<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1997
REGISTRATION NO. 333-34829
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1 TO
REGISTRATION STATEMENT
ON FORM S-1 UNDER
THE SECURITIES ACT OF 1933
------------------------
DELPHI INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
BERMUDA 6719 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
CHEVRON HOUSE CT CORPORATION SYSTEM
CHURCH STREET 1633 BROADWAY
HAMILTON, BERMUDA NEW YORK, NEW YORK 10019
(441) 295-3688 (212) 664-1666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
EXECUTIVE OFFICES)
</TABLE>
------------------------
Copies to:
<TABLE>
<S> <C>
JAMES R. CAMERON, ESQ. NICOLAS G. TROLLOPE, ESQ.
BAKER & MCKENZIE CONYERS DILL & PEARMAN
805 THIRD AVENUE CLARENDON HOUSE, CHURCH STREET
NEW YORK, NEW YORK 10022 HAMILTON, BERMUDA
TELEPHONE: (212) 751-5700 TELEPHONE: (441) 295-1422
FACSIMILE: (212) 759-9133 FACSIMILE: (441) 292-4720
</TABLE>
------------------------
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. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
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 OCTOBER 31, 1997
PROSPECTUS
DELPHI INTERNATIONAL LTD.
2,050,000 SHARES OF COMMON STOCK
(AND RIGHTS TO ACQUIRE UP TO 2,050,000 SHARES OF COMMON STOCK)
Delphi International Ltd., a Bermuda corporation (the "Company"), is
granting at no cost to holders of the outstanding Class A Common Stock, par
value $.01 per share ("Delphi Class A Common Stock"), of Delphi Financial Group,
Inc., a Delaware corporation ("Delphi"), to holders of the outstanding Class B
Common Stock, par value $.01 per share, of Delphi ("Delphi Class B Common Stock"
and, together with the Delphi Class A Common Stock, the "Delphi Common Stock"),
and to holders of options to purchase Delphi Common Stock, of record at the
close of business on the date of this Prospectus (the "Record Date"),
non-transferable rights (collectively, the "Rights") to purchase up to an
aggregate of 2,050,000 Common Shares, par value $.01 per share, of the Company
("Common Shares").
The Amended and Restated Bye-Laws (the "Bye-Laws") of the Company contain
certain provisions that limit the voting rights that may be exercised by certain
holders of Common Shares. The Bye-Laws provide that each holder of Common Shares
is entitled to one vote per share on all matters submitted to a vote of
shareholders, except that if, and so long as, the Controlled Shares (as defined)
of any person constitute 9.5% or more of the issued and outstanding Common
Shares, the voting rights with respect to the Common Shares owned by such person
shall be limited, in the aggregate, to a voting power of 9.5%, pursuant to a
formula specified in the Bye-Laws. Subject to the voting limitation set forth in
the preceding sentence, each Common Share will also entitle the holder thereof
to one vote per share on all matters required to be submitted to the
shareholders of the Company's wholly-owned subsidiary, Oracle Reinsurance
Company Ltd., a Bermuda company ("Oracle Re"). See "Description of Capital
Stock -- Common Shares -- Limitation on Voting Rights" and "-- Voting Rights in
Oracle Re."
Each record holder of Delphi Common Stock and options to purchase Delphi
Common Stock will receive one Right for every ten shares of Delphi Common Stock
and options to purchase Delphi Common Stock on an aggregate basis owned on the
Record Date. Each Right will entitle the holder to purchase one Common Share at
a purchase price anticipated to be ten U.S. dollars ($10.00) per share (the
"Exercise Price").
The exercise period for the Rights will expire at 5:00 p.m., New York City
time, on , 1997, unless extended by the Company (the "Expiration
Date"). Once made, subscriptions are irrevocable, and no alternative,
conditional or contingent subscriptions will be accepted by the Company. The
Company and certain of its officers and directors, certain officers, directors
and employees of Delphi, and Rosenkranz & Company, a principal shareholder of
Delphi (collectively, the "Standby Purchasers") will enter into an agreement
(the "Standby Agreement") prior to the closing of the Rights Offering pursuant
to which the Standby Purchasers will agree to purchase at the Exercise Price up
to 900,500 Common Shares (the "Standby Commitment Shares") underlying Rights
which are not exercised by the Expiration Date. See "The Rights
Offering -- Standby Agreement" and "Certain Relationships and Related
Transactions -- Standby Agreement." In consideration thereof, the Company has
agreed to sell to certain Standby Purchasers, at the Exercise Price, such number
of Common Shares equal to the positive difference, if any, between 150,000
Common Shares (the "Minimum Standby Commitment Shares") and the number of Common
Shares otherwise purchased assuming full exercise by all holders of Rights
pursuant to the Standby Agreement. The offering of Common Shares pursuant to the
Rights and the offering of Common Shares pursuant to the Standby Agreement are
collectively referred to in this Prospectus as the "Rights Offering." Following
completion of the Rights Offering, assuming full exercise by all holders of
Rights and without giving effect to the issuance of any Common Shares pursuant
to the Standby Agreement, the Standby Purchasers will beneficially own, in the
aggregate, approximately % of the Common Shares. In the event that Common
Shares are issued to the Standby Purchasers pursuant to the Standby Agreement,
the percentage of Common Shares to be held following completion of the Rights
Offering by persons who are not affiliated with the Standby Purchasers may be
very small.
The Company has filed with the Securities and Exchange Commission a
Registration Statement pursuant to the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the Rights offered hereby and the Common
Shares issuable upon the exercise thereof. Prior to the Rights Offering, there
has been no public market for the Common Shares or the Rights. See "The Rights
Offering -- Background" for factors considered by the Company in determining the
Exercise Price. The Company has applied for quotation of the Common Shares on
the Nasdaq National Market under the symbol "DLTD". See "Risk
Factors -- Possible Delisting of Common Shares from the Nasdaq National Market."
There can, however, be no assurance that an active trading market in the Common
Shares will develop or be sustained. The Rights are non-transferrable by the
holders thereof and no public market for the Rights will develop.
------------------------
AN INVESTMENT IN THE COMMON SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN EVALUATING AN INVESTMENT
IN THE COMMON SHARES.
------------------------
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>
==============================================================================================================
EXERCISE AND PROCEEDS TO THE
OFFERING PRICE COMPANY(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per Common Share................................................ $ $
- --------------------------------------------------------------------------------------------------------------
Total........................................................... $ $
==============================================================================================================
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(1) Before deduction of expenses estimated to be $ .
The date of this Prospectus is , 1997.
<PAGE> 3
The Company intends to furnish its shareholders with annual reports
containing audited consolidated financial statements and with quarterly reports
containing unaudited consolidated financial statements for each of the first
three quarters of each fiscal year, in each case prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP").
------------------------
NOTICE TO NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT
ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER
ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A
SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY
WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO,
ANY PERSON, SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE
MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
------------------------
FOR NORTH CAROLINA RESIDENTS ONLY:
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE OF THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER RULED UPON
THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. EACH NORTH CAROLINA BUYER UNDERSTANDS
THAT NEITHER THE COMPANY NOR ANY SUBSIDIARY OF THE COMPANY IS LICENSED AS AN
INSURANCE COMPANY IN NORTH CAROLINA NOR DOES EITHER MEET THE BASIC ADMISSION
REQUIREMENTS FOR LICENSING AS AN INSURANCE COMPANY IN NORTH CAROLINA.
------------------------
CONSENT UNDER THE EXCHANGE CONTROL ACT 1972 (AND REGULATIONS THEREUNDER)
HAS BEEN OBTAINED FROM THE BERMUDA MONETARY AUTHORITY FOR THE ISSUE AND TRANSFER
OF THE COMMON SHARES BEING OFFERED PURSUANT TO THE RIGHTS 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, RESPECTIVELY, ACCEPT NO
RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS OF ANY PROPOSAL OR FOR THE
CORRECTNESS OF ANY OF THE STATEMENTS MADE OR OPINIONS EXPRESSED HEREIN.
------------------------
In this Prospectus, references to "dollar" and "$" are to United States
currency, and the terms "United States" and "U.S." mean the United States of
America, its states, its possessions and all areas subject to its jurisdiction.
References in this Prospectus to "BD$" are to Bermuda currency.
i
<PAGE> 4
ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS
The Company is organized pursuant to the laws of Bermuda. In addition,
certain of the directors, officers and controlling persons of the Company, as
well as certain of the experts named herein, reside outside the United States,
and all or a substantial portion of their assets, and all of the assets of the
Company, are or may be located in jurisdictions outside the United States. As a
result, it may be difficult for investors to effect service of process within
the United States upon such persons who reside outside the United States or to
realize against them upon judgments of courts of the United States predicated
upon civil liabilities under the U.S. federal securities laws.
The Company has been informed by its Bermuda counsel, Conyers Dill &
Pearman, that the United States and Bermuda do not currently have a treaty
providing for reciprocal recognition and enforcement of judgments of U.S. courts
in civil and commercial matters and that 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, therefore, not be automatically enforceable in Bermuda. The Company
has also been advised by Conyers Dill & Pearman 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
U.S. federal securities laws, provided that the facts surrounding such violation
would constitute or give rise to a cause of action under Bermuda law.
The Company has irrevocably appointed the Service of Process Department at
CT Corporation System, 1633 Broadway, New York, New York 10019, as its agent to
receive service of process with respect to actions against it arising out of or
in connection with violations of the U.S. federal securities laws in any federal
or state court in the United States relating to the transactions covered by this
Prospectus.
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, included elsewhere in this Prospectus. See
"Glossary of Selected Insurance and Reinsurance Terms" for definitions of
certain terms used in this Prospectus. Unless the context otherwise requires,
references herein to the "Company" give effect to the formation of, and include,
its wholly-owned subsidiary, Oracle Reinsurance Company Ltd., a Bermuda company
("Oracle Re").
THE COMPANY
Following the completion of the Rights Offering, the Company, a
newly-formed Bermuda insurance holding company, will provide, through its
wholly-owned subsidiary, Oracle Re, excess of loss and quota share reinsurance
primarily for group employee benefit insurance products, including group
long-term disability and excess workers' compensation insurance, offered by
Reliance Standard Life Insurance Company ("RSL") and Safety National Casualty
Corporation ("Safety National"), insurance affiliates of Delphi. The Company
will also seek to expand its customer base and to develop additional products
and services. The Company has been organized to take advantage of reinsurance
and alternative risk market opportunities that it believes exist in the Bermuda
market.
The Company, through its wholly-owned subsidiary, Oracle Re, also intends
to provide risk financing products to clients seeking an alternative to
traditional commercial insurance for certain risk exposures. These risk
financing products include a retention by the client of a significant amount of
its loss exposure, the transfer of more unpredictable layers of loss to insurers
and a greater involvement by the client in risk management and loss prevention
and loss control. Oracle Re will offer these products in the so-called
"alternative market," which has developed in response to the volatility in cost
and availability of traditional commercial insurance coverage. The Company
intends to provide risk financing products through a facility frequently
referred to as a "rent-a-captive," which is designed to provide insureds with
certain of the benefits available through captive insurance companies without
the administrative costs and capital commitment necessary to establish and
operate their own captive insurance company. Oracle Re will offer its
rent-a-captive facility to clients of Safety National to manage their workers'
compensation expenses and may thereafter offer these services to additional
clients and other insurance exposures.
Regulatory Status of Oracle Re
In September 1997, the Bermuda Registrar of Companies (Insurance Division)
and the Insurers Admissions Committee of Bermuda reviewed Oracle Re's
application for licensing as a Class 3 and long-term insurance company. During
such reviews, the application was approved and, upon the due capitalization of
Oracle Re, which is to occur upon the consummation of the Rights Offering,
together with the filing of certain prescribed forms and the payment of certain
fees, Oracle Re will be issued a registration certificate under the Insurance
Act 1978 as a Class 3 and long-term Bermuda exempted insurer. Accordingly,
although Oracle Re has been incorporated under the laws of Bermuda, it is not
currently licensed to underwrite, although it has received all required
permissions to do so subject to its capitalization. Oracle Re will commence
underwriting business once it is licensed to do so.
Relationship with Delphi Financial Group, Inc.
Delphi is an insurance holding company engaged through RSL and Safety
National in offering a diverse portfolio of group employee benefit insurance
products, including life, short-term and long-term disability, excess workers'
compensation, special accident and dental insurance. RSL also offers asset
accumulation products, primarily annuities, to individuals and groups. Delphi is
publicly traded on the New York Stock Exchange and as of September 30, 1997, had
approximately $3.1 billion in total assets and a market capitalization of
approximately $800.0 million.
1
<PAGE> 6
RSL and Safety National have agreed, subject to the completion of the
Rights Offering, to participate in various reinsurance arrangements with Oracle
Re and to cede to Oracle Re portions of their existing portfolios of employee
benefits product insurance relating to their group employee benefit products,
for an aggregate premium of approximately $116.0 million. Oracle Re is also
currently in negotiations with RSL and Safety National with respect to the
ceding of certain prospective risks by such companies to Oracle Re with
aggregate annual premiums expected to range from $5.0 million to $10.0 million.
RSL is engaged in the sale of life, accident and health insurance products
targeted principally to the group employee benefits market. RSL insures groups
ranging from ten to more than 1,000 individuals, although the typical size of
the insured groups is between 100 to 300 individuals. In underwriting its group
employee benefit products, RSL tends to avoid concentrations of business in any
particular industry segment or geographic area. RSL is rated "A- (Excellent)" by
A.M. Best Company ("A.M. Best"), an independent insurance industry rating
organization, and its claims-paying ability is rated "A (Good Financial
Security)" by Standard & Poor's Corporation ("Standard & Poor's").
Safety National is an insurance specialist providing excess workers'
compensation and insurance products to the self-insured market. Safety National,
founded in 1942, is licensed in all 50 states and is one of the oldest
continuous writers of excess workers' compensation insurance in the United
States. Safety National's excess workers' compensation products provide coverage
to employers and groups who self-insure their workers' compensation risks. The
coverage underwritten by Safety National applies to losses in excess of the
applicable self-insured retentions or deductibles of employers and groups whose
workers' compensation claims are generally handled by third-party administrators
and is principally targeted to mid-size companies and association groups,
particularly small municipalities, hospitals and schools. These target markets
tend to be less prone to catastrophic workers' compensation exposures and are
less price sensitive than larger account business. Safety National is rated "A
(Excellent)" by A.M. Best and its claims-paying ability is rated "A (Good
Financial Security)" by Standard & Poor's.
Delphi and its affiliates are expected to enter into various agreements
with the Company and Oracle Re which will cover, among other things, investment
advisory services for Oracle Re, reinsurance arrangements with Oracle Re and the
purchase of a $30.0 million note (the "Note") from the Company upon completion
of the Rights Offering. Neither Delphi, RSL nor Safety National has any
obligation to provide capital or financial support to the Company or Oracle Re
except for the obligations pursuant to the Note. See "Management's Discussion
and Analysis of Financial Condition and Plan of Operation" and "Certain
Relationships and Related Transactions."
Business Strategy
The Company's objective is to provide reinsurance, through its wholly-owned
subsidiary, Oracle Re, initially to RSL and Safety National, and later to other
primary issuers, and alternative risk market products and services. The Company
intends to pursue the following business strategies:
- focus primarily on reinsurance for group employee benefit insurance
products, including group long-term disability and excess workers'
compensation insurance;
- utilize a rent-a-captive facility to fund captive client's risks;
- focus on sound underwriting specifying an adequate premium for a given
exposure commensurate with the amount of capital which Oracle Re
estimates is being placed at risk;
- focus on a long-term investment horizon and seek above-average returns
through reinvestment of funds held for reserves;
- develop a reputation as a financially-secure reinsurer and manage
prudently Oracle Re's risk exposure in relation to its capital base; and
- focus on generating consistent profits from fees received for the various
services provided to clients in connection with Oracle Re's
rent-a-captive facility.
2
<PAGE> 7
Oracle Re's rent-a-captive program will allow clients to participate in a
significant portion of their own loss exposure without the administrative costs
and capital commitment necessary to establish and operate their own captive
insurance company. A portion of the underwriting profit and investment income
produced by the client's rent-a-captive business will be returned to the client,
creating a direct incentive for the client to engage in loss prevention and loss
control and to reduce the overall cost of financing its loss exposures.
The Company's business strategy with respect to the rent-a-captive products
is to design reinsurance programs and to use the rent-a-captive facility to fund
captive clients' risks. These programs will be underwritten with the goal of
achieving an underwriting profit. Oracle Re typically will receive investment,
management and other fees for its captive insurance products and services, but
may also retain a degree of underwriting risk. While Oracle Re's initial focus
will be on workers' compensation products and services, the Company's strategy
anticipates that over time a more complete line of general insurance products
and services will be made available. The Company will incur certain costs
associated with implementing its business strategy. The Company anticipates that
a significant portion of these costs will consist of loss and loss adjustment
expenses on its insurance business. The Company will also incur ongoing
operating expenses, including U.S. federal excise taxes, profit sharing
commissions, and general and administrative costs, including costs incurred with
respect to its letters of credit facility, interest expense and salaries.
Oracle Re's investment strategy will focus on the management of its asset
and liability durations. Since Oracle Re's initial reinsurance transactions will
involve liabilities with long-term durations, Oracle Re will be able to invest
its assets in long-term duration investments. Oracle Re's investment objective
is to maximize returns while focusing on the preservation of capital,
diversification of risk and liquidity of investments. Oracle Re's assets will be
allocated among a number of investment managers with expertise in utilizing
different investment strategies. These broad strategies include, among others,
diversified hedging, hedged equity, common stock/specialized trading, short
selling, risk arbitrage, distressed securities, futures and commodities and
foreign securities investing. The managers primarily invest the assets in a
variety of marketable securities and other liquid assets. Oracle Re will invest
through the investment vehicles of the managers (generally in the form of a
corporation or partnership) or through managed accounts. Oracle Re will be able
to redeem its investment from substantially all the investment vehicles on at
least an annual basis with many of the managers providing quarterly or more
frequent liquidity. Oracle Re's multi-manager, multi-strategy approach is
designed to produce capital appreciation with reduced volatility.
------------------------
The Company was formed on September 2, 1997 under the laws of Bermuda. The
Company's principal executive offices are located at Chevron House, Church
Street, Hamilton, Bermuda, and its telephone number is (441) 295-3688.
THE OFFERING
Terms of Offering.......... Holders of record at the close of business on the
Record Date of the outstanding Delphi Common Stock
and options to purchase Delphi Common Stock will
receive one Right for every ten such shares and
options, on an aggregate basis. Each Right will
entitle the holder to purchase one Common Share at
a purchase price of $10.00 per share. Holders of
Rights will have the opportunity to acquire
approximately 2,050,000 Common Shares.
Exercise Price............. $10.00 per Common Share
Expiration Date............ , 1997 at 5:00 p.m., Eastern Standard Time
Rights..................... Rights will be evidenced by non-transferable
certificates that will be exercisable by the holder
until the Expiration Date, at which time
unexercised rights will become null and void.
Standby Agreement.......... The Company will enter into the Standby Agreement
with the Standby Purchasers prior to the closing of
the Rights Offering pursuant to which
3
<PAGE> 8
the Standby Purchasers will agree to purchase at
the Exercise Price up to 900,500 Common Shares (the
"Standby Commitment Shares") underlying Rights
which are not exercised by the Expiration Date. In
consideration thereof, the Company will agree to
sell to certain Standby Purchasers, at the Exercise
Price, such number of Common Shares equal to the
positive difference, if any, between 150,000 Common
Shares (the "Minimum Standby Commitment Shares")
and the number of Common Shares otherwise purchased
assuming full exercise by all holders of Rights
pursuant to the Standby Agreement.
Maximum Number of Common
Shares to be outstanding
after the Rights
Offering(1).............. 2,200,000 shares
Voting Rights.............. The Company. The Bye-Laws contain certain
provisions that limit the voting rights that may be
exercised by certain holders of Common Shares. The
Bye-Laws provide that each holder of Common Shares
is entitled to one vote per share on all matters
submitted to a vote of shareholders, except that
if, and so long as, the Controlled Shares (as
defined) of any person constitute 9.5% or more of
the issued and outstanding Common Shares, the
voting rights with respect to the Controlled Shares
owned by such person shall be limited, in the
aggregate, to a voting power of 9.5%, pursuant to a
formula specified in the Bye-Laws.
Oracle Re. Subject to the voting limitation set
forth above, each Common Share will also entitle
the holder thereof to one vote per share on all
matters required to be submitted to a vote of the
shareholders of Oracle Re.
Use of Proceeds............ The net proceeds from the Offering are estimated to
be approximately $ million. The Company intends
to contribute such net proceeds to the capital of
Oracle Re to be used to support its insurance
operations, including increasing its statutory
capital to support its underwriting capacity and
the Company will also use the proceeds for working
capital and general corporate purposes. See "Use of
Proceeds."
Risk Factors............... Prospective investors in the Common Shares offered
hereby should consider carefully the matters set
forth in "Risk Factors," as well as the other
information set forth in this Prospectus.
Proposed Nasdaq National
Market Symbol............ DLTD(2)
- ---------------
(1) Includes 2,050,000 Common Shares which may be issued upon exercise of the
Rights and 150,000 Minimum Standby Commitment Shares. Does not include
Common Shares underlying options which may be granted under
the Company's Director and Employee Stock Option Plan (the "Plan"). See
"Management -- Director and Employee Stock Option Plan." Gives effect to the
redemption upon the completion of the Rights Offering of the outstanding
1,200,000 Common Shares. See "Capitalization."
(2) See "Risk Factors -- Possible Delisting of Common Shares from the Nasdaq
National Market."
4
<PAGE> 9
RISK FACTORS
In evaluating the Company and its business, prospective investors should
consider carefully the following risk factors in addition to the other
information contained in this Prospectus.
NO OPERATING HISTORY
The Company was formed on September 2, 1997 and has no operating history.
Businesses which are starting up or in their initial stages of development
present substantial business and financial risks and may suffer significant
losses. They must develop business relations, establish operating procedures,
hire staff, obtain facilities and complete other tasks appropriate for the
conduct of their intended business activities. There can be no assurance that
the Company will be successful in implementing its business strategy. See
"Proposed Business."
DEPENDENCE ON CONTRACTUAL RELATIONSHIPS WITH DELPHI, RSL AND SAFETY NATIONAL
The Company and Oracle Re intend to enter into certain agreements with
Delphi, RSL and Safety National pursuant to which such entities will provide
services and cede reinsurance business to the Company and Oracle Re during the
organizational period of operations, as well as on an ongoing basis. Among these
agreements are various reinsurance agreements, pursuant to which RSL and Safety
National will, subject to the completion of the Rights Offering, cede to Oracle
Re certain portions of their existing portfolios of employee benefits product
insurance relating to their group employee benefit products, for an aggregate
premium of approximately $116.0 million. Oracle Re is also currently in
negotiations with RSL and Safety National with respect to the ceding of certain
prospective risks by such companies to Oracle Re with aggregate annual premiums
expected to range from $5.0 million to $10.0 million. The proposed reinsurance
transactions between the Company and Oracle Re and each of RSL or Safety
National are subject to regulatory approval. The reinsurance agreements will be
cancelable by Safety National or RSL, as the case may be, upon a Change of
Control (as defined therein) of the Company. The failure to enter into, or the
termination of, the reinsurance agreements would have a material adverse effect
on the Company.
INTENSE REINSURANCE COMPETITION, POTENTIAL ADVERSE IMPACT FROM ABSENCE OF
FINANCIAL RATING AND NON-ADMITTED STATUS
The reinsurance industry is highly competitive. Oracle Re will compete with
major domestic and foreign insurers and reinsurers, many of which have greater
financial, marketing and management resources than will Oracle Re. Competition
in the types of reinsurance business that Oracle Re intends to underwrite is
based on many factors, including the perceived financial strength of the
reinsurer, premium charges, other terms and conditions offered, services
provided, ratings assigned by independent rating agencies, speed of claims
payment and reputation and experience in the line of reinsurance to be written.
Ultimately, this competition could affect Oracle Re's ability to attract
business on terms having the potential to yield appropriate levels of profits.
Neither Oracle Re nor the Company is rated by A.M. Best's or by any other
insurance rating agency and is not expected to receive a rating until it has
accumulated at least five consecutive years of representative operating
performance. Insurance ratings are used by insurers and reinsurance
intermediaries as an important means of assessing the financial strength and
quality of reinsurers. In addition, a ceding company's own rating may be
adversely affected by the lack of a rating of its reinsurer. Therefore, the lack
of a rating may dissuade a ceding company from reinsuring with Oracle Re and may
influence a ceding company to reinsure with another company that has an
insurance rating.
Oracle Re is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda. Because many jurisdictions do not permit insurance companies
to take credit for reinsurance obtained from unlicensed or non-admitted insurers
on their statutory financial statements unless security is posted, Oracle Re's
reinsurance contracts are expected to require it to post a letter of credit or
other security. Although the Company has received commitments from a commercial
bank group for a standby letters of credit facility for the benefit of RSL and
Safety National and the Company believes that Oracle Re will obtain a letter of
credit facility on
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acceptable terms, there can be no assurance that Oracle Re will be able to
obtain a standby letters of credit facility on commercially acceptable terms or
if at all.
POTENTIAL REQUIREMENT TO LIQUIDATE ASSETS OF ORACLE RE
The Company's reinsurance subsidiary, Oracle Re, is not licensed or
admitted as an insurer in any jurisdiction other than Bermuda. Under the
proposed terms of the reinsurance agreements between Oracle Re and RSL and
Safety National, Oracle Re will be required to provide security, which it
expects will be in the form of a standby letters of credit facility, to RSL and
Safety National to support reinsurance recoverables owed to these reinsureds in
a form acceptable to the insurance commissioners of the States of Illinois and
Missouri, the domiciliary states of RSL and Safety National, respectively. The
standby letters of credit facility will permit RSL and Safety National to take
credit on their statutory financial statements for the reinsurance ceded to
Oracle Re, either as an additional asset or as a reduction in liability. The
Company has received commitments from a commercial bank group for a standby
letters of credit facility, for the benefit of RSL and Safety National which is
to be secured by Oracle Re's investment portfolio with an initial mark-to-market
maintenance requirement of at least 140% of the facility amount as well as a
negative pledge with respect to all other assets of Oracle Re. In the event that
Oracle Re should default under the standby letters of credit facility, it may be
required to liquidate all or a substantial portion of its investment portfolio
and/or its other assets which have been pledged as security for this facility or
otherwise secure its obligations to its reinsureds, which would likely have a
material adverse effect on the business and operations of the Company and Oracle
Re.
POTENTIAL ADVERSE CONSEQUENCES OF OPERATING IN ALTERNATIVE MARKET
Oracle Re's products and services will compete with other products in the
alternative insurance markets. Such competitive products include captive
insurance companies, rent-a-captives, self-insurance plans and cash flow
insurance products. Many of these competitive alternative market products are
offered by companies with significantly greater financial and other resources
than Oracle Re.
Business conditions in the alternative insurance market in which the
Company will compete are influenced by the traditional insurance market. Since
the late 1980s, the rates in the traditional insurance market have been soft and
the market has been characterized by excessive capital and competitive pricing
which the Company believes will make it easier to structure programs because of
the availability of coverage and decreased prices of reinsurance, but more
difficult to attract potential participants and sell programs because of
competition with traditional insurance products.
STRICT REGULATORY ENVIRONMENT
Oracle Re is not licensed or otherwise authorized to transact the business
of insurance in any jurisdiction except Bermuda. The insurance laws of each
state of the United States and of many non-U.S. jurisdictions regulate the sale
of insurance and reinsurance within their jurisdiction by insurers, such as
Oracle Re, which are not admitted to do business within such jurisdiction.
Oracle Re does not intend to maintain an office or to solicit, advertise, settle
claims or conduct other activities which may constitute the transaction of the
business of insurance in any jurisdiction in which it is not licensed or
otherwise authorized to transact the business of insurance. Accordingly, Oracle
Re does not believe that it will be in violation of insurance laws of any state
in the United States or of any other non-U.S. jurisdiction. There can be no
assurance, however, that inquiries or challenges relating to the activities of
Oracle Re or the Company will not be raised in the future or that Oracle Re's
location, regulatory status or restrictions on its activities resulting
therefrom will not adversely affect its ability to conduct its business.
In addition, RSL and Safety National are subject to insurance regulations
in their domiciliary states, Illinois and Missouri, respectively, which limit or
prohibit certain reinsurance transactions. Under these insurance regulations,
certain reinsurance agreements (and modifications thereto) between Oracle Re and
Safety National or RSL will be subject to the approval of the Director of
Insurance in their respective domiciliary state. RSL and Safety National have
provided written notice of their intention to enter into the
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proposed reinsurance transactions and will not be permitted to enter into such
reinsurance agreements unless the respective Director of Insurance fails to
object to the transaction within 30 days of receiving such notice. There can be
no assurance that the Director of Insurance in Illinois or Missouri will not
object to the proposed reinsurance transactions between RSL, Safety National and
Oracle Re.
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 have 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 Oracle Re to supervision and regulation in the United States,
which could have a material adverse effect on Oracle Re. In addition, no
assurance can be given that if Oracle Re 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. In general, the Bermuda
statutes and regulations applicable to Oracle Re are less restrictive than those
that would be applicable were it subject to the insurance laws of any state in
the United States. See "Regulation -- Bermuda."
HOLDING COMPANY STRUCTURE AND DIVIDEND RESTRICTIONS
The Company is a holding company with no operations or significant assets
other than its ownership of the capital stock of Oracle Re. Future dividends and
other permitted payments from Oracle Re are expected to be the Company's
principal source of funds to pay expenses, including the payment of principal
and interest on the Note, and to pay cash dividends on its capital stock, if
any. Oracle Re's ability to pay cash dividends is subject to limitations imposed
by the insurance laws and regulations of Bermuda, its jurisdiction of
incorporation and domicile, and are expected to be limited by the proposed terms
of the standby letters of credit facility. See "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Plan of Operation,"
"Regulation -- Bermuda" and Notes to Balance Sheet.
POTENTIAL INADEQUACY OF LOSS RESERVES
Oracle Re will establish loss reserves for the ultimate payment of all
losses and loss adjustment expenses ("LAE") incurred with respect to business
written by it. The reserves for losses and LAE will include reserves for unpaid
reported losses and LAE and for losses which have been incurred but have not yet
been reported ("IBNR"). Under U.S. generally accepted accounting principles
("U.S. GAAP"), Oracle Re is not permitted to establish loss reserves for its
employee benefit product reinsurance until an event or circumstance which may
give rise to a claim occurs. Reserves are estimates involving actuarial and
statistical projections at a given time to reflect Oracle Re's expectations of
the costs of the ultimate settlement and administration of claims. The
estimation of reserves by new reinsurers, such as Oracle Re, may be inherently
less reliable than the reserve estimations of a reinsurer with a stable volume
of business and an established loss history, although Oracle Re will have access
to the historical loss experience of Safety National and RSL for their business
that it reinsures. Actual losses and LAE paid may deviate, perhaps
substantially, from estimates reflected in Oracle Re's loss reserves in its
financial statements. If the loss reserves in respect of business written should
be inadequate, Oracle Re will be required to increase loss reserves with a
corresponding reduction in Oracle Re's net income in the period in which the
deficiency is identified. In addition, under Bermuda statutory accounting,
reinsurers may discount loss reserves and in the event there has been
discounting of loss reserves, the statutory financial return and statutory
financial statements shall include an opinion from a loss reserve specialist
(i.e., an actuary) where compliance with statutory ratios is not possible on an
undiscounted basis. There can, however, be no assurance that losses will not
exceed Oracle Re's loss reserves and have a material adverse effect on the
Company's financial condition or results of operations in a particular period.
See "Proposed Business -- Reserves."
FLUCTUATIONS IN PRICE OF COMMON SHARES DUE TO VOLATILITY OF REPORTED EARNINGS
The investment strategy proposed for the Company has historically involved
risk levels comparable with that of bond indices. Bonds are the type of
investment vehicle most typically held by insurance companies with liabilities
similar to that of the Company. There can, however, be no assurance that future
risk levels will not
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increase. In addition, to the extent that the Company invests in securities for
which mark-to-market valuation changes will be reflected in the Company's
statement of operations, it is anticipated that reported earnings for the
Company will have a high degree of volatility. As such, quarterly and annual
results may be difficult to predict. The result of this could be a reduction of
security analysts' and news media's coverage or investor interest in the
Company.
DISCRETIONARY AUTHORITY OF INVESTMENT ADVISORS AND INVESTMENT STRATEGY
Oracle Re will enter into an investment advisory agreement (the "Investment
Advisory Agreement") with Acorn Advisory Capital L.P. (the "Investment Advisor")
pursuant to which the Investment Advisor will have discretionary authority with
respect to its investments. The Company's success, therefor, will depend to a
great extent on the ability of the Investment Advisor to select appropriate
investments for Oracle Re and to allocate assets among investment managers. The
initial term of the Investment Advisory Agreement is until December 31, 1998 and
shall thereafter be automatically renewed for successive two-year terms, unless
terminated on 60 days' notice by either the Company or the Investment Advisor.
The Investment Advisor, together with its affiliates, has over fifteen
years of experience managing multi-manager, multi-strategy programs with
moderate levels of investment risk while achieving actual returns higher than
expected for the level of investment risk assumed. No assurance can be given,
however, that the returns on Oracle Re's investments will be similar to the past
returns achieved by the Investment Advisor.
The profitability of a significant portion of Oracle Re's investment
program will depend, to a great extent, upon accurate assessment by the
investment managers selected by the Investment Advisor of the future price
movements of stocks, bonds and other financial instruments relative to other
securities and/or relative to pertinent indices. There can be no assurance that
the various investment managers with whom investments are made will be able to
predict accurately these price movements.
The success of any investment activity is affected by general economic
conditions, which may affect the level and volatility of interest rates and the
extent and timing of investor participation in the markets for both equity and
interest-rate-sensitive securities. Unexpected volatility or illiquidity in the
markets in which Oracle Re directly or indirectly holds positions could impair
its ability to carry out its business or cause it to incur significant losses.
The institutions, including brokerage firms and banks, with which Oracle Re
(directly or indirectly) expects to do business, or to which securities will be
entrusted for custodial purposes, may encounter financial difficulties that
impair the operational capabilities or the capital position of Oracle Re or an
entity in which it has invested. Oracle Re and the Investment Advisor will
attempt to limit their transactions to well-capitalized and established banks
and brokerage firms in an effort to mitigate such risks, but there can be no
assurance that such transactions can be so limited, or that if limited in such
manner, will result in a mitigation of risks.
POTENTIAL U.S. TAX CONSEQUENCES
The Company and Oracle Re intend to operate their business in a manner that
will not cause them to be viewed as engaged in a trade or business in the United
States and, thus, will not require them to pay United States corporate income
taxes (other than withholding taxes). However, because there is considerable
uncertainty as to the activities which constitute being engaged in a trade or
business within the United States, there can be no assurances that the United
States Internal Revenue Service (the "IRS") will not contend successfully that
the Company or Oracle Re is engaged in a trade or business in the United States.
If the Company or Oracle Re were subject to U.S. income tax, the Company's
shareholders' equity and earnings could be materially adversely affected. See
"Certain Tax Considerations -- Taxation of the Company and Oracle Re -- United
States."
If Oracle Re has "related person insurance income" ("RPII"), determined on
a gross basis, greater than or equal to 20% of such company's gross insurance
income for any fiscal year, and if U.S. insureds or reinsureds or related
persons to them directly or indirectly own 20% or more of the voting power or
value of Oracle Re, each U.S. shareholder of the Company who owns Common Shares
(directly or through foreign
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entities) on the last day of such fiscal year may be required to include in such
shareholder's gross income for U.S. tax purposes a proportionate share of such
RPII. RPII is income of Oracle Re attributable to insurance or reinsurance
policies where the direct or indirect insureds are U.S. shareholders or are
related to U.S. shareholders. RPII may be included in a U.S. shareholder's gross
income whether or not such shareholder is a policyholder. While the Company
intends to operate its business and monitor the direct and indirect ownership of
its shares so that RPII is not reportable by its U.S. shareholders, due to the
factual nature of the question and the absence of IRS regulations in the area,
there can be no assurances of this result. See "Certain Tax
Considerations -- Taxation of Shareholders -- United States Taxation of U.S. and
Non-U.S. Shareholders."
Each "United States shareholder" of a "controlled foreign corporation"
("CFC") must include in its gross income for United States federal income tax
purposes its pro rata share of the CFC's "subpart F income," even if the subpart
F income is not distributed. For these purposes, any U.S. person who owns,
directly or indirectly through foreign persons, or is considered to own under
applicable constructive ownership rules of the Internal Revenue Code of 1986, as
amended (the "Code"), 10% or more of the total combined voting power of all
classes of stock of a foreign corporation, will be considered to be a "United
States shareholder." In general, a foreign insurance company such as Oracle Re
is treated as a CFC only if such "United States shareholders" collectively own
more than 25% of the total combined voting power or total value of the Company's
shares for an uninterrupted period of 30 days or more during any tax year. The
Company believes that, because of the dispersion of the Company's share
ownership and because of the restrictions on voting rights under the Company's
Bye-Laws, shareholders who acquire Common Shares in the Rights Offering will not
be subject to treatment as "United States shareholders" of a CFC. There can be
no assurance, however, that the CFC rules will not apply to shareholders of the
Company. Accordingly, U.S. persons who might, directly or through attribution,
acquire 10% or more of the Common Shares of the Company should consider the
possible application of the CFC rules. See "Certain Tax Considerations --
Taxation of Shareholders -- Classification of the Company or Oracle Re as a
Traditional Controlled Foreign Corporation."
ANTI-TAKEOVER CONSIDERATIONS
The Company's Bye-Laws contain certain provisions that may make more
difficult the acquisition of control of the Company by means of a tender offer,
open market purchase, proxy fight or otherwise. Pursuant to the Company's
Bye-Laws, the Company's Board of Directors may by resolution establish one or
more series of preferred shares having such number of shares, designations,
relative voting rights, dividend rates, liquidation and other rights,
preferences and limitations as may be fixed by the Board of Directors without
any further shareholder approval. In addition, the Company's Bye-Laws restrict
certain "business combinations" between the Company and an "interested
shareholder." While these provisions are designed to encourage persons seeking
to acquire control of the Company to negotiate with the Board of Directors, they
could have the effect of impeding or discouraging a prospective acquiror from
making a tender offer or otherwise attempting to obtain control of the Company.
To the extent these provisions discourage takeover attempts, they could deprive
shareholders of opportunities to realize takeover premiums for their shares or
could depress the market price of the shares. The Company's Bye-Laws will also
have the effect of rendering more difficult or discouraging unsolicited takeover
bids from third parties or the removal of incumbent management. Such provisions
include (i) providing for a staggered Board of Directors and (ii) limiting any
person owning more than 9.5% of the outstanding Common Shares to voting power of
9.5%. See " -- Limitations on Voting," "Management -- Staggered Board and
Committees of the Board" and "Description of Capital Stock -- The Bye-Laws." The
provision in the reinsurance agreements to be entered into with RSL and Safety
National which provides that they will have the right to terminate the agreement
in the event of a Change of Control (as defined therein) of the Company may also
have the effect of rendering more difficult or discouraging unsolicited takeover
bids from third parties. See "Proposed Business -- Reinsurance Agreements with
RSL and Safety National" and "Certain Relationship and Related Transactions."
