for the years
ended December 31, 1994, 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
1994
---------------------------------------------------
ADJUSTMENTS
U.K. AND AND
BERMUDA EUROPE U.S.A. ELIMINATIONS CONSOLIDATED
------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 3,049 $ 11,655 $ 594 $ -- $ 15,298
======= ======== ======= ========= ========
Income before taxation... $ 1,805 $ 3,943 $ (168) $ -- $ 5,580
======= ======== ======= ========= ========
Identifiable assets...... $10,255 $ 66,908 $ 4,925 $ (8,813) $ 73,275
======= ======== ======= ========= ========
<CAPTION>
1995
---------------------------------------------------
ADJUSTMENTS
U.K. AND AND
BERMUDA EUROPE U.S.A. ELIMINATIONS CONSOLIDATED
------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................. $ 8,607 $ 17,851 $ 3,177 $ -- $ 29,635
======= ======== ======= ========= ========
Income before taxation... $ 3,392 $ 7,058 $ 31 $ -- $ 10,481
======= ======== ======= ========= ========
Identifiable assets...... $46,293 $133,935 $ 9,018 $ (68,606) $120,640
======= ======== ======= ========= ========
<CAPTION>
1996
---------------------------------------------------
ADJUSTMENTS
U.K. AND AND
BERMUDA EUROPE U.S.A. ELIMINATIONS CONSOLIDATED
------- -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................. $17,279 $ 18,248 $11,315 $ -- $ 46,842
======= ======== ======= ========= ========
Income before taxation... $ 5,759 $ 5,967 $ 846 $ -- $ 12,572
======= ======== ======= ========= ========
Identifiable assets...... $88,653 $185,401 $83,148 $(129,216) $227,986
======= ======== ======= ========= ========
</TABLE>
F-20
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income before taxation is total revenues less operating expenses. In
computing income before taxation by segment, income taxes have not been
deducted.
Identifiable assets by segment are those assets that are used in the
Company's operations in each segment.
c) The Company's managing general agencies market insurance products and
programs developed by the Company on behalf of independent insurance carriers.
In addition, the Company through its brokering and reinsurance brokering
operations, managing general underwriters, claims and loss control servicing
operations provides additional business and services to certain of these
independent insurance carriers in respect of these products and other
insurance and reinsurance policies. For the year ended December 31, 1996, fees
received from one independent insurance carrier accounted for approximately
55% of the Company's total revenues. Although the loss of this carrier could
have a material adverse effect on the Company, the Company believes that Realm
National and other independent insurance carriers have sufficient underwriting
capacity to reduce the impact of such a loss.
16. COMMITMENTS
Future minimum lease payments under non-cancelable operating leases as at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996
-------
<S> <C>
1997............................. $ 1,711
1998............................. 1,672
1999............................. 1,338
2000............................. 1,187
2001............................. 970
2002 and thereafter.............. 4,111
-------
$10,989
=======
</TABLE>
Total rental expense for the years ended December 31, 1994, 1995 and 1996,
was $649, $867 and $1,319, respectively.
Certain lease commitments are subject to annual adjustment under escalation
clauses, for real estate taxes and the landlord's operating expenses.
17. STATUTORY SURPLUS AND DIVIDEND RESTRICTIONS
The Company's ability to pay dividends is subject to certain restrictions
including the following:
a) The Company is subject to a 30% withholding tax on certain dividends and
interest received from its United States subsidiaries.
b) Under New York law, Realm National may pay cash dividends only from
earned surplus determined on a statutory basis. Further, Realm National is
restricted (on the basis of the lower of 10% of statutory surplus at the end
of the preceding twelve-month period or 100% of the adjusted net investment
income for the preceding twelve-month period) as to the amount of dividends it
may declare or pay in any twelve-month period without the approval of the
Insurance Department of the State of New York.
Realm National did not have any earned surplus available for the payment of
dividends in 1996 due to its statutory-basis accumulated deficit.
Additionally, $101 of statutory surplus has been
F-21
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
segregated as special funds as of December 31, 1996 and will not become
available for dividend payments until earned.
Realm National's total surplus and net income determined on a United States
statutory basis are as follows:
<TABLE>
<S> <C>
Total surplus at December 31, 1996............................... $19,924
Net income for year ended December 31, 1996...................... $ 154
</TABLE>
c) The NAIC has a model law which establishes certain minimum risk-based
capital (RBC) requirements for property-casualty insurance companies. The RBC
calculation serves as a benchmark for the regulation of insurance companies by
state insurance regulators. The calculation specifies various formulas and
weighting factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk and are set forth in the RBC
requirements. The capital of Realm National as of December 31, 1996 exceeds
the amount calculated using the RBC requirements.
d) Realm National is licensed by the Insurance Department of the State of
New York (the "Department") to write Special Risk insurance. Special Risk
business represents business that is sold at rates that are not subject to
prior approval of the Department. The Department's rules and regulations limit
the amount of Special Risk business that a company may write based on the
aggregate writings of the Company. In 1994, Realm National disposed of its
agricultural and ocean marine books of business as a condition precedent to
the sale of Realm National to a prospective buyer. As a result, Realm National
was no longer in compliance with the Department's limitation on Special Risk
premium writings. Realm National has received a waiver of such limitations
from the Department through September 5, 1997.
e) The Company's Bermuda insurance subsidiary, CIRCL, is required by its
license to maintain capital and surplus greater than a minimum statutory
amount determined as the greater of a percentage of outstanding losses and
loss expenses (net of reinsurance recoverable) or a given fraction of net
written premiums. At December 31, 1995 and 1996, CIRCL was required to
maintain a minimum statutory capital and surplus of $1,297 and $1,520
respectively.
CIRCL's total surplus and net income determined on a Bermuda statutory basis
are as follows:
<TABLE>
<CAPTION>
1995 1996
------- ------
<S> <C> <C>
Total surplus at December 31............................. $ (248) $2,319
Net income for year ended December 31.................... $(1,150) $1,688
</TABLE>
CIRCL is also required to maintain a minimum liquidity ratio whereby the
value of its relevant assets are not less than 75% of the amount of its
relevant liabilities. Certain categories of assets do not qualify as relevant
assets under the statute. At December 31, 1995 and 1996, CIRCL was required to
maintain relevant assets of at least $142 and $9,412 respectively. At these
dates relevant assets were approximately $5,277 and $14,932 respectively, and
the minimum liquidity ratio was therefore met.
18. EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
On June 30, 1997, the Company effected a four for one stock split whereby
each of the Company's common shares of par value $1.00 each were divided into
four common shares of par value $0.25 each.
All share and per share data included in these consolidated financial
statements have been restated to reflect the stock split.
F-22
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
UNAUDITED CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<S> <C>
ASSETS
Marketable securities, at fair value (amortized cost--$21,502)........ $ 21,566
Cash and cash equivalents............................................. 11,209
Fiduciary funds....................................................... 60,314
Insurance and reinsurance balances receivable......................... 208,030
Outstanding losses recoverable from reinsurers........................ 19,164
Deferred acquisition costs............................................ 293
Deferred reinsurance premiums ceded................................... 7,252
Deferred tax asset.................................................... 325
Other assets.......................................................... 9,989
Assets related to deposit liabilities................................. 4,877
--------
Total assets...................................................... $343,019
========
LIABILITIES
Outstanding losses and loss expenses.................................. $ 30,381
Unearned premiums..................................................... 12,455
Deferred income....................................................... 2,319
Insurance and reinsurance balances payable............................ 243,789
Funds withheld........................................................ 552
Accounts payable and accrued liabilities.............................. 3,472
Income taxes payable.................................................. 3,491
Deposit liabilities................................................... 4,877
--------
Total liabilities................................................. 301,336
--------
SHAREHOLDERS' EQUITY
Share capital
Authorized 20,000,000 Ordinary Shares of par value $0.25 each
Issued and fully paid 8,488,372 Ordinary Shares (Note 2)............ 2,122
Additional paid in capital............................................ 15,448
Notes receivable on exercise of options (Note 2)...................... (1,625)
Unrealized gain on marketable securities.............................. 42
Retained earnings..................................................... 25,696
--------
Total shareholders' equity........................................ 41,683
--------
Total liabilities and shareholders' equity........................ $343,019
========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-23
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
REVENUES
Risk management fees..................................... $ 14,993 $ 21,577
Net premiums earned...................................... 4,846 6,147
Net investment income.................................... 1,349 2,910
Other income............................................. 607 389
---------- ----------
Total revenues....................................... 21,795 31,023
---------- ----------
EXPENSES
Net losses and loss expenses incurred.................... 3,664 5,480
Acquisition costs........................................ 1,103 295
Depreciation and amortization of capital assets.......... 465 602
Amortization of goodwill................................. 13 190
Operating expenses....................................... 10,085 16,884
---------- ----------
Total expenses....................................... 15,330 23,451
---------- ----------
Income before taxation................................... 6,465 7,572
Taxation................................................. 1,319 1,394
---------- ----------
Net income............................................... $ 5,146 $ 6,178
========== ==========
Net income per share..................................... $ 0.63 $ 0.75
---------- ----------
Weighted average number of shares and common share
equivalents outstanding................................. 8,189,444 8,267,835
---------- ----------
</TABLE>
All per share data has been restated to reflect the four for one stock split
discussed in Note 2.
See accompanying notes to unaudited consolidated financial statements
F-24
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
ORDINARY SHARES OF PAR VALUE $0.25 EACH AND CLASS "A'
CONVERTIBLE SHARES OF PAR VALUE $1.00 EACH
Balance at beginning of period............................ $ 1,500 $ 2,000
Issuance of shares (Note 2)............................... 500 72
Options exercised......................................... -- 150
Cancellation of ordinary shares in treasury............... -- (100)
------- --------
Balance at end of period.................................. $ 2,000 $ 2,122
------- --------
ADDITIONAL PAID IN CAPITAL
Balance at beginning of period............................ $ 88 $ 14,045
Proceeds from shares issued in excess of par.............. 13,957 --
Proceeds from exercise of options in excess of par........ -- 1,475
Issuance of shares (Note 2)............................... -- (72)
------- --------
Balance at end of period.................................. $14,045 $ 15,448
------- --------
NOTES RECEIVABLE
Balance at beginning of period............................ $ -- $ --
Receivable on exercise of options......................... -- ( 1,625)
------- --------
Balance at end of period.................................. $ -- $ (1,625)
------- --------
UNREALIZED GAIN ON MARKETABLE SECURITIES
Balance at beginning of period............................ $ -- $ 147
Movement in unrealized gain in period..................... -- (105)
------- --------
Balance at end of period.................................. $ -- $ 42
------- --------
RETAINED EARNINGS
Balance at beginning of period............................ $10,815 $ 21,106
Net income................................................ 5,146 6,178
Cancellation of ordinary shares in treasury............... -- (1,588)
------- --------
Balance at end of period.................................. $15,961 $ 25,696
------- --------
TREASURY STOCK
Balance at beginning of period............................ $ -- $ (938)
Purchase of ordinary shares in treasury................... -- (812)
Sale of ordinary shares in treasury....................... -- 61
Cancellation of ordinary shares in treasury............... -- 1,689
------- --------
Balance at end of period.................................. $ -- $ --
------- --------
TOTAL SHAREHOLDERS' EQUITY.................................. $32,006 $ 41,683
======= ========
</TABLE>
No dividends were paid for the periods ended June 30, 1996 and 1997. All per
share data has been restated to reflect the four for one stock split discussed
in Note 2.
See accompanying notes to unaudited consolidated financial statements
F-25
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 5,146 $ 6,178
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 465 602
Amortization of goodwill............................... 13 190
Amortization of marketable securities.................. -- 90
Equity in income of affiliates......................... (143) (349)
Net realized gain on sale of marketable securities..... -- (420)
Profit on disposal of capital assets................... -- (4)
Changes in non cash operating assets and liabilities:
Fiduciary funds........................................ (12,306) (10,074)
Insurance and reinsurance balances receivable.......... 7,445 (104,275)
Outstanding losses recoverable from reinsurers......... (2,154) (2,576)
Deferred acquisition costs............................. 1,173 (122)
Deferred reinsurance premiums ceded.................... (1,230) (29)
Other assets........................................... 209 (962)
Deferred tax asset..................................... (50) (7)
Assets related to deposit liabilities.................. (981) (830)
Outstanding losses and loss expenses................... 4,339 6,080
Unearned premiums...................................... 911 (60)
Insurance and reinsurance balances payable............. 1,422 102,306
Funds withheld......................................... -- (832)
Accounts payable and accrued liabilities............... (25) 227
Income taxes payable................................... 82 1,315
Deferred income........................................ 429 (157)
Deposit liabilities.................................... 981 830
-------- ---------
Net cash provided (used) by operating activities..... 5,726 (2,879)
-------- ---------
INVESTING ACTIVITIES
Purchase of capital assets............................... (599) (919)
Sale of capital assets................................... -- 132
Purchase of debt securities.............................. -- --
Purchase of equity securities............................ -- (3,976)
Purchase of short-term investments, net.................. -- (3,976)
Proceeds on sale of debt securities...................... -- 2,091
Proceeds on sale of equity securities.................... -- 7,087
Investments in affiliates................................ (116) --
Acquisition of business.................................. -- (1,202)
-------- ---------
Cash used by investing activities.................... (715) (763)
-------- ---------
FINANCING ACTIVITIES
Net proceeds of subscription to share capital............ 14,457 --
Sale of common shares in treasury........................ -- 61
Purchase of common shares in treasury.................... -- (812)
-------- ---------
Cash provided (used) by financing activities......... 14,457 (751)
-------- ---------
Increase (decrease) in cash and cash equivalents......... 19,468 (4,393)
Cash and cash equivalents at beginning of period......... 7,581 15,602
-------- ---------
Cash and cash equivalents at end of period............... $ 27,049 $ 11,209
======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for income taxes........... $ 1,287 $ 139
======== =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
F-26
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1997
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE
DATA)
1. INTERIM ACCOUNTING POLICY
In the opinion of management of Stirling Cooke Brown Holdings Limited (the
"Company"), the accompanying unaudited consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of the Company and the
results of operations and cash flows for the six months ended June 30, 1996
and 1997. Although the Company believes that the disclosure in these financial
statements is adequate to make the information presented not misleading,
certain information and footnote information normally included in financial
statements prepared in accordance with generally accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. Results of operations for the six
months ended June 30, 1997 are not necessarily indicative of what operating
results may be for the full year. In addition, these unaudited consolidated
financial statements and notes thereto should be read in conjunction with the
audited consolidated financial statements presented herein.
2. CAPITAL TRANSACTIONS
a) In April 1997, the Company purchased 213,732 of its common shares from a
founding shareholder for a total cost of $812. Such shares were recorded as
treasury stock at cost.
b) In June 1997, the Company reissued 16,000 common shares of its treasury
stock for a total subscription price of $61.
c) On June 30, 1997, the remaining 400,516 common shares held in treasury at
that date were canceled. The excess cost of treasury shares over their par
value was recorded as a deduction from retained earnings.
d) On June 30, 1997, the Company increased its authorized share capital to
20,000,000 common shares of par value $0.25 each.
e) On June 30, 1997, the shareholders exercised their options to purchase
600,000 common shares in the Company (see note 12 to the consolidated
financial statements) at an exercise price of $2.71 per share.
Contemporaneously, 288,888 common shares of par value of $0.25 each were
issued to the holders of the Class "A' shares pursuant to certain anti-
dilution rights, and the Class "A' shares were repurchased by the Company for
nominal consideration. The $72 excess of the par value of the common shares
issued over the original par value of the Class "A' shares was recorded as a
deduction from additional paid in capital. On June 30, 1997 the Company loaned
the shareholders $1,625, an amount equal to the aggregate exercise price of
the options. Such loans are evidenced by promissory notes, bear interest at 7%
per annum and mature in June 1998. Notes receivable are recorded as a
deduction for shareholders' equity at June 30, 1997. Included within notes
receivable are $325, $866 and $109 due from Messrs. Cooke, Brown and Jones,
respectively.
f) On June 30, 1997, the Company effected a four for one stock split whereby
each of the Company's common shares of par value $1.00 each were divided into
four common shares of par value $0.25 each.
All share and per share data included in these unaudited consolidated
financial statements have been restated to reflect the stock split.
F-27
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of such Underwriters, for whom Goldman,
Sachs & Co. and Dillon, Read & Co. Inc. are acting as representatives, has
severally agreed to purchase from the Company and the Selling Shareholders,
the respective number of Ordinary Shares set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
ORDINARY
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Goldman, Sachs & Co.............................................
Dillon, Read & Co. Inc..........................................
-------
Total.......................................................
=======
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Ordinary Shares
offered hereby, if any are taken. Pursuant to the Underwriting Agreement, the
representatives of the Underwriters will purchase, on an equal basis, the
Ordinary Shares offered on behalf of the GS Funds in the Offering immediately
following the execution of the Underwriting Agreement, in exchange for notes
of the representatives of the Underwriters. The notes to be issued to the GS
Funds will be payable on the earlier of the closing of the Offering and 15
days from the date of this Prospectus. The number of Ordinary Shares each
respective Underwriter is severally obligated to purchase, as set forth above,
will not be affected by the foregoing arrangements. Each of the GS Funds has
granted to the representatives of the Underwriters the right to require it to
purchase, in the event that the Offering is not consummated, the Ordinary
Shares being purchased by the representatives of the Underwriters from such GS
Fund in the Offering, for a purchase price consisting of the cancellation of
the note issued to such GS Fund.
The Underwriters propose to offer the Ordinary Shares in part directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus, and in part to certain securities dealers at such price less
a concession of $ per share. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the Ordinary Shares are released for sale
to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
Certain of the Selling Shareholders have granted the Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of additional Ordinary Shares to cover over-allotments, if any.
If the Underwriters exercise their over-allotment option, the Underwriters
have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of Ordinary Shares
to be purchased by each of them, as shown in the foregoing table, bears to the
Ordinary Shares offered.
The Company, the Selling Shareholders and each director and executive
officer of the Company have agreed that, during the period beginning from the
date of this Prospectus and continuing to and including the date 180 days
after the date of this Prospectus, they will not offer, sell, contract to sell
or
U-1
<PAGE>
otherwise dispose of any other securities of the Company that are
substantially similar to the Ordinary Shares, including but not limited to any
securities of the Company that are convertible into or exchangeable for, or
that represent the right to receive, Ordinary Shares or any substantially
similar securities, without the prior written consent of Goldman, Sachs & Co.
on behalf of the Underwriters, except for the Ordinary Shares offered in
connection with the Offering and except, in the Company's case, for the
issuance of options pursuant to employee benefit plans existing on the date of
this Prospectus or the issuance of shares upon the exercise of employee
options outstanding on the date of this Prospectus. The GS Funds which are
affiliates of Goldman, Sachs & Co. will have registration rights relating to
the Ordinary Shares, but such rights will not be exercisable until after such
180-day period. For a discussion of these matters, see "Certain Relationships
and Related Party Transactions", "Description of Capital Shares--Registration
Rights" and "Shares Eligible for Future Sale".
The GS Funds, which are affiliates of Goldman, Sachs & Co., own 2,888,888
Ordinary Shares representing approximately 34.0% of the Ordinary Shares of the
Company and, upon completion of the Offering, will own approximately % of
the Ordinary Shares. See "Principal and Selling Shareholders". The GS Funds
are subject to the 180-day lock-up that applies to other shareholders as
described above. Notwithstanding such restriction, however, Goldman, Sachs &
Co. and their affiliates will be permitted to engage in stabilization,
brokerage and ordinary course of business transactions and will be permitted,
pursuant to a registration statement under the Securities Act maintained by
the Company, to sell Ordinary Shares and related securities in connection with
market-making transactions from time to time, both during and after the 180-
day period. See "Market for Ordinary Shares" and "Shares Eligible for Future
Sale".
Goldman, Sachs & Co. or certain of their affiliates maintain certain
contractual relationships with the Company and have provided, and currently
provide, investment banking services to the Company. Goldman, Sachs & Co. also
provide investment management services to Realm pursuant to a Corporate
Account Agreement dated December 24, 1996. See "Certain Relationships and
Related Party Transactions". In addition, two directors of the Company, Reuben
Jeffery III and Sanjay Patel, are Managing Directors of Goldman, Sachs & Co.
After consummation of the Offering, such directors are expected to continue in
office, but Goldman, Sachs & Co. and their affiliates will not have any right
to designate directors of the Company. See "Management".
Under Rule 2720 of the NASD, the Company may be deemed an affiliate of
Goldman, Sachs & Co. The Offering is being conducted in accordance with Rule
2720, which provides that, among other things, when an NASD member
participates in the underwriting of an affiliate's equity securities, the
initial public offering price can be no higher than that recommended by a
"qualified independent underwriter" meeting certain standards. In accordance
with this requirement, Dillon, Read & Co. Inc. will serve in such role and
will recommend a price in compliance with the requirements of Rule 2720. In
connection with the Offering, Dillon, Read & Co. Inc. in its role as qualified
independent underwriter (the "Independent Underwriter") has performed due
diligence investigations and reviewed and participated in the preparation of
this Prospectus and the Registration Statement of which this Prospectus forms
a part. In addition, the Underwriters may not confirm sales to any
discretionary account without the prior specific written approval of the
customer.
Prior to the Offering, there has been no public market for the Ordinary
Shares. The initial public offering price will be negotiated among the
Company, the Selling Shareholders and the representatives of the Underwriters.
Among the factors to be considered in determining the initial public offering
price of the Ordinary Shares, in addition to prevailing market conditions, are
the Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
Application will be made to have the Ordinary Shares quoted on the Nasdaq
National Market under the symbol "SCBH".
U-2
<PAGE>
In connection with the Offering, the Underwriters may purchase and sell
Ordinary Shares in the open market. These transactions may include over-
allotment and stabilizing transactions and purchases to cover syndicate short
positions created in connection with the Offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or
retarding a decline in the market price of the Ordinary Shares; and syndicate
short positions involve the sale by the Underwriters of a greater number of
Ordinary Shares than they are required to purchase from the Company and the
Selling Shareholders in the Offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members or other
broker-dealers in respect of the securities sold in the Offering for their
account may be reclaimed by the syndicate if such Ordinary Shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
Ordinary Shares, which may be higher than the price that might otherwise
prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be affected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make
a market in the Ordinary Shares following completion of the Offering. However,
they are not obligated to do so and any market-making may be discontinued at
any time without notice. In addition, such market-making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act.
There can be no assurance that an active trading market will develop or be
sustained following the completion of the Offering. See "Risk Factors--No
Prior Market for Ordinary Shares; Possible Volatility of Ordinary Shares Price
and the Securities Markets".
The Underwriting Agreement contains certain provisions with respect to such
market-making activities. Because Goldman, Sachs & Co. may be deemed to be an
affiliate of the Company, Goldman, Sachs & Co. will be required to deliver a
current prospectus to any purchaser in connection with any such market-making
transactions. The Company has agreed to make from time to time certain
amendments or supplements to the Prospectus and to pay certain expenses
relating to such amendments or supplements.
The Company and the Selling Shareholders have agreed to indemnify the
several Underwriters and the Independent Underwriter against certain
liabilities, including liabilities under the Securities Act.
U-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICI-
TATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH
IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SE-
CURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities Under United States Laws.............. 3
Forward-Looking Statements................................................ 4
Prospectus Summary........................................................ 5
Risk Factors.............................................................. 11
The Company............................................................... 16
Use of Proceeds........................................................... 17
Market for Ordinary Shares................................................ 17
Dividend Policy........................................................... 18
Dilution.................................................................. 18
Capitalization............................................................ 19
Selected Consolidated Financial and Operating Data........................ 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 22
Business.................................................................. 30
Management................................................................ 44
Principal and Selling Shareholders........................................ 52
Certain Relationships and Related Party Transactions...................... 54
Description of Capital Shares............................................. 55
Shares Eligible for Future Sale........................................... 60
Certain Tax Considerations................................................ 61
Experts................................................................... 70
Legal Matters............................................................. 70
Additional Information.................................................... 71
Glossary of Selected Insurance Terms...................................... 72
Index to Consolidated Financial Statements................................ F-1
Underwriting.............................................................. U-1
</TABLE>
-----------
THROUGH AND INCLUDING , 1997 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE ORDINARY SHARES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SHARES
STIRLING COOKE BROWN
HOLDINGS LIMITED
ORDINARY SHARES
(PAR VALUE $.25 PER SHARE)
-----------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
DILLON, READ & CO. INC.
REPRESENTATIVES OF THE UNDERWRITERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGE]
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 6, 1997
STIRLING COOKE BROWN HOLDINGS LIMITED
ORDINARY SHARES
(PAR VALUE $.25 PER SHARE)
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE ORDINARY SHARES.
Application will be made for the quotation of the Ordinary Shares on the
Nasdaq National Market under the symbol "SCBH".
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
This Prospectus has been prepared for and is to be used by Goldman, Sachs &
Co. in connection with offers and sales of the Ordinary Shares related to
market-making transactions, at prevailing market prices, related prices or
negotiated prices. The Company will not receive any of the proceeds of such
sales. Goldman, Sachs & Co. may act as a principal or agent in such
transactions. The closing of the offering referred to herein, which will
constitute the initial public offering of the Ordinary Shares of the Company,
is expected to occur on , 1997. See "Plan of Distribution".
GOLDMAN, SACHS & CO.
-----------
The date of this Prospectus is , 1997.
<PAGE>
[ALTERNATE PAGE]
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Ordinary Shares after giving effect to the
Offering, by: (i) each of the Company's directors and executive officers; (ii)
all directors and executive officers as a group; and (iii) each person known
by the Company to own beneficially more than 5% of the Ordinary Shares
outstanding. Except as otherwise noted, each of the holders listed below has
sole voting and investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
NAME OWNED(1) PERCENT
---- ------------ -------
<S> <C> <C>
The Goldman Sachs Group, L.P.(2)....................
Nicholas Mark Cooke(3)..............................
Nicholas Brown(4)...................................
George William Jones(5).............................
Penelope Atteline Cooke(6)..........................
Sanjay Patel(7).....................................
Reuben Jeffery III(8)...............................
Warren Cabral.......................................
All executive officers and directors as a group (6
persons)...........................................
</TABLE>
- --------
* Less than 1%.
(1) In accordance with Securities and Exchange Commission rules, each
beneficial owner's holdings have been calculated assuming full exercise of
outstanding options exercisable by such owner within 60 days after the
date of this Prospectus, but no exercise of outstanding options held by
any other person. The table set forth above assumes that the over-
allotment option is not exercised by the Underwriters. For further
information about the calculation of beneficial ownership, see the
footnotes below.
(2) Represents shares owned by the GS Funds, which are affiliated with The
Goldman Sachs Group, L.P. (the "GS Group"). Includes shares
beneficially owned by GS Capital Partners II, L.P.; shares
beneficially owned by Bridge Street Fund 1995, L.P.; shares
beneficially owned by Stone Street Fund 1995, L.P.; shares
beneficially owned by GS Capital Partners II Offshore, L.P.; and
shares beneficially owned by GS Capital Partners II Germany Civil Law
Partnership. The GS Group disclaims beneficial ownership of the shares
owned by the GS Funds to the extent attributable to equity interests
therein held by persons other than the GS Group and its affiliates. Each
of the GS Funds shares voting and investment power with certain of its
respective affiliates. The address of the GS Group is 85 Broad Street, New
York, New York 10004.
(3) Mr. Cooke is the Chairman, President and Chief Executive Officer and a
Director of the Company and his address is c/o the Company at Victoria
Hall, Third Floor, 11 Victoria Street, Hamilton, HM-11, Bermuda. Mr. Cooke
is married to Penelope Atteline Cooke.
(4) Mr. Brown is Managing Director of Stirling Cooke Brown Reinsurance Brokers
Limited and certain other subsidiaries of the Company and is a Director of
the Company. Mr. Brown's address is c/o Stirling Cooke Brown Reinsurance
Brokers Limited, 65 Leadenhall Street, London, EC3A 2AD, England.
(5) Mr. Jones is Chief Financial Officer and a Director of the Company and his
address is c/o the Company at Victoria Hall, Third Floor, 11 Victoria
Street, Hamilton, HM-11, Bermuda.
(6) Ms. Cooke is Secretary of the Company and her address is c/o the Company
at Victoria Hall, Third Floor, 11 Victoria Street, Hamilton, HM-11,
Bermuda. Ms. Cooke is married to Nicholas Mark Cooke.
(7) Mr. Patel, who is a Managing Director of Goldman, Sachs & Co., disclaims
beneficial ownership of the 2,888,888 Ordinary Shares owned by the GS
Funds, except to the extent of his pecuniary interest therein.
(8) Mr. Jeffery, who is a Managing Director of Goldman, Sachs & Co., disclaims
beneficial ownership of the 2,888,888 Ordinary Shares owned by the GS
Funds, except to the extent of his pecuniary interest therein.
<PAGE>
[ALTERNATE PAGE]
PLAN OF DISTRIBUTION
This Prospectus may be used by Goldman, Sachs & Co. in connection with
offers and sales related to market-making transactions in the Ordinary Shares
effected from time to time. Goldman, Sachs & Co. may act as principal or agent
in such transactions, including as agent for the counterparty when acting as
principal or as agent for both counterparties, and may receive compensation in
the form of discounts and commissions, including from both counterparties when
it acts as agent for both. Such sales will be made at prevailing market prices
at the time of sale, at prices related thereto or at negotiated prices.
For a description of certain relationships and transactions between Goldman,
Sachs & Co. and their affiliates and the Company, see "Management", "Certain
Relationships and Related Party Transactions" and "Principal Shareholders".
The Company has been advised by Goldman, Sachs & Co. that, subject to
applicable laws and regulations, Goldman, Sachs & Co. currently intend to make
a market in the Ordinary Shares following completion of the Offering. However,
they are not obligated to do so and may discontinue market-making at any time
without notice. In addition, such market-making activity will be subject to
the limits imposed by the Securities Act and the Exchange Act. There can be no
assurance that an active trading market will be sustained. See "Risk Factors--
No Prior Market for Ordinary Shares; Possible Volatility of Ordinary Shares
Price and the Securities Markets".
Goldman, Sachs & Co. have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority
without the prior specific written approval of such transactions by the
customer.
The Company has agreed to indemnify Goldman, Sachs & Co. against certain
liabilities in connection with this Prospectus, including liabilities under
the Securities Act.
<PAGE>
[ALTERNATE PAGE]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTA-
TIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURI-
TIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Enforceability of Civil Liabilities Under
United States Laws........................................................
Prospectus Summary.........................................................
Risk Factors...............................................................
The Company................................................................
Use of Proceeds............................................................
Dividend Policy............................................................
Dilution...................................................................
Capitalization.............................................................
Selected Consolidated Financial and Operating Data.........................
Management's Discussion and Analysis of
Financial Condition and Results
of Operations.............................................................
Business...................................................................
Management.................................................................
Principal Shareholders.....................................................
Certain Relationships and Related Party Transactions.......................
Description of Capital Shares..............................................
Shares Eligible for Future Sale............................................
Certain Tax Considerations.................................................
Experts....................................................................
Legal Matters..............................................................
Additional Information.....................................................
Glossary of Selected Insurance Terms.......................................
Index to Financial Statements.............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STIRLING COOKE BROWN
HOLDINGS LIMITED
ORDINARY SHARES
(PAR VALUE $.25 PER SHARE)
-----------
PROSPECTUS
-----------
GOLDMAN, SACHS & CO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF INSURANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee.................... $15,152
Nasdaq National Market listing fee............................... *
NASD fees........................................................ 5,500
Blue sky fees (including legal fees) and expenses................ *
Transfer agent fees and expenses................................. *
Printing and engraving........................................... *
Accountants' fees and expenses................................... *
Legal fees and expenses.......................................... *
Miscellaneous.................................................... *
-------
Total........................................................ $ *
=======
</TABLE>
- --------
*To be filed by amendment.
The foregoing costs and expenses will be paid by the Company. Other than the
Securities and Exchange Commission filing fee, the Nasdaq National Market
listing fee, and the NASD fee, all fees and expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bye-Laws provide that the Company shall indemnify, subject to
the proviso below, every director, officer of the Company and member of a
committee thereof out of the funds of the Company against all civil
liabilities, loss, damage or expense (including but not limited to liabilities
under contract, tort and statute or any applicable foreign law or regulation
and all reasonable legal and other costs and expenses properly payable)
incurred or suffered by him as such director, officer or committee member and
any person acting as a director, officer or committee member in the reasonable
belief that he has been so appointed or elected notwithstanding any defect in
such appointment or election provided always that the indemnity contained by
the Bye-Laws shall not extend to any matter which would render it void
pursuant to the Bermuda Companies Act 1981. Every director, officer and member
of a committee thereof will be indemnified out of funds of the Company against
all liabilities incurred by him as such director, officer or committee member
in defending any proceedings, whether civil or criminal, in which judgment is
given in his favor, or in which he is acquitted, or in connection with any
application under the Bermuda Companies Act 1981 in which relief from
liability is granted to him by the court. To the extent that any director,
officer or member of a committee duly constituted under the Bye-Laws is
entitled to claim an indemnity pursuant to the Bye-Laws in respect of amounts
paid or discharged by him, the relative indemnity shall take effect as an
obligation of the Company to reimburse the person making such payment or
effecting such discharge.
The Company intends to provide insurance coverage for its directors and
officers that may extend to, among other things, liability arising under the
Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On January 23, 1996 the Company was capitalized and assumed its holding
company structure through the issuance of a total of 6,000,000 Ordinary Shares
to the shareholders of Stirling Cooke Brown Holdings (UK) Ltd. and Realm
Investments Limited in exchange for all of such shareholders' shares of such
corporations. Such exchanges occurred outside the United States among non-U.S.
corporations and persons and were therefore not subject to the Securities Act.
II-1
<PAGE>
On January 23, 1996 the Company sold 2,000,000 Ordinary Shares and 25 Class
"A" non-voting convertible shares to certain investment funds affiliated with
the Goldman Sachs Group, L.P. for an aggregate consideration of $14,747,147.
Such sales were exempt from registration under the Securities Act pursuant to
Section 4(2) thereof.
On May 16, 1997 the Company sold 8,000 Ordinary Shares to David M. Tarsh, an
existing shareholder of the Company, for an aggregate consideration of $30,600
plus a contingent payment of $12,850 due if the Company completes an initial
public offering of its Ordinary Shares within two years of such date. Such
sale was exempt from registration under the Securities Act pursuant to Section
4(2) thereof.
On June 30, 1997 the Company sold 8,000 Ordinary Shares to Paul Murray, an
existing shareholder of the Company, for an aggregate consideration of $30,600
plus a contingent payment of $12,850 due if the Company completes an initial
public offering of its Ordinary Shares within two years of such date. Such
sale was exempt from registration pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. The exhibits filed herewith are as specified on the Exhibit
Index included herein.
(b) Financial Statement Schedules. The schedules filed herewith are as
specified on the Index to Schedules included herein.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED, IN THE CITY OF HAMILTON, IN BERMUDA, ON
THIS 6TH DAY OF AUGUST, 1997.
Stirling Cooke Brown Holdings
Limited
/s/ Nicholas Mark Cooke
By _________________________________
Nicholas Mark Cooke
Chairman, President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW AS OF THIS 6TH DAY OF AUGUST,
1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED. EACH PERSON WHOSE
SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS NICHOLAS MARK COOKE AND
GEORGE JONES, AND EACH OF THEM INDIVIDUALLY, HIS OR HER TRUE AND LAWFUL
ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR HIM OR HER AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY
AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND ANY ADDITIONAL REGISTRATION
STATEMENT TO BE FILED PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF
1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING
UNTO SAID ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN CONNECTION THEREWITH, AS FULLY TO ALL INTENTS AND
PURPOSES AS HE OR SHE MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND
CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM, OR
THEIR OR HIS SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY
VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ Nicholas Mark Cooke Chairman, President, Chief Executive Officer
___________________________________________ and Director (Principal Executive Officer)
Nicholas Mark Cooke
/s/ George Jones Chief Financial Officer and Director
___________________________________________ (Principal Financial and Accounting Officer)
George Jones
/s/ Nicholas Brown Director
___________________________________________
Nicholas Brown
/s/ Warren Cabral Director
___________________________________________
Warren Cabral
/s/ Reuben Jeffery III Director
___________________________________________
Reuben Jeffery III
/s/ Sanjay Patel Director
___________________________________________
Sanjay Patel
</TABLE>
Authorized Representative in the
United States:
Stirling Cooke Brown North American
Reinsurance Intermediaries Inc.
/s/ Patrick Whalen
By___________________________________
Patrick Whalen
Senior Vice President
II-3
<PAGE>
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE PAGE
-------- ----
<C> <S> <C>
III Supplementary Insurance Information as of and for the years
ended December 31, 1996, 1995 and 1994......................... S-2
IV Reinsurance for the years ended December 31, 1996, 1995 and
1994........................................................... S-3
</TABLE>
Schedules other than those listed above are omitted for the reason that they
are not applicable.
S-1
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
SUPPLEMENTARY INSURANCE INFORMATION--SCHEDULE III
<TABLE>
<CAPTION>
FUTURE
POLICY AMORTISA-
BENEFITS, OTHER BENEFITS, TION OF
DEFERRED LOSSES, POLICY CLAIMS, DEFERRED
POLICY CLAIMS AND CLAIMS NET LOSSES AND POLICY OTHER
ACQUISITION LOSS UNEARNED AND PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING
COSTS EXPENSES PREMIUMS BENEFITS REVENUE INCOME EXPENSES COSTS EXPENSES
----------- ----------- ----------- -------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1996
Underwriting ... $ 171,284 $24,301,325 $12,514,833 $ 0 $8,753,863 $ 640,028 $6,764,681 $1,617,870 $ 760,347
Risk/Management. 0 0 0 0 0 2,765,040 0 0 25,127,187
---------- ----------- ----------- --- ---------- ---------- ---------- ---------- -----------
$ 171,284 $24,301,325 $12,514,833 $ 0 $8,753,863 $3,405,068 $6,764,681 $1,617,870 $25,887,534
========== =========== =========== === ========== ========== ========== ========== ===========
Year ended
December 31, 1995
Underwriting.... $1,581,735 $ 2,076,175 $ 4,090,249 $ 0 $3,153,580 $ 79,034 $1,385,302 $1,344,489 $ 70,790
Risk Management. 0 0 0 0 0 2,309,071 0 0 16,353,173
---------- ----------- ----------- --- ---------- ---------- ---------- ---------- -----------
$1,581,735 $ 2,076,175 $ 4,090,249 $ 0 $3,153,580 $2,388,105 $1,385,302 $1,344,489 $16,423,963
========== =========== =========== === ========== ========== ========== ========== ===========
Year ended
December 31, 1994
Underwriting.... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Risk Management. 0 0 0 0 0 770,547 0 0 9,718,572
---------- ----------- ----------- --- ---------- ---------- ---------- ---------- -----------
$ 0 $ 0 $ 0 $ 0 $ 0 $ 770,547 $ 0 $ 0 $ 9,718,572
========== =========== =========== === ========== ========== ========== ========== ===========
<CAPTION>
PREMIUMS
WRITTEN
----------
<S> <C>
Year ended
December 31, 1996
Underwriting ... $8,930,142
Risk/Management. 0
----------
$8,930,142
==========
Year ended
December 31, 1995
Underwriting.... $6,643,910
Risk Management. 0
----------
$6,643,910
==========
Year ended
December 31, 1994
Underwriting.... $ 0
Risk Management. 0
----------
$ 0
==========
</TABLE>
S-2
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
REINSURANCE--SCHEDULE IV
<TABLE>
<CAPTION>
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER ASSUMED TO
AMOUNT COMPANIES COMPANIES NET AMOUNT NET
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1996................... $4,493,011 $6,784,076 $11,044,928 $8,753,863 126%
Year ended December 31,
1995................... 0 530,437 3,684,017 3,153,580 117
Year ended December 31,
1994................... 0 0 0 0 0
</TABLE>
S-3
<PAGE>
STIRLING COOKE BROWN HOLDINGS LIMITED
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1 Form of Underwriting Agreement among the Company, the Selling
Shareholders and the Underwriters
3.1 Memorandum of Association of the Company
3.2 Bye-Laws of the Company
3.3 Shareholders Agreement, dated as of January 24, 1996, among the
Management Shareholders (as defined therein), Bridge Street Fund 1995,
L.P., Goldman Sachs & Co. Verwaltungs GmbH (for GS Capital Partners II
German Civil Law Partnership), GS Capital Partners II, L.P., GS
Capital Partners Offshore, L.P., Stone Street Fund 1995, L.P. and the
Company
3.4 Registration Rights Agreement, dated January 24, 1996, between the
Company, the Management Shareholders (as defined therein) and the
Investors (as defined therein)
*4 Form of Share Certificate
*5 Opinion of Appleby, Spurling & Kempe
*8.1 Opinion of Foley & Lardner with respect to U.S. tax matters
*8.2 Opinion of Appleby, Spurling & Kempe with respect to Bermuda tax
matters
*8.3 Opinion of Richards Butler with respect to U.K. tax matters
10.1 Stirling Cooke Brown Holdings Limited 1997 Equity Incentive Plan
10.2 Employment Agreement dated January 1, 1996 between Realm Investments
Limited and Nicholas Mark Cooke
10.3 Employment Agreement dated January 14, 1996 between Stirling Cooke
Reinsurance Brokers Limited and Nicholas Brown
10.4 Employment Agreement dated January 19, 1996 between Stirling Cooke
Insurance Brokers Limited and George W. Jones
10.5 Agency Agreement dated as of June 1, 1995 between Clarendon National
Insurance Company and Stirling Cooke Insurance Services Inc.
10.6 Amendment Number One to Agency Agreement dated as of June 1, 1995
between Clarendon National Insurance Company and Stirling Cooke
Insurance Services Inc.
10.7 Amendment Number Two to Agency Agreement dated as of June 1, 1995
between Clarendon National Insurance Company and Stirling Cooke
Insurance Services Inc.
10.8 Addendum dated April 1, 1997 to Agency Agreement dated as of June 1,
1995 between Clarendon National Insurance Company and Stirling Cooke
Insurance Services Inc.
10.9 Agency Agreement dated as of October 1, 1995 between Clarendon
National Insurance Company and Stirling Cooke Texas, Inc.
10.10 Management Agreement dated as of August 1, 1995 between Legion
Insurance Company and Stirling Cooke Insurance Services Inc.
*21 Subsidiaries of the Company
23.1 Consent of Appleby, Spurling & Kempe (included in their opinion filed
as Exhibit 5)
23.2 Consent of KPMG Peat Marwick
23.3 Consent of Richards Butler (included in their opinion filed as Exhibit
8.3)
23.4 Consent of Foley & Lardner (included in their opinion filed as Exhibit
8.1)
24 Powers of Attorney (included on the signature page to the Registration
Statement)
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Form No. 5 EXHIBIT 3.1
[SEAL]
BERMUDA
THE COMPANIES ACT 1981
CERTIFICATE OF DEPOSIT OF
MEMORANDUM OF ASSOCIATION
AND CONSENT GRANTED BY THE MINISTER
THIS IS TO CERTIFY that a Memorandum of Association of
STIRLING COOKE BROWN HOLDINGS LIMITED
-------------------------------------
and the consent granted by the Minister under section 6(1) of the Act was
delivered to the Office of the Registrar of Companies on the 12th day of
December, 1995 in accordance with the provisions of section 14(2) of the Act.
IN WITNESS WHEREOF I have hereto set my hand
this 12th day of December, 1995
/s/
--------------------------------------------
for REGISTRAR OF COMPANIES
Minimum Capital of the Company: US$12,000.00
------------
Authorised Capital of the Company: US$12,000.00
------------
<PAGE>
Form No. 2
[SEAL]
BERMUDA
THE COMPANIES ACT 1982
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(Section 7(1) AND (2))
MEMORANDUM OF ASSOCIATION
OF
STIRLING COOKE BROWN HOLDINGS LIMITED
________________________________________________________________________________
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
BERMUDIAN NUMBER OF
STATUS SHARES
NAME ADDRESS (Yes/No) NATIONALITY SUBSCRIBED
Douglas Molyneux No British 1
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda
Ruby L. Rawlins Yes British 1
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda
Marcia DeCouto Yes British 1
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda
Judith Morgan-Swan Yes British 1
Cedar House, 41 Cedar Avenue
Hamilton HM 12, Bermuda
do hereby respectively agree to take such number of shares of the Company as may
be allotted to us respectively by the provisional directors of the Company, not
exceeding the number of shares for which we have respectively subscribed, and to
satisfy such calls as may be made by the directors, provisional directors or
promoters of the Company in respect of the shares allotted to us respectively.
<PAGE>
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situate in Bermuda not exceeding in all,
including the following parcels -
Not Applicable
5. The authorised share capital of the Company is $12,000.00 divided into
shares of U.S. one dollar each. The minimum subscribed share capital of
the Company is $12,000.00 in United States currency.
6. The objects for which the Company is formed and incorporated are -
As set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to The Companies Act 1982.
7. The Company has the powers set out in the Schedule annexed hereto.
<PAGE>
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof -
/s/ Douglas Molyneux /s/ Stacy Robinson
- -------------------------------- ---------------------------------
/s/ Ruby L. Rawlins /s/ Stacy Robinson
- -------------------------------- ---------------------------------
/s/ Marcia DeCouto /s/ Stacy Robinson
- -------------------------------- ---------------------------------
/s/ Judith Morgan-Swan /s/ Stacy Robinson
- -------------------------------- ---------------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 6th day of December, 1995.
<PAGE>
The Schedule
(referred to in Clause 7 of the Memorandum of Association)
----------------------------------------------------------
(a) To borrow and raise money in any currency or currencies and to secure or
discharge any debt or obligation in any matter and in particular (without
prejudice to the generality of the foregoing) by mortgages of or charges
upon all or any part of the undertaking, property and assets (present and
future) and uncalled capital of the Company or by the creation and issue of
securities.
(b) To enter into any guarantee, contract of indemnity or suretyship and in
particular (without prejudice to the generality of the foregoing) to
guarantee, support or secure, with or without consideration, whether by
personal obligation or by mortgaging or charging all or any part of the
undertaking, property and assets (present and future) and uncalled capital
of the Company or both such methods or in any other manner, the performance
of any obligations or commitments, of, and the repayment or payment of the
principal amounts of and any premiums, interest, dividends and other moneys
payable on or in respect of any securities or liabilities of, any person
including (without prejudice to the generality of the foregoing) any
company which is for the time being a subsidiary or a holding company of
the Company or another subsidiary or a holding company of the Company or
otherwise associated with the Company.
(c) To accept, draw, make, create, issue, execute, discount, endorse, negotiate
bills of exchange, promissory notes, and other instruments and securities,
whether negotiable or otherwise.
(d) To sell, exchange, mortgage, charge, let on rent, share of profit, royalty
or otherwise, grant licences, easements, options, servitudes and other
rights over, and in any other manner deal with or dispose of, all or any
part of the undertaking, property and assets (present and future) of the
Company for any consideration and in particular (without prejudice to the
generality of the foregoing) for any securities.
(e) To issue and allot securities of the Company for cash or in payment or part
payment for any real or personal property purchased or otherwise acquired
by the Company or any services rendered to the Company or as security for
any obligation or amount (even if less than the nominal amount of such
securities) or for any other purpose.
(f) To grant pensions, annuities, or other allowances, including allowances on
death, to any directors, officers or employees or former directors,
officers or employees of the Company or any company which at any time is or
was a subsidiary or a holding company or another subsidiary of a holding
company of the Company or otherwise associated with the Company or of any
predecessor in business of any of them, and to the relations, connections
or dependants of any such persons, and to other persons whose service or
services have directly or indirectly been of benefit to the Company or whom
the Company considers have any moral claim on the Company or to their
relations, connections or dependants, and to establish or support any
associations, institutions,
<PAGE>
clubs, schools, building and housing schemes, funds and trust, and to make
payments toward insurance or another arrangements likely to benefit any
such persons or otherwise advance the interests of the Company or of its
Members, and to subscribe, guarantee or pay money for any purpose likely,
directly or indirectly to further the interests of the Company or of its
Members or for any national, charitable, benevolent, educational, social,
public, general or useful object.
(g) Subject to the provisions of Section 42 of the Company Act 1981, to issue
preference shares which at the option of the holders thereof are to be
liable to be redeemed.
(h) To purchase its own shares in accordance with the provisions of Section 42A
of the Companies Act 1981.
<PAGE>
Form No. 1a
[SEAL]
BERMUDA
THE COMPANIES ACT 1981
CONSENT
Pursuant to section 6(1)
In exercise of the powers conferred upon him by section 6(1) of the Companies
Act 1981, the Minister of Finance hereby gives his consent to
STIRLING COOKE BROWN HOLDINGS LIMITED
to be registered as an exempted Company under the Companies Act 1981, subject to
the provisions of the said Act.
Dated this 12th day of December, 1995
/s/
----------------------------------
Minister of Finance
<PAGE>
EXHIBIT 3.2
B Y E - L A W S
of
STIRLING COOKE BROWN HOLDINGS LIMITED
I HEREBY CERTIFY that the within written Bye-Laws are a true copy of the Bye-
Laws of STIRLING COOKE BROWN HOLDINGS LIMITED approved at the Special General
meeting of the above Company on the day of 1997.
Director
Prepared by
Messrs. Appleby Spurling & Kempe
Cedar House
41 Cedar Avenue
Hamilton, Bermuda
<PAGE>
I N D E X
---------
BYE-LAW SUBJECT PAGE
- ------- ------- ----
1 Interpretation
2 Registered Office
3-4 Share Rights
5-6 Modification of Rights
7-9 Shares
10-12 Certificates
13-15 Lien
16-21 Calls on Shares
22-28 Forfeiture of Shares
29 Register of Shareholders
30 Register of Directors and Officers
31-34 Transfer of Shares
35-38 Transmission of Shares
39-41 Increase of Capital
42-43 Alteration of Capital
44-45 Reduction of Capital
46 General Meetings and Written Resolutions
47-48 Notice of General Meetings
49-55 Proceedings at General Meetings
56-67 Voting
68-73 Proxies and Corporate Representatives
74-76 Appointment and Removal of Directors
<PAGE>
BYE-LAW SUBJECT PAGE
- ------- ------- ----
77 Resignation and Disqualification of Directors
78-80 Alternate Directors
81 Directors' Fees and Additional
Remuneration and Expenses
82 Directors' Interests
83-87 Powers and Duties of the Board
88-90 Delegation of the Board's Powers
91-99 Proceedings of the Board
100 Officers
101 Minutes
102-103 Secretary and Resident Representative
104 The Seal
105-111 Dividends and Other Payments
112 Reserves
113-114 Capitalization of Profits
115 Record Dates
116-118 Accounting Records
119 Audit
120-122 Service of Notices and Other Documents
123 Winding Up
124-126 Indemnity
127 Amalgamation
128 Alteration of Bye-Laws
<PAGE>
B Y E - L A W S
of
STIRLING COOKE BROWN HOLDINGS LIMITED
INTERPRETATION
1. (1) In these Bye-Laws unless the context otherwise requires -
"Bermuda" means the Islands of Bermuda;
"Board" means the Board of Directors of the Company or the Directors
present at a meeting of Directors at which there is a quorum;
"the Companies Acts" means every Bermuda statute from time to time in
force concerning companies insofar as the same applies to the Company;
"Company" means the company incorporated in Bermuda under the name of
Stirling Cooke Brown Holdings Limited on the 12th day of December
1995;
"Ordinary Shares" means the ordinary shares of US$0.25 par value each
in the capital of the Company;
"paid up" means paid up or credited as paid up;
"Register" means the Register of Shareholders of the Company;
"Registered Office" means the registered office for the time being of
the Company;
"Resident Representative" means the person (or, if permitted in
accordance with the Companies Acts, the company) appointed to perform
the duties of resident representative set out in the Companies Acts
and includes any assistant or deputy Resident
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Representative appointed by the Board to perform any of the duties of
the Resident Representative;
"Resolution" means a resolution of the Shareholders or, where
required, of a separate class or separate classes of Shareholders,
adopted either in general meeting or by written resolution, in
accordance with the provisions of these Bye-Laws;
"Seal" means the common seal of the Company and includes any duplicate
thereof;
"Secretary" includes a temporary or assistant or deputy Secretary and
any person appointed by the Board to perform any of the duties of the
Secretary;
"Shareholder" means a shareholder or member of the Company;
"these Bye-Laws" means these Bye-Laws in their present form or as from
time to time amended;
(2) For the purposes of these Bye-Laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to
the Companies Acts is present;
(3) Words importing only the singular number include the plural number and
vice versa;
(4) Words importing only the masculine gender include the feminine and
neuter genders respectively;
(5) Words importing persons include companies or associations or bodies of
persons, whether corporate or un-incorporate;
(6) Reference to writing shall include typewriting, printing, lithography,
photography and other modes of representing or reproducing words in a
legible and non-transitory form;
(7) Any words or expressions defined in the Companies Acts in force at the
date when these Bye-Laws or any part thereof are adopted shall bear
the same meaning in these Bye-Laws or such part (as the case may be).
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REGISTERED OFFICE
2. The Registered Office shall be at such place in Bermuda as the Board shall
from time to time appoint.
SHARE RIGHTS
3. The Board is expressly authorised at any time, and from time to time,
without any vote of or action by the Shareholders, to issue preference
shares, including, without limitation, redeemable preference shares, in one
or more classes or series and to determine the rights, designations,
powers, preferences and relative, participating, optional or other special
rights, and such qualifications, limitations or restrictions thereof,
including without limitation, consideration, dividend rights, conversion
rights, voting powers (full or limited, or no voting powers), terms and
manner of redemption (including without limitation sinking fund
provisions), redemption dates, redemption prices, liquidation preferences,
conditions and the number of shares constituting and the designation of any
class or series of such preference shares. Any such determination shall be
made by resolution adopted by the Board. The designation and issue by the
Board of any class or series of preference shares and the establishment of
the rights and preferences thereof shall not be deemed to constitute an
alteration or abrogation of the special rights attached to any class of
shares for the purpose of Bye-law 5 except as may be explicitly provided in
the terms of issue of any shares for the time being issued.
4. Subject to the Companies Acts, any preference shares may, with the sanction
of a resolution of the Board, be issued on terms:
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(1) that they are to be redeemed on the happening of a specified event or
on a given date; and/or,
(2) that they are liable to be redeemed at the option of the Company;
and/or,
(3) if authorised by the memorandum of the Company, that they are liable
to be redeemed at the option of the holder.
The terms and manner of redemption shall be provided for in such resolution
of the Board and shall be attached to but shall not form part of these Bye-
Laws.
4A. The Board is expressly authorised at any time, and from time to time
without any vote of or action by the Shareholders, to grant rights, options
or warrants for the purchase of any shares of the Company. The rights,
options or warrants may be issued on any terms specified by the Board
including, without limitation, terms that adjust the rights, options or
warrants in the event of an acquisition of shares of the Company or a
reorganisation, amalgamation, share exchange, sale of assets or any other
occurrence specified by the Board when establishing the terms of issue of
the rights, options or warrants.
MODIFICATION OF RIGHTS
5. Subject to the Companies Acts, all or any of the special rights for the
time being attached to any class of shares for the time being issued may
from time to time (whether or not the Company is being wound up) be altered
or abrogated with the consent in writing of the holders of not less than
seventy five percent of the issued shares of that class or with the
sanction of a resolution passed at a separate general meeting of the
holders of such shares voting in person or by proxy. To any such separate
general meeting, all the provisions of these Bye-Laws as to general
meetings of the Company shall
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mutatis mutandis apply, but so that the necessary quorum shall be
Shareholders either present in person or by proxy holding in the aggregate
shares carrying not less than one third of the voting rights entitled to be
exercised at such meeting, that every holder of shares of the relevant
class shall be entitled on a poll to one vote for every such share held by
him and that any holder of shares of the relevant class present in person
or by proxy may demand a poll; provided, however, that if the Company or a
class of Shareholders shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum.
6. The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise expressly provided in the rights
attaching to or the terms of issue of such shares, be deemed to be altered
by the creation or issue of further shares ranking pari passu therewith.
SHARES
7. Subject to the provisions of these Bye-Laws, the unissued shares of the
Company (whether forming part of the original capital or any increased
capital) shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such
times and for such consideration and upon such terms and conditions as the
Board may determine.
8. The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by law.
9. Except as ordered by a court of competent jurisdiction or as required by
law, no person shall be recognised by the Company as holding any share upon
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trust and the Company shall not be bound by or required in any way to
recognise (even when having notice thereof) any equitable, contingent,
future or partial interest in any share or any interest in any fractional
part of a share or (except only as otherwise provided in these Bye-Laws, or
by law) any other right in respect of any share except an absolute right to
the entirety thereof in the registered holder.
CERTIFICATES
10. The preparation, issue and delivery of certificates shall be governed by
the Companies Acts. In the case of a share held jointly by several
persons, delivery of a certificate to one of several joint holders shall be
sufficient delivery to all.
11. If a share certificate is defaced, lost or destroyed it may be replaced
without fee but on such terms (if any) as to evidence and indemnity and to
payment of the costs and out of pocket expenses of the Company in
investigating such evidence and preparing such indemnity as the Board may
think fit and, in case of defacement, on delivery of the old certificate to
the Company.
12. All certificates for share or loan capital or other securities of the
Company (other than letters of allotment, scrip certificates and other like
documents) shall, except to the extent that the terms and conditions for
the time being relating thereto otherwise provide, be issued under the
Seal. Any signatures on any such certificates need not be autographic but
may be affixed to such certificates by some mechanical means or may be
printed thereon or that such certificates need not be signed by any
persons.
LIEN
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13. The Company shall have a first and paramount lien on every share (not being
a fully paid share) for all moneys, whether presently payable or not,
called or payable, at a date fixed by or in accordance with the terms of
issue of such share in respect of such share, and the Company shall also
have a first and paramount lien on every share (other than a fully paid
share) standing registered in the name of a Shareholder, whether singly or
jointly with any other person, for all the debts and liabilities of such
Shareholder or his estate to the Company, whether the same shall have been
incurred before or after notice to the Company of any interest of any
person other than such Shareholder, and whether the time for the payment or
discharge of the same shall have actually arrived or not, and
notwithstanding that the same are joint debts or liabilities of such
Shareholder or his estate and any other person, whether a Shareholder or
not. The Company's lien on a share shall extend to all dividends payable
thereon. The Board may at any time, either generally or in any particular
case, waive any lien that has arisen or declare any share to be wholly or
in part exempt from the provisions of this Bye-Law.
14. The Company may sell, in such manner as the Board may think fit, any share
on which the Company has a lien but no sale shall be made unless some sum
in respect of which the lien exists is presently payable nor until the
expiration of fourteen days after a notice in writing, stating and
demanding payment of the sum presently payable and giving notice of the
intention to sell in default of such payment, has been served on the holder
for the time being of the share.
15. The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is
presently
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<PAGE>
payable, and any residue shall (subject to a like lien for debts or
liabilities not presently payable as existed upon the share prior to the
sale) be paid to the person who was the holder of the share immediately
before such sale. For giving effect to any such sale the Board may
authorise some person to transfer the share sold to the purchaser thereof.
The purchaser shall be registered as the holder of the share and he shall
not be bound to see to the application of the purchase money, nor shall his
title to the share be affected by any irregularity or invalidity in the
proceedings relating to the sale.
CALLS ON SHARES
16. The Board may from time to time make calls upon the Shareholders in respect
of any moneys unpaid on their shares (whether on account of the par value
of the shares or by way of premium) and not by the terms of issue thereof
made payable at a date fixed by or in accordance with such terms of issue,
and each Shareholder shall (subject to the Company serving upon him at
least fourteen days notice specifying the time or times and place of
payment) pay to the Company at the time or times and place so specified the
amount called on his shares. A call may be revoked or postponed as the
Board may determine.
17. A call may be made payable by installments and shall be deemed to have been
made at the time when the resolution of the Board authorizing the call was
passed.
18. The joint holders of a share shall be jointly and severally liable to pay
all calls in respect thereof.
19. If a sum called in respect of the share shall not be paid before or on the
day appointed for payment thereof the person from whom the sum is due shall
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<PAGE>
pay interest on the sum from the day appointed for the payment thereof to
the time of actual payment at such rate as the Board may determine, but the
Board shall be at liberty to waive payment of such interest wholly or in
part.
20. Any sum which, by the terms of issue of a share, becomes payable on
allotment or at any date fixed by or in accordance with such terms of
issue, whether on account of the nominal amount of the share or by way of
premium, shall for all the purposes of these Bye-Laws be deemed to be a
call duly made, notified and payable on the date on which, by the terms of
issue, the same becomes payable and, in case of non-payment, all the
relevant provisions of these Bye-Laws as to payment of interest, forfeiture
or otherwise shall apply as if such sum had become payable by virtue of a
call duly made and notified.
21. The Board may on the issue of shares differentiate between the allottees or
holders as to the amount of calls to be paid and the times of payment.
FORFEITURE OF SHARES
22. If a Shareholder fails to pay any call or installment of a call on the day
appointed for payment thereof, the Board may at any time thereafter during
such time as any part of such call or installment remains unpaid serve a
notice on him requiring payment of so much of the call or installment as is
unpaid, together with any interest which may have accrued.
23. The notice shall name a further day (not being less than 14 days from the
date of the notice) on or before which, and the place where, the payment
required by the notice is to be made and shall state that, in the event of
non-payment on or before the day and at the place appointed, the shares in
respect of which such call is made or installment is payable will be liable
to
9
<PAGE>
be forfeited. The Board may accept the surrender of any share liable to be
forfeited hereunder and, in such case, references in these Bye-Laws to
forfeiture shall include surrender.
24. If the requirements contained in any such notice as aforesaid are not
complied with, any share in respect of which such notice has been given may
at any time thereafter, before payment of all calls or installments and
interest due in respect thereof has been made, be forfeited by a resolution
of the Board to that effect. Such forfeiture shall include all dividends
declared in respect of the forfeited shares and not actually paid before
the forfeiture.
25. When any share has been forfeited, notice of the forfeiture shall be served
upon the person who was before forfeiture the holder of the share; but no
forfeiture shall be in any manner invalidated by any omission or neglect to
give such notice as aforesaid.
26. A forfeited share shall be deemed to be the property of the Company and may
be sold, re-offered or otherwise disposed of either to the person who was,
before forfeiture, the holder thereof or entitled thereto or to any other
person upon such terms and in such manner as the Board shall think fit, and
at any time before a sale, re-allotment or disposition the forfeiture may
be cancelled on such terms as the Board may think fit.
27. A person whose shares have been forfeited shall thereupon cease to be a
Shareholder in respect of the forfeited shares but shall, notwithstanding
the forfeiture, remain liable to pay to the Company all moneys which at the
date of forfeiture were presently payable by him to the Company in respect
of the shares with interest thereon at such rate as the Board may determine
from the date of forfeiture until payment, and the Company may enforce
payment
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<PAGE>
without being under any obligation to make any allowance for the value of
the shares forfeited.
28. An affidavit in writing that the deponent is a Director of the Company or
the Secretary and that a share has been duly forfeited on the date stated
in the affidavit shall be conclusive evidence of the facts therein stated
as against all persons claiming to be entitled to the share. The Company
may receive the consideration (if any) given for the share on the sale, re-
allotment or disposition thereof and the Board may authorise some person to
transfer the share to the person to whom the same is sold, re-allotted or
disposed of, and he shall thereupon be registered as the holder of the
share and shall not be bound to see to the application of the purchase
money (if any) nor shall his title to the share be affected by any
irregularity or invalidity in the proceedings relating to the forfeiture,
sale, re-allotment or disposal of the share.
REGISTER OF SHAREHOLDERS
29. The Secretary shall establish and maintain the Register at the Registered
Office in the manner prescribed by the Companies Acts. Unless the Board
otherwise determines, the Register shall be open to inspection in the
manner prescribed by the Companies Acts between 10:00 a.m. and 12:00 noon
on every working day. Unless the Board so determines, no Shareholder or
intending Shareholder shall be entitled to have entered in the Register any
indication of any trust or any equitable, contingent, future or partial
interest in any share or any interest in any fractional part of a share and
if any such entry exists or is permitted by the Board it shall not be
deemed to abrogate any of the provisions of Bye-Law 9.
REGISTER OF DIRECTORS AND OFFICERS
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30. The Secretary shall establish and maintain a register of the Directors and
Officers of the Company as required by the Companies Acts. The register of
Directors and Officers shall be open to inspection in the manner prescribed
by the Companies Acts between 10:00 a.m. and 12:00 noon on every working
day.
TRANSFER OF SHARES
31. Subject to the Companies Acts and to such of the restrictions contained in
these Bye-Laws as may be applicable, any Shareholder may transfer all or
any of his shares by an instrument of transfer in the usual common form or
in any other form which the Board may approve.
32. The instrument of transfer of a share shall be signed by or on behalf of
the transferor and, where any share is not fully-paid, by the transferee.
The transferor shall be deemed to remain the holder of the share until the
name of the transferee is entered in the Register in respect thereof. All
instruments of transfer when registered may be retained by the Company. The
Board may, in its absolute discretion and without assigning any reason
therefor, decline to register any transfer of any share which is not a
fully-paid share. The Board may also decline to register any transfer
unless:-
(1) the instrument of transfer is duly stamped and lodged with the
Company, accompanied by the certificate for the shares to which it
relates, and such other evidence as the Board may reasonably require
to show the right of the transferor to make the transfer,
(2) the instrument of transfer is in respect of only one class of share,
(3) where applicable, the permission of the Bermuda Monetary Authority
with respect thereto has been obtained.
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Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under this
Bye-Law and Bye-Laws 31 and 33.
33. If the Board declines to register a transfer it shall, within three months
after the date on which the instrument of transfer was lodged, send to the
transferee notice of such refusal.
34. No fee shall be charged by the Company for registering any transfer,
probate, letters of administration, certificate of death or marriage, power
of attorney, distringas or stop notice, order of court or other instrument
relating to or affecting the title to any share, or otherwise making an
entry in the Register relating to any share.
TRANSMISSION OF SHARES
35. In the case of the death of a Shareholder, the survivor or survivors, where
the deceased was a joint holder, and the estate representative, where he
was sole holder, shall be the only person recognised by the Company as
having any title to his shares; but nothing herein contained shall release
the estate of a deceased holder (whether the sole or joint) from any
liability in respect of any share held by him solely or jointly with other
persons. For the purpose of this Bye-Law, estate representative means the
person to whom probate or letters of administration or confirmation as
executor has or have been granted in Bermuda, the Commonwealth or any part
of the United States of America or, failing any such person, such other
person as the Board or any person authorised by the Board may in its
absolute discretion determine to be the person recognised by the Company
for the purpose of this Bye-Law.
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36. Any person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law may, subject as
hereafter provided and upon such evidence being produced as may from time
to time be required by the Board as to his entitlement, either be
registered himself as the holder of the share or elect to have some person
nominated by him registered as the transferee thereof. If the person so
becoming entitled elects to be registered himself, he shall deliver or send
to the Company a notice in writing signed by him stating that he so elects.
If he shall elect to have his nominee registered, he shall signify his
election by signing an instrument of transfer of such share in favour of
his nominee. All the limitations, restrictions and provisions of these
Bye-Laws relating to the right to transfer and the registration of transfer
of shares shall be applicable to any such notice or instrument of transfer
as aforesaid as if the death of the Shareholder or other event giving rise
to the transmission had not occurred and the notice or instrument of
transfer was an instrument of transfer signed by such Shareholder.
37. A person becoming entitled to a share in consequence of the death of a
Shareholder or otherwise by operation of applicable law shall (upon such
evidence being produced as may from time to time be required by the Board
as to his entitlement) be entitled to receive and may give a discharge for
any dividends or other moneys payable in respect of the share, but he shall
not be entitled in respect of the share to receive notices of or to attend
or vote at general meetings of the Company or, save as aforesaid, to
exercise in respect of the share any of the rights or privileges of a
Shareholder until he shall have become registered as the holder thereof.
The Board may at any time give notice requiring such person to elect either
to be registered himself or to transfer the share and, if the notice is not
complied with within sixty days, the Board may thereafter withhold payment
of all dividends and other
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moneys payable in respect of the shares until the requirements of the
notice have been complied with.
38. Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under Bye-
Laws 35, 36 and 37.
INCREASE OF CAPITAL
39. The Company may from time to time increase its capital by such sum to be
divided into shares of such par value as the Company by Resolution shall
prescribe.
40. The Company may, by the Resolution increasing the capital, direct that the
new shares or any of them shall be offered in the first instance either at
par or at a premium or (subject to the provisions of the Companies Acts) at
a discount to all the holders for the time being of shares of any class or
classes in proportion to the number of such shares held by them
respectively or make any other provision as to the issue of the new shares.
41. The new shares shall be subject to all the provisions of these Bye-Laws
with reference to lien, the payment of calls, forfeiture, transfer,
transmission and otherwise.
ALTERATION OF CAPITAL
42. Without prejudice to the powers of the Board under Bye-Laws 3 and 7, the
Company may from time to time by Resolution:-
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(1) divide its shares into several classes and attach thereto respectively
any preferential, deferred, qualified or special rights, privileges or
conditions;
(2) consolidate and divide all or any of its share capital into shares of
larger par value than its existing shares;
(3) sub-divide its shares or any of them into shares of smaller par value
than is fixed by its memorandum, so, however, that in the sub-division
the proportion between the amount paid and the amount, if any, unpaid
on each reduced share shall be the same as it was in the case of the
share from which the reduced share is derived;
(4) make provision for the issue and allotment of shares which do not
carry any voting rights;
(5) cancel shares which, at the date of the passing of the resolution in
that behalf, have not been taken or agreed to be taken by any person,
and diminish the amount of its share capital by the amount of the
shares so cancelled; and
(6) change the currency denomination of its share capital.
Where any difficulty arises in regard to any division, consolidation, or
sub-division under this Bye-Law, the Board may settle the same as it thinks
expedient and, in particular, may arrange for the sale of the shares
representing fractions and the distribution of the net proceeds of sale in
due proportion amongst the Shareholders who would have been entitled to the
fractions, and for this purpose the Board may authorise some person to
transfer the shares representing fractions to the purchaser thereof, who
shall not be bound to see to the application of the purchase money nor
shall his title to the shares be affected by any irregularity or invalidity
in the proceedings relating to the sale.
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43. Subject to the Companies Acts and to any confirmation or consent required
by law or these Bye-Laws, the Company may by Resolution from time to time
convert any preference shares into redeemable preference shares.
REDUCTION OF CAPITAL
44. Subject to the Companies Acts, its memorandum and any confirmation or
consent required by law or these Bye-Laws, the Company may from time to
time by Resolution authorise the reduction of its issued share capital or
any capital redemption reserve fund or any share premium or contributed
surplus account in any manner.
45. In relation to any such reduction, the Company may by Resolution determine
the terms upon which such reduction is to be effected including in the case
of a reduction of part only of a class of shares, those shares to be
affected.
GENERAL MEETINGS AND WRITTEN RESOLUTIONS
46. (1) The Board shall convene and the Company shall hold general meetings as
Annual General Meetings in accordance with the requirements of the
Companies Acts at such times and places as the Board shall appoint.
The Board may, whenever it thinks fit, and shall, when required by the
Companies Acts, convene general meetings other than Annual General
Meetings which shall be called Special General Meetings.
(2) Except in the case of the removal of auditors and Directors, anything
which may be done by resolution of the Company in general meeting or
by resolution of a meeting of any class of the Shareholders of the
Company may, without a meeting and without
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any previous notice being required, be done by resolution in writing,
signed by all of the Shareholders or their proxies, or in the case of
a Shareholder that is a corporation (whether or not a company within
the meaning of the Companies Acts) on behalf of such Shareholder,
being all of the Shareholders of the Company who at the date of the
resolution in writing would be entitled to attend a meeting and vote
on the resolution. Such resolution in writing may be signed by, or in
the case of a Shareholder that is a corporation (whether or not a
company within the meaning of the Companies Acts), on behalf of, all
the Shareholders of the Company, or any class thereof, in as many
counterparts as may be necessary.
(3) For the purposes of this Bye-Law, the date of the resolution in
writing is the date when the resolution is signed by, or in the case
of a Shareholder that is a corporation (whether or not a company
within the meaning of the Companies Acts), on behalf of, the last
Shareholder to sign and any reference in any enactment to the date of
passing of a resolution is, in relation to a resolution in writing
made in accordance with this section, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-Law is as
valid as if it had been passed by the Company in general meeting or,
if applicable, by a meeting of the relevant class of Shareholders of
the Company, as the case may be. A resolution in writing made in
accordance with this section shall constitute minutes for the purposes
of the Companies Acts and these Bye-Laws.
NOTICE OF GENERAL MEETINGS
47. An Annual General Meeting shall be called by not less than ten days notice
in writing and a Special General Meeting shall be called by not less than
ten days notice in writing. The notice shall be exclusive of the day on
which it
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is served or deemed to be served and of the day for which it is given, and
shall specify the place, day and time of the meeting, and the nature of the
business to be considered. Notice of every general meeting shall be given
in any manner permitted by Bye-Laws 120 and 121 to all Shareholders other
than such as, under the provisions of these Bye-Laws or the terms of issue
of the shares they hold, are not entitled to receive such notice from the
Company and to any Director or Resident Representative who or which has
delivered a written notice upon the Registered Office requiring that such
notice be sent to him or it.
Notwithstanding that a meeting of the Company is called by shorter notice
than that specified in this Bye-Law, it shall be deemed to have been duly
called if it is so agreed:-
(1) in the case of a meeting called as an Annual General Meeting, by all
the Shareholders entitled to attend and vote thereat;
(2) in the case of any other meeting, by a majority in number of the
Shareholders having the right to attend and vote at the meeting, being
a majority together holding not less than 95 percent in nominal value
of the shares giving that right.
48. The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission
to send such instrument of proxy to, or the non-receipt of notice of a
meeting or such instrument of proxy by, any person entitled to receive such
notice shall not invalidate the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
49. No business shall be transacted at any general meeting unless a quorum is
present when the meeting proceeds to business, but the absence of a quorum
shall not preclude the appointment, choice or election of a chairman which
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shall not be treated as part of the business of the meeting. Save as
otherwise provided by these Bye-Laws, the quorum at any general meeting
shall be constituted by Shareholders, either present in person or
represented by proxy, holding in the aggregate shares carrying not less
than one third of the voting rights entitled to be exercised at such
meeting; provided, however, that if the Company or a class of Shareholders
shall have only one Shareholder, one Shareholder present in person or by
proxy shall constitute the necessary quorum.
50. If within five minutes (or such longer time as the chairman of the meeting
may determine to wait) after the time appointed for the meeting, a quorum
is not present, the meeting, if convened on the requisition of
Shareholders, shall be dissolved. In any other case, it shall stand
adjourned to such other day and such other time and place as the chairman
of the meeting may determine and at such adjourned meeting either present
in person or by proxy holding in the aggregate shares carrying not less
than one third of the voting rights entitled to be exercised at that
meeting shall be a quorum; provided, however, that if the Company or a
class of shareholders shall have only one Shareholder, one Shareholder
present in person or by proxy shall constitute the necessary quorum. The
Company shall give not less than ten days notice of any meeting adjourned
through want of a quorum and such notice shall state that the sole
Shareholder or, if more than one, two Shareholders present in person or by
proxy (whatever the number of shares held by them) shall be a quorum.
51. A meeting of the Shareholders or any class thereof may be held by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each other
simultaneously and instantaneously and participation in such a meeting
shall constitute presence in person at such meeting.
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52. Each Director upon giving the notice referred to in Bye-Law 47 above, and
the Resident Representative, if any, shall be entitled to attend and speak
at any general meeting of the Company.
53. The Chairman (if any) of the Board or, in his absence, the President shall
preside as chairman at every general meeting. If there is no such Chairman
or President, or if at any meeting neither the Chairman nor the President
is present within five minutes after the time appointed for holding the
meeting, or if neither of them is willing to act as chairman, the Directors
present shall choose one of their number to act or if one Director only is
present he shall preside as chairman if willing to act. If no Director is
present, or if each of the Directors present declines to take the chair,
the persons present and entitled to vote on a poll shall elect one of their
number to be chairman.
54. The Chairman of the meeting may, with the consent of the meeting, and
shall, if so directed by the meeting or (prior to or at the meeting) by the
Board (or a duly authorised committee thereof), adjourn the meeting, from
time to time and from place to place as the Chairman of the meeting shall
determine (subject to any directions from the Board or a duly authorised
committee thereof). Whenever a meeting is adjourned for more than ten
days, the Directors shall give notice of the adjourned meeting in such
manner as they consider expedient. No business shall be transacted at any
adjourned meeting other than the business which might have been transacted
at the meeting from which the adjournment took place.
55. Save as expressly provided by these Bye-Laws, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting.
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VOTING
56. Save where a greater majority is required by the Companies Acts or these
Bye-Laws, any question proposed for consideration at any general meeting
shall be decided on by a simple majority of votes cast.
56A. (1) Every Shareholder of record present in person or by proxy shall have
one vote for each Common Share registered in such Shareholder's name
in the Register, PROVIDED that, subject to Bye-laws 56B and 56C, if
and so long as the Controlled Shares of any person would, upon giving
effect to the principle that holders of Ordinary Shares shall have one
vote for each Common Share so registered, confer upon such person ten
percent (10%) or more of the votes that may be cast by all holders of
Ordinary Shares (any such person being referred to as an "Over-the-
Threshold Common Shareholder"), each issued share comprised in such
Controlled Shares shall confer only a fraction of a vote according to
the following formula (the "Cut-back Formula"):
[(T divided by 10) - 1] (rounded down to the nearest whole number)
divided by C.
Where: "T" is the aggregate number of votes conferred by all the
issued Ordinary Shares, and "C" is the number of Controlled Shares of
such person.
(2) A number of votes equal to the excess of the number of votes that
could have been cast by the Controlled Shares held by all Over-the-
Threshold Common Shareholders if the Cut-back Formula were not
applicable (the "Reallocable Votes") shall be reallocated equally
among the Ordinary Shares that are not included in
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such Controlled Shares and that are not held by other Over-the-
Threshold Common Shareholders (and, to the extent permitted by Bye-Law
56B, among Existing Shareholders) in accordance with the following
formula (the "Reallocation Formula"):
R
----
T-C+
Where: "T" is used in the manner defined in the Cut-back Formula, C+
is the aggregate number of Controlled Shares of all Over-the-Threshold
Common Shareholders and "R" is the aggregate number of Reallocable
Votes that could be cast by all Over-the-Threshold Common Shareholders
(including persons who become Over-the-Threshold Common Shareholders
as a result of the application of the Reallocation Formula).
(3) If the application of the Reallocation Formula causes any person to
become an Over-the-Threshold Common Shareholder, the Cut-back Formula
shall be applied to such person's Controlled Shares (taking into
account the additional votes of such shares after the application of
the Reallocation Formula), and the Cut-back Formula and the
Reallocation Formula shall continue to be applied until there are no
Over-the-Threshold Common Shareholders.
(4) "Controlled Shares" in reference to any person means:
(i) all Ordinary Shares directly, indirectly, or constructively owned
by such person within the meaning of
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section 958 of the United States Internal Revenue Code of 1986,
as amended (the "Code"); and
(ii) all Ordinary Shares directly, indirectly or constructively owned
as a result of voting power held or shares by any person or
"group" of persons within the meaning of section 13(d)(3) of the
United States Securities Exchange Act of 1934, as amended (the
"Exchange Act") and the rules and regulations promulgated
thereunder.
For the purposes of this, "person" means any individual, firm,
partnership, company, association or other entity or any "group" of
persons with respect to the exercise of voting power within the
meaning of section 13(d)(3) of the Exchange Act and the rules and
regulations thereunder.
(5) The Board shall have the power and authority to make all
determinations that may be required to effectuate the provisions of
this Bye-law 56A, including any required determination of the number
of Ordinary Shares that may be deemed to be held by any person, and
such determinations shall be conclusive. In no event shall the
Existing Shareholders (as hereinafter defined), or any combination of
them which does not include any other Shareholder, shall be determined
to constitute a group within the meaning of the Exchange Act. All
record and beneficial owners of Ordinary Shares shall be deemed to
have agreed, by virtue of their ownership thereof, to provide to the
Board, at such times and in such detail as the Board may reasonably
request, any information that the Board may require in order to make
such determinations.
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56B. (1) The provisions of Bye-Law 56A shall be modified to apply as follows to
Controlled Shares of the Shareholders as at the date of the approval
of these Bye-laws (the "Existing Shareholders") and by persons who
hold Controlled Shares together with a Grandfathered Investor at the
date of the approval of these Bye-laws ("Associated Owners"): From and
after the completion of the initial public offering of the Ordinary
Shares, the Existing Shareholders (together, in each case, with
Associated Owners) shall be entitled to cast the number of votes that
each would be entitled to cast pursuant to Bye-Law 56A if the number
"10" in the Cut-back Formula was replaced by the number "4" (and
Reallocable Votes shall be reallocated pursuant to the Reallocation
Formula in relation to the Controlled Shares held by such Existing
Shareholders pursuant to the Cut-back Formula as so modified) (the
"25% Limitation"). If an Existing Shareholder ceases to hold
Controlled Shares constituting at least 1% of the outstanding Ordinary
Shares, such Existing Shareholder and its Associated Owners shall
permanently cease to have the special rights conferred by this Bye-Law
56B.
(2) An Existing Shareholder shall have the right to accept and exercise
Reallocable Votes in accordance with the Reallocation Formula only to
the extent that Reallocable Votes could be cast by such Existing
Shareholder if
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such Existing Shareholder were then subject to the 10% limitation
stipulated in Bye-Law 56A.
56C. Notwithstanding Bye-Laws 56A and 56B, if prior to completing the
acquisition by transfer (pursuant to a contract or by operation of law) or
subscription for Ordinary Shares (a "Proposed Acquisition") a person who
would on completion of the Proposed Acquisition constitute an Over-the-
Threshold Common Shareholder (the "Proposed Acquiror") notifies the Board
of the Proposed Acquisition, the Board shall consider whether the Proposed
Acquiror should be exempted in whole or in part from the application of
Bye-Laws 56A and 128. If the Board resolves to exempt in whole or in part
the Proposed Acquiror from the application of Bye-Law 56A and/or Bye-Law
128, the Board shall be empowered to attach such conditions to such
exemption as the Board considers appropriate.
57. At any general meeting, a resolution put to the vote of the meeting shall
be decided on a show of hands unless (before or on the declaration of the
result of the show of hands or on the withdrawal of any other demand for a
poll) a poll is demanded by:-
(1) the chairman of the meeting; or
(2) at least three Shareholders present in person or represented by proxy;
or
(3) any Shareholder or Shareholders present in person or represented by
proxy and holding between them not less than one tenth of the total
voting rights of all the Shareholders having the right to vote at such
meeting; or
(4) a Shareholder or Shareholders present in person or represented by
proxy holding shares conferring the right to vote at such meeting,
being shares on which an aggregate sum has been paid up equal to
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not less than one tenth of the total sum paid up on all such shares
conferring such right.
The demand for a poll may be withdrawn by the person or any of the persons
making it at any time prior to the declaration of the result where it is
carried out. Unless a poll is so demanded and the demand is not withdrawn,
a declaration by the chairman that a resolution has, on a show of hands,
been carried or carried unanimously or by a particular majority or not
carried by a particular majority or lost shall be final and conclusive, and
an entry to that effect in the minute book of the Company shall be
conclusive evidence of the fact without proof of the number or proportion
of votes recorded for or against such resolution.
58. If a poll is duly demanded, the result of the poll shall be deemed to be
the resolution of the meeting at which the poll is demanded.
59. A poll demanded on the election of a chairman, or on a question of
adjournment, shall be taken forthwith. A poll demanded on any other
question shall be taken in such manner and either forthwith or at such time
(being not later than three months after the date of the demand) and place
as the chairman shall direct. It shall not be necessary (unless the
chairman otherwise directs) for notice to be given of a poll.
60. The demand for a poll shall not prevent the continuance of a meeting for
the transaction of any business other than the question on which the poll
has been demanded and it may be withdrawn at any time before the close of
the meeting or the taking of the poll, whichever is the earlier.
61. On a poll, votes may be cast either personally or by proxy.
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62. A person entitled to more than one vote on a poll need not use all his
votes or cast all the votes he uses in the same way.
63. In the case of an equality of votes at a general meeting, whether on a show
of hands or on a poll, the chairman of such meeting shall not be entitled
to a second or casting vote and the resolution shall fail.
64. In the case of joint holders of a share, the vote of the senior who tenders
a vote, whether in person or by proxy, shall be accepted to the exclusion
of the votes of the other joint holders, and for this purpose seniority
shall be determined by the order in which the names stand in the Register
in respect of the joint holding.
65. A Shareholder who is a patient for any purpose of any statute or applicable
law relating to mental health or in respect of whom an order has been made
by any Court having jurisdiction for the protection or management of the
affairs of persons incapable of managing their own affairs may vote,
whether on a show of hands or on a poll, by his receiver, committee,
curator bonis or other person in the nature of a receiver, committee or
curator bonis appointed by such Court and such receiver, committee, curator
bonis or other person may vote on a poll by proxy, and may otherwise act
and be treated as such Shareholder for the purpose of general meetings.
66. No Shareholder shall, unless the Board otherwise determines, be entitled to
vote at any general meeting unless all calls or other sums presently
payable by him in respect of shares in the Company have been paid.
67. If;
(1) any objection shall be raised to the qualification of any voter; or,
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(2) any votes have been counted which ought not to have been counted or
which might have been rejected; or,
(3) any votes are not counted which ought to have been counted,
the objection or error shall not vitiate the decision of the meeting or
adjourned meeting on any resolution unless the same is raised or pointed
out at the meeting or, as the case may be, the adjourned meeting at which
the vote objected to is given or tendered or at which the error occurs.
Any objection or error shall be referred to the chairman of the meeting and
shall only vitiate the decision of the meeting on any resolution if the
chairman decides that the same may have affected the decision of the
meeting. The decision of the chairman on such matters shall be final and
conclusive.
PROXIES AND CORPORATE REPRESENTATIVES
68. The instrument appointing a proxy shall be in writing under the hand of the
appointor or of his attorney authorised by him in writing or, if the
appointor is a corporation, either under its seal or under the hand of an
officer, attorney or other person authorised to sign the same.
69. INTENTIONALLY DELETED
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70. Subject to Bye-Law 69, the instrument appointing a proxy together with such
other evidence as to its due execution as the Board may from time to time
require, shall be delivered at the Registered Office (or at such place as
may be specified in the notice convening the meeting or in any notice of
any adjournment or, in either case or the case of a written resolution, in
any document sent therewith) no later than 48 hours prior to the holding of
the relevant meeting or adjourned meeting at which the person named in the
instrument proposes to vote or, in the case of a poll taken subsequently to
the date of a meeting or adjourned meeting, before the time appointed for
the taking of the poll, or, in the case of a written resolution, prior to
the effective date of the written resolution and in default the instrument
of proxy shall not be treated as valid. A Shareholder may give multiple
proxies provided each is with respect to different shares.
71. Instruments of proxy shall be in any common form or in such other form as
the Board may approve and the Board may, if it thinks fit, send out with
the notice of any meeting or any written resolution forms of instruments of
proxy for use at that meeting or in connection with that written
resolution. The instrument of proxy shall be deemed to confer authority to
demand or join in demanding a poll and to vote on any amendment of a
written resolution or amendment of a resolution put to the meeting for
which it is given as the proxy thinks fit. The instrument of proxy shall
unless the contrary is stated therein be valid as well for any adjournment
of the meeting as for the meeting to which it relates.
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72. A vote given in accordance with the terms of an instrument of proxy shall
be valid notwithstanding the previous death or unsoundness of mind of the
principal, or revocation of the instrument of proxy or of the authority
under which it was executed, provided that no intimation in writing of such
death, insanity or revocation shall have been received by the Company at
the Registered Office (or such other place as may be specified for the
delivery of instruments of proxy in the notice convening the meeting or
other documents sent therewith) one hour at least before the commencement
of the meeting or adjourned meeting, or the taking of the poll, or the day
before the effective date of any written resolution at which the instrument
of proxy is used.
73. Subject to the Companies Acts, the Board may at its discretion waive any of
the provisions of these Bye-Laws related to proxies or authorisations and,
in particular, may accept such verbal or other assurances as it thinks fit
as to the right of any person to attend and vote on behalf of any
Shareholder at general meetings or to sign written resolutions.
APPOINTMENT, RETIREMENT AND REMOVAL OF DIRECTORS
74. Unless otherwise determined by the Company in General Meeting, the number
of Directors shall not be less than three and there shall be no maximum
number. All Directors, upon election or appointment, must provide written
acceptance of their appointment, in such form as the Board may think fit,
by notice in writing to the Registered Office within thirty days of their
appointment.
75.
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75. There shall be three classes of Directors, with initial terms of office of
varying duration, with the result that there shall be a rotating board. The
classes of Directors shall be known as Class 1, Class 2 and Class 3 and
shall initially be established among the current Board at the Board meeting
at which these Bye-laws are adopted subject to the Shareholders approval.
Each class shall initially be comprised of two Directors. The initial
Class 1, Class 2 and Class 3 Directors shall serve in office as follows.
Class 1 shall retire at the second Annual General Meeting following the
date on which these Bye-laws are approved by the Shareholders "the
Effective Date". Class 2 shall retire at the third Annual General Meeting
following the Effective Date, and Class 3 shall retire at the Fourth Annual
General Meeting following the Effective Date. This sequence shall be
repeated thereafter. Each director in a Class shall be eligible for re-
election at the Annual General Meeting of the Company at which such Class
shall retire, to hold office for three years or until its successors are
elected or appointed.
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75A. Any additional Directors elected due to an increase in the total number of
Directors shall be elected to such Class as will ensure that the number of
Directors in each Class is equal, and if that is not possible, to the
Class which is retiring at the Annual General Meeting at which such
Director is elected or, if any such Director is elected otherwise than at
an Annual General Meeting to the Class which was elected at the most recent
prior Annual General Meeting.
75B. If at the meeting at which a Director retires by rotation, the Company does
not fill the vacancy, the retiring Director shall, if willing to act, be
deemed to have been reappointed unless at the meeting it is resolved not to
fill the vacancy or unless a resolution for the reappointment of the
Director is put to the meeting and lost.
75C. No person other than a Director retiring by rotation shall be appointed or
reappointed a Director at any general meeting unless:
a) he is recommended by the Board, or
b) not less than 7 nor more than 42 clear days before the date appointed
for the meeting, notice executed by a Shareholder qualified to vote at the
meeting has been given to the Company of the intention of that Shareholder
to propose that person for appointment or reappointment stating the
particulars which would, if he were so appointed or reappointed, be
required to be included in the Company's register of Directors together
with notice executed by that person of his willingness to be appointed or
reappointed.
75D. Except as otherwise authorised by the Companies Acts, the appointment of
any person proposed as a Director shall be effected by a separate
resolution.
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75E. Subject as aforesaid, the Company may by ordinary resolution appoint a
person who is willing to act to be a Director either to fill a vacancy or
as an additional director and may also determine the rotation in which any
additional directors are to retire.
75F. The Board may appoint one or more persons willing to act to be a Director,
either to fill a vacancy or vacancies or, if the Board is authorised by a
Resolution, as an additional Director or Directors. A Director so
appointed shall hold office only until the next following Annual General
Meeting, and shall not be taken into account in determining the Directors
who are to retire by rotation at the meeting, and shall then be eligible
for re-election.
75G. Subject as aforesaid, a Director who retires at an Annual General Meeting
may, if willing to act, be reappointed. If he is not reappointed, he shall
retain office until the meeting appoints someone in his place, or if it
does not do so, until the end of the meeting.
76. Directors may be removed for cause by Resolution of the Shareholders or by
resolution of the Directors. Directors may be removed without cause by
vote of the Shareholders. Notwithstanding the preceding, a Director may
not be removed at a general meeting unless notice of any such meeting shall
have been served upon the Director concerned not less than fourteen (14)
days before the meeting and he shall be entitled to be heard at that
meeting and provided further that the Resolution removing any Director is
duly adopted by Shareholders holding not less than seventy five percent
(75%) of the shares of the Company entitled to vote at such meeting. Any
vacancy created by the removal of a Director at a general meeting may be
filled at such meeting by the election of another Director in his place or,
in the absence of any such election, by the Board.
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RESIGNATION AND DISQUALIFICATION OF DIRECTORS
77. The office of a Director shall be vacated upon the happening of any of the
following events:
(1) if he resigns his office by notice in writing delivered to the
Registered Office or tendered at a meeting of the Board;
(2) if he becomes of unsound mind or a patient for any purpose of any
statute or applicable law relating to mental health and the Board
resolves that his office is vacated;
(3) if he becomes bankrupt under the laws of any country or compounds with
his creditors;
(4) if he is prohibited by law from being a Director;
(5) if he ceases to be a Director by virtue of the Companies Acts or is
removed from office pursuant to these Bye-Laws.
ALTERNATE DIRECTORS
78. The Company may by Resolution elect any person or persons to act as
Directors in the alternative to any of the Directors or may authorise the
Board to appoint such Alternate Directors and a Director may appoint and
remove his own Alternate Director. Any appointment or removal of an
Alternate Director by a Director shall be effected by depositing a notice
of appointment or removal with the Secretary at the Registered Office,
signed by such Director, and such appointment or removal shall become
effective on the date of receipt by the Secretary. Any Alternate Director
may be removed by Resolution of the Company and, if appointed by the Board,
may be removed by the Board. Subject as aforesaid, the office of Alternate
Director shall continue until the next annual election of Directors or, if
earlier, the date on which the relevant Director ceases to be a Director.
An
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Alternate Director may also be a Director in his own right and may act as
alternate to more than one Director.
79. An Alternate Director shall be entitled to receive notices of all meetings
of Directors, to attend, be counted in the quorum and vote at any such
meeting at which any Director to whom he is alternate is not personally
present, and generally to perform all the functions of any Director to whom
he is alternate in his absence.
80. Every person acting as an Alternate Director shall (except as regards
powers to appoint an alternate and remuneration) be subject in all respects
to the provisions of these Bye-Laws relating to Directors and shall alone
be responsible to the Company for his acts and defaults and shall not be
deemed to be the agent of or for any Director for whom he is alternate. An
Alternate Director may be paid expenses and shall be entitled to be
indemnified by the Company to the same extent mutatis mutandis as if he
were a Director. Every person acting as an Alternate Director shall have
one vote for each Director for whom he acts as alternate (in addition to
his own vote if he is also a Director). The signature of an Alternate
Director to any resolution in writing of the Board or a committee of the
Board shall, unless the terms of his appointment provides to the contrary,
be as effective as the signature of the Director or Directors to whom he is
alternate.
DIRECTORS' FEES AND ADDITIONAL REMUNERATION AND EXPENSES
81. The amount, if any, of Directors' fees shall from time to time be
determined by the Company by Resolution and in the absence of a
determination to the contrary such fees shall be deemed to accrue from day
to day. Each Director may be paid his reasonable travel, hotel and
incidental expenses in attending
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and returning from meetings of the Board or committees constituted pursuant
to these Bye-Laws or general meetings and shall be paid all expenses
properly and reasonably incurred by him in the conduct of the Company's
business or in the discharge of his duties as a Director. Any Director who,
by request, goes or resides abroad for any purposes of the Company or who
performs services which in the opinion of the Board go beyond the ordinary
duties of a Director may be paid such extra remuneration (whether by way of
salary, commission, participation in profits or otherwise) as the Board may
determine, and such extra remuneration shall be in addition to any
remuneration provided for by or pursuant to any other Bye-Law.
DIRECTORS' INTERESTS
82. (1) A Director may hold any other office or place of profit with the
Company (except that of auditor) in conjunction with his office of
Director for such period and upon such terms as the Board may
determine, and may be paid such extra remuneration therefor (whether
by way of salary, commission, participation in profits or otherwise)
as the Board may determine, and such extra remuneration shall be in
addition to any remuneration provided for by or pursuant to any other
Bye-Law.
(2) A Director may act by himself or his firm in a professional capacity
for the Company (otherwise than as auditor) and he or his firm shall
be entitled to remuneration for professional services as if he were
not a Director.
(3) Subject to the provisions of the Companies Acts, a Director may
notwithstanding his office be a party to, or otherwise interested in,
any transaction or arrangement with the Company or in which the
Company is otherwise interested; and be a Director or other officer
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of, or employed by, or a party to any transaction or arrangement with,
or otherwise interested in, any body corporate promoted by the
Company or in which the Company is interested. The Board may also
cause the voting power conferred by the shares in any other company
held or owned by the Company to be exercised in such manner in all
respects as it thinks fit, including the exercise thereof in favour of
any resolution appointing the Directors or any of them to be directors
or officers of such other company, or voting or providing for the
payment of remuneration to the directors or officers of such other
company.
(4) So long as, where it is necessary, he declares the nature of his
interest at the first opportunity at a meeting of the Board or by
writing to the Directors as required by the Companies Acts, a Director
shall not by reason of his office be accountable to the Company for
any benefit which he derives from any office or employment to which
these Bye-Laws allow him to be appointed or from any transaction or
arrangement in which these Bye-Laws allow him to be interested, and no
such transaction or arrangement shall be liable to be avoided on the
ground of any interest or benefit.
(5) Subject to the Companies Acts and any further disclosure required
thereby, a general notice to the Directors by a Director or officer
declaring that he is a director or officer or has an interest in a
person and is to be regarded as interested in any transaction or
arrangement made with that person, shall be a sufficient declaration
of interest in relation to any transaction or arrangement so made.
POWERS AND DUTIES OF THE BOARD
83. Subject to the provisions of the Companies Acts and these Bye-Laws and to
any directions given by the Company by Resolution, the Board shall manage
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the business of the Company and may pay all expenses incurred in promoting
and incorporating the Company and may exercise all the powers of the
Company. No alteration of these Bye-Laws and no such direction shall
invalidate any prior act of the Board which would have been valid if that
alteration had not been made or that direction had not been given. The
powers given by this Bye-Law shall not be limited by any special power
given to the Board by these Bye-Laws and a meeting of the Board at which a
quorum is present shall be competent to exercise all the powers,
authorities and discretions for the time being vested in or exercisable by
the Board.
84. The Board may exercise all the powers of the Company to borrow money and to
mortgage or charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and to issue
debentures and other securities, whether outright or as collateral security
for any debt, liability or obligation of the Company or of any other
persons.
85. All cheques, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts
for money paid to the Company shall be signed, drawn, accepted, endorsed or
otherwise executed, as the case may be, in such manner as the Board shall
from time to time by resolution determine.
86. The Board on behalf of the Company may provide benefits, whether by the
payment of gratuities or pensions or otherwise, for any person including
any Director or former Director who has held any executive office or
employment with the Company or with any body corporate which is or has been
a subsidiary or affiliate of the Company or a predecessor in the business
of the Company or of any such subsidiary or affiliate, and to any member of
his family or any person who is or was dependent on him, and may contribute
to any fund and pay premiums for the purchase or provision
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of any such gratuity, pension or other benefit, or for the insurance of any
such person.
87. The Board may from time to time appoint one or more of its body to be a
managing director, joint managing director or an assistant managing
director or to hold any other employment or executive office with the
Company for such period and upon such terms as the Board may determine and
may revoke or terminate any such appointments. Any such revocation or
termination as aforesaid shall be without prejudice to any claim for
damages that such Director may have against the Company or the Company may
have against such Director for any breach of any contract of service
between him and the Company which may be involved in such revocation or
termination. Any person so appointed shall receive such remuneration (if
any) (whether by way of salary, commission, participation in profits or
otherwise) as the Board may determine, and either in addition to or in lieu
of his remuneration as a Director.
DELEGATION OF THE BOARD'S POWERS
88. The Board may by power of attorney appoint any company, firm or person or
any fluctuating body of persons, whether nominated directly or indirectly
by the Board, to be the attorney or attorneys of the Company for such
purposes and with such powers, authorities and discretions (not exceeding
those vested in or exercisable by the Board under these Bye-Laws) and for
such period and subject to such conditions as it may think fit, and any
such power of attorney may contain such provisions for the protection and
convenience of persons dealing with any such attorney and of such attorney
as the Board may think fit, and may also authorise any such attorney to
sub-delegate all or any of the powers, authorities and discretions vested
in him.
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89. The Board may entrust to and confer upon any Director, officer or, without
prejudice to the provisions of Bye-Law 90, other individual any of the
powers exercisable by it upon such terms and conditions with such
restrictions as it thinks fit, and either collaterally with, or to the
exclusion of, its own powers, and may from time to time revoke or vary all
or any of such powers but no person dealing in good faith and without
notice of such revocation or variation shall be affected thereby.
90. The Board may delegate any of its powers, authorities and discretions to
committees, consisting of such person or persons (whether a member or
members of its body or not) as it thinks fit. Any committee so formed
shall, in the exercise of the powers, authorities and discretions so
delegated, and in conducting its proceedings conform to any regulations
which may be imposed upon it by the Board If no regulations are imposed by
the Board the proceedings of a committee with two or more members shall be,
as far as is practicable, governed by the Bye-Laws regulating the
proceedings of the Board.
PROCEEDINGS OF THE BOARD
91. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it thinks fit. Questions arising at any meeting
shall be determined by a majority of votes. In the case of an equality of
votes the motion shall be deemed to have been lost. A Director may, and
the Secretary on the requisition of a Director shall, at any time summon a
meeting of the Board.
92. Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to him personally or by word of mouth or sent to
him by post, cable, telex, telecopier or other mode of representing or
reproducing
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words in a legible and non-transitory form at his last known address or any
other address given by him to the Company for this purpose. A Director may
waive notice of any meeting either prospectively or retrospectively.
93. (1) The quorum necessary for the transaction of the business of the Board
may be fixed by the Board and, unless so fixed at any other number,
shall be two individuals. Any Director who ceases to be a Director at
a meeting of the Board may continue to be present and to act as a
Director and be counted in the quorum until the termination of the
meeting if no other Director objects and if otherwise a quorum of
Directors would not be present.
(2) A Director who to his knowledge is in any way, whether directly or
indirectly, interested in a contract or proposed contract, transaction
or arrangement with the Company and has complied with the provisions
of the Companies Acts and these Bye-Laws with regard to disclosure of
his interest shall be entitled to vote in respect of any contract,
transaction or arrangement in which he is so interested and if he
shall do so his vote shall be counted, and he shall be taken into
account in ascertaining whether a quorum is present.
(3) The Resident Representative shall, upon delivering written notice of
an address for the purposes of receipt of notice, to the Registered
Office, be entitled to receive notice of, attend and be heard at, and
to receive minutes of all meetings of the Board.
94. So long as a quorum of Directors remains in office, the continuing
Directors may act notwithstanding any vacancy in the Board but, if no such
quorum remains, the continuing Directors or a sole continuing Director may
act only for the purpose of calling a general meeting.
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95. The Chairman or, President or in his absence the Deputy Chairman or Vice-
President shall preside as chairman at every meeting of the Board. If at
any meeting the Chairman or Deputy Chairman or the President or Vice-
President is not present within five minutes after the time appointed for
holding the meeting, or is not willing to act as chairman, the Directors
present may choose one of their number to be chairman of the meeting.
96. The meetings and proceedings of any committee consisting of two or more
members shall be governed by the provisions contained in these Bye-Laws for
regulating the meetings and proceedings of the Board so far as the same are
applicable and are not superseded by any regulations imposed by the Board.
97. A resolution in writing signed by all the Directors for the time being
entitled to receive notice of a meeting of the Board or by all the members
of a committee for the time being shall be as valid and effectual as a
resolution passed at a meeting of the Board or, as the case may be, of such
committee duly called and constituted. Such resolution may be contained in
one document or in several documents in the like form each signed by one or
more of the Directors or members of the committee concerned.
98. A meeting of the Board or a committee appointed by the Board may be held by
means of such telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and participation in such a
meeting shall constitute presence in person at such meeting.
99. All acts done by the Board or by any committee or by any person acting as a
Director or member of a committee or any person duly authorised by the
Board or any committee, shall, notwithstanding that it is afterwards
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discovered that there was some defect in the appointment of any member of
the Board or such committee or person acting as aforesaid or that they or
any of them were disqualified or had vacated their office, be as valid as
if every such person had been duly appointed and was qualified and had
continued to be a Director, member of such committee or person so
authorised.
OFFICERS
100. The officers of the Company shall include a President and a Vice-President
or a Chairman and a Deputy Chairman who shall be Directors and shall be
elected by the Board as soon as possible after the statutory meeting and
each Annual General Meeting. In addition, the Board may appoint any person
whether or not he is a Director to hold such office as the Board may from
time to time determine. Any person elected or appointed pursuant to this
Bye-Law shall hold office for such period and upon such terms as the Board
may determine and the Board may revoke or terminate any such election or
appointment. Any such revocation or termination shall be without prejudice
to any claim for damages that such officer may have against the Company or
the Company may have against such officer for any breach of any contract of
service between him and the Company which may be involved in such
revocation or termination. Save as provided in the Companies Acts or these
Bye-Laws, the powers and duties of the officers of the Company shall be
such (if any) as are determined from time to time by the Board.
MINUTES
101. The Board shall cause minutes to be made and books kept for the purpose of
recording -
(1) all appointments of officers made;
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(2) the names of and other persons (if any) present at each meeting of
any committee;
(3) of all proceedings at meetings of the Company, of the holders of any
class of shares in the Company, and of committees appointed by the
Board or the Shareholders;
(4) of all proceedings of its managers (if any).
Shareholders shall only be entitled to see the Register of Directors and
Officers, the Register, the information provided for in Bye-Law 118 and the
minutes of meetings of the Shareholders of the Company.
SECRETARY AND RESIDENT REPRESENTATIVE
102. The Secretary and, if required, the Resident Representative, shall be
appointed by the Board at such remuneration (if any) and upon such terms as
it may think fit and any Secretary and Resident Representative so appointed
may be removed by the Board. The duties of the Secretary and the duties of
the Resident Representative shall be those prescribed by the Companies Acts
together with such other duties as shall from time to time be prescribed by
the Board.
103. A provision of the Companies Acts or these Bye-Laws requiring or
authorising a thing to be done by or to a Director and the Secretary shall
not be satisfied by its being done by or to the same person acting both as
Director and as, or in the place of, the Secretary.
THE SEAL
104. (1) The Board shall provide for the safe custody of the Seal, which shall
only be used by the authority of the Board or a committee of the Board
authorised by the Board in that behalf, and every instrument
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to which the Seal shall be affixed shall be signed by a Director and
shall be countersigned by the Secretary or by a second Director or by
some other person appointed by the Board for the purpose, provided
that the Secretary or any Director may affix the Seal of the Company
over his signature only to any authenticated copies of these Bye-Laws,
the Minutes of meetings or any other documents required to be
authenticated by him.
(2) Every certificate for shares or loan stock or representing any
other form of security of the Company (other than letters of
allotment, receipts for securities or certificates of deposit) shall
be issued under the Seal or under any official seal kept by the
Company pursuant to Bye-Law 104B.
104A. Overseas Seal
(1) The Company may have for use in any territory, district, or place
elsewhere than in Bermuda an official seal (in these Bye-Laws referred
to as an "Overseas Seal"), which seal shall be a facsimile of the
Seal.
(2) A deed or other document to which the Overseas Seal is duly
affixed shall bind the Company as if it had been sealed with the Seal.
(3) The Company having an Overseas Seal for use in any such
territory, district or place may, by writing under its Seal, authorise
any person or persons appointed for the purpose as its agent or agents
in that territory, district or place to affix the Overseas Seal to any
deed or other documents to which the Company is party in that
territory, district or place.
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(4) As between the Company and the person dealing with such an agent
or agents, the authority of such agent or agents continues during the
period (if any) mentioned in the instrument conferring the authority,
or if no period is there mentioned, then until notice of the
revocation or determination of the authority of such agent or agents
has been given to the person dealing with him.
(5) The person affixing the Overseas Seal shall certify in writing on
the deed or other instrument to which the Overseas Seal is affixed the
date on which it is affixed.
(6) The powers referred to in this Bye-Law shall be vested in the
Board and whenever in these Bye-Laws reference is made to the Seal the
reference shall, when and so far as may be applicable, be deemed to
include any Overseas Seal and any Securities Seal (as defined in Bye-
Law 104B below).
104B. Securities Seal
(1) The Company may have, for use for sealing securities issued by
the Company and for sealing documents creating or evidencing
securities so issued, an official seal (in these Bye-Laws referred to
as a "Securities Seal") which is a facsimile of the Seal with the
addition on its face of the word "Securities".
(2) Each certificate to which the Securities Seal shall be affixed
need not bear any signature.
DIVIDENDS AND OTHER PAYMENTS
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105. The Board may from time to time declare dividends or distributions out of
contributed surplus to be paid to the Shareholders according to their
rights and interests including such interim dividends as appear to the
Board to be justified by the position of the Company. The Board, in its
discretion, may determine that any dividend shall be paid in cash or shall
be satisfied in paying up in full shares or debentures in the Company to be
issued to the Shareholders or credit as fully paid or partly in one way and
partly the other. The Board may also pay any fixed cash dividend which is
payable on any shares of the Company half yearly or on such other dates,
whenever the position of the Company, in the opinion of the Board,
justifies such payment.
106. Except insofar as the rights attaching to, or the terms of issue of, any
share otherwise provide:-
(1) all dividends or distributions out of contributed surplus may be
declared and paid according to the amounts paid up on the shares in
respect of which the dividend or distribution is paid, and an amount
paid up on a share in advance of calls may be treated for the purpose
of this Bye-Law as paid-up on the share;
(2) dividends or distributions out of contributed surplus may be
apportioned and paid pro rata according to the amounts paid-up on the
shares during any portion or portions of the period in respect of
which the dividend or distribution is paid.
107. The Board may deduct from any dividend, distribution or other moneys
payable to a Shareholder by the Company on or in respect of any shares all
sums of money (if any) presently payable by him to the Company on account
of calls or otherwise in respect of shares of the Company.
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108. Unless the Board otherwise resolves, no dividend, distribution or other
moneys payable by the Company on or in respect of any share shall bear
interest against the Company.
109. Any dividend, distribution or interest, or part thereof payable in cash,
or any other sum payable in cash to the holder of shares may be paid by
cheque or warrant sent through the post addressed to the holder at his
address in the Register or, in the case of joint holders, addressed to the
holder whose name stands first in the Register in respect of the shares at
his registered address as appearing in the Register or addressed to such
person at such address as the holder or joint holders may in writing
direct. Every such cheque or warrant shall, unless the holder or joint
holders otherwise direct, be made payable to the order of the holder or, in
the case of joint holders, to the order of the holder whose name stands
first in the Register in respect of such shares, and shall be sent at his
or their risk and payment of the cheque or warrant by the bank on which it
is drawn shall constitute a good discharge to the Company. Any one of two
or more joint holders may give effectual receipts for any dividends,
distributions or other moneys payable or property distributable in respect
of the shares held by such joint holders.
110. Any dividend or distribution out of contributed surplus unclaimed for a
period of six years from the date of declaration of such dividend or
distribution shall be forfeited and shall revert to the Company and the
payment by the Board of any unclaimed dividend, distribution, interest or
other sum payable on or in respect of the share into a separate account
shall not constitute the Company a trustee in respect thereof.