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POTENTIAL CONFLICTS OF INTEREST, TRANSACTIONS WITH AFFILIATES AND BUSINESS
OPPORTUNITIES
In connection with the organization, initial financing and commencement of
operations of the Company, the Company and Oracle Re will enter into various
agreements with Delphi, RSL and Safety National which will cover, among other
things, investment advisory services for Oracle Re, reinsurance agreements,
pursuant to which RSL and Safety National are expected to agree to cede to
Oracle Re portions of their existing portfolio and certain ongoing risks
relating to their group employee benefit products. Delphi, RSL and Safety
National will also be party to various agreements with the Company with respect
to, among other things, the Note.
In addition, certain individuals who are directors of the Company and
Oracle Re are directors or officers of Delphi, RSL and Safety National.
Conflicts of interest could arise with respect to future transactions involving
Delphi, RSL or Safety National, on the one hand, and the Company or Oracle Re,
on the other hand, which may result in such transactions being negotiated not at
arms' length. Conflicts of interest could also arise with respect to business
opportunities that could be advantageous to Delphi, RSL or Safety National, on
the one hand, and the Company and Oracle Re, on the other hand. Delphi and its
affiliates may seek to participate in business opportunities which may be
suitable for the Company or Oracle Re.
PROPOSED LEGISLATION MAY NOT BE GRANTED
Oracle Re intends to seek a private act of the Bermuda Legislature in
November 1997 (the "Private Act") which will, among other things, allow it to
underwrite unsegregated insurance and reinsurance business and segregated cell
business within the same entity. The Private Act will allow Oracle Re to create
one or more cells or separate accounts (each, a "Separate Account") in which it
will segregate premiums, investment income and losses from one or more policies
and shall keep such funds separate and independent from other segregated and
unsegregated funds of Oracle Re. The Private Act, if granted, generally will
provide that the Separate Account is not chargeable with any liability arising
from any other business of Oracle Re and will not be subject to claims arising
out of other business Oracle Re may conduct. In the event that the Private
Legislation is not granted, as to which there can be no assurance, Oracle Re
will be unable to underwrite segregated cell business, which could limit the
amount of insurance and reinsurance business underwritten by Oracle Re and have
a material adverse effect on its business and results of operations. See
"Proposed Business -- Proposed Legislation."
POTENTIAL INABILITY TO MEET MINIMUM LIQUIDITY RATIO
The Insurance Act 1978 and related regulations (the "Act") provides that 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.
The Company intends to maintain significant investments in certain unquoted
equity securities which assets will not automatically be regarded as Relevant
Assets, as defined in the Act. However, the Company has made an application to
the Minister through the offices of the Registrar and has received a letter from
the Registrar indicating that there is sufficient evidence in Oracle Re's
application to support a recommendation to the Minister that the said
investments be treated as Relevant Assets on the basis that their underlying
financial strength is sustained by assets that are quoted investments under the
Act. However, the Registrar has noted in his letter that until such time as
Oracle Re is registered under the Act and a formal application is made, the
Minister's approval in this regard cannot be finalized. Oracle Re will be
registered under the Act once it has received the contribution of the net
proceeds of the Rights Offering from the Company. See "Use of Proceeds" and
"Capitalization." Oracle Re believes that it will be successful in obtaining the
permission of the Minister once it is registered because its application is
substantially similar to other applications approved by the Minister in this
context. In the event that the Minister's approval is not granted, as to which
there can be no assurance, Oracle Re will be unable to record the unquoted
equity securities as Relevant Assets for the purposes of meeting its minimum
liquidity ratio under the Act which could potentially limit the amount of
insurance business underwritten by it and may have a material adverse effect on
its business and results of operations.
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ABSENCE OF PUBLIC MARKET FOR COMMON SHARES
Prior to the Rights Offering, there has been no public market for the
Common Shares and there can be no assurance that an active trading market will
develop and continue upon completion of the Rights Offering or that the market
price of the Common Shares will not decline below the Exercise Price. The
Exercise Price was selected by the Company as an appropriate per share price for
initial trading purposes in light of the Company's desired capitalization. The
Rights are non-transferable by the holders thereof and no public market for the
Rights will develop.
POSSIBLE DELISTING OF COMMON SHARES FROM THE NASDAQ NATIONAL MARKET
While the Company anticipates that the Common Shares will initially be
included on the Nasdaq National Market, there can be no assurance that the
Company will meet the criteria for continued listing. Continued inclusion on the
Nasdaq National Market generally requires that (i) the Company maintain at least
$4.0 million in "net tangible assets" (total assets less total liabilities and
goodwill), (ii) the minimum bid price of the Common Shares be $1.00 per share,
(iii) there be at least 750,000 shares in the public float valued at $5.0
million or more, (iv) the Common Shares have at least two active market makers
and (v) the Common Shares be held by at least 400 holders.
If the Company is unable to satisfy the Nasdaq National Market's
maintenance requirements, the Common Shares may be delisted from the Nasdaq
National Market. In such event, trading, if any, in the Common Shares would
thereafter be conducted on the Nasdaq SmallCap Market, subject to meeting the
requirements for listing on the Nasdaq SmallCap Market, or in the
over-the-counter market in the so-called "pink sheets" or the NASD's "Electronic
Bulletin Board." Consequently, the liquidity of the Common Shares could be
impaired, not only in the number of securities which could be bought and sold,
but also through delays in the timing of transactions, reduction in security
analysts and the news media's coverage of the Company and lower prices for the
Common Shares than might otherwise be attained.
LIMITATIONS ON VOTING
The Company's Bye-Laws contain certain provisions that limit the voting
rights that may be exercised by certain holders of Common Shares. The Bye-Laws
provide that each holder of Common Shares is entitled to one vote per share on
all matters submitted to a vote of shareholders, except that if, and so long as,
the Controlled Shares of any person constitute 9.5% or more of the issued and
outstanding Common Shares, the voting rights with respect to the Controlled
Shares owned by such person shall be limited, in the aggregate, to a voting
power of 9.5%, pursuant to a formula specified in the Bye-Laws. See "Description
of Capital Stock -- Common Shares -- Limitation on Voting Rights."
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
The Company is organized pursuant to the laws of Bermuda. In addition,
certain of the directors and officers of the Company, as well as certain of the
experts named herein, reside outside the United States, and all or a substantial
portion of their assets, and all of the assets of the Company, at any one time
are or may be located in jurisdictions outside the United States. As a result,
it may be difficult for investors to effect service of process within the United
States upon such persons who reside outside the United States or to realize
against them upon judgments of courts of the United States predicated upon civil
liabilities under the U.S. federal securities laws. See "Enforceability of Civil
Liabilities Under United States Federal Securities Laws."
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THE RIGHTS OFFERING
The Company is granting, at no cost, to the holders of the outstanding
Delphi Common Stock and holders of options to purchase Delphi Common Stock, of
record at the close of business on the Record Date, Rights to purchase up to an
aggregate of approximately 2,050,000 Common Shares.
Each record holder of Delphi Common Stock and options to purchase Delphi
Common Stock will receive one Right for every ten shares of Delphi Common Stock
and options to purchase Delphi Common Stock owned on an aggregate basis on the
Record Date. Each Right will entitle the holder to purchase one Common Share at
a purchase price of $10.00 per share (the "Exercise Price").
As of the close of business on October 31, 1997, there were approximately
shares of Delphi Common Stock and options to purchase Delphi Common
Stock outstanding. Accordingly, subject to changes in the number of outstanding
shares of Delphi Common Stock and options to purchase Delphi Common Stock, a
total of approximately 2,050,000 Rights are expected to be issued to holders of
Delphi Common Stock and options to purchase Delphi Common Stock outstanding on
the Record Date.
BACKGROUND. The Company has determined to proceed with the Rights Offering
as a means for the Company to raise financing. The Company believes that the
Rights Offering will result in several advantages over a traditional initial
public offering, including the opportunity to offer its Common Shares to
investors who, as shareholders and option holders of Delphi, already have some
knowledge of the insurance business, the opportunity to achieve a broader
distribution to a more stable shareholder base and the minimization of
underwriting discounts and commissions.
Prior to the Rights Offering, there has been no public market for the
Common Shares or the Rights, and there can be no assurance that a public market
for the Common Shares will develop following completion of the Rights Offering.
No public market will develop for the Rights. Consequently, the Exercise Price
was selected by the Company as an appropriate per share price for initial
trading purposes in light of the Company's desired capitalization.
EXERCISE PRIVILEGE. Each Right will entitle the holder thereof to receive,
upon payment of the Exercise Price, one Common Share, subject to the
restrictions described herein (the "Exercise Privilege").
NO FRACTIONAL RIGHTS. No fractional Rights will be issued in the Rights
Offering and a holder of a number of shares of Delphi Common Stock and options
to purchase shares of Delphi Common Stock not evenly divisible by ten will be
entitled to receive the next higher whole number of Rights. For purposes of this
rounding process, record holders of shares of Delphi Common Stock known to be
acting as nominees for beneficial holders of shares of Delphi Common Stock will
be disregarded, and the rounding process will take place with respect to the
aggregate holdings of shares of Delphi Common Stock by the beneficial holder.
EXPIRATION DATE. The Rights Offering will terminate, and the Rights will
expire, at 5:00 p.m., New York City time, on , 1997, unless extended
by the Company ( the "Expiration Date"). After the Expiration Date, unexercised
Rights will be null and void. The Company will not be obligated to honor any
purported exercise of Rights received by BankBoston, N.A. (the "Rights Agent")
after the Expiration Date, regardless of when the documents relating to such
exercise were sent.
NON-TRANSFERABILITY OF RIGHTS. The Rights are not transferable by the
holders thereof, and may only be exercised prior to the Expiration Date by the
holders thereof.
METHOD OF EXERCISING RIGHTS. Rights may be exercised by completing and
signing the "Election to Purchase" form that appears on the back of each Rights
certificate. The completed and signed "Election to Purchase" form, accompanied
by payment in full of the Exercise Price for all shares for which the Exercise
Privilege has been exercised, must be received by the Rights Agent on or before
the Expiration Date. The Company will not be obligated to honor any purported
exercise of Rights received by the Rights Agent after the Expiration Date,
regardless of when the documents relating to such exercise were sent.
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Therefore, the Company and Delphi suggest, for the holders' protection,
that Rights be delivered to the Rights Agent by overnight or express mail
courier, or, if mailed, by registered mail. The Rights and Exercise Price, if
any, should be mailed or delivered to the Rights Agent as follows:
By First Class Mail, Hand or Overnight/Express Mail Courier:
BankBoston, N.A.
70 Campanelli Drive
Braintree, Massachusetts 02814
Payment of the Exercise Price must be made in U.S. dollars by cash, check or
money order payable to "State Street Bank and Trust Company." BankBoston, N.A.
will serve as the escrow agent of the Delphi International Escrow Account.
A holder of Rights who purchases less than all the Common Shares
represented by his Rights certificate will receive from the Rights Agent a new
Rights certificate representing the balance of the unsubscribed Rights, to the
extent that the Rights Agent is able to reissue a Rights certificate prior to
the Expiration Date.
Certificates representing the Common Shares purchased by exercising the
Exercise Privilege will be issued as soon as practicable after the Expiration
Date. All funds received by the Rights Agent in payment of the Exercise Price
will be retained in escrow by the Escrow Agent and will not be delivered to the
Company until the certificates representing Common Shares have been issued.
Record holders of shares of Delphi Common Stock who hold such shares for
the account of others (e.g., brokers or depositories for securities), and who
thus receive Rights certificates representing Rights for the account of more
than one beneficial owner, should provide such beneficial owners with copies of
this Prospectus and should ascertain and execute on their behalf the intentions
of such beneficial owners as to the exercise or transfer of such Rights.
All questions as to the validity, form, eligibility (including times of
receipt and beneficial ownership) and acceptance of subscription forms and the
Exercise Price will be determined by the Company, whose determination will be
final and binding. Once made, subscriptions are irrevocable, and no alternative,
conditional or contingent subscriptions will be accepted. The Company reserves
the absolute right to reject any or all purchases not properly submitted or the
acceptance of which would, in the opinion of its counsel, be unlawful. The
Company also reserves the right to waive any irregularities (or conditions) and
its interpretations of the terms (and conditions) of the Rights Offering shall
be final and binding. Any irregularities in connection with purchases must be
cured within five business days of the giving of notice of defect by the Rights
Agent, but not later than the Expiration Date, unless waived by the Company. The
Company, Delphi and the Rights Agent are not under any duty to give notification
of defects in such subscriptions and will not have any liability for failure to
give such notifications. Exercises will not be deemed to have been made until
such irregularities have been cured or waived, and rejected exercises and the
Exercise Price paid therefor, without interest, will be returned promptly by the
Rights Agent to the appropriate holders of the Rights.
INVESTOR INFORMATION. Investors who desire additional copies of this
Prospectus or additional information should contact Customer Service at
BankBoston, N.A., telephone number (800) 426-5523.
STANDBY AGREEMENT. The Company will enter into the Standby Agreement with
the Standby Purchasers prior to the closing of the Rights Offering pursuant to
which the Standby Purchasers will agree to purchase at the Exercise Price up to
900,500 Common Shares underlying Rights which are not exercised by the
Expiration Date. In consideration thereof, the Company will agree to sell to
certain Standby Purchasers, at the Exercise Price, such number of Common Shares
equal to the positive difference, if any, between 150,000 Common Shares and the
number of Common Shares otherwise purchased assuming full exercise by all
holders of Rights pursuant to the Standby Agreement.
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<PAGE> 18
FEDERAL INCOME TAX CONSEQUENCES. The following is a summary of the
material federal income tax consequences affecting holders of Delphi Common
Stock and options to purchase shares of Delphi Common Stock receiving Rights in
the Rights Offering under the Code:
DISTRIBUTION OF RIGHTS TO HOLDERS OF DELPHI COMMON STOCK. It is possible
that the IRS may hold that the receipt of the Rights by the holders of Delphi
Common Stock constitutes a distribution of "property" by Delphi to its
shareholders, although it can be argued that no such distribution occurs because
the Rights do not constitute the property of Delphi, but rather the property of
the Company. If the IRS were to successfully hold that the Rights should be
considered "property" of Delphi within the meaning of Section 317(a) of the
Code, the federal income tax consequences of a distribution of the Rights to
holders of Delphi Common Stock would be as follows: (i) each noncorporate holder
of Delphi Common Stock would be deemed to have received a distribution from
Delphi, generally taxable as ordinary dividend income, in an amount equal to the
fair market value (if any) of the Rights, as of the date of distribution, (ii)
each corporate shareholder of Delphi Common Stock would be deemed to have
received a distribution from Delphi (generally taxable as a dividend subject to
the dividends-received deduction for corporations (generally 70%, but 80% under
certain circumstances)) in an amount equal to the fair market value (if any) of
the Rights, as of the date of distribution; and (iii) the tax basis of the
Rights in the hands of each holder (whether corporate or noncorporate) of Delphi
Common Stock would be equal to the fair market value (if any) of the Rights as
of the date of distribution.
Since the fair market value of the Rights would determine the amount of
taxable income deemed received by the holders of Delphi Common Stock, the
determination of the fair market value of each Right as of the date of
distribution is critical. The Exercise Price was selected by the Company as an
appropriate per share price for initial trading purposes in light of the
Company's desired capitalization. Based on this fact and because Delphi views
the Rights as merely a mechanism that permits the purchase of the Common Shares,
the Company's Board of Directors believes that the per share value of Common
Shares represented by the Rights at the date of the commencement of the Rights
Offering approximates the Exercise Price, and that the Rights should have no
value for federal income tax purposes. However, the Internal Revenue Service is
not bound by this determination.
EXERCISE OF RIGHTS. Holders of Rights, whether corporate or
noncorporate, will recognize neither gain nor loss upon the exercise of the
Rights. A holder of Rights who receives Common Shares upon the exercise of the
Rights will acquire a tax basis in such shares equal to the sum of the Exercise
Price paid under the Rights Offering and the tax basis (if any) of the holder of
Rights in the Rights.
NON-EXERCISE OF RIGHTS. The income tax treatment applicable to holders
of Rights who fail to exercise their Rights prior to the Expiration Date is set
forth in Section 1234 of the Code. Holders of Rights who allow their Rights to
lapse are deemed under the Code to have sold their Rights on the date on which
the Rights expire. Since upon such lapse no consideration will be received by a
holder of Rights, and since the Rights will have been held for not longer than
one year, a short-term capital loss equal to the tax basis (if any) in the
Rights will be sustained by the holder on such lapse, provided that Common
Shares subject to the Rights would have been capital assets in the hands of the
holder had they been acquired by him.
Because of the complexity of the provisions of the Code referred to above
and because tax consequences may vary depending upon the particular facts
relating to each holder of Delphi Common Stock, such holder should consult their
own tax advisors concerning their individual tax situations and the tax
consequences of the Rights Offering under the Code and any applicable state,
local or foreign tax laws.
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<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the Rights Offering (after deduction
of estimated offering expenses) are estimated to be approximately $ million.
Approximately $ million of such net proceeds will be contributed by the
Company to Oracle Re, and will be used by Oracle Re to support its insurance
operations, including increasing its statutory capital to support its
underwriting capacity, and approximately $ of such net proceeds will be used
by the Company for working capital and general corporate purposes.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 2, 1997 and as adjusted to give effect to (i) the Rights Offering (and
assumes that all of the Common Shares offered by the Company pursuant to the
Rights Offering are purchased), (ii) the Note and (iii) the redemption upon the
completion of the Rights Offering of the 1,200,000 Common Shares currently
outstanding.
<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt......................................................... $ -- $30,000
Shareholders' equity:
Preferred Shares, par value $.01 per share, 5,000,000 shares
authorized; none issued........................................... -- --
Common Shares, par value $.01 per share 10,000,000 shares authorized;
1,200,000 shares outstanding, actual; 2,050,000 shares
outstanding, as adjusted(1)....................................... 12
Additional paid-in capital........................................... --
Retained earnings.................................................... -- --
------- -------
Total shareholders' equity........................................ 12
------- -------
Total capitalization......................................... 12
======= =======
</TABLE>
- ---------------
(1) Does not include (i) 150,000 Minimum Standby Commitment Shares which may be
issued to the Standby Purchasers pursuant to the Standby Agreement or (ii)
Common Shares underlying options which may be granted under the Plan.
See "The Rights Offering -- Standby Agreement" and "Management -- Director
and Employee Stock Option Plan."
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<PAGE> 20
DIVIDEND POLICY
The Board of Directors of the Company does not intend to pay cash dividends
on the Common Shares in the foreseeable future. The Company intends to retain
all earnings, if any, for use in the operations of the Company's business,
including the payment of principal and interest on the Note. The declaration and
payment of cash dividends in the future, if any, will be at the discretion of
the Board of Directors and will depend upon the Company's results of operations
and cash flows, the financial position and capital requirements of Oracle Re,
general business conditions, legal, tax and regulatory restrictions on the
payment of dividends and other factors the Board of Directors deems relevant.
While the Company is not itself subject to any significant legal prohibitions on
the payment of dividends, Oracle Re is subject to Bermuda regulatory constraints
which affect its ability to pay dividends to the Company.
In accordance with Bermuda statutes and regulations, Oracle Re is
prohibited from paying dividends or other distributions unless after such
payment the amount by which its general business assets exceed its general
liabilities is the greatest of the following amounts: (i) $1.0 million; (ii) an
amount equal to 20% of the first $6.0 million of net written premiums in the
subject year plus 15% of all net written premiums in excess thereof in the
subject year; or (iii) an amount equal to 15% of the reserves for losses and
loss adjustment expenses reflected in the balance sheet at the date of
determination.
Oracle Re may not declare and pay a dividend or make a distribution out of
contributed surplus or other assets legally available for distribution if after
the payment of such dividend or distribution Oracle Re will not meet the minimum
solvency margin and minimum liquidity ratio as detailed above.
Further, in accordance with Bermuda statutes, before reducing by 15% or
more its total statutory capital as set out in its previous year's financial
statement, a Class 3 insurer, such as Oracle Re, must apply to the Minister of
Finance (the "Minister") for his approval and is obliged to provide such
information in connection therewith as the Minister may require. Accordingly,
there is no requirement or assurance that dividends will be declared or paid in
the future. See "Regulation -- Bermuda" and "Description of Capital Stock --
Common Shares -- Dividend Rights."
The standby letters of credit facility is expected to restrict the ability
of Oracle Re to pay dividends to the Company in any year to the greater of (i)
50% of the prior year's net income or (ii) the prior year's net income up to
$3.0 million. See "Management's Discussion and Analysis of Financial Condition
and Plan of Operation -- Liquidity and Capital Resources."
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<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATION
GENERAL
The Company was formed on September 2, 1997 under the laws of Bermuda and
accordingly has no operating history.
LIQUIDITY AND CAPITAL RESOURCES
The Company will rely primarily on cash dividends from Oracle Re, the net
proceeds from the Note and the net proceeds from the Rights Offering to pay its
operating expenses. The payment of dividends by Oracle Re to the Company is
indirectly limited under Bermuda insurance law and will be limited by the terms
of the standby letters of credit facility. The Insurance Act 1978 and related
regulations requires Oracle Re to maintain a minimum solvency margin and minimum
liquidity ratio. See "Dividend Policy" and "Regulation -- Bermuda -- Minimum
Liquidity Ratio and -- Restriction on Dividends."
Oracle Re is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda. Because many jurisdictions do not permit insurance companies
to take credit for reinsurance obtained from unlicensed or non-admitted insurers
on their statutory financial statements unless security is posted, Oracle Re's
reinsurance contracts are expected to require it to post a letter of credit or
other security. Although the Company has received commitments from a commercial
bank group for a standby letters of credit facility for the benefit of RSL and
Safety National, and Oracle Re believes it will obtain a letter of credit
facility on terms acceptable to the Company, there can be no assurance that
Oracle Re will be able to obtain a standby letters of credit facility on
commercially acceptable terms or if at all.
Both RSL and Safety National intend, subject to the completion of the
Rights Offering and receipt of regulatory approval, to participate in various
reinsurance arrangements with Oracle Re and to cede to Oracle Re portions of
their existing portfolios of employee benefits product insurance relating to
their group employee benefit products for an aggregate premium of approximately
$116.0 million. Oracle Re is also currently in negotiations with RSL and Safety
National with respect to the ceding of certain prospective risks by such
companies to Oracle Re with aggregate annual premiums expected to range from
$5.0 million to $10.0 million.
RSL has agreed, subject to completion of the Rights Offering and receipt of
regulatory approval, to cede a portion of its liabilities under group long-term
disability claims incurred prior to January 1, 1996 to Oracle Re on a quota
share basis for a one-time premium of approximately $40.7 million, less a
one-time ceding commission of approximately $5.7 million, resulting in a net
premium to Oracle Re of approximately $35.0 million. RSL will be entitled to
share in a portion of the investment return of Oracle Re on such reinsurance. On
an annual basis, RSL will receive an amount equal to the lesser of (a) 70% of
the amount by which the investment return exceeds 6% or (b) 2% of Oracle Re's
average reserves carried with respect to the agreement.
Safety National has agreed, subject to completion of the Rights Offering
and receipt of regulatory approval, to cede a portion of its liabilities under
excess workers' compensation and casualty business claims incurred prior to
January 1, 1997 to Oracle Re on an excess of loss basis. On excess workers'
compensation, Safety National will cede its net losses sustained in excess of
$590.9 million, subject to an aggregate limit of $185.1 million. On casualty
business, Safety National will cede its net losses sustained in excess of $80.0
million subject to an aggregate limit of $5.0 million. Safety National shall pay
a one-time premium in the amount of $81.0 million for such coverage. Safety
National will be entitled to share in a portion of the annual investment return
of Oracle Re on such reinsurance, and on an annual basis, Safety National will
receive an amount equal to 70% of the first 3% of the amount by which the
investment return exceeds 5%. Safety National will also be entitled to share in
the annual underwriting cash flow profit produced by the reinsurance agreement,
and on an annual basis, Safety National will receive an underwriting cash flow
profit equal to 1.35% of the difference between gross premium received and the
cumulative losses paid by Oracle Re, compounded at a 5% growth rate. At the
inception of the agreement, Oracle Re will pay an advance
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<PAGE> 22
underwriting cash flow profit commission in the amount of $16.0 million to
Safety National. This advance commission shall be used to pay the underwriting
cash flow profit commissions earned under the agreement. In the event the
underwriting cash flow profit commissions earned do not reduce the advance
underwriting cash flow profit to zero, Safety National shall retain such advance
until all losses are paid under the agreement. Oracle Re shall also pay the
federal excise tax of $810,000 due. The net funds paid by Safety National to the
Company will be approximately $64.2 million.
It is anticipated that the cash generated from the Company's investment
portfolio will be sufficient to pay losses, profit commissions and expenses for
the foreseeable future. The Company plans to account for these arrangements as
reinsurance transactions under Statement of Financial Accounting Standards No.
113, "Accounting and Reporting for Reinsurance of Short Duration and Long
Duration Contracts." As such, the loss reserves assumed will be discounted based
upon a rate that is no higher than the risk-free rate of return for investments
with a similar duration to those of the liabilities assumed. Assuming these
arrangements were in place, the estimated amount of loss reserves assumed by
Oracle Re would be approximately $114.0 million.
Oracle Re is also currently in negotiations with RSL and Safety National
with respect to the ceding of certain prospective risks by such companies to
Oracle Re with aggregate annual premiums expected to range from $5.0 million to
$10.0 million. The terms of such negotiations have not been finalized and there
can be no assurance that Oracle Re and RSL or Safety National will reach
agreement with respect to such reinsurance.
Oracle Re is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda. Under the proposed terms of the reinsurance agreements
between Oracle Re and RSL and Safety National, Oracle Re will be required to
provide security, which it expects will be in the form of a standby letters of
credit facility, to RSL and Safety National to support reinsurance recoverables
owed to these reinsureds in a form acceptable to the insurance commissioners of
the States of Illinois and Missouri, the domiciliary states of RSL and Safety
National, respectively. The standby letters of credit facility will permit RSL
and Safety National to take credit on their statutory financial statements for
the reinsurance ceded to Oracle Re, either as an additional asset or as a
reduction in liability. The Company has received commitments from a commercial
bank group for a standby letters of credit facility, for the benefit of RSL and
Safety National which is to be secured by Oracle Re's investment portfolio with
an initial mark-to-market maintenance requirement of at least 140% of the
facility amount as well as a negative pledge with respect to all other assets of
Oracle Re. In the event that Oracle Re should default under the standby letters
of credit facility, it may be required to liquidate all or a substantial portion
of its investment portfolio and/or its other assets which have been pledged as
security for this facility or otherwise secure its obligations to its
reinsureds, which would likely have a material adverse effect on the business
and operations of the Company and Oracle Re.
The Company intends to enter into an agreement with Delphi, RSL and Safety
National pursuant to which such entities will agree to purchase the Note from
the Company in the aggregate principal amount of $30.0 million concurrently with
the completion of the Rights Offering. The Note will bear simple interest at a
rate of % per annum, and will become payable thirty years from issuance. The
Company will have the option during any five year period to make semi-annual
interest payments through the issuance of additional promissory notes in lieu of
cash payments. Delphi will grant the Company an option, exercisable during the
five year period after issuance of the Note, to issue an additional $5.0 million
dollar Note to Delphi. The payment by the Company of the principal of and
interest on the Note shall be subordinated and junior in right of payment to the
prior payment in full of the senior indebtedness of the Company, whether
presently outstanding or thereafter incurred. The Company does not currently
have any senior indebtedness outstanding.
The primary sources of liquidity for Oracle Re will be net cash flow from
the maturity or sale of investments by Oracle Re and operating activities of
Oracle Re, primarily premiums received.
The Company does not currently have any material commitments for any
capital expenditures over the next 12 months.
The Company expects that its financing and operational needs for the
foreseeable future will be met by the proceeds of the Rights Offering, proceeds
of the Note, as well as by funds generated from operations after
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<PAGE> 23
commencement. However, no assurance can be given that the Company will be
successful in the implementation of its start-up plan. See "Risk Factors -- No
Operating History."
EFFECTS OF INFLATION
The effects of inflation on the Company will be implicitly considered in
pricing and estimating reserves for unpaid losses and LAE. The actual effects of
inflation on the results of the Company cannot be accurately known until claims
are ultimately settled.
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<PAGE> 24
PROPOSED BUSINESS
GENERAL
Following the completion of the Rights Offering, the Company, a
newly-formed Bermuda insurance holding company, will provide, through its
wholly-owned subsidiary, Oracle Re, excess of loss and quota share reinsurance
primarily for group employee benefit insurance products, including group
long-term disability and excess workers' compensation insurance, offered by RSL
and Safety National, insurance affiliates of Delphi. The Company will also seek
to expand its customer base and to develop additional products and services. The
Company has been organized to take advantage of reinsurance and alternative risk
market opportunities that it believes exist in the Bermuda market. See "The
Bermuda Market."
The Company, through its wholly-owned subsidiary, Oracle Re, also intends
to provide risk financing products to clients seeking an alternative to
traditional commercial insurance for certain risk exposures. These risk
financing products include a retention by the client of a significant amount of
its loss exposure, the transfer of more unpredictable layers of loss to insurers
and a greater involvement by the client in risk management and loss prevention
and loss control. Oracle Re will offer these products in the so-called
"alternative market," which has developed in response to the volatility in cost
and availability of traditional commercial insurance coverage. The Company
intends to provide products through a facility frequently referred to as a
"rent-a-captive," which is designed to provide insureds with certain of the
benefits available through captive insurance companies without the
administrative costs and capital commitment necessary to establish and operate
their own captive insurance company. Oracle Re will offer its rent-a-captive
facility to clients of Safety National to manage their workers' compensation
exposures and may thereafter offer these services to additional clients and
other insurance exposures.
REGULATORY STATUS OF ORACLE RE
In September 1997, the Bermuda Registrar of Companies (Insurance Division)
and the Insurers Admissions Committee of Bermuda reviewed Oracle Re's
application for licensing as a Class 3 and long-term insurance company. During
such reviews, the application was approved and, upon the due capitalization of
Oracle Re, which is to occur upon the consummation of the Rights Offering,
together with the filing of certain prescribed forms and the payment of certain
fees, Oracle Re will be issued a registration certificate under the Insurance
Act 1978 as a Class 3 and long-term Bermuda exempted insurer. Accordingly,
although Oracle Re has been incorporated under the laws of Bermuda, it is not
currently licensed to underwrite, although it has received all required
permissions to do so subject to its capitalization. Oracle Re will commence
underwriting business once it is licensed to do so.
RELATIONSHIP WITH DELPHI FINANCIAL GROUP, INC.
Delphi is an insurance holding company engaged through RSL and Safety
National in offering a diverse portfolio of group employee benefit insurance
products, including life, short-term and long-term disability, excess workers'
compensation, special accident and dental insurance. RSL also offers asset
accumulation products, primarily annuities, to individuals and groups. Delphi is
publicly traded on the New York Stock Exchange and as of September 30, 1997, had
approximately $3.1 billion in total assets and a market capitalization of
approximately $800.0 million.
RSL and Safety National have agreed, subject to the completion of the
Rights Offering, to participate in various reinsurance arrangements with Oracle
Re and to cede to Oracle Re portions of their existing portfolios of employee
benefits product insurance relating to their group employee benefit products,
for an aggregate premium of approximately $116.0 million. Oracle Re is also
currently in negotiations with RSL and Safety National with respect to the
ceding of certain prospective risks by such companies to Oracle Re with
aggregate annual premiums expected to range from $5.0 million to $10.0 million.
RSL is engaged in the sale of life, accident and health insurance products
targeted principally to the group employee benefits market. RSL insures groups
ranging from ten to more than 1,000 individuals, although the typical size of
the insured groups is between 100 to 300 individuals. In underwriting its group
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<PAGE> 25
employee benefit products, RSL tends to avoid concentrations of business in any
particular industry segment or geographic area. RSL is rated "A- (Excellent)" by
A.M. Best, an independent insurance industry rating organization, and its
claims-paying ability is rated "A (Good Financial Security)" by Standard &
Poor's.
Safety National is an insurance specialist providing excess workers'
compensation and insurance products to the self-insured market. Safety National,
founded in 1942, is licensed in all 50 states and is one of the oldest
continuous writers of excess workers' compensation insurance in the United
States. Safety National's excess workers' compensation products provide coverage
to employers and groups who self-insure their workers' compensation risks. The
coverage underwritten by Safety National applies to losses in excess of the
applicable self-insured retentions or deductibles of employers and groups whose
workers' compensation claims are generally handled by third-party administrators
and is principally targeted to mid-size companies and association groups,
particularly small municipalities, hospitals and schools. These target markets
tend to be less prone to catastrophic workers' compensation exposures and are
less price sensitive than larger account business. Safety National is rated "A
(Excellent)" by A.M. Best and its claims-paying ability is rated "A (Good
Financial Security)" by Standard & Poor's.
Delphi and its affiliates are expected to enter into various agreements
with the Company and Oracle Re which will cover, among other things, investment
advisory services for Oracle Re, reinsurance arrangements with Oracle Re and the
Note to be made by Delphi, RSL and Safety National to the Company upon
completion of the Rights Offering. Neither Delphi, RSL nor Safety National has
any obligation to provide capital or financial support to the Company or Oracle
Re except for the obligations pursuant to the Note. See "Management's Discussion
and Analysis of Financial Condition and Plan of Operation" and "Certain
Relationships and Related Transactions."
REINSURANCE INDUSTRY
Reinsurance is a form of insurance in which a reinsurer indemnifies an
insurer against part or all of the liability assumed by the insurer under one or
more insurance policies. Reinsurance provides an insurer with several benefits:
a reduction in net liability on individual risks, protection against
catastrophic losses and assistance in maintaining acceptable financial ratios.
Reinsurance also provides an insurer with additional underwriting capacity by
allowing the insurer to accept larger risks and to expand the book of business
it writes at a faster rate.
There are two basis types of reinsurance agreements, treaty and
facultative. A treaty is an agreement, usually continuous or renewable on an
annual basis, between a primary insurer and a reinsurer under which the
reinsurer automatically will assume a predetermined portion of risk associated
with each policy written on a book or class of business, generally up to a
specified limit per insured. Under a facultative agreement, the insurer cedes
and the reinsurer assumes all or part of the risks insured under a single
primary insurance policy. A facultative agreement is separately negotiated for
each risk or group of risks ceded. Facultative reinsurance is normally purchased
by insurance companies for (i) individual risks not covered by their reinsurance
treaties, (ii) higher limits on risks covered by their reinsurance treaties,
(iii) supplementing the protection provided by its reinsurance treaties and (iv)
risks outside the cedent's normal book of business.
Reinsurers indemnify primary insurers under both treaty and facultative
agreements on either a proportional or excess of loss basis. In the case of
proportional reinsurance, the reinsurer, in return for a predetermined portion
or share of the insurance premium charged by the primary insurer, indemnifies
the primary insurer against a predetermined similar portion of the losses of the
primary insurer under the covered primary policy or policies. In the case of
excess of loss reinsurance, the reinsurer indemnifies the primary insurer
against all or a specific portion of losses on underlying insurance policies in
excess of a specified dollar amount, known as the "retention" or "attachment
point," subject to a negotiated limit. Premiums payable to the reinsurer by the
primary insurer for excess of loss coverage are not directly proportional to the
premiums the primary reinsurer receives because the reinsurer does not assume a
proportionate risk.
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<PAGE> 26
THE BERMUDA MARKET
The "Bermuda Market" consists of insurance and reinsurance companies
domiciled in Bermuda. The Bermuda Market was initially developed in the 1960's
as an alternative risk transfer market by commercial insurance buyers who sought
to stabilize insurance costs and coverage by alternative methods of risk
coverage. These methods included the establishment of captive insurance
companies, which allowed such buyers to retain all or a portion of the risk
exposure that they traditionally would have transferred to commercial insurers.
According to Business Insurance (April 14, 1997), the number of insurers
and reinsurers in Bermuda grew by 4.9% from approximately 1,401 in 1995 to 1,470
at year-end 1996. Capital and surplus increased by 23.8% to $36.9 billion in
1995 from $29.8 billion in 1994, and net premiums increased by 23.5% to $18.4
billion in 1995 from $14.9 billion in 1994. Most of the growth in the number of
companies is attributable to the continued growth of captive companies. However,
the growth in capital and surplus and gross written premiums is largely
attributable to the establishment of a number of large excess liability insurers
and property catastrophe reinsurers. The success of these companies has led to
further investment in the Bermuda Market and an increase in the types of
insurance and reinsurance products being offered. The increase in the types of
reinsurance and the development of the Bermuda reinsurance market may increase
the amount of business submitted to Bermuda companies and, in particular, may
provide to the Company opportunities to underwrite business that may not be made
available to companies in other jurisdictions. The Company expects that brokers
and ceding companies will request quotations on behalf of businesses that are
similar in nature to those which the Company proposes to underwrite initially.
The development of the Bermuda Market, in addition to providing increased
opportunities, provides a stable business environment in which to operate. In
addition, there exists in the Bermuda Market a pool of experienced personnel in
the types of reinsurance the Company proposes to underwrite, and, the Company
believes, the regulatory system is not unnecessarily cumbersome or expensive.
Because of its growth and the diversity of the lines of business written by
Bermuda insurers and the reinsurers, the Bermuda Market is now recognized as one
of the major markets, in addition to, among others, those in the United States
and London, for the placement by commercial buyers of insurance and reinsurance
risks.
BUSINESS STRATEGY
Upon completion of the Rights Offering, Oracle Re will be licensed to
underwrite reinsurance treaties in Bermuda where it intends to conclude all
business it underwrites. The Company will use the offices of International
Advisory Services Ltd. ("IAS"), its Bermuda manager, and, while actively seeking
to hire additional underwriting professionals, the Company will be in a
position, with its current management team, to commence underwriting business
upon completion of the Rights Offering. The Company will have, at the
commencement of operations, sufficient underwriting personnel to carry out its
initial business plan. In addition to the services of Colin O'Connor, President
and Chief Executive Officer of the Company, the Company will have access to the
expertise of the staff at IAS, who have significant experience in the
underwriting and administration of the Company's proposed classes of business.
See "Certain Relationships and Related Transactions -- Agreement with
International Advisory Services Ltd." Furthermore, the Company will seek to hire
additional underwriting professionals when needed as justified by the volume of
business opportunities presented to it, and the Company believes that there is a
sufficient pool of experienced professionals in Bermuda to provide an adequate
underwriting staff.
The Company's objective is to provide, through its subsidiary Oracle Re,
reinsurance primarily for a diverse portfolio of group employee benefit
insurance products, including life, short-term and long-term disability, excess
workers' compensation, special accident and dental insurance, offered by RSL or
Safety National, insurance affiliates of Delphi. The Company also intends to
provide, through Oracle Re, risk financing products to clients seeking an
alternative to traditional commercial insurance for certain of their risk
exposures.