111. The Board may also, in addition to its other powers, direct payment or
satisfaction of any dividend or distribution out of contributed surplus
wholly or in part by the distribution of specific assets, and in particular
of paid-up
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shares or debentures of any other company, and where any difficulty arises
in regard to such distribution or dividend the Board may settle it as it
thinks expedient, and in particular, may authorise any person to sell and
transfer any fractions or may ignore fractions altogether, and may fix the
value for distribution or dividend purposes of any such specific assets and
may determine that cash payments shall be made to any Shareholders upon the
footing of the values so fixed in order to secure equality of distribution
and may vest any such specific assets in trustees as may seem expedient to
the Board provided that such dividend or distribution may not be satisfied
by the distribution of any partly paid shares or debentures of any company
without the sanction of a Resolution.
RESERVES
112. The Board may, before recommending or declaring any dividend or
distribution out of contributed surplus, set aside such sums as it thinks
proper as reserves which shall, at the discretion of the Board, be
applicable for any purpose of the Company and pending such application may,
also at such discretion, either be employed in the business of the Company
or be invested in such investments as the Board may from time to time think
fit. The Board may also without placing the same to reserve carry forward
any sums which it may think it prudent not to distribute.
CAPITALIZATION OF PROFITS
113. The Board may, from time to time resolve to capitalize all or any part of
any amount for the time being standing to the credit of any reserve or fund
which is available for distribution or to the credit of any share premium
account or any capital redemption reserve fund and accordingly that such
amount be set free for distribution amongst the Shareholders or any class
of
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Shareholders who would be entitled thereto if distributed by way of
dividend and in the same proportions, on the footing that the same be not
paid in cash but be applied either in or towards paying up amounts for the
time being unpaid on any shares in the Company held by such Shareholders
respectively or in payment up in full of unissued shares, debentures or
other obligations of the Company, to be allotted and distributed credited
as fully paid amongst such Shareholders, or partly in one way and partly in
the other, provided that for the purpose of this Bye-Law, a share premium
account and a capital redemption reserve fund may be applied only in paying
up of unissued shares to be issued to such Shareholders credited as fully
paid and provided further that any sum standing to the credit of a share
premium account may only be applied in crediting as fully paid shares of
the same class as that from which the relevant share premium was derived.
114. Where any difficulty arises in regard to any distribution under the last
preceding Bye-Law, the Board may settle the same as it thinks expedient
and, in particular, may authorise any person to sell and transfer any
fractions or may resolve that the distribution should be as nearly as may
be practicable in the correct proportion but not exactly so or may ignore
fractions altogether, and may determine that cash payments should be made
to any Shareholders in order to adjust the rights of all parties, as may
seem expedient to the Board. The Board may appoint any person to sign on
behalf of the persons entitled to participate in the distribution any
contract necessary or desirable for giving effect thereto and such
appointment shall be effective and binding upon the Shareholders.
RECORD DATES
115. Notwithstanding any other provisions of these Bye-Laws, the Company may by
Resolution or the Board may fix any date as the record date for any
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dividend, distribution, allotment or issue and for the purpose of
identifying the persons entitled to receive notices of general meetings.
Any such record date may be on or at any time before or after any date on
which such dividend, distribution, allotment or issue is declared, paid or
made or such notice is despatched.
ACCOUNTING RECORDS
116. The Board shall cause to be kept accounting records sufficient to give a
true and fair view of the state of the Company's affairs and to show and
explain its transactions, in accordance with the Companies Acts.
117 The records of account shall be kept at the Registered Office or at such
other place or places as the Board thinks fit, and shall at all times be
open to inspection by the Directors: PROVIDED that if the records of
account are kept at some place outside Bermuda, there shall be kept at an
office of the Company in Bermuda such records as will enable the Directors
to ascertain with reasonable accuracy the financial position of the Company
at the end of each three month period. No Shareholder (other than an
officer of the Company) shall have any right to inspect any accounting
record or book or document of the Company except as conferred by law or
authorised by the Board or by Resolution.
118. A copy of every balance sheet and statement of income and expenditure,
including every document required by law to be annexed thereto, which is to
be laid before the Company in general meeting, together with a copy of the
auditors' report, shall be sent to each person entitled thereto in
accordance with the requirements of the Companies Acts.
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AUDIT
119. Save and to the extent that an audit is waived in the manner permitted by
the Companies Acts, auditors shall be appointed and their duties regulated
in accordance with the Companies Acts, any other applicable law and such
requirements not inconsistent with the Companies Acts as the Board may from
time to time determine.
SERVICE OF NOTICES AND OTHER DOCUMENTS
120. Any notice or other document (including a share certificate) may be served
on or delivered to any Shareholder by the Company either personally or by
sending it through the post (by airmail where applicable) in a pre-paid
letter addressed to such Shareholder at his address as appearing in the
Register or by delivering it to or leaving it at such registered address.
In the case of joint holders of a share, service or delivery of any notice
or other document on or to one of the joint holders shall for all purposes
be deemed as sufficient service on or delivery to all the joint holders.
Any notice or other document if sent by post shall be deemed to have been
served or delivered three days after it was put in the post, and in proving
such service or delivery, it shall be sufficient to establish by affidavit
that the notice or document was properly addressed, stamped and put in the
post.
121. Any notice of a general meeting of the Company shall be deemed to be duly
given to a Shareholder, or other person entitled to it, if it is sent to
him by cable, telex, telecopier or other mode of representing or
reproducing words in a legible and non-transitory form at his address as
appearing in the Register or any other address given by him to the Company
for this purpose. Any such notice shall be deemed to have been served
twenty-four hours after its despatch.
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122. Any notice or other document delivered, sent or given to a Shareholder in
any manner permitted by these Bye-Laws shall, notwithstanding that such
Shareholder is then dead or bankrupt or that any other event has occurred,
and whether or not the Company has notice of the death or bankruptcy or
other event, be deemed to have been duly served or delivered in respect of
any share registered in the name of such Shareholder as sole or joint
holder unless his name shall, at the time of the service or delivery of the
notice or document, have been removed from the Register as the holder of
the share, and such service or delivery shall for all purposes be deemed as
sufficient service or delivery of such notice or document on all persons
interested (whether jointly with or as claiming through or under him) in
the share.
WINDING UP
123. If the Company shall be wound up, the liquidator may, with the sanction of
a Resolution of the Company and any other sanction required by the
Companies Acts, divide amongst the Shareholders in specie or kind the whole
or any part of the assets of the Company (whether they shall consist of
property of the same kind or not) and may for such purposes set such values
as he deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the
Shareholders or different classes of Shareholders. The liquidator may,
with the like sanction, vest the whole or any part of such assets in
trustees upon such trust for the benefit of the contributories as the
liquidator, with the like sanction, shall think fit, but so that no
Shareholder shall be compelled to accept any shares or other assets upon
which there is any liability.
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INDEMNITY
124. Subject to the proviso below, every Director, officer, member of a
committee constituted under Bye-Law 90 or Resident Representative of the
Company shall be indemnified out of the funds of the Company against all
liabilities, loss, damage or expense (including but not limited to
liabilities under contract, tort and statute or any applicable foreign law
or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered by him as such Director, officer,
committee member or Resident Representative and the indemnity contained in
this Bye-Law shall extend to any person acting as a Director, officer,
committee member or Resident Representative in the reasonable belief that
he has been so appointed or elected notwithstanding any defect in such
appointment or election PROVIDED ALWAYS that the indemnity contained in
this Bye-Law shall not extend to any matter which would render it void
pursuant to the Companies Acts.
125. Every Director, officer, member of a committee duly constituted under Bye-
Law 90 or Resident Representative of the Company shall be indemnified to
the full extent permitted by law out of the funds of the Company against
all liabilities incurred by him as such Director, officer, committee member
or Resident Representative in defending any actual or threatened action or
proceedings, whether civil or criminal or investigative, in which he is not
adjudged or found to have committed any breach of a duty owed as a result
of his position with the Company or to have breached any provision of the
Companies Acts, or in connection with any application under the Companies
Acts in which relief from liability is granted to him by the court. The
Company shall from time to time advance, pay or reimburse every Director,
officer, member of a committee duly constituted under Bye-Law 90 or
Resident Representative of the Company, any and all expenses incurred by
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or on behalf of such person in connection with any actual or threatened
action or proceeding referred to in this Bye-Law or in Bye-Law 124 provided
that any such payment by the Company shall be on terms, which shall be
confirmed by the recipient, that the recipient will repay any sums advanced
under this Bye-Law if it is ultimately determined that he is not entitled
to be indemnified by the Company for such expenses pursuant to these Bye-
Laws.
126. To the extent that any Director, officer, member of a committee duly
constituted under Bye-Law 90 or Resident Representative of the Company is
entitled to claim an indemnity pursuant to these Bye-Laws in respect of
amounts paid or discharged by him, the relative indemnity shall take effect
as an obligation of the Company to reimburse the person making such payment
or effecting such discharge.
ALTERATION OF BYE-LAWS
127. These Bye-Laws may be amended from time to time in the manner provided for
in the Companies Acts.
TRANSACTIONS INVOLVING CERTAIN INTERESTED PERSONS
128. (1) Except as provided in paragraph (2) of this Bye-Law 128, the
favourable vote, at a general meeting of the Company, of the holders
of not less than seventy five percent (75%) of the shares carrying
voting rights in the Company entitled to be exercised at such meeting
shall be required prior to and as a condition to the consummation of
any Business Combination (as hereinafter defined) involving an
interested person (as hereinafter defined). Such seventy five percent
(75%) favourable vote shall be in substitution of any vote of the
shareholders which would be required without reference
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to this Bye-Law 128 and shall be required notwithstanding the fact
that no vote may be required, or that some lesser percentage may be
specified, by law or the Memorandum of Association of the Company, by
any other provision of these Bye-Laws or otherwise.
(2) The provisions of paragraph (1) of this Bye-Law 128 shall not
apply to a particular Business Combination, and such Business
Combination shall require only such vote or approval (if any) of the
Shareholders as would be required without reference to this Bye-Law
128, if all of the following conditions are satisfied:
(A) After such interested person became an interested person and
prior to the consummation of such Business Combination: (i) such
interested person shall have taken steps to ensure that the Board
includes at all times representation by Continuing Directors (as
hereinafter defined) proportionate to the ratio that the number
of shares carrying voting rights in the Company from time to time
owned by Shareholders who are not interested persons bears to all
shares carrying voting rights in the Company outstanding at the
time in question (with a Continuing Director to occupy any
resulting fractional position among the Directors); (ii) such
interested person shall not have acquired from the Company or any
subsidiary of the Company, directly or indirectly, any Ordinary
Shares (except (x) upon conversion of convertible securities
acquired by it prior to becoming an interested person, or (y) as
a result of a pro rata share dividend, stock split or division or
subdivision of shares, which satisfied all applicable
requirements of this Bye-Law
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128); (iii) such interested person shall not have acquired any
additional shares, or rights over shares, carrying voting rights
or securities convertible into or exchangeable for shares, or
rights over shares, carrying voting rights except as a part of
the transaction which resulted in such interested person becoming
an interested person; and (iv) such interested person shall not
have (x) received the benefit, directly or indirectly (except
proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or tax credits
provided by the Company or any subsidiary of the Company, or (y)
made any major change in the Company's business or equity capital
structure or entered into any contract, arrangement or
understanding with the Company except any such change, contract,
arrangement or understanding as may have been approved by the
favourable vote of not less than a majority of the Continuing
Directors; and
(B) A proxy statement complying with the requirements of the Exchange
Act, shall have been mailed to all holders of shares carrying
voting rights for the purpose of soliciting approval by the
Shareholders of such Business Combination. Such proxy statement
shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the
Business Combination which the Continuing Directors, or any of
them, may have furnished in writing and, if deemed advisable by a
majority of the Continuing Directors, an opinion of a reputable
investment banking firm as to the adequacy (or inadequacy) of the
terms of such Business
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Combination from the point of view of the holders of shares
carrying voting rights other than any interested person (such
investment banking firm to be selected by a majority of the
Continuing Directors, to be furnished with all information it
reasonably requests, and to be paid a reasonable fee for its
services upon receipt by the Company of such opinion).
(3) For the purposes of this Bye-Law 128:
(A) The term "Business Combination" means (i) any scheme of
arrangement, reconstruction, amalgamation or similar business
combination involving the Company or any of its subsidiaries and
an interested person or any other company or corporation, if the
arrangement, reconstruction, amalgamation or similar business
combination is initiated, proposed or caused by the interested
person or if such other company or corporation is, or after such
transaction would be, an affiliate of such interested person;
(ii) any transaction or series of transactions involving the
sale, purchase, lease, exchange, mortgage, pledge, transfer or
other disposition, acquisition or encumbrance of assets between
the Company or any of its subsidiaries and any interested person
having an aggregate market value in excess of five percent (5%)
of the consolidated book value of the Company and its
subsidiaries prior to the relevant transaction or series of
transactions; (iii) the issue or transfer to an interested person
of any securities of the Company or any of its subsidiaries other
than an issue or distribution to all shareholders of the Company
entitled to participate therein
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(such entitlement not being dependent upon or affected by any
scheme or proposal initiated or proposed by an interested person)
pro rate to their respective entitlements; (iv) the adoption of
any plan or proposal for the liquidation or dissolution of the
Company or any of its subsidiaries unless such plan or proposal
is initiated, proposed or adopted independently of, and not by
agreement or arrangement with, any interested person; (v) the
reclassification of any securities or other restructuring of the
capital of the Company or any of its subsidiaries, in such a way
as to confer a benefit on any interested person which is not
conferred on the shareholders generally or any other transaction
which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class or
series, or securities convertible into the shares of any class or
series, of the Company or any subsidiary of the Company
beneficially owned by the interested person except as a result of
immaterial changes due to fractional share adjustments; or (vi)
any transaction involving the receipt by the interested person of
the benefit, directly or indirectly (except proportionately as a
shareholder of the Company), of any loans, advances, guarantees,
pledges, or other financial benefits provided by or through the
Company or any of its subsidiaries.
(B) The term "person" includes: (i) any person acting in concert
(as hereinafter defined) with him or any nominee for him or
person acting on his behalf; (ii) any company in which such
person holds or beneficially owns ten percent (10%) or more of
the shares, or rights over
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shares, carrying voting rights in such company; and (iii) any
person or entity over which the person acquiring the shares, or
rights over shares, carrying voting rights has, directly or
indirectly, the power to direct or cause the direction of
management or policies of such other person;
(C) The term "beneficial owner" when used with respect to
any shares means a person:
(i) that individually or with or through any affiliate
beneficially owns such share, directly or indirectly; or
(ii) that individually or with or through any affiliate
has:
(a) the right to acquire such share (whether such
right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement
or understanding (whether or not in writing), or upon
the exercise of conversion rights, exchange rights,
warrants or options or otherwise; provided, however,
that a person shall not be deemed the beneficial owner
of any share tendered to such person pursuant to a
tender or exchange offer until such offer is accepted;
or
(b) the right to vote such share pursuant to any
agreement, arrangement or understanding (whether or not
in writing); provided, however, that a
61
<PAGE>
person shall not be deemed the beneficial owner of any share
under this subparagraph (b) if the right to vote such share
arises:
(x) solely from a revocable proxy or consent given in
response to a proxy or consent solicitation made to
shareholders or any class of shareholders generally; or
(y) solely under a nominee or trustee agreement where the
nominee or trustee has no economic interest in the
share (other than the right to be paid normal nominee
or trustee fees or remuneration); or
(i) that has any agreement, arrangement or
understanding (whether or not in writing) for the purpose of
acquiring, holding, voting (except where the right to vote
is within the exclusion of clause (x) or (y) of subparagraph
(C)(ii)(b) above) or disposing of such share with any other
person that beneficially owns, or whose affiliates directly
or indirectly beneficially own, such share or any interest
therein; but does not, for so long as such shares are held
for purposes of an underwriting, include an underwriter,
acting in the ordinary course of his business as an
underwriter,
62
<PAGE>
who acquires shares pursuant to any issue or offer of shares
underwritten by him.
(A) A person shall be deemed not to acquire or hold any
share if he acquires or holds such share solely as nominee or
bare trustee thereof and has no beneficial or economic interest
therein other than the right to be paid normal nominee or trustee
fees or remuneration.
(E) "Continuing Director" means a Director of the Company who either
(i) was first elected as a Director prior to the date on which
these Bye-laws were approved by the Shareholders or (ii) was
designated (before his or her initial election as a Director) as
a Continuing Director by a majority of the then Continuing
Directors.
(F) The term "affiliate" means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by,
or is under common control with another person. A person who is
the beneficial owner of ten percent (10%) or more of a company's
outstanding voting shares shall be deemed to control such
company.
(G) A company shall be deemed to be a "subsidiary" of another if: (i)
the other is a shareholder of it, either directly or indirectly
through one or more other subsidiaries, and controls the
composition of its board of directors; or (ii) the other
beneficially owns, either directly or indirectly through one or
more other subsidiaries, more than half in nominal value of its
issued share capital; or (iii) it is a subsidiary of
63
<PAGE>
any company which is in turn, either directly or indirectly
through one of more other subsidiaries, a subsidiary of the other
company. For the purpose of this definition "company" includes
any body corporate, wherever incorporated.
(H) The term "interested person" means any Over-The-Threshold Common
Shareholder other than a Grandfathered Investor.
(I) An interested person shall be deemed to have acquired a
share of the Company at the time when such interested person
become the beneficial owner thereof.
(J) The term "person acting in concert" includes:
(i) persons who, pursuant to an agreement, arrangement or
understanding (whether formal or informal), actively cooperate
either in the acquisition or holding by any of them of shares or
the beneficial ownership of shares, or rights over shares,
carrying voting
64
<PAGE>
rights in the Company, or in the exercise of voting rights with
respect to shares in the Company;
(ii) a company with any of its directors (or their
spouses, minor children, nominees, related trusts or
companies in which any director holds or beneficially owns
ten percent (10%) or more of the shares, or rights over
shares, carrying voting rights);
(iii) a company with the trustees or managers of
any of its pension, provident or employee benefit funds or
any of its employee stock option schemes;
(iv) a person who is a fund manager, with any
investment company, unit trust or other person whose
investments such person manages on a discretionary basis,
in respect of the relevant investment accounts;
(v) a company with its parent company or any of
its subsidiaries; and
(vi) a company, in which ten percent (10%) or more
of the shares, or rights over shares, carrying voting
rights are held or beneficially owned by a person, with
any other company in which ten percent (10%) or more of
the shares, or rights over shares, carrying voting rights
are held or beneficially owned by the same person.
(K) The term "rights over shares" includes any rights
acquired by a person by virtue of an agreement to acquire shares
or an option to acquire shares or an
65
<PAGE>
irrevocable commitment to accept an offer to acquire shares and
includes warrants or options to subscribe for shares in the
Company if immediately exercisable, as if such warrants or
options had at the relevant time been exercised.
(L) The term "securities" includes shares, debentures, and
options or warrants to subscribe for or purchase any shares or
debentures, and any rights in respect thereof or any other right
which if exercised would enable a person, not otherwise able so
to do, to exercise voting rights.
(M) The term "voting rights" means the voting rights attributable to
the share capital of the Company which are then currently
exercisable or, in the case of options and warrants to subscribe
for shares, would be exercisable if those options and warrants
were themselves exercised, at a general meeting of the Company.
(4) A majority of the Continuing Directors shall have the power to
determine for the purposes of this Bye-Law 128, on the basis of
information known to them, (i) the number of shares, or rights over
shares, carrying voting rights of which any person is the beneficial
owner, (ii) whether a person is an affiliate of another or acting in
concert with another, (iii) whether an interested person has taken the
adequate steps referred to in subparagraph (A) of paragraph (2), (iv)
whether a person has an agreement, arrangement or understanding with
another as to the matters referred to in subparagraph (C) of paragraph
(3), and (v) any matters referred to
66
<PAGE>
in subparagraph (I) of paragraph (3). Any such determination by the
Continuing Directors shall be final and binding on all persons.
(5) Any revocation, alteration or amendment of this Bye-Law 128 or
any other revocation, alteration or amendment of the Company's
Memorandum of Association or these Bye-Laws which would have the
effect of modifying or permitting circumvention of this Bye-Law 128,
shall require the favourable vote, at a general meeting of the
Company, of the holders of at least seventy percent (70%) of the
shares carrying voting rights in the Company entitled to be exercised
at such meeting provided, however, that this paragraph (5) shall not
apply to, and such seventy percent (70%) vote shall not be required
for, any such revocation, alteration, or amendment recommended to
shareholders by the favourable vote of not less than a majority of the
Continuing Directors.
(6) Nothing contained in this Bye-Law 128 shall be construed to relieve
any interested person from any fiduciary obligation imposed by law.
67
<PAGE>
EXHIBIT 3.3
24 January 1996
MARK COOKE and others
BRIDGE STREET FUND 1995, LP.
GOLDMAN SACHS & CO. VERWALTUNGS GmbH
(for GS CAPITAL PARTNERS II GERMANY
CIVIL LAW PARTNERSHIP)
GS CAPITAL PARTNERS II, L.P.
GS CAPITAL PARTNERS II OFFSHORE, L.P.
STONE STREET FUND 1995, LP.
STIRLING COOKE BROWN HOLDINGS LIMITED
-----------------------------
SHAREHOLDERS AGREEMENT
relating to
STIRLING COOKE BROWN
HOLDINGS LIMITED
-----------------------------
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Page
<S> <C>
1. INTERPRETATION......................................................... 1
2. DIRECTORS.............................................................. 5
3. CORPORATE GOVERNANCE................................................... 9
4. INFORMATION RIGHTS..................................................... 9
5. INSURANCE.............................................................. 10
6. TRANSFER OF EQUITY SECURITIES.......................................... 10
7. SALE OF CONTROL........................................................ 12
8. BRING-ALONG RIGHTS..................................................... 13
9. FUTURE ISSUES.......................................................... 13
10. PUT AND AUCTION RIGHTS................................................. 14
11. INITIAL PUBLIC OFFERING AND REGISTRATION RIGHTS........................ 14
12. INVESTMENT BANKING..................................................... 15
13. DECISIONS BY MANAGEMENT SHAREHOLDERS................................... 15
14. MEMORANDUM AND BYE-LAWS AND FURTHER ASSURANCE.......................... 15
15. TERMINATION............................................................ 16
16. CONFIDENTIALITY........................................................ 16
17. ANNOUNCEMENTS.......................................................... 18
18. ASSIGNMENT............................................................. 18
19. WAIVER OF RIGHTS....................................................... 18
20. AMENDMENTS............................................................. 19
21. INVALIDITY............................................................. 19
22. NO PARTNERSHIP OR AGENCY............................................... 19
23. ENTIRE AGREEMENT....................................................... 19
24. PURCHASE OF OWN SECURITIES............................................. 20
25. GOVERNING LAW.......................................................... 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
26. NOTICES................................................................ 20
SCHEDULE 1.................................................................. 21
Part A - Management Shareholders......................................... 21
Part B - Investors....................................................... 24
Part C - The Company..................................................... 25
SCHEDULE 2.................................................................. 26
Corporate Governance..................................................... 26
SCHEDULE 3.................................................................. 29
Right of first offer on sale or transfer of Equity Securities............ 29
SCHEDULE 4.................................................................. 34
Transfers on termination of employment of a Management Shareholder....... 34
SCHEDULE 5.................................................................. 40
Put and Auction rights................................................... 40
SCHEDULE 6.................................................................. 42
Transfer of Equity Securities............................................ 42
SCHEDULE 7.................................................................. 43
Part A................................................................... 43
Deed of Adherence........................................................ 43
Part B................................................................... 44
Permitted Transferee Undertaking......................................... 44
SCHEDULE 8.................................................................. 45
The Subsidiaries......................................................... 45
SCHEDULE 9.................................................................. 47
Form of Subsidiary Undertaking........................................... 47
SCHEDULE 10................................................................. 49
List of Exhibits......................................................... 49
</TABLE>
<PAGE>
THIS SHAREHOLDERS AGREEMENT is made on 24 January 1996
BETWEEN:
(1) THOSE PERSONS whose names and addresses are set out in Part A of Schedule I
(Management Shareholders);
(2) BRIDGE STREET FUND 1995, L.P. of c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, DE 19801 U.S.A.(Bridge
Street),
(3) GOLDMAN SACHS & CO. VERWALTUNGS GmbH (for GS CAPITAL PARTNERS II GERMANY
CIVIL LAW PARTNERSHIP) of Messe Turm, 60308 Frankfurt am Main, Germany
(Germany);
(4) GS CAPITAL PARTNERS II, L.P. of c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, DE 19801 U.S.A. (GS Capital
Partners);
(5) GS CAPITAL PARTNERS II OFFSHORE, L.P. of c/o Maples and Calder, P0 Box 309,
Grand Cayman, Cayman Islands, British West Indies (GS Offshore);
(6) STONE STREET FUND 1995, L.P. of c/o The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, DE 19801 U.S.A.(Stone
Street);
(7) STIRLING COOKE BROWN HOLDINGS LIMITED of Cedar House, 41 Cedar Avenue
Hamilton HMI2 Bermuda (the Company).
WHEREAS:
(A) On 23 December 1995 the parties entered into an agreement for the
subscription and purchase of shares in the Company by Bridge Street,
Germany, GS Capital Partners, GS Offshore, and Stone Street (the
Subscription Agreement).
(B) The parties now wish to enter into this agreement in order to regulate the
manner in which the Group will carry on business and the manner in which
the relationship between the Shareholders will be governed.
IT IS AGREED as follows:
INTERPRETATION
1.1 In this Agreement, the following terms shall (unless the context requires
otherwise) have the following respective meanings:
Auditors means KMPG or such other firm of auditors to be appointed by the
Company from time to time in accordance with this Agreement;
<PAGE>
Board means the board of directors of the Company;
Budget means in respect of the period to 30 June 1996, the budget for the Group
attached as Exhibit A, and in respect of any other period means a budget for the
Group for a particular Financial Year or part Financial Year (as appropriate) in
a format approved from time to time by the Board in accordance with this
Agreement;
Business Day means a day on which banks generally are open in London;
Business Plan means a rolling business plan for the Group as agreed by a Super-
Majority and to be updated annually in a manner approved from time to time by
the Board in accordance with this Agreement;
Bye-laws means the Bye-laws of the Company to be adopted pursuant to the
Subscription Agreement as they may subsequently be altered from time to time in
accordance with this Agreement;
company includes any body corporate, wherever incorporated;
Deed of Adherence means a deed of adherence to the provisions of this Agreement
to be executed by a proposed transferee of any Shares, substantially in the form
contained in Part A of Schedule 7;
Directors means the Management Shareholder Directors and the Goldman Sachs
Directors;
Equity Securities means Shares and any rights to subscribe for or to convert any
securities into or exchange any securities for Shares;
Financial Year means a financial period of the Company (commencing, other than
in the case of its initial financial period, on 1 January and ending on 31
December);
Further Financing Agreement means the agreement, in the agreed form, pursuant to
and on the terms and conditions of which CS Capital Partners and GS Offshore
agree to make further finance available to the Group;
Goldman Sachs means Bridge Street, Germany, CS Capital Partners, CS Offshore,
Stone Street, The Goldman Sachs Group, L.P. and the other Goldman Sachs
Affiliates (or, as the context requires, any one of them);
Goldman Sachs Affiliates means any subsidiary undertaking of; or any investment
vehicle, including any limited partnership, whether constituted under the laws
of England or otherwise, the general partner, managing general partner or
managing agent of which is under the control (directly or indirectly) of, The
Goldman Sachs Group L.P.;
Goldman Sachs Directors means the directors of the Company from time to time
nominated by
<PAGE>
Goldman Sachs in accordance with this Agreement;
Goldman Sachs Group means The Goldman Sachs Group L.P. and all Goldman Sachs
Affiliates;
Goldman Sachs Subsidiary Director shall have the meaning given in clause 2.4;
Group means the Company and the Subsidiaries for the time being;
Initial Public Offering means an offering of at least 15% of the ordinary share
capital of the Company (on a fully diluted basis) which is either (i) registered
under the Securities Act of 1933 (as amended); or (ii) which is made in
connection with an application for the said shares to be admitted to listing on
the London Stock Exchange; and which in either case generates net proceeds in
aggregate to the Company and Shareholders of at least US$15 million;
London Stock Exchange means the London Stock Exchange Limited;
Management Shareholder Directors means the directors of the Company from time to
time nominated by the Management Shareholders in accordance with this Agreement;
Management Shareholders means those persons listed in Part A of Schedule I
together with their Permitted Transferees from time to time;
Memorandum means the Memorandum of Association of the Company as it may
subsequently be altered from time to time in accordance with this Agreement;
Minority Interest means an undertaking in which any member of the Group has an
interest in at least 10% of the issued share or other capital of the
undertaking;
NASDAQ means the National Association of Security Dealers, Inc. Automated
Quotation System;
parties means the original signatories to this Agreement together with any
persons who agree to become bound by the provisions of this Agreement by
executing a Deed of Adherence or a deed of adherence in accordance with clause
9.3 (and party shall be construed accordingly);
Permitted Transfer has the meaning given to it in clause 6.4.1(c);
Permitted Transferee means any person to whom a Permitted Transfer is made in
accordance with this Agreement;
Registration Rights Agreement means the agreement, in the agreed form, between
the parties hereto which provides for certain registration rights in relation to
the Company's ordinary share capital;
securities means, in relation to the Company, securities of any kind whatsoever
issued by the Company;
Security Interest means any mortgage, charge, pledge, lien (other than a lien
arising by operation of law), right of set-off, encumbrance or any security
interest whatsoever, howsoever created or arising, including any analogous
security interest under local law;
<PAGE>
Shareholders means the parties to this Agreement other than the Company and
Shareholder shall mean any one of them;
Shares means shares in the capital of the Company;
Subscription Agreement shall have the meaning given to it in Recital (A);
Subsidiaries means subsidiary undertakings of the Company and the Minority
Interests of the Group (without requiring any party to procure any action by the
Minority Interests of the Group to the extent it is beyond its powers to do so)
including, but without limitation, those listed in Schedule 8, and Subsidiary
shall be construed accordingly;
subsidiary undertaking means, in relation to an undertaking (the holding
undertaking), any other undertaking in which the holding undertaking for the
time being directly or indirectly holds or controls either:
(a) a majority of the voting rights exercisable at general meetings of the
members of that undertaking on all, or substantially all, matters; or
(b) the right to appoint or remove directors having a majority of the voting
rights exercisable at meetings of the board of directors of that
undertaking on all, or substantially all, matters,
and any undertaking which is a subsidiary undertaking of another undertaking
shall also be a subsidiary undertaking of any further undertaking of which that
other is a subsidiary undertaking; and
Super-Majority means more than two thirds of the Directors acting as
representatives of the Shareholders in accordance with clause 3.4, including at
least one Goldman Sachs Director, provided that Goldman Sachs owns or controls
15% or more of the Shares;
undertaking means a company or partnership or an unincorporated association
carrying on trade or a business with or without a view to profit (and, in
relation to all undertaking which is not a company, expressions in this
Agreement appropriate to companies shall be construed as references to the
corresponding persons, officers, documents or organs (as the case may be)
appropriate to undertakings of that description).
1.2 Except where the context requires otherwise, references to clauses and
Schedules are to clauses of and Schedules to this Agreement and references to
sub-clauses are to sub-clauses of the clause in which the reference appears.
1.3 Any reference in this Agreement to an amount in pounds sterling shall also
be a reference to the then equivalent amount in any other currency or
combination of currencies and references to "US$" are to United States Dollars.
1.4 Headings are inserted for convenience only and shall not affect the
construction of this Agreement or the Schedules.
<PAGE>
1.5 Any reference to an agreed form is to the form of the relevant document
agreed between the parties and signed on their behalf for the purpose of
identification before the signature of this Agreement (with such amendments, if
any, as may subsequently be agreed in writing between the parties).
1.6 The Exhibits which have been initialled on behalf of the parties and the
Recitals and the Schedules shall be deemed to be incorporated in this Agreement.
1.7 Where any obligation pursuant to this Agreement is expressed to be
undertaken or assumed by any party, such obligation shall be construed as
requiring the party concerned to exercise all rights and powers of control over
the affairs of any other person which that party is able to exercise (whether
directly or indirectly) in order to secure performance of such obligation.
1.8 Neither the Company nor any Subsidiary shall be bound by any provision of
this Agreement to the extent that it would constitute an unlawful fetter on any
statutory power of the Company or the Subsidiary (as the case may be), but that
provision shall remain valid and binding as regards all other parties to which
it is expressed to apply and such provision shall take effect so as to include
all obligation on the part of the Shareholders to exercise all their respective
powers and rights so as to procure, so far as they are able, that the Company or
the Subsidiary (as the case may be) complies with such provision notwithstanding
that it is not bound by it.
1.9 Wherever in this Agreement Goldman Sachs is provided with any right or
entitlement, such right or entitlement may be exercised by any one member from
time to time of the Goldman Sachs Group.
DIRECTORS
2.1(a) Unless otherwise agreed by the Board in accordance with this Agreement
the Board shall consist of a maximum of six Directors, of which four
shall be Management Shareholder Directors. The number of Goldman Sachs
Directors shall be as specified in clause 2.1(b). Subject to clause 2.9,
the Management Shareholders shall have the sole right (exercisable from
time to time) to appoint and remove and replace any of the Management
Shareholder Directors and, subject to clause 2.10, Goldman Sachs shall
have the sole right (exercisable from time to time) to appoint and
remove and replace any of the Goldman Sachs Directors. The initial
appointments to the Board shall be as follows:
Management Shareholder Goldman Sachs Directors
Directors
Mark Cooke Reuben Jeffery III
Nicholas Brown Sanjay Patel
George Jones
Warren Cabral
<PAGE>
(b) Goldman Sachs shall have the following rights to appoint the following
numbers of Directors of the Company:
(i) if Goldman Sachs owns, in total, 15% or more of the issued Shares in
the Company, 2 Directors;
(ii) if Goldman Sachs owns, in total, 5% or more but less than 15% of the
issued Shares in the Company, 1 Director;
(iii) if Goldman Sachs Owns, in total, less than 5% of the issued Shares
in the Company, it shall have no right to appoint a Director.
(c) If at any time the shareholding of Goldman Sachs decreases to such a level
that Goldman Sachs has more Directors on the Board than it is entitled to
appoint pursuant to clause 2.1 ~) above, it shall procure that the excess
Director(s) resign(s) as soon as reasonably practicable thereafter.
(d) A Management Shareholder Director who is also a Management Shareholder
shall resign as a Director immediately on ceasing to be a Shareholder or
employee of any member of the Group.
(e) The Management Shareholders shall procure that, at all times, at least two
Management Shareholder Directors shall be ordinarily resident in Bermuda.
2.2. Any appointment or removal of a Director shall be effected by notice in
writing to the Company signed by or on behalf of the Shareholder(s) in question
and shall take effect, subject to any contrary intention expressed in the
notice, when the notice is delivered.
2.3 Except where failure to act would result in the breach of a statutory
requirement, in the event that there is a vacancy on the Board no action shall
be taken by the Board until that vacancy is filled by the Shareholder(s)
entitled to fill it, provided that if a vacancy remains unfilled for a period of
30 days from its arising, this provision shall cease to have effect in relation
to that vacancy and shall have no effect in relation to any further vacancy
arising during the period of the first vacancy which the person entitled to fill
the first vacancy is also entitled to fill.
2.4 Subject to clause 2.10, and subject to Goldman Sachs owning, in total, 5%
or more of the issued Shares of the Company, Goldman Sachs shall be entitled to
appoint (and remove and replace) one director to the board of directors of each
of the Subsidiaries by notice in writing to the board of the relevant Subsidiary
(each such director being a Goldman Sachs Subsidiary Director). The Goldman
Sachs Subsidiary Director shall be appointed as soon as practicable after notice
of such appointment is received by the relevant Subsidiary and shall not be
removed from such appointment without Goldman Sachs' prior written consent. In
the event that Goldman Sachs ceases to own, in total, 5% or more of the issued
Shares in the Company it shall procure that each Goldman Sachs Subsidiary
Director shall resign
<PAGE>
as soon as reasonably practicable thereafter.
2.5 At least one of the Goldman Sachs Directors shall be a member of all
committees of the Board and each Goldman Sachs Subsidiary Director shall be a
member of all committees of the board of directors of the Subsidiary of which he
is a director.
2.6 To the extent lawful, the quorum for the transaction of business at any
meeting of the Board or any committee of the Board shall be three Directors (or
their alternates), at least one of whom must be a Goldman Sachs Director (or his
alternate), otherwise, the quorum for the transaction of business at any meeting
of the Board or any committee of the Board shall be two Directors. The quorum
for the transaction of business at any meeting of the board of directors, or any
committee of the board of directors, of a Subsidiary shall, to the extent
lawful, also be three directors (or their alternates), at least one of whom must
be the Goldman Sachs Subsidiary Director (or his alternate) (but only if the
board or committee of the board is convened to consider, or otherwise considers,
whether on its own or in conjunction with any other action, the taking of any of
the actions listed in Schedule 2 by that Subsidiary), otherwise, the quorum
shall be two directors. Each Shareholder which has appointed a Director shall
use its reasonable endeavours to procure that a quorum is present at any meeting
of the Board. In the event that a quorum is not present within 30 minutes of the
time for which a meeting of the Board has been called, that Meeting shall be
adjourned until the same time on the date 14 days following (or the Business Day
nearest to it). Every Director shall be given at least 7 days' written notice of
such adjourned meeting, at which any 2 Directors (or their alternates) shall
constitute a quorum.
2.7 Other than as provided for in clause 2.6 in respect of an adjourned meeting
of the Board, at least 14 days written notice shall be given to each Director of
any meeting of the Board or committee of the Board, provided always that a
shorter period of notice may be given with the written approval of at least one
Goldman Sachs Director (or his alternate). Any such notice shall include an
agenda identifying in reasonable detail the matters to be discussed at the
meeting and shall be accompanied by copies of any relevant papers to be
discussed at the meeting. Any matter which is to be submitted to the meeting for
a decision which is not identified in reasonable detail as aforesaid shall not
be decided upon, unless otherwise agreed by all of those present.
2.8 Except in relation to the action specified in Schedule 2, when the
provisions of clause 3.2 shall apply, matters for decision by the Board or
committee of the Board shall be decided by simple majority vote. Each Director
shall, subject to any provision of the Bye-laws precluding a Director from
voting as a result of any other interest of the Director, be entitled to cast
one vote on each issue put to a vote. Any Director who is unable to attend any
meeting may nominate any other Director or, in the case of a Goldman Sachs
Director, any other person, to act as his alternate for the purposes of that
meeting (by depositing written notice to that effect with the Company Secretary
at any time prior to the meeting) and, in addition to any other vote which he
already may be entitled to cast, to vote in his place at the meeting, and such
alternate Director shall count towards the quorum for the purposes of clause
2.6. The provisions of this clause shall, mutatis mutandis, also apply to
Subsidiaries.
2.9 Unless a proposed Management Shareholder Director is a Management
Shareholder, the Management Shareholders shall not be entitled to appoint that
person as a Management Shareholder Director pursuant to clause 2.1 or as an
alternate pursuant to clause 2.8 without having first obtained the prior written
approval of the Goldman Sachs Directors to the appointment, such approval not to
<PAGE>
be unreasonably withheld or delayed.
2.10 Unless a proposed Goldman Sachs Director or Goldman Sachs Subsidiary
Director is a partner or an employee of a member of Goldman Sachs Group, Goldman
Sachs shall not be entitled to appoint that person as a Goldman Sachs Director
or a Goldman Sachs Subsidiary Director pursuant to clause 2.1 or 2.4 (as the
case may be), or as an alternate of either pursuant to clause 2.8, without
having first obtained the prior written approval of a majority of the Management
Shareholder Directors to the appointment, such approval not to be unreasonably
withheld or delayed.
2.11 Each Director (including for this purpose a Goldman Sachs Subsidiary
Director) shall be reimbursed by the Group for reasonable travel and other out
of pocket expenses incurred by him in performing his obligations and carrying
out his duties hereunder.
2.12 Meetings of the Board shall be held at least once every two months unless
agreed otherwise by a Super-Majority. A director (or a duly appointed alternate)
of the Company or a Subsidiary will be regarded as present at a meeting if he is
in communication with the meeting by telephone or other communication equipment
permitting all those attending the meeting to hear one another.
2.13 The Management Shareholders shall procure that each Subsidiary which is an
exempted company within the meaning of section 127 of the Bermuda Companies Act
1981 shall, at all times, have a sufficient number of directors (other than
alternate directors) ordinarily resident in Bermuda so as to be able to form a
quorum at a meeting of directors of that Subsidiary.
CORPORATE GOVERNANCE
3.1 Subject to the provisions of this clause 3, the management of the affairs
of each member of the Group shall be controlled by its board of directors in
accordance with its constitutional documents and applicable law.
3.2 The actions listed in Schedule 2 shall not be taken either by the
Company or by any other member of the Group, nor shall the Company
approve the taking of any of the said actions by any other member of the
Group, without the prior approval of a Super-Majority.
3.3 The Management Shareholders agree to procure undertakings from each of the
Subsidiaries to adhere to the terms of this clause 3 in the form of the letter
attached as Schedule 9 and supply certified copies of such undertakings to
Goldman Sachs within the period of three months from the date hereof
3.4 The parties agree that Super-Majority votes shall be taken by the
Management Directors acting solely as representatives of the Management
Shareholders and by the Goldman Sachs Directors acting solely as representatives
of Goldman Sachs, and not as directors of the Company nor in any other capacity
which owes a fiduciary duty to the Company.
INFORMATION RIGHTS
<PAGE>
4.1 The Company shall provide Goldman Sachs (at the address given to the
Company from time to time for such purpose) with the following information:
(a) within 30 days of the end of each month, a monthly management letter,
containing summary details of the revenues and operations of and a balance
sheet for, the Group and, in particular, summary financial information for
that month in respect of each of the company and the Subsidiaries, together
with an officer's written confirmation that in his opinion the same have
been prepared (on an unaudited basis) so as fairly and accurately to
reflect the trading and financial positions of the Company and the
Subsidiaries for that period;
(b) within 90 days of the end of each Financial Year, annual accounts, audited
by the Auditors accompanied by a management letter summarising the revenues
and Operations of the Company and each of the Subsidiaries, for that
Financial Year;
(c) within 5 days of filing, copies of all filings made, if any, with the
Securities and Exchange Commission or any stock exchange; and
(d) before the end of each Financial Year the Budget for the next Financial
Year and an updated Business Plan.
(e) any other information which Goldman Sachs may from time to time reasonably
request.
4.2 The Goldman Sachs Directors shall be provided with copies of all
information (if any) made available to all or any of the Management Shareholder
Directors in connection with the Group, at the same time as such information is
made available to the Management Shareholder Directors.
INSURANCE
5. The Management Shareholders shall, in the case of (a), procure and shall,
in the case of (b), use their reasonable endeavours to procure that so long as
Goldman Sachs owns any Shares, the Group maintains:
(a) such cover in respect of directors' and officers' liability insurance as may
reasonably be regarded as prudent in relation to the size and nature of the
business of the Group; and
(b) in respect of "key man" life insurance, at least (Pounds)5 million of cover
on the life of Mark Cooke and at least (Pounds)5 million of cover on the
life of Nick Brown, or in either case, such other amounts as a Super-
Majority may agree.
TRANSFER OF EQUITY SECURITIES
6.1 The Shareholders shall use their respective powers to procure that:
(a) the Directors shall not approve the transfer of any Equity Securities to
any person who is not already a party to this Agreement unless that person
has delivered to the Company a duly executed Deed of Adherence;
<PAGE>
(b) all share certificates issued by the Company shall bear the following
legend:
"No person shall acquire all interest in any shares of the Company or be
registered as a shareholder in the Company without having first delivered to the
Company a Deed of Adherence to the Shareholders' Agreement and Registration
Rights Agreement relating to the Company each dated *January 1996 (in the form
specified by the Company)."
6.2 Other than pursuant to a sale or transfer of the legal and beneficial
interest in its Equity Securities which is expressly permitted by this
Agreement, no Shareholder may:
(a) grant, declare, create or dispose of any right or interest in any Equity
Securities; or
(b) create or permit to exist any pledge, lien, charge (whether fixed or
floating) or other encumbrance over any Equity Securities.
6.3 Subject to clauses 6.4, 6.5 and 6.7 and to clauses 7, 8 and 10:
(a) none of the Shareholders may sell or transfer all or any Equity Securities
other than in compliance with the provisions of Schedule 3;
(b) none of the Management Shareholders may sell or transfer any Equity
Securities within three years from the date of this Agreement; and
(c) Goldman Sachs may not sell or transfer any Equity Securities within
eighteen months from the date of this Agreement.
6.4.1 The restrictions in clause 6.3 shall not apply to any sale or transfer:
(a) on an Initial Public Offering;
(b) in the case of Goldman Sachs, to any Member of the Goldman Sachs Group;
(c) pursuant to clause 4 of the Subscription Agreement; or
(d) in the case of a Management Shareholder, provided that the conditions set
out in clause 6.4.2 are observed prior to the transfer, by a Permitted
Transfer to a Permitted Transferee, a Permitted Transfer being one of the
following:
(i) in relation to a Management Shareholder, a transfer or transmission to
that Management Shareholder's spouse, or that Management Shareholder's
child or grandchild (in either case under the age of 18 years) or the
trustee or trustees of a trust the beneficiaries of which are limited to
that Management Shareholder and/or chat Management Shareholder's spouse,
that Management Shareholder's children and/or grandchildren (in either case
under the age of 18 years) (a family trust) or a transfer between (an)
existing trustee(s)and (a) new trustee(s) of a family Crust or a transfer
or transmission back to that Management Shareholder from any of such
persons;
<PAGE>
(ii) in relation to a Management Shareholder, a transfer in accordance with
the provisions of Schedule 4 following termination of that Management
Shareholder's employment; or
(iii) a transfer or transmission approved by a Super-Majority.
6.4.2 The conditions referred to in clause 6.4.1(d) are as follows:
(a) The proposed Permitted Transferee must enter into a Deed of Adherence prior
to the transfer taking place; and
(b) In the case of a transfer pursuant to clauses 6.4.1. (d) to a Permitted
Transferee, the proposed Permitted Transferee must undertake to the
Shareholders (in the form of the undertaking Set Out in Part B of Schedule
7) that if it ceases (for any reason) to be a Permitted Transferee it shall
immediately transfer its Equity Securities back to the Management
Shareholder from whom the Equity Securities were transferred to that
Permitted Transferee.
6.5 In the event that a member of the Goldman Sachs Group which holds
securities of the Company ceases to be a member of the Goldman Sachs Group, that
person shall, immediately on ceasing to be a member of the Goldman Sachs Group,
transfer its securities to another member of the Goldman Sachs Group.
6.6 Goldman Sachs may agree with a person to whom it proposes to transfer
Equity Securities that the proposed transferee is to be treated for all
purposes, following such transfer, as if it had been named in this Agreement
with the name of Goldman Sachs.
6.7 In the event that any Management Shareholder who is an employee of the
Group ceases to be so employed, the provisions of Schedule 4 shall apply.
SALE OF CONTROL
7. Without prejudice to clause 6, each Shareholder agrees that it will not,
whether acting alone, or together with any other Shareholder or Shareholders
pursuant to any agreement or arrangement, sell or transfer any Equity Securities
to any person (or group) if, as a result of that sale or transfer and any other
transactions, such person (or group) would become the beneficial owner, directly
or indirectly, of Equity Securities representing 40% or more of the total votes
which would be capable of being exercised at general meetings of the Company,
based either on the Shares then in issue or on a fully diluted basis, unless
such person (or group) agrees to offer to purchase all of the outstanding Equity
Securities then in issue from all Shareholders for the same consideration and on
the same terms provided that such consideration (on a security by security
basis) shall in no event be less than the highest price paid (or other
consideration given) in the last 12 months by such person (or group) for any
Equity Securities.
BRING-ALONG RIGHTS
8.1 Subject to the provisions of Schedule 3 (which shall apply unless agreed
otherwise by a Super-Majority), each Shareholder agrees that, in the event that
Shareholders owning at least 70% of Equity Securities (Proposing Shareholders)
elect to sell all of the Equity Securities then held by them
<PAGE>
to a third parry in a bona fide, arm's length transaction or series of
transactions reflecting the fair value of such securities (as determined by a
Super-Majority), all remaining Shareholders shall be required, within thirty
days of the receipt of a written notice signed by all Proposing Shareholders, to
sell all of the Equity Securities then held (whether legally or beneficially) by
such remaining Shareholders to that third party for the same consideration and
upon the same terms (on a security by security basis) as the sale by the
Proposing Shareholders.
8.2 Completion of the sale and purchase of the Equity Securities under clause
8.1 shall take place at the registered office of the Company and the provisions
of Schedule 6 shall apply thereto.
FUTURE ISSUES
9.1 Subject to clause 9.2, each Shareholder shall be invited by the Company to
participate in all future allotments and issues by the Company of Equity
Securities to the extent necessary to maintain its proportionate interest in the
Company on a fully diluted basis, on the same terms as offered to any other
person.
9.2 The Company shall not be required to make the invitation set out in clause
9.1 in relation to Equity Securities proposed to be allotted or issued:
(i) pursuant to an employee stock or share option plan, stock or share
purchase plan, or singular benefit programme or agreement approved by a
Super-Majority, where the primary purpose is not to raise additional
equity capital for the Company; or
(ii) in direct consideration for the acquisition by the Company of another
business entity or the merger of any business entity with or into the
Company;
(iii) pursuant to the rights attaching to the A Shares as defined in the
Subscription Agreement.
9.3 No allotment of issue of Equity Securities by the Company shall be made or
be agreed to unless the person whose favour the allotment, issue or agreement is
made agrees to enter into a deed of adherence to this Agreement and the
Registration Rights Agreement prior to the issue of the relevant Equity
Securities.
PUT AND AUCTION RIGHTS
10. The provisions of Schedule 5 shall apply in the event that, within eight
years of the date of this Agreement.
(a) the Company shall not have made a firm commitment underwritten initial
public offering of at least 15% of its ordinary share capital (on a fully
diluted basis); or
(b) the events contemplated by clause 7 or clause 8 shall not have arisen.
INITIAL PUBLIC OFFERING AND REGISTRATION RIGHTS
<PAGE>
11.1 At any time after three years following the date of this Agreement,
Goldman Sachs shall have the right to require the Company to procure one of the
following (as may be nominated by Goldman Sachs following discussion with the
Board): (A) a listing of the Company on the London Stock Exchange; (B) a listing
of the Company on the New York Stock Exchange; or (C) designation of the
ordinary share capital of the Company as a NASDAQ National market system
security, in each case subject to the following conditions:
(a) on an initial public offering on the New York Stock Exchange or NASDAQ:
(i) at least 15% of the ordinary share capital of the Company (on a fully
diluted basis) is registered pursuant to the demand
(ii) the shares that are registered have an aggregate offering price of at
least US$ 15 million based on the then current market price or fair value
estimated by the Company's underwriters); and
(iii) it is a firm commitment underwriting; and
(b) on an initial public offering on the London Stock Exchange:
(i) the Company's ordinary share capital is admitted to listing; and
(ii) the ordinary share capital of the Company sold on the admission to
listing has an aggregate offering price of at least (Pounds)10 million
based on the then current market price or fair value estimated by the
Company's underwriters).
11.2 On or following an initial public offering or otherwise at any time after
three years of the date of this Agreement, Goldman Sachs shall have the right to
require the Company:
(a) in the United States, to register the sale of any new or existing ordinary
share capital of the Company pursuant to the Securities Act of 1933,
provided that the Company shall nor be required to effect any registration
within six months of the effective date of any other registration of
ordinary share capital (other than under Form 5-8) on such terms as are
contained in the Registration Rights Agreement.
(b) in the United Kingdom to authorize and prepare (or assist in the
preparation of) any prospectus which may be required in order to make an
offer of ordinary share capital of the Company under the Public Offers of
Securities Regulations 1995.
11.3 The Company shall, to the extent lawful under Bermuda law, bear all
expenses (other than commissions and underwriting discounts) including legal and
accounting fees and expenses incurred pursuant to clauses 11.1 and 11.2 above,
save that in the case of clause 11.2(a), after the first three registrations the
Holders requesting registration shall bear all such expenses, as provided for in
the Registration Rights Agreement
INVESTMENT BANKING
12. The Goldman Sachs Group shall have the right to perform all investment
banking services for the
<PAGE>
Company, including any sale of the Company, for customary compensation and other
terms consistent with all arm's length transaction. If the Company and Goldman
Sachs cannot agree upon terms of such appointment, the Company shall be at
liberty to hire another investment banker, provided that any member of The
Goldman Sachs Group will then be entitled to be a member of the management group
in connection with any underwriting.
DECISIONS BY MANAGEMENT SHAREHOLDERS
13. In any case where this Agreement provides for a decision to be made by the
Management Shareholders collectively, Goldman Sachs shall be entitled to assume
that such decision has been agreed upon by all Management Shareholders if
communicated to Goldman Sachs by any of Mark Cooke, George Jones or Nick Brown
or such other person as the Management Shareholders may notify to Goldman Sachs
in writing from time to time.
MEMORANDUM AND BYE-LAWS AND FURTHER ASSURANCE
14.1 As between the parties, if any of provisions of this Agreement are
inconsistent with any of the provisions of the Memorandum and Bye-laws, the
provisions of this Agreement shall prevail and the Shareholders shall exercise
all voting and other rights and powers legally available to them (whether as
members of the Company or otherwise), including for the purpose of amending the
Memorandum and Bye-laws of the Company and the constitutional documents of the
Subsidiaries, to the extent necessary from time to time to give effect to the
provisions of this Agreement
14.2 In addition and without limitation to clause 14.1, the parties agree to
take all such further and other actions, and enter into an additional agreements
that may be necessary to give full effect to the terms of this Agreement and all
other documents and all transactions referred to in it.
TERMINATION
15.1 This Agreement shall terminate:
(a) upon an Initial Public Offering; or
(b) upon the completion of the acquisition of all of the Equity Securities in
the Company by one person (or persons acting in concert with that person);
or
(c) upon a sale of all or substantially all of the Company's assets and
undertaking to an unrelated party (being a party not already a party to
this Agreement);
save that termination of this Agreement for whatsoever reason shall not:
(i) relieve any party from any liability or obligation in respect of any
matters, undertakings or conditions which shall not have been done,
observed or performed by that party prior to such termination or
(ii) affect the terms of any agreement entered into between any of the
parties to replace this
<PAGE>
Agreement.
15.2 The provisions of clause 11 shall not be affected by the termination of
this Agreement pursuant to clause 15.1(a).
CONFIDENTIALITY
16.1 Each party undertakes with the other that it shall use all reasonable
endeavours to keep confidential (and to ensure that its officers, employees,
agents and professional and other advisers keep confidential) any information:
(a) which it may have or acquire (whether before or after the date of this
Agreement) in relation to the customers, business, assets or affairs of any
member of the Group;
(b) which, in consequence of the negotiations relating to this Agreement or
being a Shareholder or having appointees on the Board or the exercise of
its rights or performance of its obligations under this Agreement, it may
have or acquire (whether before or after the date of this Agreement) in
relation to the customers, business, assets or affairs of any other
Shareholder; or
(c) which relates to the contents of this Agreement (or any agreement or
arrangement entered into pursuant to this Agreement).
No party shall use for its own business purposes or disclose to any third party
any such information (collectively, Confidential Information) without the
consent of the other parties.
16.2 The obligation of confidentiality under clause 16.1 shall not apply to:
(a) the disclosure of information (subject to clause 16.3) on a "need to know"
basis to a member of the Goldman Sachs Group or an alternate director of
either a Management Shareholder Director or a Goldman Sachs Director or by
a Management Shareholder Director to a Management Shareholder or vice versa
where such disclosure is for a purpose reasonably incidental to this
Agreement;
(b) the disclosure of information to any general or limited partner in any of
Bridge Street, GS Capital Partners, GS Offshore or Stone Street;
(c) the disclosure of information to a person or persons (Potential Purchaser)
whom the party disclosing such information reasonably believes may wish to
purchase all or any part of that party's Equity Securities provided that
such Potential Purchaser provides to the Company, on terms and in a form
reasonably satisfactory to the Company, an undertaking to keep such
information confidential;
(d) information which is independently developed by the relevant party or
acquired from a third party to the extent that it is acquired with the
right to disclose the same;
(e) the disclosure of information to the extent required to be disclosed by
law, any stock exchange regulation or any binding judgment, order or
requirement of any court or other competent authority;
<PAGE>
(f) the disclosure of information to any tax authority to the extent reasonably
required for the purposes of the tax affairs of the party concerned or any
member of its Group;
(g) the disclosure (subject to clause 16.3) in confidence to a party's
professional advisers of information reasonably required to be disclosed
for a purpose reasonably incidental to this Agreement;
(h) information which becomes within the public domain (otherwise than as a
result of a breach of this clause 16); or
(i) any announcement made in accordance with the terms of clause 17.
16.3 Each party shall inform any officer, employee or agent or any professional
or other adviser advising it in relation to the matters referred to in this
Agreement, or to whom it provides Confidential information, that such
information is confidential and shall instruct them:
(a) to keep it as confidential; and
(b) not to disclose it to any third party (other than those persons to whom
it has already been disclosed in accordance with the terms of this
Agreement).
16.4 The Company shall (and the Company shall procure that each other member of
the Group shall) observe a similar obligation of confidence in favour of the
parties and each of their Subsidiaries.
16.5 The provisions of this clause 16 shall survive any termination of this
Agreement.
ANNOUNCEMENTS
17. No announcement shall be made concerning this Agreement or the Subscription
Agreement nor shall either of these be publicised in any other way, unless both
the proposal to announce or otherwise publicise the Agreement and/or the
Subscription Agreement and the form and content of the announcement or other
publicity have been approved by Goldman Sachs and the Management Shareholders.
ASSIGNMENT
18.1 Subject to clause 6.6, 110 Shareholder may assign any of its rights or
obligations under this Agreement in whole or in part otherwise than pursuant to
a sale or transfer of Equity Securities to a third party in accordance with the
terms of this Agreement.
18.2 This Agreement shall enure for the benefit of the successors in title and
expressly permitted assigns of each of the parties.
WAIVER OF RIGHTS
19. No waiver by a party of a failure by another party to perform any provision
of this Agreement shall
<PAGE>
operate or be construed as a waiver in respect of any other or further failure
whether of a like or different character.
AMENDMENTS
20. This Agreement may be amended only by an instrument in writing signed by
duly authorised representatives of each of the parties, provided that the
amendment of any provision of this Agreement solely affecting any of the
respective rights or obligations of the Shareholders or any of them inter se
shall not require the agreement of the Company.
INVAlIDITY
21. If any of the provisions of this Agreement is or becomes invalid, illegal
or unenforceable, the validity, legality or enforceability of the remaining
provisions shall not in any way be affected or impaired. The parties shall
nevertheless negotiate in good faith in order to agree to terms of a mutually
satisfactory provision, achieving so nearly as possible the same commercial
effect, to be substituted for the provision so found to be void or
unenforceable.
NO PARTNERSHIP OR AGENCY
22.1 Nothing in this Agreement (or any of the arrangements contemplated
hereby) shall be deemed to constitute a partnership between the parties nor,
save as may be expressly set out herein, constitute any party the agent of any
other party for any purpose.
22.2 In addition, unless otherwise agreed in writing between the parties, none
of them shall enter into contracts with third parties as agent for any member of
the Group or for any other party nor shall any party describe itself as agent as
aforesaid or in any way hold itself out as being an agent as aforesaid.
ENTIRE AGREEMENT
23. This Agreement taken with the Subscription Agreement and all other
agreements referred to in each document constitutes the entire agreement and
understanding of the parties with respect to the subject matter hereof and none
of the parties has entered into this Agreement in reliance upon any
representation, warranty or undertaking by or on behalf of any other party which
is not expressly set out in this Agreement or the Subscription Agreement. No
party shall have any remedy in respect of any misrepresentation or untrue
statement made by any other party hereto unless and to the extent that a claim
lies for breach of warranty under the Subscription Agreement (save that this
clause shall not exclude any liability for fraudulent misrepresentation).
PURCHASE OF OWN SECURITIES
24. To the extent that the Company has the right to purchase its own Equity
Securities pursuant to the provisions of Schedules 3, 4 and 5, it shall only do
so to the extent so permitted by Bermuda law.
<PAGE>
GOVERNING LAW
25. This agreement shall be governed by English law and each of the parties
hereby irrevocably submits to the non-exclusive jurisdiction of the English
Courts as to any claim, dispute or matter arising out of or relating to this
agreement or any of the documents to be executed pursuant to it, and waives any
objection on the ground of venue or forum non conveniens or any similar ground.
Each of the parties shall, unless it is a company incorporated in England and
Wales, at all times maintain an agent for service of process in England, the
identity and address of such agent to be notified to each of the other parties
forthwith upon execution of this agreement and each party appointing an agent
for service of process undertakes not to revoke the authority of such agent. If,
for any reason, any such agent no longer serves as agent of its appointor to
receive service of process, the appointor shall promptly appoint another such
agent and advise each of the parties thereof immediately.
NOTICES
26. Any notice, instruction, consent or other document to be given under this
Agreement shall be in writing and delivered personally or by pre-paid recorded
delivery or facsimile (provided that, in the case of facsimile, the notice is
confirmed by being delivered by hand or sent by first class post within 72 hours
thereafter) to the recipient party at the address shown in Schedule 1 to this
Agreement or to such other address, or to a facsimile number, as is notified in
writing from time to time by such party to each of the other parties. Any notice
delivered personally shall be deemed to be received when delivered, any notice
sent by pre-paid recorded delivery post shall be deemed to have been received 5
Business Days after posting and any notice sent by facsimile, at the time of
transmission (provided that if transmission occurs after 6 p.m. on a Business
Day, or not on a Business Day, delivery will be deemed to occur at 9 a.m. on the
next Business Day). References to time in this clause are references to local
time in the country of the recipient of the notice.
IN WITNESS WHEREOF this agreement has been executed by the parties the day and
year first before written.
<PAGE>
SCHEDULE 1
Part A - Management Shareholders
Name Address Address for service of notices
and fax number
Nicholas Mark Cooke "Tunbridge Wells" Richards Butler
97 Harrington Sound Beaufort House
Road 15 St. Botolph Street
Smiths H502 London EC3A 7EE
Bermuda Fax: 0170 247 5091
For the attention of
Peter Michelmore
Alan Albert Fairs 47 Elmfield Road Richards Butler
Chingford Beaufort House
London E4 7HT 15 St. Botolph Street
London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Mark Kerr-Smiley 50 Granard Road Richards Butler
London SW12 8UJ Beaufort House
15 St. Botolph Street
London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Nicholas Brown Redcroft Richards Butler
East End Beaufort House
Pagglesham 15 St. Botolph Street
Rochford London EC3A 7EE
Essex SS4 2EF Fax: 0170 247 5091
For the attention of
Peter Michelmore
John Anthony Lambert 30 Wakefield Close Richards Butler
Emerson Park Beaufort House
Hornchurch 15 St. Botolph Street
Essex RM11 London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
<PAGE>
Jeffrey Ronald Butler 10 Mossbank Richards Butler
Grays Beaufort House
Essex RM17 7EF 15 St. Botolph Street
London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Paul Ian Pearson Fishermans Cottages Richards Butler
16 Silver Road Beaufort House
Burnham on Crouch 15 St. Botolph Street
Essex CMO 8LA London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Jacques Georges Sacy 42 Scarsdale Villas Richards Butler
London W8 6PP Beaufort House
15 St. Botolph Street
London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
David Terrell Colley 2 Gainsborough Court Richards Butler
College Road Beaufort House
London SE21 7LT 15 St. Botolph Street
London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
George William Jones 29 Western Gardens Richards Butler
London W5 3RS Beaufort House
15 St. Botolph Street
London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Christopher James Blois Snode Hill House Richards Butler
Needham Beech Beaufort House
Alton 15 St. Botolph Street
Hampshire GU34 4AX London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
<PAGE>
Richard John Wells Thollon Richards Butler
56 Kevington Drive Beaufort House
Chislehurst 15 St. Botolph Street
Kent BR6 7RN London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
David Maxwell Tarsh 4 Harvey Lodge Richards Butler
Admiral Walk Beaufort House
Carlton Gate 15 St. Botolph Street
London W9 London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Penelope Atteline 97 Harrington Sound Richards Butler
Cooke Road Beaufort House
Smiths H502 15 St. Botolph Street
Bermuda London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Allan Cooper 14 Wilmington Richards Butler
Avenue Beaufort House
London 15 St. Botolph Street
W4 3HA London EC3A 7EE
Fax: 0170 247 5091
For the attention of
Peter Michelmore
Paul Murray Apartment 23 Richards Butler
Mizzentop Longford Beaufort House
Road 15 St. Botolph Street
Warwick WK06 London EC3A 7EE
Bermuda Fax: 0170 247 5091
For the attention of
Peter Michelmore
Part B - Investors
Name Address Address for service of notices
and fax number
<PAGE>
Bridge Street Fund c/o The Corporation Goldman Sachs International
1995, L.P. Trust Company, Peterborough Court
Corporation Trust 133 Fleet Street
Center, 1209 Orange London EC4A 2BB
Street, DE 19801 For the attention of
U.S.A. Monique Stein
Fax no. 0170 774 4123
GS Capital Partners II, c/o The Corporation Goldman Sachs International
L.P. Trust Company, Peterborough Court
Corporation Trust 133 Fleet Street
Center, 1209 Orange London EC4A 2BB
Street, DE 19801 For the attention of
U.S.A. Monique Stein
Fax no. 0170 774 4123
GS Capital Partners II c/o Maples and Goldman Sachs International
Offshore, L.P. Calder, Peterborough Court
PO Box 309, 133 Fleet Street
Grand Cayman, London EC4A 2BB
Cayman Islands, For the attention of
British West Indies Monique Stein
Fax no. 0170 774 4123
Stone Street Fund 1995, c/o The Corporation Goldman Sachs International
L.P. Trust Company, Peterborough Court
Corporation Trust 133 Fleet Street
Center, 1209 Orange London EC4A 2BB
Street, DE 19801 For the attention of
U.S.A. Monique Stein
Fax no. 0170 774 4123
Goldman Sachs & Co. Messe Turm Goldman Sachs International
Verwaltungs GmbH as 60308 Frankfuram Peterborough Court
general partner of GS Main 133 Fleet Street
Captial Partners I Germany London EC4A 2BB
German Civil Law For the attention of
Partnership (with Monique Stein
limited liability) Fax no. 0170 774 4123
Part C - The Company
Name Address Address for service of notices
and fax number
<PAGE>
Stirling Cooke Browne Cedar House Richards Butler
Holdings Limited 41 Cedar Avenue Beaufort House
Hamilton HM12 15 St. Botolph Street
Bermuda London EC3A 7EE
For the attention of
Peter Michelmore
Fax No. 0170 247 5091
with a copy to
Goldman Sachs International
Peterborough Court
133 Fleet Street
London EC4A 2BB
For the attention of
Monique Stein
Fax No. 0170 774 4123
<PAGE>
SCHEDULE 2
Corporate Governance
The actions referred to in clause 3.2 are the following:
l. A merger, consolidation or liquidation.
2. The acquisition of another business entity.
3. The establishment of any joint venture or partnership which is either
material in the context of the business of the Group or outside the ordinary
course of the Group's business or the establishment of any non-wholly owned
subsidiary undertaking.
4. Any entry into a business:
(a) (i) other than a business which is ancillary to an existing business of the
Group; or
(ii) which involves a member of the Group in underwriting for its own
account, the provision of reinsurance or the assumption of risk in relation
to any policy of insurance; or
(b) (in the case of any business which does not come within the ambit of
business for which approval is required pursuant to paragraph 4(a) above)
which is either
(i) material in the context of the Group taken as a whole; or otherwise
(ii) requires future commitments or capital expenditure in excess of
US$200,000 on any single occasion or in excess of US$350,000 in aggregate in
any Financial Year in either case other than as expressly approved in the
Budget or Business Plan.
5. The approval of any underwriting guidelines or any significant change in or
departure from such guidelines.
6. Approval of the Budget and Business Plan (including the constituent elements
of each) and any material amendments to either of them.
7. Other than as approved as part of the Budget or Business Plan or any
material amendment to either of them above, any:
(a) asset sales in excess of US$200,000;
(b) incurrence of indebtedness in excess of US$200,000 on any single
occasion and in excess of US$350,000 in aggregate for the Group in any
Financial Year;
(c) liens on or encumbrances of assets in excess of US$200,000 on any single
occasion and in excess
<PAGE>
of US$350,000 in aggregate for the Group in any Financial Year; and
(d) capital expenditure in excess of US$200,000 on any single occasion and
in excess of US$350,000 in aggregate by the Group in any Financial Year.
8. Entering into or amending any contract which is material in the context of
the business of the Group as a whole, other than amending any contract
entered into in the ordinary course of business where such amendments are
part of the ordinary course of business and the particular amendment is not
material in the context of the Group as a whole.
9. Any issue or sale of Equity Securities.
10. Any payment or declaration of any dividend or other distribution (other than
a dividend representing, in total, not more than the lesser of:
(i) (Pounds)1 million; and
(ii) 20 percent of the after-tax profits of the Company of the Financial
Year in respect of which the dividend is declared or paid
in each case provided that the same may be accommodated within (A) the Group's
working capital and cash flow requirements as set out in the relevant Budget;
and (B) the Company's obligations and commitments (if any) pursuant to the
Further Financing Agreement.
11. Any repurchase or redemption of any securities or debt (except to the extent
such debt is due in accordance with its terms).
12. Any registrations of securities under the Securities Act of 1933 (as
amended) or a proposed listing of securities on any stock exchange or the
granting of registration rights.
13. Any transaction with a related party (related party having the meaning given
it in paragraph 1 of Chapter 11 of the London Stock Exchange's Listing Rules
in force at the date hereof, except that references to "substantial
shareholders" should be read as references to any Shareholder) other than in
accordance with the Agreement.
14. Any appointment or removal of any senior management of any member of the
Group, being any person, whether or not a director of any such member, who
is acknowledged as having a material role or influence in the conduct of the
affairs of the Group taken as a whole, or any individual member of the Group
(Senior Management) including, but not limited to, the removal of any of the
following persons: Mark Cooke, Nick Brown, George Jones.
15. Any amendment to the constitutional documents of any member of the Group
16. Any change in the size of, or to the maximum permitted number of directors
on, the Board of Directors.
<PAGE>
17. Any appointment or removal of the Auditor.
18. Any adoption of or changes to any accounting policies other than such
changes as are necessary to comply with generally accepted accounting
principles applicable in the jurisdiction concerned.
19. Any adoption or material amendment of employment contracts of Senior
Management or any benefit plans or pension arrangements.
20. Entering into any guarantee, indemnity or suretyship other than in respect
of the obligations of the Company and/or the Subsidiaries in the ordinary
course of business.
21. The commencement and settlement of any litigation which is material to the
business of the Group taken as a whole.
<PAGE>
SCHEDULE 3
Right of first offer on sale or transfer of Equity Securities
1. Subject to Clause 6.3, in the event that a Shareholder (a Selling
Shareholder) wishes to sell or transfer any or all of its Equity Securities (the
Offered Securities) it must first follow the procedure set out in paragraph 2.
2(a) The Selling Shareholder must offer the Offered Securities to the Company
and the Shareholders other than the Selling Shareholder (the Other
Shareholders) for purchase (described in this Schedule as the First Offer).
(b) The First Offer shall be made by the Selling Shareholder to the Company and
the Other Shareholders by written notice to the registered office (the
First Offer Notice) giving details of
(i) the number of Offered Securities;
(ii) the proposed consideration for each of the Offered Securities and
where the whole of such consideration is not to be satisfied by the payment
of cash, a figure which the Selling Shareholder reasonably considers to be
equal to the monetary value of the whole of such consideration (which, in
the case of consideration in the form of publicly quoted securities, shall
be the average mid-market price of each such security on the five Business
Days immediately preceding the date of the First Offer Notice) on a per
security basis;
(iii) a list of persons (not exceeding 100 in number) to whom the Selling
Shareholder may wish to offer the Offered Securities (the List). Where
appropriate, the List shall specify the entity which, so far as the Selling
Shareholder is aware, is the ultimate holding company of the persons named.
(iv) any other material terms and conditions on which the Offered
Securities are proposed to be sold.
(c) (i) The Company (if so decided by a Super-Majority) and the Other
Shareholders may each elect to purchase within 14 days of receipt of the
First Offer Notice, by notice to the Selling Shareholder and the Company
(or, in the case of the Company, to the Other Shareholders), all or
whatever proportion of the Offered Securities as they may apply for on the
same terms as are set out in the First Offer Notice.
(ii) If the Company elects to purchase Offered Securities in accordance
with paragraph 2(c)(i) and is subsequently entitled to purchase any or all
of those Offered Securities in accordance with the remainder of this
paragraph 2 and may do so as a matter of law and is not prohibited from
doing so by any loan or other agreement, each of the Shareholders shall
take all such action as is necessary to procure that such purchase takes
place.
(d) (i) Where, in total, elections are made by the Management Shareholders to
purchase all of, but not more than, the total number of the Offered
Securities, the Offered Securities shall be allocated
<PAGE>
between those Management Shareholders making elections in the amounts for
which they have applied and the remainder of this paragraph shall not
apply; and
(ii) Where, in total, elections are made by the Management Shareholders and
the Company and the Other Shareholders to purchase all of, but not more
than, the total number of the Offered Securities, the Offered Securities
shall be allocated between those persons making elections in the amounts
for which they have applied and the remainder of this paragraph shall not
apply.
(e) Subject to paragraph 2(d) above, where the Selling Shareholder is also a
Management Shareholder, in the event that the Company and/or the Other
Shareholders elect to purchase, in aggregate, more than the total number of
Offered Securities, the following procedure shall apply:
(i) the Offered Securities shall be allocated between the Management
Shareholders other than the Selling Shareholder (the Other Management
Shareholders) who have elected to purchase Offered Securities pro rata to
their then existing holdings of Equity Securities or in the case of a
Management Shareholder who has applied for fewer Offered Securities than
the pro rata amount attributable to him, the amount for which he has
applied. To the extent that any of the Offered Securities then remain
unallocated and any Other Management Shareholder has made an election in
respect of more than his pro rata entitlement, the excess shall be
allocated (as nearly as may be) pro rata to the then existing holdings of
such of the Other Management Shareholders who have made such an election,
provided that such apportionment shall not be made so as to result in any
Other Management Shareholder being allocated more Equity Securities than he
applied for, any remaining excess being apportioned by applying this
paragraph 2(e)(i) without taking account of any such Other Management
Shareholders.
(ii) To the extent that any of the Offered Securities then remain
unallocated and the Company has made an election to purchase, those Offered
Securities shall be applied in satisfying the Company's election (to the
extent lawful and not prohibited from doing so by any loan or other
agreement), save that the Company shall not be allocated more Offered
Securities than it has elected to purchase.
(iii) To the extent that any of the Offered Securities then remain
unallocated those Offered Securities shall be allocated between such Other
Shareholders other than all Other Management Shareholder (Other Non-
Management Shareholders) who have elected to purchase Offered Securities
pro rata to their then existing holdings of Equity Securities or, in the
case of a Non-Management Other Shareholder who has applied for fewer
Offered Securities than the pro rata amount attributable to him, the amount
for which he has applied. To the extent that any of the Offered Securities
then remain unallocated and any Other Non-Management Shareholder has made
an election in respect of more than his pro rata entitlement, the excess
shall be allocated (as nearly as may be) pro rata to the then existing
holdings of such of the Other Non-Management Shareholders who have made
such an election, provided that such apportionment shall not be made so as
to result in any Other Non-Management Shareholder being allocated more
Equity Securities than he applied for, any remaining excess being
apportioned by applying this paragraph 2(e)(iii) without taking account of
any such Other Non-Management Shareholders.
(f) Where the Selling Shareholder is not also a Management Shareholder, in the
event that the Company and/or the Other Shareholders elect, in aggregate,
for more than the total number of Offered
<PAGE>
Securities, the Company's election will be satisfied in full (to the extent
lawful and not prohibited from doing so by any ban or other agreement) and
the remaining Offered Securities (if any) will be allocated between the
Other Shareholders who have elected to purchase Offered Securities pro rata
to their then existing holdings of Equity Securities or, in the case of a
Other Shareholder who has applied for fewer Offered Securities than the pro
rata amount attributable to him, the amount for which he has applied. To
the extent that any of the Offered Securities then remain unallocated and
any Other Shareholder had served an Offer Notice in respect of more than
his pro rata entitlement, the excess shall be allocated (as nearly as may
be) pro rata to the then existing holdings of such of the Other
Shareholders who have applied for any part of such excess, provided that
such apportionment shall not be made so as to result in any Other
Shareholder being allocated more Equity Securities than he applied for, any
remaining excess being apportioned by applying this paragraph 2(f) without
taking account of any such Other Shareholders.
3. In the event that the Company and the Other Shareholders together do not
elect to purchase all of the Equity Securities included in the First Offer
within 14 days of the First Offer having being made, the Selling Shareholder
shall have the right for 90 days from the expiry of that 14 day period to sell
the Offered Securities to any person whose name appears on the List other than a
Prohibited Person (as defined in paragraph 4 below), for consideration not less
than and on other terms and conditions that are no more favourable to that
person than were set out in the First Offer Notice.
4. An Other Shareholder shall have the right to object to any person whose
name appears on the List who, in the reasonable opinion of that Other
Shareholder, would be materially detrimental for the Company to have as a
shareholder. The Other Shareholder must notify to the Selling Shareholder, the
remaining Other Shareholders and the Company the name of such person within 14
days of receipt of the List (or, in the case of a person added pursuant to
paragraph 5 below, within 7 days of receiving notice of such person), and such
notification is to be accompanied by a written explanation of the grounds on
which it is made. If a simple majority of the Board of Directors of the Company
reasonably considers that the Other Shareholder has provided satisfactory
grounds, the person to whom the Other Shareholder objects shall be a Prohibited
Person.
5. The Selling Shareholder may, at any time prior to the date 15 days prior to
the expiry of the 90 day time period specified in paragraph 3 above, and
provided that the Offered Securities have not all been acquired by the Other
Shareholders and/or the Company, notify the Company and Other Shareholders of
the names of further persons (and, if applicable, so far as the Selling
Shareholder is aware, their ultimate holding companies) to add to the List,
provided that the total number of persons included on the List (excluding any
Prohibited Persons) shall not exceed 150. The Company and Other Shareholders
shall be entitled to object to such further persons in accordance with the
provisions of paragraph 4 above.
6. In the event that Offered Securities are allocated pursuant to paragraph 2
above, the Company shall notify each of the persons who have been allocated
Offered Securities of the number of Offered Securities that he or it has been
allocated and the consideration payable for them and the transfer of the Offered
Securities so allocated shall take place on the date which is ten Business Days
from the Company making such notification.
7. Transfers of Offered Securities pursuant to this Schedule 3 shall take
place in accordance with the provisions of Schedule 6.
<PAGE>
8. To the extent that an Other Shareholder to whom Offered Securities have
been allotted pursuant to this Schedule fails to complete the purchase of those
Offered Securities in accordance with Schedule 6, those Offered Securities shall
be treated as having been re-offered by the Selling Shareholder in accordance
with the provisions of this Schedule save that such defaulting Other Shareholder
shall not be entitled to apply to acquire such Offered Securities.
<PAGE>
SCHEDULE 5
Put and Auction rights
1. Provided that none of the events specified in clause 10 of the Agreement
shall have taken place prior to the date specified in that clause, the provision
of this Schedule 5 shall apply.
2. Goldman Sachs shall have the right, exercisable on one occasion only,
following the date specified in clause 10 to require that a valuation of the
fair market value (FMV) of the Equity Securities of the Company be performed by
an international investment bank, agreed to by the Company and Goldman Sachs,
such bank acting as an expert and not an arbitrator and whose decision shall,
save in the case of manifest error, be final and binding on all the parties. In
the event that no international investment bank can be agreed upon by Goldman
Sachs and the Company, either party may apply to the President for the time
being of the London Investment Banks Association for the nomination of an
independent investment bank and the parties agree to accept any firm so
nominated.
3. Once the FMV has been established in accordance with clause 1 and notified
to all of the Shareholders, Goldman Sachs shall have the right for 90 days
following receipt of such notification to require the Company, exercisable by
notice in writing to the Company, subject to clause 4 of this Schedule, to
purchase the Equity Securities in the Company then held by Goldman Sachs for FMV
(without any deduction by virtue of its being a minority interest).
4. In the event that the Company cannot lawfully purchase or is otherwise
prohibited from purchasing the Equity Securities pursuant to paragraph 3,
Goldman Sachs shall have the right to require the Company to be auctioned and
sold in a merger, stock or asset sale, or otherwise. Goldman Sachs shall have
the right to conduct such an auction and accept such terms for the Company or
its assets (as the case may be) as it may elect, provided that all Shareholders
shall be entitled to receive consideration on the same basis, and participate in
such transaction on the same terms, as Goldman Sachs. The Management
Shareholders other than Goldman Sachs shall have the right to bid in the
auction, and to the extent that any of them so does, they agree to abide by the
reasonable terms of the auction.
5. In the event that Goldman Sachs requires an auction pursuant to paragraph
4, the Shareholders agree that they shall (and shall procure that their
respective agents, representatives and Subsidiaries shall):
(a) in the case of a share sale, (to the extent that the Equity Securities held
by Goldman Sachs are not sold to the Management Shareholders), sell their
Equity Securities on the same terms as Goldman Sachs as part of the
resulting transaction and in all other cases take such other action as may
be necessary or desirable to facilitate such transaction;
(b) procure that the Directors (or, if necessary, the shareholders in general
meeting) agree to vote in favour of the transaction resulting from the
auction and take such other action as may be necessary or desirable to
facilitate such transaction; and
(c) provide such co-operation in the auction process as Goldman Sachs may from
time to time reasonably request.
<PAGE>
SIGNED by )
NICHOLAS MARK COOKE ) /s/ Nicholas Mark Cooke
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
ALAN ALBERT FAIRS ) /s/ Alan Albert Fairs
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
MARK KERR-SMILEY ) /s/ Mark Kerr-Smiley
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
<PAGE>
SIGNED by )
NICHOLAS BROWN ) /s/ Nicholas Brown
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
JOHN ANTHONY LAMBERT ) /s/ John Anthony Lambert
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
JEFFREY RONALD BUTLER ) /s/ Jeffrey Ronald Butler
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
PAUL IAN PEARSON ) /s/ Paul Ian Pearson
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
JACQUES GEORGE SACY ) /s/ Jacques George Sacy
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
DAVID TERRELL COLLEY ) /s/ David Terrell Colley
in the presence of: ) as power of attorney
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
GEORGE WILLIAM JONES ) /s/ George William Jones
in the presence of: ) as power of attorney
Witness- Signature:
Name:
Address:
SIGNED by )
CHRISTOPHER JAMES ) /s/ Christopher James Blois Needham
BLOIS NEEDHAM ) as power of attorney
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
RICHARD JOHN WELLS ) /s/ Richard John Wells
in the presence of: ) as power of attorney
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
DAVID MAXWELL TARSH ) /s/ David Maxwell Tarsh
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
PENELOPE ATTELINE COOKE ) /s/ Penelope Atteline Cooke
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
PAUL MURRAY ) /s/ Paul Murray
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
ALLAN COOPER ) /s/ Allan Cooper
by GEORGE WILLIAM JONES ) as power of attorney
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General ) /s/ Bridge Street Fund 1995, L.P.
Partner of BRIDGE STREET ) as power of attorney
FUND 1995, L.P. )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by JEAN de POURTALES )
as attorney on behalf of GOLDMAN ) /s/ Goldman Sachs & CO Verwaltungs
SACHS & CO VERWALTUNGS ) as power of attorney
GmbH as General Partner of )
GS CAPITAL PARTNERS II )
GERMANY CIVIL LAW )
PARTNERSHIP (with limited )
liability) in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General ) /s/ GS Capital Partners II, L.P.
Partner of GS CAPITAL ) as power of attorney
PARTNERS II, L.P. in the presence )
of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General ) /s/ GS Capital Partners II Offshore, L.P.
Partner of GS CAPITAL ) as power of attorney
PARTNERS II OFFSHORE, L.P. )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General ) /s/ Stone Street Fund 1995, L.P.
Partner of STONE STREET ) as power of attorney
FUND 1995, L.P. )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
STIRLING COOKE BROWN ) /s/ Stirling Cooke Brown Holdings Limited
HOLDINGS LIMITED ) as power of attorney
acting by: )
Director:
Secretary:
<PAGE>
EXHIBIT 3.4
January 1996
STIRLING COOKE BROWN HOLDINGS LIMITED
MARK COOKE and others
BRIDGE STREET FUND 1995, L.P.
G S CAPITAL PARTNERS II, L.P.
GOLDMAN SACHS & Co. VERWALTUNGS GmbH
(for GS CAPITAL PARTNERS II GERMANY
CIVIL LAW PARTNERSHIP)
G S CAPITAL PARTNERS II OFFSHORE, L.P.
STONE STREET FUND 1995, L.P.
______________________________
REGISTRATION RIGHTS
AGREEMENT
______________________________
<PAGE>
CONTENTS
Clause Page
-i-
<PAGE>
THIS REGISTRATION RIGHTS AGREEMENT is made on ___ January, 1996.
BETWEEN:
(1) STIRLING COOKE BROWN HOLDINGS LIMITED of Cedar House, 41 Cedar Avenue,
Hamilton, Bermuda (the Company);
(2) THOSE PERSONS whose names and addresses are set out in Part A of Schedule 1
(the Management Shareholders); and
(3) THOSE PERSONS whose names and addresses are set out in Part B of Schedule 2
(the Investors).
WHEREAS:
(A) The Company, the Management Shareholders and the Investors have together
entered into an agreement of even date hereof regulating the manner in
which the Company and its subsidiaries will carry on business and the
manner in which the relationship between the Management Shareholders and
the Investors will be governed (the Shareholders' Agreement).
(B) Pursuant to the Shareholders' Agreement, the Company, the Management
Shareholders and the Investors have agreed to the provision of certain
registration rights with respect to the ordinary share capital of the
Company as are contained in this Agreement.
IT IS AGREED as follows:
DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following terms shall (unless the context otherwise
requires) have the following respective meanings:
Business Day means a day on which banks generally are open in New York and
London;
Commission means the United States Securities and Exchange Commission;
Holder or Holders means any party who is a signatory to this Agreement and any
party who shall hereafter acquire and hold Registrable Securities;
IPO means an offering of at least 15% of the Ordinary Share Capital of the
Company (on a fully diluted basis), whether in the United States or the United
Kingdom, which generates net proceeds in aggregate to the Company and/or Holders
(at that time) of at least USS$15 million (or the equivalent in United Kingdom
pounds sterling) and pursuant to which all or any of the Ordinary Shares become
registered under section 12 of the Securities Exchange Act of 1934, as amended
(the Exchange Act);
Ordinary Share Capital and Ordinary Shares mean the ordinary shares of US$1 each
in the
<PAGE>
Company, from time to time in issue;
Ordinary Share Equivalents mean any securities convertible, exercisable or
exchangeable into ordinary shares;
Registrable Securities means any Ordinary Shares of the Company in issue and any
Ordinary Shares issuable on conversion, exercise or exchange of any Ordinary
Share Equivalents provided that any particular Registrable Securities shall
cease to be Registrable Securities when:
(i) a registration statement with respect to the sale of such securities
shall have been declared effective under the Securities Act and such
securities shall have been disposed of in accordance with such
registration statement; or
(ii) such securities shall have been sold (other than in a privately
negotiated sale) pursuant to Rule 144 (or any successor provision)
under the Securities Act and in compliance with the requirements of
paragraphs (f) and (g) of Rule 144 (notwithstanding the provisions of
paragraph (k) of such Rule); and
Securities Act means the United States Securities Act of 1933, as amended.
1.2 Except where the context requires otherwise, references to clauses and
Schedules are to clauses of and Schedules to this Agreement.
1.3 References in this Agreement to statutory provisions shall (where the
context so admits and unless otherwise expressly provided) be construed as
references to those provisions which are in force at any time prior to the date
of this Agreement as respectively amended, consolidated, extended or re-enacted
from time to time (whether before or after the date of this Agreement), and to
any orders, regulations, instruments or other subordinate legislation made under
such statutory provisions.
1.4 Headings are inserted for convenience only and shall not affect the
construction of this Agreement or the Schedules.
1.5 References to persons shall be deemed to include references to natural
persons, to firms, to partnerships (whether or not limited partnerships), to
companies, to corporations, to associations, to organisations and to trusts (in
each case whether or not having separate legal personality), but references to
individuals shall be deemed to be references to a natural person only;
1.6 Any references in this Agreement to 'US$' are to United States Dollars.
1.7 Wherever in this Agreement the Investors are expressed to be provided with
any right or entitlement, such right or entitlement may be exercised by any one
or all of the Investors, The Goldman Sachs Group, L.P., or any other subsidiary
undertaking of, or any investment vehicle,
-2-
<PAGE>
including any limited partnership, the general partner, managing general partner
or managing agent of which is under the control (directly or indirectly) of, The
Goldman Sachs Group L.P.
DEMAND REGISTRATIONS
2.1(a) Subject to clauses 2.2 and 3 below, at any time and from time to time
after the earlier of
(i) the closing of an IPO; and
(ii) three years following the date of the Shareholders'
Agreement
the Investors shall have the right to require the Company to file a
registration statement under the Securities Act covering all or any
part of their Registrable Securities, by delivering a written request
therefor to the Company specifying the number of Registrable
Securities to be included in such registration by each Investor and
the intended method of distribution thereof, such requests by the
Investors being Demand Registration Requests and the registrations so
requested being Demand Registrations.
(b) As promptly as practicable, but no later than ten days after receipt
of a Demand Registration Request, the Company shall give written
notice (the Demand Exercise Notice) of such Demand Registration
Request to all Holders of record of Registrable Securities.
(c) The Company, subject to clauses 3 and 6, shall include in a Demand
Registration:
(i) the Registrable Securities in respect of which the Investors
requested such registration; and
(ii) the Registrable Securities of any Holder which shall have
made a written request to the Company for registration
thereof (which request shall specify the maximum number of
Registrable Securities intended to be disposed of by such
Holder(s)) within 30 days after the receipt by the Holder of
the Demand Exercise Notice (or 15 days if, at the request of
the Holder(s) which requested such registration, the Company
states in such written notice or gives telephonic notice to
all Holders, with written confirmation to follow promptly
thereafter, that such registration will be on Form F-3).
(d) The Company shall, as expeditiously as possible following a Demand
Registration Request, use its best efforts to:
-3-
<PAGE>
(i) effect such registration under the Securities Act
(including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act,
if so requested and if the Company is then eligible to use
such a registration) of the Registrable Securities which the
Company has been so requested to register, for distribution
in accordance with such intended method of distribution; and
(ii) if requested by the Investors, obtain acceleration of the
effective date of the registration statement relating to
such registration.
(e) The Investors may make Demand Registration Requests on a maximum of
five separate occasions, but in calculating how many requests the
Investors have made for the purposes of this clause 2.1(e), Demand
Registration Requests which are not effected (for any reason) shall
not be included.
2.2 The Company shall not be required to cause a registration pursuant to
clause 2.1 (a) to be declared effective:
(a) within a period of 180 days after the effective date of any other
registration statement of the Company other than a registration under
Form S-8.
(b) in accordance with clause 2.5, in the event that a Valid Business
Reason (as defined in clause 2.5 (a)) exists.
2.3 The Company, subject to clauses 3 and 6, may elect to include in any
registration statement and offering made pursuant to clause 2.1:
(a) authorised but unissued Ordinary Shares; and
(b) any other Ordinary Shares which are requested to be included in such
registration pursuant to the exercise of piggyback registration rights
granted by the Company after the date hereof in accordance with the
terms of this Agreement (Additional Piggyback Rights) provided,
however, that such inclusion shall be permitted only to the extent
that it is pursuant to and subject to the terms of the underwriting
agreement or arrangements, if any, entered into by the Investors on
the Demand Registration.
2.4 Goldman, Sachs & Co. (GS & Co.) shall have the right to act as the lead
managing underwriter in any registration of Registrable Securities. If GS & Co.
acts as managing underwriter in any such registered offering, to the extent
required by applicable law, a Qualified Independent Underwriter (as defined in
Schedule E to the National Association of Securities Dealers, Inc. By-Laws), as
approved by GS & Co. (whose approval shall not be unreasonably withheld), shall
be retained by the Company, and the Company shall pay all fees and expenses
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(other than underwriting discounts and commissions) of such Qualified
Independent Underwriter.
2.5(a) If the Board of Directors of the Company, in its good faith judgement,
determines that any registration of Registrable Securities should not be made or
continued because it would materially interfere with any material financing,
acquisition, corporate reorganisation or merger or other transaction involving
the Company or any of its subsidiaries (a Valid Business Reason), the Company
may postpone filing a registration statement relating to a Demand Registration
Request until such Valid Business Reason no longer exists, but in no event for
more than six months, and, in case a registration statement has been filed
relating to a Demand Registration Request, if the Valid Business Reason has not
resulted from actions taken by the Company, the Company may cause such
registration statement to be withdrawn and its effectiveness terminated or may
postpone amending or supplementing such registration statement. The Company
shall give written notice of its determination to postpone or withdraw a
registration statement and of the fact that the Valid Business Reason for such
postponement or withdrawal no longer exists, in each case, promptly after the
occurrence thereof. If the Company shall give any notice of withdrawal or
postponement of a registration statement, the Company shall, at such time as the
Valid Business Reason that caused such withdrawal or postponement no longer
exists (but in no event later than six months after the date of the
postponement), use its best efforts to effect the registration under the
Securities Act of the Registrable Securities covered by the withdrawn or
postponed registration statement in accordance with this Agreement (unless the
Investor(s) making the Demand Registration Request shall have withdrawn such
request, in which case the Company shall not be considered to have effected an
effective registration for the purposes of this Agreement), and such
registration shall not be withdrawn or postponed pursuant to clauses 2.2(a) or
2.2(b).
2.5(b) If the Company shall give any notice of postponement or withdrawal of
any registration statement, the Company shall not, during the period of
postponement or withdrawal, register any Registrable Securities, other than
pursuant to a registration statement on Form F4 or S-8 (or an equivalent
registration form then in effect). Each Holder of Registrable Securities agrees
that, upon receipt of any notice from the Company that the Company has
determined to withdraw any registration statement pursuant to clause 2.5(a)
above, such Holder will discontinue its disposition of Registrable Securities
pursuant to such registration statement and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Holder's possession of the prospectus
covering such Registrable Securities that was in effect at the time of receipt
of such notice. If the Company shall have withdrawn or prematurely terminated a
registration statement filed pursuant to a Demand Registration Request (whether
pursuant to clause 2.5(a) above or as a result of any stop order, injunction or
other order or requirement of the Commission or any other governmental agency or
court), the Company shall not be considered to have effected an effective
registration for the purposes of this Agreement until the Company shall have
filed a new registration statement covering the Registrable Securities covered
by the withdrawn registration statement and such registration statement shall
have been declared effective and shall not have been withdrawn.
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2.6. If, at any time, the Company proposes or is required to register any of
its equity securities under the Securities Act (other than pursuant to (i)
registrations on such form or similar form(s) solely for registration of
securities in connection with an employee benefit plan or dividend reinvestment
plan or a merger or consolidation or (ii) a Demand Registration under Section
2.1(a)) the Company shall give prompt written notice of its intention to do so
to each of the Investors. Upon the written request of any Investor, made within
30 days following the receipt of any such written notice from the company (which
request shall specify the maximum number of Registrable Securities intended to
be disposed of by such Investor and the intended method of distribution thereof)
the Company shall use its best efforts to cause all such Registrable Securities
specified in the notice to be registered under the Securities Act (with the
securities which the Company at the time proposes to register) to permit the
sale or other disposition by the Investors (in accordance with the intended
method of distribution thereof) of the Registrable Securities to be so
registered. There is no limitation on the number of such piggyback
registrations which the Company is obligated to effect pursuant to this clause
2.6. No registration effected under this Section 2.1(b) shall relieve the
Company of its obligations to effect Demand Registrations.
ALLOCATION OF SECURITIES
3.1 If any Demand Registration pursuant to clause 2.1 involves an underwritten
offering and the managing underwriter advises the Company that, in its view, the
number of securities requested to be included in such registration by the
Holders or any other persons (including those securities requested by the
Company or by Holders exercising Additional Piggyback Rights to be included in
such registration) exceeds the largest number (the Demand Registration Sale
Number) that can be sold in an orderly manner in such offering within a price
range acceptable to the Investors, the Company shall include in such
registration:
(a) first, all Registrable Securities requested to be included in such
registration by Holders of Registrable Securities provided that, if
the number of such Registrable Securities exceeds the Demand
Registration Sale Number, the number of such Registrable Securities
(not to exceed the Demand Registration Sale Number) to be included in
such registration shall be allocated:
(i) first to the Investors up to the number of shares requested
to be included in the Demand Registration Request; and
(ii) thereafter on a pro rata basis among all Holders other than
the Investors requesting that Registrable Securities be
included in such registration, based on the number of
Registrable Securities then owned by each other Holder
requesting inclusion in relation to the number of
Registrable Securities owned by all Holders requesting
inclusion, provided, however, that such ratio will be
calculated after giving effect to the sale of Registrable
Securities by the Investors pursuant to clause 3(a)(i);
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(b) second, to the extent that the number of Registrable Securities to be
included by all Holders is less than the Demand Registration Sale
Number, the Registrable Securities that the Company proposes to
register; and
(c) third, to the extent that the number of Registrable Securities to be
included by all Holders and the number of securities to be included by
the Company is less than the Demand Registration Sale Number, any
other securities that the holders thereof propose to register pursuant
to the exercise of Additional Piggyback Rights.
3.2 If, as a result of the proportion provisions of clause 3.1 any Holder shall
not be entitled to include all Registrable Securities in a registration that
such Holder has requested be included, such Holder may elect to withdraw his
request to include Registrable Securities in such registration or may reduce the
number requested to be included provided that:
(a) such request must be made in writing prior to the earlier of the
execution of the underwriting agreement or the execution of the
custody agreement with respect to such registration; and
(b) such withdrawal shall be irrevocable and, after making such
withdrawal, a Holder shall no longer have any right to include
Registrable Securities in the registration as to which such withdrawal
was made.
REGISTRATION PROCEDURES
4.1 If and whenever the Company is required by the provisions of this Agreement
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, the Company
shall, as expeditiously as possible:
(a) Prepare and file with the Commission a registration statement on an
appropriate registration form of the Commission for the disposition of
such Registrable Securities in accordance with the intended method of
disposition thereof, which form:
(i) shall be selected by the Company; and
(ii) shall, in the case of a shelf registration, be available for the
sale of the Registrable Securities by the selling Holders thereof
and such registration statement shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the Commission to be
filed therewith, and the Company shall use its best efforts to cause
such registration statement to become and remain effective (provided,
however, that before filing a registration statement or prospectus or
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any amendments or supplements thereto, or comparable statements under
securities or "blue sky" laws of any jurisdiction, the Company will
furnish to counsel for the Investors and the underwriters, if any,
copies of all such documents proposed to be filed (including all
exhibits thereto), which documents will be subject to the reasonable
review and reasonable comment of such counsel, and the Company shall
not file any registration statement or amendment thereto or any
prospectus or supplement thereto to which the Investors or the
underwriters, if any, shall reasonably object in writing);
(b) Prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for such period (which shall not be required to exceed 180
days) as any seller of Registrable Securities pursuant to such
registration statement shall request and to comply with the provisions
of the Securities Act with respect to the sale or other disposition of
all Registrable Securities covered by such registration statement in
accordance with the intended methods of disposition by the seller or
sellers thereof set forth in such registration statement;
(c) Furnish, without charge, to each seller of such Registrable Securities
and each underwriter, if any, of the securities covered by such
registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case
including all exhibits), and the prospectus included in such
registration statement (including each preliminary prospectus) in
conformity with the requirements of the Securities Act, and other
documents, as such seller and underwriter may reasonably request in
order to facilitate the public sale or other disposition of the
Registrable Securities owned by such seller (the Company hereby
consenting to the use in accordance with all applicable law) of each
such registration statement (or amendment or post-effective amendment
thereto) and each such prospectus (or preliminary prospectus or
supplement thereto) by each such seller of Registrable Securities and
the underwriters, if any, in connection with the offering and sale of
the Registrable Securities covered by such registration statement or
prospectus);
(d) Use its best efforts to register or qualify the Registrable Securities
covered by such registration statement under such other securities or
laws of such jurisdictions as any sellers of Registrable Securities or
any managing underwriter, if any, shall reasonably request, and do any
and all other acts and things which may be reasonably necessary or
advisable to enable such sellers or underwriter, if any, to consummate
the disposition of the Registrable Securities in such jurisdictions
provided, however, that the Company shall not for any purpose be
required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not already so qualified
or to consent to general service of process in any such jurisdiction;
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(e) Promptly notify each Holder selling Registrable Securities covered
by such registration statement and each managing underwriter, if any:
(i) when the registration statement, any pre-effective amendment,
the prospectus or any prospectus supplement related thereto or
post-effective amendment to the registration statement has been
filed and, with respect to the registration statement or any
post effective amendment, when the same has become effective;
(ii) of any request by the Commission or state securities authority
for amendments or supplements to the registration statement or
the prospectus related thereto or for additional information;
(iii) of the issuance by the Commission of any stop order suspending
the effectiveness of the registration statement or the
initiation of any proceedings for that purpose;
(iv) of the receipt by the Company of any notification with respect
to the suspension of the qualification of any Registrable
Securities for sale under the securities or "blue sky" laws of
any jurisdiction or the initiation of any proceeding for such
purpose;
(v) of the existence of any fact of which the Company becomes aware
which results in the registration statement, the prospectus
related thereto or any document incorporated therein by
reference containing an untrue statement of a material fact or
omitting to state a material fact required to be stated therein
or necessary to make any statement therein not misleading; and
(vi) if at any time the representations and warranties contemplated
by clauses 10.1 and 10.2 below cease to be true and correct in
all material respects; and, if the notification relates to an
event described in clause 4.1(e)(v), the Company shall promptly
prepare and furnish to each such seller and each underwriter, if
any, a reasonable number of copies of a prospectus supplemented
or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make
the statements therein in the light of the circumstances under
which they were made not misleading;
(f) Comply with all applicable rules and regulations of the Commission,
and make generally available to its security holders, as soon as
reasonably practicable after the effective date of the registration
statement (and in any event within 16 months thereafter), an earnings
statement (which need not be audited) covering the period of at least
twelve consecutive months beginning with the first day of the
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Company's first calendar quarter after the effective date of the
registration statement, which earnings statement shall satisfy the
provisions of section 11(a) of the Securities Act and Rule 158
thereunder;
(g) (i) Cause all such Registrable Securities covered by such
registration statement to be listed on the principal securities
exchange on which similar securities issued by the Company are
then listed (if any), if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or
(ii) if no similar securities are then so listed, and the requirements
set out in clause 11.1(a) of the Shareholders' Agreement are
satisfied and provided it has been so determined in accordance
with the Shareholders' Agreement, to cause all such Registrable
Securities to be listed on the New York Stock Exchange or to
secure designation of all such Registrable Securities as a
National Association of Securities Dealers, Inc. Automated
Quotation System (NASDAQ) national market system security within
the meaning of Rule 11Aa2-1 of the Commission or, failIng that,
but subject to the consent of the Investors, secure NASDAQ
authorisation for such shares, and, without limiting the
generality of the foregoing, take all actions that may be
required by the Company as the issuer of such Registrable
Securities in order to facilitate the managing underwriter's
arranging for the registration of at least two market makers as
such with respect to such shares with the National Association of
Securities Dealers, Inc. (the NASD);
(h) Provide and cause to be maintained a transfer agent and registrar for
all such Registrable Securities covered by such registration statement
not later than the effective date of such registration statement;
(i) Enter into such customary agreements (including, if applicable, an
underwriting agreement) and take such other actions as the Investors
shall reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities. The Investors shall be
parties to such underwriting agreement and may, at their option,
require that the Company make to and for the benefit of the Investors
the representations, warranties and covenants of the Company which are
being made to and for the benefit of such underwriters and which are
of the type customarily provided to institutional investors in
secondary offerings;
(j) Use its best efforts to obtain an opinion from the Company's counsel
and a "cold comfort" letter from the Company's independent public
accountants in customary form and covering such matters as are
customarily covered by such opinions and "cold comfort" letters
delivered to underwriters in underwritten public offerings, which
opinion and letter shall be reasonably satisfactory to the
underwriter, if
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any, and to the Investors and furnish to each Holder participating in
the offering and to each underwriter, if any, a copy of such opinion
and letter addressed to such Holder or underwriter;
(k) Deliver promptly to each Holder participating in the offering and each
underwriter, if any, copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda
relating to discussions with the Commission or its staff with respect
to the registration statement, other than those portions of any such
correspondence and memoranda which contain information subject to
attorney-client privilege with respect to the Company, and, upon
receipt of such confidentiality agreements as the Company may
reasonably request, make reasonably available for inspection by any
seller of such Registrable Securities covered by such registration
statement, by any underwriter, if any, participating in any
disposition to be effected pursuant to such registration statement and
by any attorney, accountant or other agent retained by any such seller
or any such underwriter, all pertinent financial and other records,
pertinent corporate documents and properties of the Company, and cause
all of the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration
statement;
(l) Use its best efforts to obtain the withdrawal of any order suspending
the effectiveness of the registration statement;
(m) Provide a CUSIP number for all Registrable Securities, not later than
the effective date or the registration statement:
(n) Make reasonably available its employees and personnel and otherwise
provide reasonable assistance to the underwriters (taking into account
the needs of the Company's businesses and the requirements of the
marketing process) in the marketing of Registrable Securities in any
underwritten offering;
(o) Promptly prior to the filing of any document which is to be
incorporated by reference into the registration statement or the
prospectus (after the initial filing of such registration statement)
provide copies of such document to counsel for the selling holders of
Registrable Securities and to the managing underwriter, if any, and
make the Company's representatives reasonably available for discussion
of such document and make such changes in such document concerning the
selling holders prior to the filing thereof as counsel for such
selling holders or underwriters may reasonably request;
(p) Furnish to each Holder participating in the offering and the managing
underwriter, without charge, at least one signed copy of the
registration statement and any post-effective amendments thereto,
including financial statements and
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schedules, all documents incorporated therein by reference and all
exhibits (including those incorporated by reference);
(q) Cooperate with the selling holders of Registrable Securities and the
managing underwriter, if any, to facilitate the timely preparation and
delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause such
Registrable Securities to be issued in such denominations and
registered in such names in accordance with the underwriting agreement
prior to any sale of Registrable Securities to the underwriters or, if
not an underwritten offering, in accordance with the instructions of
the selling holders of Registrable Securities at least three business
days prior to any sale of Registrable Securities; and
(r) Take all such other commercially reasonable actions as are necessary
or advisable in order to expedite or facilitate the disposition of
such Registrable Securities.
4.2 The Company may require as a condition precedent to the Company's
obligations under clauses 4.1(a) to 4.1(r) that each seller of Registrable
Securities as to which any registration is being effected furnish the Company
such information regarding such seller and the distribution of such securities
as the Company may from time to time reasonably request provided that such
information shall be used only in connection with such registration.
4.3 Each Holder of Registrable Securities agrees that upon receipt of any
notice from the Company of the happening of any event of the kind described in
clause 4.1(e)(v), such Holder will discontinue such Holder's disposition of
Registrable Securities pursuant to the registration statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by clause 4.1(e) and, if so
directed by the Company, will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies, then in such Holder's possession
of the prospectus covering such Registrable Securities that was in effect at the
time of receipt of such notice. In the event the Company shall give any such
notice, the applicable period mentioned in clause 4.1(b) shall be extended by
the number of days during such period from and including the date of the giving
of such notice to and including the date when each seller of any Registrable
Securities covered by such registration statement shall have received the copies
of the supplemental or amended prospectus contemplated by clause 4.1(e).
4.4 If any such registration statement or comparable statement under "blue sky"
laws refers to any Holder by name or otherwise as the Holder of any securities
of the Company, then such Holder shall have the right to require:
(a) the insertion therein of language, in form and substance satisfactory
to such Holder and the Company, to the effect that the holding by such
Holder of such securities is not to be construed as a recommendation
by such Holder of the investment quality of the Company's securities
covered thereby and that such
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holding does not imply that such Holder will assist in meeting any
future financial requirements of the Company; or
(b) in the event that such reference to such Holder by name or otherwise
is not in the judgment of the Company, as advised by counsel, required
by the Securities Act or any similar federal statute or any state
"blue sky" or securities law then in force, the deletion of the
reference to such Holder.
REGISTRATION EXPENSES
5.1 Expenses shall mean any and all fees and expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation:
(a) Commission, stock exchange or NASD registration and filing fees and all
listing fees and fees with respect to the inclusion of securities in
NASDAQ;
(b) fees and expenses of compliance with state securities or "blue sky" laws
and in connection with the preparation of a "blue sky" survey, including
without limitation, reasonable fees and expenses of "blue sky" counsel;
(c) printing and copying expenses;
(e) messenger and delivery expenses;
(f) fees and disbursements of counsel for the Company;
(g) with respect to each registration, the reasonable fees and disbursements of
one counsel for the Investors;
(h) fees and disbursements of all independent public accountants (including the
expenses of any audit and/or "cold comfort" letter) and fees and expenses
of other persons, including special experts, retained by the Company;
(i) fees and expenses payable to a Qualified Independent Underwriter; and
(j) any other fees and disbursements of underwriters, if any, customarily paid
by issuers or sellers of securities.
5.2 Subject to clause 5.7, the Company shall pay all Expenses with respect to
any Demand Registration Request that is not effected, for whatever reason.
5.3 Subject to clause 5.7, with respect to any Demand Registration effected
pursuant to clause 2.1;
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(a) the Company shall pay all Expenses related to the first three Demand
Registrations; and
(b) the Holders of Registrable Securities (together with the Company, if the
Company participates in any Demand Registration pursuant to clause 2.3)
shall pay all Expenses related to any other Demand Registration (such
Expenses shall be allocated among the persons (including the Company, if
applicable) participating in a Demand Registration on a pro rata basis
based on the number of Registrable Securities included in such offering by
a person relative to the number of Registrable Securities included in such
offering by all persons, except to the extent Expenses are specifically
attributable to a person or to securities included in an offering by a
person).
5.4 The provisions of this clause 5 shall be deemed amended to the extent
necessary to cause these expense provisions to comply with "blue sky" laws of
each state in which the offering is made.
5.5 In connection with any registration hereunder, each Holder of Registrable
Securities being registered shall pay all underwriting discounts and commissions
and any transfer taxes, if any, attributable to the sale of such Registrable
Securities, pro rata with respect to payments of discounts and commissions in
accordance with the number of shares sold in the offering by such Holder. Any
obligation on the Company to pay monies pursuant to this clause shall be subject
to clause 5.7.