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The Company will incur certain costs associated with implementing its
business strategy. The Company anticipates that a significant portion of these
costs will consist of loss and loss adjustment expenses on its insurance
business. The Company will also incur ongoing operating expenses, including U.S.
federal excise taxes, profit sharing commissions, and general and administrative
costs, including costs incurred with respect to its letters of credit facility,
interest expense and salaries.
The Company will seek to develop a sustainable competitive advantage
through the implementation of its business strategy, the principal components of
which are as follows. There can, however, be no assurance that the Company will
be able to successfully implement any or all of the following business
strategies.
Focus on Employee Benefit Product Reinsurance. Oracle Re intends to focus its
underwriting primarily on employee benefit product reinsurance. The Company
believes that Oracle Re's commitment to the employee benefit product reinsurance
market will be an important factor in its ability to obtain business and should
enable it to establish long-term relationships with insurance companies.
Use the Rent-A-Captive Facility to Fund Captive Client's Risks. The Company's
business strategy with respect to the rent-a-captive products is to design
reinsurance programs and to use the rent-a-captive facility to fund captive
client's risks. Oracle Re's rent-a-captive program will allow clients to
participate in a significant portion of their own loss exposure without the
direct administrative costs and capital commitment necessary to establish and
operate their own captive insurance company. A portion of the underwriting
profit and investment income produced by the client's rent-a-captive business
will be returned to the client, creating a direct incentive for the client to
engage in loss prevention and loss control to reduce the overall cost of
financing its exposures.
Focus on Sound Underwriting. Oracle Re's underwriting strategy with respect
to its group employee benefit insurance products is to focus on sound
underwriting policies which will require adequate premiums for a given exposure
commensurate with the amount of capital which Oracle Re estimates is being
placed at risk. Financial reinsurance will generally be offered with finite
limits and the risk assumed will combine timing and interest rate risk with
certain underwriting risk. The Company anticipates that its financial
reinsurance products will comply with Statement of Financial Accounting
Standards No. 113, "Accounting and Reporting for Reinsurance of Short-Duration
and Long-Duration Contracts". Rent-a-captive programs will also be underwritten
with the goal of achieving an underwriting profit.
Focus on a Long-Term Investment Horizon. Oracle Re's investment strategy will
focus on the management of its asset and liability durations. Since Oracle Re's
initial reinsurance transactions will involve liabilities with longer-term
durations, Oracle Re will be able to invest its assets in longer-term duration
investments. Oracle Re's investment objective is to maximize returns, while
focusing on the preservation of capital, diversification of risk and liquidity
of investments. Oracle Re's assets will be allocated among a number of
investment managers with expertise in utilizing different investment strategies.
These broad strategies include, among others, diversified hedging, hedged
equity, common stock/specialized trading, short selling, risk arbitrage,
distressed securities, futures and commodities and foreign securities investing.
The managers primarily invest the assets in a variety of marketable securities
and other liquid assets. Oracle Re will invest through the investment vehicles
of the managers (generally in the form of a corporation or partnership) or
through managed accounts, which are the only means available to access outside
managers. The Company believes that investing with outside managers, although
not necessarily typical, is not uncommon in the insurance industry. Oracle Re
will be able to redeem its investment from substantially all the investment
vehicles on at least an annual basis with many of the managers providing
quarterly or more frequent liquidity. Oracle Re's multi-manager, multi-strategy
approach is designed to produce capital appreciation with reduced volatility.
Develop a Reputation as a Financially Secure Reinsurer and Manage Prudently
the Company's Risk
Exposure in Relation to its Capital Base. Because Oracle Re was recently formed,
its capital will be unencumbered by issues of unrealized losses on investment
portfolio and uncollectible reinsurance. Also,
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Oracle Re intends to emphasize liquidity, capital preservation and security in
its investment portfolio and manage prudently its risk exposure in relation to
its capital base. The Company believes that these factors will assist Oracle Re
in developing a reputation as a financially secure reinsurer.
Generate Consistent Profits from Rent-A-Captive Fees. Oracle Re expects to
receive profits from investment and underwriting fees received for its captive
insurance products and services provided to clients in connection with Oracle
Re's rent-a-captive program.
REINSURANCE AGREEMENTS WITH RSL AND SAFETY NATIONAL
Each of RSL and Safety National intend, subject to the completion of the
Rights Offering, to participate in various reinsurance arrangements with Oracle
Re. RSL and Safety National will cede certain portions of their existing
portfolios and certain ongoing risks relating to their group employee benefit
products, for an aggregate premium of approximately $116.0 million for the
existing portfolio and aggregate annual premiums ranging from approximately $5.0
million to $10.0 million for the ongoing risks. The reinsurance agreements will
be cancellable by Safety National or RSL, as the case may be, upon a Change of
Control of the Company. A "Change of Control" shall be deemed to occur if (a)
the individuals who constitute the Board of Directors of the Company cease for
any reason to continue to represent at least a majority of the directors
constituting the Company's Board of Directors; (b) shareholders of the Company
approve a merger, consolidation, recapitalization or reorganization of the
Company, reverse split of any class of voting securities of the Company, or an
acquisition of securities or assets by the Company, or the sale or disposition
by the Company of all or substantially all of the Company's assets, or if any
such transaction is consummated without shareholder approval, other than any
such transaction in which the holders of outstanding the Company voting
securities receive immediately prior to the transaction, voting securities of
the surviving or transferee entity representing more than 60% of the total
voting power outstanding immediately after such transaction, with the voting
power of each such continuing holder relative to other such continuing holders
not substantially altered in the transaction; or (c) the shareholders of the
Company approve a plan of complete liquidation. See "Certain Relationships and
Related Transactions -- Reinsurance Agreements."
The proposed reinsurance transactions with RSL and Safety National are
subject to the approval of insurance regulators in Illinois and Missouri. RSL
and Safety National are subject to insurance regulations in their domiciliary
states, Illinois and Missouri, respectively, which limit or prohibit certain
reinsurance transactions. Under these insurance regulations, any reinsurance
agreements (and modifications thereto) between Oracle Re and Safety National or
RSL will be subject to the approval of the Director of Insurance in their
respective domiciliary state. Safety National and RSL have provided written
notice of their intention to enter into the proposed reinsurance agreements.
Safety National and RSL will not be permitted to enter into such reinsurance
agreements unless the respective Director of Insurance fails to object to the
transaction within 30 days of receiving such notice. There can be no assurance
that the Director of Insurance in Illinois or Missouri will not object to the
proposed reinsurance transactions between RSL and Safety National, on the one
hand, and Oracle Re, on the other.
RSL has agreed, subject to completion of the Rights Offering and receipt of
regulatory approval, to cede a portion of its liabilities under group long-term
disability claims incurred prior to January 1, 1996 to Oracle Re on a quota
share basis for a one-time premium of approximately $40.7 million, less a
one-time ceding commission of approximately $5.7 million, resulting in a net
premium to Oracle Re of approximately $35.0 million. Oracle Re will be liable
for a portion of the benefits payable to approximately 3,350 claimants with an
average liability of approximately $10,500 per claimant. Oracle Re will be
liable for a portion of the benefits payable to claimants under long-term
disability policies until such time as the benefits end due to the death or
recovery of the claimant or exhaustion of benefits (typically at the claimant's
age 65). Oracle Re will establish loss reserves for the ultimate payment of all
losses and LAE incurred with respect to such business in accordance with U.S.
GAAP. Based on the historical loss payment experience of RSL, aggregate amounts
recoverable from Oracle Re are estimated to be approximately $5.7 million during
the first year of the contract, declining by approximately 10% to 12% per year.
RSL also will be entitled to share in a portion of the investment return of
Oracle Re on such reinsurance. On an annual basis, RSL will receive an amount
equal to
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the lesser of (a) 70% of the amount by which the investment return exceeds 6% or
(b) 2% of Oracle Re's average reserves carried with respect to the agreement.
Safety National has agreed, subject to completion of the Rights Offering
and receipt of regulatory approval, to cede a portion of its liabilities under
excess workers' compensation and casualty business claims incurred prior to
January 1, 1997 to Oracle Re on an excess of loss basis. On excess workers'
compensation, Safety National will cede its net losses sustained in excess of
$590.9 million, subject to an aggregate limit of $185.1 million. The excess
workers' compensation business to be ceded by Safety National relates to
coverage underwritten by Safety National for self-insured employers on an excess
of loss basis, which coverage provides protection for losses in excess of a
specified retained amount. The majority of Safety National's excess workers'
compensation claims are comprised of death and permanent disability claims which
result primarily in statutorily determined indemnity payments. As such, Safety
National's loss payment patterns have been stable. Based upon the historical
loss payment experience of Safety National, aggregate amounts recoverable from
Oracle Re on the excess workers' compensation business are estimated to begin in
the year 2009. On casualty business, Safety National will cede its net losses
sustained in excess of $80.0 million, subject to an aggregate limit of $5.0
million. The casualty business to be ceded by Safety National relates to the
excess umbrella liability business which was underwritten by Safety National
beginning June, 1981 and discontinued in November, 1985. This coverage was
underwritten primarily for small commercial risks on an excess of loss basis,
which coverage provides protection for losses in excess of a specified retained
amount. Safety National's casualty losses maintain a less predictable payment
pattern than excess workers' compensation. Based upon the historical loss
payment experience of Safety National, aggregate amounts recoverable from Oracle
Re on the casualty business are estimated to begin in the year 2002. Safety
National shall pay a one-time premium in the amount of $81.0 million for such
coverage. Safety National will be entitled to share in a portion of the
investment return of Oracle Re on such reinsurance, and on an annual basis,
Safety National will receive an amount equal to 70% of the first 3% of the
amount by which the investment return exceeds 5%. Safety National will also be
entitled to share in the annual underwriting cash flow profit produced by the
reinsurance agreement, and on an annual basis, Safety National will receive
underwriting cash flow profit equal to 1.35% of the difference between gross
premium received and the cumulative losses paid by Oracle Re, compounded at a 5%
growth rate. At the inception of the agreement, Oracle Re will pay an advance
underwriting cash flow profit commission in the amount of $16.0 million to
Safety National. This advance commission shall be used to pay the underwriting
cash flow profit commissions earned under the agreement. In the event the
underwriting cash flow profit commissions earned do not reduce the advance
underwriting cash flow profit to zero, Safety National shall retain such advance
until all losses are paid under the agreement. Oracle Re shall also pay the
federal excise tax due in the amount of $810,000. The net funds paid by Safety
National to the Company will be approximately $64.2 million.
The reserves for RSL and Safety National for unpaid losses are necessarily
based on estimates. RSL and Safety National reserve assumptions have produced
reserves which historically have been judged to be adequate, however, actual
experience could produce ultimate business liabilities higher or lower than the
corresponding reserve levels.
Oracle Re is also currently in negotiations with RSL and Safety National
with respect to the ceding of certain prospective risks by such companies to
Oracle Re with aggregate annual premiums expected to range from $5.0 million to
$10.0 million. The terms of such negotiations have not been finalized and there
can be no assurance that Oracle Re and RSL or Safety National will reach
agreement with respect to such reinsurance.
Oracle Re is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda. Under the proposed terms of the reinsurance agreements
between Oracle Re and RSL and Safety National, Oracle Re will be required to
provide security, which it expects will be in the form of a standby letters of
credit facility, to RSL and Safety National to support reinsurance recoverables
owed to these reinsureds in a form acceptable to the insurance commissioners of
the States of Illinois and Missouri, the domiciliary states of RSL and Safety
National, respectively. The standby letters of credit facility will permit RSL
and Safety National to take credit on their statutory financial statements for
the reinsurance ceded to Oracle Re, either as an additional asset or as a
reduction in liability. The Company has received commitments from a commercial
bank group for a standby letters of credit facility, for the benefit of RSL and
Safety National which is to be secured by Oracle
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Re's investment portfolio with an initial mark-to-market maintenance requirement
of at least 140% of the facility amount as well as a negative pledge with
respect to all other assets of Oracle Re. In the event that Oracle Re should
default under the standby letters of credit facility, it may be required to
liquidate all or a substantial portion of its investment portfolio and/or its
other assets which have been pledged as security for this facility or otherwise
secure its obligations to its reinsureds, which would likely have a material
adverse effect on the business and operations of the Company and Oracle Re.
ALTERNATIVE MARKET
The commercial insurance market in the United States is cyclical in nature
which has resulted in unpredictable, severe swings in pricing and in the
availability of coverage. This has led many commercial insurance buyers to
develop alternatives. These buyers believe that an effective way to stabilize
insurance costs is to participate in a portion of their exposure which
traditionally has been underwritten in the insurance market. According to the
Conning Insurance Research and Publications "Alternative Markets -- Evolving to
a New Layer" (1996), during the hard market of the mid-1980's, characterized by
increasing prices and a lack of available coverage, the alternative market grew
from 21% of the $58.0 billion commercial property/casualty insurance market in
1979, to 28% of the $146.0 billion market in 1987. Despite the increased price
competition in the traditional insurance market during the recent soft insurance
market, the alternative market has continued to grow to 33% in 1994. Future
estimates for the alternative market share for 1997 and 1998 are between 33% and
37%. The Company believes this indicates that the alternative market has
established a permanent market share and that, generally, once an entity chooses
an alternative market, pricing alone will not necessarily cause it to return to
the traditional market. Included in these alternative market share estimates are
alternative risk financing vehicles such as: (a) captive insurance companies,
risk retention groups and rent-a-captive vehicles; (b) self-insurance plans; and
(c) policyholder insurance groups. Additional products such as large deductible
and retrospectively-rated insurance programs represent other non-traditional
insurance products that are part of the alternative insurance market, but are
not included in the above estimates.
Most alternative insurance products have as their basis the financial
participation by the insured in some or all of its risk as compared to
traditional insurance products which shift all or substantially all of the
insured's risk to the insurer and leave the insured with little or no financial
participation in the risks. Generally, a goal of a modern risk management plan
is to participate, in some manner, in those loss events which occur frequently,
are low in severity and are relatively predictable and to transfer to insurers
those events which occur infrequently, are severe and are relatively
unpredictable. The reasons to participate in events which are frequent, low in
severity and relatively predictable are to (a) eliminate or reduce the
transaction costs associated with transferring these loss events to an insurer
which can be high; (b) gain access to the investment income produced by the
funds set aside to fund these loss events; and (c) avoid the cyclical nature of
the price demanded by the commercial insurance market to insure these loss
events.
FINANCIAL REINSURANCE
Financial reinsurance will generally be offered with finite limits and the
risk assumed will combine timing and interest rate risk with certain limited
underwriting risk. It is anticipated that business written will not generate
underwriting income, and that Oracle Re's profit will be generated from
investment income on assets retained. Oracle Re will provide risk specific
finite reinsurance mechanisms that respond to the clients' individual risk
management and financing needs. These coverages will include loss portfolio
transfers of self-insured retentions and captive close-outs. Oracle Re will also
provide traditional reinsurance for per occurrence casualty coverages with
aggregates for commercial insureds and aggregate stop loss programs for
corporate or captive retentions. Coverages are described below:
Loss Portfolio Transfers of Self-Insured Retentions. Loss portfolio
transfers of self-insured retentions ("SIRs") will permit entities, for some of
whom Safety National provides excess workers' compensation insurance, to
transfer their self-insured workers' compensation loss reserve portfolio to
Oracle Re. Collateral assets are required by state insurance statutes or
regulations to secure self-insured workers' compensation exposures and guarantee
payments with respect to accumulated net retained liabilities. Such collateral
assets,
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which may be sizeable given regulatory requirements, would be released as a
result of such transfer and could be used for other corporate purposes which
makes loss portfolio transfers of SIRs attractive. In addition, many
self-insured entities are associations of smaller entities who have formed a
trust to pool their workers' compensation exposures. Such association members
have joint and several liability for their exposures. A loss portfolio transfer
can eliminate the joint and several liability for association members. Coverage
may be underwritten on an unlimited liability or finite layer basis.
Captive Close-Outs. Captive close-outs will permit the owners of a captive
insurer to eliminate the run-off period ordinarily involved if it ceases
insurance operations. With many long-tail lines of business, particularly
workers' compensation, claims will continue to be paid many years after the
premiums have been collected. A captive insurer that has decided to cease its
operations faces an expensive administrative burden to service the claims until
they are all settled. Such a captive insurer could cede its liabilities to
Oracle Re who would assume the run-off.
Per Occurrence Casualty Coverage with Aggregates. Per occurrence casualty
coverage with aggregates may provide both specific and aggregate coverage for an
insured or ceding company. The specific coverage will protect against unusually
large claims by limiting the amount the insured or ceding company will pay. The
aggregate coverage will protect the insured or ceding company against an
unusually heavy frequency of smaller claims (capped by the amount of specific
risk retained by the insured or ceding company). An aggregate attachment point
will be negotiated with the insured or ceding company which represents the
amount they must pay out in claims before Oracle Re begins to pay.
Aggregate Stop Loss Programs. Aggregate stop loss programs provide the
aggregate portion of the coverage described above for per occurrence casualty
coverage with aggregates. An aggregate attachment point will be negotiated with
the insured or ceding company which represents the amount it must pay out in
claims before Oracle Re begins to pay. A loss limitation will also be negotiated
to limit the dollar amount of any single claim applied towards the aggregate
attachment point.
RENT-A-CAPTIVE FACILITY
Oracle Re's rent-a-captive program will allow clients to participate in a
significant portion of their own loss exposure without the direct administrative
costs and capital commitment necessary to establish and operate their own
captive insurance company. A portion of the underwriting profit and investment
income produced by the client's rent-a-captive business will be returned to the
client creating a direct incentive for the client to engage in loss prevention
and loss control to reduce the overall cost of financing its exposures.
The Company's business strategy with respect to the rent-a-captive products
is to design reinsurance programs and to use the rent-a-captive facility to fund
captive clients' risks. Each program will be underwritten with the goal of
achieving an underwriting profit. Under each program, an insured or group of
insureds will procure workers' compensation insurance from Safety National or
another insurance company licensed in the U.S., which will retain a portion of
the workers' compensation exposure it has underwritten. Safety National, or the
other primary carrier, will then cede to Oracle Re the remaining portion of the
workers' compensation exposure it has not retained. The insured or an entity
affiliated with the insured (the "Program Sponsor") will either purchase a
separate class of preferred shares from Oracle Re or enter into a good
experience return agreement with Oracle Re. Pursuant to a preferred
shareholders' agreement or the good experience return agreement, Oracle Re and
each program sponsor will designate a portion of the risks reinsured as
participating program risks. The profits and losses from those risks are
allocated to the applicable program or class of preferred shares on Oracle Re's
books and records. The method for calculating such profits and losses is
established in the preferred shareholders' agreement or good experience return
agreement. If the business is profitable, the program sponsor may, subject to
the Board's discretion, receive dividends on the preferred shares or good
experience returns under the good experience return agreements, as the case may
be. If the losses incurred with respect to the participating program risks are
greater than expected, the Program Sponsor may be required to indemnify Oracle
Re.
In certain cases (after due disclosure and acceptance by the insured), an
agent or broker placing risks with Safety National may act as the Program
Sponsor and purchase preferred shares from Oracle Re. In such
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cases, Safety National will reinsure a portion of those risks with Oracle Re and
pursuant to the terms of the applicable preferred shareholders' agreement, the
agent or broker will receive dividends if the business is profitable and may be
required to indemnify Oracle Re if the business suffers greater than expected
losses.
Oracle Re will generally reinsure Safety National or other ceding companies
for the first $250,000 of losses per occurrence subject to a maximum aggregate
of stop loss limit determined per account with excess exposures retained by
Safety National or the other ceding company. In some cases, Oracle Re will
assume a greater amount of risk but retrocede such risk to a third party
reinsurer.
Oracle Re expects to receive profits from fees received for the various
services provided to clients in connection with Oracle Re's rent-a-captive
program. Oracle Re will receive investment and underwriting fees for its captive
insurance products and services. In a typical program, these fees will total
between 2.5% and 5% of the client's premium. Oracle Re will market its services
to insurance producers and brokers. The services offered to clients in
connection with Oracle Re's rent-a-captive programs will include the following:
- design and implementation of an effective risk financing program;
- use of the rent-a-captive facility to fund the clients' risks; and
- brokering to unaffiliated reinsurers the excess risk which Oracle Re
elects not to retain.
While Oracle Re's initial focus will be on workers' compensation products
and services, the Company's strategy anticipates that over time Oracle Re will
offer a more complete line of general reinsurance products and services.
PROPOSED LEGISLATION
Oracle Re intends to seek a private act of the Bermuda Legislature in
November 1997 (the "Private Act") which will, among other things, allow it to
underwrite unsegregated insurance and reinsurance business and segregated cell
business within the same entity. The Private Act will allow Oracle Re to create
one or more cells or separate accounts (each, a "Separate Account") in which it
will segregate premiums, investment income and losses from one or more policies
and shall keep such funds separate and independent from other segregated and
unsegregated funds of Oracle Re. The Private Act, if granted, generally will
provide that the Separate Account is not chargeable with any liability arising
from any other business of Oracle Re and will not be subject to claims arising
out of other business Oracle Re may conduct.
The Private Act will be presented to the Bermuda Legislature, which
consists of the Senate and House of Assembly of Bermuda. The Company, as the
petitioner for the Private Act, will present a "Private Bill" to the Bermuda
Legislature, which must be approved by both Houses and assented to by Her
Majesty the Queen Elizabeth II or by the Governor of Bermuda acting on behalf of
Her Majesty. Assuming the approval of both Houses and the Governor on behalf of
Her Majesty, the "Private Bill" will then become a "Private Act," and will
become law when the Governor signifies such assent by proclamation published in
the Official Gazette of Bermuda. Oracle Re believes that it will be successful
in obtaining its Private Act since it will be modeled substantially along
similar lines to previous Private Acts approved by the Bermuda Legislature.
However, there can be no assurance that Oracle Re will be successful in this
regard, and, in the event that the Private Act is not granted, Oracle Re will be
unable to underwrite segregated cell business, which could limit the amount of
insurance and reinsurance business underwritten by Oracle Re and have a material
adverse effect on its business and results of operations.
INVESTMENTS AND INVESTMENT ADVISORY AGREEMENT
Oracle Re's investment strategy will focus on the management of its asset
and liability durations. Since Oracle Re's initial reinsurance transactions will
involve liabilities with long-term durations, Oracle Re will be able to invest
its assets in long-term duration investments. Oracle Re's investment objective
is to maximize returns while focusing on the preservation of capital,
diversification of risk and liquidity of investments. Oracle Re's assets will be
allocated among a number of various investment managers with expertise in
utilizing different investment strategies. These broad strategies include, among
others, diversified hedging, hedged
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equity, common stock/specialized trading, short selling, risk arbitrage,
distressed securities, futures and commodities and foreign securities investing.
The managers primarily will invest the assets in a variety of marketable
securities and other liquid assets. Oracle Re will invest through the investment
vehicles of the managers (generally in the form of a corporation or partnership)
or through managed accounts. Oracle Re will be able to redeem its investment
from substantially all the investment vehicles on at least an annual basis with
many of the managers providing quarterly or more frequent liquidity. Oracle Re's
multi-manager, multi-strategy approach is designed to produce capital
appreciation with reduced volatility.
The identification of and allocation to strategies are based on a number of
factors including assessing the current economic environment and outlook for
profitability for each strategy, evaluating the liquidity and credit risks of
the securities involved, estimating the volatility of the expected return and
quantifying the correlation among strategies to achieve meaningful
diversification. The selection of investment managers include both a qualitative
and quantitative assessment and review including review of investment and
research methodology, evaluation of risk management and control systems,
assessment of the manager's organizational structure and capacity constraints,
analysis of the risk/reward profile and historic correlation to various markets
and other managers.
The allocation of Oracle Re's assets to the strategies and among investment
managers within the strategies will be performed by Acorn Advisory Capital L.P.
(the "Investment Advisor") pursuant to an investment advisory agreement (the
"Investment Advisory Agreement"). The Investment Advisor, together with its
affiliates, has over fifteen years of experience managing multi-manager,
multi-strategy programs with moderate levels of investment risk while achieving
actual returns higher than expected returns for the level of investment risk
assumed. The Investment Advisor will be paid a fee equal to 50 basis points of
assets under management. The Investment Advisor has advised the Company that it
intends to waive the fee for the initial two-year period of the Investment
Advisory Agreement and has as its option the ability to waive future fees,
although there can be no assurance that it will do so. In addition, the
Investment Advisory Agreement will allow the Investment Advisor to defer payment
of its fees, although there can be no assurance that it will do so. The initial
term of the Investment Advisory Agreement is until December 31, 1998 and shall
thereafter be automatically renewed for successive two-year terms, unless
terminated on 60 days' notice by either the Company or the Investment Advisor.
The amount of the fees which the Investment Advisor elects to defer will be
invested by the Company in the same manner as the Company's other assets. Thus,
the Investment Advisor will effectively participate in the investment
performance of the Company to the extent it elects to defer its fee.
The Company is seeking to establish a standby letters of credit facility,
which will likely contain certain restrictions on the type of investments
included in that portion of the portfolio which the Company anticipates will be
required to be pledged to secure such facility. See "Management's Discussion and
Analysis of Financial Condition and Plan of Operation -- Liquidity and Capital
Resources."
MARKETING
Oracle Re is not registered or licensed as an insurance company in any
jurisdiction other than Bermuda and will therefore not actively market its
products in the United States. Although the insurance laws of United States
jurisdictions generally exempt the business of reinsurance from laws which
require persons to procure a certificate of authority prior to transacting the
business of insurance, the Company intends to conduct its business at its
principal offices in Bermuda and will not maintain an office in the United
States, and its personnel will not solicit, advertise, settle claims or conduct
other insurance activities in the United States. The Company, through Oracle Re,
initially intends to reinsure group employee benefit insurance products offered
by RSL and Safety National to the independent U.S. broker market. In addition,
the Company intends to provide risk financing products for clients of Safety
National in the alternative market. The rent-a-captive facility will provide the
insured with a risk financing facility and will permit Safety National and
brokers to address the specific risk financing needs of the insured.
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RESERVES
In accordance with U.S. GAAP, Oracle Re will not be permitted to establish
loss reserves for its employee benefit product insurance business until an event
or circumstance which may give rise to a claim occurs. Generally, reserves will
be established without regard to whether the claim may subsequently be contested
by Oracle Re. The reserves for losses and LAE established by Oracle Re will
include reserves for unpaid reported losses and LAE and for losses which have
been incurred but have not yet been reported ("IBNR"). Such reserves will be
estimated by Oracle Re based upon RSL's and Safety National's historical loss
reserves, reports received from ceding companies, supplemented by Oracle Re's
own estimates of reserves for which ceding company reports have not been
received and its own historical experience. To the extent RSL's and Safety
National's historical experiences are inadequate for estimating reserves, such
estimates may be actuarially determined based upon industry experience and
Oracle Re's judgment. The estimates will be continually reviewed and as
adjustments to these reserves become necessary, such adjustments will be
reflected in current operations.
Loss reserves represent estimates of what an insurer or reinsurer
ultimately expects to pay on claims at a given time, based on facts and
circumstances then known, and it is possible that the ultimate liability may
exceed or be less than such estimates. The estimates are not precise in that,
among other things, they are based on predictions of future developments and
estimates of future trends in claim severity and other variable factors such as
inflation. During the loss settlement period, it often becomes necessary to
refine and adjust the estimates of liability on a claim either upward or
downward. Even after such adjustments, ultimate liability may exceed or be less
than the revised estimates. The estimation of reserves by new insurers, such as
Oracle Re, may be inherently less reliable than the reserve estimations of a
reinsurer with a stable volume of business and an established loss history,
although Oracle Re will have access to the historical experience of Safety
National and RSL for their business that it reinsures. Actual losses and LAE may
deviate, perhaps substantially, from estimates reflected in Oracle Re's loss
reserves in its financial statements. If the loss reserves in respect of
business written should be inadequate, Oracle Re will be required to increase
loss reserves with a corresponding reduction in Oracle Re's net income in the
period in which the deficiency is identified. In addition, under Bermuda
statutory accounting, reinsurers may discount loss reserves and in the event
there has been discounting of loss reserves, the statutory financial return and
statutory financial statements must include an opinion from a loss reserve
specialist (i.e., an actuary) in the event that compliance with statutory ratios
is not possible on an undiscounted basis. Oracle Re intends to have its reserves
examined by independent actuaries.
RETROCESSION
Reinsurers may purchase reinsurance to cover some or all of their own risk
exposure, subject to market availability. Reinsurance of reinsurance is called
retrocession. Reinsurance companies cede risks under retrocessional agreements
to other reinsurers, commonly referred to as retrocessionaires, for reasons
similar to those that cause primary insurers to purchase reinsurance, namely to
reduce net liability on individual risks, to protect against catastrophic
losses, to stabilize financial ratios and to obtain additional underwriting
capacity. Oracle Re may enter into retrocessional agreements with respect to its
rent-a-captive business.
COMPETITION
The reinsurance industry is highly competitive. Oracle Re will compete with
other reinsurers, many of which will have greater financial, marketing and
management resources than the Company, and it may compete with new market
entrants in the future. Competition in the types of reinsurance that Oracle Re
intends to underwrite is based on many factors, including the perceived
financial strength of the reinsurer, pricing and other terms and conditions,
services provided, ratings assigned by independent rating organizations
(including A.M. Best's), speed of claims payment and reputation and experience
in the line of reinsurance to be written.
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Neither Oracle Re nor the Company is rated by A.M. Best's or by any other
insurance rating agency and is not expected to receive a rating until it has
accumulated at least five consecutive years of representative operating
performance.
EMPLOYEES
The Company has a President and Chief Executive Officer, a Vice-President,
a Secretary and an Assistant Secretary. Following completion of the Rights
Offering, the Company anticipates that it will expand its staff, including
underwriting professionals, as it commences operations.
PROPERTIES
The Company intends to use the offices of IAS, its Bermuda manager, at
which the principal offices of the Company and Oracle Re will be located.
LEGAL PROCEEDINGS
Although the Company is not currently involved in any litigation or
arbitration, the Company expects that it will be subject to litigation and
arbitration in the ordinary course of its business.
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REGULATION
BERMUDA
The Insurance Act 1978 and Related Regulations. The Insurance Act 1978 and
related regulations (the "Act"), which regulates the business of Oracle Re,
provides that no person shall carry on an insurance business in or from within
Bermuda unless registered as an insurer under the Act by the Minister of Finance
(the "Minister"). The Minister, in deciding whether to grant registration, has
broad discretion to act as he thinks fit in the public interest. The Minister is
required by the Act to determine whether the applicant is a fit and proper body
to be engaged in the insurance business and, in particular, whether it has, or
has available to it, adequate knowledge and expertise. In connection with
registration, the Minister may impose conditions relating to the writing of
certain types of insurance. The registration of an applicant as an insurer is
subject to its complying with the terms of its registration and other conditions
as the Minister may impose at any time.
An Insurance Advisory Committee appointed by the Minister advises him on
matters connected with the discharge of his functions, and sub-committees
thereof supervise and review the law and practice of insurance in Bermuda,
including reviews of accounting and administrative procedures.
The Act imposes on Bermuda insurance companies solvency and liquidity
standards and auditing and reporting requirements and grants to the Minister
powers to supervise, investigate and intervene in the affairs of insurance
companies. Significant aspects of the Bermuda insurance regulatory framework, as
it applies to Class 3 insurers, are set forth below.
Classification of Insurers. The Act provides for four classes of
registration of insurers carrying on general business (as defined in the Act).
Oracle Re will be registered and licensed as a Class 3 insurer and as a
long-term Insurer. Class 3 insurers are subject to a higher degree of regulation
than Class 1 and 2 insurers, which are primarily concerned with underwriting
related risks. In addition, the minimum capital and surplus for a Class 3
insurer is $1.0 million, whereas the minimum capital and surplus for Class 2 and
Class 1 insurers is $250,000 and $120,000, respectively. There is also a Class 4
insurer classification which is used predominately for property catastrophe
reinsurance companies and companies involved in the excess liability business.
Long-Term Business. Oracle Re will be registered as a Class 3 insurer and
as a long-term insurer, that is, it is proposed that Oracle Re will carry on
both general business and long-term business as those terms are defined in the
Act. Long-term business is essentially effecting and carrying out contracts of
insurance on human life or contracts to pay annuities on human life. An insurer
carrying on long-term business must maintain its accounts in respect of that
long-term business separate from any accounts kept in respect of any other
business. The Act imposes certain restrictions on payments made from the
insurer's long-term business account which must be established with respect to
its long-term business. Further, there are restrictions on the transfer of
long-term insurance business (requires a Court order) and voluntary winding up
(liquidation of a long-term insurer is under court supervision). Long-term
insurers must appoint an approved actuary, that is, an actuary approved by the
Minister.
Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister on certain grounds specified in the Act, including
failure of the insurer to comply with its obligations under the Act or, if, in
the opinion of the Minister after consultation with the Insurance Advisory
Committee, the insurer has not been carrying on business in accordance with
sound insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, the
latter of which is required to be filed annually with the Registrar of Companies
(the "Registrar"), who is the chief administrative officer under the Act. The
auditor must be approved by the Minister as the independent auditor of the
insurer. The approved auditor may be the same person or firm which audits the
insurer's financial statements and reports for presentation to its shareholders.
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Loss Reserve Specialist. Each Class 3 insurer is required to submit an
annual loss reserve opinion by its approved loss reserve specialist when filing
its Statutory Financial Statements and Statutory Financial Return. The loss
reserve specialist, who will normally be a qualified property/casualty actuary,
must be approved by the Minister.
Statutory Financial Statements. An insurer must prepare annual Statutory
Financial Statements. The Act prescribes rules for the preparation and substance
of such Statutory Financial Statements (which include, in statutory form, a
balance sheet, an income statement, and a statement of capital and surplus, and
detailed notes thereto). The insurer is required to give detailed information
and analyses regarding premiums, claims, reinsurance and investments. The
Statutory Financial Statements are not prepared in accordance with U.S. GAAP and
are distinct from the financial statements prepared for presentation to the
insurer's shareholders under The Companies Act 1981 of Bermuda, which financial
statements may, if the Board so determines, be prepared in accordance with U.S.
GAAP. Oracle Re, within four months after the end of its financial year, must
file its Statutory Financial Statements with the Registrar. The Statutory
Financial Statements must be maintained at the principal office of the insurer
for a period of five years.
Minimum Solvency Margin. The Act provides that the statutory assets of an
insurer must exceed its statutory liabilities by an amount greater than the
prescribed minimum solvency margin which varies with the class of the insurer
and the insurer's net premiums written and loss reserve level.
Minimum Liquidity Ratio. The 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, mortgages secured by first liens on
real estate, investment income due and accrued, accounts and premiums receivable
and reinsurance balances receivable. 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.
The Company intends to maintain significant investments in the investment
vehicles of certain investment managers which assets will not automatically be
regarded as Relevant Assets, as defined in the Act. However, the Company has
made an application to the Minister through the offices of the Registrar and has
received a letter from the Registrar indicating that there is sufficient
evidence in Oracle Re's application to support a recommendation to the Minister
that the said investments be treated as Relevant Assets on the basis that their
underlying financial strength is sustained by assets that are quoted investments
under the Act. However, the Registrar has noted in his letter that until such
time as Oracle Re is registered under the Act and a formal application is made,
the Minister's approval in this regard cannot be finalized. Oracle Re will be
registered under the Act once it has received the contribution of the net
proceeds of the Rights Offering from the Company. See "Use of Proceeds" and
"Capitalization." Oracle Re believes that it will be successful in obtaining the
permission of the Minister once it is registered because its application is
substantially similar to other applications approved by the Minister in this
context. However, there can be no assurance that Oracle Re will be successful,
and in the event that the Minister's approval is not granted, Oracle Re will be
unable to record the unquoted equity securities as Relevant Assets for the
purposes of meeting its minimum liquidity ratio under the Act which could
potentially limit the amount of insurance business underwritten by it and may
have a material adverse effect on its business and results of operations.
Restriction on Dividends. The payment of dividends or other distributions
by Oracle Re is limited under the Act. In accordance therewith, Oracle Re is
prohibited from paying dividends or other distributions unless after such
payment the amount by which its general business assets exceed its general
business liabilities is the greatest of the following amounts: (i) $1.0 million;
(ii) an amount equal to 20% of the first $6.0 million of net written premiums in
the subject year plus 15% of all net written premiums in excess thereof in the
subject year; or (iii) an amount equal to 15% of the reserves for losses and
loss adjustment expenses reflected in the balance sheet at the date of
determination.
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Oracle Re may declare and pay a dividend or make a distribution out of
contributed surplus or other assets legally available for distribution provided
that after the payment of such dividend or distribution Oracle Re will continue
to meet its minimum solvency margin and minimum liquidity ratio as detailed
above. Further, in accordance with the Act, before reducing by 15% or more its
total statutory capital as set out in its previous year's financial statements,
a Class 3 insurer must apply to the Minister for his approval and is obliged to
provide such information in connection therewith as the Minister may require.
Annual Financial Return. Oracle Re will be required to file with the
Registrar its Statutory Financial Return no later than four months from its
financial year end (unless specifically extended). The Statutory Financial
Return includes, among other matters, a report of the approved independent
auditor on the Statutory Financial Statements of the insurer, a declaration of
the statutory ratios, and a solvency certificate.
Supervision, Investigation and Intervention. 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 and others to produce documents or information relating to
matters connected with the insurer's business.
If it appears to the Minister that there is a significant 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, to maintain in Bermuda, or transfer to the
custody of a Bermuda bank, certain assets, and to limit its premium income.
Further, in such circumstances, the Minister may direct that no dividends be
paid.
An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda. For purposes of the
Act, the principal office of Oracle Re will be at Chevron House, Church Street,
Hamilton, Bermuda and International Advisory Services Ltd. will be the principal
representative of Oracle Re. Without a reason acceptable to the Minister, 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. It is the
duty of the principal representative, within 30 days of his reaching the view
that there is a likelihood of the insurer for which he acts becoming insolvent
or it comes to his knowledge, or he has reason to believe, that an "event" has
occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to him. 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.
UNITED STATES AND OTHER
Oracle Re is not admitted to do business in any jurisdiction except
Bermuda. The insurance laws of each state of the United States and of many
foreign countries regulate the sale of insurance within their jurisdictions by
alien insurers, such as Oracle Re, which are not admitted to do business within
such jurisdiction. With some exceptions, such sale of insurance within a
jurisdiction where the insurer is not admitted to do business is prohibited.
Oracle Re will conduct its business through its executive offices in
Bermuda and does not intend to maintain an office or to solicit, advertise,
settle claims or conduct other insurance activities in the United States or in
any jurisdiction other than Bermuda where the conduct of such activities would
require that Oracle Re be so admitted.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY AND ORACLE RE
The table below sets forth the names, ages and titles of the members of the
Board of Directors and executive officers of the Company and Oracle Re:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY AND ORACLE RE
- -------------------------------------------- --- ------------------------------------------------
<S> <C> <C>
Robert Rosenkranz........................... 55 Chairman of the Board
Colin O'Connor.............................. 49 President, Chief Executive Officer and Director
David Ezekiel............................... 49 Vice President and Director
Nicolas G. Trollope......................... 50 Secretary and Director
David Elenowitz............................. 39 Director
Edward A. Fox............................... 60 Director
Harold F. Ilg............................... 50 Director
Charles P. O'Brien.......................... 60 Director
Lewis S. Ranieri............................ 50 Director
Thomas L. Rhodes............................ 57 Director
Robert M. Smith, Jr......................... 46 Director
</TABLE>
In addition, Bermuda law imposes certain managerial requirements for all
exempted companies. To meet these requirements, the Company and Oracle Re will
have a secretary who is ordinarily resident in Bermuda and a resident
representative. In accordance with Bermuda law, the secretary of the Company
will not also act as the resident representative. To satisfy Bermuda law, the
Company and Oracle Re will appoint David Ezekiel and Nicolas G. Trollope, Esq.
as resident representative and Secretary, respectively.