5.6 Subject to clause 5.7, the Company shall, in the case of all registrations
under this Agreement be responsible for all its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties).
5.7(a) The obligation on the Company pursuant to this clause 5 to pay any
Expenses or bear the cost of any other payments or expenses pursuant to
clauses 5.5 or 5.6 (the Other Costs) shall apply only to the extent that
payment of such Expenses or Other Costs is lawful under Bermuda law.
(b) To the extent that the Company may only pay Expenses or Other Costs
lawfully under Bermuda law pursuant to this clause 5 if payment of such
Expenses or Other Costs is approved in accordance with the procedure set
out in section 39B and section 39C of the Bermuda Companies Act 1981
(respectively, the Procedure and the Sections), each of the Holders
agrees:
(i) to use all reasonable endeavours to procure that, at the appropriate
time and in accordance with the time periods set out in the Sections,
the Procedure is undertaken by the Holders, the Company and its
Directors and that all conditions applicable to the Procedure are
fulfilled; and
(ii) to consent to or vote in favour of any resolution proposed to the
Holders in relation to the Procedure.
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(c) To the extent that the Company may not lawfully pay any Expenses or Other
Costs and such payment has not been approved in accordance with the
Procedure at such time as such expense would otherwise fall due for
payment, the Holders agree that all such Expenses and Other Costs shall be
borne by the Holders (other than the Company) in the same proportions as
represent their respective pro rata percentage share of the Registrable
Securities then in issue.
CERTAIN LIMITATIONS ON REGISTRATION RIGHTS
6. In the case of any Demand Registrations pursuant to an underwritten
offering, if the Company (with the approval of the Investors) has determined to
enter into an underwriting agreement in connection therewith, all securities to
be included in such registration shall be subject to an underwriting agreement
and no person may participate in such registration unless such person agrees to
sell such person's securities on the basis provided therein and completes and
executes all reasonable questionnaires, and other documents (other than powers
of attorney) which must be executed in connection therewith, and provides such
other information to the Company or the underwriter as may be necessary to
register such person's securities.
LIMITATIONS ON SALE OR DISTRIBUTION OF OTHER SECURITIES
7.1 Each Holder of Registrable Securities agrees, if requested in writing by
the Company or the managing underwriter, if any, of any registration effected
pursuant to clause 2.1, not to effect any public sale or distribution (including
any sale pursuant to Rule 144 under the Securities Act) of any Registrable
Securities, of any other equity security of the Company or of any security
convertible into or exchangeable or exercisable for any equity security of the
Company other than as part of such underwritten public offering during the time
period reasonably requested by the managing underwriter, not to exceed 180 days
and the Company hereby also so agrees (except that the Company may effect any
sale or distribution of any such securities pursuant to a registration on Form
F4 (if reasonably acceptable to the managing underwriter) or Form S-8, or any
successor or similar form which is then in effect) and agrees to use its
reasonable best efforts to cause each holder of any equity security or of any
security convertible into or exchangeable or exercisable for any equity security
of the Company purchased from the Company at any time other than in a public
offering so to agree.
7.2 The Company hereby agrees that, if it shall previously have received a
request for registration pursuant to clause 2.1, and if such previous
registration shall not have been withdrawn or abandoned, the Company shall not
effect any registration of any of its securities under the Securities Act (other
than a registration on Form F-4 or Form S-8 or any successor or similar form
which is then in effect), whether or not for sale for its own account, until a
period of 180 days shall have elapsed from the effective date of such previous
registration, and the Company shall so provide in any registration rights
agreements hereafter entered into with respect to any of its securities.
NO REQUIRED SALE
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9. Nothing in this Agreement shall be deemed to create an independent
obligation on the part of any Holder to sell any Registrable Securities pursuant
to any effective registration statement.
INDEMNIFICATION
9.1 Subject to clause 9.2, in the event of any registration of any securities
of the Company under the Securities Act pursuant to this Agreement, the Company
will, and hereby does, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder of Registrable Securities, its directors,
officers, fiduciaries, employees and stockholders or general and limited
partners (and the directors, officers, employees, stockholders and general and
limited partners thereof, each other individual, partnership, joint venture,
corporation, trust, unincorporated organisation or government or any department
or agency thereof (each, a Person) who participates as an underwriter or a
Qualified Independent Underwriter, if any, in the offering or sale of such
securities, each officer, director, employee, stockholder or general or limited
partner of such underwriter or Qualified Independent Underwriter, and each other
Person, if any, who controls such seller or any such underwriter within the
meaning of the Securities Act, against any and all losses, claims, damages or
liabilities, joint or several, actions or proceedings (whether commenced or
threatened) in respect thereof (Claims) and expenses (including reasonable fees
of counsel and any amounts paid in any settlement effected with the Company's
consent, which consent shall not be unreasonably withheld or delayed) to which
each such indemnified party may become subject under the Securities Act or
otherwise, insofar as such Claims or expenses arise out of or are based upon:
(a) any untrue statement or alleged untrue statement of a material fact
contained in any registration statement under which such securities were
registered under the Securities Act or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading;
(b) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary, final or summary prospectus or any amendment
or supplement thereto, together with the documents incorporated by
reference therein, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; or
(c) any violation by the Company of any federal, state or common law rule or
regulation applicable to the Company and relating to action required of or
inaction by the Company in connection with any such registration
and the Company will reimburse any such indemnified party for any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such Claim as such expenses are incurred.
9.2 The Company shall not be liable to a Person otherwise indemnified pursuant
to clause
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9.1 to the extent a Claim or expense arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact made in a registration statement or amendment
thereof or supplement thereto or in a prospectus or a preliminary, final or
summary prospectus in reliance upon and in conformity with written information
furnished to the Company by or on behalf of such Person specifically for use
therein.
9.3 Subject to clause 9.4, each Holder of Registrable Securities that are
included in the securities as to which any Demand Registration is being effected
(and, if the Company, with the approval of the Investors, so requires as a
condition to including any Registrable Securities in any Demand Registration
Statement, any underwriter and Qualified Independent Underwriter, if any) shall,
severally and not jointly, indemnify and hold harmless (in the same manner and
to the same extent as set forth in clause 9.1) to the extent permitted by law
the Company, its officers and directors, each Person controlling (within the
meaning of the Securities Act) the Company and all other prospective sellers and
their directors, officers, general and limited partners and respective
controlling Persons with respect to any untrue statement or alleged untrue
statement of any material fact in, or omission or alleged omission of any
material fact from, such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto, if
such statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company or its representatives by or on behalf of such Holder or underwriter or
Qualified Independent Underwriter, if any, specifically for use therein and
reimburse such indemnified party for any legal or other expenses reasonably
incurred in connection with investigating or defending any such Claim as such
expenses are incurred. Such indemnity and reimbursement of expenses shall
remain in full force and effect regardless of any investigation made by or on
behalf of such indemnified party and, where applicable, shall survive the
transfer of securities by the Holder.
9.4 The aggregate amount which any such Holder shall be required to pay
pursuant to clauses 9.3, 9.5 and 9.7 shall in no case be greater than the amount
of the net proceeds received by such person upon the sale of the Registrable
Securities pursuant to the registration statement giving rise to such claim.
9.5 Indemnification similar to that specified in clauses 9.1 and 9.3 (with
appropriate modifications) shall be given by the Company (to the fullest extent
permitted by law) and each seller of Registrable Securities with respect to any
required registration or other qualification of securities under any state
securities and "blue sky" laws.
9.6 Any person entitled to indemnification under this Agreement shall notify
promptly the indemnifying party in writing of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made clauses
9.1, 9.3 and 9.5, but the failure of any indemnified party to provide such
notice shall not relieve the indemnifying party of its obligations under those
clauses, except to the extent the indemnifying party is materially
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<PAGE>
prejudiced thereby and shall not relieve the indemnifying party from any
liability which it may have to any indemnified party otherwise than under this
Agreement. In case any action or proceeding is brought against an indemnified
party and it shall notify the indemnifying party of the commencement thereof,
and the indemnifying party shall be entitled to participate therein and, unless
in the reasonable opinion of outside counsel to the indemnified party a conflict
of interest between such indemnified and indemnifying parties may exist in
respect of such claim, to assume the defence thereof jointly with any other
indemnifying party similarly notified, to the extent that it chooses, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
that it so chooses, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defence thereof other than reasonable
costs of investigation, provided that:
(a) if the indemnifying party fails to take reasonable steps necessary to
defend diligently the action or proceeding within 20 days after receiving
notice from such indemnified party that the indemnified party believes it
has failed to do so; or
(b) if such indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there may be one or more legal defences available to such
indemnified party which are not available to the indemnifying party; or
(c) if representation of both parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct
then, in any such case, the indemnified party shall have the right to assume or
continue its own defence as set forth above (but with no more than one firm of
counsel for all indemnified parties in each jurisdiction, except to the extent
any indemnified party or parties reasonably shall have concluded that there may
be legal defences available to such party or parties which are not available to
the other indemnified parties or to the extent representation of all indemnified
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct) and the indemnifying party shall be liable
for any expenses therefor. No indemnifying party shall, without the written
consent of the indemnified party, effect the settlement or compromise of, or
consent to the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or judgment
(A) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any indemnified party.
9.7 If for any reason the foregoing indemnity is unavailable or is
insufficient to hold harmless an indemnified party under clauses 9.1, 9.3 and
9.5 then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party as a result of any
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Claim in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, with respect to such offering of securities. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. If, however, the allocation provided in the second preceding sentence
is not permitted by applicable law, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative faults but also
the relative benefits of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this clause
9.7 were to be determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in the preceding sentences of this clause 9.7. The amount paid or payable in
respect of any Claim shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such Claim. No person guilty of fraudulent misrepresentation
(within the meaning of section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything in this clause 9.7 to the contrary,
no indemnifying party (other than the Company) shall be required pursuant to
this clause 9.7 to contribute any amount in excess of the net proceeds received
by such indemnifying party from the sale of Registrable Securities in the
offering to which the losses, claims, damages or liabilities of the indemnified
parties relate, less the amount of any indemnification payment made by such
indemnifying party pursuant to clauses 9.3 and 9.5.
9.8 The indemnity agreements contained herein shall be in addition to any other
rights to indemnification or contribution which any indemnified party may have
pursuant to law or contract and shall remain operative and in full force and
effect regardless of any investigation made or omitted by or on behalf of any
indemnified party and shall survive the transfer of the Registrable Securities
by any such party.
9.9 The indemnification and contribution required by this clause 9 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defence, as and when bills are received or expense, loss,
damage or liability is incurred.
9.10 To the extent that the Company may only comply lawfully under Bermuda law
with its obligations pursuant to this clause 9 if such compliance is approved in
accordance with the Procedure (as that term is defined in clause 5.7 hereof),
each of the Holders agrees:
(a) to use all reasonable endeavours to procure that, at the appropriate time
and in accordance with the time periods set out in the Sections (as that
term is defined in clause 5.7 hereof), the Procedure is undertaken by the
Holders, the Company and its Directors and that all conditions applicable
to the Procedure are fulfilled; and
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(b) to consent to or vote in favour of any resolution proposed to the Holders
in relation to the Procedure.
REQUESTED UNDERWRITTEN OFFERINGS
- --------------------------------
10.1 Subject to clause 10.2, if requested by the underwriters for any
underwritten offering by Holders pursuant to a Demand Registration Request, the
Company shall enter into a customary underwriting agreement with the
underwriters. Such underwriting agreement shall be satisfactory in form and
substance to the Investors and shall contain such representations and warranties
by, and such other agreements on the part of, the Company and such other terms
as are generally prevailing in agreements of that type, including, without
limitation, indemnities and contribution agreements. Any Holder participating
in the offering shall be a party to such underwriting agreement and may, at its
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Holder and that
any or all of the conditions precedent to the obligations of such underwriters
under such underwriting agreement be conditions precedent to the obligations of
such Holder.
10.2 The underwriting agreement referred to in clause 10.1 shall contain such
representations and warranties by the participating Holders as are customary in
agreements of that type.
ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES
11.1 Subject to clause 11.2, the Company agrees that it shall not effect or
permit to occur any combination or subdivision of shares which would adversely
affect the ability of the Holder of any Registrable Securities to include such
Registrable Securities in any registration contemplated by this Agreement or the
marketability of such Registrable Securities in any such registration.
11.2 The Company agrees that it will take all reasonable steps necessary to
effect a subdivision of shares if in the reasonable judgment of:
(a) the Investors, on making a Demand Registration Request; and
(b) the managing underwriter for the offering in respect of such Demand
Registration Request
such subdivision would enhance the marketability of the Registrable Security and
each Holder agrees to vote all of its share of capital stock in a manner, and to
take all other actions necessary, to permit the Company to carry out the intent
of the preceding sentence.
RULE 144
- --------
12.1 If the Company shall have filed a registration statement pursuant to the
requirements
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of section 12 of the Exchange Act or a registration statement pursuant to the
requirement of the Securities Act in respect of the Ordinary Shares or Ordinary
Share Equivalents, the Company covenants that:
(a) so long as it remains subject to the reporting provisions of the Exchange
Act, it will timely file the reports required to be filed by it under the
Securities Act or the Exchange Act (including, but not limited to, the
reports under sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(1) of Rule 144 under the Securities Act); and
(b) it will take such further action as any Holder of Registrable Securities
may reasonably request,
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (A) Rule 144 under the Securities Act,
as such Rule may be amended from time to time or (B) any similar rule or
regulation hereafter adopted by the Commission.
12.2 Upon the request of any Holder of Registrable Securities, the Company will
deliver to such Holder a written statement as to whether it has complied with
the requirements set out in clause 12.1.
UNITED KINGDOM PUBLIC OFFERINGS
- -------------------------------
13. The Investors shall have the right, at any time during which they have the
right to require a Demand Registration pursuant to clause 2.1, to require the
Company:
(a) to authorise and prepare (or assist in the preparation of) any prospectus
which may be required in order to make an offer of Ordinary Shares under
the Public Offers of Securities Regulations; and
(b) to take such other steps as are necessary for the Company to take to
facilitate the sale or offer of Ordinary Shares to the public in the United
Kingdom.
NOMINEES FOR BENEFICIAL OWNERS
- ------------------------------
14. If Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its option, be treated as the
Holder of such Registrable Securities for purposes of any request or other
action by any Holder or Holders of Registrable Securities pursuant to this
Agreement (or any determination of any number or percentage of shares
constituting Registrable Securities held by any Holder or Holders of Registrable
Securities contemplated by this Agreement), provided that the Company shall have
received assurances reasonably satisfactory to it of such beneficial ownership.
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AMENDMENTS AND WAIVERS
- ----------------------
15. This Agreement may be amended, modified, supplemented or waived only upon
the written agreement of the party against whom enforcement of such amendment,
modification, supplement or waiver is sought.
MISCELLANEOUS
- -------------
16.1 This Agreement shall be binding upon and inure to the benefit of and be
enforceable by the parties hereto and the respective successors, personal
representatives and assigns of the parties hereto, whether so expressed or not.
No person other than a Holder shall be entitled to any benefits under this
Agreement, except as otherwise expressly provided herein.
16.2 This Agreement and the rights of the parties hereunder may be assigned by
any of the parties hereto in whole or in part to any transferee of Registerable
Securities provided that upon the consummation of, and as a condition to, any
such assignment the transferee assumes the obligations of the assignor under,
and agrees to be bound by the terms of, this Agreement.
16.3 This Agreement (with the documents referred to herein or delivered
pursuant hereto) embodies the entire agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof.
16.4 This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New York without giving effect to the
conflicts of law principles thereof.
16.5 This Agreement may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
16.6 Any term or provision of this Agreement which is invalid or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such invalidity or unenforceability without rendering invalid or
unenforceable the remaining terms and provisions of this Agreement or affecting
the validity or enforceability of any of the terms or provisions of this
Agreement in any other jurisdiction.
16.7 It is hereby agreed and acknowledged that it will be impossible to measure
in money the damages that would be suffered if the parties fail to comply with
any of the obligations herein imposed on them and that in the event of any such
failure, an aggrieved person will be irreparably damaged and will not have an
adequate remedy at law. Any such person, therefore, shall be entitled to
injunctive relief, including specific performance, to enforce such obligations,
without the posting of any bond, and, if any action should be brought in equity
to enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defence that there is an adequate remedy at law.
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16.8 Each party hereto shall do and perform or cause to be done and performed
all such further acts and things and shall execute and deliver all such other
agreements, certificates, instruments, and documents as any other party hereto
reasonably may request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
NO INCONSISTENT AGREEMENTS
- --------------------------
17. The Company shall not grant any registration rights to any person without
the prior written consent of the Investors and neither the Company nor any
Holder will, without the prior written consent of the Investors, on or after the
date of this Agreement, enter into any agreement with respect to its securities
which is inconsistent with the rights granted in this Agreement or otherwise
conflicts with the provisions hereof, other than any lock-up hereunder, pursuant
to which the Company shall agree not to register for sale, and not to sell or
otherwise dispose of, Ordinary Shares or any Ordinary Share Equivalents, for a
specified period following the registered offering.
NOTICES
- -------
18.1 Any notice, instruction, consent or other document to be given under this
Agreement shall be in writing and delivered personally or by pre-paid recorded
delivery or facsimile (provided that, in the case of facsimile, the notice is
confirmed by being delivered by hand or sent by first class post within 72 hours
thereafter) to the recipient party at the address shown in Schedule 1 to this
Agreement (for the Management Shareholders) at the address shown in Schedule 2
(for the Investors) and in Schedule 3 (for the Company) or to such other
address, or to a facsimile number, as is notified in writing from time to time
by such party to each of the other parties.
18.2 Any notice delivered personally shall be deemed to be received when
delivered, any notice sent by pre-paid recorded delivery post shall be deemed to
have been received 5 Business Days after posting and any notice sent by
facsimile, at the time of transmission (provided that if transmission occurs
after 6 p.m. on a Business Day, or not on a Business Day, delivery will be
deemed to occur at 9 a.m. on the next Business Day). References to time in this
clause are references to local time in the country of the recipient of the
notice.
18.3 Each of the parties to this Agreement agrees, on the written request of
any Holder, forthwith to appoint, and to notify all other parties to this
Agreement of the identity and address of, an agent for service in either or both
of Bermuda and the state of New York.
IN WITNESS WHEREOF this Agreement has been executed by the parties the day and
- ------------------
year first before written.
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SCHEDULE 1
THE MANAGEMENT SHAREHOLDERS
Name Address Address for service of
notices and fax
numbers
Nicholas Mark Cooke "Tunbridge Wells" Richards Butler
97 Harrington Sound Road Beaufort House
Smiths H502 15 St. Botolph Street
Bermuda London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Alan Albert Fairs 47 Elmfield Road Richards Butler
Chingfor Beaufort House
London E4 7HT 15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Mark Kerr-Smiley 50 Granard Road Richards Butler
London SW12 8UJ Beaufort House
15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Nicholas Brown Redcroft Richards Butler
East End Beaufort House
Pagglesham 15 St. Botolph Street
Rochford London
Essex SS4 2EF EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
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John Anthony Lambert 30 Wakefield Close Richards Butler
Emerson Park Beaufort House
Hornchurch 15 St. Botolph Street
Essex RM11 London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Jeffrey Ronald Butler 10 Mossbank Richards Butler
Grays Beaufort House
Essex RM17 7EF 15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Paul Ian Pearson Fishermans Cottages Richards Butler
16 Silver Road Beaufort House
Burnham on Crouch 15 St. Botolph Street
Exssex CMO 8LA London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Jaques Georges Sacy 42 Scarsdale Villas Richards Butler
London W8 6PP Beaufort House
15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
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David Terrell Colley 2 Gainsborough Court Richards Butler
College Road Beaufort House
London SE21 7LT 15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
George William Jones 29 Western Gardens Richards Butler
London W5 3RS Beaufort House
15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Christopher James Blois Snode Hill House Richards Butler
Needham Beech Beaufort House
Alton 15 St. Botolph Street
Hampshire GU34 4AX London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Richard John Wells Thollon Richards Butler
56 Kevington Drive Beaufort House
Chislehurst 15 St. Botolph Street
Ken BR6 7RN London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
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<PAGE>
David Maxwell Tarsh 4 Harvey Lodge Richards Butler
Admiral Walk Beaufort House
Carlton Gate 15 St. Botolph Street
London W9 London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Penelope Atteline 97 Harrington Sound Road Richards Butler
Cooke Smiths H502 Beaufort House
Bermuda 15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Allan Cooper 14 Wilmington Avenue Richards Butler
London W4 3HA Beaufort House
15 St. Botolph Street
London
EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
Paul Murray c/o Victoria Hall Richards Butler
3rd Floor Beaufort House
11 Victoria Street 15 St. Botolph Street
Hamilton HM11 London
Bermuda EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
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<PAGE>
SCHEDULE 2
THE INVESTORS
Name Address Address for service of
notice and fax number
Bridge Street Fund c/o The Corporation Goldman Sachs
1995, L.P. Trust Company, International
Corporation Trust Center, Petersborough Court
1209 Orange Street, 133 Fleet Street
DE 19801 London EC4A 2BB
U.S.A. For the attention of
Monique Stein
Fax no. 0171 774 4123
GS Capital c/o The Corporation Goldman Sachs
Partners II, L.P. Trust Company, International
Corporation Trust Center, Petersborough Court
1209 Orange Street, 133 Fleet Street
DE 19801 London EC4A 2BB
U.S.A. For the attention of
Monique Stein
Fax no. 0171 774 4123
Goldman Sachs & Messe Turm Goldman Sachs
Co. Verwaltungs 60308 Frankfurt am Main International
GmbH as general Germany Petersborough Court
partner of GS 133 Fleet Street
Capital Partners II London EC4A 2BB
Germany Civil For the attention of
Law Partnership Monique Stein
(with limited Fax no. 0171 774 4123
liability)
GS Capital c/o Maples and Calder, Goldman Sachs
Partners II PO Box 309, International
Offshore, L.P. Grand Cayman, Petersborough Court
Cayman Islands, 133 Fleet Street
British West Indies London EC4A 2BB
For the attention of
Monique Stein
Fax no. 0171 774 4123
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<PAGE>
Stone Street Fund c/o The Corporation Goldman Sachs
1995. L.P. Trust Company, International
Corporation Trust Center, Petersborough Court
1209 Orange Street, 133 Fleet Street
DE 19801 London EC4A 2BB
U.S.A. For the attention of
Monique Stein
Fax no. 0171 774 4123
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<PAGE>
SCHEDULE 3
THE COMPANY
Name Address Address for service of
notice and fax number
Stirling Cooke Cedar House Richards Butler
Brown Holdings 41 Cedar Avenue Beaufort House
Limited Hamilton 15 St. Botolph Street
HM12 London
Bermuda EC3A 7EE
Fax: 0171 247 5091
For the attention of
Peter Michelmore
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<PAGE>
SIGNED by )
NICHOLAS MARK COOKE )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
ALAN ALBERT FAIRS )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
MARK KERR-SMILEY )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
NICHOLAS BROWN )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
JOHN ANTHONY LAMBERT )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
JEFFREY RONALD BUTLER )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
PAUL IAN PEARSON )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
JACQUES GEORGE SACY )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
DAVID TERRELL COLLEY )
in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
GEORGE WILLIAM JONES )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
CHRISTOPHER JAMES )
BLOIS NEEDHAM )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
RICHARD JOHN WELLS )
in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
DAVID MAXWELL TARSH )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
PENELOPE ATTELINE COOKE )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
PAUL MURRAY )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by )
ALLAN COOPER )
by GEORGE WILLIAM JONES )
his attorney in the presence of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General )
Partner of BRIDGE STREET )
FUND 1995, L.P. )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by JEAN de POURTALES )
as attorney on behalf of GOLDMAN )
SACHS & CO VERWALTUNGS )
GmbH as General Partner of )
GS CAPITAL PARTNERS II )
GERMANY CIVIL LAW )
PARTNERSHIP (with limited )
liability) in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General )
Partner of GS CAPITAL )
PARTNERS II, L.P. in the presence )
of: )
Witness- Signature:
Name:
Address:
<PAGE>
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General )
Partner of GS CAPITAL )
PARTNERS II OFFSHORE, L.P. )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by JEAN de POURTALES )
as attorney on behalf of the General )
Partner of STONE STREET )
FUND 1995, L.P. )
in the presence of: )
Witness- Signature:
Name:
Address:
SIGNED by )
STIRLING COOKE BROWN )
HOLDINGS LIMITED )
acting by: )
Director:
Secretary:
<PAGE>
EXHIBIT 10.1
STIRLING COOKE BROWN HOLDINGS LIMITED
1997 EQUITY INCENTIVE PLAN
Section 1. Purpose
The purpose of the Stirling Cooke Brown Holdings Limited 1997
Equity Incentive Plan (the "Plan") is to promote the best interests of Stirling
Cooke Brown Holdings Limited (together with any successor thereto, the
"Company") and its shareholders by providing key employees of the Company and
its Affiliates (as defined below) with an opportunity to acquire a or increase
their proprietary interest in the Company. It is intended that the Plan will
promote continuity of management and increased incentive and personal interest
in the welfare of the Company by those key employees who are primarily
responsible for shaping and carrying out the long-range plans of the Company and
securing the Company's continued growth and financial success.
Section 2. Definitions
As used in the Plan, the following terms shall have the
respective meanings set forth below:
(a) "Affiliate" shall mean any entity that, directly or through
one or more intermediaries, is controlled by, controls, or is under common
control with, the Company.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock or Performance Share granted under the Plan.
(c) "Award Agreement" shall mean any written agreement,
contract, or other instrument or document evidencing any Award granted under the
Plan.
(d) "Code" shall mean the United States Internal Revenue Code of
1986, as amended from time to time.
(e) "Commission" shall mean the United States Securities and
Exchange Commission or any successor agency.
(f) "Committee" shall mean a committee of the Board of Directors
of the Company designated by such Board to administer the Plan and composed of
not less than two directors, each of whom is a "non-employee director for
purposes of Section 16" within the meaning of Rule 16b-3 and each of whom is an
"outside director" within the meaning of Section 162(m)(4)(C) of the Code (or
any successor provision thereto), or the full Board of Directors of the Company,
as applicable.
(g) "Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended from time to time.
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(h) "Excluded Items" shall mean any items which the Committee
determines shall be excluded in fixing Performance Goals, such as any gains or
losses from discontinued operations, any extraordinary gains or losses and the
effects of accounting changes.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(j) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code (or any successor provision thereto).
(k) "Key Employee" shall mean any officer or other key employee
of the Company or of any Affiliate who is responsible for or contributes to the
management, growth or profitability of the business of the Company or any
Affiliate as determined by the Committee.
(l) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(m) "Option" shall mean an Incentive Stock Option or a Non-
Qualified Stock Option.
(n) "Participating Key Employee" shall mean a Key Employee
designated to be granted an Award under the Plan.
(o) "Performance Goals" shall mean the following (in all cases
after excluding the impact of applicable Excluded Items):
(i) Return on equity for the Performance Period for the
Company on a consolidated basis.
(ii) Return on investment for the Performance Period (aa) for
the Company on a consolidated basis, (bb) for any one or more Affiliates or
divisions of the Company and/or (cc) for any other business unit or units
of the Company as defined by the Committee at the time of selection.
(iii) Return on net assets for the Performance Period (aa) for
the Company on a consolidated basis, (bb) for any one or more Affiliates or
divisions of the Company and/or (cc) for any other business unit or units
of the Company as defined by the Committee at the time of selection.
(iv) Economic value added (as defined by the Committee at the
time of selection) for the Performance Period (aa) for the Company on a
consolidated basis, (bb) for any one or more Affiliates or divisions of the
Company and/or (cc) for any other business unit or units of the Company as
defined by the Committee at the time of selection.
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(v) Earnings from operations for the Performance Period (aa) for
the Company on a consolidated basis, (bb) for any one or more Affiliates or
divisions of the Company and/or (cc) for any other business unit or units
of the Company as defined by the Committee at the time of selection.
(vi) Pre-tax profits for the Performance Period (aa) for the
Company on a consolidated basis, (bb) for any one or more Affiliates or
divisions of the Company and/or (cc) for any other business unit or units
of the Company as defined by the Committee at the time of selection.
(vii) Net earnings for the Performance Period (aa) for the
Company on a consolidated basis, (bb) for any one or more Affiliates or
divisions of the Company and/or (cc) for any other business unit or units
of the Company as defined by the Committee at the time of selection.
(viii) Net earnings per Share for the Performance Period for the
Company on a consolidated basis.
(ix) Net cash provided by operating activities for the
Performance Period (aa) for the Company on a consolidated basis, (bb) for
any one or more Affiliates or divisions of the Company and/or (cc) for any
other business unit or units of the Company as defined by the Committee at
the time of selection.
(x) Market price per Share for the Performance Period.
(xi) Total shareholder return for the Performance Period for the
Company on a consolidated basis.
(p) "Performance Period" shall mean, in relation to Performance
Shares, any period for which a Performance Goal or Goals have been established.
(q) "Performance Share" shall mean any right granted under Section
6(e) of the Plan that will be paid out as a Share (which, in specified
circumstances, may be a Share of Restricted Stock).
(r) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
government or political subdivision thereof.
(s) "Released Securities" shall mean Shares of Restricted Stock with
respect to which all applicable restrictions have expired, lapsed, or been
waived.
(t) "Restricted Securities" shall mean Awards of Restricted Stock or
other Awards under which issued and outstanding Shares are held subject to
certain restrictions.
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(u) "Restricted Stock" shall mean any Share granted under Section 6(d)
of the Plan or, in specified circumstances, a Share paid in connection with a
Performance Share under Section 6(e) of the Plan.
(v) "Rule 16b-3" shall mean Rule 16b-3 as promulgated by the
Commission under the Exchange Act, or any successor rule or regulation thereto.
(w) "Shares" shall mean Ordinary Shares of the Company, par value
$1.00 per share, and such other securities or property as may become subject to
Awards pursuant to an adjustment made under Section 4(b) of the Plan.
(x) "Stock Appreciation Right" shall mean any right granted under
Section 6(c) of the Plan.
Section 3. Administration
The Plan shall be administered by the Committee; provided, however,
that if at any time the Committee shall not be in existence, the functions of
the Committee as specified in the Plan shall be exercised by a committee
consisting of those members of the Board of Directors of the Company who qualify
as "non-employee directors for purposes of Section 16" under Rule 16b-3 and as
"outside directors" under Section 162(m)(4)(C) of the Code (or any successor
provision thereto) provided further, however, that if the foregoing specified
requirements cannot be met, then the Plan shall be administered by the Board of
Directors of the Company. Subject to the terms of the Plan and without
limitation by reason of enumeration, the Committee shall have full power and
authority to: (i) designate Participating Key Employees; (ii) determine the
type or types of Awards to be granted to each Participating Key Employee under
the Plan; (iii) determine the number of Shares to be covered by (or with respect
to which payments, rights, or other matters are to be calculated in connection
with) Awards granted to Participating Key Employees; (iv) determine the terms
and conditions of any Award granted to a Participating Key Employee; (v)
determine whether, to what extent, and under what circumstances Awards granted
to Participating Key Employees may be settled or exercised in cash, Shares,
other securities, other Awards, or other property, and the method or methods by
which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi)
determine whether, to what extent, and under what circumstances cash, Shares,
other Awards, and other amounts payable with respect to an Award granted to
Participating Key Employees under the Plan shall be deferred either
automatically or at the election of the holder thereof or of the Committee;
(vii) interpret and administer the Plan and any instrument or agreement relating
to, or Award made under, the Plan (including, without limitation, any Award
Agreement); (viii) establish, amend, suspend, or waive such rules and
regulations and appoint such agents as it shall deem appropriate for the proper
administration of the Plan; and (ix) make any other determination and take any
other action that the Committee deems necessary or desirable for the
administration of the Plan. Unless otherwise expressly provided in the Plan,
all designations, determinations, interpretations, and other decisions under or
with respect to the Plan or any Award shall be within the sole discretion of the
Committee, may be made at any time, and shall be final, conclusive, and binding
upon all Persons, including the Company, any Affiliate, any Participating Key
Employee, any holder or beneficiary of any Award, any shareholder, and any
employee of the Company or of any Affiliate.
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Section 4. Shares Available for Award
(a) Shares Available. Subject to adjustment as provided in Section
4(b):
(i) Number of Shares Available. The number of Shares with
respect to which Awards may be granted under the Plan shall be 500,000.
If, after the effective date of the Plan, any Shares covered by an Award
granted under the Plan, or to which any Award relates, are forfeited or if
an Award otherwise terminates, expires or is canceled prior to the delivery
of all of the Shares or of other consideration issuable or payable pursuant
to such Award, then the number of Shares counted against the number of
Shares available under the Plan in connection with the grant of such Award,
to the extent of any such forfeiture, termination, expiration or
cancellation, shall again be available for granting of additional Awards
under the Plan.
(ii) Limitations on Awards to Individual Participants. No
Participating Key Employee shall be granted Awards under the Plan that
could result in such Participating Key Employee exercising Options for, or
Stock Appreciation Rights with respect to, more than 100,000 Shares or
receiving Awards relating to more than 100,000 Shares of Restricted Stock
or more than 100,000 Performance Shares under the Plan. Such number of
Shares as specified in the preceding sentence shall be subject to
adjustment in accordance with the terms of Section 4(b) hereof. In all
cases, determinations under this Section 4(a)(ii) shall be made in a manner
that is consistent with the exemption for performance-based compensation
provided by Section 162(m) of the Code (or any successor provision thereto)
and any regulations promulgated thereunder.
(iii) Accounting for Awards. The number of Shares covered by an
Award under the Plan, or to which such Award relates, shall be counted on
the date of grant of such Award against the number of Shares available for
granting Awards under the Plan.
(iv) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property), recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee may, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
subject to the Plan and which thereafter may be made the subject of Awards under
the Plan, (ii) the number and type of Shares subject to outstanding Awards, and
(iii) the grant, purchase, or exercise price with respect to any Award, or, if
deemed appropriate, make provision for a cash payment to the holder of an
outstanding Award; provided, however, in each case, that with respect to Awards
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of Incentive Stock Options no such adjustment shall be authorized to the extent
that such authority would cause the Plan to violate Section 422(b) of the Code
(or any successor provision thereto); and provided further that the number of
Shares subject to any Award payable or denominated in Shares shall always be a
whole number.
Section 5. Eligibility
Any Key Employee, including any executive officer or employee-director
of the Company or of any Affiliate, who is not a member of the Committee shall
be eligible to be designated a Participating Key Employee.
Section 6. Awards
(a) Option Awards to Key Employees. The Committee is hereby
authorized to grant Options to Key Employees with the terms and conditions as
set forth below and with such additional terms and conditions, in either case
not inconsistent with the provisions of the Plan, as the Committee shall
determine.
(i) Exercise Price. The exercise price per Share of an Option
granted pursuant to this Section 6(a) shall be determined by the Committee;
provided, however, that such exercise price shall not be less than 100% of
the Fair Market Value of a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee; provided, however, that in no event shall the term of any
Incentive Stock Option exceed a period of ten years from the date of its
grant.
(iii) Exercisability and Method of Exercise. An Option shall
become exercisable in such manner and within such period or periods and in
such installments or otherwise as shall be determined by the Committee.
The Committee also shall determine the method or methods by which, and the
form or forms, including, without limitation, cash, Shares, other
securities, other Awards, or other property, or any combination thereof,
having a Fair Market Value on the exercise date equal to the relevant
exercise price, in which payment of the exercise price with respect to any
Option may be made or deemed to have been made.
(iv) Incentive Stock Options. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code (or any successor provision thereto)
and any regulations promulgated thereunder. Notwithstanding any provision
in the Plan to the contrary, no Incentive Stock Option may be granted
hereunder after the tenth anniversary of the adoption of the Plan by the
Board of Directors of the Company.
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(b) Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Key Employees. Subject to the terms of the
Plan and any applicable Award Agreement, a Stock Appreciation Right granted
under the Plan shall confer on the holder thereof a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of one Share on the
date of exercise over (ii) the grant price of the Stock Appreciation Right as
specified by the Committee, which shall not be less than 100% of the Fair Market
Value of one Share on the date of grant of the Stock Appreciation Right.
Subject to the terms of the Plan, the grant price, term, methods of exercise,
methods of settlement (including whether the Participating Key Employee will be
paid in cash, Shares, other securities, other Awards, or other property, or any
combination thereof), and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the Committee. The Committee may
impose such conditions or restrictions on the exercise of any Stock Appreciation
Right as it may deem appropriate.
(c) Restricted Stock Awards.
(i) Issuance. The Committee is hereby authorized to grant Awards
of Restricted Stock to Key Employees; provided, however, that the aggregate
number of Shares of Restricted Stock granted under the Plan to all
Participating Key Employees as a group shall not exceed 150,000 (such
number of Shares subject to adjustment in accordance with the terms of
Section 4(b) hereof). Non-Employee Directors are not eligible to be granted
Restricted Stock under the Plan.
(ii) Restrictions. Shares of Restricted Stock granted to
Participating Key Employees shall be subject to such restrictions as the
Committee may impose (including, without limitation, any limitation on the
right to vote a Share of Restricted Stock or the right to receive any
dividend or other right or property), which restrictions may lapse
separately or in combination at such time or times, in such installments or
otherwise, as the Committee may deem appropriate.
(iii) Registration. Any Restricted Stock granted under the Plan
to a Participating Key Employee may be evidenced in such manner as the
Committee may deem appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the
event any stock certificate is issued in respect of Shares of Restricted
Stock granted under the Plan to a Participating Key Employee, such
certificate shall be registered in the name of the Participating Key
Employee and shall bear an appropriate legend (as determined by the
Committee) referring to the terms, conditions, and restrictions applicable
to such Restricted Stock.
(iv) Payment of Restricted Stock. At the end of the applicable
restriction period relating to Restricted Stock granted to a Participating
Key Employee, one or more stock certificates for the appropriate number of
Shares, free of restrictions imposed under the Plan, shall be delivered to
the Participating Key Employee, or, if the Participating Key Employee
received stock certificates representing the Restricted Stock at the time
of grant, the legends placed on such certificates shall be removed.
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(v) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment of a Participating Key Employee (as
determined under criteria established by the Committee) for any reason
during the applicable restriction period, all Shares of Restricted Stock
still subject to restriction shall be forfeited by the Participating Key
Employee; provided, however, that the Committee may, when it finds that a
waiver would be in the best interests of the Company, waive in whole or in
part any or all remaining restrictions with respect to Shares of Restricted
Stock held by a Participating Key Employee.
(d) Performance Shares.
(i) Issuance. The Committee is hereby authorized to grant Awards
of Performance Shares to Participating Key Employees.
(ii) Performance Goals and Other Terms. The Committee shall
determine the Performance Period, the Performance Goal or Goals (and the
performance level or levels related thereto) to be achieved during any
Performance Period, the proportion of payments, if any, to be made for
performance between the minimum and full performance levels for any
Performance Goal and, if applicable, the relative percentage weighing given
to each of the selected Performance Goals, the restrictions applicable to
Shares of Restricted Stock received upon payment of Performance Shares if
Performance Shares are paid in such manner, and any other terms, conditions
and rights relating to a grant of Performance Shares. The Committee shall
have sole discretion to alter the selected Performance Goals set forth in
Section 2(o), subject to shareholder approval, to the extent required to
comply with Rule 16b-3 and to qualify the Award for the performance-based
exemption provided by Section 162(m) of the Code (or any successor
provision thereto). Notwithstanding the foregoing, in the event the
Committee determines it is advisable to grant Performance Shares which do
not qualify for the performance-based exemption under Section 162(m) of the
Code (or any successor provision thereto), the Committee may make such
grants without satisfying the requirements thereof.
(iii) Rights and Benefits During the Performance Period. The
Committee may provide that, during a Performance Period, a Participating
Key Employee shall be paid cash amounts, with respect to each Performance
Share held by such Participating Key Employee, in the same manner, at the
same time, and in the same amount paid, as a cash dividend on a Share.
Participating Key Employees shall have no voting rights with respect to
Performance Shares held by them.
(iv) Payment of Performance Shares. As soon as is reasonably
practicable following the end of the applicable Performance Period, and
subject to the Committee certifying in writing as to the satisfaction of
the requisite Performance Goal or Goals if such certification is required
in order to qualify the Award for the performance-based exemption provided
by Section 162(m) of the Code (or any successor provision thereto), one or
more certificates representing the number of Shares equal to the number of
Performance Shares payable shall be registered in the name of and delivered
to the Participating Key Employee; provided, however, that any Shares of
Restricted Stock payable
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in connection with Performance Shares shall, pending the expiration, lapse,
or waiver of the applicable restrictions, be evidenced in the manner as set
forth in Section 6(d)(iii) hereof.
(e) General.
(i) No Consideration for Awards. Awards shall be granted to
Participating Key Employees for no cash consideration unless otherwise
determined by the Committee. Awards of Non-Qualified Stock Options granted
to Non-Employee Directors under Section 6(b) of the Plan shall be granted
for no cash consideration unless otherwise required by law.
(ii) Award Agreements. Each Award granted under the Plan shall
be evidenced by an Award Agreement in such form (consistent with the terms
of the Plan) as shall have been approved by the Committee.
(iii) Awards May Be Granted Separately or Together. Awards to
Participating Key Employees under the Plan may be granted either alone or
in addition to, in tandem with, or in substitution for any other Award or
any award granted under any other plan of the Company or any Affiliate.
Awards granted in addition to or in tandem with other Awards, or in
addition to or in tandem with awards granted under any other plan of the
Company or any Affiliate, may be granted either at the same time as or at a
different time from the grant of such other Awards or awards.
(iv) Forms of Payment Under Awards. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise, or payment of
an Award to a Participating Key Employee may be made in such form or forms
as the Committee shall determine, and may be made in a single payment or
transfer, in installments, or on a deferred basis, in each case in
accordance with rules and procedures established by the Committee. Such
rules and procedures may include, without limitation, provisions for the
payment or crediting of interest on installment or deferred payments.
(v) Limits on Transfer of Awards.
(A) Except as provided in Section 6(e)(v)(B) below, no
Award (other than Released Securities), and no right under any such
Award, shall be assignable, alienable, saleable, or transferable by a
Participating Key Employee or a Non-Employee Director otherwise than
by will or by the laws of descent and distribution (or, in the case of
an Award of Restricted Securities, to the Company); provided, however,
that a Participating Key Employee at the discretion of the Committee
may, be entitled, in the manner established by the Committee, to
designate a beneficiary or beneficiaries to exercise his or her
rights, and to receive any property distributable, with respect to any
Award upon the death of the Participating Key Employee. Each Award,
and each right under any Award, shall be exercisable, during the
lifetime of the Participating Key Employee, only by such individual
or, if permissible under applicable law, by such individual's guardian
or
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legal representative. No Award (other than Released Securities), and
no right under any such Award, may be pledged, alienated, attached, or
otherwise encumbered, and any purported pledge, alienation,
attachment, or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(B) The Committee may, in its discretion, authorize all or
a portion of an Award to be granted to a Participating Key Employee to
be on terms which permit transfer by such Participating Key Employee,
but only to the extent permitted by Rule 16b-3 and subject to the
terms and conditions of the Award Agreement.
(vi) Term of Awards. Except as otherwise provided in the Plan,
the term of each Award shall be for such period as may be determined by the
Committee.
(vii) Rule 16b-3 Six-Month Limitations. To the extent required in
order to comply with Rule 16b-3 only, any equity security offered pursuant
to the Plan may not be sold for at least six months after acquisition,
except in the case of death or disability, and any derivative security
issued pursuant to the Plan shall not be exercisable for at least six
months, except in case of death or disability of the holder thereof. Terms
used in the preceding sentence shall, for the purposes of such sentence
only, have the meanings, if any, assigned or attributed to them under Rule
16b-3.
(viii) Share Certificates; Representation. In addition to the
restrictions imposed pursuant to Section 6(d) and Section 6(e) hereof, all
certificates for Shares delivered under the Plan pursuant to any Award or
the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations, and other requirements of the Commission, any stock
exchange or other market upon which such Shares are then listed or traded,
and any applicable federal or state securities laws, and the Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions. The Committee may require each
Participating Key Employee or other Person who acquires an Award or Shares
under the Plan by means of an Award originally made to a Participating Key
Employee to represent to the Company in writing that such Participating Key
Employee or other Person is acquiring the Shares without a view to the
distribution thereof.
Section 7. Amendment and Termination of the Plan; Correction of Defects and
Omissions
(a) Amendments to and Termination of the Plan. The Board of Directors
of the Company may at any time amend, alter, suspend, discontinue, or terminate
the Plan; provided, however, that shareholder approval of any amendment of the
Plan shall also be obtained if otherwise required by: (i) the rules and/or
regulations promulgated under Section 16 of the Exchange Act (in order for the
Plan to remain qualified under Rule 16b-3), (ii) the Code or any rules
promulgated thereunder (in order to allow for Incentive Stock Options to be
granted under the Plan), or (iii) the quotation or listing requirements of the
Nasdaq National Market or any principal securities exchange or market on which
the Shares are then traded (in order to maintain the quotation or listing of the
Shares thereon). Termination of the Plan shall not affect the rights of
Participating Key Employees
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with respect to Awards previously granted to them, and all unexpired Awards
shall continue in force and effect after termination of the Plan except as they
may lapse or be terminated by their own terms and conditions.
(b) Correction of Defects, Omissions and Inconsistencies. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in any Award or Award Agreement in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
Section 8. General Provisions
(a) No Rights to Awards. No Key Employee, Participating Key Employee
or other Person shall have any claim to be granted any Award under the Plan, and
there is no obligation for uniformity of treatment of Key Employees,
Participating Key Employees, or holders or beneficiaries of Awards under the
Plan. The terms and conditions of Awards need not be the same with respect to
each Participating Key Employee.
(b) Withholding. No later than the date as of which an amount first
becomes includible in the gross income of a Participating Key Employee for
federal income tax purposes with respect to any Award under the Plan, the
Participating Key Employee shall pay to the Company, or make arrangements
satisfactory to the Company regarding the payment of, any federal, state, local
or foreign taxes of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Committee, withholding obligations
arising with respect to Awards to Participating Key Employees under the Plan may
be settled with Shares (other than Restricted Securities), including Shares that
are part of, or are received upon exercise of, the Award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and any Affiliate
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Participating Key Employee. The Committee
may establish such procedures as it deems appropriate for the settling of
withholding obligations with Shares, including, without limitation, the
establishment of such procedures as may be necessary to satisfy the requirements
of Rule 16b-3.
(c) No Limit on Other Compensation Arrangements. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(d) Rights and Status of Recipients of Awards. The grant of an Award
shall not be construed as giving a Participating Key Employee the right to be
retained in the employ of the Company or any Affiliate. Further, the Company or
any Affiliate may at any time dismiss a Participating Key Employee from
employment, free from any liability, or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement. Except for
rights accorded under the Plan and under any applicable Award Agreement,
Participating Key Employees shall have no rights as holders of Shares as a
result of the granting of Awards hereunder.
(e) Unfunded Status of the Plan. Unless otherwise determined by the
Committee, the Plan shall be unfunded and shall not create (or be construed to
create) a trust or a
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separate fund or funds. The Plan shall not establish any fiduciary relationship
between the Company and any Participating Key Employee or other Person. To the
extent any Person holds any right by virtue of a grant under the Plan, such
right (unless otherwise determined by the Committee) shall be no greater than
the right of an unsecured general creditor of the Company.
(f) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of Bermuda and applicable United States federal law.
(g) Severability. If any provision of the Plan or any Award Agreement
or any Award is or becomes or is deemed to be invalid, illegal, or unenforceable
in any jurisdiction, or as to any Person or Award, or would disqualify the Plan,
any Award Agreement or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the intent of the Plan,
any Award Agreement or the Award, such provision shall be stricken as to such
jurisdiction, Person, or Award, and the remainder of the Plan, any such Award
Agreement and any such Award shall remain in full force and effect.
(h) No Fractional Shares. No fractional Shares or other securities
shall be issued or delivered pursuant to the Plan, any Award Agreement or any
Award, and the Committee shall determine (except as otherwise provided in the
Plan) whether cash, other securities, or other property shall be paid or
transferred in lieu of any fractional Shares or other securities, or whether
such fractional Shares or other securities or any rights thereto shall be
canceled, terminated, or otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
Section 9. Effective Date of the Plan
The Plan shall be effective on the day immediately following its
approval by the shareholders of the Company provided that such approval is
obtained within twelve months following the date of adoption of the Plan by the
Board of Directors of the Company.
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Exhibit 10.2
THIS AGREEMENT is made the 1st day of January One Thousand Nine Hundred and
Ninety Six between Realm Investments Limited whose registered office is situate
Victoria Hall, 3rd Floor, 11 Victoria Street, Hamilton HM1 Bermuda (hereinafter
called the "Company") of the one part and Nicholas Mark Cooke (hereinafter
called the "Chief Executive Officer") of the other part.
IN this Agreement the following expressions have the following meanings:
"The Board" means the Directors of the Company present at a meeting of the
Directors or of a committee of the Directors duly convened and held.
"Subsidiary" means any company which for the time being is a subsidiary
company (as such expression is defined by Section 86 of The Companies Act
1981 of Bermuda) of the Company.
"Associated Company" means; any company which for the time being is a
holding company (as such expression is defined by Section 86 of The
Companies Act 1981 of Bermuda) of the Company or any subsidiary of any such
holding company.
WHEREBY IT IS AGREED as follows:
1. TERM OF APPOINTMENT
The executive shall serve the Company as its Chief Executive Officer
subject to clauses 12 and 13 hereof for the period of three years from 1st
January 1996 ("the initial term") and thereafter unless and until his
employment shall at any time be terminated in accordance with clauses 12 or
13 or by either party giving to the other not less than 12 months prior
written notice of termination expiring on or after the expiry of the
initial term.
2. POWERS AND DUTIES
(A) The Chief Executive Officer shall exercise such powers and perform such
duties (not being duties inappropriate to his status) in relation to the
business of the Company or any Associated Company as may from time to time
be reasonably vested in or assigned to him by the Company. The Chief
Executive Officer shall comply with all reasonable directions from, and all
regulations of the Company. The Chief Executive Officer shall be entitled
to bind the Company in accordance with the policies of the Board and the
shareholders agreement between the Company and Goldman Sachs (as defined in
the Shareholders Agreement) in respect of such matters as shall from time
to time be necessary for him to carry out his duties and represent the
Company in its day to day dealings.
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(B) The Chief Executive Officer shall work such hours as may reasonably be
required for the proper performance of his duties, whether or not within
normal working hours and shall devote the whole of his time, attention and
abilities during those hours to carrying out his duties in a proper, loyal
and diligent manner.
(C) The Chief Executive Officer's normal place of work shall be at the offices
of the Company in Bermuda.
(D) The Chief Executive Officer shall travel to such places in such manner and
on such occasions as the Company may from time to time reasonably require
for the proper performance of his duties hereunder.
(E) The Company shall be under no obligation to vest in or assign to the Chief
Executive Officer any powers or duties or to provide any work for the Chief
Executive Officer and the Company may at any time or from time to time in
circumstances in which it reasonably believes that the Chief Executive
Officer is guilty of misconduct or in breach of this Agreement in order
that the circumstances giving rise to that belief may be investigated
suspend the Chief Executive Officer from the performance of his duties or
exclude him from any premises of the Company subject to the Company giving
him its reason in writing for so doing. No such suspension or exclusion
shall continue for more than 28 days. Salary will not cease to be payable
by reason of such suspension or exclusion.
(F) Should the Company suspend or exclude the Chief Executive Officer under
Clause 3(E) of this Agreement the period of such suspension shall be
deducted from the one year periods referred to in clauses 9(A) and 10(B)
hereof.
3. SALARY
(A) The Chief Executive Officer shall be paid monthly in arrears for his
services during his employment a salary (which shall a accrue from day to
day) at the rate of US $300,000 per annum or at such higher rate or rates
as the Board may from time to time determine and notice to the Chief
Executive Officer in writing.
(B) The Chief Executive Officer shall also be paid such annual bonuses as the
Board may from time to time determine.
(C) The Company shall review the salary payable under this Agreement in
December of each year with a view to increasing it, but shall not be
obliged to increase it.
(D) The Chief Executive Officer shall not be entitled to any other salary or
fees as an ordinary executive director or employee of the Company or of any
Associated Company and the Chief Executive Officer hereby waives any
entitlement or right which he might otherwise have to any such salary or
fees.
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(E) In addition to public holidays the Chief Executive Officer will be entitled
to 25 days holiday in every calendar year to be taken at such time or times
as may be approved by the Board. If the Chief Executive Officer has less
than 12 months service during the calendar year, this holiday entitlement
is to be calculated on a pro rata basis. Unless and until his employment
under this Agreement shall be determined under any provision thereof salary
will continue to payable during holidays. Holidays not taken during any
calendar year or by the determination of his employment under this
Agreement will be lost. Upon determination of his employment other than
pursuant to clauses 13 (iii) and (vii) hereof, the Chief Executive Officer
will be entitled to pay in lieu of holiday accrued but not taken. If, upon
the termination of his employment with the Company, the Chief Executive
Officer has taken more days holiday than he is entitled to, the Company
shall be entitled to make appropriate deduction from any final payment of
salary.
(F) Subject to production, if requested, of medical certificates satisfactory
to the Company, remuneration will not cease to be payable by reason only of
the Chief Executive Officer's incapacity for work due to sickness or
accident (unless and until his employment under this Agreement shall be
determined under any provision thereof).
(G) During the period of employment the Company shall pay on behalf of the
employee and the Nanny/Housekeeper to his dependent children all payroll
taxes, Government fees and any and all other payments and emoluments
required to be paid by an employer on behalf of employees under Bermuda
Law.
4. CAR
The Company shall during the term of this agreement provide the Chief
Executive Officer with a motor car which shall be replaced once every 3
years or 40,000 miles whichever is the sooner of a type approved by the
Company but which shall be consistent with his position as Chief Executive
Officer of the Company. The Company shall pay for maintenance and repairs,
taxation and insurance for the aforementioned car.
5. OTHER BENEFITS
(A) The Company shall pay the appropriate premiums in respect of the Chief
Executive Officer, his family and the Nanny/Housekeeper of his dependent
children for such medical insurance schemes to which the Company may
subscribe from time to time.
(B) The Chief Executive Officer shall be entitled to be a member of the Company
Pension Scheme and if he joins benefits shall be provided for and in
respect of him thereunder in accordance with the plan for the time being in
force. If the Chief Executive officer so elects the Company shall pay sums
equivalent to that which would be payable into a Company pension scheme (8%
of his basic salary) into an alternative personal pension scheme for the
benefit of the Chief Executive Officer.
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(C) The Chief Executive Officer shall have up to three (3) return air fares per
annum paid by the Company to and from the UK for him and his spouse and
dependent children paid by the Company.
(D) The Company shall maintain Personal Accident Insurance and Permanent Total
Disability Coverage in respect of the Chief Executive Officer for the sum
of four (4) times his annual salary the beneficiaries of which shall be
directed from time to time by the Chief Executive Officer.
6. EXPENSES
The Company will reimburse the Chief Executive Officer against production
of receipts if requested, all reasonable travelling, hotel and other out-
of-pocket expenses properly incurred by him in the performance of his
duties under this Agreement.
7. INVENTIONS AND IMPROVEMENTS
(A) It shall be part of the normal duties of the Chief Executive Officer at all
times:
(i) to consider in what manner and by what new methods or devices the
products, services, processes, equipment or systems of the Company,
or any Associated Company, with which he is concerned or for which he
is responsible might be improved; and
(ii) ensure that the Board is given details of any invention or
improvement which he may from time to time make or discover in the
course of his duties; and
(iii) to further the interests of the Company's undertaking with regard
thereto. The Company shall be entitled free of charge to the sole
ownership of any such invention or improvement and to the exclusive
use thereof.
(B) The Chief Executive Officer shall not either during his employment or
thereafter exploit or assist others to exploit any invention or improvement
which he may from time to time make or discover in the course of his duties
or (unless the same shall become public knowledge) make public or disclose
any such invention or improvement or give any information in respect of it
except to the Company or as it may direct.
8. CONFIDENTIALITY
(A) The Chief Executive Officer shall not, either during the continuance of his
employment or at any time after its termination:
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(i) disclose to any person, firm or corporation any trade secret of the
Company or any Associated Company or any information concerning the
organization, business affairs, or finances of the Company or any
Associated Company, or any information of which he has knowledge or
ought reasonably to have known, to be confidential, concerning
customers or other persons with which the Company or any Associated
Company has dealings, including but not limited to, any customer
lists, price lists, marketing or sales plans or information, designs,
products or research, which may come to his knowledge during the
course of his employment (except where such disclosure is made in the
proper performance of the Chief Executive Officer's duties or is
authorized by the Company or is in compliance with the order of a
competent court); or
(ii) use or attempt to use, for his own purposes or those of any other
person, firm, or corporation any such trade secrets or confidential
information in any manner which may injure or cause loss either
directly or indirectly to the Company or any Associated Company.
(B) The provisions of Clause 8 (A) shall continue to apply after the
termination of the Executive's employment without limit in point of time
but shall cease to apply to information or knowledge which may come into
the public domain through no fault of the Executive.
9. NON-SOLICITATION
(A) The Chief Executive Officer will not for a period of one year after the
termination of his employment with the Company either personally or by an
agent directly or indirectly;
(i) either on his own account or for any other person, firm or company or
in association with or in the employment of any other person, firm or
company solicit or interfere with or endeavor to entice away from the
Company or any Associated Company any person, firm or company who
within one year prior to or at the date of such termination was a
customer of or in the habit of dealing with the Company or any
Associated Company and with whom the Chief Executive Officer had
contact in the course of his employment or
(ii) either on his own account or for any other person, firm or company
solicit or interfere with or endeavor to entice away from the Company
or any Associated Company any person, who, at the date of termination,
was employed in an executive, managerial, technical or sales capacity,
or any person who was a director or consultant of the Company or any
Associated Company at the date of such termination.
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(B) The Chief Executive Officer will not at any time after the termination of
his employment with the Company either personally or by an agent directly
or indirectly represent himself as being in any way currently connected
with or interested in the business of the Company or Associated Company.
10. NON-COMPETITION
(A) During his employment the Chief Executive Officer shall not unless
otherwise agreed in writing by the Company) undertake any other business or
profession or be or become an employee or agent of any other company, firm
or person or assist or have any financial interest in any other business or
profession or accept a directorship of any Company other than the Company
(except as already disclosed).The Chief Executive Officer may, however,
hold or acquire by way of bona fide investment only shares or other
securities of any company which are listed or dealt in on any recognized
Stock Exchange. Unless the Company shall require him not to do so in any
particular case on the ground that such other company is or may be carrying
on a business competing or tending to compete with the business of the
Company or any Associated Company.
(B) The Chief Executive Officer will not for a period of one year after the
termination of his employment with the Company either personally or by an
agent directly or indirectly either on his own account or for any other
person, firm or company be engaged in or concerned directly or indirectly
in any executive managerial, technical or advisory capacity in any business
concern (of whatever kind) which is in competition with the business of the
Company or any Associated Company. This clause will not restrain the
Executive from being engaged or concerned, in any business concern in so
far as the Executive's duties, work, activities or service shall consist
solely of:
(i) duties, work, activities or services of a kind with which the
Executive was not concerned or involved in to a material extent during
his employment with the Company or any Associated Company.
11. RETURN OF PAPERS
The Chief Executive Officer shall promptly whenever requested by the
Company and in any event upon termination of his employment deliver up to
the Company all lists of clients or customers, correspondence and all other
documents, papers and records which may have been prepared by him or have
come into his possession, or under his custody or control in the course of
his employment, and the Chief Executive Officer shall not be entitled to
and shall not retain any copies thereof. Title and copyright shall vest in
the Company.
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12. DIRECTORSHIP
The removal of the Chief Executive Officer of the Company or the failure of
the Company in general meeting to re-elect the Chief Executive Officer as a
Director of the Company if under the Articles of Association for the time
being of the Company he shall be obliged to retire by rotation or otherwise
shall terminate his employment under this Agreement. Such termination shall
be taken to be a breach by the Company of this Agreement unless at the time
of removal or failure to re-elect the Company was entitled to terminate the
Chief Executive Officer's employment in accordance with clause 12. The
Chief Executive Officer shall not during his employment resign his office
as Director of the Company or Associated Company or do anything which would
cause him. to be disqualified from continuing to act as such a Director.
13. TERMINATION OF EMPLOYMENT
If the Chief Executive Officer:
(i) shall become incapacitated from any cause whatsoever from efficiently
performing his duties hereunder for twelve (12) consecutive months;
or
(ii) shall be or become of unsound mind or be or become a patient for any
purpose of any (or any part thereof) relating to mental health; or
(iii) shall be or become prohibited by law from being a director; or
(iv) shall be guilty of misconduct or shall commit any serious or
persistent breach of any of his obligations to the Company or any
Associated Company (whether under this Agreement or otherwise); or
(v) shall fail or neglect to comply with any reasonable and lawful orders
given to him by the Company; or
(vi) shall fail, in the reasonable opinion of the Board, to perform his
duties competently (after having received prior written warning of
the shortcomings of his performance) then the Company shall be
entitled by notice in writing to the Chief Executive Officer to
terminate forthwith his employment under this Agreement.
(vii) If the employment of the Chief Executive Officer shall be terminated
by reason of the liquidation of the Company for the purpose of
amalgamation or reconstruction or as part of any arrangement for the
amalgamation of the undertaking of the Company not involving
liquidation and the Chief Executive Officer shall be offered
employment with the amalgamating or reconstructed company of a status
and on terms not less favorable to the Chief Executive
<PAGE>
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Officer than the terms of this Agreement, the Chief Executive Officer
shall have no claim against the Company in respect of the termination
of his employment by the Company hereunder.
Any delay or forbearance by the Company in exercising any right of
termination shall not constitute waiver of it.
14. MISCELLANEOUS
(A) Notwithstanding the termination of this Agreement, the provisions of this
Agreement shall remain in full force and effect insofar as may be necessary
to permit the obligations of the Chief Executive Officer hereunder which
are of continuing nature to be enforced against him accordingly.
(B) Notwithstanding that any provision of this Agreement may prove to be
illegal or unenforceable, the remaining provisions of this Agreement shall
remain in full force and effect.
(C) If the Chief Executive Officer wishes to obtain redress from any grievance
relating to his employment or is dissatisfied with any disciplinary step
taken by the Company he shall apply in writing setting out the nature and
details of any such grievance or dissatisfaction to the Board. The steps
consequent upon any such application are those normally taken upon
applications of a like nature from executives.
15. NOTICES
Any notice to be given hereunder shall be sufficiently served in the case
of the Chief Executive Officer by being delivered either personally to him
or sent by registered post addressed to him at his usual or last place of
abode or in the case of the Company by being delivered at or sent by
registered post addressed to its Registered Office and any such notice if
so posted shall be deemed served on the day following that on which it was
posted.
16. OTHER AGREEMENTS
The Chief Executive Officer acknowledges and warrants that save for a
shareholders' agreement ("the Shareholders Agreement") made between the
Management Shareholders (as defined in the Shareholders Agreement) the
investors (as defined in the Shareholders Agreement) and Stirling Cooke
Brown Holdings Limited of the date hereof, there are no agreements or
arrangements whether written or oral or implied between the Company or any
Associated Company and the Chief Executive Officer relating to the
employment of the Chief Executive Officer other than those expressly set
out in this Agreement and that he is not entering into this Agreement in
reliance on any representation not expressly set out herein.
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17. GOVERNING LAW
This agreement shall be governed by an construed in accordance with Bermuda
Law. Each of the parties hereby irrevocably agrees for the mutual benefit
that the Courts of Bermuda are to have jurisdiction to settle any disputes
which may arise out of or in connection with this Agreement.
Signed /S/ Nicholas Mark Cooke Date 20th January 1996
--------------------------------------------
Witness /S/ Date 1/20/96
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REALM INVESTMENTS LIMITED
/S/ P.A. Cooke DIRECTOR
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SEAL
<PAGE>
Exhibit 10.3
THIS AGREEMENT is made the 19th day of January, 1996.
BETWEEN:
1) STIRLING COOKE REINSURANCE BROKERS LIMITED registered in England No.
2706848 whose registered office is at 65 Leadenhall Street, London, EC3A
2AD ("the Company") and
2) NICHOLAS BROWN of Redcroft, East End, Pagglesham, Rochford, Essex, 554 2EF
("the Executive").
WHEREBY IT IS AGREED as follows:-
1) DEFINITIONS
In this Agreement:
"Associated Company" means a company which is from time to time a
subsidiary or a holding company (as those
expressions are defined by Section 736 of the
Companies Act 1985) of the Company or a subsidiary
(other than the Company) of a holding company of
the Company;
"the Board" means the Board of Directors from time to time of
the Company;
"the Parent Company" means Stirling Cooke Holdings Limited.
2) TERM OF APPOINTMENT
The Executive shall serve the Company as its Managing Director subject to
clauses 13 and 14 hereof for the period of three years from 1st January
1996 ("the initial term") and thereafter unless and until his employment
shall at any time be terminated in accordance with clauses 13 or 14, or by
either party giving to the other not less than 12 months' prior written
notice of termination expiring on or after the expiry of the initial term.
3) POWERS AND DUTIES
(A) The Executive shall exercise such powers and perform such duties (not
being duties inappropriate to his status) in relation to the business
of the Company or any Associated Company as may from time to time be
reasonably vested in or assigned to him by the Company or the parent
Company. The Executive shall comply with all reasonable directions
from, and all regulations of, the Company.
<PAGE>
(B) The Executive shall work such hours as may reasonably be required for
the proper performance of his duties whether or not within the normal
working hours specified in the Schedule hereto, and shall devote the
whole of his time, attention and abilities during those hours to
carrying out his duties in a proper, loyal and diligent manner.
(C) The Executive shall travel to such places (whether in or outside the
United Kingdom and in such manner and on such occasions as the Company
or the Parent Company may from time to time reasonably require for the
proper performance of his duties hereunder.
(D) The Executive's normal place of work shall be at the Company's head or
principal office in London or (either temporarily or permanently) at
such other place within the United Kingdom as the Company may from
time to time determine.
(E) The Company shall be under no obligation to vest in or assign to the
Executive any powers or duties or to provide any work for the
Executive, and the Company may at any time or from time to time in
circumstances in which it reasonably believes that the Executive is
guilty of misconduct or in breach of this Agreement in order that the
circumstances giving rise to that belief may be investigated suspend
the Executive from the performance of his duties or exclude him from
any premises of the Company subject to the Company giving him its
reason in writing for so doing. No such suspension or exclusion shall
continue for more than 28 days. Salary will not cease to be payable
by reason only of such suspension or exclusion.
(F) Should the Company suspend or exclude the Executive under clause 3(E)
of this Agreement the period of such suspension shall be deducted from
the one year periods referred to in clauses 10(A) and 11(B) thereof.
4) SALARY
(A) The Executive shall be paid monthly in arrears for his services during
his employment a salary (which shall accrue from day to day at the
rate of (Pounds)200,000 per annum or at such higher rate or rates as
the Board with the prior approval of the Parent Company may from time
to time determine and notify to the Executive in writing.
(B) The Executive shall also be paid such annual bonuses as the Board with
the prior approval of the Parent Company but otherwise in its absolute
discretion, may from time to time determine.
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<PAGE>
(C) The Company shall review the salary payable under this Agreement in
December of each year with a view to increasing it, but shall not be
obliged to increase it.
(D) The Executive shall not be entitled to any other salary or fees as an
ordinary or executive director or employee of the Company or of any
Associated Company and the Executive hereby waives any entitlement or
right which he might otherwise have to any such salary or fees.
5) CAR
The Company shall provide for the Executive (subject to his being qualified
to drive) a motor car suitable for a person of his status in accordance
with Group policy and shall bear or reimburse its running costs in
accordance with established Group policy. The Executive shall take good
care of the car, procure that the provisions of any policy of insurance are
observed and return the car and its keys to the Company's registered office
immediately upon the termination of his employment.
6) OTHER BENEFITS
(A) The Company shall provide or at its option pay for BUPA or equivalent
medical insurance protection for the Executive and his spouse and
dependent children in accordance with established company policy.
(B) The Executive shall when eligible be entitled to become a member of
the Company Pension Scheme and if he joins, benefits shall be provided
for and in respect of him thereunder in accordance with the trust deed
and rules thereof for the time being in force.
7) EXPENSES
The Company shall reimburse to the Executive against production of receipts
if requested all reasonable travelling, hotel, entertainment and other out-
of-pocket expenses which he may from time to time reasonably and properly
incur in the execution of his duties hereunder.
8) INVENTIONS AND IMPROVEMENTS
(A) It shall be part of the normal duties of the Executive at all times:
(i) to consider in what manner and by what new methods or devices the
products, services, processes, equipment or systems of the
Company, or any Associated Company with which he is concerned of
for which he is responsible might be improved; and
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<PAGE>
(ii) promptly to give the Secretary of the Company full details of any
invention or improvement which he may from time to time make or
discover in the course of his duties; and
(iii) to further the interests of the Company's undertaking with
regard thereto.
Subject to the Patents Act 1977 (as amended), the Company shall be
entitled free of charge to the sole ownership of any such invention or
improvement and to the exclusive use thereof.
(B) The Executive shall not either during his employment or thereafter
exploit or assist others to exploit any invention or improvement which
he may from time to time make or discover in the course of this duties
or (unless the same shall have become public knowledge) make public or
disclose any such invention or improvement or give any information in
respect of it except to the Company or as it may direct.
9) CONFIDENTIALITY
(A) The Executive shall not, either during the continuance of his
employment or at any time after its termination:
(i) disclose to any person, firm or corporation any trade secret of
the Company or any Associated Company or any information
concerning the organisation, business affairs or finances of the
Company or any Associated Company, or any information of which he
has knowledge or ought reasonably to have known, to be
confidential, concerning customers or other persons with which
the Company or any Associated Company has dealings, including,
but not limited to, any customer lists, price lists, marketing or
sales plans or information, designs products or research, which
may come to his knowledge during the course of his employment
(except where such disclosure is made in the proper performance
of the Executive's duties, or is authorised by the Company or is
in compliance with the order of a competent court); or
(ii) use or attempt to use, for his own purposes or those of any other
person, firm or corporation, any such trade secrets or
confidential information in any manner which may injure or cause
loss either directly or indirectly to the Company or any
Associated Company.
(B) The provisions of clause 9(A) shall continue to apply after the
termination of the Executive's employment without limit in point of
time but shall cease to apply to information or knowledge which may
come into the public domain through no fault of the Executive.
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<PAGE>
10) NON-SOLICITATION
(A) The Executive will not for a period of one year after the termination
of his employment with the Company either personally or by an agent
directly or indirectly;
(i) either on his own account or for any other person, firm or
company or in association with or in the employment of any other
person, firm or company solicit or interfere with or endeavour to
entice away from the Company or any Associated Company any
person, firm or company who within one year prior to or at the
date of such termination was a customer of or in the habit of
dealing with the Company or any Associated Company and with whom
the Executive had contact in the course of his employment; or
(ii) either on his own account or for any other person, firm or
company solicit or interfere with or endeavour to entice away
from the Company or any Associated Company any person who, at the
date of such termination, was employed in an executive,
managerial, technical or sales capacity, or any person who- was a
director or consultant of the Company or any Associated Company
at the date of such termination.
(B) The Executive will not at any time after the termination of his
employment with the Company either personally or by an agent directly
or indirectly represent himself as being in any way currently
connected with or interested in the business of the Company or any
Associated Company.
11) NON-COMPETITION
(A) During his employment the Executive shall not (unless otherwise agreed
in writing by the Company) undertake any other business or profession
or be or become an employee or agent of any other company, firm or
person or assist or have any financial interest in any other business
or profession or accept a directorship of any company other than the
Company. The Executive may, however, hold or acquire by way of bona
fide investment only shares or other securities of any company or
companies which are listed or dealt in on any recognised Stock
Exchange or eligible shares in qualifying companies as those
expressions are defined in section 289 and section 293 respectively of
the Income and Corporation Taxes Act 1988 (Business Expansion Schemes)
unless the Company shall require him not to do so in any particular
case on the ground that such other company is or may be carrying on a
business competing or tending to compete with the business of the
Company or any Associated Company.
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<PAGE>
(B) The Executive will not for a period of one year after the termination
of his employment with the Company either personally or by an agent
directly or indirectly either on his own account or for any other
person, firm or company be engaged in or concerned directly or
indirectly in any executive managerial, technical or advisory capacity
in any business concern (of whatever kind) which is in competition
with the business of the Company or any Associated Company. This
clause will not restrain the Executive from being engaged or concerned
in any business concern in so far as the Executive's duties, work,
activities or services shall consist solely of:
(i) duties or work performed or activities carried on or services
provided by him in any geographical area outside a radius of one
quarter of one mile from any location which has been the
Executive's place of work at any time during his employment with
the Company. The limitation contained in this sub-clause 118(i)
shall not apply to the new Lloyd's Building (1986) in the City of
London.
(ii) duties, work, activities or services of a kind with which the
Executive was not concerned or involved in to a material extent
during his employment with the Company of any Associated Company.
12) RETURN OF PAPERS ETC.
The Executive shall promptly whenever requested by the Company and in any
event upon the termination of his employment deliver up to the Company all
lists of clients or customers, correspondence and all other documents,
papers and records which may have been prepared by him or have come into
his possession, or under his custody or control in the course of his
employment, and the Executive shall not be entitled to and shall not retain
any copies thereof. Title and copyright therein shall vest in the Company.
13) DIRECTORSHIP
The removal of the Executive from the office of Director of the Company or
the failure of the Company in general meeting to re-elect the Executive as
a Director of the Company if under the Articles of Association for the time
being of the Company he shall be obliged to retire by rotation or otherwise
shall terminate his employment under this Agreement. Such termination
shall be taken to be a breach by the Company of t.his Agreement unless at
the time of removal or failure to re-elect the Company was entitled to
terminate the Executive's employment in accordance with clause 14. The
Executive shall not during his employment resign his office as a Director
of the Company, or any Associated Company or do anything which could cause
him to be disqualified from continuing to act as such a Director.
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<PAGE>
14) TERMINATION OF EMPLOYMENT
If the Executive:
(i) shall be or become incapacitated from any cause whatsoever from,
efficiently performing his duties hereunder for four consecutive
months or for ninety working days in aggregate in any period of
twelve consecutive months; or
(ii) shall be or become of unsound mind or be or become a patient for any
purpose of any statute (or any part thereof) relating to mental
health; or
(iii) shall have an order under section 254 of the Insolvency Act 1986 made
in respect of him or if an interim receiver of his property is
appointed under section 286 of that Act; or
(iv) shall be or become prohibited by law from being a director; or
(v) shall be guilty of gross misconduct or shall commit any serious or
persistent breach of any of his obligations to the Company or any
Associated Company (whether under this Agreement or otherwise); or
(vi) shall refuse or neglect to comply with any reasonable and lawful
orders given to him by the Company; or
(vii) shall fail, in the reasonable opinion of the Board, to perform his
duties competently (after having received prior written warning of
the shortcomings of his performance) then the Company shall be
entitled by notice in writing to the Executive to terminate forthwith
his employment under this agreement.
Any delay of forbearance by the Company is exercising any right of
termination shall not constitute a waiver of it.
15) MISCELLANEOUS
(A) Notwithstanding the termination of this Agreement, the provisions of
this Agreement shall remain in force and effect insofar as may be
necessary to permit the obligations of the Executive hereunder which
are of a continuing nature to be enforced against him accordingly.
(B) Notwithstanding that any provision of this Agreement may prove to be
illegal or unenforceable, the remaining provisions of this Agreement
shall remain in force and effect.
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<PAGE>
16) NOTICES
Any notice may be given personally to the Executive or to the Secretary of
the Company (as the case may be) or may be posted to the Company (for the
attention of the Secretary) at its registered office for the time being or
to the Executive either at his address given above or at his last known
address. Any such notice sent by post shall be deemed served forty eight
hours after it is posted and in proving such service it shall be sufficient
to prove that the notice was properly addressed and put in the post.
17) SCHEDULE
The provisions set out in the Schedule hereto as from time to time altered,
added to or abrogated shall apply as if incorporated in this Agreement.
The Company may from time to time notify the Executive in writing that it
proposes to alter, add to or abrogate any provisions of the Schedule giving
details of the same. Unless the Executive shall within fourteen days of
such notice notify the Company in writing that he objects to the same, such
alteration, addition or abrogation shall be deemed to be agreed and shall
take effect accordingly.
18) OTHER AGREEMENTS
The Executive acknowledges and warrants that save for a shareholders'
agreement ("the Shareholders' Agreement") made between the Management
Shareholders (as defined in the Shareholders' Agreement), the investors (as
defined in the Shareholders' Agreement) and Stirling Cooke Brown Holdings
Limited of the date hereof, there are not agreements or arrangements
whether written, oral or implied between the Company and any Associated
Company and the Executive relating to the employment of the Executive other
than those expressly set out in this Agreement and that he is not entering
into this Agreement in reliance on any representation not expressly set out
herein.
19) RESTRICTIVE TRADE PRACTICES ACT 1996
The parties agree that no provision of this Agreement (or any other
agreement which, together with this Agreement may form part of an
arrangement for the purposes of the Restrictive Trade Practices Act 1976
(the "RTPA"), by virtue of which this Agreement is subject to registration
under the RTPA, shall take effect until the day after particulars of the
arrangements have been furnished to the Director General of Fair Trading by
the Company in accordance with the requirements of the RTPA.
-8-
<PAGE>
20) GOVERNING LAW
This Agreement shall be governed by and construed under English Law and
each of the parties hereby irrevocably agrees for their mutual benefit that
the Courts of England are to have jurisdiction to settle any disputes which
may arise out of or in connection with this Agreement.
IN WITNESS WHEREOF this Agreement has been signed by or on behalf of the Parties
hereto the day and year first before written.
-9-
<PAGE>
SCHEDULE
The following information is supplied pursuant to the Employment Protection
(Consolidation) Act 1978 (as amended):
(a) Disciplinary Rules. There is no formal Disciplinary Procedure applicable
to this employment.
The Executive shall be expected to exhibit a high standard of propriety in
all his dealings with and in the name of the Company and the Parent Company
and Associated Companies.
(b) Grievance Procedure. There is no formal grievance procedure applicable to
this employment. The Executive should in the first instance apply to the
Board in the event of his having any grievance relating to his employment.
If the Executive remains dissatisfied he should then apply in writing to
the Managing Director of the Parent Company whose decision shall be final
and binding.
(c) A Contracting Out Certificate is in force in connection with this
employment.
(d) Normal working hours are 9.00 am to 5.30 pm Monday to Friday inclusive with
an appropriate lunch break.
(e) The Executive will be required to work outside or beyond normal working
hours or at weekends or on holidays as may be necessary for the proper
performance of his duties, and no extra payment will be made for such work.
(f) In addition to bank and other public holidays the Executive will be
entitled to 25 days' holiday in every calendar year to be taken at such
time or times as may be approved by the Board. If the Executive has less
than 12 months' service during the calendar year, his holiday entitlement
is to be calculated on a pro-rata basis. Unless and until his employment
under this Agreement shall be determined under any provision thereof salary
will continue to be payable during holidays. Holidays not taken in any
calendar year or by the determination of his employment under this
Agreement will be lost. Upon determination of his employment other than
pursuant to clauses 14 (iii) and (vii) hereof, the Executive will be
entitled to pay in lieu of holiday accrued but not taken. If, upon the
termination of his employment with the Company, the Executive has taken
more days holiday than he is entitled to, the Company shall be entitled to
make an appropriate deduction from any final payment of salary.
(g) Subject to production, if requested, of medical certificates satisfactory
to the Company, remuneration will not cease to be payable by reason only of
the Executive's incapacity for work due to sickness or accident (unless and
until his employment under this Agreement shall be determined under any
provision thereof) but any such remuneration
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<PAGE>
shall include any sums the Company is obliged to pay to the Executive
pursuant to the Social Security Acts 1992 (Statutory Sick Pay) and the
Company may reduce remuneration during incapacity by an amount equal to any
State benefit (excluding any lump sum benefit) which the Executive would be
entitled to claim during such incapacity under the then current Social
Security Acts (whether or not such benefit is claimed by the Executive).
(h) Continuous Employment. No employment with any previous employer other than
an existing Group employer counts as part of the Executive's continuous
period of employment.
SIGNED by }
on behalf of the Company } /S/
in the presence of: } ------------------------
SIGNED by the Executive } /S/
in the presence of: } ------------------------
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<PAGE>
Exhibit 10.4
THIS AGREEMENT is made the 19th day of January, 1996.
BETWEEN:-
1) STIRLING COOKE INSURANCE BROKERS LIMITED registered in England No. 1881645
whose registered office is at 65 Leadenhall Street, London, EC3A 2AD ("the
Company") and
2) GEORGE WILLAIM JONES of 29 Western Gardens, London, W5 3RS ("the
Executive").
WHEREBY IT IS AGREED as follows:-
1) DEFINITIONS
In this Agreement:
"Associated Company" means a company which is from time to time a
subsidiary or a holding company (as those
expressions are defined by Section 736 of the
Companies Act 1985) of the Company or a subsidiary
(other than the Company) of a holding company of
the Company;
"the Board" means the Board of Directors from time to time of
the Company;
"the Parent Company" means Stirling Cooke Holdings Limited.
2) TERM OF APPOINTMENT
(A) The Executive shall serve the Company as its Financial Director
subject to clauses 13 and 14 hereof for the period of three years from
1st January 1996 ("the initial term") and thereafter unless and until
his employment shall at any time be terminated in accordance with
clauses 13 or 14, or by either party giving to the other not less than
12 months' prior written notice of termination expiring on or after
the expiry of the initial term.
<PAGE>
3) POWERS AND DUTIES
(A) The Executive shall exercise such powers and perform such duties (not
being duties inappropriate to his status) in relation to the business
of the Company or any Associated Company as may from time to time be
reasonably vested in or assigned to him by the Company or the parent
Company. The Executive shall comply with all reasonable directions
from, and all regulations of, the Company.
(A) The Executive shall work such hours as may reasonably be required for
the proper performance of his duties whether or not within the normal
working hours specified in the Schedule hereto, and shall devote the
whole of his time, attention and abilities during those hours to
carrying out his duties in a proper, loyal and diligent manner.
(B) The Executive shall travel to such places (whether in or outside the
United Kingdom and in such manner and on such occasions as the Company
or the Parent Company may from time to time reasonably require for the
proper performance of his duties hereunder.
(C) The Executive's normal place of work shall be at the Company's head or
principal office in London or (either temporarily or permanently) at
such other place within the United Kingdom as the Company may from
time to time determine.
(D) The Company shall be under no obligation to vest in or assign to the
Executive any powers or duties or to provide any work for the
Executive, and the Company may at any time or from time to time in
circumstances in which it reasonably believes that the Executive is
guilty of misconduct or in breach of this Agreement in order that the
circumstances giving rise to that belief may be investigated suspend
the Executive from the performance of his duties or exclude him from
any premises of the Company subject to the Company giving him its
reason in writing for so doing. No such suspension or exclusion shall
continue for more than 28 days. Salary will not cease to be payable
by reason only of such suspension or exclusion.
(E) Should the Company suspend or exclude the Executive under clause 3(E)
of this Agreement the period of such suspension shall be deducted from
the one year periods referred to in clauses 10(A) and 11(B) thereof.
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<PAGE>
4) SALARY
(A) The Executive shall be paid monthly in arrears for his services during
his employment a salary (which shall accrue from day to day at the
rate of (Pounds)95,000 per annum or at such higher rate or rates as
the Board with the prior approval of the Parent Company may from time
to time determine and notify to the Executive in writing.
(B) The Executive shall also be paid such annual bonuses as the Board with
the prior approval of the Parent Company but otherwise in its absolute
discretion, may from time to time determine.
(C) The Company shall review the salary payable under this Agreement in
December of each year with a view to increasing it, but shall not be
obliged to increase it.
(D) The Executive shall not be entitled to any other salary or fees as an
ordinary or executive director or employee of the Company or of any
Associated Company and the Executive hereby waives any entitlement or
right which he might otherwise have to any such salary or fees.
5) CAR
The Company shall provide for the Executive (subject to his being qualified
to drive) a motor car suitable for a person of his status in accordance
with Group policy and shall bear or reimburse its running costs in
accordance with established Group policy. The Executive shall take good
care of the car, procure that the provisions of any policy of insurance are
observed and return the car and its keys to the Company's registered office
immediately upon the termination of his employment.
6) OTHER BENEFITS
(A) The Company shall provide or at its option pay for BUPA or equivalent
medical insurance protection for the Executive and his spouse and
dependent children in accordance with established company policy.
(B) The Executive shall when eligible be entitled to become a member of
the Company Pension Scheme and if he joins, benefits shall be provided
for and in respect of him thereunder in accordance with the trust deed
and rules thereof for the time being in force.
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<PAGE>
7) EXPENSES
The Company shall reimburse to the Executive against production of receipts
if requested all reasonable travelling, hotel, entertainment and other out-
of-pocket expenses which he may from time to time reasonably and properly
incur in the execution of his duties hereunder.
8) INVENTIONS AND IMPROVEMENTS
(A) It shall be part of the normal duties of the Executive at all times:
(i) to consider in what manner and by what new methods or devices
the products, services, processes, equipment or systems of the
Company, or any Associated Company, with which he is concerned
of for which he is responsible might be improved; and
(ii) promptly to give the Secretary of the Company full details of
any invention or improvement which he may from time to time make
or discover in the course of his duties; and
(iii) to further the interests of the Company's undertaking with
regard thereto.
Subject to the Patents Act 1977 (as amended), the Company shall be
entitled free of charge to the sole ownership of any such invention or
improvement and to the exclusive use thereof.
(B) The Executive shall not either during his employment or thereafter
exploit or assist others to exploit any invention or improvement which
he may from time to tee make or discover in the course of this duties
or (unless the same shall have become public knowledge) make public or
disclose any such invention or improvement or give any information in
respect of it except to the Company or as it may direct.
9) CONFIDENTIALITY
(A) The Executive shall not, either during the continuance of his
employment or at any time after its termination:
(i) disclose to any person, firm or corporation any trade secret of
the Company or any Associated Company or any information
concerning the organization, business affairs or finances of the
Company or any Associated Company, or any information of which he
has knowledge or ought
-4-
<PAGE>
reasonably to have known, to be confidential, concerning
customers or other persons with which the Company or any
Associated Company has dealings, including, but not limited to,
any customer lists, price lists, marketing or sales plans or
information, designs products or research, which may come to his
knowledge during the course of his employment (except where such
disclosure is made in the proper performance of the Executive's
duties, or is authorized by the Company or is in comPliance with
the order of a competent court); or
(ii) use or attempt to use, for his own purposes or those of any
other person, firm or corporation, any such trade secrets or
confidential information in any manner which may injure or cause
loss either directly or indirectly to the Company or any
Associated Company.
(B) The provisions of clause 9(A) shall continue to apply after the
termination of the Executive's employment without limit in point of
time but shall cease to apply to information or knowledge which may
come into the public domain through no fault of the Executive.
10) NON-SOLICITATION
(A) The Executive will not for a period of one year after the termination
of his employment with the Company either personally or by an agent
directly or indirectly;
(i) either on his own account or for any other person, firm or
company or in association with or in the employment of any other
person, firm or company solicit or interfere with or endeavor to
entice away from the Company or any Associated Company any
person, firm or company who within one year prior to or at the
date of such termination was a customer of or in the habit of
dealing with the Company or any Associated Company and with whom
the Executive had contact in the course of his employment; or
(ii) either on his own account or for any other person, firm or
company solicit or interfere with or endeavor to entice away from
the Company or any Associated Company any person who, at the date
of such termination, was employed in an executive, managerial,
technical or sales capacity, or any person who was a director or
consultant of the Company or any Associated Company at the date
of such termination.
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<PAGE>
(B) The Executive will not at any time after the termination of his employment
with the Company either personally or by an agent directly or indirectly
represent himself as being in any way currently connected with or
interested in the business of the Company or any Associated Company.
11) NON-COMPETITION
(A) During his employment the Executive shall not (unless otherwise agreed
in writing by the Company) undertake any other business or profession
or be or become an employee or agent of any other company, firm or
person or assist or have any financial interest in any other business
or profession or accept a directorship of any company other than the
Company. The Executive may, however, hold or acquire by way of bona
fide investment -only shares or other securities of any company or
companies which are listed or dealt in on any recognized Stock
Exchange or eligible shares in qualifying companies as those
expressions are defined in section 289 and section 293 respectively of
the Income and Corporation Taxes Act 1988 (Business Expansion Schemes)
unless the Company shall require him not to do so in any particular
case on the ground that such other company is or may be carrying on a
business competing or tending to compete with the business of the
Company or any Associated Company.
(B) The Executive will not for a period of one year after the termination
of his employment with the Company either personally or by an agent
directly or indirectly either on his own account or for any other
person, firm or company be engaged in or concerned directly or
indirectly in any executive managerial, technical or advisory capacity
in any business concern (of whatever kind) which is in competition
with the business of the Company or any Associated Company. This
clause will not restrain the Executive from being engaged or concerned
in any business concern in so far as the Executive's duties, work,
activities or services shall consist solely of:-
(i) duties or work performed or activities carried on or services
provided by him in any geographical area outside a radius of one
quarter of one mile from any location which has been the
Executive's place of work at any time during his employment with
the Company. The limitation contained in this sub-clause 11B(i)
shall not apply to the new Lloyd's Building (1986) in the City of
London.
(ii) duties, work, activities or services of a kind with which the
Executive was not concerned or involved
-6-
<PAGE>
in to a material extent during his employment with the Company of
any Associated Company.
12) RETURN OF PAPERS ETC.
The Executive shall promptly whenever requested by the Company and in any
event upon the termination of his employment deliver up to the Company all
lists of clients or customers, correspondence and all other documents,
papers and records which may have been prepared by him or have come into
his possession, or under his custody or control in the course of his
employment, and the Executive shall not be entitled to and shall not retain
any copies thereof. Title and copyright therein shall vest in the Company.
13) DIRECTORSHIP
The removal of the Executive from the office of Director of the Company or
the failure of the Company in general meeting to re-elect the Executive as
a Director of the Company if under the Articles of Association for the time
being of the Company he shall be obliged to retire by rotation or otherwise
shall terminate his employment under this Agreement. Such termination
shall be taken to be a breach by the Company of this Agreement unless at
the time of removal or failure to re-elect the Company was entitled to
terminate the Executive's employment in accordance with clause 14. The
Executive shall not during his employment resign his office as a Director
of the Company, or any Associated Company or do anything which could cause
him to be disqualified from continuing to act as such a Director.
14) TERMINATION OF EMPLOYMENT
If the Executive:
(i) shall be or become incapacitated from any cause whatsoever from
efficiently performing his duties hereunder for four consecutive
months or for ninety working days in aggregate in any period of
twelve consecutive months; or
(ii) shall be or become of unsound mind or be or become a patient for any
purpose of any statute (or any part thereof) relating to mental
health; or
(iii) shall have an order under section 254 of the Insolvency Act 1986 made
in respect of him or if an interim receiver of his property is
appointed under section 286 of that Act; or
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<PAGE>
(iv) shall be or become prohibited by law from being a director; or
(v) shall be guilty of gross misconduct or shall commit any serious
or persistent breach of any of his obligations to the Company or
any Associated Company (whether under this Agreement or
otherwise); or
(vi) shall refuse or neglect to comply with any reasonable and lawful
orders given to him by the Company; or
(vii) shall fail, in the reasonable opinion of the Board, to perform
his duties competently (after having received prior written
warning of the shortcomings of his performance) then the Company
shall be entitled by notice in writing to the Executive to
terminate forthwith his employment under this agreement.
Any delay of forbearance by the Company is exercising any right
of termination shall not constitute a waiver of it.
15) MISCELLANEOUS
-------------
(A) Notwithstanding the termination of this Agreement, the provisions of
this Agreement shall remain in force and effect insofar as may be
necessary to permit the obligations of the Executive hereunder which
are of a continuing nature to be enforced against him accordingly.
(B) Notwithstanding that any provision of this Agreement may prove to be
illegal or unenforceable, the remaining provisions of this Agreement
shall remain in force and effect.
16) NOTICES
-------
Any notice may be given personally to the Executive or to the Secretary of
the Company (as the case may be) or may be posted to the Company (for the
attention of the Secretary) at its registered office for the time being or
to the Executive either at his address given above or at his last known
address. Any such notice sent by post shall be deemed served forty eight
hours after it is posted and in proving such service it shall be sufficient
to prove that the notice was properly addressed and put in the post.
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<PAGE>
17) SCHEDULE
--------
The provisions set out in the Schedule hereto as from time to time altered,
added to or abrogated shall apply as if incorporated in this Agreement.
The Company may from time to tee notify the Executive in writing that it
proposes to alter, add to or abrogate any provisions of the Schedule giving
details of the same. Unless the Executive shall within fourteen days of
such notice notify the Company in writing that he objects to the same, such
alteration, addition or abrogation shall be deemed to be agreed and shall
take effect accordingly.
18) OTHER AGREEMENTS
----------------
The Executive acknowledges and warrants that save for a shareholders'
agreement ("the Shareholders' Agreement") made between the Management
Shareholders (as defined in the Shareholders' Agreement), the investors (as
defined in the Shareholders' Agreement) and Stirling Cooke Brown Holdings
Limited of the date hereof, there are not agreements or arrangements
whether written, oral or implied between the Company and any Associated
Company and the Executive relating to the employment of the Executive other
than those expressly set out in this Agreement and that he is not entering
into this Agreement in reliance on any representation not expressly set out
herein.
19) RESTRICTIVE TRADE PRACTICES ACT 1996
------------------------------------
The parties agree that no provision of this Agreement (or any other
agreement which, together with this Agreement may form part of an
arrangement for the purposes of the Restrictive Trade Practices Act 1976
(the "RTPA"), by virtue of which this Agreement is subject to registration
under the RTPA, shall take effect until the day after particulars of the
arrangements have been furnished to the Director General of Fair Trading by
the Company in accordance with the requirements of the RTPA.
20) GOVERNING LAW
-------------
This Agreement shall be governed by and construed under English Law and
each of the parties hereby irrevocably agrees for their mutual benefit that
the Courts of England are to have jurisdiction to settle any disputes which
may arise out of or in connection with this Agreement.
IN WITNESS whereof this Agreement has been signed by or on behalf of the Parties
hereto the day and year first before written.
-9-
<PAGE>
SCHEDULE
--------
The following information is supplied pursuant to the Employment Protection
(Consolidation) Act 1978 (as amended):
(a) Disciplinary Rules. There is no formal Disciplinary Procedure applicable
to this employment.
The Executive shall be expected to exhibit a high standard of propriety in
all his dealings with and in the name of the Company and the Parent Company
and Associated Companies.
(b) Grievance Procedure. There is no formal grievance procedure applicable to
this employment. The Executive should in the first instance apply to the
Board in the event of his having any grievance relating to his employment.
If the Executive remains dissatisfied he should then apply in writing to
the Managing Direct of the Parent Company whose decision shall be final and
bearing.
(c) No Contracting Out Certificate is in force in connection with this
employment.
(d) Normal working hours are 9.00 am to 5.30 pm Monday to Friday inclusive with
an appropriate lunch break.
(e) The Executive will be required to work outside or beyond normal working
hours or at weekends or on holidays as may be necessary for the proper
performance of his duties, and no extra payment will be made for such work.
(f) In addition to bank and other public holidays the Executive will be
entitled to 25 days' holiday in every calendar year to be taken at such
time or times as may be approved by the Board. If the Executive has less
than 12 months' service during the calendar year, his holiday entitlement
is to be calculated on a pro-rata basis. Unless and until his employment
under this Agreement shall be determined under any provision thereof salary
will continue to be payable during holidays. Holidays not taken in any
calendar year or by the determination of his employment under this
Agreement will be lost. Upon determination of his employment other than
pursuant to clauses 14 (iii) and (vii) hereof, the Executive will be
entitled to pay in lieu of holiday accrued but not taken. If, upon the
termination of his employment with the Company, the Executive has taken
more days holiday than he is entitled to, the Company shall be entitled to
make an appropriate deduction from any final payment of salary.
(g) Subject to production, if requested, of medical certificates satisfactory
to the Company, remuneration will not cease to be payable by reason only of
the Executive's incapacity for work due to sickness or accident (unless and
until his employment under this Agreement shall be determined under any
provision
<PAGE>
thereof) but any such remuneration shall include any sums the Company is
obliged to pay to the Executive pursuant to the Social Security Acts 1992
(Statutory Sick Pay) and the Company may reduce remuneration during
incapacity by an amount equal to any State benefit (excluding any lump sum
benefit) which the Executive would be entitled to claim during such
incapacity under the then current Social Security Acts (whether or not such
benefit is claimed by the Executive).
(h) Continuous Employment. No employment with any previous employer other than
an existing Group employer counts as part of the Executive's continuous
period of employment.
SIGNED by }
on behalf of the Company } /S/
in the presence of: } ------------------------------
SIGNED by the Executive }
in the presence of: } /S/
------------------------------
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<PAGE>
EXHIBIT 10.5
AGENCY AGREEMENT
THIS AGENCY AGREEMENT ("Agreement") is entered into and effective as of
June 1, 1995, by and between CLARENDON NATIONAL INSURANCE COMPANY, a New Jersey
insurance corporation, with its administrative offices located at 1177 Avenue of
the Americas, Suite 4400, New York, New York 10036, (hereinafter, the
"Company") and STIRLING COOKE INSURANCE SERVICES INC., a Florida corporation
with its offices located at 2801 Fruitville Road, Suite 250, Sarasota, Florida
34237 (hereinafter, the "Agency").
WHEREAS, the Company is authorized to issue workers' compensation insurance
policies and related liability lines, including non-occupational coverages, in
the States set forth on Schedule A and the Company also undertakes to use its
best efforts to obtain authorization for 24 Hour coverage products;
WHEREAS, the Agency is duly licensed as a managing general agent in the
States set forth on Schedule A where required by law; and
WHEREAS, the Company wishes to appoint the Agency to produce, administer,
and manage a program of workers' compensation insurance (including related
coverage B, employers liability) in the States set forth on Schedule A
(hereinafter, the "Policies") (which authority may include the issuance of other
state endorsements for risks with multi-state operations subject to the
Company's and the Agency's authorizations in those states). The authorized
coverages and limits of liability of such Policies are set forth on Schedule B
attached hereto (which Schedule B shall be amended effective as of the date the
Company elects to offer an additional or a different policy).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties agree that this Agreement shall be effective
as of the date set forth above (the "Effective Date") as follows:
ARTICLE I. - GENERAL PRINCIPLES
-------------------------------
A. The Company, relying upon the expertise of the Agency, grants
authority to the Agency hereunder to manage the Policies. The parties understand
that, the Company, being at risk and having ultimate responsibility and
authority for the Policies managed by the Agency, at all times shall have the
ultimate responsibility and discretion with respect to all matters pertaining to
such Policies.
1
<PAGE>
B. It is the intent of the Company and the Agency to produce an operating
profit for the Company. The Agency shall perform its duties under this
Agreement in an ethical, legal and professional manner.
ARTICLE II. - UNDERWRITING AUTHORITY
------------------------------------
A. The Agency, as an independent contractor of the Company, subject to
any requirements imposed upon the Agency and the Company by any governmental
entity, the terms of this Agreement, and the underwriting rules and regulations
of the Company, is authorized and is delegated responsibility to:
1. Solicit applications for Policies through duly licensed agents in
the States set forth on Schedule A. The Company shall forward to the Agency a
copy of the Company's Underwriting Rules, Regulations, and Guidelines
("Underwriting Rules") for use by the Agency in processing such applications and
submitting to the Company those which might be accepted by the Company on a
facultative basis or as may be otherwise specified in such Underwriting Rules.
The Company may amend its Underwriting Rules at any time by providing the Agency
written notice thereof, and the Agency shall thereafter process the Policies
pursuant to such amended guidelines and procedures. The Underwriting Rules
include the basis of rates to be charged, the lines of insurance which may be
written, maximum limits of liability, applicable exclusions, territorial
limitations, cancellation provisions, the maximum policy period, and control of
policy issuance.
2. Issue Policies on behalf of the Company to qualifying risks
accepted under the Underwriting Rules and issue all related, required statutory
and regulatory notifications, if any. The parties hereto acknowledge that the
Agency has been furnished copies of the Company's rates, policy forms and
endorsements.
3. Maintain control procedures related to binder, policy and
notification issuance to facilitate audit of such activities by the Company
and/or the Insurance Commissioner, or equivalent authority, of the States on
Schedule A.
4. Provide a risk management information system that will track,
account, and report to the Company premium, commissions, losses, loss reserves,
allocated and unallocated claim costs, claim incidence detail, indemnity and
medical payments. During the term of this Agreement, the Agency shall use
underwriting and risk management information on behalf of the Company.
5. Assure that the Company complies with any required reports or
data calls related to the Policies.
2
<PAGE>
6. Assure that in the event any Policy is issued with a deductible
endorsement and the Underwriting Rules require collateralization, that the
policyholder collateralize all unpaid deductible obligations actuarially valued
to their ultimate cost with collateral acceptable to the Company. In the event
any Policy is retrospectively rated all projected retrospective premium due the
Company shall be similarly collateralized.
7. Assure that every applicable policyholder is subject to annual
post policy period payroll audit.
8. Collect and receipt for premium, and, as compensation for its
program management services and producing agents' commission, retain the
percentage of net written premium specified in Article IV.
9. Cancel coverage only when authorized by the Company and pursuant
to Policy terms. The Agency shall cancel any Policy in the event a policyholder
fails to (i) pay premium when due, or (ii) maintain agreed collateral for
deductible obligations or retrospectively rated premium as provided in
subparagraph II.A.6 or (iii) for any other reason permitted under the Policy and
by law.
B. The Agency, without the prior written approval of the Company:
1. Shall not bind reinsurance or retrocession on behalf of the
Company;
2. Shall not commit the Company to participate in reinsurance of
reinsurance syndicates; and
3. Shall not collect a payment from a reinsurer or commit the
Company to a claim settlement with a reinsurer without the prior written
approval of the Company.
If the Company grants such prior written approval for any of the items
specified in II.B.1, II.B.2, or II.B.3 above, the Agency shall promptly forward
to the Company a report of any such action taken.
C. Any and all agreements between any agent, insurance broker, agent or
other entity approved by the Company (hereinafter called the "Agent") shall be
made directly between the Agency and such Agent.
D. The Agency is responsible to oversee the placement of business through
and the proper licensing of any Agent. If, as a result of acceptance of a
placement by the Agency from an Agent that the Agency knew or should have known
was unlicensed, the Agency shall indemnify and hold the Company
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<PAGE>
harmless from all claims, costs, fines and expenses arising and paid by the
Company due solely to the fact that the Agent was unlicensed that is not
recoverable from reinsurers.
E. The Agency shall receive and may accept proposals for Policies up to a
specified maximum "Net Written Premium" (which term shall mean gross written
premium less returns for cancellations) for each Policy as stated on Schedule B
for the first Calendar Year of this Agreement and as amended for each subsequent
Calendar Year thereafter. The first Calendar Year shall mean the time period
from the Effective Date through December 31, 1995. Each subsequent Calendar
Year shall commence January 1st of such year and end on December 31st of such
year.
F. The Company hereby grants to the Agency authority to utilize only
insurance contract wording, endorsement wordings and rates that are approved in
writing by the Company.
G. The Company hereby grants to the Agency authority to operate only
within written guidelines approved in writing by the Company; and any Policy
issued by the Agency which does not fall within such guidelines shall, at the
Company's written request, be promptly terminated subject to the regulations of
the state. The Agency shall indemnify the Company for all claims that the
Company is required to pay not recoverable from reinsurers solely because the
Agency did not terminate the Policy.
H. The Agency shall arrange underwriting inspections on all Policies
written. The inspection shall be for the Agency's benefit, rather than the
insured's benefit, and shall be used by the Agency in underwriting risks
pursuant to the Underwriting Rules. Each inspection shall produce a written
report for the Agency's benefit. Compensation for such services shall be
deducted by the Agency from Net Written Premium and paid to the inspection
company.
ARTICLE III. - CLAIM AUTHORITY
------------------------------
A. The Agency, as an independent contractor of the Company, subject to
any requirements imposed upon the Agency and the Company by any governmental
entity, the terms of this Agreement, and the Underwriting Rules, is authorized
and is delegated responsibility to perform or contractually arrange for the
adjustment of all claims arising under the Policies issued by the Agency on
behalf of the Company hereunder. The Company reserves the right to disapprove
any contract adjusters appointed by the Agency. All such services shall be
performed by duly licensed and qualified casualty adjusters. The Agency shall
maintain claim files in hard copy or shall otherwise make such files
electronically available to the Company. The Agency shall also effect a
comprehensive program
4
<PAGE>
of health care cost management related to medical services provided
policyholders, if the Policies so require.
The Agency, directly or through its adjusters, may settle claims and set
loss reserves, and the Company retains final authority over such matters. The
Agency shall immediately report to the Company any claim arising under any
Policy produced under this Agreement, and may represent the Company in the
investigation, control and settlement of any such claim.
The Agency may charge the Company for adjusting indemnity, medical and
information claims based upon a fee schedule agreed between the Agency and the
Company, plus reasonable and customary rates for allocated loss adjustment
expenses, plus a percentage to be agreed initially and amended from time to time
of the difference between medical, hospital and similar services as originally
billed by a provider and the total charge ultimately paid to the provider. The
parties recognize that this adjusting service may be bid or contracted out to
third parties for medical claims.
B. In the course of its duties under this Agreement, the Agency shall:
1. Record and report each claim promptly to the Company with a
recommended reserve;
2. Maintain a claim file with a copy of the Policy for each reported
claim. The claim file will have a daily activity log and shall be available for
inspection, review and/ or copying by the Company or its duly authorized
representatives;
3. Perform reasonable and necessary administrative and clerical work
in connection with reported claims;
4. Prepare checks and vouchers, compromises, releases, agreements
and any other documents reasonably necessary to finalize and close claims;
5. Perform a continuous review of outstanding claim reserves,
recommend changes to outstanding claim reserves, and provide the Company with
monthly reports showing changes to outstanding reserves as of the date reported;
6. Record and report promptly to the Company each loss and allocated
loss adjustment expense paid utilizing the Company claim disbursement, checking
and coding procedures;
5
<PAGE>
7. Periodically review the development of the claims handling
procedure with the Company or its duly authorized representative to identify
problems and recommend corrective action;
8. Diligently pursue and prosecute the Company's salvage and
subrogation rights relating to any losses sustained under this Agreement. The
Agency shall use all reasonable efforts to collect and deposit funds arising
from the enforcement of such rights into the Company's Claim Bank Account (as
hereinafter defined). The Agency will report and account to the Company all
salvage and subrogation collections under this Agreement.
C. The Company grants to the Agency authority to settle and pay upon
prior notice to the Company any claim up to Fifty Thousand Dollars ($50,000) per
claim.
D. The Agency shall notify and consult with the Company with respect to
any of the following:
1. Any loss or claim resulting in legal action being instituted
against the Agency and/or the Company;
2. Any loss or claim causing a complaint to be filed with any
regulatory authority;
3. Any inquiry from any regulatory authority, including but not
limited to any insurance department, with respect to any claim or claims, even
if no complaint causes such inquiry;
4. Any claim the Agency deems appropriate to deny policy coverage;
or
5. Any claim which might ultimately result in the payment(s) in
excess of Fifty Thousand Dollars ($50,000) due to any claim or claims arising
out of a single occurrence or injury.
The Agency shall notify the Company within thirty (30) days of
determination of (i) any claim which involves a coverage dispute, (ii) any claim
which involves a demand in excess of policy limits, or (iii) any allegation of
bad faith, violations of the applicable State Insurance Code.
6
<PAGE>
ARTICLE IV. - THE AGENCY'S COMPENSATION
---------------------------------------
A. The Company hereby allows the Agency, as compensation for its
services hereunder, a commission fee, equal to the commission set forth on
Schedule B attached hereto and incorporated herein, describing the Policy and
the compensation as a percentage of Net Written Premium for such Policy.
B. The Agency shall prepare separate, itemized monthly statements for
each Agent on the business placed by the Agent through the Agency, and furnish
the Agent with an IRS Form 1099 each year required.
C. The Agency shall maintain an errors and omissions insurance policy
issued by an insurer acceptable to the Company with policy limits of no less
than One Million Dollars ($1,000,000), and a deductible no greater than Fifty
Thousand Dollars ($50,000).
ARTICLE V. - RECORDS, REPORTS, REMITTANCES AND PROCEDURES
---------------------------------------------------------
A. The Agency shall maintain complete and orderly underwriting and claims
files, records and accounts of all transactions involving the Company in
accordance with generally accepted insurance and accounting practices.
B. The Company or its authorized representatives shall have the right
(but not the obligation) at all reasonable times to inspect the Agency's books
and records, wherever located, which pertain to the business of the Company
which is the subject of this Agreement and shall have the right to copy or make
abstracts from such books and records.
C. The Agency shall promptly deposit all funds collected on behalf of the
Company in a Premium Trust Account. Such amount shall be maintained in a bank(s)
with membership in the Federal Reserve system and insured by the Federal Deposit
Insurance Corporation.
D. At the end of each month, the Company shall produce an accounting
detailing all premiums collected and deposited into the Premium Trust Account.
The Agency shall pay to the Company all Net Written Premium collected and
deposited in the Premium Trust Account less the Agency's and Agent's commissions
as set out in this Agreement, claim fees and expenses, inspection fees and
expenses, and deductions, expenses, and costs payable by the Company as per this
Agreement, or as agreed by the Company and the Agency and listed on the
accounting. The Agency may pay such commission and listed deductions directly
from the Premium Trust Account without further authorization.
7
<PAGE>
E. The Agency shall not be required to return as commission or return
commission monies greater than the total commission paid or otherwise payable to
the Agency.
F. The Agency shall not offset balances due under this Agreement with
any other balance due under any other contract or agreement. The Agency shall
not use or convert money that is deposited or should have been deposited to the
Premium Trust Account, except as provided in this Agreement.
G. The Agency shall maintain and submit a monthly Bordereaux report for
all business written under this Agreement for Policies, binders or endorsements
issued or canceled by the Agency (the "Bordereaux"). The Agency shall maintain
and furnish to the Company such other reports as may be reasonably requested by
the Company.
The Bordereaux for each line of business shall include the following
information: policy number, name of insured, effective date of coverage, policy
period, annual premium, payment terms, minimum deposit premium, premium
collected, credits against the premium collected for sums due third parties, and
the balance due the Company. Sums deducted from premium collected to pay third
parties shall be utilized solely to pay expenses approved in writing by the
Company, which expenses may include administration fees, safety and loss control
services, premium audit services, commissions due the Agency or Agents. Third
party fees shall be specifically identified on the monthly Bordereaux and shall
be paid on a collected premium basis.
The Agency shall remit all funds due the Company on or before fifteen
(15) days after the end of each month for business reported to the Company for
the prior month pursuant to the Bordereaux. The Company may direct the Agency
in writing to remit sums due the Company directly to the Company's reinsurers.