ROBERT ROSENKRANZ has served as Chairman of the Board of Directors of each
of the Company and Oracle Re since their inception in September 1997. Mr.
Rosenkranz will devote to such companies such time as is sufficient to enable
him to fulfill his duties as Chairman of the Boards of Directors. Mr. Rosenkranz
has served as the President and Chief Executive Officer of Delphi since May 1987
and has served as Chairman of the Board of Directors of Delphi since April 1989.
Mr. Rosenkranz is also the Chairman of the Board of RSL, First Reliance Standard
Life Insurance Company and Reliance Standard Life Insurance Company of Texas and
a director of Safety National. Mr. Rosenkranz has served as either sole or
managing general partner of Rosenkranz & Company or as beneficial owner of its
corporate general partner since October 1978. Mr. Rosenkranz has served as
either the general partner or as the beneficial owner of the corporate general
partner of Acorn Partners since 1982.
COLIN O'CONNOR has served as President, Chief Executive Officer and
Director of each of the Company and Oracle Re since their inception in September
1997. Mr. O'Connor will continue to spend substantially all of his business time
fulfilling his presidential and directorial duties. Mr. O'Connor has served as
President of Belvedere Insurance Company Ltd. for more than the past five years.
Mr. O'Connor is a director of Lombard Odier International Trust (Bermuda) Ltd.
and Midlands Management Co.
DAVID EZEKIEL has served as Vice President and Director of each of the
Company and Oracle Re since their inception in September 1997. Mr. Ezekiel is
the President and Managing Director of IAS, a Bermuda domiciled and licensed
insurance management company, which he founded in 1981. IAS, which currently has
more than 50 personnel, provides the management and administrative expertise for
many Bermuda-based insurance companies. Companies under the management of IAS
have an aggregate annual premium volume of more than $925.0 million and invested
assets of more than $3.5 billion. Mr. Ezekiel, together with the staff of IAS,
will devote sufficient time to the Company as is required to accomplish the
duties assigned to them. Prior to founding IAS, Mr. Ezekiel was a partner with
the accounting firm of Moore, Stephens & Butterfield, the Bermuda arm of KPMG
Peat Marwick. Mr. Ezekiel was admitted as a Member of the Institute of Chartered
Accountants in England and Wales in 1971 and admitted to Fellowship in 1978.
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NICOLAS G. TROLLOPE has served as Secretary and Director of each of the
Company and Oracle Re since their inception in September 1997. Mr. Trollope will
devote to such companies such time as is sufficient to enable him to fulfill his
secretarial and directorial duties thereto. Mr. Trollope is currently a partner
with the law firm of Conyers Dill & Pearman, Hamilton, Bermuda, which he joined
in 1975. Mr. Trollope is a director and officer of numerous Bermuda exempted
companies for which Conyers Dill & Pearman acts as legal counsel and for which
its associated company, Codan Services Ltd., provides corporate administrative
services.
DAVID ELENOWITZ has served as Director of each of the Company and Oracle Re
since their inception in September 1997. Mr. Elenowitz is the President of
Mercury Capital, Inc., a private investment firm which he founded in November
1993. Prior to forming Mercury Capital, Inc., Mr. Elenowitz headed the U.S.
operations of The Sutton Company, a private investment firm which acquired
businesses for its own account. Mr. Elenowitz is a director of Outsource
Merchandising Corp. and Food Service Holdings, Inc.
EDWARD A. FOX has served as Director of each of the Company and Oracle Re
since their inception in September 1997. Mr. Fox, Chairman of SLM Holding Corp.,
the parent of Sallie Mae, a financial intermediary serving the education credit
market, served as the Dean of the Amos Tuck School of Business Administration at
Dartmouth College from May 1990 until September 1994. From April 1973 until May
1990, Mr. Fox was President and Chief Executive Officer of Sallie Mae. Mr. Fox
is a director of Delphi.
HAROLD F. ILG has served as a Director of each of the Company and Oracle Re
since their inception in September 1997. Mr. Ilg is the Vice Chairman of the
Board of Safety National Casualty Corporation. Mr. Ilg also serves on Safety
National's Executive and Investment Committee and has been associated with
Safety National since 1978. Mr. Ilg is a Certified Public Accountant and
previously worked for Coopers and Lybrand prior to his association with Safety
National. Mr. Ilg is a member of the Missouri Society of CPA's and the Insurance
Accounting and Systems Association. Mr. Ilg is a director of RSL and Safety
National.
CHARLES P. O'BRIEN has served as a Director of each of the Company and
Oracle Re since their inception in September 1997. Mr. O'Brien has served as
President, Chief Executive Officer and a director of RSL since August 1976. Mr.
O'Brien also serves as President, Chief Executive Officer and a director of
First Reliance Standard Life Insurance Company and Reliance Standard Life
Insurance Company of Texas. Mr. O'Brien is a director of Delphi and Safety
National.
LEWIS S. RANIERI has served as a Director of each of the Company and Oracle
Re since their inception in September 1997. Mr. Ranieri has served as Chairman
and Chief Executive Officer since January 1988 of Ranieri & Co., Inc. and
Overseas Hyperion Partners L.P. and Hyperion Partners II L.P. (collectively
"Hyperion"), funds created to invest in the financial services, housing and real
estate industries. As part of his responsibilities with Hyperion, Mr. Ranieri
serves as Chairman of Hyperion Capital Management, a New York-based money
management firm specializing in mortgage-backed securities, as Chairman,
director and/or trustee of several investment companies advised by Hyperion
Capital Management, Inc., as Chairman and a director of Bank United Corp. and as
a director of Bank United, a Houston-based savings and loan institution. Mr.
Ranieri is also a director of Delphi.
THOMAS L. RHODES has served as a Director of each of the Company and Oracle
Re since their inception in September 1997. Mr. Rhodes has been President of
National Review since November 1992, where he has also served as a director
since 1988. From 1987 to November 1992, Mr. Rhodes was a partner of Goldman
Sachs & Co., New York, New York. Mr. Rhodes is Co-Chairman, Co-Chief Executive
Officer and Co-Manager of Financial Asset Management LLC, Co-Chairman and
Co-Chief Executive Officer of Asset Investors Corporation and Co-Chairman and
Co-Chief Executive Officer of Commercial Assets, Inc. Mr. Rhodes is a director
of Apartment Investment and Management Company, The Lynde and Harry Bradley
Foundation and Delphi, and trustee of The Heritage Foundation, RSL and Reserve
Special Portfolio Trusts.
ROBERT M. SMITH, JR. has served as a Director of each of the Company and
Oracle Re since their inception in September 1997. Mr. Smith, has served as Vice
President of Delphi and Delphi Capital Management, Inc. since July 1994. Prior
to joining Delphi, Mr. Smith served as Director, Investment Banking
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for Merrill Lynch & Company in New York. Mr. Smith is a director of Delphi, RSL,
First Reliance Standard Life Insurance Company, Reliance Standard Life Insurance
Company of Texas and Safety National.
STAGGERED BOARD AND COMMITTEES OF THE BOARD
The Company's Bye-Laws provide that the Board of Directors shall be divided
into three classes which classes will be as follows: the first class, whose
initial term expires at the first annual meeting (to be held in 1998) of the
Company's shareholders following the completion of the Rights Offering, will be
comprised of Messrs. O'Connor, Fox and O'Brien; the second class, whose initial
term expires at the second annual meeting of the Company's shareholders
following the completion of the Rights Offering, will be comprised of Messrs.,
Smith, Ranieri, Ilg and Rhodes; and the third class, whose initial term expires
at the third annual meeting of the Company's shareholders following the
completion of the Rights Offering, will be comprised of Messrs. Rosenkranz,
Trollope, Elenowitz and Ezekiel. Following their initial terms, all classes of
directors shall be elected to three year terms.
In accordance with the Company's Bye-Laws, the Board of Directors intends
to establish Executive, Audit and Compensation Committees, each of which will
report to the Board of Directors. The Executive Committee will consist of
Messrs. Rosenkranz, Ilg, Elenowitz, O'Connor and Smith, and will be responsible
for establishing the Company's underwriting guidelines and will review the
execution of such guidelines. The Audit Committee will consist of Messrs.
Elenowitz, Ezekiel and Smith, and will establish standards for review of the
Company's compliance with applicable accounting and regulatory requirements. The
Compensation Committee will consist of Messrs. Ezekiel and Rhodes, and will
review the compensation of the Company's Chief Executive Officer and stock
options.
EMPLOYMENT ARRANGEMENT
The Company and Colin O'Connor have entered into an oral employment
arrangement pursuant to which Mr. O'Connor has agreed to serve as President and
Chief Executive Officer of the Company for an annual salary of $150,000 plus
employee benefits and a bonus to be determined in the discretion of the
Company's Board of Directors. Mr. O'Connor has agreed to devote substantially
all of his business time to the affairs of the Company.
DIRECTOR COMPENSATION AND BENEFITS
Directors who are employees of the Company will not be paid any fees or
additional compensation for services as members of the Company's Board of
Directors or any committee thereof. Non-employee directors may receive customary
directors' fees, the amount of which has not yet been determined. All directors
are entitled to reimbursement by the Company for travel and other related
expenses incurred while attending meetings of the Company's Board of Directors
or any committees thereof.
DIRECTORS AND OFFICERS INSURANCE
The Company provides and maintains insurance against liability incurred by
any director or officer of the Company arising out of the performance of their
official duties. The Company has agreed to indemnify the directors and officers
of the Company with respect to their acts or omissions which they may occur
while in office to the extent provided by the Bye-Laws of the Company, and in
each case subject to any limitation imposed by applicable law.
DIRECTOR AND EMPLOYEE STOCK OPTION PLAN
The Company's Board of Directors intends to consider the adoption of a
Director and Employee Stock Option Plan (the "Plan"). Subject to such adoption
and the approval of the shareholders of the Company at the Company's first
annual meeting of its shareholders, the Plan shall be effective as of the date
on which it is adopted by the Company's Board of Directors.
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The purpose of the plan is to (a) attract and retain directors and
employees (including officers) of the Company and of any subsidiaries of the
Company, whether or not such subsidiaries are presently in existence; (b)
motivate participating employees by means of appropriate incentives to achieve
long-range goals; (c) provide incentive compensation opportunities that are
competitive with those of other major corporations; (d) further align directors'
and officers' interests with those of the Company's and other shareholders
through compensation that is based on the Company's Common Shares and thereby
promote the long-term financial interest of the Company; and (e) to increase the
proprietary interest in the Company of Directors whose continued services are
important to the continued success of the Company, thereby providing them with
additional incentive to continue to serve as Directors. The Plan provides for
the grant of non-qualified stock options to directors who are not employees of
the Company or any subsidiary of the Company and non-qualified and incentive
stock options to eligible employees. The Plan is administered by a committee
appointed by the Company's Board of Directors (the "Committee"). The Committee
shall determine the directors and employees to whom options will be granted
under the Plan ("Optionees"). The Directors shall automatically receive options
annually based on the following formula: Number of Option Shares =
multiplied by (1+ (.125 multiplied by the number of years of continuous service
as a director as of the date of grant, treating any portion of a year of service
as a full year)). Directors, who do not elect otherwise, shall also receive
options in lieu of the annual cash compensation for serving as a director (the
"Retainer Amount") in accordance with the following formula: Number of Option
Shares = (Retainer Amount multiplied by 3), divided by the fair market value of
a Common Share as of the date they are elected, re-elected or appointed, as
applicable, to the Board of Directors of the Company or one of the Company's
subsidiaries. The Plan is subject to amendment or termination by the Company's
Board of Directors at any time.
The Plan is expected to provide for the issuance of options covering
Common Shares. The aggregate number of Common Shares which are subject to
outstanding Options granted under the Plan, together with the total number of
Common Shares which have been issued pursuant to Options granted under the Plan,
shall not at any time exceed 5% of the total number of Common Shares issued and
outstanding. Common Shares allocated to a grant which expires, lapses, is
forfeited or terminated for any reason without issuance of Common Shares may
again become subject to grants under the Plan. Grants under the Plan are not
transferrable except under certain limited circumstances.
A grant of a stock option entitles the Optionee to purchase from the
Company a specified number of Common Shares at an option price per Common Share
equal to 100% of the fair market value of a Common Share on the date of grant.
The fair market value of a Common Share as of any date is the closing price of
the Common Share as reported in the over-the-counter market on such date. In the
discretion of the Committee, the options granted to an employee may be either
non-qualified stock options or incentive stock options. The options granted to
employees shall be exercisable in accordance with the terms established by the
Committee, provided that, except as otherwise expressly provided in the Plan,
such options shall become exercisable in five equal installments of 20% per
year.
The options granted to Directors, other than options granted in lieu of
Retainer Amounts, shall become exercisable in five equal annual installments of
twenty percent per year. The options granted to Directors in lieu of Retainer
Amounts shall become exercisable in four substantially equal installments on the
90, 180, 270 and 360-day anniversary of the date of grant. The Committee shall
determine the expiration date of options granted under the Plan. Such
determination depends upon whether the option was granted to an employee or a
director, however, in no case shall the expiration date of any option be later
than ten years from the date of grant. The full purchase price of each Common
Share acquired upon the exercise of any option shall be paid at the time of
exercise. Except as otherwise determined by the Committee, the purchase price
shall be payable in cash or in Common Shares (valued at fair market value as of
the date of exercise, and including Common Shares acquired pursuant to the
exercise), or in any combination thereof. Upon a change in control (as defined
in the Plan) all outstanding options become fully exercisable.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and Oracle Re have entered into a series of agreements with
Delphi and/or affiliates thereof, including RSL and Safety National, with
respect to the formation of the Company and Oracle Re and the operation thereof.
REINSURANCE AGREEMENTS
RSL has agreed, subject to completion of the Rights Offering and receipt of
regulatory approval, to cede a portion of its liabilities under group long-term
disability claims incurred prior to January 1, 1996 to Oracle Re on a quota
share basis for a one-time premium of approximately $40.7 million, less a
one-time ceding commission of approximately $5.7 million, resulting in a net
premium to Oracle Re of approximately $35.0 million. RSL will be entitled to
share in a portion of the annual investment return of Oracle Re on such
reinsurance, and will receive an amount equal to the lesser of (a) 70% of the
amount by which the investment return exceeds 6% or (b) 2% of Oracle Re's
average reserves carried with respect to the agreement. Mr. Rosenkranz, the
Chairman of the Board of Directors of RSL, is also the Chairman of the Board of
Directors of Oracle Re. Mr. O'Brien, the President, Chief Executive Officer and
Director of RSL, is also a director of Oracle Re. Mr. Ilg, a director of RSL, is
also a director of Oracle Re. Mr. Smith, a director of RSL, is also a director
of Oracle Re. Mr. Rhodes, a director of RSL, is also a director of Oracle Re.
Safety National has agreed, subject to completion of the Rights Offering
and receipt of regulatory approval, to cede a portion of its liabilities under
excess workers' compensation and casualty business claims incurred prior to
January 1, 1997 to Oracle Re on an excess of loss basis. On excess workers'
compensation, Safety National will cede its net losses sustained in excess of
$590.0 million, subject to an aggregate limit of $185.1 million. On casualty
business, Safety National will cede its net losses sustained in excess of $80.0
million, subject to an aggregate limit of $5.0 million. Safety National shall
pay a one-time premium in the amount of $81.0 million for such coverage. Safety
National will be entitled to share in a portion of the investment return of
Oracle Re on such reinsurance, and on an annual basis, will receive an amount
equal to 70% of the first 3% of the amount by which the investment return
exceeds 5%. Safety National will also be entitled to share in the annual
underwriting cash flow profit produced by the reinsurance agreement, and on an
annual basis, Safety National will receive an underwriting cash flow profit
equal to 1.35% of the difference between gross premium received and the
cumulative losses paid by Oracle Re, compounded at a 5% growth rate. At the
inception of the agreement, Oracle Re will pay an advance underwriting cash flow
profit commission in the amount of $16.0 million to Safety National. This
advance commission shall be used to pay the underwriting cash flow profit
commissions earned under the agreement. In the event the underwriting cash flow
profit commissions earned do not reduce the advance underwriting cash flow
profit to zero, Safety National shall retain such advance until all losses are
paid under the agreement. Oracle Re shall also pay the federal excise tax of
$810,000 due. The net funds paid by Safety National to the Company will be
approximately $64.2 million. Mr. Rosenkranz, a director of Safety National, is
the Chairman of the Board of Directors of Oracle Re. Mr. Ilg, a director of
Safety National and a member of its Executive and Investment Committee, is also
a director of Oracle Re. Mr. O'Brien, a director of Safety National, is also a
director of Oracle Re. Mr. Smith, a director of Safety National, is also a
director of Oracle Re.
Oracle Re is currently in negotiations with RSL and Safety National with
respect to the ceding of certain prospective risks by such companies to Oracle
Re with aggregate annual premiums expected to range from $5.0 million to $10.0
million. The terms of such negotiations have not been finalized and there can be
no assurance that Oracle Re and RSL or Safety National will reach agreement with
respect to such reinsurance.
NOTE AGREEMENT
The Company will enter into a note agreement with Delphi, RSL and Safety
National pursuant to which such companies will agree to purchase the Note from
the Company in the aggregate principal amount of $30.0 million concurrently with
the completion of the Rights Offering. The Note will bear simple interest at a
rate of % per annum, and will become payable thirty years from issuance. The
Company will have the option during any five year period to make semi-annual
interest payments through the issuance of additional
39
<PAGE> 44
promissory notes in lieu of cash payments. The payment by the Company of the
principal of and interest on the Note shall be subordinated and junior in right
of payment to the prior payment in full of the senior indebtedness of the
Company, whether presently outstanding or thereafter incurred. The Company does
not have any senior indebtedness presently outstanding. Delphi will grant the
Company an option, exercisable during the five year period after issuance of the
Note, to issue an additional $5.0 million Note to Delphi. Mr. Rosenkranz, the
President, Chief Executive Officer and Chairman of the Board of Directors of
Delphi, the Chairman of the Board of Directors of RSL and a director of Safety
National, is also the Chairman of the Board of Directors of the Company. Mr.
O'Brien, the President and Chief Executive Officer of RSL, and a director of
RSL, Safety National and Delphi, is also a director of the Company. Mr. Ilg, a
director of RSL and Safety National, is also a director of the Company. Mr.
Smith, a Vice President and a director of Delphi, and a director of both RSL and
Safety National, is also a director of the Company. Mr. Fox, a director of
Delphi, is also a director of the Company. Mr. Ranieri, a director of Delphi, is
also a director of the Company. Mr. Rhodes, a director of Delphi and RSL, is
also a director of the Company.
RECENT SALES OF UNREGISTERED SECURITIES
On September 2, 1997, the Company issued 1,200,000 of its Common Shares for
an aggregate purchase price of $12,000, or $.01 per share, to the Oracle Re
Purpose Trust, which shares will be redeemed, for an aggregate redemption price
of $12,000, or $.01 per share, upon completion of the Rights Offering. The Trust
is a mechanism whose sole purpose is to permit the organization of the Company
prior to the issuance of shares pursuant to the Rights Offering. The Trustee of
the Trust is Codan Trust Company Limited, which is controlled by the law firm of
Conyers Dill & Pearman. Nicolas G. Trollope, a partner with Conyers Dill &
Pearman, is also a director of the Company. Such issuance was a private
transaction not involving a public offering and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
INVESTMENT ADVISORY AGREEMENT
The allocation of Oracle Re's assets to the strategies and among investment
managers within the strategies will be performed by Acorn Advisory Capital L.P.
(the "Investment Advisor") pursuant to an investment advisory agreement (the
"Investment Advisory Agreement"). The Investment Advisor, together with its
affiliates, has over fifteen years of experience managing multi-manager,
multi-strategy programs with moderate levels of investment risk while achieving
actual returns higher than expected returns for the level of investment risk
assumed. The Investment Advisor will be paid a fee equal to 50 basis points of
assets under management. The Investment Advisor has advised the Company that it
intends to waive the fee for the initial two-year period of the Investment
Advisory Agreement and has as its option the ability to waive future fees,
although there can be no assurance that it will do so. In addition, the
Investment Advisory Agreement allows the Investment Advisor to defer payment of
its fees, although there can be no assurance that it will do so. Mr. Rosenkranz,
Chairman of the Board of Directors of the Company and Oracle Re, may be deemed
to be the beneficial owner of substantially all of the Investment Advisor.
The initial term of the Investment Advisory Agreement is until December 31,
1998 and shall thereafter be automatically renewed for successive two-year
terms, unless terminated on 60 days' notice by either the Company or the
Investment Advisor.
STANDBY AGREEMENT
The Company will enter into a Standby Agreement with the Standby Purchasers
prior to the closing of the Rights Offering pursuant to which the Standby
Purchasers will agree to purchase at the Exercise Price up to 900,500 Common
Shares underlying Rights not exercised by the Expiration Date. In consideration
thereof, the Company will agree to sell to certain Standby Purchasers at the
Exercise Price such number of Common Shares equal to the positive difference, if
any, between 150,000 Common Shares and the number of Common Shares otherwise
purchased assuming full exercise by all holders of Rights pursuant to the
Standby Agreement.
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<PAGE> 45
The following table sets forth the Standby Purchasers, the number of
Standby Commitment Shares and Minimum Standby Commitment Shares each Standby
Purchaser will agree to purchase pursuant to the Standby Agreement. The
following table also sets forth the number of Rights to acquire Common Shares
that each Standby Purchaser as of October 31, 1997 will own. This table assumes
that as of the date of the Prospectus the information set forth is the same as
on October 31, 1997. All of these persons are employees of Delphi, or one of its
affiliates, or Rosenkranz & Company, except for Messrs. Elenowitz, Fox,
O'Connor, Ranieri and Rhodes. Messrs. Ilg, O'Brien, Smith and Rosenkranz hold
the positions set forth in "Management." The first 150,000 Common Shares will be
purchased by the Standby Purchasers based on their Minimum Standby Commitment
Shares. The remaining Common Shares will be purchased by the Standby Purchasers
pro rata based on the number of Standby Commitment Shares set forth opposite
their names (reduced by the number of Minimum Standby Commitment Shares) up to
the total amount of their commitments.
<TABLE>
<CAPTION>
MINIMUM
STANDBY STANDBY
COMMITMENT COMMITMENT NUMBER OF
NAME SHARES(1) SHARES RIGHTS
---------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Wayne M. Benseler................................... 3,700 --
John Csik........................................... 2,300 2,300
Lawrence E. Daurelle................................ 1,800 --
Jane R. Dunlap...................................... 5,000 --
Linda Eike.......................................... 10,000 2,600
David Elenowitz..................................... 150,000 71,000
Christopher A. Fazzini.............................. 5,000 --
Aaron A. Fischer.................................... 10,000 10,000
Catherine M. Fleming................................ 2,000 2,000
Edward A. Fox....................................... 40,000 --
Kenneth R. Hamm..................................... 800 --
Duane A. Hercules................................... 15,000 --
Harold F. Ilg....................................... 80,000 --
Paul J. Kehoe....................................... 2,000 --
Louis C. Lucido..................................... 31,000 12,500
Gene Maier.......................................... 5,000 5,000
Patricia A. Mortz................................... 10,000 10,000
Charles P. O'Brien.................................. 33,400 --
Colin O'Connor...................................... 15,000 15,000
Jeffrey W. Otto..................................... 2,400 2,400
Stuart M. Presson................................... 2,700 2,700
Joseph W. Rachinsky................................. 3,800 --
Lewis S. Ranieri.................................... 80,000 --
Thomas L. Rhodes.................................... 20,000 --
Rosenkranz & Company (2)............................ 300,000 --
Terrence T. Schoeninger............................. 20,000 --
Gerald R. Scott..................................... 15,000 --
Robert M. Smith, Jr. ............................... 12,500 12,500
Debra Staples....................................... 100 --
William Troy........................................ 2,000 2,000
Mark A. Wilhelm..................................... 20,000 --
------- -------
Total..................................... 900,500 150,000
</TABLE>
- ---------------
(1) Represents aggregate commitment including Minimum Standby Commitment Shares.
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<PAGE> 46
(2) Rosenkranz & Company has advised the Company that it intends to distribute
any shares purchased pursuant to the Standby Agreement to its partners. As a
result, Mr. Robert Rosenkranz will receive directly or indirectly an initial
distribution of approximately 73.5% of any shares so purchased.
AGREEMENT WITH INTERNATIONAL ADVISORY SERVICES LTD.
The Company has agreed to engage IAS to provide certain management and
administrative services to the Company. David Ezekiel, Vice President and a
director of the Company and Oracle Re, is the President, Managing Director and
principal shareholder of IAS. These services will include underwriting support
and administration, preparation of financial statements, liaison with auditors,
legal advisors and other service providers, together with such other duties as
may be agreed upon. The Company will pay to IAS a fee based upon the time and
expenses incurred for the provision of such services, which fee the Company
expects to be approximately $ during 1998.
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<PAGE> 47
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Shares by each person expected by the Company to own
beneficially more than five percent of the Common Shares immediately following
the Rights Offering, each of the Company's Directors, which includes the
Company's Chief Executive Officer, and all directors and officers of the Company
as a group, in each case assuming that all of the Rights issued to such persons
in the Rights Offering are exercised by them and that no Common Shares are
issued pursuant to the Standby Agreement. This table assumes that as of the date
of the Prospectus the amount of Rights and nature of ownership is the same as on
October 31, 1997. Also set forth in this table is the number of Standby
Commitment Shares and Minimum Standby Commitment Shares that may be purchased by
such persons pursuant to the Standby Agreement.
<TABLE>
<CAPTION>
MINIMUM
AMOUNT OF RIGHTS STANDBY STANDBY
NAME AND ADDRESS OF AND NATURE OF COMMITMENT COMMITMENT
BENEFICIAL OWNER(1) OWNERSHIP PERCENT OF CLASS SHARES SHARES
- ------------------------------------ ---------------- ---------------- ---------- ----------
<S> <C> <C> <C> <C>
Rosenkranz & Company(2)............. 300,000 --
Robert Rosenkranz(2)................ -- --
Colin O'Connor...................... 15,000 15,000
David Ezekiel....................... -- --
Nicolas G. Trollope................. -- --
David Elenowitz..................... 150,000 71,000
Edward A. Fox....................... 40,000 --
Harold F. Ilg....................... 80,000 --
Charles P. O'Brien.................. 33,400 --
Lewis S. Ranieri.................... 80,000 --
Thomas L. Rhodes.................... 20,000 --
Robert M. Smith, Jr. ............... 12,500 12,500
---------- ----------
All officers and directors as a
group (11 persons)................ 730,900 98,500
</TABLE>
- ---------------
* Less than 1%.
(1) The address of each of Rosenkranz & Company, Robert Rosenkranz, David
Elenowitz and Robert M. Smith, Jr. is 650 Madison Avenue, Suite 2600, New
York, New York 10022. The address of Colin O'Connor is Delphi International
Ltd., Chevron House, Church Street, Hamilton, Bermuda. The address of David
Ezekiel is International Advisory Services Ltd., Chevron House, Church
Street, P.O. Box HM 1760, Hamilton Bermuda. The address of Nicolas G.
Trollope, Esq. is Conyers, Dill & Pearman, Clarendon House, Church Street,
Hamilton, Bermuda. The address of Edward A. Fox is R.R. 67-15, Harborside,
Maine 04642. The address of Harold F. Ilg is Safety National Casualty
Corporation, 2043 Woodland Parkway, Suite 200, St. Louis, Missouri 63146.
The address of Charles P. O'Brien is Reliance Standard Life Insurance
Company, 2501 Parkway, Philadelphia, Pennsylvania 19130. The address of
Lewis S. Ranieri is Ranieri & Co., Inc., 50 Charles Lindbergh Blvd., Suite
500, Uniondale, New York 11553. The address of Thomas L. Rhodes is National
Review, 150 East 35th Street, New York, New York 10016.
(2) Rosenkranz & Company has advised the Company that it intends to distribute
such Common Shares to its partners promptly after completion of the Rights
Offering. As a result, Mr. Robert Rosenkranz will receive directly or
indirectly an initial distribution of approximately Common Shares or
% of the class.
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<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
The following summarizes certain provisions of the Memorandum of
Association and the Bye-Laws of the Company. Such summaries do not purport to be
complete and are subject to, and are qualified in their entirety by, 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 share capital of the Company will be 15,000,000 shares,
consisting of 10,000,000 common shares , par value $.01 per share ("Common
Shares") and 5,000,000 preferred shares, par value $.01 per share ("Preferred
Shares"). The Company expects 2,050,000 Common Shares (assuming that no Standby
Commitment Shares are issued to the Standby Purchasers), and no Preferred
shares, to be issued and outstanding following completion of the Rights
Offering.
COMMON SHARES
The Common Shares offered hereby will be validly issued, fully paid and
nonassessable. There are no provisions of Bermuda law or the Company's Bye-Laws
which impose any limitations on the rights of shareholders to hold or vote
Common Shares by reason of such shareholders not being residents of Bermuda.
Dividend Rights. The Company is a holding company with no operations or
significant assets other than its ownership of the capital stock of Oracle Re,
its insurance subsidiary. Therefore, the Company will rely primarily on
dividends from Oracle Re to pay dividends on the Common Shares. Oracle Re's
ability to pay dividends to the Company in the future is subject to limitations
imposed by the insurance laws and regulations of Bermuda, its jurisdiction of
incorporation and domicile, and will depend on, among other things, its
statutory surplus, future earnings and regulatory restrictions. The payment of
dividends by Oracle Re to the Company will also be limited by the terms of the
proposed standby letters of credit facility. See "Dividend Policy,"
"Management's Discussion and Analysis of Financial Conditions and Plan of
Operation -- Liquidity Capital Resources" and "Regulation -- Bermuda."
Holders of the Common Shares will be entitled to receive dividends ratably
when and as declared by the Board of Directors out of funds legally available
therefor.
Limitation on Voting Rights. Each holder of Common Shares is entitled to
one vote per share on all matters submitted to a vote of the Company's
shareholders at any such meeting, subject to the 9.5% voting limitation
described below. All matters, including the election of directors, voted upon at
any duly held shareholders' meeting shall be carried by a majority of the votes
cast at the meeting by shareholders represented in person or by proxy, except
(i) approval of a merger, consolidation or amalgamation, or the sale, lease or
exchange of all or substantially all of the assets of the Company, which
requires (in addition to any regulatory or court approvals) the approval of at
least 66 2/3% of the outstanding voting shares, voting together as a single
class, (ii) approval of a special resolution, (iii) amendment of certain
provisions of the Bye-Laws which require the approval of at least 66 2/3% of the
outstanding voting shares, voting together as a single class and (iv) as
otherwise provided in the Bye-Laws. A special resolution requires the approval
of at least 66 2/3% of the votes cast by such shareholders represented in person
or by proxy at a duly convened meeting.
The Bye-Laws contain certain provisions that limit the voting rights that
may be exercised by certain holders of Common Shares. The Bye-Laws provide that
each holder of Common Shares is entitled to one vote per share on all matters
submitted to a vote of the Company's shareholders, except that if, and so long
as, the Controlled Shares of any person constitute 9.5% or more of the issued
and outstanding Common Shares, the voting rights with respect to the Controlled
Shares owned by such person shall be limited, in the aggregate, to a voting
power of 9.5%, pursuant to a formula specified in the Bye-Laws. "Controlled
Shares" means (i) all shares of the Company directly, indirectly or
constructively owned by any person within the meaning of Section 958 of the Code
and (ii) all shares of the Company directly, indirectly or beneficially owned by
such person within the meaning of Section 13(d) of the Exchange Act (including
any shares owned by a group of
44
<PAGE> 49
persons as so defined and including any shares that would otherwise be excluded
by the provisions of Section 13(d)(6) of the Exchange Act). Under these
provisions, if, and so long as, any person (as defined below) directly,
indirectly or constructively owns, within the meaning of Section 958 of the
Code, Controlled Shares having more than 9.5% of the total number of votes
exercisable in respect of all shares of voting stock of the Company, the voting
rights attributable to such shares will be limited, in the aggregate, to 9.5% of
the total number of votes.
The Common Shares have noncumulative voting rights, which means that the
holders of a majority of the Common Shares may elect all of the directors of the
Company and, in such event, the holders of the remaining shares will not be able
to elect any directors. The Board of Directors is presently divided into three
classes, two of which consist of four directors and one of which consists of
three directors. At present, the first class is elected for a term which expires
at the first annual meeting of the Company's shareholders following the
completion of the Rights Offering, and the second and third class is elected for
a term which expires at the second and third meeting of the Shareholders
following the completion of the Rights Offering, respectively, with the result
that shareholders will not vote for the election of a majority of directors in
any single year. See "Management -- Staggered Board Committees of the Board."
Directors may be removed without cause only by the affirmative vote of the
holders of at least 66 2/3% of the outstanding shares generally entitled to vote
at a meeting of shareholders. Directors may be removed with cause by the
affirmative vote of the holders of a majority of the votes cast at a meeting of
shareholders.
This classified, or "staggered," board provision could prevent a party who
acquires control of a majority of the outstanding voting power from obtaining
control of the Board until the second annual shareholders meeting following the
date the acquiror obtains the controlling share interest. The classified board
provision could have the effect of discouraging a potential acquiror from making
a tender offer or otherwise attempting to obtain control of the Company and
could thus increase the likelihood that incumbent directors will retain their
positions.
Preemptive Rights. No holder of Common Shares of the Company shall, by
reason only of such holding, have any preemptive right to subscribe to any
additional issue of shares of any class or series nor to any security
convertible into such shares.
Voting Rights in Oracle Re. The Company's Bye-Laws provide that each
holder of Common Shares is entitled to one vote per share on all matters
submitted to a vote of Oracle Re's shareholders, subject to the 9.5% voting
limitation set forth above.
THE BYE-LAWS
The Bye-Laws provide for the internal regulation of the Company, including,
among other things, the establishment of share rights, modification of such
rights, issuance of share certificates, imposition of a lien over shares in
respect of unpaid amounts on those shares, calls on shares which are not fully
paid, forfeiture of shares, the transfer of shares, alterations to capital, the
convening and conduct of general meetings, proxies, the appointment and removal
of directors, conduct and power of directors, dividends, the appointment of any
auditor and the winding-up of the Company.
Pursuant to the Company's Bye-Laws, the Company's Board of Directors may by
resolution establish one or more series of preferred shares having such number
of shares, designations, relative voting rights, dividend rates, liquidation and
other rights, preferences and limitations as may be fixed by the Board of
Directors without any further shareholder approval. Such rights, preferences,
powers and limitations as may be established could also have the effect of
impeding or discouraging the acquisition of control of the Company.
TRANSFER AGENT
The transfer agent and registrar for the Common Shares will be BankBoston,
N.A., Braintree, Massachusetts. BankBoston, N.A. will maintain a branch register
for the Common Shares in Braintree, Massachusetts and will maintain a principal
register for the Common Shares at the Company's registered office.
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<PAGE> 50
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda (the "Companies 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 Companies Act (including modifications adopted pursuant to the
Bye-Laws) applicable to the Company, which differ in certain respects from, for
example, the 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.
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 or
another Bermuda exempted company 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. 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 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 market 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 shareholder vote, may merge
with any 90% or more owned subsidiary. Upon any such merger, dissenting
stockholders of the subsidiary would have appraisal rights.
Shareholder's Suit. The rights of shareholders under Bermuda law are not
as extensive as the rights of shareholders under legislation or judicial
precedent in many United States jurisdictions. 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
46
<PAGE> 51
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 its 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.
Waiver of Action and Indemnification of Directors, Officers and
Auditors. The Company may exempt and indemnify its directors, officers and
auditors 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, officer or
auditor may be guilty in relation to the Company other than in respect of his
own fraud or dishonesty. The Company has adopted provisions in its Bye-Laws that
provide that the Company shall indemnify its directors, officers and may
indemnify its auditors to the maximum extent permitted under the Companies Act.
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 Books and 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 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 maintain its share register in Bermuda but may establish a branch
register outside Bermuda. 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 shareholder to inspect or obtain
copies of a corporation's shareholder list and its other books and records for
any purpose reasonably related to such person's interest as a shareholder.
Delaware law does not permit inspection by the public of the register of
shareholders.
ANTI-TAKEOVER EFFECTS OF BYE-LAWS
The Bye-Laws contain certain provisions that may be viewed as making the
acquisition of control of the Company by means of a tender offer, open market
purchase, proxy fight or otherwise more difficult. These provisions are designed
to encourage persons seeking to acquire control of the Company to negotiate with
the directors. The directors believe that, as a general rule, the interests of
the Company's shareholders would be best served if any change in control results
from negotiations with the directors. The directors would negotiate based upon
careful consideration of the proposed terms, such as the price to be paid to
shareholders, the form of consideration to be paid and the anticipated tax
effects of the transaction. However, these provisions could have the effect of
discouraging a prospective acquiror from making a tender offer or otherwise
attempting to obtain control of the Company. To the extent these provisions
discourage takeover attempts, they could deprive shareholders of opportunities
to realize takeover premiums for their shares or could depress the market price
of the Common Shares.
In addition to those provisions of the Bye-Laws discussed above, set forth
below is a description of other relevant provisions of the Bye-Laws. The
descriptions are intended as a summary only and are qualified in
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their entirety by reference to the Bye-Laws, which are filed as an exhibit to
the Registration Statement of which this Prospectus is a part.
Shareholder Proposals. The Bye-Laws provide that shareholders holding not
less than one tenth of the paid up capital of the Company carrying the right of
voting at general meetings of the Company have at all times the right to submit
a proposal for consideration at an annual general meeting or special general
meeting, or to nominate persons for election as directors, provided that written
notice of such shareholder's intent to make such a proposal or nomination must
be given and received by the Secretary of the Company at the registered offices
of the Company not later than two months prior to the annual general meeting or
special general meeting. If the Board fails to proceed to convene a special
general meeting within 21 days of receipt by the Company of notice to hold such
meeting, the shareholders may do so in accordance with Bermuda law. The notice
must describe the proposal or nomination in sufficient detail for a proposal or
nomination to be summarized on the agenda for the meeting and must set forth (i)
the name and record address of the shareholder proposing such meeting, (ii) a
representation that the shareholder is a holder of record of shares of the
Company entitled to vote at such meeting and intends to appear in person or by
proxy at the meeting to present such proposal or nomination and (iii) the class
and number of shares of the Company which are beneficially owned by the
shareholder. In addition, the notice must set forth a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such proposed business at the meeting and any material interest of the
shareholder in such business. In the case of a nomination of any person for
election as a director, the notice shall set forth: (i) the name, age, business
address and residence address of any person to be nominated; (ii) the principal
occupation or employment of the person; (iii) the number of Common Shares which
are beneficially owned by such person; (iv) such other information regarding
such nominee proposed by such shareholder as would be required to be included in
a proxy statement filed pursuant to Regulation 14A under the Exchange Act,
whether or not the Company is then subject to such Regulation; and (v) the
consent of each nominee to serve as a director of the Company, if so elected.