All sums due the Company shall be paid by wire transfer or as otherwise directed
in writing by the Company. The Agency shall reconcile all funds collected to
the monthly Bordereaux reports.
H. Notwithstanding anything to the contrary contained in this Agreement,
the Agency shall account and pay to the Company any net income loss due to
uncollected premium, except it is agreed that, if any additional premium is
charged and billed by the Company, and such additional premium cannot be
collected by the Agency, the Agency shall not be responsible for such additional
premium provided:
1. The Agency notifies the Company that such premium is uncollected
within sixty (60) days of the initial billing date for such additional premium;
8
<PAGE>
2. The Agency shall make a good faith effort to collect such
premium;
3. The Agency shall forward to the Company copies of all
correspondence relating to its collection effort; and
4. No Commission shall be paid to the Agency on premiums collected
by the Company.
The net income loss will not be payable if the Company has not
incurred "net retained loss" in respect of the Policy for which premium is
uncollectible following reasonable collection efforts by the Agency or the
Company. A "net retained loss" means that the Policy for which collection is
sought has an excess of actual paid claims chargeable to the Company (and not to
reinsurers) over premiums. Should a net retained loss have been incurred by the
Company, the net income loss payable by the Agency shall be the lower of: (i)
the uncollected premium; or (ii) the net retained loss of the Company.
I. The transfer of funds to the Company, or the acceptance of any funds
from the Agency, shall not constitute acceptance of the accuracy of any report
submitted by the Agency to the Company.
J. For purposes of settling claims and paying claim-related expenses, the
Company shall establish, maintain and fund a separate bank account from which
the Agency may draw against as hereinafter set forth (the "Claim Bank Account").
On a daily and monthly basis, the Agency will prepare and send to the
Company a register of checks drawn on the Claim Bank Account for each loss
payment (the "Claim Register"). The Claim Register shall include, but shall not
be limited to, the claim number, the name of payee, the date and check number of
the disbursement, and the purpose and amount of the disbursement.
All claim payments shall be signed by two signatories. Any claim
payment up to Fifty Thousand Dollars ($50,000) shall be signed by two authorized
representatives of the Agency. Any claim payment in excess of Fifty Thousand
Dollars ($50,000) shall be signed by an authorized representative of the Company
and an officer of the Agency. The Agency shall notify the Company in writing of
the identity of the authorized signatories of claim checks.
The Agency shall promptly deposit any monies collected through salvage
and subrogation to the Claim Bank Account, and maintain a register of all such
collections and deposits (the "Salvage and Subrogation Register"). The Salvage
and Subrogation Register shall include, but shall not be limited to, the
9
<PAGE>
following information: date of deposit, date of receipt of funds, the claim
number, the payor, and the amount and purpose of such payment.
The Agency shall reconcile the Claim Register and Salvage and
Subrogation Register to the Claim Bank Account on a monthly basis.
K. Within twenty (20) days after the close of each calendar month, and in
addition to reports due the Company under this Article V, the Agency shall
render to the Company reports of transactions for said month in formats
acceptable to the Company. The reports shall include, but shall not necessarily
be limited to, information and statistical data necessary for the Company to
prepare any report required by the NAIC or NCCI, or any other reports reasonably
requested by the Company. The Agency's reports shall include an accounting of
all premiums written and earned, all commissions and fees, all claims and
allocated claims expenses reserved, paid, incurred and outstanding, and
collected and collectible salvage and subrogation.
L. Within ninety (90) days after the end of each fiscal year, the Agency
shall furnish the Company with true copies of its audited, certified balance
sheet and related statement of operation for such fiscal year.
M. The Agency shall establish and maintain written operational procedures
to handle all business related to the Policies.
ARTICLE VI. - ACCESS TO BOOKS AND RECORDS
-----------------------------------------
A. The Company shall have access during normal business hours to the
books and records of the Agency for any purpose relating to any business placed
with the Company by the Agency.
B. The books, records, underwriting and rating facilities of the Agency
relating to any business it places with the Company shall be maintained
separately and apart from those relating to any other insurance company the
Agency may represent and shall include underwriting files.
C. The books and records referenced in VI, VI.A and VI.B above shall be
maintained by the Agency for at least five years from the expiration date of the
last Policy issued or until completion of a financial examination by the
insurance department of the state in which the Company is domiciled, whichever
is longer or as may otherwise be provided by law.
D. The Company may conduct a semi-annual examination of all books and
records maintained by the Agency which relate to business placed pursuant to
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<PAGE>
this Agreement. Such examinations shall incept six months after the effective
date of this Agreement and continue every six months thereafter until six months
after the termination of this Agreement.
E. If the Company's aggregate premium volume increases by 30% or more in
any 30-day period after the second semi-annual examination (as provided supra),
the Company may conduct an additional examination of the books and records of
the Agency which are related to coverage placed under this Agreement.
F. The examinations of the books and records of the Agency must
adequately provide the Company and any Commissioner of Insurance, or equivalent
authority, with the information specified below, will be made available by the
Company and the Agency upon request by the Commissioner, and will remain on file
with the Company for at least three years:
1. The existence and adherence to claim handling procedures.
2. The timeliness of claim payments.
3. The timeliness of premium reporting and collection.
4. Compliance with underwriting guidelines furnished by the Company
to the Agency.
5. Reconciliation of policy inventory or policy issuance records.
G. The Agency shall provide the Company copies of its computer software
and updated copies of its computer data base maintained in support of its claim
reports ("Computer Data"). The transfer of Computer Data shall be in a format
acceptable to the Company and readable on the Company's computer system. Such
Computer Data shall include all information contained in the claim reports, and
shall include with respect to each claim, the claim number, policy number, name
of insured, effective date and expiration date of the policy, the date the claim
was first reported to the Agency, reserves, paid losses, paid loss adjustment
expense, and any salvage or subrogation recoveries.
The Agency shall establish and maintain written operating procedures
to handle all claims, related adjustment costs, and salvage and subrogation.
The Agency's reports shall account for all paid and incurred (including
outstanding reserves separately) losses, loss adjustment expense, salvage and
subrogation recoveries.
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<PAGE>
H. Articles V and VI, VI.A shall survive termination of this Agreement
until such time as all obligations of the Agency and the Company have been
discharged.
ARTICLE VII. - EXPENSES
-----------------------
A. THE AGENCY'S EXPENSES:
The Agency shall accept and pay all expenses incurred by the Agency in
connection with the underwriting, production, marketing and servicing of the
Policies, including but not limited to the following:
1. Printing of proposals, policy jackets, contracts of insurance,
cancellation notices, premium notices, records, and reports, and all other
documents required to fulfill the obligations of the Agency under this
Agreement.
2. Advertising and public relations expenses, except as otherwise
agreed to be paid by the Company. The Company's prior written approval shall be
required with respect to any advertising or public relations material which
contains the Company's name or logo.
3. The Agency's general office expenses, including rent, salaries,
utilities, data processing performed by the Agency, transportation, furniture,
fixtures, equipment, supplies, telephone, postage, and other general overhead
expenses.
B. COMPANY'S EXPENSES:
The Company shall absorb and pay directly all charges and expenses directly
attributable to its operations and all expenses, costs and claims provided in
this Agreement and/or under the Policies. In addition to those charges otherwise
provided in this Agreement, the Company shall reimburse the Agency for premium
audit expenses, underwriting inspections, and other costs required to fulfill
the obligations of the Company under this Agreement or as agreed from time-to-
time by the Company. Premium audit expenses shall be accounted for on a per-
Policy basis.
ARTICLE VIII. - GENERAL PROVISIONS
----------------------------------
A. Nothing herein shall create the relationship of employer and employee
between the Company and the Agency, it being understood and agreed that the
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<PAGE>
Agency is an independent contractor of the Company for the purposes set forth
herein with all rights, powers and duties as such.
B. The Agency shall not assign, sell or otherwise transfer all or any
part of this Agreement in whole or in part either directly or indirectly without
the prior written consent of the Company.
C. This Agreement may not be changed, nor may any provision hereof be
waived, unless such modification is in writing, signed by both parties hereto,
and specifies the effective date thereof.
D. Should the Agency receive an inquiry or complaint from any regulatory
authority concerning a violation of insurance law or regulation, or any
complaint disputing coverage under any Policy issued hereunder, or any process
or other litigation document or any threat of litigation with respect to any
Policy or any other matter contemplated within this Agreement, prompt notice and
a true copy thereof shall be given to the Company. If a response affecting the
Company is required, the Agency shall, within five (5) business days of the
inquiry, draft a response and submit the draft to the Company for prior approval
before submission to the regulatory authority.
E. The Company and the Agency shall maintain all licenses and regulatory
approvals necessary to conduct business covered under this Agreement.
F. Notwithstanding the authority granted to the Agency by the Company,
the Company may require the Agency to terminate coverage provided by any Policy
so long as such termination does not violate any statute or regulation. If the
Company exercises this right, the Company shall instruct the Agency to send
appropriate non-renewal or cancellation notice as required by contract wording
or regulatory authority to terminate coverage.
G. The Agency is required and agrees to be in compliance with, and the
Agency shall ensure that all Agents are properly licensed pursuant to, all
applicable laws and regulations which affect the Policies.
H. The Agency shall obtain the express prior written approval of the
Company before issuing any advertisement, circular, pamphlet or other
publication which refers to the Company. The Agency shall have the right to
advertise the Policies.
I. The failure of the Company or the Agency to insist on strict
compliance with this Agreement, or to exercise any right or remedy hereunder,
shall not constitute a waiver of any rights contained herein or stop the parties
from
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<PAGE>
thereafter demanding full and complete compliance therewith, nor prevent the
parties from exercising any right or remedy in the future.
J. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed duly given if delivered personally, by
Federal Express or other recognized courier service, or by registered or
certified mail, return receipt requested, to the party for whom it is intended
at the following address or such other address as the party may designate from
time to time.
For the Agency:
Stirling Cooke Insurance Services Inc.
2801 Fruitville Road, Suite 250
Sarasota, Florida 34237
Attention: Karen Prescott, President
(813) 374-8668
For the Company:
Clarendon National Insurance Company
1177 Avenue of the Americas, Suite 4400
New York, New York 10036
Attention: Robert D. Ferguson
(212) 805-9700
Notices shall be deemed given when delivered, or three (3) days after
delivery to the courier or mailing, as above provided.
K. If any provision of this Agreement should be found to be invalid or
unenforceable, the remaining provisions of this Agreement shall remain in full
force and effect.
L. This Agreement shall be interpreted under and pursuant to the laws of
the State of New York.
M. This Agreement shall bind and benefit the successors and permitted
assigns of the parties.
N. The Agency shall indemnify and hold the Company harmless by the Agency
for all losses, costs, charges and expenses (collectively called "Expenses")
paid or incurred by the Company by reason of or in connection with the breach or
non-performance of any covenant or obligation to be observed or performed by the
Agency under this Agreement; provided, however, that in the case of a breach or
non-performance by the Agency, the Company shall have given the Agency notice
14
<PAGE>
of the breach or non-performance and the Agency shall not have cured same within
ten (10) days after the date of the notice, or if same is of such a nature that
it cannot reasonably be cured within such time, if the Agency has not within
such time commenced to cure same and does not diligently continue to and
actually cure same. Any expenses incurred by the Company after the giving of
such notice shall be promptly reimbursed by the Agency. Without limiting the
generality of the foregoing, the Agency's covenants and obligations as referred
to herein shall include but not be limited to:
1. the obligation to deposit, report and remit premiums to the
Company;
2. the obligation to remit return premiums to the insureds when due;
3. the obligation to process all policies, endorsements and notices
of cancellation and/or non-renewal pursuant to the Company's underwriting
guidelines;
4. the obligation to observe and comply with underwriting guidelines
and sub-agent appointment procedures;
5. the obligation to observe and comply with all statutes,
regulations, rules and rates; and
6. the obligation to comply with the requirements of Article V
hereunder.
The term "Expenses" as used herein shall include but shall not be limited
to the following expenses: legal, accounting, data processing, file retrieval,
software, clerical help, professional services, and travel. The Agency shall
reimburse or pay the Company for all Expenses immediately upon receipt of a
written statement setting forth such Expenses, provided the Agency shall be
given written notice and the right to cure for ten (10) days prior to the
imposition of any charge. An interest charge of the lesser of (i) 18% per annum,
or (ii) the highest rate of interest permitted by applicable law, shall accrue
with respect to any Expenses remaining unpaid for thirty (30) days after
presentation of such statement and shall continue until payment in full of the
balance due.
O. In the event that any obligation to grant or extend insurance coverage
is imposed on the Company by a Court or Insurance Commission or Department as a
result of any breach by the Agency of its obligations under Policies, then and
in that event, the Agency shall (i) pay any fine or penalty imposed upon the
Company
15
<PAGE>
by such Court or Insurance Commission or Department, and (ii) reimburse the
Company for all Expenses in accordance with paragraph VIII.O of this Article.
P. This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same agreement.
Q. This Agreement supersedes any previous agreements whether oral or in
writing between the Agency and the Company.
R. The Agency must notify the Company, in writing, within thirty (30)
days if there is a change in:
1. Ownership of ten percent (10%) or more of the outstanding stock
of the Agency;
2. Any principal officer of the Agency; or
3. Any director of the Agency.
S. The Agency shall submit to an examination of its financial condition
and its compliance with the laws of Florida as and if required under the Florida
Insurance Code, or any other state law applicable to the Agency.
ARTICLE IX. - INDEMNITY AGREEMENT
---------------------------------
A. The Agency shall indemnify the Company and its subsidiaries,
successors, reinsurers and assignees, as well as their shareholders, directors,
officers and agents against and in respect of any and all claims, demands,
actions, proceedings, liability, losses, damages, costs or expenses, including
without limitation, attorney's fees, disbursements and court costs, made or
instituted against or incurred by the Company or such other indemnitees and
which arise, either directly or indirectly, out of any action or inaction of the
Agency or its employees or representatives, in connection with any obligations
of the Agency arising out of this Agreement, including but not limited to any
action or inaction of the Agency concerning the Agent(s), pursuant to all
applicable laws.
B. The Company shall indemnify and hold the Agency harmless against and
in respect of any and all claims, demands, causes of action, liability, losses,
damages, judgments, costs and expenses, including but not limited to attorney's
fees, disbursements and court costs which may be made or instituted against or
incurred by the Agency and which arise, either directly or indirectly, out of
any
16
<PAGE>
action or inaction of the Company in connection with any obligations of the
Company arising out of this Agreement or the Policies.
ARTICLE X. - ARBITRATION
------------------------
A. Any controversy or claim arising out of or relating to this Agreement
or the breach or enforcement thereof shall be submitted to the decision of a
board of arbitration ("Board") composed of two arbitrators and an umpire, who,
unless the parties otherwise agree, shall meet in New York City, New York. The
laws of the State of New York shall govern the interpretation and application of
this Agreement and the enforcement of the arbitration award.
B. The members of the Board shall be active or retired disinterested
officials of insurance or insurance management companies or Underwriters at
Lloyd's, London, other than the parties of their affiliates. Each party shall
appoint its arbitrator, and the two arbitrators shall choose an umpire before
instituting the hearing. The arbitration shall be instituted by the claimant
serving a notice upon the respondent setting forth the nature of the dispute and
the name, address and current (or last, if retired) employment position of the
arbitrator appointed by the claimant. The respondent shall appoint its
arbitrator within twenty (20) days after service of claimant's notice and shall,
within such time, similarly notify claimant of the name, address and current (or
last, if retired) employment position of the respondent's arbitrator. If the
respondent fails to appoint its arbitrator within such twenty (20) day period,
the claimant shall also appoint the second arbitrator within ten (10) days after
the expiration of the twenty (20) days for respondent to appoint its arbitrator.
If the two arbitrators fail to agree upon the appointment of an umpire at the
end of twenty (20) days following the last date of the appointment of the
arbitrators, then the umpire shall be appointed by the American Arbitration
Association (or its successor).
C. The claimant shall submit its initial statement within twenty (20)
days from appointment of the umpire. The respondent shall submit its responsive
statement within twenty (20) days after receipt of the claims statement, and the
claimant may submit a reply statement within ten (10) days after receipt of the
responsive statement. No other statement shall be submitted by either party.
Copies of all statements shall be sent to the parties, the arbitrators and the
umpire.
D. The Board shall consider this Agreement an honorable engagement rather
than merely a legal obligation and shall make its decision with regard to the
custom and usage of the insurance and reinsurance business and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(or its successor). The Board shall issue its decision in writing upon evidence
introduced at a hearing or by other means of submitting evidence in which strict
17
<PAGE>
rules of evidence need not be followed, but in which cross examination and
rebuttal shall be allowed if requested. Any hearing shall commence within
thirty (30) days of claimant's reply statement, or of respondent's statement if
claimant does not submit a reply statement. The Board shall make its decision
within forty-five (45) days following the termination of the hearings unless the
parties consent to an extension. The majority decision of the Board shall be
final and binding upon all parties to the proceeding. Judgment may be entered
confirming the award of the Board in any court having jurisdiction thereof.
E. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear the expense of the umpire. The remaining costs of the
arbitration proceedings shall be allocated by the Board.
F. In the event of subsequent actions or proceedings to confirm the award
or to enforce the judgment thereon or any other rights flowing therefrom, the
prevailing party shall be entitled to recover its reasonable attorney's fees.
G. Any suit, action, or other proceeding by or against either party to
this Agreement, including any proceeding to compel arbitration, to confirm the
arbitration award, or to enforce any remedy available to either party may be
brought in the Supreme Court of the State of New York, County of New York, or in
the United States District Court for the Southern District of New York, and each
of the parties hereto submits and consents to the non-exclusive jurisdiction of
each such court for the purpose of any such suit, action or proceeding. The
parties consent that process in any action or proceeding may be served by
registered or certified mail, which service shall be sufficient to confer in
personam jurisdiction over the party served.
ARTICLE XI. - SUSPENSION
------------------------
If the Agency is delinquent in accounting for a payment of any sums
due the Company, or has breached the terms of this Agreement, or has violated
the authority granted in this Agreement, the Company may by written notice to
the Agency, suspend the Agency's authority to submit or underwrite any new or
renewal business under this Agreement.
ARTICLE XII. - TERM OF AGREEMENT
--------------------------------
This Agreement shall have an initial term of thirty-six (36) months
commencing upon the Effective Date of this Agreement and shall be extended
automatically for additional twenty-four (24) month terms thereafter if not
terminated within six (6) months of the termination date of any term.
18
<PAGE>
Notwithstanding the foregoing, this Agreement may be terminated without cause,
at any time, by either party mailing to the other party a six (6) month notice
of termination of this Agreement.
ARTICLE XIII. - TERMINATION
---------------------------
A. This Agreement shall terminate with cause:
1. Immediately at the election of and upon written notice from the
Company, if any public authority cancels or declines to renew any of the
licenses of the Agency, or automatically and immediately if any public authority
cancels or declines to renew the Company's licenses in any jurisdiction in which
it is licensed to do business.
2. Automatically and immediately in the event of a transfer, sale or
pledge of the majority of the stock or upon consolidation with a successor in
interest or a substantial portion of the assets of the Agency, unless this
Agreement is assigned with the express written consent of the Company.
3. Automatically and immediately upon the insolvency or bankruptcy
of the Agency or an assignment by the Agency for the benefit of creditors.
4. Automatically and immediately upon the insolvency or bankruptcy
of the Company.
5. Immediately at the election of and upon written notice from the
Company of the commission of any of the following acts by the Agency: fraud or
gross negligence or willful misconduct (which includes, but is not limited to,
willful violation of instructions, or willful violation of any covenant of this
Agreement or any statutory provision or Insurance Department regulation).
6. At the election of the Company upon the Agency's violation of any
provision of this Agreement, other than as set forth in XIII.A.1, XIII.A.2,
XIII.A.3, XIII.A.4 and XIII.A.5 above, provided however, that the Agency will be
allowed ten (10) days to cure such violation. For purposes of this Subsection
XIII.A.6, routine differences in the accounting methods of the Agency and the
Company which are minor in amount and do not involve premiums collected and
willfully withheld by the Agency shall not constitute failure to account for and
pay over premiums, provided all items not in dispute are paid in accordance with
the collection and remittance procedures set forth in this Agreement.
19
<PAGE>
7. At the election of the Company in the event of any material
change in the Company's obligations or business prospects under the Policies
caused by a change in law or insurance regulations in the States set forth on
Schedule A, or by a change in the terms and/or coverages of the Company's
reinsurance agreement(s) with its reinsurers for business produced hereunder.
8. At the election of the Agency if claims are unpaid or the Company
is not, in the Agency's opinion, complying with the terms of the Policies, and
the Company does not cure such problems to the Agency's satisfaction within ten
(10) days of written notice.
9. At the election of the Agency, if the Company breaches or fails
to comply with any term of this Agreement, and such breach or failure is not
cured within ten (10) days of written notice from the Agency to the Company.
B. In the event of proper termination of this Agreement:
1. The obligations of the Agency and the Company under this
Agreement shall be discharged promptly.
2. No party shall have a claim upon the other for loss of
prospective profit or damage to the business arising therefrom.
3. The Agency's records shall remain the property of the Agency and
left in the Agency's possession, including the right to renew all business with
an insurer, as long as the Agency is in compliance with all of its obligations
to the Company.
4. The Company may, in its sole discretion, require the Agency to
run-off the in-force business to normal expiration in accordance with the
provisions of this Agreement. The Agency shall bear all expenses of the run-off
operations but shall be paid its fees for the run-off period that would have
been due had this Agreement continued in force.
5. The Agency shall upon demand return to the Company any Policies,
forms or other supplies imprinted with the Company's name regardless of who
incurred the cost for same, or any Policies, forms or other supplies furnished
to the Agency by the Company.
ARTICLE XIV. - COMPUTER DATA
----------------------------
A. In the event this Agreement terminates and/or the Agency refuses or is
unable to administer and run-off business produced under this Agreement, then
20
<PAGE>
in that event the Agency shall immediately provide the Company with a tape back-
up of all programs and data libraries, including updated source code and data
files, used in the production and administration of business hereunder (the
"Data"). The Company agrees that it shall utilize the Data solely for the
purpose of administering and running off the business produced hereunder.
B. The Agency hereby grants, at no cost to the Company, a limited license
to the Company to use the Agency's software ("Software") in connection with the
administration and run-off of the business produced hereunder. The Agency shall
deliver the Software, together with the source and object code for the Software,
as well as all necessary manuals, immediately upon delivery of the Data to the
Company as provided in the preceding paragraph. The Company grants the Agency,
at no cost during the term of this Agreement and subsequent to the term of this
Agreement in connection with the administration and run-off of the business
produced, the limited license to use the Company's software programs for the
purposes of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
For and on behalf of the Agency: STIRLING COOKE INSURANCE SERVICES INC.
Attest: /s/ Douglas W. Simpson Jr.
(Notary Public -
State of Florida) By: /s/
-------------------------- ------------------------------------
Its Authorized Officer
My Comm. Exp. 7/09/96
Bonded By Service Ins.
No. CC213888
[_] Personally Known [_] Other I.D.
For and on behalf of the Company: CLARENDON NATIONAL INSURANCE COMPANY
Attest: /s/ By: /s/
-------------------------- ------------------------------------
Its Authorized Officer
21
<PAGE>
SCHEDULE A
----------
List of States
Florida
22
<PAGE>
SCHEDULE B
----------
<TABLE>
<CAPTION>
COVERAGE LIMITS OF LIABILITY
- -------- -------------------
<S> <C>
Workers' Compensation/Employer's Liability Statutory
Commission Structure:
Policy Issuance.................................................... 4%
Loss Control....................................................... 2%
Claims............................................................. 6%
Brokering Agent.................................................... 5%
Producing Agent.................................................... 7%
Rent a Captive Fee................................................. 3%
----
Total.................................................................. 27%
Net Written Premium Limit.......................Per Underwriting Guidelines
</TABLE>
23
<PAGE>
Exhibit 10.6
AMENDMENT NUMBER ONE TO AGENCY AGREEMENT
THIS AMENDMENT NUMBER ONE TO AGENCY AGREEMENT ("Amendment") is entered
into and effective as of June 1, 1995 (the "Effective Date") by and between
CLARENDON NATIONAL INSURANCE COMPANY, a New Jersey insurance corporation, with
its administrative offices located at 1177 Avenue of the Americas, Suite 4400,
New York, New York 10036 (the "Company") and STIRLING COOKE INSURANCE SERVICES
INC., a Florida corporation with its offices located at 2801 Fruitville Road,
Suite 250, Sarasota, Florida 34237 (the "Agency").
WHEREAS, the Company and the Agency entered into an AGENCY AGREEMENT
(the "Agreement") on June 1, 1995; and
WHEREAS, the Company and the Agency desire to amend the Agreement.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties hereby mutually agree that the Agreement
shall be amended as follows:
I. The language set forth in Article II, Paragraph H., is deleted and replaced
with the following:
H. The Agency shall arrange underwriting inspections on all Policies
written. The inspection shall be for the Agency's benefit, rather than the
insured's benefit, and shall be used by the Agency in underwriting risks
pursuant to the Underwriting Rules. Each inspection shall produce a written
report for the Agency's benefit. The Agency shall bear sole responsibility
for compensating the inspection company for such services and no costs or
expenses associated with or arising from such services shall be passed on
to the Company in any form.
II. The language set forth in Article V, Paragraph D., is deleted and replaced
with the following:
D. At the end of each month, the Company shall produce an accounting
detailing all premiums collected and deposited into the Premium Trust
Account. The Agency shall pay to the Company all Net Written Premium
collected and deposited in the Premium Trust Account less the Agency's and
Agent's commissions as set out in this Agreement, claim fees and expenses,
and deductions, expenses, and costs payable by the Company as per this
1
<PAGE>
Agreement, or as agreed by the Company and the Agency and listed on the
accounting. The Agency may pay such commission and listed deductions
directly from the Premium Trust Account without further authorization.
III. The language set forth in Article V, Paragraph G., is deleted and replaced
with the following:
G. The Agency shall maintain and submit a monthly Bordereaux report
for all business written under this Agreement for Policies, binders or
endorsements issued or cancelled by the Agency (the "Bordereaux"). The
Agency shall maintain and furnish to the Company such other reports as may
be reasonably requested by the Company.
The Bordereaux for each line of business shall include the following
information: policy number, name of insured, effective date of coverage,
policy period, annual premium, payment terms, minimum deposit premium,
premium collected, credits against the premium collected for sums due third
parties, and the balance due the Company. Sums deducted from premium
collected to pay third parties shall be utilized solely to pay expenses
approved in writing by the Company, which expenses may include
administration fees, safety and loss control services, and commissions due
the Agency or Agents. Third party fees shall be specifically identified on
the monthly Bordereaux and shall be paid on a collected premium basis.
The Agency shall remit all funds due the Company on or before fifteen
(15) days after the end of each month for business reported to the Company
for the prior month pursuant to the Bordereaux. The Company may direct the
Agency in writing to remit sums due the Company directly to the Company's
reinsurers. All sums due the Company shall be paid by wire transfer or as
otherwise directed in writing by the Company. The Agency shall reconcile
all funds collected to the monthly Bordereaux reports.
IV. The following subparagraph is added to Article VII, Paragraph A.:
4. All expenses related to or arising from premium audit
services or underwriting inspection services.
2
<PAGE>
V. The language set forth in Article VII, Paragraph B., is deleted and
replaced with the following:
B. COMPANY'S EXPENSES
The Company shall absorb and pay directly all charges and expenses
directly attributable to its operations and all expenses, costs and claims
provided in this Agreement and/or under the Policies. In addition to those
charges otherwise provided in this Agreement, the Company shall reimburse
the Agency for other costs required to fulfill the obligations of the
Company under this Agreement or as agreed from time-to-time by the Company.
VI. Except as otherwise expressly provided herein, this Amendment does not
alter, amend or modify the terms of the Agreement and all terms of the
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers as of the Effective Date.
For and on behalf of the Agency: STIRLING COOKE INSURANCE SERVICES INC.
Attest: /s/ By: /s/
---------------------- -------------------------------------
Its Authorized Officer
For and on behalf of the Company: CLARENDON NATIONAL INSURANCE COMPANY
Attest: /s/ By: /s/
---------------------- -------------------------------------
Its Authorized Officer
3
<PAGE>
Exhibit 10.7
AMENDMENT NUMBER TWO TO AGENCY AGREEMENT
THIS AMENDMENT NUMBER TWO TO AGENCY AGREEMENT ("Amendment") is entered
into and effective as of June 1, 1995 (the "Effective Date") by and between
CLARENDON NATIONAL INSURANCE COMPANY, a New Jersey insurance corporation, with
its administrative offices located at 1177 Avenue of the Americas, Suite 4400,
New York, New York 10036 (the "Company") and STIRLING COOKE INSURANCE SERVICES
INC., a Florida corporation with its offices located at 2801 Fruitville Road,
Suite 250, Sarasota, Florida 34237 (the "Agency").
WHEREAS, the Company and the Agency entered into an AGENCY AGREEMENT
(the "Agreement") effective June 1, 1995;
WHEREAS, the Company entered into an arrangement to provide workers'
compensation insurance for SCAPS in Georgia, North Carolina, South Carolina, and
Tennessee pursuant to Policy Number SCE001001 et seq. (the "SCAPS Policies");
WHEREAS, the Company desires to appoint the Agency to administer and
manage the program of workers' compensation insurance under the SCAPS Policies,
including the administration of claims arising from the SCAPS Policies; and
WHEREAS, the Company and the Agency desire to amend the Agreement to
authorize the Agent to administer and manage the program of workers'
compensation under the SCAPS Policies.
NOW, THEREFORE, in consideration of the premises and covenants
hereinafter contained, the parties hereby mutually agree that the Agreement
shall be amended as follows:
I. Pursuant to this Amendment, the SCAPS Policies shall be included within the
definition of the term "Policies" for purposes of the Agreement; accordingly,
the Agency shall be authorized to perform all the services in connection with
the SCAPS Policies that it is empowered to perform with respect to the Policies,
subject to the limitations set forth in Article 0 herein.
II. Pursuant to this Amendment, the augmentation of the Agency's authority
under the Agreement shall be limited to the addition of the following states to
Schedule A solely with respect to the SCAPS Policies:
Georgia, North Carolina, South Carolina, and Tennessee
1
<PAGE>
III. The language set forth in Article VIII, Paragraph B. of the Agreement, is
deleted and replaced with the following:
B. The Agency shall not assign, sell or otherwise transfer all or any
part of this Agreement in whole or in part either directly or indirectly
without the prior written consent of the Company. However, if the Agency is
not licensed in any state in which such licensure is required to fulfill
its claims administration obligations under this Agreement, the Agency
shall have the authority to subcontract its claims administration duties
within such state to an entity appropriately licensed and operating in
accordance with all applicable state laws and regulations
("Subcontractor"), subject to the Agency receiving prior written approval
from the Company. The Agency shall be responsible for the proper licensure
of any Subcontractor and shall be liable for all actions and inactions of
any Subcontractor.
IV. To satisfy the written approval required in Article VIII, Paragraph B. of
the Agreement, the Company hereby approves of the Agency subcontracting its
claims administration duties solely involving the SCAPS Policies to Hewitt
Coleman.
V. The language set forth in Article IX, Paragraph A. of the Agreement, is
deleted and replaced with the following:
A. The Agency shall indemnify, defend and hold the Company and its
subsidiaries, successors, reinsurers and assignees, as well as their
shareholders, directors, officers and agents, harmless against and in
respect of any and all claims, demands, actions, proceedings, liability,
losses, damages, costs or expenses, including without limitation,
attorney's fees, disbursements and court costs, made or instituted against
or incurred by the Company or such other indemnitees and which arise,
either directly or indirectly, out of any action or inaction of the Agency,
its employees, representatives, or any Subcontractor, in connection with
any obligations of the Agency arising out of this Agreement, including but
not limited to any action or inaction of the Agency concerning any Agent or
Subcontractor, pursuant to all applicable laws. The Agency further agrees
that it shall be responsible for any and all fines, penalties or other
assessments imposed against the Company by any Insurance Department or
other governmental entity for any conduct of the Agency, its employees,
representatives, or any Subcontractor, which was not authorized by the
Company.
2
<PAGE>
VI. Except as otherwise expressly provided herein, this Amendment does not
alter, amend or modify the terms of the Agreement and all terms of the
Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed by their duly authorized officers as of the Effective Date.
For and on behalf of the Agency: STIRLING COOKE INSURANCE SERVICES INC.
Attest: /s/ By: /s/
--------------------------- -------------------------
Its Authorized Officer
For and on behalf of the Company: CLARENDON NATIONAL INSURANCE
COMPANY
Attest: /s/ By: /s/
--------------------------- -------------------------
Its Authorized Officer
3
<PAGE>
Exhibit 10.8
Addendum to Agency Agreement
4/1/97
The Agency Agreement between Clarendon National Insurance Company and Stirling
Cooke Insurance Services Inc. is hereby modified to include the appointment of
its President, Jack F. Arnold, as the officer to act on behalf of Stirling Cook
Insurance Service Inc.
For the Company: For the Agency:
/s/ /s/
- ------------------------------ -------------------------------
- ------------------------------ -------------------------------
Title Title
<PAGE>
EXHIBIT 10.9
AGENCY AGREEMENT
THIS AGENCY AGREEMENT ("Agreement") is entered into and effective as of
October 1, 1995, by and between CLARENDON NATIONAL INSURANCE COMPANY, a New
Jersey insurance corporation, with its administrative offices located at 1177
Avenue of the Americas, Suite 4400, New York, New York 10036, (hereinafter, the
"Company") and STIRLING COOKE TEXAS, INC., a Texas corporation with its offices
located at 15660 North Dallas Parkway, Suite 410, Dallas, Texas 75248
(hereinafter, the "Agency").
WHEREAS, the Company is authorized to issue workers' compensation insurance
policies and related liability lines, including non-occupational coverages, in
the State of Texas and the Company also undertakes to use its best efforts to
obtain authorization for 24 Hour coverage products;
WHEREAS, the Agency is duly licensed as a managing general agent in the
State of Texas; and
WHEREAS, the Company wishes to appoint the Agency to produce, administer,
and manage a program of workers' compensation insurance (including related
coverage B, employers' liability) in the State of Texas (hereinafter, the
"Policies") (which authority may include the issuance of other state
endorsements for risks with multi-state operations subject to the Company's and
the Agency's authorizations in those states). The authorized coverages and
limits of liability of such Policies are set forth on Schedule A attached hereto
(which Schedule A shall be amended effective as of the date the Company elects
to offer an additional or a different policy).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties agree that this Agreement shall be effective
as of the date set forth above (the "Effective Date") as follows:
ARTICLE I. - GENERAL PRINCIPLES
-------------------------------
A. The Company, relying upon the expertise of the Agency, grants authority
to the Agency hereunder to manage the Policies. The parties understand that,
the Company, being at risk and having ultimate responsibility and authority for
the Policies managed by the Agency, at all times shall have the ultimate
responsibility and discretion with respect to all matters pertaining to such
Policies.
1
<PAGE>
B. It is the intent of the Company and the Agency to produce an operating
profit for the Company. The Agency shall perform its duties under this
Agreement in an ethical, legal and professional manner.
ARTICLE II. - UNDERWRITING AUTHORITY
------------------------------------
A. The Agency, as an independent contractor of the Company, subject to any
requirements imposed upon the Agency and the Company by any governmental entity,
the terms of this Agreement, and the underwriting rules and regulations of the
Company, is authorized and is delegated responsibility to:
1. Solicit applications for Policies through duly licensed agents in
the State of Texas. The Company shall forward to the Agency a copy of the
Company's Underwriting Rules, Regulations, and Guidelines ("Underwriting Rules")
for use by the Agency in processing such applications and submitting to the
Company those which might be accepted by the Company on a facultative basis or
as may be otherwise specified in such Underwriting Rules. The Company may amend
its Underwriting Rules at any time by providing the Agency written notice
thereof, and the Agency shall thereafter process the Policies pursuant to such
amended guidelines and procedures. The Underwriting Rules include the basis of
rates to be charged, the lines of insurance which may be written, maximum limits
of liability, applicable exclusions, territorial limitations, cancellation
provisions, the maximum policy period, and control of policy issuance.
2. Issue Policies on behalf of the Company to qualifying risks
accepted under the Underwriting Rules and issue all related, required statutory
and regulatory notifications, if any. The parties hereto acknowledge that the
Agency has been furnished copies of the Company's rates, policy forms and
endorsements.
3. Maintain control procedures related to binder, policy and
notification issuance to facilitate audit of such activities by the Company
and/or the Insurance Commissioner, or equivalent authority, of the State of
Texas.
4. Provide a risk management information system that will track,
account, and report to the Company premium, commissions, losses, loss reserves,
allocated and unallocated claim costs, claim incidence detail, indemnity and
medical payments. During the term of this Agreement, the Agency shall use
underwriting and risk management information on behalf of the Company.
5. Assure that the Company complies with any required reports or data
calls related to the Policies.
2
<PAGE>
6. Assure that in the event any Policy is issued with a deductible
endorsement and the Underwriting Rules require collateralization, that the
policyholder collateralize all unpaid deductible obligations actuarially valued
to their ultimate cost with collateral acceptable to the Company. In the event
any Policy is retrospectively rated all projected retrospective premium due the
Company shall be similarly collateralized.
7. Assure that every applicable policyholder is subject to annual post
policy period payroll audit.
8. Collect and receipt for premium, and, as compensation for its
program management services and producing agents' commission, retain the
percentage of net written premium specified in Article IV.
9. Cancel coverage only when authorized by the Company and pursuant to
Policy terms. The Agency shall cancel any Policy in the event a policyholder
fails to (i) pay premium when due, or (ii) maintain agreed collateral for
deductible obligations or retrospectively rated premium as provided in
subparagraph II.A.6 or (iii) for any other reason permitted under the Policy
and by law.
B. The Agency, without the prior written approval of the Company:
1. Shall not bind reinsurance or retrocession on behalf of the
Company;
2. Shall not commit the Company to participate in reinsurance of
reinsurance syndicates; and
3. Shall not collect a payment from a reinsurer or commit the Company
to a claim settlement with a reinsurer without the prior written approval of the
Company.
If the Company grants such prior written approval for any of the items
specified in II.B.1, II.B.2, or II.B.3 above, the Agency shall promptly forward
to the Company a report of any such action taken.
C. Any and all agreements between any agent, insurance broker, agent or
other entity approved by the Company (hereinafter called the "Agent") shall be
made directly between the Agency and such Agent.
D. The Agency is responsible to oversee the placement of business through
and the proper licensing of any Agent. If, as a result of acceptance of a
placement by the Agency from an Agent that the Agency knew or should have known
was unlicensed, the Agency shall indemnify and hold the Company
3
<PAGE>
harmless from all claims, costs, fines and expenses arising and paid by the
Company due solely to the fact that the Agent was unlicensed that is not
recoverable from reinsurers.
E. The Agency shall receive and may accept proposals for Policies up to a
specified maximum "Net Written Premium" (which term shall mean gross written
premium less returns for cancellations) for each Policy as stated on Schedule A
for the first Calendar Year of this Agreement and as amended for each subsequent
Calendar Year thereafter. The first Calendar Year shall mean the time period
from the Effective Date through December 31, 1995. Each subsequent Calendar
Year shall commence January 1st of such year and end on December 31st of such
year.
F. The Company hereby grants to the Agency authority to utilize only
insurance contract wording, endorsement wordings and rates that are approved in
writing by the Company.
G. The Company hereby grants to the Agency authority to operate only
within written guidelines approved in writing by the Company; and any Policy
issued by the Agency which does not fall within such guidelines shall, at the
Company's written request, be promptly terminated subject to the regulations of
the state. The Agency shall indemnify the Company for all claims that the
Company is required to pay not recoverable from reinsurers solely because the
Agency did not terminate the Policy.
H. The Agency shall arrange underwriting inspections on all Policies
written. The inspection shall be for the Agency's benefit, rather than the
insured's benefit, and shall be used by the Agency in underwriting risks
pursuant to the Underwriting Rules. The Agency shall bear sole responsibility
for compensating the inspection company for such services and no costs or
expenses associated with or arising from such services shall be passed on to the
Company in any form.
ARTICLE III. - CLAIM AUTHORITY
------------------------------
A. The Agency, as an independent contractor of the Company, subject to any
requirements imposed upon the Agency and the Company by any governmental entity,
the terms of this Agreement, and the Underwriting Rules, is authorized and is
delegated responsibility to perform or contractually arrange for the adjustment
of all claims arising under the Policies issued by the Agency on behalf of the
Company hereunder. The Company reserves the right to disapprove any contract
adjusters appointed by the Agency. All such services shall be performed by duly
licensed and qualified casualty adjusters. The Agency shall maintain claim
files in hard copy or shall otherwise make such files electronically available
to the Company. The Agency shall also effect a comprehensive program
4
<PAGE>
of health care cost management related to medical services provided
policyholders, if the Policies so require.
The Agency, directly or through its adjusters, may settle claims and set
loss reserves, and the Company retains final authority over such matters. The
Agency shall immediately report to the Company any claim arising under any
Policy produced under this Agreement, and may represent the Company in the
investigation, control and settlement of any such claim.
The Agency may charge the Company for adjusting indemnity, medical and
information claims based upon a fee schedule agreed between the Agency and the
Company, plus reasonable and customary rates for allocated loss adjustment
expenses, plus a percentage to be agreed initially and amended from time to time
of the difference between medical, hospital and similar services as originally
billed by a provider and the total charge ultimately paid to the provider. The
parties recognize that this adjusting service may be bid or contracted out to
third parties for medical claims.
B. In the course of its duties under this Agreement, the Agency shall:
1. Record and report each claim promptly to the Company with a
recommended reserve;
2. Maintain a claim file with a copy of the Policy for each reported
claim. The claim file will have a daily activity log and shall be available for
inspection, review and/or copying by the Company or its duly authorized
representatives;
3. Perform reasonable and necessary administrative and clerical work
in connection with reported claims;
4. Prepare checks and vouchers, compromises, releases, agreements and
any other documents reasonably necessary to finalize and close claims;
5. Perform a continuous review of outstanding claim reserves,
recommend changes to outstanding claim reserves, and provide the Company with
monthly reports showing changes to outstanding reserves as of the date reported;
6. Record and report promptly to the Company each loss and allocated
loss adjustment expense paid utilizing the Company claim disbursement, checking
and coding procedures;
5
<PAGE>
7. Periodically review the development of the claims handling
procedure with the Company or its duly authorized representative to identify
problems and recommend corrective action;
8. Diligently pursue and prosecute the Company's salvage and
subrogation rights relating to any losses sustained under this Agreement. The
Agency shall use all reasonable efforts to collect and deposit funds arising
from the enforcement of such rights into the Company's Claim Bank Account (as
hereinafter defined). The Agency will report and account to the Company all
salvage and subrogation collections under this Agreement.
C. The Company grants to the Agency authority to settle and pay upon
prior notice to the Company any claim up to Fifty Thousand Dollars ($50,000) per
claim.
D. The Agency shall notify and consult with the Company with respect to
any of the following:
1. Any loss or claim resulting in legal action being instituted
against the Agency and/or the Company;
2. Any loss or claim causing a complaint to be filed with any
regulatory authority;
3. Any inquiry from any regulatory authority, including but not
limited to any insurance department, with respect to any claim or claims, even
if no complaint causes such inquiry;
4. Any claim the Agency deems appropriate to deny policy coverage; or
5. Any claim which might ultimately result in the payment(s) in
excess of Fifty Thousand Dollars ($50,000) due to any claim or claims arising
out of a single occurrence or injury.
The Agency shall notify the Company within thirty (30) days of
determination of (i) any claim which involves a coverage dispute, (ii) any claim
which involves a demand in excess of policy limits, or (iii) any allegation of
bad faith, violations of the applicable State Insurance Code.
6
<PAGE>
ARTICLE IV. - THE AGENCY'S COMPENSATION
---------------------------------------
A. The Company hereby allows the Agency, as compensation for its services
hereunder, a commission fee, equal to the commission set forth on Schedule A
attached hereto and incorporated herein, describing the Policy and the
compensation as a percentage of Net Written Premium for such Policy.
B. The Agency shall prepare separate, itemized monthly statements for each
Agent on the business placed by the Agent through the Agency, and furnish the
Agent with an IRS Form 1099 each year required.
C. The Agency shall maintain an errors and omissions insurance policy
issued by an insurer acceptable to the Company with policy limits of no less
than One Million Dollars ($1,000,000), and a deductible no greater than Fifty
Thousand Dollars ($50,000).
ARTICLE V. - RECORDS, REPORTS, REMITTANCES AND PROCEDURES
---------------------------------------------------------
A. The Agency shall maintain complete and orderly underwriting and claims
files, records and accounts of all transactions involving the Company in
accordance with generally accepted insurance and accounting practices.
B. The Company or its authorized representatives shall have the right (but
not the obligation) at all reasonable times to inspect the Agency's books and
records, wherever located, which pertain to the business of the Company which is
the subject of this Agreement and shall have the right to copy or make abstracts
from such books and records.
C. The Agency shall promptly deposit all funds collected on behalf of the
Company in a Premium Trust Account. Such amount shall be maintained in a bank(s)
with membership in the Federal Reserve system and insured by the Federal Deposit
Insurance Corporation.
D. At the end of each month, the Company shall produce an accounting
detailing all premiums collected and deposited into the Premium Trust Account.
The Agency shall pay to the Company all Net Written Premium collected and
deposited in the Premium Trust Account less the Agency's and Agent's commissions
as set out in this Agreement, claim fees and expenses, and deductions, expenses,
and costs payable by the Company as per this Agreement, or as agreed by the
Company and the Agency and listed on the accounting. The Agency may pay such
commission and listed deductions directly from the Premium Trust Account without
further authorization.
7
<PAGE>
E. The Agency shall not be required to return as commission or return
commission monies greater than the total commission paid or otherwise payable to
the Agency.
F. The Agency shall not offset balances due under this Agreement with any
other balance due under any other contract or agreement. The Agency shall not
use or convert money that is deposited or should have been deposited to the
Premium Trust Account, except as provided in this Agreement.
G. The Agency shall maintain and submit a monthly Bordereaux report for
all business written under this Agreement for Policies, binders or endorsements
issued or canceled by the Agency (the "Bordereaux"). The Agency shall maintain
and furnish to the Company such other reports as may be reasonably requested by
the Company.
The Bordereaux for each line of business shall include the following
information: policy number, name of insured, effective date of coverage, policy
period, annual premium, payment terms, minimum deposit premium, premium
collected, credits against the premium collected for sums due third parties, and
the balance due the Company. Sums deducted from premium collected to pay third
parties shall be utilized solely to pay expenses approved in writing by the
Company, which expenses may include administration fees, safety and loss control
services, commissions due the Agency or Agents. Third party fees shall be
specifically identified on the monthly Bordereaux and shall be paid on a
collected premium basis.
The Agency shall remit all funds due the Company on or before fifteen
(15) days after the end of each month for business reported to the Company for
the prior month pursuant to the Bordereaux. The Company may direct the Agency
in writing to remit sums due the Company directly to the Company's reinsurers.
All sums due the Company shall be paid by wire transfer or as otherwise directed
in writing by the Company. The Agency shall reconcile all funds collected to
the monthly Bordereaux reports.
H. Notwithstanding anything to the contrary contained in this Agreement,
the Agency shall account and pay to the Company any net income loss due to
uncollected premium, except it is agreed that, if any additional premium is
charged and billed by the Company, and such additional premium cannot be
collected by the Agency, the Agency shall not be responsible for such additional
premium provided:
1. The Agency notifies the Company that such premium is uncollected
within sixty (60) days of the initial billing date for such additional premium;
8
<PAGE>
2. The Agency shall make a good faith effort to collect such premium;
3. The Agency shall forward to the Company copies of all
correspondence relating to its collection effort; and
4. No Commission shall be paid to the Agency on premiums collected by
the Company.
The net income loss will not be payable if the Company has not
incurred "net retained loss" in respect of the Policy for which premium is
uncollectible following reasonable collection efforts by the Agency or the
Company. A "net retained loss" means that the Policy for which collection is
sought has an excess of actual paid claims chargeable to the Company (and not to
reinsurers) over premiums. Should a net retained loss have been incurred by the
Company, the net income loss payable by the Agency shall be the lower of: (i)
the uncollected premium; or (ii) the net retained loss of the Company.
I. The transfer of funds to the Company, or the acceptance of any funds
from the Agency, shall not constitute acceptance of the accuracy of any report
submitted by the Agency to the Company.
J. For purposes of settling claims and paying claim-related expenses, the
Company shall establish, maintain and fund a separate bank account from which
the Agency may draw against as hereinafter set forth (the "Claim Bank Account").
On a daily and monthly basis, the Agency will prepare and send to the
Company a register of checks drawn on the Claim Bank Account for each loss
payment (the "Claim Register"). The Claim Register shall include, but shall not
be limited to, the claim number, the name of payee, the date and check number of
the disbursement, and the purpose and amount of the disbursement.
All claim payments shall be signed by two signatories. Any claim
payment up to Fifty Thousand Dollars ($50,000) shall be signed by two authorized
representatives of the Agency. Any claim payment in excess of Fifty Thousand
Dollars ($50,000) shall be signed by an authorized representative of the Company
and an officer of the Agency. The Agency shall notify the Company in writing of
the identity of the authorized signatories of claim checks.
The Agency shall promptly deposit any monies collected through salvage
and subrogation to the Claim Bank Account, and maintain a register of all such
collections and deposits (the "Salvage and Subrogation Register"). The Salvage
and Subrogation Register shall include, but shall not be limited to, the
9
<PAGE>
following information: date of deposit, date of receipt of funds, the claim
number, the payor, and the amount and purpose of such payment.
The Agency shall reconcile the Claim Register and Salvage and
Subrogation Register to the Claim Bank Account on a monthly basis.
K. Within twenty (20) days after the close of each calendar month, and in
addition to reports due the Company under this Article V, the Agency shall
render to the Company reports of transactions for said month in formats
acceptable to the Company. The reports shall include, but shall not necessarily
be limited to, information and statistical data necessary for the Company to
prepare any report required by the NAIC or NCCI, or any other reports reasonably
requested by the Company. The Agency's reports shall include an accounting of
all premiums written and earned, all commissions and fees, all claims and
allocated claims expenses reserved, paid, incurred and outstanding, and
collected and collectible salvage and subrogation.
L. Within ninety (90) days after the end of each fiscal year, the Agency
shall furnish the Company with true copies of its audited, certified balance
sheet and related statement of operation for such fiscal year.
M. The Agency shall establish and maintain written operational procedures
to handle all business related to the Policies.
ARTICLE VI. - ACCESS TO BOOKS AND RECORDS
A. The Company shall have access during normal business hours to the
books and records of the Agency for any purpose relating to any business placed
with the Company by the Agency.
B. The books, records, underwriting and rating facilities of the Agency
relating to any business it places with the Company shall be maintained
separately and apart from those relating to any other insurance company the
Agency may represent and shall include underwriting files.
C. The books and records referenced in VI.A and VI.B above shall be
maintained by the Agency for at least five years from the expiration date of the
last Policy issued or until completion of a financial examination by the
insurance department of the state in which the Company is domiciled, whichever
is longer or as may otherwise be provided by law.
D. The Company may conduct a semi-annual examination of all books and
records maintained by the Agency which relate to business placed pursuant to
10
<PAGE>
this Agreement. Such examinations shall incept six months after the effective
date of this Agreement and continue every six months thereafter until six months
after the termination of this Agreement.
E. If the Company's aggregate premium volume increases by 30% or more in
any 30-day period after the second semi-annual examination (as provided supra),
the Company may conduct an additional examination of the books and records of
the Agency which are related to coverage placed under this Agreement.
F. The examinations of the books and records of the Agency must
adequately provide the Company and any Commissioner of Insurance, or equivalent
authority, with the information specified below, will be made available by the
Company and the Agency upon request by the Commissioner, and will remain on file
with the Company for at least three years:
1. The existence and adherence to claim handling procedures.
2. The timeliness of claim payments.
3. The timeliness of premium reporting and collection.
4. Compliance with underwriting guidelines furnished by the Company
to the Agency.
5. Reconciliation of policy inventory or policy issuance records.
G. The Agency shall provide the Company copies of its computer software
and updated copies of its computer data base maintained in support of its claim
reports ("Computer Data"). The transfer of Computer Data shall be in a format
acceptable to the Company and readable on the Company's computer system. Such
Computer Data shall include all information contained in the claim reports, and
shall include with respect to each claim, the claim number, policy number, name
of insured, effective date and expiration date of the policy, the date the claim
was first reported to the Agency, reserves, paid losses, paid loss adjustment
expense, and any salvage or subrogation recoveries.
The Agency shall establish and maintain written operating procedures
to handle all claims, related adjustment costs, and salvage and subrogation.
The Agency's reports shall account for all paid and incurred (including
outstanding reserves separately) losses, loss adjustment expense, salvage and
subrogation recoveries.
H. Articles V and VI shall survive termination of this Agreement until
such time as all obligations of the Agency and the Company have been discharged.
11
<PAGE>
ARTICLE VII. - EXPENSES
-----------------------
A. THE AGENCY'S EXPENSES:
---------------------
The Agency shall accept and pay all expenses incurred by the Agency in
connection with the underwriting, production, marketing and servicing of the
Policies, including but not limited to the following:
1. Printing of proposals, policy jackets, contracts of insurance,
cancellation notices, premium notices, records, and reports, and all other
documents required to fulfill the obligations of the Agency under this
Agreement.
2. Advertising and public relations expenses, except as otherwise
agreed to be paid by the Company. The Company's prior written approval shall be
required with respect to any advertising or public relations material which
contains the Company's name or logo.
3. The Agency's general office expenses, including rent, salaries,
utilities, data processing performed by the Agency, transportation, furniture,
fixtures, equipment, supplies, telephone, postage, and other general overhead
expenses.
4. All expenses related to or arising from premium audit services or
underwriting inspection services.
B. COMPANY'S EXPENSES:
------------------
The Company shall absorb and pay directly all charges and expenses directly
attributable to its operations and all expenses, costs and claims provided in
this Agreement and/or under the Policies. In addition to those charges otherwise
provided in this Agreement, the Company shall reimburse the Agency for other
costs required to fulfill the obligations of the Company under this Agreement or
as agreed from time-to-time by the Company.
ARTICLE VIII. - GENERAL PROVISIONS
----------------------------------
A. Nothing herein shall create the relationship of employer and employee
between the Company and the Agency, it being understood and agreed that the
Agency is an independent contractor of the Company for the purposes set forth
herein with all rights, powers and duties as such.
12
<PAGE>
B. The Agency shall not assign, sell or otherwise transfer all or any part
of this Agreement in whole or in part either directly or indirectly without the
prior written consent of the Company.
C. This Agreement may not be changed, nor may any provision hereof be
waived, unless such modification is in writing, signed by both parties hereto,
and specifies the effective date thereof.
D. Should the Agency receive an inquiry or complaint from any regulatory
authority concerning a violation of insurance law or regulation, or any
complaint disputing coverage under any Policy issued hereunder, or any process
or other litigation document or any threat of litigation with respect to any
Policy or any other matter contemplated within this Agreement, prompt notice and
a true copy thereof shall be given to the Company. If a response affecting the
Company is required, the Agency shall, within five (5) business days of the
inquiry, draft a response and submit the draft to the Company for prior approval
before submission to the regulatory authority.
E. The Company and the Agency shall maintain all licenses and regulatory
approvals necessary to conduct business covered under this Agreement.
F. Notwithstanding the authority granted to the Agency by the Company, the
Company may require the Agency to terminate coverage provided by any Policy so
long as such termination does not violate any statute or regulation. If the
Company exercises this right, the Company shall instruct the Agency to send
appropriate non-renewal or cancellation notice as required by contract wording
or regulatory authority to terminate coverage.