The presiding officer of the annual general meeting or special general meeting
shall, if the facts warrant, refuse to acknowledge a proposal or nomination not
made in compliance with the foregoing procedure.
The affirmative vote of the holders of at least 66 2/3% of the outstanding
shares entitled to vote, shall be required to amend or repeal, or adopt any
provision inconsistent with, the foregoing provision of the Bye-Laws.
The advance notice requirements regulating shareholder nominations and
proposals may have the effect of precluding a contest for the election of
directors or the introduction of a shareholder proposal if the procedures
summarized above are not followed and may discourage or deter a third party from
conducting a solicitation of proxies to elect its own slate of directors or to
introduce a proposal.
Restrictions on Certain Business Combinations. The Company's Bye-Laws
contain provisions which restrict certain "business combinations." In general,
the Bye-Laws prohibit an "interested shareholder" of the Company from, either
directly or indirectly, being a party to or taking any action in connection with
any "business combination" with the Company or Oracle Re for a period of five
years commencing on the date such person first became an "interested
shareholder," unless (a) the "business combination" is approved by a prior
resolution of the "continuing directors" of the Company's Board of Directors; or
(b) the "business combination" is approved by a prior resolution of at least
66 2/3% of the outstanding voting shares of the Company other than those voting
shares beneficially held by an "interested shareholder." A "business
combination" includes, among other things, (i) any scheme of arrangement,
reconstruction or amalgamation involving the Company or Oracle Re and an
"interested shareholder," (ii) any transaction or series of transactions
involving the sale, purchase, lease, exchange, mortgage, pledge, transfer or
other disposition or encumbrance of the assets of the Company and Oracle Re,
(iii) the interest or transfer to an "interested shareholder" or any affiliate
thereof of any securities by the Company or Oracle Re other than an issue or
distribution to all shareholders of the Company entitled to participate therein,
(iv) the adoption of any plan or proposal for the liquidation or dissolution of
the Company or Oracle Re unless such plan or proposal is initiated, proposed or
adopted independently of any "interested shareholder" and (v) the
reclassification of any securities or other restructuring of the capital of the
Company or Oracle Re in such a way as to confer a benefit on the "interested
shareholder." An "interested shareholder" means any shareholder of the Company
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(other than the Company or any subsidiary, any profit-sharing employee share
ownership or other employee benefit plan of the Company or any subsidiary or any
trustee of or fiduciary with respect to any such plan when acting in such
capacity or shareholders of the Company who acquired their Common Shares in the
initial capitalization of the Company) who is, or has announced or publicly
disclosed a plan or intention to become the beneficial owner of Common Shares
representing ten percent or more of the value of the Company. A "continuing
director" includes (i) any member of the Company's Board of Directors who, while
a member thereof, is not an "interested shareholder" or an affiliate of an
"interested shareholder" and was a member of the Company's Board of Directors
prior to the time that the "interested shareholder became such, and (ii) any
person who subsequently becomes a member of the Company's Board of Directors
and, while such person is a member thereof, is not an "interested shareholder"
or an affiliate of an "interested shareholder," and such person's nomination for
election or election to the Company's Board of Directors is recommended or
approved by a majority of the "continuing directors" then in office. As a result
of the application of this provision of the Company's Bye-Law, potential
acquirors of the Company may be discouraged from attempting to effect an
acquisition transaction with the Company, thereby possibly depriving holders of
the Company's securities of certain opportunities to sell or otherwise dispose
of such securities at above-market prices pursuant to such transaction.
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CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of the Company and Oracle Re and the
taxation of shareholders of the Company is based upon current law and the
opinion of Conyers Dill & Pearman with respect to matters of Bermuda taxation
and the opinion of Baker & McKenzie with respect to matters of United States
taxation. Legislative, judicial or administrative changes may be forthcoming
that could affect this summary. Neither the Company nor Oracle Re intends to
seek a tax ruling with respect to any of the issues described below.
TAXATION OF THE COMPANY AND ORACLE RE
Bermuda
The Company and Oracle Re have each received from the Minister of Finance
of Bermuda an assurance under The Exempted Undertakings Tax Protection Act, 1966
of Bermuda, to the effect 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, then the imposition of any such tax shall not be applicable to
the Company or Oracle Re or to any of their operations or the shares, debentures
or other obligations of the Company or Oracle Re until March 28, 2016. These
assurances are subject to the proviso that they are not construed so as to
prevent the application of any tax or duty to such persons as are ordinarily
resident in Bermuda (the Company is not currently so designated) or to prevent
the application of any tax payable in accordance with the provisions of The Land
Tax Act 1967 of Bermuda or otherwise payable in relation to the land, if any,
leased to Oracle Re. Each of the Company and Oracle Re is required to pay
certain annual Bermuda government fees and Oracle Re, additionally, is required
to pay certain insurance registration fees as an insurer under the Insurance Act
1978 of Bermuda. Under current rates, the Company pays a fixed fee as an insurer
under the Insurance Act 1978 of Bermuda of BD $ , and Oracle Re pays a
total of BD$ per year (which includes the annual Bermuda government fee
and the annual insurance registration fee). Currently there is no Bermuda
withholding tax on dividends that may be paid by Oracle Re to the Company.
United States
The Company and Oracle Re intend to operate their business in a manner that
will not cause them to be treated as engaged in a trade or business within the
United States. On this basis, the Company and Oracle Re do not expect to be
required to pay United States income tax (other than withholding tax as
described below). However, because there is considerable uncertainty as to the
activities which constitute being engaged in a trade or business in the United
States, there can be no assurances that the IRS will not contend successfully
that the Company or Oracle Re is engaged in a trade or business in the United
States. A foreign corporation deemed to be so engaged (i) would be subject to
U.S. income tax, as well as the branch profits tax, on its income which is
treated as effectively connected with the conduct of that trade or business
except to the extent the corporation is entitled to relief under the permanent
establishment provision of a tax treaty, as discussed below, and (ii) would be
required to file yearly income tax returns. Such income tax, if imposed, would
be based on effectively connected income computed in a manner generally
analogous to that applied to the income of a domestic corporation, except that a
foreign corporation can anticipate an allowance of deductions and credits only
if it files a United States income tax return. Under regulations, the foreign
corporation would be entitled to deductions and credits for a taxable year only
if the return for that year is filed timely under rules set forth therein. The
maximum federal tax rates currently are 35% for a corporation's effectively
connected income and 30% for the branch profits tax. The branch profits tax is
imposed each year on a corporation's effectively connected earnings and profits
(with certain adjustments) deemed repatriated out of the U.S.
Under the tax convention between Bermuda and the United States (the
"Treaty"), a Bermuda company, such as Oracle Re, predominantly engaged in the
insurance business, is subject to U.S. income tax on income found to be
effectively connected with a U.S. trade or business only if that trade or
business is conducted through a permanent establishment in the United States.
Oracle Re would not be entitled to the benefits of the Treaty, however, if (i)
50% or more of Oracle Re's stock were beneficially owned, directly or
indirectly, by persons other than Bermuda residents or U.S. citizens or
residents, or (ii) Oracle Re's income were used in substantial part to make
disproportionate distributions to, or to meet certain liabilities to, persons
who are not
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Bermuda residents or U.S. citizens or residents. While there can be no
assurances, the Company believes that the above exceptions to the Treaty
benefits will not apply to Oracle Re after the Rights Offering.
Oracle Re intends to operate under guidelines that should minimize the risk
that it will be found to have a U.S. permanent establishment.
Foreign corporations not engaged in a trade or business in the United
States are nonetheless subject to U.S. withholding tax on certain "fixed or
determinable annual or periodic gains, profits and income" derived from sources
within the United States as enumerated in Section 881(a) of the Code (such as
dividends and certain types of interest on investments).
The United States also imposes an excise tax on insurance and reinsurance
premiums paid to foreign insurers or reinsurers with respect to risks located in
the United States. The rate of tax currently applicable to reinsurance premiums
paid to Oracle Re is 1% of gross premiums.
TAXATION OF SHAREHOLDERS
Bermuda
There currently is no Bermuda withholding tax on dividends paid by the
Company. There currently is no Bermuda tax or other levy payable on the sale of
Common Shares of the Company.
United States Taxation of U.S. and Non-U.S. Shareholders
General. The following discussion summarizes certain U.S. federal income
tax consequences relating to the acquisition, ownership and disposition of
Common Shares by a beneficial owner of Common Shares that is (i) a citizen or
resident of the United States, (ii) a United States domestic corporation, or
(iii) otherwise subject to U.S. federal income taxation on a net income basis in
respect of Common Shares. This summary deals only with Common Shares acquired by
purchasers in the Rights Offering and held as capital assets and does not deal
with the tax consequences applicable to all categories of investors, some of
which (such as broker-dealers, investors who hold Common Shares as part of
hedging or conversion transactions and investors whose functional currency is
not the U.S. dollar) may be subject to special rules. Prospective purchasers of
Common Shares are advised to consult their own tax advisers with respect to
their particular circumstances and with respect to the effects of U.S. federal,
state, local or other laws to which they may be subject.
Dividends. Distributions with respect to the Common Shares will be treated
as ordinary dividend income to the extent of the Company's current or
accumulated earnings and profits as determined for U.S. federal income tax
purposes, subject to the discussion below relating to the potential application
of the "controlled foreign corporation" or "passive foreign investment company"
rules. Such dividends will not be eligible for the dividends-received deduction
allowed to United States corporations under the Code. 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 Common
Shares, and any amount in excess of tax basis will be treated as gain from the
sale or exchange of the Common Shares.
Classification of the Company or Oracle Re as a Traditional Controlled
Foreign Corporation. Under Section 951(a) of the Code, each "10% Voting U.S.
Shareholder" of a CFC must include in its gross income for United States Federal
income tax purposes its pro rata share of the CFC's "subpart F income," even if
the subpart F income is not distributed. Under Code Section 951(b), any U.S.
corporation, citizen, resident or other U.S. person who owns, directly or
indirectly through foreign persons, or is considered to own (by application of
the rules of constructive ownership set forth in Code Section 958(b), generally
applying to options, family members, partnerships, estates, trusts or controlled
corporations), 10% or more of the total combined voting power of all classes of
stock of the foreign corporation will be considered to be a "10% Voting U.S.
Shareholder." In general, a foreign corporation is treated as a CFC only if such
"10% Voting U.S. Shareholders" collectively own more than 50% (more than 25% for
certain insurance companies, such as Oracle Re) of the total combined voting
power or total value of the corporation's stock for an uninterrupted period of
30 days or more during any tax year. Under the Memorandum of Association and
Bye-Laws of the Company and Oracle Re, the voting power of a shareholder, plus
the voting power of all other shareholders whose shares would be attributed to
the first shareholder under the stock ownership attribution rules of the Code,
is limited to 9.5% of the total voting power of the Company and Oracle Re.
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Due to the existence of extremely broad constructive ownership rules and
for other reasons it may be difficult or impossible for the Company to ensure
that neither it nor Oracle Re has or will become a controlled foreign
corporation. However, so long as a shareholder of the Company or Oracle Re is
not characterized as a 10% Voting U.S. Shareholder, the classification of the
Company or Oracle Re as a CFC should have no adverse effect on such shareholder.
Therefore, each investor should consult its own tax advisor to ensure that its
ownership interest in the Company will not cause it to become a 10% Voting U.S.
Shareholder of the Company or Oracle Re, or any subsidiary which may be created
by the Company or Oracle Re.
Related Person Insurance Income Rules. Certain special provisions of the
Code will apply to Oracle Re if both (A) as is anticipated, 25% or more of the
value or voting power of the Common Shares is held (directly or indirectly
through foreign entities) by United States persons, and (B)(i) Oracle Re has
gross RPII greater than or equal to 20% of its gross insurance income and (ii)
20% or more of either the voting power or the value of the Oracle Re common
stock is owned directly or indirectly through foreign entities by persons
(directly or indirectly) insured or reinsured by Oracle Re or persons related to
such insureds or reinsureds. RPII is income (investment income and premium
income) from the direct or indirect insurance or reinsurance of any United
States person who holds Common Shares (directly or indirectly through foreign
entities) or a person related to such a United States holder of Common Shares.
While there can be no assurance, it is not anticipated that 20% or more of
the gross insurance income of Oracle Re for any taxable year will constitute
RPII. Even if 20% or more of the gross insurance income of Oracle Re for any
taxable year were to constitute RPII, it is not anticipated that 20% or more of
the voting power or the value of Oracle Re's common stock will be held by U.S.
insureds or reinsureds or persons related thereto. If, however, 20% or more of
Oracle Re's gross income were to constitute RPII and 20% or more of the Common
Shares of Oracle Re were to be owned directly or indirectly by U.S. insureds or
reinsureds or related persons to such insureds or reinsureds, each direct and
indirect United States holder of Common Shares would be taxable currently on its
allocable share of the RPII, even if such United States holder did not
constitute a 10% Voting U.S. Shareholder, as defined above. For this purpose,
all of Oracle Re's RPII would be allocated solely to United States holders to
the extent of their ratable share of Oracle Re's income.
Computation of RPII. To the extent information is required, the Company
may send a letter after each fiscal year to each person who was a Oracle Re
policyholder during the year asking the policyholder to represent whether it was
a U.S. shareholder of the Company or related to a U.S. shareholder during the
year. There can be no assurance that this procedure will enable the Company to
identify all of Oracle Re's RPII. For any year that the Company determines that
Oracle Re's gross RPII is 20% or more of Oracle Re's gross insurance income for
the year, the Company may also seek information from its shareholders as to
whether beneficial owners of Common Shares at the end of the year are United
States persons so that RPII may be apportioned among such persons. To the extent
the Company is unable to determine whether a beneficial owner of shares is a
U.S. person the Company may assume that such is not a U.S. person for purposes
of apportioning RPII, thereby increasing the per share RPII amount for all U.S.
shareholders.
Dispositions of Common Shares by U.S. Persons Generally. Subject to the
discussions below relating to "Disposition of Common Shares by U.S. Persons Who
are Not 10% Voting U.S. Shareholders," U.S. Persons will, upon the sale or
exchange of Common Shares, generally recognize gain or loss for federal income
tax purposes equal to the excess of the amount realized upon such sale or
exchange over such person's federal income tax basis for such Common Shares.
However, in certain circumstances described below, gain may be recharacterized,
in whole or in part, as a dividend.
Disposition of Common Shares by U.S. Persons Who Are Not 10% Voting U.S.
Shareholders. As noted above, in the case of a U.S. person who owns Common
Shares but is not a 10% Voting U.S. Shareholder, RPII may be allocable to such
holder's Common Shares in the Company during the period of ownership but not
taxed to him because less than 20% of such Common Shares is owned by persons
generating RPII or less than 20% of Oracle Re gross insurance income is RPII.
Upon such holder's sale or exchange of Common Shares at a gain, however, there
is a reasonable likelihood that an amount of such gain equal to such holder's
allocable share of untaxed RPII will be taxable as a dividend. Moreover, the IRS
has an arguable position that the amount of gain so taxed as a dividend will be
equal to all the earnings and profits allocable to the U.S. holder during the
period that such holder held the Common Shares (whether or not Oracle Re has
RPII). If
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the IRS were to take this position and were to prevail, for individuals, this
would mean that the amount of gain taxed as a dividend would bear tax at the
rates applicable to ordinary income rather than at the currently lower rates
applicable to long-term capital gain. The rates applicable to corporate
shareholders would not be affected, however, since corporations pay tax on
capital gains at the same rates as they pay on ordinary income.
If only the untaxed RPII would be subject to dividend characterization, the
selling shareholder nevertheless has the burden of showing the amount of untaxed
RPII allocable to the Common Shares sold. The Company will keep records showing
what it believes to be the untaxed RPII allocable to each Common Share and will,
upon reasonable request, provide any owner or prior owner of Common Shares with
such information.
Uncertainty as to Application of RPII. The RPII provisions of the Code
have never been interpreted by the courts. Regulations interpreting the RPII
provisions of the Code exist only in proposed form, having been proposed in
April 1991. It is not certain whether these regulations will be adopted in their
proposed form or what changes or clarifications might ultimately be made thereto
or whether any such changes, as well as any interpretation or application of
RPII by the IRS, the courts or otherwise, might have retroactive effect. The
description of RPII by the IRS, the courts or otherwise, might have retroactive
effect. The description of RPII herein is therefore qualified. Accordingly, the
meaning of the RPII provisions and the application thereof to the Company and
Oracle Re are uncertain. The provisions include the grant of authority to the
U.S. Treasury to prescribe "such regulations as may be necessary to carry out
the purposes of this subsection including...regulations preventing the avoidance
of this subsection, through cross insurance arrangement or otherwise..." In
addition, there can be no assurance that the amounts of the RPII inclusions, if
any, will not be subject to adjustment based upon subsequent IRS examination.
Each U.S. person who is considering an investment in the Common Shares should
consult its tax advisor as to the effects of these uncertainties.
Foreign Tax Credit. In the event, as expected, that U.S. shareholders own
at least 50% of the Company's shares, only a portion of the dividends paid by
the Company will be treated as foreign source income for purposes of computing a
shareholder's U.S. foreign tax credit limitation. It is likely that
substantially all of the RPII and dividends that are foreign source income will
constitute either "passive" or "financial services" income for foreign tax
credit limitation purposes. Thus, it may not be possible for most U.S.
shareholder to utilize excess foreign tax credits to reduce U.S. tax on such
income.
Passive Foreign Investment Companies. Sections 1291 through 1297 of the
Code contain special rules applicable with respect to foreign corporations that
are "passive foreign investment companies" ("PFICs"). In general, a foreign
corporation will be a PFIC if 75% or more of its income constitutes "passive
income" or 50% or more of its assets produce passive income. If the Company were
to be characterized as a PFIC, its United States shareholders would be subject
to a penalty tax at the time of their sale of (or receipt of an "excess
distribution" with respect to) its shares. In general, a shareholder receives an
"excess distribution" if the amount of the distribution is more than 125% of the
average distribution with respect to the stock during the three preceding
taxable years (or shorter period during which the taxpayer held the stock). In
general, the penalty tax is equivalent to an interest charge on taxes that are
deemed due during the period the United States shareholder owned the shares,
computed by assuming that the excess distribution or gain (in the case of a
sale) with respect to the shares was taxed in equal portions throughout the
holder's period of ownership. The interest charge is equal to the applicable
rate imposed on underpayments of U.S. Federal income tax for such period.
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..." This exception is intended
to ensure that income derived by a bona fide insurance company is not treated as
passive income, except to the extent such income is attributable to financial
reserves in excess of the reasonable needs of the insurance business. It is the
Company's intention that the Company and Oracle Re, taken together, will be
predominantly engaged in an insurance business. The PFIC statutory provisions
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 stock. While no explicit guidance is
provide by the statutory language, the Company believes that under the
look-through rule
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the Company would be deemed to own the assets and to have received any income of
Oracle Re directly for the purposes of determining whether the Company qualifies
for the aforementioned insurance exceptions. The Company believes that its
interpretation of the look-through rule is consistent with the legislative
intention generally to exclude bona fide insurance companies from the
application of PFIC provisions; there can, of course, be no assurance as to what
positions the IRS or a court might take in the future.
No regulations interpreting these specific issues under the PFIC provisions
have yet been issued. Therefore, substantial uncertainty exists with respect to
their application or their possible retroactivity. Each U.S. person who is
considering an investment in the Common Shares should consult its tax advisor as
to the effects of these rules.
Other. Dividends paid by the Company to U.S. corporate shareholders will
not be eligible for the dividends received deduction provided by Section 243 of
the Code.
Except as discussed below with respect to backup withholding, dividends
paid by the Company will not be subject to a U.S. withholding tax.
Information Reporting. If Oracle Re meets the RPII CFC rule in a given tax
year, each U.S. person who is a shareholder of the Company on the last day of
the Company's fiscal year must attach a Form 5471 to such shareholder's income
tax or information return for the period which includes that date. In the event
that Oracle Re's gross RPII constitutes 20% or more of its gross insurance
income (which is not anticipated) and no other exception applies that would
prevent Oracle Re from being subject to the RPII CFC rule, the Company intends
to provide Form 5471 to its U.S. shareholders for attachment to their returns.
The amount of the RPII inclusions may be subject to adjustment based upon
subsequent IRS examination. A tax-exempt organization will be required to attach
Form 5471 to its information return in the circumstances described above.
Failure to file Form 5471 may result in penalties.
In addition, U.S. persons who at any time own 10% or more in value of the
total outstanding shares of the Company have an independent obligation to file
Form 5471 with respect to such shares, and should consult with their tax advisor
regarding this and other possible reporting requirements.
Information reporting to the IRS by paying agents and custodians located in
the United States will be required with respect to payments of dividends on the
Common Shares to U.S. persons. Thus, a holder of Common Shares may be subject to
backup withholding at the rate of 31% with respect to dividends paid by such
persons, unless such holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. The backup withholding tax is not an additional tax and may
be credited against a holder's regular Federal income tax liability. Subject to
certain exceptions, persons that are not U.S. persons will be subject to United
States Federal income tax on dividend distributions with respect to, and gain
realized from the sale or exchange of, Common Shares only if such dividends or
gains are effectively connected with the conduct of a trade or business within
the United States.
The summary is based upon current law. The tax treatment of a holder of
Common Shares, or of a person treated as a holder of Common Shares for United
States Federal income, state, local or non-U.S. tax purposes, 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 Common Shares.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISERS CONCERNING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF OWNING THE
COMMON SHARES.
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CERTAIN BERMUDA LAW CONSIDERATIONS
The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority, Foreign Exchange Control, whose
permission for the issue and transfer of Common Shares has been obtained. Prior
to the Offering, this Prospectus will be filed with the Registrar of Companies
in Bermuda in accordance with Bermuda law.
CONSENT UNDER THE EXCHANGE CONTROL ACT, 1972 (AND REGULATIONS THEREUNDER)
HAS BEEN OBTAINED FROM THE BERMUDA MONETARY AUTHORITY FOR THE ISSUE AND TRANSFER
OF THE COMMON SHARES BEING OFFERED PURSUANT TO THE RIGHTS OFFERING. IN ADDITION,
A COPY OF THIS DOCUMENT HAS BEEN DELIVERED TO THE REGISTRAR OF COMPANIES IN
BERMUDA 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,
RESPECTIVELY, ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS OF ANY
PROPOSAL, OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE OR OPINIONS
EXPRESSED HEREIN.
The transfer of Common Shares between persons regarded as non-resident in
Bermuda for exchange control purposes and the issue of shares after the
completion of the Offering to such persons may be effected without specific
consent under the Exchange Control Act of 1972 and regulations thereunder.
Issues and transfers of shares to any person regarded as resident in Bermuda for
exchange control purposes require specific prior approval under the Exchange
Control Act of 1972.
There are no limitations on the rights of persons regarded as non-resident
of Bermuda for foreign exchange control purposes owning Common Shares to hold or
vote their Common Shares. Because the Company has been designated as a
non-resident for Bermuda exchange control purposes, there are no restrictions on
its ability to transfer funds in and out of Bermuda or to pay dividends to U.S.
residents who are holders of Common Shares, other than in respect of local
Bermuda currency. In addition, because the Company has been designated as a
non-resident for Bermuda exchange control purposes, it does not intend to
maintain Bermuda dollar deposits and, accordingly, will not pay dividends on the
Common Shares in Bermuda currency.
In accordance with Bermuda law, share certificates are issued only in the
names of corporations or individuals. In the case of an applicant acting in a
special capacity (for example, as an executor or trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, the Company
is not bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust. The Company will take no notice of
any trust applicable to any of its Common Shares whether or not it had notice of
such trust.
As an "exempted company," the Company is exempt from Bermuda laws
restricting the percentage of share capital that may be held by non-Bermudians,
but as an exempted company the Company may not participate in certain business
transactions, including (i) the acquisition or holding of land in Bermuda
(except that required for its business and held by way of lease or tenancy for
terms of not more than 21 years) without the express authorization of the
Bermuda legislature, (ii) the taking of mortgages on land in Bermuda to secure
an amount in excess of $50,000 without the consent of the Minister of Finance of
Bermuda, (iii) the acquisition of any bonds or debentures secured by any land in
Bermuda, other than certain types of Bermuda government securities or securities
of another "exempted" company, partnership or other corporation resident in
Bermuda but incorporated abroad or (iv) the carrying on of business of any kind
in Bermuda, except in furtherance of the business of the Company carried on
outside Bermuda or under a license granted by the Minister of Finance of
Bermuda.
The Bermuda government actively encourages foreign investment in "exempted"
entities like the Company that are based in Bermuda but do not operate in
competition with local business. In addition to having no restrictions on the
degree of foreign ownership, the Company is subject neither to taxes on its
income or dividends nor to any foreign exchange controls in Bermuda. In
addition, there is currently no capital gains tax in Bermuda, and profits can be
accumulated by the Company, as required, without limitation. There is no minimum
subscription which must be raised by the issue of Common Shares pursuant to the
Offerings in order to provide for the matters listed in Section 28 of the
Companies Act 1981 of Bermuda.
55
<PAGE> 60
LEGAL MATTERS
Certain legal matters in connection with the Rights Offering will be passed
upon for the Company by Baker & McKenzie, New York, New York, who will rely as
to matters of Bermuda law upon the opinion of Conyers Dill & Pearman, Hamilton,
Bermuda. The validity of the issuance of the Common Shares offered hereby is
being passed upon for the Company by Conyers Dill & Pearman.
EXPERTS
The balance sheet of Delphi International Ltd. at September 2, 1997
appearing in this Prospectus and Registration Statement has been audited by
Ernst & Young, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and has been included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). The Company has filed a Registration
Statement on Form S-1 under the Securities Act with the Commission in
Washington, D.C. with respect to the Rights and Common Shares offered hereby.
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
thereto. For further information with respect to the Company and the securities
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. Statements contained in
this Prospectus as to the contents of any contract or other document referred to
are not necessarily complete and in each instance reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
56
<PAGE> 61
GLOSSARY OF SELECTED INSURANCE AND REINSURANCE TERMS
ALTERNATIVE MARKET......... The segment of the insurance market which has
developed in response to volatility in cost and
availability of traditional commercial insurance
coverage and consists of various risk financing
mechanisms, including self insurance, captive
insurance companies, rent-a-captive facilities,
risk retention groups and governmental pools, plans
and trusts.
ATTACHMENT POINT........... The amount of loss (per occurrence or in the
aggregate, as the case may be) above which excess
of loss coverage becomes operative.
BROKER..................... One who negotiates contracts of insurance or
reinsurance, receiving a commission for placement
and other services rendered, between (1) a policy
holder and primary insurer, on behalf of the
primary insurer, (2) a primary insurer and
reinsurer, on behalf of the primary insurer or (3)
a reinsurer and a retrocessionaire, on behalf of
the reinsurer.
CAPTIVE INSURANCE
COMPANY.................... An insurance or reinsurance company which is
controlled by the insured or a group of insureds
and which is formed for the purpose of insuring or
reinsuring risks associated with the activities of
its shareholders or members.
CASUALTY INSURANCE......... Insurance which primarily is concerned with the
losses caused by injuries to third persons (i.e.,
not the insured) and the legal liability imposed on
the insured resulting therefrom. It includes but is
not limited to, employers' liability, workers'
compensation, public liability, automobile
liability and personal liability insurance. It
excludes certain types of loss that by law or
custom are considered as being exclusively within
the scope of other types of insurance, such as fire
or marine.
CATASTROPHE REINSURANCE.... A form of excess of loss property reinsurance that,
subject to a specified limit, indemnifies the
ceding company for the amount of loss in excess of
a specified retention with respect to an
accumulation of losses resulting from a
catastrophic event.
CEDE; CEDENT; CEDING
COMPANY.................... To transfer the risk and related premium in
connection with a reinsurance transaction. When a
party reinsures its liability with another insurer
(a "cession"), it "cedes" business and is referred
to as the "cedent" or "ceding company."
COMMERCIAL LINES........... The various kinds of insurance which are written
for businesses.
DIRECT WRITTEN PREMIUMS.... Total premiums for insurance written during a given
period whether or not then earned and without any
allowance for premiums then ceded by reinsurance.
EARNED PREMIUMS............ That portion of premiums written (after reinsurance
ceded) which applies to the expired portion of the
policy term. Earned premiums are recognized as
revenues under both SAP and GAAP.
EXCESS OF LOSS
REINSURANCE................ Reinsurance which indemnifies the reinsured against
all or a specified portion of losses on underlying
insurance policies in excess of a specified dollar
amount, called a "layer" or "retention." Also known
as non-proportional reinsurance or stop loss
coverage
FACULTATIVE REINSURANCE.... A form of reinsurance which is transacted between
the reinsurer and the reinsured on a risk-by-risk
basis. The reinsurance of all or a portion of the
insurance provided by a single policy. Each
facultative reinsurance policy is negotiated
separately.
57
<PAGE> 62
GENERAL LIABILITY
INSURANCE.................. Insurance for certain acts or omissions resulting
in bodily injury or property damage on the premises
of a business, when someone is injured as a result
of using the product manufactured or distributed by
a business, or when someone is injured in the
general operation of a business.
GROSS WRITTEN PREMIUMS..... Total premiums for insurance written and
reinsurance assumed during a given period whether
or not earned before deduction of brokerage
commission and other acquisition costs.
INCURRED BUT NOT REPORTED
("IBNR") LOSS RESERVES... Reserves for estimated losses which have been
incurred by insureds and reinsureds but not yet
reported to the insurer or reinsurer, including
unknown future developments on losses which are
known to the insurer or reinsurer.
LAYER...................... The interval between the retention or attachment
point and the maximum limit of indemnity for which
an insurer or reinsurer is responsible.
LOSS....................... An occurrence that is the basis for submission
and/or payment of a claim. Losses may be covered,
limited or excluded from coverage, depending on the
terms of the policy.
LOSS ADJUSTMENT EXPENSES
("LAE").................. The expenses of adjusting, settling or otherwise
resolving claims, including legal and other fees
and the portion of general expenses allocated to
claim settlement and adjustment costs. LAE is
divided into two segments: Allocated Loss
Adjustment Expenses ("ALAE") and Unallocated Loss
Adjustment Expenses ("ULAE"). ALAE is the expense
of settling claims including legal and other fees.
ULAE is the portion of general expenses allocated
to claim settlement and adjustment costs.
LOSS AND LOSS ADJUSTMENT
EXPENSES................. The sum of incurred losses, including IBNR, and
loss adjustment expenses.
LOSS RESERVES.............. A balance sheet liability for unpaid losses which
represents estimates of amounts needed to pay
losses and expenses both on claims which have been
reported but have not yet been resolved and on
claims which have occurred but have not yet been
reported. Reserves established by insurers and
reinsurers and set forth on its balance sheet to
reflect the estimated cost of payments for claims
that the insurer or reinsurer ultimately will be
required to pay in respect of losses occurring on
or prior to the balance sheet date on insurance or
reinsurance it has written. Reserves are
established for loss and loss adjustment expenses,
and consist of case reserves and reserves for IBNR
losses.
NET PREMIUMS EARNED........ The amount of net premiums written recognized as
income during a given period.
NET WRITTEN PREMIUMS....... Gross premiums written less premiums ceded. Gross
premiums written for a given period less premiums
ceded to reinsurers and retrocessionaires during
such period.
PREMIUMS CEDED............. The consideration paid by an insurer or a reinsurer
to reinsurers in connection with one or more
reinsurance transactions.
58
<PAGE> 63
PREMIUMS EARNED............ Net premiums written less Unearned Premiums, which
is the portion of premium which represents the
consideration for the assumption of risk in the
past.
PRIMARY INSURER............ An insurance company that contracts with the
consumer to provide insurance coverage. Such
primary insurer may then cede a portion of its
business to reinsurers.
PROPORTIONAL REINSURANCE... A generic term describing all forms of reinsurance
in which the reinsurer shares a proportional part
of the original premiums and losses of the
reinsured. (Also known as pro rata reinsurance,
quota share reinsurance or participating
reinsurance.) In proportional reinsurance the
reinsurer general pays the ceding company a ceding
commission. The ceding commission generally is
based on the ceding company's cost of acquiring the
business being reinsured (including commissions,
premium taxes, assessments and miscellaneous
administrative expense) and also may include a
profit factor.
QUOTA SHARE REINSURANCE.... Reinsurance wherein the insurer cedes, for a
predetermined portion of the insurance premium
charged by the insurer an agreed fixed percentage
of losses and loss adjustment expenses for each
insurance policy covered.
REINSURANCE................ A transaction in which the reinsurer agrees, in
return for a payment of premium, to assume an
agreed portion of the reinsured's risk resulting
from a policy or policies of insurance or
reinsurance. The practice whereby one insurer,
called the reinsurer, in consideration of a premium
paid to such insurer, agrees to indemnify another
insurer, called the ceded company, for part or all
of the liability assumed by the ceding company
under one or more policies or contracts of
insurance which it has issued. Reinsurance can
provide a ceding company with several benefits,
including a reduction in net liability on
individual risks and catastrophe protection from
large or multiple losses. Reinsurance also provides
a ceding company with additional underwriting
capacity by permitting it to accept larger risks
and write more business than would be possible
without a concomitant increase in capital and
surplus, and facilitates the maintenance of
acceptable financial ratios by the ceding company.
RENT-A-CAPTIVE............. An insurance or reinsurance company formed for the
purpose of insuring risks associated with the
activities of individuals or a group of unrelated
insureds and which is not controlled by its
insureds but by either an insurer, a broker or an
entity seeking to profit from operating the rent-a-
captive.
RETENTION.................. The portion of risk which is not transferred by the
insured or the reinsured to an insurance or
reinsurance company. The client's retention refers
to the portion of risk which is not transferred by
the client to the commercial insurance or
reinsurance market. The amount or portion of risk
that an insurer retains for its own account. Losses
in excess of the retention level are paid by the
reinsurer, subject to certain specified limits. The
retention level may be specified as a percentage or
dollar amount. In proportional treaties, the
retention may be a percentage of the original
policy's limit. In excess of loss business, the
retention is a dollar amount of loss, a loss ratio
or a percentage.
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<PAGE> 64
RETROCESSION............... A transaction whereby a reinsurer cedes to another
reinsurer all or part of the reinsurance that the
first reinsurer has assumed. Retrocessions do 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.
STATUTORY ACCOUNTING
PRACTICES ("SAP").......... The rules and procedures prescribed or permitted by
state insurance regulatory or other authorities
(usually the domiciliary state) for recording
transactions and preparing financial statements.
STATUTORY SURPLUS.......... The amount remaining after all liabilities are
subtracted from all assets, in accordance with SAP.
Statutory surplus is also referred to as "surplus,"
"surplus as regards policyholders" or
"policyholders surplus" for statutory accounting
purposes.
TREATY REINSURANCE......... The reinsurance of a specified type or category of
risks defined in a reinsurance agreement (a
"treaty") between an insurer and a reinsurer and a
retrocessionaire. In treaty reinsurance the cedent
is typically obligated to offer, and the reinsurer
or retrocessionaire is obligated to accept, a
specified portion of a type or category of risks
insured by the ceding company as set forth in the
governing contract. Treaty reinsurance may provide
for proportional or non-proportional reinsurance.
UNDERWRITER................ An employee of an insurance company who examines,
accepts or rejects risks and classifies accepted
risks in order to charge an appropriate premium for
each accepted risk. The underwriter is expected to
select business which will produce an average risk
of loss no greater than that anticipated for the
class of business.
UNDERWRITING............... The insurer's or reinsurer's process of reviewing
applications for insurance coverage, and the
decision whether to accept all or part of the
coverage and determination of the applicable
premiums; also refers to the acceptance of such
coverage.
UNDERWRITING CAPACITY...... The maximum amount that an insurance company can
underwrite. The limit is generally determined by
the company's retained earnings and investment
capital. Reinsurance serves to increase a company's
capacity by reducing its exposure from particular
risks.
UNEARNED PREMIUM........... The portion of premiums written that is allocable
to the unexpired portion of the policy term and,
therefore, that has not yet been earned.
WORKERS' COMPENSATION
INSURANCE................ Insurance for employers covering employee
work-related injuries, deaths and diseases,
regardless of fault.
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<PAGE> 65
INDEX TO BALANCE SHEET
<TABLE>
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheet......................................................................... F-3
Notes to Balance Sheet................................................................ F-4
</TABLE>
F-1
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholder
Delphi International Ltd.
We have audited the accompanying balance sheet of Delphi International Ltd.
as of September 2, 1997 (date of incorporation). This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the balance sheet is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Delphi International Ltd. at
September 2, 1997 (date of incorporation), in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG
Hamilton, Bermuda
September 2, 1997,
except for Note 5, as to which the date is
September 10, 1997
F-2
<PAGE> 67
DELPHI INTERNATIONAL LTD.
BALANCE SHEET
SEPTEMBER 2, 1997 (DATE OF INCORPORATION)
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
ASSETS
Cash............................................................................... $12,000
=======
SHAREHOLDER'S EQUITY
Preferred Shares -- (par value $.01 per share; 5,000,000 shares authorized; none
issued).......................................................................... $ --
Common Shares -- (par value $.01 per share; 10,000,000 shares authorized; 1,200,000
shares issued and outstanding)................................................... 12,000
-------
Additional paid-in capital......................................................... --
-------
Total shareholder's equity......................................................... $12,000
=======
</TABLE>
See accompanying notes to balance sheet.
F-3
<PAGE> 68
DELPHI INTERNATIONAL LTD.
NOTES TO BALANCE SHEET
SEPTEMBER 2, 1997 (DATE OF INCORPORATION)
1. ORGANIZATION
Delphi International Ltd. (the "Company") was incorporated on September 2,
1997 under the laws of Bermuda, to provide employee benefit product reinsurance
to insurers and reinsurers on a worldwide basis. The Company will operate
through its wholly-owned subsidiary, Oracle Reinsurance Company Ltd., a Bermuda
exempted insurance and reinsurance company ("Oracle Re").
2. SIGNIFICANT ACCOUNTING POLICIES
The accompanying balance sheet of the Company has been prepared in
accordance with accounting principles generally accepted in the United States
("U.S. GAAP").
Translation of Foreign Currencies
The Company's functional currency is the United States dollar.
3. TAXATION
Under current Bermuda law, the Company is not be required to pay any taxes
in Bermuda on either income or capital gains. The Company has received from the
Minister of Finance of Bermuda an assurance under The Exempted Undertakings Tax
Protection Act 1966 of Bermuda that in the event of any such taxes being
imposed, the Company will be exempted until 2016. The Company intends to operate
its business in a manner such that it will not be required to pay United States
income tax.
4. SHAREHOLDER'S EQUITY AND RESTRICTIONS
Holders of the Company's Common Shares are entitled to one vote per share
on all matters submitted to a vote of shareholders, unless any one person's
shares constitute 9.5% or more of the issued and outstanding Common Shares. If a
person's ownership constitutes 9.5% or more of the issued and outstanding Common
Shares, then the voting rights with respect to those shares shall be limited, in
the aggregate, to a voting power of 9.5%.
The Company is not subject to any significant legal prohibitions on the
payment of dividends.
5. SUBSEQUENT EVENT
Oracle Re was incorporated on September 10, 1997, under the laws of Bermuda
and was approved for licensing as a Class 3 and a long-term insurer under the
Insurance Act 1978 and related regulations. Oracle Re will commence writing
insurance when the appropriate minimum capitalization is obtained. At September
10, 1997, the required minimum statutory capital and surplus was $1,000,000.
F-4
<PAGE> 69
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER 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.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 5
The Rights Offering................... 12
Use of Proceeds....................... 15
Capitalization........................ 15
Dividend Policy....................... 16
Management's Discussion and Analysis
of Financial Condition and Plan of
Operation........................... 17
Proposed Business..................... 20
Regulation............................ 32
Management............................ 35
Certain Relationships and Related
Transactions........................ 39
Security Ownership of Certain
Beneficial Owners and Management.... 43
Description of Capital Stock.......... 44
Certain Tax Considerations............ 50
Certain Bermuda Law Considerations.... 55
Legal Matters......................... 56
Experts............................... 56
Additional Information................ 56
Glossary of Selected Insurance and
Reinsurance Terms................... 57
Index to Balance Sheet................ F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE EXPIRATION DATE OF THE RIGHTS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS.
======================================================
======================================================
2,050,000 SHARES OF
COMMON STOCK
AND RIGHTS TO ACQUIRE UP TO
2,050,000 SHARES OF
COMMON STOCK
DELPHI INTERNATIONAL LTD.
-----------------
PROSPECTUS
-----------------
, 1997
======================================================
<PAGE> 70
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses payable in connection with the offering of the Rights and the
sale of the Common Shares offered hereby are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $6,667
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue sky fees and expenses........................................ *
Transfer agent, rights agent and registrar fees and expenses...... *
Miscellaneous..................................................... *
----
Total................................................... $ *
====
</TABLE>
- ---------------
* To be supplied by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 98 of the Companies Act provides generally that a Bermuda company
may indemnify its directors, officers and auditors against any liability which
by virtue of Bermuda law otherwise would be imposed on them, except in cases
where such liability arises from the fraud or dishonesty of which such director,
officer or auditor may be guilty in relation to the company. Section 98 further
provides that a Bermudian company may indemnify its directors, officers and
auditors against liability incurred by them in defending any proceedings,
whether civil or criminal, in which judgment is awarded in their favor or they
are acquitted or in which they are acquitted or granted relief by the Supreme
Court of Bermuda in certain proceedings arising under Section 281 of the
Companies Act.
The Company has adopted provisions in its Bye-Laws that provide that the
Company shall indemnify its officers and directors to the maximum extent
permitted under the Companies Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company was incorporated in September 2, 1997 under the laws of
Bermuda. On September 2, 1997, the Company issued 1,200,000 of its Common Shares
for an aggregate purchase price of $12,000, or $.01 per share, to the Oracle Re
Purpose Trust, which shares will be redeemed, for an aggregate redemption price
of $12,000, or $.01 per share, upon completion of the Rights Offering. The Trust
is a mechanism whose sole purpose is to permit the organization of the Company
prior to the issuance of shares pursuant to the Rights Offering. The Trustee of
the Trust is Codan Trust Company Limited, which is controlled by the law firm of
Conyers Dill & Pearman. Nicholas G. Trollope, a partner with Conyers Dill &
Pearman, is also a director of the Company. Such issuance was a private
transaction not involving a public offering and was exempt from the registration
provisions of the Securities Act pursuant to Section 4(2) thereof.
II-1
<PAGE> 71
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -------------------------------------------------------------------------------
<C> <S>
3.1 Memorandum of Association+
3.2 Amended and Restated Bye-Laws
4.1 Specimen certificate representing the Common Shares
4.2 Specimen certificate representing the Rights
5.1 Form of Opinion of Conyers Dill & Pearman as to the legality of the Common
Shares
8.1 Form of Opinion of Baker & McKenzie as to certain tax matters
8.2 Form of Opinion of Conyers Dill & Pearman as to certain tax matters (included
in Exhibit 5.1)
8.3 Tax Assurance with respect to Delphi International Ltd. from the Minister of
Finance of Bermuda
8.4 Tax Assurance with respect to Oracle Reinsurance Company Ltd. from the Minister
of Finance of Bermuda
8.5 Notification with respect to Oracle Reinsurance Company Ltd. from the Registrar
of Companies of Bermuda pertaining to Relevant Assets
10.1 Form of Note Agreement between Delphi International Ltd. and Delphi Financial
Group, Inc., Reliance Standard Life Insurance Company and Safety National
Casualty Corporation
10.2 Reinsurance Agreement between Oracle Reinsurance Company Ltd. and Reliance
Standard Life Insurance Company*
10.3 Reinsurance Agreement between Oracle Reinsurance Company Ltd. and Safety
National Casualty Corporation*
10.4 Investment Advisory Agreement between Oracle Reinsurance Company Ltd. and Acorn
Advisory Capital L.P.+
10.5 Standby Agreement between Delphi International Ltd. and certain employees,
officers and directors of Delphi Financial Group Inc. and Delphi International
Ltd. and Rosenkranz & Company*
10.6 Delphi International Ltd. Director and Employee Stock Option Plan*
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young
23.2 Consent of Baker & McKenzie (included in Exhibit 8.1)
23.3 Consent of Conyers Dill & Pearman
24.1 Powers of Attorney+
</TABLE>
- ---------------
* To be filed by Amendment.
+ Previously filed.
All schedules for which provision is made in the applicable accounting
regulations promulgated by the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
ITEM 17. UNDERTAKINGS.
RULE 415 OFFERING.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
II-2
<PAGE> 72
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such posteffective amendment shall be deemed to be 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registrant includes in the prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Form F-3.
WARRANTS AND RIGHTS OFFERINGS
The undersigned registrant hereby undertakes to supplement the prospectus,
after the expiration of the subscription period, to set forth the results of the
rights offering and the amount of unsubscribed securities purchased pursuant to
the standby arrangements.
REQUEST FOR ACCELERATION OF EFFECTIVE DATE OR FILING OF REGISTRATION STATEMENT
ON FORM S-8
Insofar as indemnification for liabilities 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 of 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.
II-3
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda on
the 31st of October, 1997.
DELPHI INTERNATIONAL LTD.
By: /s/ COLIN O'CONNOR
------------------------------------
Name: Colin O'Connor
Title: President, Chief Executive
Officer and Director
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ---------------------------------- ------------------
<C> <S> <C>
/s/ COLIN O'CONNOR President, Chief Executive Officer October 31, 1997
- ----------------------------------- and Director (Principal Executive,
Colin O'Connor Accounting and Financial Officer)
* Chairman of the Board October 31, 1997
- -----------------------------------
Robert Rosenkranz
* Vice President and Director October 31, 1997
- -----------------------------------
David Ezekiel
* Director October 31, 1997
- -----------------------------------
Nicolas G. Trollope
* Director October 31, 1997
- -----------------------------------
Edward A. Fox
* Director October 31, 1997
- -----------------------------------
Harold F. Ilg
* Director October 31, 1997
- -----------------------------------
Charles P. O'Brien
* Director October 31, 1997
- -----------------------------------
Lewis S. Ranieri
* Director October 31, 1997
- -----------------------------------
Thomas L. Rhodes
* Director October 31, 1997
- -----------------------------------
Robert M. Smith, Jr.
/s/ COLIN O'CONNOR
- -----------------------------------
*by Colin O'Connor as
attorney-in-fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED BYE-LAWS
OF
DELPHI INTERNATIONAL LTD.
<PAGE> 2
AMENDED AND RESTATED BYE-LAWS
OF
DELPHI INTERNATIONAL LTD.
(adopted at a general meeting held on the 2nd day of September, 1997)
<TABLE>
<CAPTION>
SUBJECT BYE-LAW PAGE
- ------- ------- ----
<S> <C> <C>
Interpretation 1-2 1-4
Share Capital 3 4
Common Shares 4 4
Authority of Board to issue and divide Preferred Shares
into Different Classes 5 4-5
Restrictions on Certain "Business Combinations" 6 5-10
Employee Share Purchase 7-8 10
Alteration of Capital 9-13 11-12
Warrants 14-17 12-13
Shares Certificates 18-23 13-14
Register of Members 24-25 14-15
Record Dates 26 15
Transfer of Shares 27-32 15-16
Transmission of Shares 33-35 16-17
Untraceable Members 36 17-18
General Meetings 37-39 18
Notice of General Meetings 40-42 18-20
Proceedings At General Meetings 43-48 20-21
Inspectors 49 21
Voting 50-62 21-24
Proxies and Corporations' Representatives 63-69 24-26
Appointment and Removal of Directors 70-71 26-28
Executive Directors 72-73 28-29
Alternate Directors 74-77 29
Directors' Fees And Expenses 78-81 30
Directors' and Officers' Interests 82-85 30-32
General Powers of The Directors 86-95 32-34
Proceedings of The Directors 96-105 34-36
Managers 106-108 36
Officers 109-113 36-37
Register of Directors and Officers 114 37
Minutes 115 37
Seal 116-117 37-38
Destruction of Documents 118 38-39
Dividends And Distributions 119-129 39-43
Capitalisation 130-131 43
Subscription Rights Reserve 132 44-45
Accounting Records 133-135 45-46
Audit 136-141 46-47
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Notices 142-145 47-48
Winding Up 146-147 48-49
Indemnity 148 49-50
Alteration of Bye-laws And Amendment
To Memorandum of Association 149 50
</TABLE>
<PAGE> 4
INTERPRETATION
1. In these Bye-laws, unless the context otherwise requires, the words
standing in the first column of the following table shall bear the meaning set
opposite them respectively in the second column.
WORD MEANING
"Act" The Companies Act 1981 of Bermuda,
as amended from time to time.
"Auditor" the auditor of the Company for the
time being and may include any
individual or partnership.
"Bye-laws" these Bye-laws in their present form
or as supplemented or amended or
substituted from time to time.
"Board" or the Board of Directors of the
"Directors" Company or the Directors present at
a meeting of Directors at which a
quorum is present.
"capital" the share capital from time to time
of the Company.
"clear days" in relation to the period of a
notice that period excluding the day
when the notice is given or deemed
to be given and the day for which it
is given or on which it is to take
effect.
"Code" means the United States Internal
Revenue Code of 1986, as amended.
"Company" Delphi International Ltd.
"competent" a competent regulatory authority in
regulatory the jurisdiction or place where the
authority" shares of the Company are listed or
quoted on a stock exchange.
"Controlled Shares" in reference to any Person means (i)
all shares of the Company that such
Person is deemed to own directly,
indirectly or by attribution (within
the meaning of Section 958 of the
Code) and (ii) all shares of the
Company directly, indirectly or
beneficially owned by such person
within the meaning of section 13(d)
of the Securities Exchange Act of
1934, as amended (the "Exchange
Act") (including any shares owned by
a group of persons as so defined and
including any shares that would
otherwise be excluded by section
13(d) of the Exchange Act).
-1-
<PAGE> 5
"Designated Stock a stock exchange which is an
Exchange" appointed stock exchange for
the purposes of the Act in respect of
which the shares of the Company are
listed or quoted.
"dollars" and "$" dollars, the legal currency of the
United States of America.
"Maximum Percentage" means, with respect to any Person,
nine and one-half percent (9.5%) or,
if applicable, such other percentage
as the Board shall have previously
approved for such Person.
"Member" a duly registered holder from time
to time of the shares in the capital
of the Company.
"month" a calendar month.
"Notice" written notice unless otherwise
specifically stated and as further
defined in these Bye-laws.
"Office" the registered office of the Company
for the time being.
"paid up" paid up or credited as paid up.
"Person" means an individual, a partnership,
a joint-stock company, a
corporation, a trust or
unincorporated organization, a
limited liability company or a
government or an agency or political
subdivision thereof;
"Register" the principal register and where
applicable, any branch register of
Members of the Company to be kept
pursuant to the provisions of the
Act.
"Registration Office" in respect of any class of share
capital such place as the Board may
from time to time determine to keep
a branch register of Members in
respect of that class of share
capital and where (except in cases
where the Board otherwise directs)
the transfers or other documents of
title for such class of share
capital are to be lodged for
registration and are to be
registered.
"Seal" common seal or any one or more
duplicate seals of the Company
(including a securities seal) for
use in Bermuda or in any place
outside Bermuda.
"Secretary" any person, firm or corporation
appointed by the Board to perform
any of the duties of secretary of
the Company and includes any
assistant, deputy, temporary or
acting secretary.
-2-
<PAGE> 6
"Subsidiary" means any company in which the
Company owns, directly or
indirectly, shares representing at
least fifty percent (50%) of the
voting power or fifty percent (50%)
of the value of such company.
"year" a calendar year.
2. (1) In these Bye-laws, unless there be something within the subject
or context inconsistent with such construction:
(a) words importing the singular include the plural and vice
versa;
(b) words importing a gender include every gender;
(c) words importing persons include companies, associations and
bodies of persons whether corporate or not;
(d) the words:
(i) "may" shall be construed as permissive;
(ii) "shall" or "will" shall be construed as imperative;
(e) expressions referring to writing shall, unless the contrary
intention appears, be construed as including printing,
lithography, photography and other modes of representing words
or figures in a visible form;
(f) references to any act, ordinance, statute or statutory
provision shall be interpreted as relating to any statutory
modification or re-enactment thereof for the time being in
force;
(g) save as aforesaid words and expressions defined in the Act
shall bear the same meanings in these Bye-laws if not
inconsistent with the subject in the context;
(h) a resolution shall be a special resolution when it has been
passed by a majority of not less than 66 2/3% of votes cast by
such Members as, being entitled so to do, vote in person or,
in the case of such Members as are corporations, by their
respective duly authorised representative or, where proxies
are allowed, by proxy at a general meeting of which not less
than twenty-one (21) clear days' notice, specifying (without
prejudice to the power contained in these Bye-laws to amend
the same) the intention to propose the resolution as a special
resolution, has been duly given. Provided that, except in the
case of an annual general meeting, if it is so agreed by a
majority in number of the Members having the right to attend
and vote at any such meeting, being a majority together
holding not less than ninety-five percent (95%) in nominal
value of the shares giving that right, a resolution may be
proposed and passed as a special resolution at a meeting of
which less than twenty-one (21) clear days' Notice has been
given;
-3-
<PAGE> 7
(i) a resolution shall be an ordinary resolution when it has been
passed by a simple majority of votes cast by such Members as,
being entitled so to do, vote in person or, in the case of any
Member being a corporation, by its duly authorised
representative or, where proxies are allowed, by proxy at a
general meeting of which not less than fourteen (14) clear
days' Notice has been duly given;
(j) a special resolution shall be effective for any purpose for
which an ordinary resolution is expressed to be required under
any provision of these Bye-laws or the Act.
(2) Any right or power of the Company under the Act or the
Company's memorandum of association or Bye-laws which is not expressly subject
to approval by the Members in general meeting shall be exercisable by the
Board.
SHARE CAPITAL
3. The authorised share capital of the Company is $150,000 divided into
the following classes of shares:
(i) 10,000,000 common shares, par value $0.01 per share ("Common
Shares"); and
(ii) 5,000,000 preferred shares, par value $0.01 per share
("Preferred Shares").
COMMON SHARES
4. (1) Subject to Bye-law 50 hereof, (i) at a general meeting of the
Company every holder of Common Shares shall be entitled to one vote for every
share held by him on all matters submitted to a vote of the Company's
shareholders and (ii) at a general meeting of a Subsidiary every holder of
Common Shares shall be entitled to such number of votes on all matters
submitted to a vote of the Subsidiary's shareholders as shall be allocated to
such Common Shares under Bye-law 50(4).
(2) The Board may in its discretion, at any time, and from time to
time, issue or cause to be issued all or any part of the authorised but
unissued Common Shares of the Company for consideration of such character and
value as the Board shall in its absolute discretion from time to time fix or
determine.
AUTHORITY OF BOARD TO ISSUE AND DIVIDE PREFERRED SHARES INTO
DIFFERENT CLASSES
5. (1) The Board may in its discretion at any time, and from time to
time, issue or cause to be issued all or any part of the authorised but
unissued Preferred Shares of the Company for consideration of such character
and value as the Board shall in its absolute discretion from time to time fix
or determine.
(2) Without prejudice to the generality of (1) hereof, the Board
is hereby further expressly authorised at any time, and from time to time, to
divide any or all of the authorised but unissued Preferred Shares of the
Company into several classes, to consolidate or sub-divide and to set the par
value of any of the unissued Preferred Shares, and in the resolution or
resolutions establishing a particular series, before issuance of any of the
shares thereof, to fix and determine the
Note: This is from the Amended & Restated By-Laws
-4-
<PAGE> 8
number of shares and the designation of such series, so as to distinguish it
from the shares of all other series and classes, and to fix and determine the
voting rights, preferences, qualifications, privileges, limitations, options,
conversion rights, redemption features, restrictions, and other special or
relative rights of such series. Each of such series may differ from every
other series previously authorised, as may be determined by the Board in any or
all respects, to the fullest extent now, or hereafter permitted by the laws of
Bermuda including, but not limited to, the variations between different series
in the following respects:
(a) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased or decreased (but not below the number of shares
thereof then outstanding) from time to time by the Board;
(b) the annual dividend or dividend rate for such series, and the
date or dates from which dividends shall commence to accrue;
(c) the par value of the shares prior to issue, provided however,
that the par value shall in no case be set at less than $0.01
per share;
(d) the price or prices at which, and the terms and conditions on
which, if any, the shares of such series may be redeemed or
made redeemable;
(e) the purchase or sinking fund provisions, if any, for the
purchase or redemption of shares of such series;
(f) the preferential amount or amounts, if any, payable upon
shares of such series in the event of the liquidation,
dissolution, or winding up of the Company;
(g) the terms and conditions, if any, upon which shares of such
series may be converted and the class or series of shares of
the Company or other securities into which such shares may be
converted;
(h) the relative seniority, priority or junior rank of such series
as to dividends or assets in relation to any other classes or
series of capital shares then or thereafter to be issued;
(i) such other terms, preferences, qualifications, privileges,
limitations, options, restrictions, and other special rights,
if any, of shares of such series as the Board may, at the time
of such resolution or resolutions, lawfully fix or determine;
(j) 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;
(k) 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 Members 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
-5-
<PAGE> 9
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.
RESTRICTIONS ON CERTAIN "BUSINESS COMBINATIONS"
6. (1) Except as permitted by sub-section (2) of this Bye-Law, no
Interested Shareholder (as hereinafter defined) shall, whether directly or
indirectly, be a party to or take any action in connection with any Business
Combination (as hereinafter defined) with the Company or any of its subsidiary
companies for a period of five years commencing on the date such person first
became an Interested Shareholder.
(2) The restrictions contained in sub-section (1) of this section
shall not apply to a Business Combination:(i) if the Business Combination is
approved by prior resolution of the Continuing Directors (as that term is
hereinafter defined) of the Board (whether such approval is made prior to or
subsequent to the acquisition of, or announcement of public disclosure of the
intention to acquire, beneficial ownership of voting shares that caused the
Interested Shareholder to become an Interested Shareholder); or (ii) if the
Business Combination is approved by prior resolution of at least 66 2/3% of
outstanding voting shares of the Company other than those beneficially held by
an Interested Shareholder.
(3) For the purposes of this Bye-Law:
(a) "beneficial owner" when used with respect to any
share means a person:
(i) who individually or with or through any Subsidiary or
Affiliate beneficially owns such share, directly or
indirectly; or
(ii) who individually or with or through any Subsidiary or
Affiliate beneficially owns such share, directly or
indirectly; or (2) who individually or with or
through any Subsidiary or Affiliate has:
(a) the right to acquire such share (whether such
right is exercisable immediately or only
after the passage of time) pursuant to an
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 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 person shall not be deemed
the beneficial owner of any share under this
sub-paragraph (ii) if the right to vote such
share arises:
(i) 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
-6-
<PAGE> 10
(ii) 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);
(iii) who 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 sub-paragraphs (i)
or (ii) of paragraph (2)(b) above or
disposing of such share with any
other person who beneficially owns,
or whose subsidiaries or affiliates
directly or indirectly beneficially
own such share or any interest
therein;
but does not include an underwriter, acting
in the ordinary course of his business as an
underwriter, who acquires shares pursuant to
any issue or offer of shares underwritten by
him.
(b) "Business Combination" means:
(i) any scheme of arrangement,
reconstruction or amalgamation
involving the Company or any of its
Subsidiaries and an Interested
Shareholder;
(ii) any transaction or series of
transactions involving the sale,
purchase, lease, exchange, mortgage,
pledge, transfer or other
disposition or encumbrance of assets
between the Company or any of its
Subsidiaries and any Interested
Shareholder having an aggregate
market value in excess of 5% of the
consolidated value in the Company
and its Subsidiaries prior to the
relevant transaction or series of
transactions;
(iii) the issue or transfer to an
Interested Shareholder or any
Affiliate thereof of any securities
by the Company or any of its
Subsidiaries other than an issue or
distribution to all Shareholders of
the Company entitled to participate
therein (such entitlement not being
dependent upon or affected by any
scheme or proposed by an Interested
Shareholder) pro rata 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 Shareholder or any
Affiliate thereof;
(v) the reclassification of any
securities or other restructuring of
the capital of the Company or any of
its Subsidiary companies
-7-
<PAGE> 11
in such a way as to confer a benefit
on an Interested Shareholder or any
Affiliate thereof which is not
conferred on the Members generally;
or (vi) the making by the Company or
any of its Subsidiaries of any loans,
advances, guarantees, pledges or
financial assistance to an Interested
Shareholder;
(c) The term "Continuing Director" means (i) any
member of the Board, while such person is a
member of the Board who is not an Interested
Shareholder or an Affiliate or Associate or
representative of the Interested Shareholder
and was a member of the Board prior to the
time that the Interested Shareholder became
an Interested Shareholder, and (ii) any
person who subsequently becomes a member of
the Board, while such person is a member of
the Board, who is not an Interested
Shareholder or an Affiliate or Associate or
representative of the Interested Shareholder,
if such person's nomination for election or
election to the Board is recommended or
approved by a majority of the Continuing
Directors then in office;
(d) "Interested Shareholder" means a Member of
the Company (other than the Company or any
Subsidiary, any profit-sharing employee share
ownership or other employee benefit plan of
the Company or any Subsidiary or any trustee
of or fiduciary with respect to any such plan
when acting in such capacity or Members of the
Company who acquired their Common Shares in
the initial capitalization of the Company) who
is, or has announced or publicly disclosed a
plan or intention to become, the beneficial
owner of Common Shares representing ten
percent (10%) or more of the value of the
Company. For the purposes of determining
whether a person is an Interested Shareholder
for the purposes hereof, the number of shares
deemed to be outstanding shall include shares
deemed beneficially owned by such person
through application of this paragraph (3)
hereof, but shall not include any other shares
that may be issuable pursuant to any
agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants
or options, otherwise;
(e) "person" includes:
(i) any person acting in concert with
him or any nominee for him or person
acting on his behalf; (ii) any
company in which such person holds
or beneficially owns 10% or more of
the shares carrying voting rights or
rights over shares; or (iii) any
person or entity over which the
person acquiring the shares has,
directly or indirectly, the power to
direct or cause the direction of
management or policies;
(f) "persons acting in concert" include:
(i) persons who, pursuant to an
agreement, arrangement or
understanding (whether formal or
informal), actively co-operate
either in the acquisition by any of
them of any holding of shares or of
the beneficial ownership of shares
or
-8-
<PAGE> 12
right over shares 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 close relatives, nominees,
related trusts or companies in which
any director holds or beneficially
owns 10% or more of the shares
carrying voting rights or rights
over shares);
(iii) a company with the trustees or
managers of any of its pension,
provident or employee benefit funds
or any employee stock option scheme
which involves the issue of shares
in the company to such trustees for
the benefit of employees;
(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 Subsidiary companies; or
(vi) a company, in which 10% or more of
the shares carrying voting rights or
rights over shares are held or
beneficially owned by a person, with
any other company in which 10% or
more of the shares carrying voting
rights or rights over shares are
held or beneficially owned by the
same person; and
(vii) notwithstanding the above
subparagraphs (i) through (vi), the
term "persons acting in concert"
shall not include the formation of a
"standby" group in connection with
the initial offering of the rights
to acquire Common Shares and the
documentation and agreements
relating thereto.
(g) "rights over shares" includes any rights
acquired by a person of an agreement to
acquire shares of an option to acquire shares
or an irrevocable commitment to accept an
offer to acquire shares and includes warrants
or options to subscribe for shares in a
company if immediately exercisable, as if
such warrants or option had at the relevant
time been exercised;
(h) "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 in excess of the threshold or, where
relevant to acquire equity in excess of the
threshold;
-9-
<PAGE> 13
(i) "threshold" means 10% or more of the voting
rights or 10% or more value of the equity, as
the case may be;
(j) "voting rights" means all the voting rights
attributable to the share capital of the
company which are 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;
(k) 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;
(l) the terms "Affiliate" and "Associate" shall
have the respective meanings ascribed to such
terms in Rule 12b-2 under the United States
Securities Exchange Act 1933, as amended, as
in effect on the date of the adoption of
these Bye-laws (the term "registrant" in said
Rule 12b-2 shall mean the Company);
(m) solely for the purposes of this Bye-Law 6,
the term "Subsidiary" means any company of
which a majority of any class of equity
security is beneficially owned by the
Company.
EMPLOYEE SHARE PURCHASE
7. (1) The Board may from time to time:
(a) establish a scheme or schemes whereby the Company
provides money for the purchase of, or subscription
for, fully-paid shares or share options or in
relation to share bonus plans for Common Shares in
the Company or its holding company, if any, being a
purchase of subscription by trustees of or for shares
to be held by or for the benefit of employees of the
Company or of its associated company;
(b) provide for the making by the Company of loans to
persons, other than Directors, bona fide in the
employment of the Company or of its associated
company, with a view to enabling those persons to
purchase or subscribe for fully-paid shares in the
Company or its holding company, to be held by
themselves by way of beneficial ownership; and
(c) provide for the giving by the Company, directly or
indirectly of financial assistance, whether by means
of a loan, guarantee, the provision of security or
otherwise, to its bona fide employees, or the bona
fide employees of any associated company or not they
shall also be Directors, in order that they shall
also be Directors, in order that they may buy shares
in the Company and the Board may, in its discretion,
from time to time require, as one of the
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terms of issue of any such shares or by contract,
that any such employee shall be required or allowed
to sell such shares to the Company, upon such terms
and at such price as the Board may by such terms of
issue or contract establish, when such employee
ceases to be employed by the Company or its
associated company.
(2) For the purposes of this Bye-Law a company shall be deemed to
be an associated company of the Company if shares of the first-mentioned
company carrying fifty percent or more of the votes for the election of
directors or at least fifty percent of the value of the company are held,
otherwise than by way of security directly or indirectly, by or for the benefit
of the Company.
8. Subject to the Act, the Company's memorandum of association
and Bye-laws and, where applicable, the rules of any Designated Stock Exchange
and/or any competent regulatory authority, the Company may purchase or
otherwise acquire its own shares upon such terms and subject to such conditions
as the Board thinks fit.
ALTERATION OF CAPITAL
9. (1) The Company may from time to time by ordinary resolution in
accordance with the Act:
(a) increase its capital by such sum, to be divided into shares of
such amounts, as the resolution shall prescribe;
(b) consolidate and divide all or any of its capital into shares
of larger amount than its existing shares;
(c) divide its shares into several classes and without prejudice
to any special rights previously conferred on the holders of
existing shares attach thereto respectively any preferential,
deferred, qualified or special rights, privileges, conditions
or such restrictions which in the absence of any such
determination by the Company in general meeting, as the
Directors may determine provided always that where the Company
issues shares which do not carry voting rights, the words
"non-voting" shall appear in the designation of such shares and
where the equity capital includes shares with different voting
rights, the designation of each class of shares, other than
those with the most favourable voting rights, must include the
words "restricted voting" or "limited voting";
(d) sub-divide its shares, or any of them, into shares of smaller
amount than is fixed by the memorandum of association
(subject, nevertheless, to the Act), and may by such
resolution determine that, as between the holders of the
shares resulting from such sub-division, one or more of the
shares may have any such preferred rights or be subject to any
such restrictions as compared with the other or others as the
Company has power to attach to unissued or new shares;
(e) change the currency denomination of its share capital; and
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<PAGE> 15
(f) cancel any shares which, at the date of the passing of the
resolution, have not been taken, or agreed to be taken, by any
person, and diminish the amount of its capital by the amount
of the shares so cancelled.
(2) The Board may settle as it considers expedient any difficulty
which arises in relation to any consolidation and division under this Bye-law
and in particular but without prejudice to the generality of the foregoing may
issue certificates in respect of fractions of shares or arrange for the sale of
the shares representing fractions and the distribution of the net proceeds of
sale (after deduction of the expenses of such sale) in due proportion amongst
the Members 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 their purchaser or resolve that such net proceeds be paid to the
Company for the Company's benefit. Such purchaser will not be bound to see to
the application of the purchase money nor will his title to the shares be
affected by any irregularity or invalidity in the proceedings relating to the
sale.
10. The Company may from time to time by ordinary resolution in accordance
with the Act reduce its authorised or issued share capital or any share premium
account or other undistributable reserve in any manner permitted by law.
11. Except so far as otherwise provided by the conditions of issue, or by
these Bye-laws, any capital raised by the creation of new shares shall be
treated as if it formed part of the original capital of the Company, and such
shares shall be subject to the provisions contained in these Bye-laws with
reference to the payment of calls and installments, transfer and transmission,
forfeiture, lien, cancellation, surrender, voting and otherwise.
12. Subject to the Act, all or any of the special rights for the time
being attached to the shares or any class of shares may, unless otherwise
provided by the terms of issue of the shares of that class, from time to time
(whether or not the Company is being wound up) be varied, modified or abrogated
either with the consent in writing of the holders of not less than 66 2/3% of
the issued shares of that class or with the sanction of a special resolution
passed at a separate general meeting of the holders of the shares of that
class. To every such separate general meeting all the provisions of these
Bye-laws relating to general meetings of the Company shall, mutatis mutandis,
apply, but so that:
(a) the necessary quorum (other than at an adjourned meeting)
shall be two persons holding or representing by proxy not less
than one-third in nominal value of the issued shares of that
class and at any adjourned meeting of such holders, two
holders present in person or by proxy (whatever the number of
shares held by them) shall be a quorum;
(b) every holder of shares of the class shall be entitled on a
poll to one vote for every such share held by him; and
(c) any holder of shares of the class present in person or by
proxy may demand a poll.
13. 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,
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<PAGE> 16
be deemed to be varied, modified or abrogated by the creation or issue of
further shares ranking pari passu therewith.
WARRANTS
14. The Board may issue warrants conferring the right upon the holders
thereof to subscribe for any class of shares or securities in the capital of
the Company on such terms as it may from time to time determine.
15. (1) The Company may in connection with the issue of any shares
exercise all powers of paying commission and brokerage conferred or permitted
by the Act. Subject to the Act, the commission may be satisfied by the payment
of cash or by the allotment of fully or partly paid shares or partly in one and
partly in the other.
(2) Neither the Company nor any of its subsidiaries shall directly
or indirectly give financial assistance to a person who is acquiring or
proposing to acquire shares in the Company for the purpose of that acquisition
whether before or at the same time as the acquisition takes place or afterwards
provided that nothing in this Bye-law shall prohibit transactions permitted by
the Act.
16. Except as required by law, no person shall be recognised by the
Company as holding any share upon any 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
fractional part of a share or (except only as otherwise provided by these
Bye-laws or by law) any other rights in respect of any share except an absolute
right to the entirety thereof in the registered holder.
17. Subject to the Act and these Bye-laws, the Board may at any time after
the allotment of shares but before any person has been entered in the Register
as the holder, recognise a renunciation thereof by the allottee in favour of
some other person and may accord to any allottee of a share a right to effect
such renunciation upon and subject to such terms and conditions as the Board
considers fit to impose.
SHARE CERTIFICATES
18. Every share certificate shall be issued under the Seal or a facsimile
thereof and shall specify the number and class and distinguishing numbers (if
any) of the shares to which it relates, and the amount paid up thereon and may
otherwise be in such form as the Directors may from time to time determine.
No certificate shall be issued representing shares of more than one class. The
Board may by resolution determine, either generally or in any particular case
or cases, that any signatures on any such certificates (or certificates in
respect of other securities) 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 person. Every share certificate shall
recite that the voting rights relating to such shares are subject to the
limitations contained in the Company's Bye-laws and that the ownership of
Common Shares of the Company shall entitle the holder to voting rights in any
Subsidiary as defined in the Bye-laws.
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<PAGE> 17
19. (1) In the case of a share held jointly by several persons, the
Company shall not be bound to issue more than one certificate therefor and
delivery of a certificate to one of several joint holders shall be sufficient
delivery to all such holders.
(2) Where a share stands in the names of two or more persons, the
person first named in the Register shall as regards service of notices and,
subject to the provisions of these Bye-laws, all or any other matters connected
with the Company, except the transfer of the shares, be deemed the sole holder
thereof.
20. Every person whose name is entered, upon an allotment of shares, as a
Member in the Register shall be entitled, without payment, to receive one
certificate for all such shares of any one class or several certificates each
for one or more of such shares of such class upon payment for every certificate
after the first of such reasonable out-of-pocket expenses as the Board from
time to time determines.
21. (1) Subject to paragraph (2) hereof, share certificates shall be
issued in the case of an issue of shares within twenty-one (21) days (or such
longer period as the terms of the issue provide) after allotment or in the case
of a transfer of fully or partly paid shares within twenty-one (21) days after
lodgment of a transfer with the Company, not being a transfer which the Company
is for the time being entitled to refuse to register and does not register.
(2) Notwithstanding anything in these Bye-laws, a person may by
notice in writing to the Company elect that no certificate be issued in respect
of shares registered or to be registered in his name and on receipt of such
election the Company shall not be required to issue a certificate for such
shares or may cancel an existing certificate without issuing another
certificate in lieu thereof.
22. Upon every transfer of shares the certificate held by the transferor
shall be given up to be cancelled, and shall forthwith be cancelled
accordingly, and a new certificate shall be issued to the transferee in respect
of the shares transferred to him. If any of the shares included in the
certificate so given up shall be retained by the transferor a new certificate
for the balance shall be issued to him.
23. If a share certificate shall be damaged or defaced or alleged to have
been lost, stolen or destroyed a new certificate representing the same shares
may be issued to the relevant member upon request and on payment of such fee as
the Designated Stock Exchange may determine to be the maximum payable or such
lesser sum as the Board may determine and, subject to compliance with such
terms (if any) as to evidence and indemnity and to payment of the costs and
reasonable 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 damage
or defacement, on delivery of the old certificate to the Company provided
always that where share warrants have been issued, no new share warrant shall
be issued to replace one that has been lost unless the Directors are satisfied
beyond reasonable doubt that the original has been destroyed.
REGISTER OF MEMBERS
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<PAGE> 18
24. (1) The Company shall keep in one or more books a Register of its
Members and shall enter therein the following particulars, that is to say:
(a) the name and address of each Member, the number and class of
shares held by him and the amount paid or agreed to be
considered as paid on such shares;
(b) the date on which each person was entered in the Register; and
(c) the date on which any person ceased to be a Member for one
year after he so ceased.
(2) Subject to the Act, the Company may keep an overseas or local
or other branch register of Members resident in any place, and the Board may
make and vary such regulations as it determines in respect of the keeping of
any such register and maintaining a Registration Office in connection
therewith.
25. The Register and branch register of Members, as the case may be, shall
be open to inspection between 10 a.m. and 12 noon on every business day by
Members without charge or by any other person, upon a maximum payment of five
Bermuda dollars, at the Office or such other place in Bermuda at which the
Register is kept in accordance with the Act or, if appropriate, upon a maximum
payment of ten dollars at the Registration Office. The Register including any
overseas or local or other branch register of Members may, after notice has
been given by advertisement in an appointed newspaper and where applicable, any
other newspapers in accordance with the requirements of any Designated Stock
Exchange to that effect, be closed at such times or for such periods not
exceeding in the whole thirty (30) days in each year as the Board may
determine and either generally or in respect of any class of shares.
RECORD DATES
26. Notwithstanding any other provision of these Bye-laws the Company or
the Directors may fix any date as the record date for:
(a) determining the Members entitled to receive any dividend,
distribution, allotment or issue; and
(b) determining the Members entitled to receive notice of and to
vote at any general meeting of the Company.
TRANSFER OF SHARES
27. Subject to these Bye-laws, any Member may transfer all or any of his
shares by an instrument of transfer in the usual or common form or in any other
form approved by the Board and may be under hand only.
28. The instrument of transfer shall be executed by or on behalf of the
transferor and the transferee provided that the Board may dispense with the
execution of the instrument of transfer
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<PAGE> 19
by the transferee in any case which it thinks fit in its discretion to do so.
The Board may also resolve, either generally or in any particular case, upon
request by either the transferor or transferee, to accept mechanically executed
transfers. 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.
Nothing in these Bye-laws shall preclude the Board from recognising a
renunciation of the allotment or provisional allotment of any share by the
allottee in favour of some other person.
29. (1) The Board may, in its absolute discretion, and without giving
any reason therefor, refuse to register a transfer of any share issued under
any share scheme for employees upon which a restriction on transfer imposed
thereby still subsists, and it may also refuse to register a transfer of any
share to more than four (4) joint holders. Nothing in these Bye-laws shall
impair the settlement of transactions entered into through the facilities of a
Designated Stock Exchange except as provided by such exchange.
(2) No transfer shall be made to an infant or to a person of
unsound mind or under other legal disability.
(3) The Board in so far as permitted by any applicable law may, in
its absolute discretion, at any time and from time to time transfer any share
upon the Register to any branch register or any share on any branch register
to the Register or any other branch register. In the event of any such
transfer, the shareholder requesting such transfer shall bear the cost of
effecting the transfer unless the Board otherwise determines.
(4) Unless the Board otherwise agrees (which agreement may be on
such terms and subject to such conditions as the Board in its absolute
discretion may from time to time determine, and which agreement it shall,
without giving any reason therefor, be entitled in its absolute discretion to
give or withhold), no shares upon the Register shall be transferred to any
branch register nor shall shares on any branch register be transferred to the
Register or any other branch register and all transfers and other documents of
title shall be lodged for registration, and registered, in the case of any
shares on a branch register, at the relevant Registration Office, and, in the
case of any shares on the Register, at the Office or such other place in
Bermuda at which the Register is kept in accordance with the Act.
30. Without limiting the generality of the last preceding Bye-law, the
Board may decline to recognise any instrument of transfer unless:
(a) the instrument of transfer is in respect of only one class of
share;
(b) the instrument of transfer is lodged at the Office or such
other place in Bermuda at which the Register is kept in
accordance with the Act or the Registration Office (as the
case may be) accompanied by the relevant share certificate(s)
and such other evidence as the Board may reasonably require to
show the right of the transferor to make the transfer (and, if
the instrument of transfer is executed by some other person on
his behalf, the authority of that person so to do); and
(c) if applicable, the instrument of transfer is duly and properly
stamped.