G. The Agency is required and agrees to be in compliance with, and the
Agency shall ensure that all Agents are properly licensed pursuant to, all
applicable laws and regulations which affect the Policies.
H. The Agency shall obtain the express prior written approval of the
Company before issuing any advertisement, circular, pamphlet or other
publication which refers to the Company. The Agency shall have the right to
advertise the Policies.
I. The failure of the Company or the Agency to insist on strict compliance
with this Agreement, or to exercise any right or remedy hereunder, shall not
constitute a waiver of any rights contained herein or stop the parties from
thereafter demanding full and complete compliance therewith, nor prevent the
parties from exercising any right or remedy in the future.
13
<PAGE>
J. Any notice required or permitted to be given under this Agreement
shall be in writing and shall be deemed duly given if delivered personally, by
Federal Express or other recognized courier service, or by registered or
certified mail, return receipt requested, to the party for whom it is intended
at the following address or such other address as the party may designate from
time to time.
For the Agency:
Stirling Cooke Texas, Inc.
15660 North Dallas Parkway
Suite 410
Dallas, Texas 75248
Attention: Rupert Weynand, President
(214) 960-3400
For the Company:
Clarendon National Insurance Company
1177 Avenue of the Americas, Suite 4400
New York, New York 10036
Attention: Robert D. Ferguson
(212) 805-9700
Notices shall be deemed given when delivered, or three (3) days after
delivery to the courier or mailing, as above provided.
K. If any provision of this Agreement should be found to be invalid or
unenforceable, the remaining provisions of this Agreement shall remain in full
force and effect.
L. This Agreement shall be interpreted under and pursuant to the laws of
the State of New York.
M. This Agreement shall bind and benefit the successors and permitted
assigns of the parties.
N. The Agency shall indemnify and hold the Company harmless by the Agency
for all losses, costs, charges and expenses (collectively called "Expenses")
paid or incurred by the Company by reason of or in connection with the breach or
non-performance of any covenant or obligation to be observed or performed by the
Agency under this Agreement; provided, however, that in the case of a breach or
non-performance by the Agency, the Company shall have given the Agency notice of
the breach or non-performance and the Agency shall not have cured same within
ten (10) days after the date of the notice, or if same is of such a nature that
14
<PAGE>
it cannot reasonably be cured within such time, if the Agency has not within
such time commenced to cure same and does not diligently continue to and
actually cure same. Any expenses incurred by the Company after the giving of
such notice shall be promptly reimbursed by the Agency. Without limiting the
generality of the foregoing, the Agency's covenants and obligations as referred
to herein shall include but not be limited to:
1. the obligation to deposit, report and remit premiums to the
Company;
2. the obligation to remit return premiums to the insureds when due;
3. the obligation to process all policies, endorsements and notices
of cancellation and/or non-renewal pursuant to the Company's underwriting
guidelines;
4. the obligation to observe and comply with underwriting guidelines
and sub-agent appointment procedures;
5. the obligation to observe and comply with all statutes,
regulations, rules and rates; and
6. the obligation to comply with the requirements of Article V
hereunder.
The term "Expenses" as used herein shall include but shall not be
limited to the following expenses: legal, accounting, data processing, file
retrieval, software, clerical help, professional services, and travel. The
Agency shall reimburse or pay the Company for all Expenses immediately upon
receipt of a written statement setting forth such Expenses, provided the Agency
shall be given written notice and the right to cure for ten (10) days prior to
the imposition of any charge. An interest charge of the lesser of (i) 18% per
annum, or (ii) the highest rate of interest permitted by applicable law, shall
accrue with respect to any Expenses remaining unpaid for thirty (30) days after
presentation of such statement and shall continue until payment in full of the
balance due.
O. In the event that any obligation to grant or extend insurance coverage
is imposed on the Company by a Court or Insurance Commission or Department as a
result of any breach by the Agency of its obligations under Policies, then and
in that event, the Agency shall (i) pay any fine or penalty imposed upon the
Company by such Court or Insurance Commission or Department, and (ii) reimburse
the Company for all Expenses in accordance with paragraph VIII.0 of this
Article.
15
<PAGE>
P. This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same agreement.
Q. This Agreement supersedes any previous agreements whether oral or in
writing between the Agency and the Company.
R. The Agency must notify the Company, in writing, within thirty (30) days
if there is a change in:
1. Ownership of ten percent (10%) or more of the outstanding stock of
the Agency;
2. Any principal officer of the Agency; or
3. Any director of the Agency.
S. The Agency shall submit to an examination of its financial condition
and its compliance with the laws of Texas as and if required under the Texas
Insurance Code, or any other state law applicable to the Agency.
ARTICLE IX. - INDEMNITY AGREEMENT
---------------------------------
A. The Agency shall indemnify the Company and its subsidiaries,
successors, reinsurers and assignees, as well as their shareholders, directors,
officers and agents against and in respect of any and all claims, demands,
actions, proceedings, liability, losses, damages, costs or expenses, including
without limitation, attorney's fees, disbursements and court costs, made or
instituted against or incurred by the Company or such other indemnitees and
which arise, either directly or indirectly, out of any action or inaction of the
Agency or its employees or representatives, in connection with any obligations
of the Agency arising out of this Agreement, including but not limited to any
action or inaction of the Agency concerning the Agent(s), pursuant to all
applicable laws.
B. The Company shall indemnify and hold the Agency harmless against and
in respect of any and all claims, demands, causes of action, liability, losses,
damages, judgments, costs and expenses, including but not limited to attorney's
fees, disbursements and court costs which may be made or instituted against or
incurred by the Agency and which arise, either directly or indirectly, out of
any action or inaction of the Company in connection with any obligations of the
Company arising out of this Agreement or the Policies.
16
<PAGE>
ARTICLE X. - ARBITRATION
------------------------
A. Any controversy or claim arising out of or relating to this Agreement or
the breach or enforcement thereof shall be submitted to the decision of a board
of arbitration ("Board") composed of two arbitrators and an umpire, who, unless
the parties otherwise agree, shall meet in New York City, New York. The laws of
the State of New York shall govern the interpretation and application of this
Agreement and the enforcement of the arbitration award.
B. The members of the Board shall be active or retired disinterested
officials of insurance or insurance management companies or Underwriters at
Lloyd's, London, other than the parties of their affiliates. Each party shall
appoint its arbitrator, and the two arbitrators shall choose an umpire before
instituting the hearing. The arbitration shall be instituted by the claimant
serving a notice upon the respondent setting forth the nature of the dispute and
the name, address and current (or last, if retired) employment position of the
arbitrator appointed by the claimant. The respondent shall appoint its
arbitrator within twenty (20) days after service of claimant's notice and shall,
within such time, similarly notify claimant of the name, address and current (or
last, if retired) employment position of the respondent's arbitrator. If the
respondent fails to appoint its arbitrator within such twenty (20) day period,
the claimant shall also appoint the second arbitrator within ten (10) days after
the expiration of the twenty (20) days for respondent to appoint its arbitrator.
If the two arbitrators fail to agree upon the appointment of an umpire at the
end of twenty (20) days following the last date of the appointment of the
arbitrators, then the umpire shall be appointed by the American Arbitration
Association (or its successor).
C. The claimant shall submit its initial statement within twenty (20) days
from appointment of the umpire. The respondent shall submit its responsive
statement within twenty (20) days after receipt of the claims statement, and the
claimant may submit a reply statement within ten (10) days after receipt of the
responsive statement. No other statement shall be submitted by either party.
Copies of all statements shall be sent to the parties, the arbitrators and the
umpire.
D. The Board shall consider this Agreement an honorable engagement rather
than merely a legal obligation and shall make its decision with regard to the
custom and usage of the insurance and reinsurance business and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
(or its successor). The Board shall issue its decision in writing upon evidence
introduced at a hearing or by other means of submitting evidence in which strict
rules of evidence need not be followed, but in which cross examination and
rebuttal shall be allowed if requested. Any hearing shall commence within thirty
(30) days of claimant's reply statement, or of respondent's statement if
claimant does not submit a reply statement. The Board shall make its decision
within
17
<PAGE>
forty-five (45) days following the termination of the hearings unless the
parties consent to an extension. The majority decision of the Board shall be
final and binding upon all parties to the proceeding. Judgment may be entered
confirming the award of the Board in any court having jurisdiction thereof.
E. Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear the expense of the umpire. The remaining costs of the
arbitration proceedings shall be allocated by the Board.
F. In the event of subsequent actions or proceedings to confirm the award
or to enforce the judgment thereon or any other rights flowing therefrom, the
prevailing party shall be entitled to recover its reasonable attorney's fees.
G. Any suit, action, or other proceeding by or against either party to this
Agreement, including any proceeding to compel arbitration, to confirm the
arbitration award, or to enforce any remedy available to either party may be
brought in the Supreme Court of the State of New York, County of New York, or in
the United States District Court for the Southern District of New York, and each
of the parties hereto submits and consents to the non-exclusive jurisdiction of
each such court for the purpose of any such suit, action or proceeding. The
parties consent that process in any action or proceeding may be served by
registered or certified mail, which service shall be sufficient to confer in
personam jurisdiction over the party served.
ARTICLE XI. - SUSPENSION
------------------------
If the Agency is delinquent in accounting for a payment of any sums due
the Company, or has breached the terms of this Agreement, or has violated the
authority granted in this Agreement, the Company may by written notice to the
Agency, suspend the Agency's authority to submit or underwrite any new or
renewal business under this Agreement.
ARTICLE XII. - TERM OF AGREEMENT
--------------------------------
This Agreement shall have an initial term of thirty-six (36) months
commencing upon the Effective Date of this Agreement and shall be extended
automatically for additional twenty-four (24) month terms thereafter if not
terminated within six (6) months of the termination date of any term.
Notwithstanding the foregoing, this Agreement may be terminated without cause,
at any time, by either party mailing to the other party a six (6) month notice
of termination of this Agreement.
18
<PAGE>
ARTICLE XIII. - TERMINATION
---------------------------
A. This Agreement shall terminate with cause:
1. Immediately at the election of and upon written notice from the
Company, if any public authority cancels or declines to renew any of the
licenses of the Agency, or automatically and immediately if any public authority
cancels or declines to renew the Company's licenses in any jurisdiction in which
it is licensed to do business.
2. Automatically and immediately in the event of a transfer, sale or
pledge of the majority of the stock or upon consolidation with a successor in
interest or a substantial portion of the assets of the Agency, unless this
Agreement is assigned with the express written consent of the Company.
3. Automatically and immediately upon the insolvency or bankruptcy of
the Agency or an assignment by the Agency for the benefit of creditors.
4. Automatically and immediately upon the insolvency or bankruptcy of
the Company.
5. Immediately at the election of and upon written notice from the
Company of the commission of any of the following acts by the Agency: fraud or
gross negligence or willful misconduct (which includes, but is not limited to,
willful violation of instructions, or willful violation of any covenant of this
Agreement or any statutory provision or Insurance Department regulation).
6. At the election of the Company upon the Agency's violation of any
provision of this Agreement, other than as set forth in XIII.A.1, XIII.A.2,
XIII.A.3, XIII.A.4 and XIII.A.5 above, provided however, that the Agency will be
allowed ten (10) days to cure such violation. For purposes of this Subsection
XIII.A.6, routine differences in the accounting methods of the Agency and the
Company which are minor in amount and do not involve premiums collected and
willfully withheld by the Agency shall not constitute failure to account for and
pay over premiums, provided all items not in dispute are paid in accordance with
the collection and remittance procedures set forth in this Agreement.
7. At the election of the Company in the event of any material change
in the Company's obligations or business prospects under the Policies caused by
a change in law or insurance regulations in the State of Texas, or by a change
in the terms and/or coverages of the Company's reinsurance agreement(s) with its
reinsurers for business produced hereunder.
19
<PAGE>
8. At the election of the Agency if claims are unpaid or the Company
is not, in the Agency's opinion, complying with the terms of the Policies, and
the Company does not cure such problems to the Agency's satisfaction within ten
(10) days of written notice.
9. At the election of the Agency, if the Company breaches or fails to
comply with any term of this Agreement, and such breach or failure is not cured
within ten (10) days of written notice from the Agency to the Company.
B. In the event of proper termination of this Agreement:
1. The obligations of the Agency and the Company under this Agreement
shall be discharged promptly.
2. No party shall have a claim upon the other for loss of prospective
profit or damage to the business arising therefrom.
3. The Agency's records shall remain the property of the Agency and
left in the Agency's possession, including the right to renew all business with
an insurer, as long as the Agency is in compliance with all of its obligations
to the Company.
4. The Company may, in its sole discretion, require the Agency to
run-off the in-force business to normal expiration in accordance with the
provisions of this Agreement. The Agency shall bear all expenses of the run-off
operations but shall be paid its fees for the run-off period that would have
been due had this Agreement continued in force.
5. The Agency shall upon demand return to the Company any Policies,
forms or other supplies imprinted with the Company's name regardless of who
incurred the cost for same, or any Policies, forms or other supplies furnished
to the Agency by the Company.
ARTICLE XIV. - COMPUTER DATA
----------------------------
A. In the event this Agreement terminates and/or the Agency refuses or
is unable to administer and run-off business produced under this Agreement, then
in that event the Agency shall immediately provide the Company with a tape back-
up of all programs and data libraries, including updated source code and data
files, used in the production and administration of business hereunder (the
"Data"). The Company agrees that it shall utilize the Data solely for the
purpose of administering and running off the business produced hereunder.
20
<PAGE>
B. The Agency hereby grants, at no cost to the Company, a limited license
to the Company to use the Agency's software ("Software") in connection with the
administration and run-off of the business produced hereunder. The Agency shall
deliver the Software, together with the source and object code for the Software,
as well as all necessary manuals, immediately upon delivery of the Data to the
Company as provided in the preceding paragraph. The Company grants the Agency,
at no cost during the term of this Agreement and subsequent to the term of this
Agreement in connection with the administration and run-off of the business
produced, the limited license to use the Company's software programs for the
purposes of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
STIRLING COOKE TEXAS, INC.
By: /s/
------------------------------------
Its Authorized Officer
CLARENDON NATIONAL INSURANCE COMPANY
By: /s/
------------------------------------
Its Authorized Officer
21
<PAGE>
SCHEDULE A
----------
COVERAGE LIMITS OF LIABILITY
- -------- -------------------
Workers' Compensation/Employers' Liability Statutory
Commission Structure:
Policy Issuance..................................... 4%
Loss Control........................................ 2%
Claims.............................................. 6%
Brokering Agent..................................... 5%
Producing Agent..................................... 7%
Rent a Captive Fee.................................. 3%
----
Total .................................................... 27%
Net Written Premium Limit...............Per Underwriting Guidelines
22
<PAGE>
EXHIBIT 10.10
MANAGEMENT AGREEMENT
--------------------
This AGREEMENT is made effective the 1st day of August 15, 1995 by and
between LEGION INSURANCE COMPANY, an insurance corporation having its principal
place of business at One Logan Square, Suite 400, Philadelphia, Pennsylvania
19103 (hereinafter referred to as the "Company") and STIRLING COOKE INSURANCE
SERVICES, INC. having its principal place of business at 2801 Fruitville Road,
Suite 250, Sarasota, FL 34237 (hereinafter referred to as the "Manager").
FOR AND IN CONSIDERATION OF the mutual covenants and agreements contained
herein, and intending to be legally bound hereby, the parties hereto agree as
follows:
1. TERM OF AGREEMENT
This Agreement shall be for a period of one (1) year commencing August
15, 1995 and ending August 15, 1996, and shall continue in force
thereafter for successive annual periods unless sooner terminated in
accordance with the provisions of the Termination Section, 27, of
this Agreement.
2. APPOINTMENT OF MANAGER
A. The Company hereby nominates, constitutes and appoints the Manager as
its legal representative and true and lawfull attorney to act in the
Company's behalf in the procuring underwriting, issuing and servicing
of policies of insurance for workers compensation and employers
liability. This appointment shall apply only with respect to Workers'
Compensation and Employers Liability insurance business (hereinafter
the "Stirling Cooke Florida Agency Captive Program") produced by
manager as set forth in the attached Addendum to this Agreement.
B. Such authority shall be exercised only in accordance with the terms of
this Agreement and such conditions and limitations as are from time to
time established by the Company.
3. TERRITORY
A. The Manager shall have non-exclusive authority to write on behalf of
Company Workers' Compensation and Employers Liability business in
those states set forth in the attached Addendum and such other states
as the parties may subsequently mutually agree upon in writing;
subject to the applicable licensing authority
<PAGE>
of the Company.
B. Either party shall have the right to conduct any other business for
its own account without regard to this Agreement. Either party shall
have the right to conduct business for its own account with any
insurance or reinsurance entity or insurance or reinsurance
intermediary.
4. LIMITATIONS OF AUTHORITY OF MANAGER
A. The Manager shall not have any authority to waive any forfeiture,
grant any permit, collect any premiums except for those policies
and/or certificates which are subject to this Agreement, or bind the
Company in any way except as herein expressly stated.
B. The Manager shall not solicit or issue any policy or certificate in
any state which the Company shall exclude from this Program upon
notice in writing to Manager.
C. The Manager shall not bind reinsurance or retrocessions on behalf of
the Company.
D. The Manager shall not commit the Company to participate in insurance
or reinsurance syndicates.
E. The Manager shall not appoint any producer without assuring that the
producer is lawfully licensed to transact the type of insurance for
which he/she is appointed.
F. The Manager shall not jointly employ an individual who is employed
with the Company.
G. The Manager shall not appoint a sub-managing general agent.
H. The Manager shall not bind the Company to any risk with regard to
which the Company shall previously have notified the Manager in
writing that such risk is excluded from the business hereunder.
I. The Manager will cancel any risk forthwith at the instruction of
Company.
5. GENERAL DUTIES OF COMPANY
The Company will:
A. Procure and maintain licenses and/or certificates of authority as an
insurance company in such states as the Company is licensed as of the
effective date of this
<PAGE>
Agreement.
B. Make all necessary rate and form filings as required by law in which
the policies or coverage set forth in the Addendum to this Agreement
are to be sold, and it shall not issue policies prior to satisfying
those state requirements.
C. Make all statistical filings and collect all statistical and
underwriting data applying to this business written pursuant to this
Agreement as mutually agreed to by the parties, such agreement not to
be withheld unreasonably.
D. Appoint such agents for the production of business as may be requested
by the Manager; provided, however, that the Company, in its sole
discretion, shall retain the right to refuse to appoint any
individual.
E. Make such filings, including policy forms, rates and rules, as may be
required by the regulatory authorities in the States in which business
is written pursuant to this Agreement.
6. GENERAL DUTIES OF MANAGER
The Manager will:
A. Maintain licenses as an agent or producer in all states in which
business is written under this Agreement, including such licenses as
may be required under any Managing General Agency law or regulation;
B. Supervise, direct and implement the production, underwriting, premium
collection, accounting, statistical, and other work necessary or
incidental to the insurance business written under this Agreement;
C. Set up and maintain such books and records in the manner and as
required by the Company to record the transactions pursuant to this
Agreement;
D. Compile and file with the Company such statistical information as more
fully set forth herein;
E. Provide notice to Company of any material change of ownership or
control of Manager;
F. Cancel policies and/or certificates for cause;
G. Provide the Company with an independent financial examination in a
form acceptable to the Company in the event that the gross direct
written premium on the business written under this Agreement equals or
exceeds
<PAGE>
five percent (5%), in any one quarter or year, of the policyholder
surplus of the Company as reported in its last annual statement;
H. Promptly and appropriately respond to all correspondence and notices
relating to financing or proposed financing of premiums on policies
issued under this Agreement, and forward copies to Company. Manager is
not authorized to finance or engage in the financing of any policy on
behalf of Company.
7. EXCLUSIONS
The following classifications require Manager to receive prior written
approval prior to issuing binders:
A. NCCI rated Hazard Group IV risks.
B. NCCI classifications with known occupational disease exposures
including but not limited to:
1164-MINING NOC-COAL-UNDERGROUND-Drivers
1624-QUARRY NOC & DRIVERS
1710-STONE CRUSHING & DRIVERS
1741-FLINT GRINDING & DRIVERS
1803-STONE CUTTING OR POLISHING NOC & DRIVERS
1852-ASBESTOS GOODS MFG.
3081-FOUNDRY-FERROUS-NOC
3082-FOUNDRY-STEEL CASTINGS
3085-FOUNDRY-NONFERROUS
3175-RADIATOR OF HEATER MFG.
4024-REFRACTORY PRODUCTS MFG. & DRIVERS
5508-STREET OR ROAD CONSTRUCTION: ROCK EXCAVATION
& DRIVERS
6251-Tunneling-NOT PNEUMATIC-ALL OPERATIONS
6252-SHAFT SINKING-ALL OPERATIONS
C. USL&H, Jones Act, or other Federal Acts exposure.
1165-MINING NOC-COAL-SURFACE & DRIVERS
2702-LOGGING OR LUMBERING & DRIVERS
2710-SAW MILL
3639-EXPLOSIVES OR AMMUNITION MFG.
4206-PULP MFG.-GROUND WOOD PROCESS
4207-PULP MFG.-CHEMICAL PROCESS
4777-EXPLOSIVES DISTRIBUTORS & DRIVERS
4800-4823-CHEMICAL & DYESTUFF
5160-ELEVATOR ERECTION OR REPAIR
5222-CONCRETE CONSTRUCTION IN CONNECTION W/BRIDGES
5551-ROOFING-ALL KINDS & YARD EMPLOYEES, DRIVERS
5703-BUILDING RAISING OR MOVING & DRIVERS
6306-SEWER CONSTRUCTION-ALL OPERATIONS & DRIVERS
6319-GAS MAIN OR CONNECTION CONSTRUCTION & DRIVERS
The following classifications will also be excluded:
1. Municipalities and Government Bodies.
2. Railroads, except scenic railways, and access
lines and industrial and owned operations.
<PAGE>
D. Aviation risks. owner/operators of aircraft flight and ground
operations when flying is the major part except. when written as an
incidental part of an insured's overall operations.
E. Work on or navigation of any commercial vessel.
F. All mining or quarrying operations.
G. Wrecking or demolition of buildings or structures in excess of three
stories.
H. Workers' Compensation as respects asbestos manufacturing,
installation, distribution, transportation or removal.
I. Chemical/petrochemical manufacturers of highly Toxic materials.
J. Amusement parks, carnivals or circuses, except Disney properties.
K. Blasting or excavating operations over 25 feet in depth.
L. Tunnel or subway construction.
M. Marine wrecking, including repair, cleaning, or demolition of
commercial vessels or barges, except boat yards which have as their
major line of business, pleasure craft.
N. Underground, offshore or submarine operations including underground
mining.
O. Construction and/or maintenance of coffer dams. Stevedoring or
operations covered by the U.S. Longshoreman's and Harbor Workers Act
or Jones Act.
P. Nuclear Regulatory Commission projects and operations conducted under
license from the nuclear Regulatory Commission.
Q. Professional Sports Teams.
R. Commercial Airlines.
S. Employee Leasing.
Risks with following classifications must be submitted to
carriers/reinsurers for approval prior to Manager binding coverage;
1. Classifications:
1320-OIL OR GAS LEASE OPERATOR-ALL OPERATIONS & DRIVERS
1322-OIL OR GAS WELL:CLEAN OR SWAB BY CONTRACTOR-
NODRILL ETC.
3642-BATTERY MFG-DRY
3647-BATTERY MFG-STORAGE
3719-OIL STILL ERECTION OR REPAIR
3821-AUTOMOBILE DISMANTLING & DRIVERS
4740-OIL REFINING-PETROLEUM & DRIVERS
5069-IRON OR STEEL:ERECTION-CONSTRUCTION OF DWELLINGPER
MANUAL
5102-DOOR. DOOR FRAME OR-SASH ERECTION-METAL OR METAL
COVER
<PAGE>
5183-PLUMBING NOC & DRIVERS
5213-CONCRETE CONSTRUCTION NOC
5221-CONCRETE OR CEMENT WORK-FLOORS, DRIVEWAYS, YARDS
OR SIDEWALKS
5506-STREET OR ROAD CONSTRUCTION:PAVING OR REPAVING AND
DRIVERS
5507-STREET OR ROAD CONSTRUCTION:SUBSURFACE WORK OR
DRIVERS
6003-PILE DRIVING & DRIVERS
6204-DRILLING NOC & DRIVERS
6213-OIL OR GAS WELL: SPECIALTY TOOL OPERATION NOC-BY
CONTRACT
6214-OIL OR GAS WELL:PERFORATING OR CASING-ALL
EMPLOYEES & DRIVERS
6216-OIL OR GAS LEASE WORK NOC-BY CONTRACTOR & DRIVERS
6233-OIL OR GAS PIPELINE CONSTRUCTION & DRIVERS
6235-OIL OR GAS WELL:DRILLING OR REDRILLING & DRIVERS
6236-OIL OR GAS WELL:INSTALLATION OR RECOVERY OF CASING
& DRIVERS
6237-OIL OR GAS WELL:INSTRUMENT LOGGING OR SURVEY WORK
& DRIVERS
7370-TAXICAB CO:ALL Other EMPLOYEES & DRIVERS
7539-ELECTRIC LIGHT OR POWER CO. NOC-ALL EMPLOYEES &
DRIVERS
8350-GASOLINE DEALER & DRIVERS
8393-AUTOMOBILE BODY REPAIR
8500-METAL SCRAP DEALER & DRIVERS
8. UNDERWRITING
In connection with its underwriting responsibilities under this
Agreement Manager shall underwrite on behalf of Company authorized
insurance business pursuant to the guidelines as set forth in the
attached Addendum(s) to this Agreement. In no event shall Manager be
liable to the Company or any other person for claims against the
Policy arising out of the risks underwritten or for underwriting
losses, except to the extent that such claims may be covered under the
provisions of Section 25, Indemnification, below.
9. CLAIMS ADMINISTRATION
In connection with its authority and responsibilities under this
Agreement, the Manager shall:
A. Receive and examine, on behalf of the Company, all reports of loss,
potential liability or formal claims under policies issued during the
term of this Agreement;
B. Investigate, including investigation of other available
<PAGE>
insurance, and adjust, settle or deny all claims in accordance with
the terms of the applicable policy and applicable laws and subject to
the ultimate authority of the Company as provided in Section Nine
hereof;
C. Establish and adequately reserve a claim file for each claim for which
there is anticipated liability and/or a formal claim has been made and
code such claim in accordance with such reasonable statistical data
requirements as may be mutually agreed upon, such agreement not to be
unreasonably withheld by either party. All claims files shall be the
joint property of the Company and Manager. However, upon an order of
liquidation of the Company such files shall become the sole property
of the Company or its estate. In such instance the Manager shall have
reasonable access to and the right to copy the files on a timely
basis;
D. Make timely payments of valid claims under applicable policies issued
under the program, together with Allocated Loss Adjustment Expenses,
out of funds provided by the Company pursuant to Section 11, hereof
subject to the limitations and requirements of this Agreement. If an
authorized representative of the Company directs in writing by
facsimile or certified mail that any payment not be made, and if after
receipt of such notice Manager nevertheless makes such payment, the
Company shall be under no obligation to repay Manager for such
payment;
E. Maintain an accurate and complete claim file on each reported claim
which shall be available during normal business hours for inspection
by the Company, its representatives or by appropriate regulatory
authorities. The Company shall have the right to copy any and all
claims files or any documents related to any claim. Manager shall
maintain and store closed claim files for no less than one year after
the expiration of the statute of limitations applicable to each claim
file;
F. Provide all information necessary to the Company to allow it to timely
file all legally required forms and reports with the appropriate state
and federal agencies, including but not limited to filings required by
Section 6041 of the Internal Revenue Code;
G. In connection with the performance of its obligations under this
Agreement, provide trained, competent, and where required licensed
claims adjusters and perform the services to be rendered hereunder in
a manner commensurate with the highest professional standards, in good
faith, and in accordance with all applicable laws and regulations. At
no time shall the case load
<PAGE>
per claims adjuster exceed 225 claims without the prior written
approval of the Company;
H. Protect any subrogation rights to the Company which may arise upon
payment of claims and notify the Company of any subrogation rights
which may be available to the Company. At the direction of the
Company, Manager shall pursue on the Company's behalf the Company's
subrogation rights through litigation or otherwise, and the cost of
such litigation shall be treated as an Allocated Loss Adjustment
Expense;
I. Perform all administrative and clerical work in connection with claims
including the preparation of checks and/or drafts drawn on the loss
fund established herein; and
J. Respond immediately to any inquiry, complaint or request received from
an Insurance Department, other Regulatory Agency, client, claimant,
agent, broker, or other interested party relating to a claim serviced
under this Agreement; a copy of the original inquiry from any
Insurance Department or other regulatory agency and the Manager's
response shall be provided in a timely manner to Company.
10. CLAIMS SETTLEMENT AUTHORITY
A. Unless otherwise advised by the Company, Manager shall have authority
and control in all matters, pertaining to the handling of claims under
this Agreement, except which involve or which are expected to involve
aggregate expenditures (of loss Adjustment Expenses) in excess of
$25,000. For claims in excess of this amount, or for claims involving
a coverage dispute or open for more than six months, Manager shall
provide Company with a Narrative Serious Loss Report and a copy of the
claim file. The Narrative Serious Loss Report shall be in a form as
may be mutually agreed upon, such agreement not to be unreasonably
withheld by either party. Additional Narrative Serious Loss Reports
shall be submitted whenever there is a change in the reserve on such
claims. Unless otherwise advised by the Company, Manager shall
continue to handle the claim but shall not settle the claim without
first obtaining the approval of the Company.
B. Manager shall not, without prior approval of the Company, collect any
payment from a reinsurer or commit the Company to any claim settlement
with a reinsurer. If the Company gives prior approval, Manager shall
promptly forward a report to the Company.
C. The Company shall retain ultimate settlement authority
<PAGE>
for all claims serviced under applicable policies issued under the
Program. Notwithstanding the authority delegated to Manager under
this Agreement Company shall have the option of taking over the
handling and settlement of any or all claims upon 30 days written
notice to Manager and Manager's failure to cure and/or comply with
Company's objections.
D. Manager shall comply with such reasonable claims procedures and
guidelines established by Company in accordance with industry
standards and provided to Manager.
11. DRAFT AUTHORITY AND ISSUANCE
A. Manager shall have authority in a fiduciary capacity to draw upon a
bank account (the "Loss Payment Account") which shall be established
in a bank which is a member of the Federal Reserve System for use in
payment of claims. Such authority may be revoked at any time by the
Company upon written notice. Initial funding of the Loss Payment
Account will be in the amount of $10,000. The Loss Payment Account
will be replenished monthly by the Company to an amount equal to two
(2) months estimated paid losses upon receipt of required monthly
accountings as set forth in Section 12(D). The Company may review the
adequacy of the account at any time and increase or decrease the
account as necessary. The Manager shall be required, upon the request
of the Company, to remit promptly any funds in the account in excess
of the required by the Company. The Loss Payment Account Shall, to
the extent permitted by law, be an interest bearing account, with all
accrued interest, less any applicable income taxes, to be applied to
the loss fund for the payment of claims.
B. Only those persons to whom Company specifically grants authority in
writing shall issue any check upon the Loss Payment Account. Such
authority may be revoked upon written notice to the appropriate
parties. The Company shall designate two of its employees or
representatives as authorized signatories on such account.
C. Checks in excess of $25,000 shall require the prior approval of
Company. Checks in excess of $5,000 shall require the signatures of
Two Manager employees.
D. All checks shall be accounted for by Manager as on hand, issued,
voided, or canceled. Manager shall provide a monthly account to the
Company within fifteen (15) days after the end of the month for which
the account is given. Manager shall have the
<PAGE>
responsibility for balancing the Loss Payment Account. A duplicate
copy of all statements shall be sent to the Company by Manager.
Copies of checks issued by the Company, and agreed to by Manager, such
agreement not to be unreasonably withheld.
12. RECEIPT OF FUNDS/ACCOUNTS/REPORTS
A. Accounts of money due the Company on the business written by the
Manager with the Company shall be made, and the balance therein shown
to be due shall be paid, not later than thirty (30) days after the
close of the month in which the premium is written.
B. Manager is authorized to use premium financing through unaffiliated
licensed premium finance companies on Policies issued under this
Agreement. Premiums paid to Manager by premium finance companies
shall be accounted for and paid to Company as received by Manager, and
in no event shall Manager hold any such financed premiums longer than
allowed by Section 12(A) of this Agreement. Manager shall provide all
services related to premium financing, including but not limited to
promptly and appropriately responding to all correspondence and
notices related to such premium financing. Manager shall ensure that
all pro rata refunds of premium due to premium finance companies are
properly accounted for and paid to premium finance companies, and
shall be liable for any such amounts improperly paid to the insured.
C. All premiums collected by the Manager are to be held in a fiduciary
capacity for the Company in an account in a bank which is a member of
the Federal Reserve System, and are the property of the Company. Any
interest earned in such account shall accrue for the benefit of the
Manager. The burden of collection of such premium shall be borne by
the Manager. The Manager has no interest in the premiums collected by
it and shall make no deductions therefrom before paying the same to
the Company except for the compensation authorized in Section 18. The
Manager shall not make personal use of such premium funds either in
paying expenses of the Manager or otherwise.
D. The Manager shall report to the Company not later than thirty (30)
days after the close of each month, in a form and manner acceptable to
the Company, statements of premium written:
1. All Policies and/or certificates issued;
2. Changes and cancellations;
<PAGE>
3. Premium statements.
E. Manager shall provide to Company on a monthly basis loss runs
detailing by report period, year to date and inception to date figures
the following information by accident date: policy number (if more
than one), claim number, state, location number, total incurred
expense, broken down by loss coverage/peril, allocated loss adjustment
expense, outstanding reserve (loss and loss adjustment), salvage,
subrogation, and such other information requested by Company or
Insured and agreed to by Company.
13. BOOKS AND RECORDS
A. The Manager shall separately maintain true, accurate and complete
records and accounts of all transactions arising out of this
Agreement. Said records and accounts shall be maintained at all times
in such a manner and form as may be agreed to by the Company and in
accordance with generally accepted accounting and insurance practices
and applicable state records retention statutes.
B. It shall be the duty of the Manager, unless the Company relieves it of
the same, to prepare and submit to the Company the underwriting and
statistical data applying to the business it does for the Company for
the Company's Annual Statement and other reports required of the
Company by states for business the Manager does for the Company.
C. All records and accounts or other documents relating to the business
of the Company arising out of this Agreement are the property of the
Manager and shall be subject at all reasonable times to inspection,
duplication and/or audit by a duly authorized representative of the
Company, including representatives of regulatory agencies. In the
event of termination of this Agreement, such records, accounts and
documents will be made available to the Company for inspection and
copying at the Manager's office after termination. Manager shall
either (i) maintain such materials for a period of five (5) years
after the date of termination of this Agreement or (ii) provide for
the transfer of said records to the Company. All such copies and/or
transfers shall be at the expense of the Company.
D. All supplies furnished to the Manager by the Company shall remain the
property of the Company and shall be returned to the Company or its
representative promptly upon termination of this Agreement. All other
supplies
<PAGE>
furnished or maintained by Manager, including blank policy forms,
shall be destroyed by Manager upon termination of this Agreement.
E. The audited books and accounts of the Company and the Manager shall be
acceptable as full and final evidence in all matters relating to this
Agreement.
14. COMPLIANCE WITH REGULATIONS AND LAWS
A. In the conduct of business under this Agreement, the Manager shall
promptly and fully comply with all instructions, rules and regulations
as it may receive from the Company and with all applicable laws,
regulations and rulings, including but not limited to Managing General
Agents laws, by any governmental authority, agency, bureau or
commission having jurisdiction. All certificates and policies of
insurance will be issued and delivered, and, when required,
countersigned, pursuant to the applicable laws, regulations and
rulings of any governmental authority, agency, bureau or commission.
In those states where the Company is qualified as a surplus lines
insurance company, the Manager shall act only through a resident
surplus lines broker.
B. In the conduct of business under this Agreement, the Company will
observe and comply with all applicable laws, regulations and rulings
by any governmental authority, agency, bureau or commission having
jurisdiction.
C. Manager shall, at its sole expense, provide for required
countersignatures on policies written pursuant to this Agreement.
Where possible, the Company will assist Manager in obtaining
countersignatures. The Manager shall not bind the Company to any risk
with regard to which the Company shall previously have notified the
Manager in writing that such risk is excluded from the business
hereunder. The Manager will cancel any risk forthwith, at the
instruction of the Company.
15. AUDIT RIGHTS
A. In order to assure itself of Manager's compliance with the terms of
this Agreement, Company, upon reasonable written notice to Manager,
shall have the right to conduct audits of the books and records of
Manager either with its own employees or independent outside auditors
during normal working hours. Such audits shall include but not be
limited to: (i) annual independent actuarial review of the adequacy
of loss
<PAGE>
reserves established for losses incurred and outstanding and (ii)
semi-annual on-site review of underwriting and policyholder service
operations.
B. Upon reasonable written notice, Manager shall permit authorized
employees and representatives of the Company to review the operations
of Manager, both at its places of business and in the field, in order
to evaluate the quality and accuracy of Manager's employees and
operations.
16. ADVERTISING AND SOLICITATION MATERIALS
The Manager agrees that no pamphlets, booklets, advertising materials,
or any other promotional materials relating to the Company shall be
used, issued or circulated by Manager, or authority to do so granted
to Manager, unless specifically authorized by the Company, such
authorization not to be unreasonably withheld. Company shall promptly
respond to any submission of such materials by Manager.
17. EXPENSES
A. The Manager shall incur, accept and pay certain expenses in connection
with the production, marketing and servicing of the insurance
business, written under this Agreement, including but not limited to
the following:
1. Printing of proposals, booklet certificates, solicitation
brochures, premium notices, record and reports, and all documents
and other materials required to fulfill the obligation of the
Manager under this Agreement;
2. Promotional advertising and public relations expenses;
3. The Manager's general office expenses, including but not limited
to rent, salaries, utilities, transportation, furniture,
fixtures, equipment, supplies, telephone, postage and other
general overhead expenses.
B. The Company shall not be responsible for any fees or expenses incurred
by the Manager, its employees, agents or brokers to obtain or maintain
licenses required to perform activities relating to this Agreement.
18. COMPENSATION
<PAGE>
A. Subject to compliance by the Manager with the terms and conditions of
this Agreement, the Company will allow Manager the following as full
compensation for all services rendered and expenses incurred by Manager:
1. An amount equal to a percentage of the Gross Collected Premium
specified in the attached Addendum(s) on the business coming
under this Agreement. Gross Collected Premium shall include
adjustments for termination of policies and for increases and
decreases in policy premiums.
B. The Manager shall not be entitled to any compensation for services of
any kind rendered to or on behalf of the Company except as described
in this Agreement.
19. COMMISSION REFUNDS
Commissions paid to the Manager on canceled policies and reduced
premiums shall be refunded to the Company at the same rates at which
such commissions were originally earned by the Manager.
20. LAWS GOVERNING
This Agreement, including the provisions relating to arbitration,
shall be governed by the laws of the Commonwealth of Pennsylvania.
21. INSURANCE
A. Manager shall, at all times during this Agreement, maintain:
1. An Errors and Omissions Policy covering all officers and
employees, issued by an admitted insurer or by Lloyd's
Underwriters, providing coverage of not less than $5,000,000,
with a per occurrence deductible not to exceed $1,000,000;
2. A Fidelity Bond covering all officers and other employees of
Manager, issued by an admitted insurer or by Lloyd's
Underwriters, in an amount not less than $5,000,000, with a
deductible not to exceed $25,000; and such other Bond as may be
required for the protection of the Company by any governmental
authority, agency, bureau or commission having jurisdiction;
3. Workers Compensation Insurance under the laws of the states in
which operations are conducted;
<PAGE>
4. Comprehensive General Liability Insurance with limits of not less
than $1 million including contractual liability and personal
injury for libel, slander and assault insuring this Agreement
(with any per occurrence deductible not to exceed $25,000);
B. Company shall have the right to inspect each of the above-mentioned
policies and bonds and Manager shall cause its insurers to provide
Company with a certificate of insurance or other evidence of coverage
which provides Company with 30 days notice of cancellation;
22. ERRORS AND OMISSIONS
Inadvertent delays, errors and/or omissions made in connection with
this Agreement shall not relieve either party from any liability which
would have attached had such delays, errors or omissions not occurred;
provided that such delays, errors or omissions shall be rectified as
soon as possible after discovery.
23. ARBITRATION
A. As a condition precedent to any right of action hereunder, any dispute
or difference between the Company and the Manager relating to the
interpretation or performance of this Agreement, including its
formation or validity, or any transaction under this Agreement,
whether arising before or after termination, shall be submitted to
binding arbitration.
B. Upon written request of any party, each party shall choose an
arbitrator and the two chosen shall select a third arbitrator. If
either party refuses or neglects to appoint an arbitrator within 30
days after receipt of the written request for arbitration, the
requesting party may appoint a second arbitrator. If the two
arbitrators fail to agree on the selection of a third arbitrator
within 30 days of their appointment, each of them shall name three
individuals, of whom the other shall decline two, and the decision
shall be made by the Federal District Court for the Eastern District
of Pennsylvania. All arbitrators shall be active or retired officers
of insurance companies or insurance agencies, and disinterested in the
outcome of the arbitration. Each party shall submit its case to the
arbitrators within 30 days of the appointment of the third arbitrator.
<PAGE>
C. The parties hereby waive all objections to the method of selection of
the arbitrators, it being the intention of both sides that all the
arbitrators be chosen from those submitted by the parties.
D. The arbitrators shall have the power to determine all procedural rules
for the holding of the arbitration including but not limited to
inspection of documents, examination of witnesses and any other matter
relating to the conduct of the arbitration. The arbitrators shall
interpret this Agreement as an honorable engagement and not as merely
a legal obligation, they are relieved of all judicial formalities and
may abstain from following the strict rules of evidence. The
arbitrators may award interest and costs. Each party shall bear the
expense of its own arbitrator and shall share equally with the other
party the expense of the third arbitrator and of the arbitration.
24. MANAGER TO ACT AS INDEPENDENT CONTRACTOR
The Manager shall be and act as an independent contractor. Nothing
contained herein shall be construed to create the relationship of
employer and employee between the Company and the Manager.
25. INDEMNIFICATION
A. Manager agrees to indemnify, defend and hold harmless Company, their
officers, agents and employees, from and against any and all
liability, loss, damage or expense, including extracontractual and
punitive damages and attorney's fees, incurred in connection with
claims or demands for damages of any nature whatsoever, to the extent
arising from or caused by any act or omission, tortious or otherwise,
of Manager, its officers, agents or employees.
B. Company agrees to indemnify, defend and hold harmless Manager, its
officers, agents and employees, from and against any and all
liability, loss, damage or expense, including extracontractual and
punitive damages and attorney's fees, incurred in connection with
claims or demands for damages of any nature whatsoever, to the extent
arising from or caused by any act or omission, tortious or otherwise,
of Company, its officers, agents or employees.
26. REPRESENTATIONS AND WARRANTIES
A. Company warrants and represents that the transactions
<PAGE>
contemplated hereby are (i) within the corporate powers of Company,
(ii) have been duly authorized by all necessary corporate action of
Company; (iii) constitute the legal, valid and binding obligations of
Company, enforceable against it in accordance with its terms; and (iv)
do not and will not conflict with, result in a breach in any of the
provisions of; or constitute a default under the provisions of any
law, regulation, licensing requirement, charter provision, by-law or
other instrument applicable to Manager or its employees or to which
Manager is a party or may be bound.
B. Manager warrants and represents that the transactions and activities
contemplated hereby are (i) within the corporate powers of Manager;
(ii) have been duly authorized by all necessary corporate action of
Manager; (iii) constitute the legal, valid and binding obligations of
Manager, enforceable against it in accordance with its terms; and (iv)
do not and will not conflict with, result in a breach in any of the
provisions of, or constitute a default under the provisions of any
law, regulation, licensing requirement, charter provision, by-law or
other instrument applicable to Manager or its employees or to which
Manager is a party or may be bound.
C. Manager warrants and represents that it or an officer or employee is
licensed as an agent or producer in all states in which business is
written under this Agreement.
27. TERMINATION
A. This Agreement may be terminated at any time by the mutual agreement
of the parties.
B. This Agreement may be terminated by Company as follows:
1. Upon 30 days written notice in the event of a material default in
this Agreement by Manager, unless the Manager has remedied such
default prior to the end of the thirty (30) day period;
2. Immediately upon written notice in the event of fraud,
abandonment, gross or willful misconduct, insolvency, or lack of
legal capacity to act on the part of Manager;
3. Immediately upon written notice in the event Manager cancels or
non-renews fifty percent(50%) or more of the business written
pursuant to this Agreement in order to place the business with a
carrier other than Legion Insurance Company.
<PAGE>
C. This Agreement may be terminated by Manager as follows:
1. Upon 30 days written notice to Company in the event of a material
default in this Agreement by Company, unless the Company has
remedied such default prior to the end of the thirty (30) day
period;
2. Immediately upon written notice in the event of fraud,
abandonment, gross or willful misconduct, insolvency, or lack of
legal capacity to act on the part of Company;
3. Upon 30 days written notice to Company in the event the Company
withdraws the Manager's authority to write business on risks
located in a state where more than 10% of the business written
under this Agreement is written.
D. Termination in whole or in part of reinsurance of the Company on
business covered by this Agreement shall result in the suspension of
all authority granted to the Manager under this Agreement to assume
business on behalf of the Company. Company shall give manager prompt
notice of the termination of reinsurance, and shall endeavor to give
such notice at least 90 days prior to such termination. In no event
will notice be less than 30 days prior to termination.
E. This Agreement shall terminate automatically without notice in the
event of the bankruptcy, insolvency, liquidation or assignment for the
benefit of creditors by either party, or if there is any material
change in the ownership or control of the other party.
F. This Agreement may be terminated by the Company or Manager at any time
if the Company determines that any law or regulation of a federal,
state or local government has rendered this Agreement illegal; but
only insofar as this Agreement applies to such jurisdiction.
G. Upon termination of this Agreement, no charges shall be made by the
Manager or Company for services in settlement of accounts or winding
up of affairs between the Company and the Manager.
H. If this Agreement is terminated, neither party shall have any claim
against the other for loss of prospective profits or fees or damage to
business arising therefrom.
I. In the event of termination of this Agreement, any business written
hereunder and remaining with the
<PAGE>
Company shall be permitted to continue to normal expiration; provided,
however that if the renewal date of any annual policy shall occur
within a period of ninety (90) days after the date of termination of
this Agreement, and such renewal shall have had renewal terms already
committed, such policy shall be renewed and permitted to continue in
force until its next annual renewal date.
J. In the event of termination of this Agreement:
1. The Manager shall promptly cease all solicitation and
underwriting activities provided for hereunder;
2. The administration obligations of the Manager to the Company
including but not limited to, policy servicing, record keeping
and reporting functions, specified in this Agreement shall
survive and shall continue to be discharged promptly by the
Manager for a period of seven (7) years after the last item of
insurance business written pursuant to this Agreement has been
canceled or otherwise terminated.
K. Notwithstanding the termination of this Agreement as hereinabove
provided, the provisions of this Agreement shall continue to apply to
the extent needed for all obligations and liabilities incurred by each
party hereunder prior to such termination to be fully performed and
discharged by such parties.
L. In the event of the termination of this Agreement, the Manager's use
and control of all expirations of business produced by Manager or sub-
agents and local agents under the Program, and subject to the
Company's rights to copies of such records, the Manager's work product
and records relating thereto, shall be deemed the property of the
Manager or sub-agents and local agents and left in its undisputed
possession. The Company shall not use its records of those
expirations in any marketing method for the sale, service or renewal
of any form of insurance coverage, or other product which shall
abridge the Manager's rights of ownership, use and control, and the
Company shall not refer or communicate this expirations information or
work product to any other agent or broker. Nothing in this paragraph
shall modify in any way the Company's right to and ownership interest
in all claims files and related information, including computer data
relating to such claims, for claims on policies and certificates
issued by or on behalf of the Company.
M. In the event of the termination of this Agreement and
<PAGE>
the Program, the Company shall cooperate with Manager in Manager's
efforts to place all business under this Program with another insurer
to the extent Company's cooperation is required for a successful
transition to such a new insurer.
28. LEGAL ACTION
The Manager and Company shall not take legal action against any third
party in connection with any matter pertaining to the business of the
other party without the written consent of the other party. Each party
shall promptly notify the other party any legal action or threat of
legal action involving that party with respect to any matters which
are the subject of this Agreement.
29. PRIVACY
A. Pursuant to the provisions of the Insurance Information and Privacy
Protection Act, as enacted in various states, Manager recognizes that,
in the performance of its obligations under this Agreement, Company
may disclose personal or privileged information about individuals
collected or received in connection with insurance transactions.
Since the disclosure of such information is protected by law, Manager
agrees that it will not redisclose such information without the
individual's written authorization, unless such disclosure is
permitted by law.
B. Pursuant to the provisions of the Insurance Information and Privacy
Protection Act, as enacted in various states, Company recognizes that,
in the performance of its obligations under this Agreement, Manager
may disclose personal or privileged information about individuals
collected or received in connection with insurance transactions.
Since the disclosure of such information is protected by law, Company
agrees that it will not redisclose such information without the
individual's written authorization unless such disclosure is permitted
by law.
30. CURRENCY
All amounts due to either party hereunder shall be payable in United
States currency.
31. ASSIGNMENT/SUBCONTRACTING
<PAGE>
A. This Agreement shall not inure to the benefit of any successor-in-
interest of the Manager nor may any interest or obligation of the
Manager under this Agreement be assigned in whole or part by the
Manager without the written consent of the Company.
B. The obligations of the Manager under this Agreement may not be
subcontracted to any party without the express prior written consent
of the Company, provided that such subcontract shall not relieve the
Manager of its duties and obligations under this Agreement.
C. This Agreement shall not inure to the benefit of any successor-in-
interest of the Company, nor may any interest or obligation of the
Company under this Agreement be assigned in whole or part by the
Company without the written consent of the Manager.
D. The obligations of the Company under this Agreement may not be
subcontracted to any party without the express prior written consent
of the Manager, provided that such subcontract shall not relieve the
Company of its duties and obligations under this Agreement.
32. NOTICES
All notices, requests, consents and other communications by either
party, arising out of this Agreement, must be in writing and addressed
as follows:
If to Company:
Legion Insurance Company
One Logan Square
Suite 1400
Philadelphia, PA 19103
Attention: Andrew S. Walsh
General Counsel
If to Manager:
Stirling Cooke Insurance Services, Inc.
2801 Fruitville Rd., Suite 250
Sarasota, FL 34237
Attention: Jack F. Arnold
President
33. HEADINGS
The subject headings of the Sections of this Agreement are included
for purposes of identification and convenience only and shall not
affect the construction
<PAGE>
or interpretation of any of its provisions.
34. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding of the parties and
supersedes any prior agreement or understanding relating to the
subject matter hereof. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other
provision, whether or not similar, nor shall any waiver constitute a
continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
35. MODIFICATION
This Agreement may only be revised and/or modified in writing and must
be accepted by both the Company and the Manager. No other change,
modification, addition or deletion to any portion of this Agreement
will be valid or binding upon either the Company or the Manager.
Neither a representative of the Company nor the Manager has authority
to waive any of the provisions of this Agreement or to modify or
change any of its terms and conditions, except as provided herein.
36. HONORABLE UNDERTAKING
This Agreement is made in good faith and it is understood that all
questions not specifically answered in the Agreement shall be settled
in accordance with the custom and usage established in the industry.
37. EXECUTION
This Agreement shall not go into force until duly executed on behalf
of the Manager and the Company.
IN WITNESS WHEREOF, the parties have set their hands:
at Philadelphia, Pennsylvania at Sarasota, Florida
this _____ day of ____________, 19__ this 19th day of November, 1996
LEGION INSURANCE COMPANY STIRLING COOKE INSURANCE
SERVICES, INC.
By: /s/ By: /s/
-------------------- -------------------
Allen G. Barry, III Jack F. Arnold
Vice President President
WITNESS: WITNESS: /s/
<PAGE>
ADDENDUM 1
This Addendum dated effective August 15, 1995 is attached to and made
a part of the Agreement by and between Legion Insurance Company and Stirling
Cooke Insurance Services, Inc., dated as of August 15, 1995.
BUSINESS COVERED: Workers Compensation/Employers Liability Insurance on
business produced by Stirling Cooke Insurance Services,
Inc.
LIMITS OF LIABILITY: Workers Compensation: Statutory
Employers Liability: up to $1,000,000 Per Occurrence
EXCLUSIONS: Per underwriting guidelines agreed to by the parties
TERRITORY: Risks located in Florida, Louisiana, South Carolina &
North Carolina and such other states as may be added to
this by separate writing
POLICY PERIOD: Policies commencing during the period 8/15/95 through
8/15/96
POLICY CANCELLATION: As required by policy language, state statute, and per
underwriting guidelines agreed to by the parties
BASIS OF RATES: Per rating plan agreed to by the parties and filed with
such states as may be required
MAXIMUM ANNUAL Subject to total premium volume limitation under this
PREMIUM VOLUME: agreement of $2,000,000
---------
REMUNERATION: Company shall pay Manager 22% of Gross Collected
Premium (less cancellations and returns) for business
written during the term of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands:
at Philadelphia, Pennsylvania at Sarasota, Florida
this ____ day of _____________, 19__ this 19th day of November, 1996
LEGION INSURANCE COMPANY STIRLING COOKE INSURANCE
SERVICES, INC.
By: /s/ By: /s/
Allen G. Barry, III Jack F. Arnold
Vice President President
WITNESS: WITNESS:
<PAGE>
ADDENDUM 2
This Addendum dated effective August 15, 1996 is attached to and made
a part of the Agreement by and between Legion Insurance Company and Stirling
Cooke Insurance Service, Inc., dated as of August 15, 1995.
BUSINESS COVERED: Workers Compensation/Employers Liability Insurance on
business produced by Stirling Cooke Insurance Services,
Inc.
LIMITS OF LIABILITY: Workers Compensation: Statutory
Employers Liability: up to $1,000,000 Per Occurrence
EXCLUSIONS: Per underwriting guidelines agreed to by the parties
TERRITORY: Risks located in Florida, Louisiana, South Carolina &
North Carolina and such other states as may be added to
this by separate writing
POLICY PERIOD: Policies commencing during the period August 15, 1996
through August 15, 1997
POLICY CANCELLATION
AND NON-RENEWAL: As required by policy language, state statute, and per
underwriting guidelines agreed to by the parties
BASIS OF RATES: Per rating plan agreed to by the parties and filed with
such states as may be required
MAXIMUM ANNUAL Subject to total premium volume limitation under this
PREMIUM VOLUME: agreement of $2,000,000
REMUNERATION: Company shall pay Manager 22% of Gross Collected
Premium (less cancellations and returns) for business
written during the term of this Agreement.
IN WITNESS WHEREOF, the parties have set their hands:
at Philadelphia, Pennsylvania at Sarasota, Florida
this ____ day of _____________, 19__ this 19th day of November, 1996
LEGION INSURANCE COMPANY STIRLING COOKE INSURANCE
SERVICES, INC.
By: /s/ By: /s/
Allen G. Barry, III Jack F. Arnold
Vice President President
WITNESS: WITNESS:
<PAGE>
Exhibit 23.2
The Board of Directors
of Stirling Cooke Brown Holdings Limited
The audits referred to in our report dated April 23, 1997, except as to Note 18
which is dated June 30, 1997, included the related financial statements
schedules as of December 31, 1996, and for each of the years in the three-year
period ended December 31, 1996, included in the registration statement. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick
Hamilton, Bermuda
August 6, 1997