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<PAGE> 20
31. If the Board refuses to register a transfer of any share in accordance
with Bye-law 48, it shall, within two (2) months after the date on which the
transfer was lodged with the Company, send to each of the transferor and
transferee notice of the refusal.
32. The registration of transfers of shares or of any class of shares may,
after notice has been given by advertisement in an appointed newspaper and,
where applicable, any other newspapers in accordance with the requirements of
any Designated Stock Exchange to that effect be suspended at such times and for
such periods (not exceeding thirty (30) days in any year) as the Board may
determine.
TRANSMISSION OF SHARES
33. If a Member dies, the survivor or survivors where the deceased was a
joint holder, and his legal personal representatives where he was a sole or
only surviving holder, will be the only persons recognised by the Company as
having any title to his interest in the shares; but nothing in this Bye-law
will release the estate of a deceased Member (whether sole or joint) from any
liability in respect of any share which had been solely or jointly held by him.
34. Subject to the Act, any person becoming entitled to a share in
consequence of the death or bankruptcy or winding-up of a Member may, upon such
evidence as to his title being produced as may be required by the Board, elect
either to become the holder of the share or to have some person nominated by
him registered as the transferee thereof. If he elects to become the holder he
shall notify the Company in writing either at the Registration Office or
Office, as the case may be, to that effect. If he elects to have another
person registered he shall execute a transfer of the share in favour of that
person. The provisions of these Bye-laws relating to the transfer and
registration of transfers of shares shall apply to such notice or transfer as
aforesaid as if the death or bankruptcy of the Member had not occurred and the
notice or transfer were a transfer signed by such Member.
35. A person becoming entitled to a share by reason of the death or
bankruptcy or winding-up of a Member shall be entitled to the same dividends
and other advantages to which he would be entitled if he were the registered
holder of the share. However, the Board may, if it thinks fit, withhold the
payment of any dividend payable or other advantages in respect of such share
until such person shall become the registered holder of the share or shall have
effectually transferred such share, but, subject to the requirements of Bye-
law 59(2) being met, such a person may vote at meetings.
UNTRACEABLE MEMBERS
36. (1) Without prejudice to the rights of the Company under paragraph
(2) of this Bye-law, the Company may cease sending a cheque for dividend
entitlements or dividend warrants by post if such cheque or warrants have been
left uncashed on two consecutive occasions. However, the Company may exercise
the power to cease sending a cheque for dividend entitlements or dividend
warrant after the first occasion on which such a cheque or warrant is returned
undelivered.
(2) The Company shall have the power to sell, in such manner as
the Board thinks fit, any shares of a Member who is untraceable, but no such
sale shall be made unless:
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<PAGE> 21
(a) all cheque or warrants in respect of dividends of the shares
in question, being not less than three in total number, for
any sum payable in cash to the holder of such shares in
respect of them sent during the relevant period in the manner
authorised by the Bye-laws of the Company have remained
uncashed;
(b) so far as it is aware at the end of the relevant period, the
Company has not at any time during the relevant period
received any indication of the existence of the Member who is
the holder of such shares or of a person entitled to such
shares by death, bankruptcy or operation of law; and
(c) the Company, if so required by the rules governing the listing
of shares on the Designated Stock Exchange, has given notice
to, and caused advertisement in newspapers in accordance with
the requirements of, the Designated Stock Exchange to be made
of its intention to sell such shares in the manner required by
the Designated Stock Exchange, and a period of three (3)
months or such shorter period as may be allowed by the
Designated Stock Exchange has elapsed since the date of such
advertisement.
For the purpose of the foregoing, the "relevant period" means the
period commencing twelve years before the date of publication of the
advertisement referred to in paragraph (c) of this Bye-law and ending at the
expiry of the period referred to in that paragraph.
(3) To give effect to any such sale the Board may authorise some
person to transfer the said shares and an instrument of transfer signed or
otherwise executed by or on behalf of such person shall be as effective as if
it had been executed by the registered holder or the person entitled by
transmission to such shares, and the purchaser 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. The
net proceeds of the sale will belong to the Company and upon receipt by the
Company of such net proceeds it shall become indebted to the former Member for
an amount equal to such net proceeds. No trust shall be created in respect of
such debt and no interest shall be payable in respect of it and the Company
shall not be required to account for any money earned from the net proceeds
which may be employed in the business of the Company or as it thinks fit. Any
sale under this Bye-law shall be valid and effective notwithstanding that the
Member holding the shares sold is dead, bankrupt or otherwise under any legal
disability or incapacity.
GENERAL MEETINGS
37. The Board shall convene and the Company shall hold general meetings as
Annual General Meetings in accordance with the requirements of the Companies
Acts. 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. Except with the unanimous
approval of the Board, all Annual and Special General Meetings of the Company
shall be held in Bermuda.
38. Each general meeting, other than an annual general meeting, shall be
called a special general meeting.
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39. The Board may whenever it thinks fit call special general meetings,
and Members holding at the date of deposit of the requisition not less than
one-tenth of the paid up capital of the Company carrying the right of voting at
general meetings of the Company shall at all times have the right, by written
requisition to the Board or the Secretary of the Company, to require a special
general meeting to be called by the Board for the transaction of any business
specified in such requisition; and such meeting shall be held within two (2)
months after the deposit of such requisition. If within twenty-one (21) days
of such deposit the Board fails to proceed to convene such meeting the
requisitionists themselves may do so in accordance with the provisions of the
Act.
NOTICE OF GENERAL MEETINGS
40. (1) An Annual General Meeting and any Special General Meeting
shall be called by not less than 21 clear days' notice in writing. For the
purposes of this Bye-Law, the expression "clear days'" means that the day on
which the notice is despatched and the day of the meeting shall not be counted
in calculating the notice period.
Notice of every general meeting shall be given in any manner permitted
by these Bye-Laws to all Members 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.
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:
(a) in the case of a meeting called as an Annual General
Meeting, by all the Members entitled to attend and
vote thereat;
(b) in the case of any other meeting, by a majority in
number of the Members 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.
(2) At any annual or Special General Meeting of the Members, only
such business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an Annual or Special General Meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board, otherwise properly brought before
the meeting by or at the direction of the Board, or otherwise properly brought
before the meeting by a Member. In addition to any other applicable
requirements, for business to be properly brought before an Annual or Special
General Meeting by a Member, the Member must have given timely notice thereof
in writing to the Secretary of the Company. To be timely, a Member's notice
must be delivered to or mailed and received at the registered office of the
Company, not less than two (2) months prior to such meeting. A Member's notice
to the Secretary shall set forth as to each matter the Member proposes to bring
before the meeting and any material interest of the Member in such business (i)
a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) the name and
record address of the Member proposing such business, (iii) a representation
that the Member is a holder of record of shares of the Company entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
present such proposal or nomination, (iv) the class and number of shares of the
Company which
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<PAGE> 23
are beneficially owned by the Member, and (v) any material interest of the
Member in such business. Provided at all times that Members may only give
notice to the Secretary of matters to be brought before an Annual or Special
General Meeting for the purposes of this Bye-Law that are matters that are
suitable and appropriate for submission to general meetings of the Members of a
publicly-quoted company.
Notwithstanding anything in the Bye-Laws to the contrary, no business
shall be conducted at an Annual or Special General Meeting except in accordance
with the procedures set forth in this Bye-Law. Provided however, that nothing
in this Bye-Law shall be deemed to preclude discussion by any Member of any
business properly brought before the Annual or Special General Meeting in
accordance with the procedures herein detailed.
The Chairman of an Annual or Special General Meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Bye-Law, and if he should so determine, he shall so declare to the meeting and
any such business not properly brought before the meeting shall not be
transacted.
For the avoidance of doubt, it is hereby noted that any nomination or
nominations of persons for election to the Board of the Company made in
accordance with the provisions of Bye-Law 70(3) hereof shall be deemed for the
purposes of this Bye-Law to constitute business properly brought before an
Annual or Special General Meeting, as the case may be.
41. 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.
42. The accidental omission to give Notice of a meeting or (in cases where
instruments of proxy are sent out with the Notice) to send such instrument of
proxy to, or the non-receipt of such Notice or such instrument of proxy by, any
person entitled to receive such Notice shall not invalidate any resolution
passed or the proceedings at that meeting.
PROCEEDINGS AT GENERAL MEETINGS
43. No business shall be transacted at any general meeting unless it shall
have been properly brought before the Annual or Special General Meeting in
accordance with Bye-Law 40(2) hereof and 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 shall not be treated as
part of the business of the meeting. Save as otherwise provided in these
Bye-Laws, at least two Members representing not less than 30% of the
outstanding shares carrying the right to vote in the Company, represented in
person or by proxy, shall constitute a quorum for all purposes.
44. 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 Members,
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 two Members present in person (whatever the
number of shares held by them)
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shall be a quorum. The Company shall give not less than 7 days' notice of any
meeting adjourned through want of a quorum and such notice shall state that two
Members present in person (whatever the number of shares held by them) shall be
a quorum.
45. Each Director shall be entitled to attend and speak at any general
meeting of the Company.
46. The Chairman of the Board shall preside as Chairman at every general
meeting. In his absence, the following shall preside in the order stated: the
President or any Senior Vice President. If none of the foregoing is present
within five minutes after the time appointed for holding the meeting, or if
none 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.
47. The Chairman may, with the consent of any meeting at which a quorum is
present (and shall if so directed by the meeting), adjourn the meeting from
time to time and from place to place but no business shall be transacted at any
adjourned meeting except business which might lawfully have been transacted at
the meeting from which the adjournment took place. When a meeting is adjourned
for three months or more, notice of the adjourned meeting shall be given as in
the case of an original meeting.
48. 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.
INSPECTORS
49. The Board may, in advance of any meeting of Members, appoint one or
more inspectors to act at such meeting or any adjournment thereof. If the
inspectors shall not be so appointed or if any of them shall fail to appear or
act, the Chairman of the meeting may and on the request of any Member entitled
to vote thereat shall, appoint inspectors. Each inspector, before entering
upon the discharge of his duties, shall take and sign an oath faithfully to
exercise the duties of inspector at such meeting with strict impartiality and
according to the best of his ability. The inspectors shall determine the
number of shares outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine
all challenges and questions arising in connection with the right to vote,
count and tabulate all votes, ballots or consents, determine the result, and do
such acts as are proper to conduct the election or vote with fairness to all
Members. On the request of the Chairman of the meeting or any Member entitled
to vote thereat, the inspectors shall make a report in writing of any
challenge, request or matter determined by them and shall execute a certificate
of any fact found by them. No director or candidate for the office of director
shall act as inspector. Inspectors need not be Members.
VOTING
50. (1) Subject to Bye-law 50(2) hereof and to any special rights or
other restrictions as to voting for the time being attached to any shares by or
in accordance with these Bye-laws, at any general meeting on a show of hands
every Member present in person or by proxy or (being a corporation) is present
by a duly authorized representative shall have one vote and on a poll every
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Member present in person or in the case of a Member being a corporation by its
duly authorised representative or by proxy shall have one vote for every fully
paid share of which he is the holder but so that no amount paid up or credited
as paid up on a share in advance of calls or installments is treated for the
foregoing purposes as paid up on the share. A resolution put to the vote of a
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:
(a) by the chairman of such meeting; or
(b) by at least three Members present in person or in the case of
a Member being a corporation by its duly authorised
representative or by proxy for the time being entitled to vote
at the meeting; or
(c) by a Member or Members present in person or in the case of a
Member being a corporation by its duly authorised
representative or by proxy and representing not less than
one-tenth of the total voting rights of all Members having the
right to vote at the meeting; or
(d) by a Member or Members present in person or in the case of a
Member being a corporation by its duly authorised
representative or by proxy and holding shares in the Company
conferring a right to vote at the meeting being shares on
which an aggregate sum has been paid up equal to not less than
one-tenth of the total sum paid up on all shares conferring
that right.
A demand by a person as proxy for a Member or in the case of a Member being a
corporation by its duly authorised representative shall be deemed to be the
same as a demand by a Member.
(2) Subject to Bye-law 50(4), at any meeting of Members (or in
connection with any written resolution in lieu of such a meeting), each Member
holding shares of the Company, in the case of a meeting, present in person or
by proxy, shall be entitled to such number of votes as otherwise indicated in
these Bye-laws with respect to such shares, on a non-cumulative basis, for each
such share registered in such Member's name in the Register of Members,
provided that, if and for so long as the votes conferred by the Controlled
Shares of any Person shall exceed the Maximum Percentage applicable to such
Person of the votes conferred by all of the issued and outstanding shares of
the Company (adjusted for any votes represented by Controlled Shares that are
not entitled to vote due to the terms of this Bye-law), each share comprised in
such Controlled Shares shall confer only such fraction of a vote, such that
the total combined voting rights of such Controlled Shares shall be equal to
the Maximum Percentage, which percentage shall be calculated by reducing such
combined voting power of the Company's Members by a number of votes equal to
any votes represented by the Controlled Shares of such Person or any other
person that are not entitled to vote due to the terms of these Bye-laws and
calculated as of any date and, with respect to any record date for determining
the Members entitled to vote, calculated as of such record date, including,
without limitation, for any election of directors.
(3) Subject to Bye-law 50(4), if, as a result of giving effect to
the foregoing provisions of this Bye-law 50 or otherwise, the votes conferred
by the Controlled Shares of a Person would otherwise represent an amount
greater than the Maximum Percentage applicable to such Person, the votes
conferred
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by the Controlled Shares of such Person shall be reduced in accordance with the
foregoing provisions of this Bye-law 50. Such process shall be repeated until
the votes conferred by the Controlled Shares of each Person less than or equal
to the Maximum Percentage applicable to such Person.
(4) With respect to Bye-law 50(2) and (3), such provisions shall
not operate until there are at least eleven (11) Members of the Company.
(5) Notwithstanding any other provisions of these Bye-laws to the
contrary, with respect to any matter required to be submitted to a vote of the
members of a Subsidiary, the Company shall be required to submit a proposal
relating to such matters to the Members who shall vote at a meeting in
accordance with these Bye-laws and such Members shall hold and be entitled to
all of the voting rights with respect to the shares of the Subsidiary held by
the Company in accordance with and proportional to such vote of the Members and
subject to the voting limitation set forth in Bye-law 50(2); provided that the
Board shall not be required to submit such a proposal contemplated by this
Bye-law 50(4) to the Members at such time as the Subsidiary shall no longer be
a Subsidiary of the Company.
51. Unless a poll is duly demanded and the demand is not withdrawn, a
declaration by the chairman that a resolution has been carried, or carried
unanimously, or by a particular majority, or not carried by a particular
majority, or lost, and an entry to that effect made in the minute book of the
Company, shall be conclusive evidence of the fact without proof of the number
or proportion of the votes recorded for or against the resolution.
52. 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 was demanded. There shall
be no requirement for the chairman to disclose the voting figures on a poll.
53. 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 (including the use of ballot or voting papers or
tickets) and either forthwith or at such time (being not later than thirty (30)
days after the date of the demand) and place as the Chairman directs. It shall
not be necessary (unless the chairman otherwise directs) for notice to be given
of a poll not taken immediately.
54. The demand for a poll shall not prevent the continuance of a meeting
or the transaction of any business other than the question on which the poll
has been demanded, and, with the consent of the chairman, it may be withdrawn
at any time before the close of the meeting or the taking of the poll,
whichever is the earlier.
55. On a poll votes may be given either personally or by proxy.
56. 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.
57. In the case of an equality of votes, whether on a show of hands or on
a poll, the chairman of such meeting shall be entitled to a second or casting
vote in addition to any other vote he may have.
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58. Where there are joint holders of any share any one of such joint
holder may vote, either in person or by proxy, in respect of such share as if
he were solely entitled thereto, but if more than one of such joint holders be
present at any meeting 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.
Several executors or administrators of a deceased Member in whose name any
share stands shall for the purposes of this Bye-law be deemed joint holders
thereof.
59. (1) A Member who is a patient for any purpose 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 if he were the registered holder
of such shares for the purposes of general meetings, provided that such
evidence as the Board may require of the authority of the person claiming to
vote shall have been deposited at the Office, Registration Office or such other
place as the Board may designate, as appropriate, not less than forty-eight
(48) hours before the time appointed for holding the meeting, or adjourned
meeting or poll, as the case may be.
(2) Any person entitled under Bye-law 35 to be registered as the
holder of any shares may vote at any general meeting in respect thereof in the
same manner as if he were the registered holder of such shares, provided that
forty-eight (48) hours at least before the time of the holding of the meeting
or adjourned meeting, as the case may be, at which he proposes to vote, he
shall satisfy the Board of his entitlement to such shares, or the Board shall
have previously admitted his right to vote at such meeting in respect thereof.
60. No Member shall, unless the Board otherwise determines, be entitled to
attend and vote and to be reckoned in a quorum at any General Meeting unless he
is duly registered and all calls or other sums presently payable by him in
respect of shares in the Company have been paid.
61. If:
(a) any objection shall be raised to the qualification of any
voter; or
(b) any votes have been counted which ought not to have been
counted or which might have been rejected; or
(c) 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.
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62. (1) Subject to the Act, a resolution in writing signed (in such
manner as to indicate, expressly or impliedly, unconditional approval) by or on
behalf of all persons for the time being entitled to receive notice of and to
attend and vote at general meetings of the Company shall, for the purposes of
these Bye-laws, be treated as a resolution duly passed at a general meeting of
the Company and, where relevant, as a special resolution so passed. Any such
resolution shall be deemed to have been passed at a meeting held on the date on
which it was signed by the last Member to sign, and where the resolution states
a date as being the date of his signature thereof by any Member the statement
shall be prima facie evidence that it was signed by him on that date. Such a
resolution may consist of several documents in the like form, each signed by
one or more relevant Members.
(2) Notwithstanding any provisions contained in these Bye-laws, a
resolution in writing shall not be passed for the purpose of removing a
Director before the expiration of his term of office or for the purpose of
removing the Auditor.
PROXIES AND CORPORATION'S REPRESENTATIONS
63. Any Member entitled to attend and vote at a meeting of the Company
shall be entitled to appoint another person as his proxy to attend and vote
instead of him. A Member may appoint a proxy in respect of part only of his
holding of shares in the Company. A proxy need not be a Member of the Company.
64. The instrument appointing a proxy shall be in writing under the hand
of the appointor or of his attorney duly authorised 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. In the case of
an instrument of proxy purporting to be signed on behalf of a corporation by an
officer thereof it shall be assumed, unless the contrary appears, that such
officer was duly authorised to sign such instrument of proxy on behalf of the
corporation without further evidence of the fact.
65. The instrument appointing a proxy and (if required by the Board) the
power of attorney or other authority (if any) under which it is signed, or a
certified copy of such power or authority, shall be delivered to such place or
one of such places (if any) as may be specified for that purpose in or by way
of note to or in any document accompanying the notice convening the meeting
(or, if no place is so specified at the Registration Office or the Office, as
may be appropriate) not less than forty-eight (48) hours before the time
appointed for holding the 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, not less than
twenty-four (24) hours before the time appointed for the taking of the poll and
in default the instrument of proxy shall not be treated as valid. No
instrument appointing a proxy shall be valid after the expiration of twelve
(12) months from the date named in it as the date of its execution, except at
an adjourned meeting or on a poll demanded at a meeting or an adjourned meeting
in cases where the meeting was originally held within twelve (12) months from
such date. Delivery of an instrument appointing a proxy shall not preclude a
Member from attending and voting in person at the meeting convened and in such
event, the instrument appointing a proxy shall be deemed to be revoked.
66. Instruments of proxy shall be in any common form or in such other form
as the Board may approve (provided that this shall not preclude the use of the
two-way form) and the Board may,
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if it thinks fit, send out with the notice of any meeting forms of instrument
of proxy for use at the meeting. 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 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.
67. A vote given in accordance with the terms of an instrument of proxy
shall be valid notwithstanding the previous death or insanity 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 Office or the
Registration Office (or such other place as may be specified for the delivery
of instruments of proxy in the notice convening the meeting or other document
sent therewith) two (2) hours at least before the commencement of the meeting
or adjourned meeting, or the taking of the poll, at which the instrument of
proxy is used.
68. Anything which under these Bye-laws a Member may do by proxy he may
likewise do by his duly appointed attorney and the provisions of these Bye-laws
relating to proxies and instruments appointing proxies shall apply mutatis
mutandis in relation to any such attorney and the instrument under which such
attorney is appointed.
69. (1) Any corporation which is a Member of the Company may by any
authorized officer authorise such person as it thinks fit to act as its
representative at any meeting of the Company or any class of Members of the
Company. The person so authorised shall be entitled to exercise the same
powers on behalf of such corporation as the corporation could exercise if it
were an individual Member of the Company and such corporation shall for the
purposes of these Bye-laws be deemed to be present in person at any such
meeting if a person so authorised is present thereat. Any reference in these
Bye-laws to a duly authorised representative of a Member being a corporation
shall mean a representative authorised under the provisions of this Bye-law.
(2) If a clearing house is a Member, it may authorise such person
or persons as it thinks fit to act as its representative or representatives at
any meeting of the Company or at any meeting of any class of Members provided
that, if more than one person is so authorised, the authorization shall specify
the number and class of shares in respect of which each such person is so
authorised. A person so authorised under the provisions of this Bye-law shall
be entitled to exercise the same powers on behalf of the clearing house (or its
nominee) which he represents as that clearing house (or its nominee) could
exercise if it were an individual Member. For the purposes of this Bye-law,
"clearing house" means any clearing house or other similar body recognised by
the laws of the jurisdiction in which the shares of the Company are listed or
quoted on a stock exchange.
APPOINTMENT AND REMOVAL OF DIRECTORS
70. (1) The number of Directors which shall constitute the whole Board
of Directors of the Company shall not be more than fifteen (15). The Board is
divided into three classes, Class I, Class II and Class III. The number of
Directors in each class shall be the whole number contained in the quotient
arrived at by dividing the authorised number of Directors by three and if a
fraction is also contained in such quotient, then if such fraction is one-third
(1/3) the extra Director shall be a member of Class III and if the fraction is
two-thirds (2/3) one of the Directors shall be member of Class III and
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the other shall be a member of Class II. Each Director shall serve for a term
ending on the third annual meeting following the annual meeting at which such
Director was elected; provided however, that the Directors first elected to
Class I shall serve for a term ending on the annual meeting next ensuing, the
Directors first elected to Class II shall serve for a term ending on the second
annual meeting following the meeting at which such Directors were first
elected, and the Directors first elected to Class III shall serve a full term
as hereinbefore provided. The foregoing notwithstanding, each Director shall
serve until his successor shall have been duly elected and qualified, unless
he shall resign, become disqualified, disabled or shall otherwise be removed.
For the purpose of the preceding paragraph, reference to the first
election of Directors is to the election at the 1997 General Meeting of the
Company. At each annual election held thereafter, the Directors chosen to
succeed those whose terms then expire shall be identified as being of the same
class as the Directors they succeed. If for any reason the number of Directors
in the various classes shall not conform with the formula set forth in the
preceding paragraph, the Board may redesignate any Director to a different
class in order that the balance of Directors in such classes shall conform
thereto.
(2) A Director need not be a Member.
(3) Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors. Nominations
of persons for election to the Board of the Company may be made at a meeting of
Members by or at the discretion of the Board, by any nominating committee or
person appointed by the Board or by any Member of the Company entitled to vote
for the election of Director at the meeting who complies with the notice
procedures set forth in this Bye-Law. Such nominations, other than those made
by or at the direction of the Board, shall be made pursuant to timely notice in
writing to the Secretary of the Company. To be timely, a Member's notice shall
be delivered to or mailed and received at the registered office of the Company
not less than two (2) months prior to such meeting. Such Member's notice to
the Secretary shall set forth (a) as to each person whom the Member proposes to
nominate for election or re-election as a Director, (i) the name, age, business
address and residence address of the persons, (ii) the principal occupation or
employment of the person, (iii) the class and number of shares of Common Shares
of the Company which are beneficially owned by the person, (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of Directors pursuant to Schedule 14A
under the Securities Exchange Act of 1934, as amended and (v) the consent of
each nominee to serve as a Director, if so elected; and (b) as to the Member
giving the notice (i) the name and record address of the Member and (ii) the
class and number of shares of capital stock of the Company which are
beneficially owned by the Member. The Company may require any proposed nominee
to furnish such other information as may reasonably be required by the Company
to determine the eligibility of such proposed nominee to serve as a Director of
the Company. No persons shall be eligible for election as a Director of the
Company unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
(4) The Directors shall (subject to any resolution of the Members
to the contrary) have the power from time to time and at any time to appoint
any person as a Director either to fill a
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casual vacancy on the Board but so that the number of Directors so appointed
shall not exceed any maximum number determined from time to time by the Members
in general meeting. Any Director so appointed by the Board shall hold office
only until the next following annual general meeting of the Company and shall
then be eligible for re-election at that meeting.
(5) Neither a Director nor an alternate Director shall be required
to hold any shares of the Company by way of qualification and a Director or
alternate Director (as the case may be) who is not a Member shall be entitled
to receive notice of and to attend and speak at any general meeting of the
Company and of all classes of shares of the Company.
(6) Subject to any provision to the contrary in these Bye-laws the
Members may, at any general meeting convened and held in accordance with these
Bye-laws, by special resolution remove a Director without cause and by ordinary
resolution with cause, at any time before the expiration of his period of
office notwithstanding anything in these Bye-laws or in any agreement between
the Company and such Director (but without prejudice to any claim for damages
under any such agreement) provided that the notice of any such meeting convened
for the purpose of removing a Director shall contain a statement of the
intention so to do and be served on such Director fourteen (14) days before the
meeting and at such meeting such Director shall be entitled to be heard on the
motion for his removal.
(7) A vacancy on the Board created by the removal of a Director
under the provisions of subparagraph (4) above may be filled by the election or
appointment by the Members at the meeting at which such Director is removed to
hold office until the next appointment of Directors or until their successors
are elected or appointed or, in the absence of such election or appointment,
but subject to any resolution of the Members to the contrary, the Board may
fill any vacancy in the number left unfilled.
(8) A retiring Director shall be eligible for re-election.
71. The office of a Director shall be vacated if the Director:
(a) resigns his office by notice in writing delivered to the
Company at the Office or tendered at a meeting of the Board
whereupon the Board resolves to accept such resignation; or
(b) becomes of unsound mind or dies; or
(c) without special leave of absence from the Board, is absent
from meetings of the Board for six consecutive months, and his
alternate Director, if any, shall not during such period have
attended in his stead and the Board resolves that his office
be vacated; or
(d) becomes bankrupt or has a receiving order made against him or
suspends payment or compounds with his creditors; or
(e) is prohibited by law from being a Director; or
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(f) ceases to be a Director by virtue of any provision of the Act
or is removed from office pursuant to these Bye-laws.
EXECUTIVE DIRECTORS
72. The Board may from time to time appoint any one or more of its body to
be a Managing Director or Chief Executive Officer or to hold any other
employment or executive office with the Company for such period (subject to
their continuance as Directors) and upon such terms as the Board may determine
and the Board may revoke or terminate any of 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. A Director appointed to an office under this
Bye-law shall be subject to the same provisions as to removal as the other
Directors of the Company, and he shall (subject to the provisions of any
contract between him and the Company) ipso facto and immediately cease to hold
such office if he shall cease to hold the office of Director for any cause.
73. Notwithstanding anything contained in these Bye-laws, an executive
Director appointed to an office under Bye-law 72 hereof shall receive such
remuneration (whether by way of salary, commission, participation in profits or
otherwise or by all or any of those modes) and such other benefits (including
pension and/or gratuity and/or other benefits on retirement) and allowances as
the Board may from time to time determine, and either in addition to or in lieu
of his remuneration as a Director.
ALTERNATE DIRECTORS
74. Any Director may at any time by Notice delivered to the Office or at a
meeting of the Directors appoint any person to be his alternate Director. Any
person so appointed shall have all the rights and powers of the Director or
Directors for whom such person is appointed in the alternative provided that
such person shall not be counted more than once in determining whether or not a
quorum is present. An alternate Director may be removed at any time by the
body which appointed him and, subject thereto, 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. Any appointment
or removal of an alternate Director shall be effected by Notice signed by the
appointor and delivered to the Office or tendered at a meeting of the Board.
An alternate Director may also be a Director in his own right and may act as
alternate to more than one Director. An alternate Director shall, if his
appointor so requests, be entitled to receive notices of meetings of the Board
or of committees of the Board to the same extent as, but in lieu of, the
Director appointing him and shall be entitled to such extent to attend and vote
as a Director at any such meeting at which the Director appointing him is not
personally present and generally at such meeting to exercise and discharge all
the functions, powers and duties of his appointor as a Director and for the
purposes of the proceedings at such meeting the provisions of these Bye-laws
shall apply as if he were a Director save that as an alternate for more than
one Director his voting rights shall be cumulative.
75. An alternate Director shall only be a Director for the purposes of the
Act and shall only be subject to the provisions of the Act insofar as they
relate to the duties and obligations of a Director when performing the
functions of the Director for whom he is appointed in the alternative and shall
alone be responsible to the Company for his acts and defaults and shall not
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be deemed to be the agent of or for the Director appointing him. An alternate
Director shall be entitled to contract and be interested in and benefit from
contracts or arrangements or transactions and to be repaid expenses and to be
indemnified by the Company to the same extent mutatis mutandis as if he were a
Director but he shall not be entitled to receive from the Company any fee in
his capacity as an alternate Director except only such part, if any, of the
remuneration otherwise payable to his appointor as such appointor may by notice
in writing to the Company from time to time direct.
76. 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). If his appointor is for the time being unavailable or
unable to act, the signature of an alternate Director to any resolution in
writing of the Board or a committee of the Board of which his appointor is a
member shall, unless the notice of his appointment provides to the contrary, be
as effective as the signature of his appointor.
77. An alternate Director shall ipso facto cease to be an alternate
Director if his appointor ceases for any reason to be a Director, however, such
alternate Director or any other person may be re-appointed by the Directors to
serve as an alternate Director provided always that, if at any meeting any
Director retires but is re-elected at the same meeting, any appointment of such
alternate Director pursuant to these Bye-laws which was in force immediately
before his retirement shall remain in force as though he had not retired.
DIRECTORS' FEES AND EXPENSES
78. The ordinary remuneration of the Directors shall from time to time be
determined by the Company in general meeting and shall (unless otherwise
directed by the resolution by which it is voted) be divided amongst the Board
in such proportions and in such manner as the Board may agree or, failing
agreement, equally, except that any Director who shall hold office for part
only of the period in respect of which such remuneration is payable shall be
entitled only to rank in such division for a proportion of remuneration related
to the period during which he has held office. Such remuneration shall be
deemed to accrue from day to day.
79. Each Director shall be entitled to be repaid or prepaid all
travelling, hotel and incidental expenses reasonably incurred or expected to be
incurred by him in attending meetings of the Board or committees of the Board
or general meetings or separate meetings of any class of shares or of
debentures of the Company or otherwise in connection with the discharge of his
duties as a Director.
80. Any Director who, by request, goes or resides abroad for any purpose
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
or in substitution for any ordinary remuneration provided for by or pursuant to
any other Bye-law.
81. The Board shall obtain the approval of the Company in general meeting
before making any payment to any Director or past Director of the Company by
way of compensation for loss of
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office, or as consideration for or in connection with his retirement from
office (not being payment to which the Director is contractually entitled).
DIRECTORS' AND OFFICERS' INTERESTS
82. A Director may:
(a) 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, subject to the relevant
provisions of the Act, upon such terms as the Board may
determine. Any remuneration (whether by way of salary,
commission, participation in profits or otherwise) paid to any
Director in respect of any such other office or place of
profit shall be in addition to any remuneration provided for
by or pursuant to any other Bye-law;
(b) act by himself or his firm in a professional capacity for the
Company (otherwise than as Auditor) and he or his firm may be
remunerated for professional services as if he were not a
Director;
(c) continue to be or become a director, managing director, joint
managing Director, deputy managing director, executive
director, manager or other officer or member of any other
company promoted by the Company or in which the Company may be
interested as a vendor, shareholder or otherwise and (unless
otherwise agreed) no such Director shall be accountable for
any remuneration, profits or other benefits received by him as
a director, managing director, joint managing director, deputy
managing director, executive director, manager or other
officer or member of or from his interests in any such other
company. Subject as otherwise provided by these Bye-laws the
Directors may exercise or cause to be exercised the voting
powers conferred by the shares in any other company held or
owned by the Company, or exercisable by them as Directors of
such other company in such manner in all respects as they
think fit (including the exercise thereof in favour of any
resolution appointing themselves or any of them directors,
managing directors, joint managing directors, deputy managing
directors, executive directors, managers or other officers of
such company) or voting or providing for the payment of
remuneration to the director, managing director, joint
managing director, deputy managing director, executive
director, manager or other officers of such other company and
any Director may vote in favour of the exercise of such voting
rights in manner aforesaid notwithstanding that he may be, or
about to be, appointed a director, managing director, joint
managing director, deputy managing director, executive
director, manager or other officer of such a company, and that
as such he is or may become interested in the exercise of such
voting rights in manner aforesaid.
83. Subject to the Act and to these Bye-laws, no Director or officer or
proposed or intending Director or officer shall be disqualified by his office
from contracting with the Company, either with regard to his tenure of any
office or place of profit or as vendor, purchaser or in any other manner
whatever, nor shall any such contract or any other contract or arrangement in
which any Director or
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officer is in any way interested be liable to be avoided, nor shall any
Director or officer so contracting or being so interested be liable to account
to the Company or the Members for any remuneration, profit or other benefits
realised by any such contract or arrangement by reason of such Director or
officer holding that office or of the fiduciary relationship thereby
established provided that such Director or officer shall disclose the nature of
his interest in any contract or arrangement in which he is interested in
accordance with Bye-law 102 herein.
84. A Director or officer who to his knowledge is in any way, whether
directly or indirectly, interested in a contract or arrangement or proposed
contract or arrangement with the Company shall declare the nature of his
interest at the meeting of the Board at which the question of entering into the
contract or arrangement is first considered, if he knows his interest then
exists, or in any other case at the first meeting of the Board after he knows
that he is or has become so interested.
85. For the purposes of the last preceding Bye-law, a general notice to
the Board by a Director to the effect that:
(a) he is a member or officer of a specified company or firm and
is to be regarded as interested in any contract or arrangement
which may after the date of the notice be made with that
company or firm; or
(b) he is to be regarded as interested in any contract or
arrangement which may after the date of the notice be made
with a specified person who is connected with him;
shall be deemed to be a sufficient declaration of interest under this Bye-law
in relation to any such contract or arrangement, provided that no such notice
shall be effective unless either it is given at a meeting of the Board or the
Director or officer takes reasonable steps to secure that it is brought up and
read at the next Board meeting after it is given.
GENERAL POWERS OF THE DIRECTORS
86. (1) The business of the Company shall be managed and conducted by
the Board, which may pay all expenses incurred in forming and registering the
Company and may exercise all powers of the Company (whether relating to the
management of the business of the Company or otherwise) which are not by the
Act or by these Bye-laws required to be exercised by the Company in general
meeting, subject nevertheless to the provisions of the Act and of these
Bye-laws and to such regulations being not inconsistent with such provisions,
as may be prescribed by the Company in general meeting, but no regulations made
by the Company in general meeting shall invalidate any prior act of the Board
which would have been valid if such regulations had not been made. The general
powers given by this Bye-law shall not be limited or restricted by any special
authority or power given to the Board by any other Bye-law.
(2) Any person contracting or dealing with the Company in the
ordinary course of business shall be entitled to rely on any written or oral
contract or agreement or deed, document or instrument entered into or executed
as the case may be by any two of the Directors acting jointly on behalf of the
Company and the same shall be deemed to be validly entered into or executed by
the Company as the case may be and shall, subject to any rule of law, be
binding on the Company.
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(3) Without prejudice to the general powers conferred by these
Bye-laws it is hereby expressly declared that the Board shall have the
following powers, namely:
(a) to give to any person the right or option of requiring at a
future date that an allotment shall be made to him of any
share at par or at such premium as may be agreed;
(b) to give to any Directors, officers or servants of the Company
an interest in any particular business or transaction or
participation in the profits thereof or in the general profits
of the Company either in addition to or in substitution for a
salary or other remuneration.
87. The Board may establish any regional or local boards or agencies for
managing any of the affairs of the Company in any place, and may appoint any
persons to be members of such local boards, or any managers or agents, and may
fix their remuneration (either by way of salary or by commission or by
conferring the right to participation in the profits of the Company or by a
combination of two or more of these modes) and pay the working expenses of any
staff employed by them upon the business of the Company. The Board may
delegate to any regional or local board, manager or agent any of the powers,
authorities and discretions vested in or exercisable by the Board (other than
its powers to make calls and forfeit shares), with power to sub-delegate, and
may authorise the members of any of them to fill any vacancies therein and to
act notwithstanding vacancies. Any such appointment or delegation may be made
upon such terms and subject to such conditions as the Board may think fit, and
the Board may remove any person appointed as aforesaid, and may revoke or vary
such delegation, but no person dealing in good faith and without notice of any
such revocation or variation shall be affected thereby.
88. The Board may by power of attorney appoint under the Seal 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 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. Such attorney or attorneys may, if
so authorised under the Seal of the Company, execute any deed or instrument
under their personal seal with the same effect as the affixation of the
Company's Seal.
89. The Board may entrust to and confer upon a Managing Director, Joint
Managing Director, Deputy Managing Director, an Executive Director or any
Director any of the powers exercisable by it upon such terms and conditions and
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. All cheque, promissory notes, drafts, bills of exchange and other
instruments, whether negotiable or transferable or not, and all receipts for
moneys paid to the Company shall be signed, drawn, accepted, endorsed or
otherwise executed, as the case may be, in such manner as the
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Board shall from time to time by resolution determine. The Company's banking
accounts shall be kept with such banker or bankers as the Board shall from time
to time determine.
91. (1) The Board may establish or concur or join with other companies
(being subsidiary companies of the Company or companies with which it is
associated in business) in establishing and making contributions out of the
Company's moneys to any schemes or funds for providing pensions, sickness or
compassionate allowances, life assurance or other benefits for employees (which
expression as used in this and the following paragraph shall include any
Director or ex-Director who may hold or have held any executive office or any
office of profit under the Company or any of its subsidiary companies) and
ex-employees of the Company and their dependents or any class or classes of
such person.
(2) The Board may pay, enter into agreements to pay or make grants
of revocable or irrevocable, and either subject or not subject to any terms or
conditions, pensions or other benefits to employees and ex-employees and their
dependents, or to any of such persons, including pensions or benefits
additional to those, if any, to which such employees or ex-employees or their
dependents are or may become entitled under any such scheme or fund as
mentioned in the last preceding paragraph. Any such pension or benefit may, as
the Board considers desirable, be granted to an employee either before and in
anticipation of or upon or at any time after his actual retirement.
92. The Board may exercise all the powers of the Company to raise or
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, subject to the Act, to issue debentures, bonds and other securities,
whether outright or as collateral security for any debt, liability or
obligation of the Company or of any third party.
93. Debentures, bonds and other securities may be made assignable free
from any equities between the Company and the person to whom the same may be
issued.
94. Any debentures, bonds or other securities may be issued at a discount
(other than shares), premium or otherwise and with any special privileges as to
redemption, surrender, drawings, allotment of shares, attending and voting at
general meetings of the Company, appointment of Directors and otherwise.
95. Where any uncalled capital of the Company is charged, all persons
taking any subsequent charge thereon shall take the same subject to such prior
charge, and shall not be entitled, by notice to the members or otherwise, to
obtain priority over such prior charge.
PROCEEDINGS OF THE DIRECTORS
96. The Board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it considers appropriate. Questions arising at any
meeting shall be determined by a majority of votes. The meetings of the Board
of Directors of the Company shall be held outside the United States.
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97. A meeting of the Board may be convened by the Secretary on request of
a Director or by any Director. The Secretary shall convene a meeting of the
Board of which notice may be given in writing or by telephone or in such other
manner as the Board may from time to time determine whenever he shall be
required so to do by the President or Chairman, as the case may be, or any
Director. Any Director may waive notice of any meeting either prospectively or
retrospectively.
98. (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 (2). An alternate Director shall be counted in a quorum in the
case of the absence of a Director for whom he is the alternate provided that he
shall not be counted more than once for the purpose of determining whether or
not a quorum is present.
(2) Directors may participate in any meeting of the Board by means
of a conference telephone or other communications equipment through which all
persons participating in the meeting can communicate with each other
simultaneously and instantaneously and, for the purpose of counting a quorum,
such participation shall constitute presence at a Meeting as if those
participating were present in person.
(3) Any Director who ceases to be a Director at a Board meeting
may continue to be present and to act as a Director and be counted in the
quorum until the termination of such Board meeting if no other Director objects
and if otherwise a quorum of Directors would not be present.
99. The continuing Directors or a sole continuing Director may act
notwithstanding any vacancy in the Board but, if and so long as the number of
Directors is reduced below the minimum number fixed by or in accordance with
these Bye-laws, the continuing Directors or Director, notwithstanding that the
number of Directors is below the number fixed by or in accordance with these
Bye-laws as the quorum or that there is only one continuing Director, may act
for the purpose of filling vacancies in the Board or of summoning general
meetings of the Company but not for any other purpose.
100. The Board may elect a chairman and one or more deputy chairman of its
meetings and determine the period for which they are respectively to hold such
office. If no chairman or deputy chairman is elected, or if at any meeting
neither the chairman nor any deputy chairman is present within five (5) minutes
after the time appointed for holding the same, the Directors present may choose
one of their number to be chairman of the meeting.
101. 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.
102. (1) The Board may delegate any of its powers, authorities and
discretions to committees, consisting of such Director, officer, Directors or
officers as it thinks fit, and they may, from time to time, revoke such
delegation or revoke the appointment of and discharge any such committees
either wholly or in part, and either as to persons or purposes. Any committee
so formed shall, in the exercise of the powers, authorities and discretions so
delegated, conform to any regulations which may be imposed on it by the Board.
(2) All acts done by any such committee in conformity with such
regulations, and in fulfillment of the purposes for which it was appointed, but
not otherwise, shall have like force and
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effect as if done by the Board, and the Board shall have power, with the
consent of the Company in general meeting, to remunerate the members of any
such committee, and charge such remuneration to the current expenses of the
Company.
103. 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 under
the last preceding Bye-law.
104. A resolution in writing signed by all the Directors except such as are
temporarily unable to act through ill-health or disability, and all the
alternate Directors, if appropriate, whose appointors are temporarily unable to
act as aforesaid shall (provided that such number is sufficient to constitute a
quorum and further provided that a copy of such resolution has been given or
the contents thereof communicated to all the Directors for the time being
entitled to receive notices of Board meetings in the same manner as notices of
meetings are required to be given by these Bye-laws) be as valid and effectual
as if a resolution had been passed at a meeting of the Board duly convened and
held. Such resolution may be contained in one document or in several documents
in like form each signed by one or more of the Directors or alternate Directors
and for this purpose a facsimile signature of a Director or an alternate
Director shall be treated as valid.
105. All acts bona fide done by the Board or by any committee or by any
person acting as a Director or members of a committee, shall, notwithstanding
that it is afterwards discovered that there was some defect in the appointment
of any member or the Board or such committee or person acting as aforesaid or
that they or any of them were disqualified or had vacated office, be as valid
as if every such person had been duly appointed and was qualified and had
continued to be a Director or member of such committee.
MANAGERS
106. The Board may from time to time appoint a General Manager, a Manager
or Managers of the Company and may fix his or their remuneration either by way
of salary or commission or by conferring the right to participation in the
profits of the Company or by a combination of two or more of these modes and
pay the working expenses of any of the staff of the General Manager, Manager or
Managers who may be employed by him or them upon the business of the Company.
107. The appointment of such General Manager, Manager or Managers may be
for such period as the Board may decide, and the Board may confer upon him or
them all or any of the powers of the Board as they may think fit.
108. The Board may enter into such agreement or agreements with any such
General Manager, Manager or Managers upon such terms and conditions in all
respects as the Board may in their absolute discretion think fit, including a
power for such General Manager, Manager or Managers to appoint an Assistant
Manager or Managers or other employees whatsoever under them for the purpose of
carrying on the business of the Company.
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OFFICERS
109. (1) The officers of the Company shall consist of the president,
vice-president and Secretary and such additional officers (who may or may not
be Directors) as the Board may from time to time determine, all of whom shall
be deemed to be officers for the purposes of the Act and these Bye-laws.
(2) The Directors shall, as soon as may be after each appointment
or election of Directors, elect a president and a vice-president or a chairman
and a deputy chairman.
(3) The officers shall receive such remuneration as the Directors
may from time to time determine.
(4) The Company may in accordance with the Act appoint a resident
representative ordinarily resident in Bermuda and the resident representative
shall maintain an office in Bermuda and comply with the provisions of the Act.
The Company shall provide the resident representative with such documents and
information as the resident representative may require in order to be able to
comply with the provisions of the Act. The resident representative shall be
entitled to have notice of, attend and be heard at any Directors' meeting or
general meeting of the Company.
110. (1) The Secretary and additional officers, if any, shall be
appointed by the Board and shall hold office on such terms and for such period
as the Board may determine. If thought fit, two (2) or more persons may be
appointed as joint Secretaries. The Board may also appoint from time to time
on such terms as it thinks fit one or more assistant or deputy Secretaries.
(2) The Secretary shall attend all meetings of the Members and
shall keep correct minutes of such meetings and enter the same in the proper
books provided for the purpose. He shall perform such other duties as are
prescribed by the Act or these Bye-laws or as may be prescribed by the Board.
111. The President or the Chairman, as the case may be, shall act as
chairman at all meetings of the Members and of the Directors at which he is
present. In his absence a chairman shall be appointed or elected by those
present at the meeting.
112. The officers of the Company shall have such powers and perform such
duties in the management, business and affairs of the Company as may be
delegated to them by the Directors from time to time.
113. A provision of the Act or of 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
place of the Secretary.
REGISTER OF DIRECTORS AND OFFICERS
114. (1) The Board shall cause to be kept in one or more books at its
Office a Register of Directors and Officers and shall enter therein the
particulars required by the Act.
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(2) The Register of Directors and Officers shall be open to
inspection by members of the public without charge at the Office between 10:00
a.m. and 12:00 noon on every business day.
MINUTES
115. The Board shall cause Minutes to be duly entered in books provided for
the purpose:
(a) of all elections and appointments of officers;
(b) of the names of the Directors present at each meeting of the
Directors and of any committee of the Directors;
(c) of all resolutions and proceedings of each general meeting of
the Members, meetings of the Board and meetings of committees
of the Board.
SEAL
116. (1) The Company shall have one or more Seals, as the Board may
determine. For the purpose of sealing documents creating or evidencing
securities issued by the Company, the Company may have a securities seal which
is a facsimile of the Seal of the Company with the addition of the words
"Securities Seal" on its face or in such other form as the Board may approve.
The Board shall provide for the custody of each Seal and no Seal shall be used
without the authority of the Board or of a committee of the Board authorised by
the Board in that behalf. Subject as otherwise provided in these Bye-laws, any
instrument to which a Seal is affixed shall be signed autographically by one
Director and the Secretary or by two Directors or by such other person
(including a Director) or persons as the Board may appoint, either generally or
in any particular case, save that as regards any certificates for shares or
debentures or other securities of the Company the Board may by resolution
determine that such signatures or either of them shall be dispensed with or
affixed by some method or system of mechanical signature. Every instrument
executed in manner provided by this Bye-law shall be deemed to be sealed and
executed with the authority of the Board previously given.
(2) Where the Company has a Seal for use abroad, the Board may by
writing under the Seal appoint any agent or committee abroad to be the duly
authorised agent of the Company for the purpose of affixing and using such Seal
and the Board may impose restrictions on the use thereof as may be thought fit.
Wherever 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 such other Seal
as aforesaid.
117. Any Director or the Secretary or any person appointed by the Board for
the purpose may authenticate (by affixing the seal or otherwise) any documents
affecting the constitution of the Company and any resolution passed by the
Company or the Board or any committee, and any books, records, documents and
accounts relating to the business of the Company, and to certify copies thereof
or extracts therefrom as true copies or extracts, and if any books, records,
documents or accounts are elsewhere than at the Office, the local manager or
other officer of the Company having the custody thereof shall be deemed to be a
person so appointed by the Board. A document purporting to be a copy of a
resolution, or an extract from the minutes of a meeting, of the Company or of
the Board or any committee which is so certified shall be conclusive
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evidence in favour of all persons dealing with the Company upon the faith
thereof that such resolution has been duly passed or, as the case may be, that
such minutes or extract is a true and accurate record of proceedings at a duly
constituted meeting.
DESTRUCTION OF DOCUMENTS
118. The Company shall be entitled to destroy the following documents at
the following times:
(a) any share certificate which has been cancelled at any time
after the expiry of one (1) year from the date of such
cancellation;
(b) any dividend mandate or any variation or cancellation thereof
or any notification of change of name or address at any time
after the expiry of two (2) years from the date such mandate
variation cancellation or notification was recorded by the
Company;
(c) any instrument of transfer of shares which has been registered
at any time after the expiry of seven (7) years from the date
of registration;
(d) any allotment letters after the expiry of seven (7) years from
the date of issue thereof; and
(e) copies of powers of attorney, grants of probate and letters of
administration at any time after the expiry of seven (7) years
after the account to which the relevant power of attorney,
grant of probate or letters of administration related has been
closed;
and it shall conclusively be presumed in favour of the Company that every entry
in the Register purporting to be made on the basis of any such documents so
destroyed was duly and properly made and every share certificate so destroyed
was a valid certificate duly and properly cancelled and that every instrument
of transfer so destroyed was a valid and effective instrument duly and properly
registered and that every other document destroyed hereunder was a valid and
effective document in accordance with the recorded particulars thereof in the
books or records of the Company. Provided always that: (1) the foregoing
provisions of this Bye-law shall apply only to the destruction of a document in
good faith and without express notice to the Company that the preservation of
such document was relevant to a claim; (2) nothing contained in this Bye-law
shall be construed as imposing upon the Company any liability in respect of the
destruction of any such document earlier than as aforesaid or in any case where
the conditions of proviso (1) above are not fulfilled; and (3) references in
this Bye-law to the destruction of any document include references to its
disposal in any manner.
DIVIDENDS AND DISTRIBUTIONS
119. Subject to the Act, the Board may from time to time declare dividends
in any currency to be paid to the Members. The Board may also make a
distribution to the Members out of any contributed surplus (as ascertained in
accordance with the Act).
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120. No dividend shall be paid or distribution made out of contributed
surplus if to do so would render the Company unable to pay its liabilities as
they become due or the realisable value of its assets would thereby become less
than the aggregate of its liabilities and its issued share capital and share
premium accounts.
121. Except in so far as the rights attaching to, or the terms of issue of,
any share otherwise provide:
(a) all dividends shall be declared and paid according to the
amounts paid up on the shares in respect of which the dividend
is paid, but no amount paid up on a share in advance of calls
shall be treated for the purposes of this Bye-law as paid up
on the share; and
(b) all dividends shall 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 is
paid.
122. The Board may from time to time pay to the Members such interim
dividends as appear to the Board to be justified by the profits of the Company
and in particular (but without prejudice to the generality of the foregoing) if
at any time the share capital of the Company is divided into different classes,
the Board may pay such interim dividends in respect of those shares in the
capital of the Company which confer on the holders thereof deferred or
non-preferential rights as well as in respect of those shares which confer on
the holders thereof preferential rights with regard to dividend and provided
that the Board acts bona fide the Board shall not incur any responsibility to
the holders of shares conferring any preference for any damage that they may
suffer by reason of the payment of an interim dividend on any shares having
deferred or non-preferential rights and may also pay any fixed dividend which
is payable on any shares of the Company half-yearly or on any other dates,
whenever such profits, in the opinion of the Board, justifies such payment.
123. The Board may deduct from any dividend or other moneys payable to a
Member 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.
124. No dividend or other moneys payable by the Company on or in respect of
any share shall bear interest against the Company.
125. Any dividend, interest or 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 registered address 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 address as appearing in the Register or addressed to such person and 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 on 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 notwithstanding that it may subsequently appear that
the same has been stolen or that any endorsement thereon has been forged. Any
one of two or more joint holders may give effectual
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receipts for any dividends or other moneys payable or property distributable in
respect of the shares held by such joint holders.
126. All dividends or bonuses unclaimed for one (1) year after having been
declared may be invested or otherwise made use of by the Board for the benefit
of the Company until claimed. Any dividend or bonuses unclaimed after a period
of six (6) years from the date of declaration shall be forfeited and shall
revert to the Company. The payment by the Board of any unclaimed dividend or
other sums payable on or in respect of a share into a separate account shall
not constitute the Company a trustee in respect thereof.
127. Whenever the Board has resolved that a dividend be declared or paid,
the Board may further resolve that such dividend be satisfied wholly or in part
by the distribution of specific assets of any kind and in particular of paid up
shares, debentures or warrants to subscribe securities of the Company or any
other company, or in any one or more of such ways, and where any difficulty
arises in regard to the distribution the Board may settle the same as it thinks
expedient, and in particular may issue certificates in respect of fractions of
shares, disregard fractional entitlements or round the same up or down, and may
fix the value for distribution of such specific assets, or any part thereof,
and may determine that cash payments shall be made to any members upon the
footing of the value so fixed in order to adjust the rights of all parties, and
may vest any such specific assets in trustees as may seem expedient to the
Board and may appoint any person to sign any requisite instruments of transfer
and other documents on behalf of the persons entitled to the dividend, and such
appointment shall be effective and binding on the Members. The Board may
resolve that no such assets shall be made available to Members with registered
addresses in any particular territory or territories where, in the absence of a
registration statement or other special formalities, such distribution of
assets would or might, in the opinion of the Board, be unlawful or
impracticable and in such event the only entitlement of the Members aforesaid
shall be to receive cash payments as aforesaid. Members affected as a result
of the foregoing sentence shall not be or be deemed to be a separate class of
Members for any purpose whatsoever.
128. (1) Whenever the Board has resolved that a dividend be declared or
paid on any class of the share capital of the Company, the Board may further
resolve either:
(a) that such dividend be satisfied wholly or in part in the form
of an allotment of shares credited as fully paid up, provided
that the shareholders entitled thereto will be entitled to
elect to receive such dividend (or part thereof if the Board
so determines) in cash in lieu of such allotment. In such
case, the following provisions shall apply:
(i) the basis of any such allotment shall be determined
by the Board;
(ii) the Board, after determining the basis of allotment,
shall give not less than two (2) weeks' notice in
writing to the holders of the relevant shares of the
right of election accorded to them and shall send
with such notice forms of election and specify the
procedure to be followed and the place at which and
the latest date and time by which duly completed
forms of election must be lodged in order to be
effective;
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(iii) the right of election may be exercised in respect of
the whole or part of that portion of the dividend in
respect of which the right of election has been
accorded; and
(iv) the dividend (or that part of the dividend to be
satisfied by the allotment of shares as aforesaid)
shall not be payable in cash on shares in respect
whereof the cash election has not been duly exercised
("the non-elected shares") and in satisfaction
thereof shares of the relevant class shall be
allotted credited as fully paid up to the holders of
the non-elected shares on the basis of allotment
determined as aforesaid and for such purpose the
Board shall capitalise and apply out of any part of
the undivided profits of the Company (including
profits carried and standing to the credit of any
reserves or other special account other than the
Subscription Rights Reserve) as the Board may
determine, such sum as may be required to pay up in
full the appropriate number of shares of the relevant
class for allotment and distribution to and amongst
the holders of the non-elected shares on such basis;
or
(b) that the shareholders entitled to such dividend shall be
entitled to elect to receive an allotment of shares credited
as fully paid up in lieu of the whole or such part of the
dividend as the Board may think fit. In such case, the
following provisions shall apply:
(i) the basis of any such allotment shall be determined
by the Board;
(ii) the Board, after determining the basis of allotment,
shall give not less than two (2) weeks' notice in
writing to the holders of the relevant shares of the
right of election accorded to them and shall send
with such notice forms of election and specify the
procedure to be followed and the place at which and
the latest date and time by which duly completed
forms of election must be lodged in order to be
effective;
(iii) the right of election may be exercised in respect of
the whole or part of that portion of the dividend in
respect of which the right of election has been
accorded; and
(iv) the dividend (or that part of the dividend in respect
of which a right of election has been accorded) shall
not be payable in cash on shares in respect whereof
the share election has been duly exercised ("the
elected shares") and in lieu thereof shares of the
relevant class shall be allotted credited as fully
paid up to the holders of the elected shares on the
basis of allotment determined as aforesaid and for
such purpose the Board shall capitalise and apply out
of any part of the undivided profits of the Company
(including profits carried and standing to the credit
of any reserves or other special account other than
the Subscription Rights Reserve) as the Board may
determine, such sum as may be required to pay up in
full the appropriate number of shares of the relevant
class for allotment and distribution to and amongst
the holders of the elected shares on such basis.
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<PAGE> 46
(2) (a) The shares allotted pursuant to the provisions of
paragraph (1) of this Bye-law shall rank pari passu in all
respects with shares of the same class (if any) then in issue
save only as regards participation in the relevant dividend or
in any other distributions, bonuses or rights paid, made,
declared or announced prior to or contemporaneously with the
payment or declaration of the relevant dividend unless,
contemporaneously with the announcement by the Board of their
proposal to apply the provisions of sub-paragraph (a) or (b)
of paragraph (2) of this Bye-law in relation to the relevant
dividend or contemporaneously with their announcement of the
distribution, bonus or rights in question, the Board shall
specify that the shares to be allotted pursuant to the
provisions of paragraph (1) of this Bye-law shall rank for
participation in such distribution, bonus or rights.
(b) The Board may do all acts and things considered
necessary or expedient to give effect to any capitalisation
pursuant to the provisions of paragraph (1) of this Bye-law,
with full power to the Board to make such provisions as it
thinks fit in the case of shares becoming distributable in
fractions (including provisions whereby, in whole or in part,
fractional entitlements are aggregated and sold and the net
proceeds distributed to those entitled, or are disregarded or
rounded up or down or whereby the benefit of fractional
entitlements accrues to the Company rather than to the
members concerned). The Board may authorise any person to
enter into on behalf of all Members interested, an agreement
with the Company providing for such capitalisation and matters
incidental thereto and any agreement made pursuant to such
authority shall be effective and binding on all concerned.
(3) The Board may resolve in respect of any particular dividend of
the Company that notwithstanding the provisions of paragraph (1) of this
Bye-law such dividend may be satisfied wholly in the form of an allotment of
shares credited as fully paid up without offering any right to shareholders to
elect to receive such dividend in cash in lieu of such allotment.
(4) The Board may on any occasion determine that rights of
election and the allotment of shares under paragraph (1) of this Bye-law shall
not be made available or made to any shareholders with registered addresses in
any territory where, in the absence of a registration statement or other
special formalities, the circulation of an offer of such rights of election or
the allotment of shares would or might, in the opinion of the Board, be
unlawful or impracticable, and in such event the provisions aforesaid shall be
read and construed subject to such determination. Members affected as a result
of the foregoing sentence shall not be or be deemed to be a separate class of
Members for any purpose whatsoever.
(5) Any resolution declaring a dividend on shares of any class may
specify that the same shall be payable or distributable to the persons
registered as the holders of such shares at the close of business on a
particular date, notwithstanding that it may be a date prior to that on which
the resolution is passed, and thereupon the dividend shall be payable or
distributable to them in accordance with their respective holdings so
registered, but without prejudice to the rights inter se in respect of such
dividend of transferors and transferees of any such shares. The provisions of
this Bye-law shall mutatis mutandis apply to bonuses, capitalisation issues,
distributions of realised capital profits or offers or grants made by the
Company to the Members.
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<PAGE> 47
129. Before declaring any dividend, the Board may set aside out of the
profits of the Company such sums as it determines as reserves which shall, at
the discretion of the Board, be applicable for any purpose to which the profits
of the Company may be properly applied 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 and
so that it shall not be necessary to keep any investments constituting the
reserve or reserves separate or distinct from any other investments of the
Company. The Board may also without placing the same to reserve carry forward
any profits which it may think prudent not to distribute.
CAPITALISATION
130. The Board may resolve to capitalise any part of the amount for the
time being standing to the credit of any reserve account or to the credit of
the profit and loss account or otherwise available for distribution by applying
such sum in paying up (i) unissued shares, debentures or other obligations to
be allotted or distributed fully paid pro rata to the Members or any class of
Members or (ii) in full partly paid shares of those Members who would have been
entitled to such sums if they were distributed by way of dividend or
distribution. In addition, the Board may, subject to the Act, resolve to
capitalise any part of the amount for the time being standing to the credit of
the Company's share premium account by applying such sum in paying up unissued
shares to be issued to the Members, or class of Members, as fully paid bonus
shares.
131. The Board may settle, as it considers appropriate, any difficulty
arising in regard to any distribution under the last preceding Bye-law and in
particular may issue certificates in respect of fractions of shares or
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 shall be made to any Members 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 Members.
SUBSCRIPTION RIGHTS RESERVE
132. The following provisions shall have effect to the extent that they are
not prohibited by and are in compliance with the Act:
(1) If, so long as any of the rights attached to any warrants
issued by the Company to subscribe for shares of the Company shall remain
exercisable, the Company does any act or engages in any transaction which, as a
result of any adjustments to the subscription price in accordance with the
provisions of the conditions of the warrants, would reduce the subscription
price to below the par value of a share, then the following provisions shall
apply:
(a) as from the date of such act or transaction the Company shall
establish and thereafter (subject as provided in this Bye-law)
maintain in accordance with the provisions of this Bye-law a
reserve (the "Subscription Rights Reserve") the amount of
which shall at no time be less than the sum which for the time
being would be required to be capitalised and applied in
paying up in full the nominal amount of the additional shares
required to be issued and allotted credited as fully
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<PAGE> 48
paid pursuant to sub-paragraph (c) below on the exercise in
full of all the subscription rights outstanding and shall
apply the Subscription Rights Reserve in paying up such
additional shares in full as and when the same are allotted;
(b) the Subscription Rights Reserve shall not be used for any
purpose other than that specified above unless all other
reserves of the Company (other than share premium account)
have been extinguished and will then only be used to make good
losses of the Company if and so far as is required by law;
(c) upon the exercise of all or any of the subscription rights
represented by any warrant, the relevant subscription rights
shall be exercisable in respect of a nominal amount of shares
equal to the amount in cash which the holder of such warrant
is required to pay on exercise of the subscription rights
represented thereby (or, as the case may be the relevant
portion thereof in the event of a partial exercise of the
subscription rights) and, in addition, there shall be allotted
in respect of such subscription rights to the exercising
warrantholder, credited as fully paid, such additional nominal
amount of shares as is equal to the difference between:
(i) the said amount in cash which the holder of such
warrant is required to pay on exercise of the
subscription rights represented thereby (or, as the
case may be, the relevant portion thereof in the
event of a partial exercise of the subscription
rights); and
(ii) the nominal amount of shares in respect of which such
subscription rights would have been exercisable
having regard to the provisions of the conditions of
the warrants, had it been possible for such
subscription rights to represent the right to
subscribe for shares at less than par
and immediately upon such exercise so much of the sum standing
to the credit of the Subscription Rights Reserve as is
required to pay up in full such additional nominal amount of
shares shall be capitalised and applied in paying up in full
such additional nominal amount of shares which shall forthwith
be allotted credited as fully paid to the exercising
warrantholders; and
(d) if, upon the exercise of the subscription rights represented
by any warrant, the amount standing to the credit of the
Subscription Rights Reserve is not sufficient to pay up in
full such additional nominal amount of shares equal to such
difference as aforesaid to which the exercising warrantholder
is entitled, the Board shall apply any profits or reserves
then or thereafter becoming available (including, to the
extent permitted by law, share premium account) for such
purpose until such additional nominal amount of shares is paid
up and allotted as aforesaid and until then no dividend or
other distribution shall be paid or made on the fully paid
shares of the Company then in issue. Pending such payment and
allotment, the exercising warrantholder shall be issued by the
Company with a certificate evidencing his right to the
allotment of such additional nominal amount of shares. The
rights represented by any such certificate shall be in
registered form and shall be transferable in whole or in part
in units of one share in the like manner as the
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<PAGE> 49
shares for the time being are transferable, and the Company
shall make such arrangements in relation to the maintenance of
a register therefor and other matters in relation thereto as
the Board may think fit and adequate particulars thereof shall
be made known to each relevant exercising warrantholder upon
the issue of such certificate.
(2) Shares allotted pursuant to the provisions of this Bye-law
shall rank pari passu in all respects with the other shares allotted on the
relevant exercise of the subscription rights represented by the warrant
concerned. Notwithstanding anything contained in paragraph (1) of this
Bye-law, no fraction of any share shall be allotted on exercise of the
subscription rights.
(3) The provision of this Bye-law as to the establishment and
maintenance of the Subscription Rights Reserve shall not be altered or added to
in any way which would vary or abrogate, or which would have the effect of
varying or abrogating the provisions for the benefit of any warrantholder or
class of warrantholders under this Bye-law without the sanction of a special
resolution of such warrantholders or class of warrantholders.
(4) A certificate or report by the auditors for the time being of
the Company as to whether or not the Subscription Rights Reserve is required to
be established and maintained and if so the amount thereof so required to be
established and maintained, as to the purposes for which the Subscription
Rights Reserve has been used, as to the extent to which it has been used to
make good losses of the Company, as to the additional nominal amount of shares
required to be allotted to exercising warrantholders credited as fully paid,
and as to any other matter concerning the Subscription Rights Reserve shall (in
the absence of manifest error) be conclusive and binding upon the Company and
all warrantholders and shareholders.
ACCOUNTING RECORDS
133. The Board shall cause true accounts to be kept of the sums of money
received and expended by the Company, and the matters in respect of which such
receipt and expenditure take place, and of the property, assets, credits and
liabilities of the Company and of all other matters required by the Act or
necessary to give a true and fair view of the Company's affairs and to explain
its transactions.
134. The accounting records shall be kept at the Office or, subject to the
Act, at such other place or places as the Board decides and shall always be
open to inspection by the Directors of the Company. No Member (other than a
Director of the Company) shall have any right of inspecting any accounting
record or book or document of the Company except as conferred by law or
authorised by the Board or the Company in general meeting.
135. Subject to the Act, a printed copy of the balance sheet and profit and
loss account, including every document required by law to be annexed thereto,
made up to the end of the applicable financial year and containing a summary of
the assets and liabilities of the Company under convenient heads and a
statement of income and expenditure, together with a copy of the Auditors'
report, shall be sent to each person entitled thereto at least twenty-one (21)
days before the date of the general meeting and laid before the Company in
general meeting in accordance with the requirements of the Act provided that
this Bye-law shall not require a copy of those
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<PAGE> 50
documents to be sent to any person whose address the Company is not aware or to
more than one of the joint holders of any shares or debentures.
AUDIT
136. (1) Subject to the Act, at the annual general meeting or at a
subsequent special general meeting in each year, the Members shall appoint an
auditor to audit the accounts of the Company and such auditor shall hold office
until the Members appoint another auditor. Such auditor may be a Member but no
Director or officer or employee of the Company shall, during his continuance in
office, be eligible to act as an auditor of the Company.
(2) Subject to the Act, a person, other than a retiring Auditor,
shall not be capable of being appointed Auditor at an annual general meeting
unless notice in writing of an intention to nominate that person to the office
of Auditor has been given not less than fourteen (14) days before the annual
general meeting and furthermore, the Company shall send a copy of any such
notice to the retiring Auditor.
(3) The Members may, at any general meeting convened and held in
accordance with these Bye-laws, by special resolution remove the Auditor at any
time before the expiration of his term of office and shall by ordinary
resolution at that meeting appoint another Auditor in his stead for the
remainder of his term.
137. Subject to the Act, the accounts of the Company shall be audited at
least once in every year.
138. The remuneration of the Auditor shall be fixed by the Company in
general meeting or in such manner as the Members may determine.
139. If the office of auditor becomes vacant by the resignation or death of
the Auditor, or by his becoming incapable of acting by reason of illness or
other disability at a time when his services are required, the Directors shall
as soon as practicable convene a special general meeting to fill the vacancy.
140. The Auditor shall at all reasonable times have access to all books
kept by the Company and to all accounts and vouchers relating thereto; and he
may call on the Directors or officers of the Company for any information in
their possession relating to the books or affairs of the Company.
141. The statement of income and expenditure and the balance sheet provided
for by these Bye-Laws shall be examined by the Auditor and compared by him with
the books, accounts and vouchers relating thereto; and he shall make a written
report thereon stating whether such statement and balance sheet are drawn up so
as to present fairly the financial position of the Company and the results of
its operations for the period under review and, in case information shall have
been called for from Directors or officers of the Company, whether the same has
been furnished and has been satisfactory. The financial statements of the
Company shall be audited by the Auditor in accordance with generally accepted
auditing standards. The Auditor shall make a written report thereon in
accordance with generally accepted auditing standards and the report of the
Auditor shall be submitted to the Members in general meeting. The generally
accepted
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<PAGE> 51
auditing standards referred to herein may be those of a country or jurisdiction
other than Bermuda. If so, the financial statements and the report of the
Auditor should disclose this fact and name such country or jurisdiction.
NOTICES
142. Any Notice from the Company to a Member shall be given in writing or
by cable, telex or facsimile transmission message and any such Notice and
(where appropriate) any other document may be served or delivered by the
Company on or to any Member either personally or by sending it through the post
in a prepaid envelope addressed to such Member at his registered address as
appearing in the Register or at any other address supplied by him to the
Company for the purpose or, as the case may be, by transmitting it to any such
address or transmitting it to any telex or facsimile transmission number
supplied by him to the Company for the giving of Notice to him or which the
person transmitting the notice reasonably and bona fide believes at the
relevant time will result in the Notice being duly received by the Member or
may also be served by advertisement in appointed newspapers (as defined in the
Act) or in accordance with the requirements of any Designated Stock Exchange.
In the case of joint holders of a share all notices shall be given to that one
of the joint holders whose name stands first in the Register and notice so
given shall be deemed a sufficient service on or delivery to all the joint
holders.
143. Any Notice or other document:
(a) if served or delivered by post, shall be sent airmail where
appropriate and shall be deemed to have been served or
delivered on the day following that on which the envelope
containing the same, properly prepaid and addressed, is put
into the post; in proving such service or delivery it shall be
sufficient to prove that the envelope or wrapper containing
the notice or document was properly addressed and put into the
post and a certificate in writing signed by the Secretary or
other officer of the Company or other person appointed by the
Board that the envelope or wrapper containing the notice or
other document was so addressed and put into the post shall be
conclusive evidence thereof; and
(b) if served or delivered in any other manner contemplated by
these Bye-laws, shall be deemed to have been served or
delivered at the time of personal service or delivery or, as
the case may be, at the time of the relevant despatch or
transmission; and in proving such service or delivery a
certificate in writing signed by the Secretary or other
officer of the Company or other person appointed by the Board
as to the fact and time of such service, delivery, despatch or
transmission shall be conclusive evidence thereof.
144. (1) Any Notice or other document delivered or sent by post to or
left at the registered address of any Member in pursuance of these Bye-laws
shall, notwithstanding that such Member 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 Member 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
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<PAGE> 52
purposes be deemed a 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.
(2) A notice may be given by the Company to the person entitled to
a share in consequence of the death, mental disorder or bankruptcy of a Member
by sending it through the post in a prepaid letter, envelope or wrapper
addressed to him by name, or by the title of representative of the deceased, or
trustee of the bankrupt, or by any like description, at the address, if any,
supplied for the purpose by the person claiming to be so entitled, or (until
such an address has been so supplied) by giving the notice in any manner in
which the same might have been given if the death, mental disorder or
bankruptcy had not occurred.
(3) Any person who by operation of law, transfer or other means
whatsoever shall become entitled to any share shall be bound by every notice in
respect of such share which prior to his name and address being entered on the
Register shall have been duly given to the person from whom he derives his
title to such share.
145. For the purposes of these Bye-laws, a cable or telex or facsimile
transmission message purporting to come from a holder of shares or, as the case
may be, a Director or alternate Director, or, in the case of a corporation
which is a holder of shares from a director or the secretary thereof or a duly
appointed attorney or duly authorised representative thereof for it and on its
behalf, shall in the absence of express evidence to the contrary available to
the person relying thereon at the relevant time be deemed to be a document or
instrument in writing signed by such holder or Director or alternate Director
in the terms in which it is received.
WINDING UP
146. (1) The Board shall have power in the name and on behalf of the
Company to present a petition to the court for the Company to be wound up.
(2) A resolution that the Company be wound up by the court or be
wound up voluntarily shall be a special resolution.
147. If the Company shall be wound up (whether the liquidation is voluntary
or by the court) the liquidator may, with the authority of a special resolution
and any other sanction required by the Act, divide among the Members in specie
or kind the whole or any part of the assets of the Company and whether or not
the assets shall consist of properties of one kind or shall consist of
properties to be divided as aforesaid of different kinds, and may for such
purpose set such value as he deems fair upon any one or more class or classes
of property and may determine how such division shall be carried out as between
the Members or different classes of Members. The liquidator may, with the like
authority, vest any part of the assets in trustees upon such trusts for the
benefit of the Members as the liquidator with the like authority shall think
fit, and the liquidation of the Company may be closed and the Company
dissolved, but so that no contributory shall be compelled to accept any shares
or other property in respect of which there is a liability.
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<PAGE> 53
INDEMNITY
148. (1) The Directors, Secretary and other Officers (such term to
include, for the purposes of this Bye-law, any person appointed to any
committee by the Board) for the time being acting in relation to any of the
affairs of the Company and the liquidator or trustees (if any) for the time
being acting in relation to any of the affairs of the Company and every one of
them, and their heirs, executors and administrators, shall be indemnified and
secured harmless out of the assets of the Company from and against all actions,
costs, charges, losses, damages and expenses which they or any of them, their
heirs, executors or administrators, shall or may incur or sustain by or by
reason of any act done, concurred in or omitted in or about the execution of
their duty, or supposed duty, or in their respective offices or trusts, and
none of them shall be answerable for the acts, receipts, neglects or defaults
of the others of them or for joining in any receipts for the sake of
conformity, or for any bankers or other persons with whom any moneys or effects
belonging to the Company shall or may be lodged or deposited for safe custody,
or for insufficiency or deficiency of any security upon which any moneys of or
belonging to the Company shall be placed out on or invested, or for any other
loss, misfortune or damage which may happen in the execution of their
respective offices or trusts, or in relation thereto, provided that this
indemnity shall not extend to any matter in respect of any fraud or dishonesty
which may attach to any of said persons.
(2) Each Member and the Company agree to waive any claim or right
of action he or it might have, whether individually or by or in the right of
the Company, against any Director on account of any action taken by such
Director, or the failure of such Director to take any action, in the
performance of his duties, or supposed duties, with or for the Company;
provided that such waiver shall not extend to any matter in respect of any
fraud or dishonesty which may attach to such Director. Any repeal or
modification of this Bye-law 148(2) shall not adversely affect any right or
protection of a Director of the Company existing immediately prior to such
repeal or modification.
(3) Expenses incurred in defending a civil or criminal action,
suit or proceeding shall be paid by the Company in advance of the final
disposition of such action, suit or proceeding as authorised by the Board in
the specific case upon receipt of an undertaking by or on behalf of the
Director, Secretary, officer, liquidator or trustee to repay such amount unless
it shall ultimately be determined that he is entitled to be indemnified by the
Company as authorised in these Bye-Laws or otherwise pursuant to the laws of
Bermuda.
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<PAGE> 54
ALTERATION OF BYE-LAWS & AMENDMENT TO MEMORANDUM OF
ASSOCIATION
149. Any amendment to these Bye-Laws or to the Company's Memorandum of
Association shall be decided on by an ordinary resolution; provided however,
that any proposed amendment to Bye-Laws 3, 4, 5, 6, 37, 40, 50, 70, 148 and 149
shall be decided on by a special resolution.
*****
***
*
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<PAGE> 1
EXHIBIT 4.1
COMMON SHARES COMMON SHARES
NUMBER DELPHI INTERNATIONAL LTD. SHARES
DI Par value of US $0.01 per share
SEE REVERSE FOR A SUMMARY OF CERTAIN INCORPORATED IN THE ISLANDS OF BERMUDA
LIMITATIONS AND OTHER VOTING RIGHTS UNDER THE COMPANIES ACT, 1991
SEE REVERSE FOR CERTAIN ABBREVIATIONS
THIS IS TO CERTIFY THAT CUSIP G2706W 10 5
Is the registered holder of
FULLY PAID AND NON-ASSESSABLE COMMON SHARES OF PAR VALUE OF US$0.01 PER SHARE OF
DELPHI INTERNATIONAL LTD.
CERTIFICATE OF STOCK
transferrable on the books of the Company by the holder hereof in person or by
duly authorized attorney upon surrender of this certificate properly endorsed.
This certificate and the shares represented hereby are issued and shall be held
subject to all of the provisions of the Memorandum of Association and Bye-Laws
of the Company and all amendments thereof to all of which the holder by
acceptance hereof assents and shall be transferable in accordance therewith.
WITNESS the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated
/s/ /s/
------------------------------------- --------------------------------
President and Chief Executive Officer Secretary
[SEAL]
DELPHI INTERNATIONAL, LTD
BERMUDA
1997
COUNTERSIGNED AND REGISTERED:
BankBoston, N.A.
TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE> 2
THE AMENDED AND RESTATED BYE-LAWS ("THE BYE-LAWS") OF DELPHI INTERNATIONAL LTD.
CONTAIN CERTAIN PROVISIONS THAT LIMIT THE VOTING RIGHTS THAT MAY, AMONG OTHER
THINGS, BE EXERCISED BY CERTAIN HOLDERS OF COMMON SHARES IN CERTAIN
CIRCUMSTANCES, THE BYE-LAWS PROVIDE THAT, SO LONG AS THE CONTROLLED SHARES (AS
SUCH TERM IS DEFINED IN THE BYE-LAWS) OF ANY PERSON CONSTITUTE 9.5% OR MORE OF
THE ISSUED AND OUTSTANDING COMMON SHARES, THE VOTING RIGHTS WITH RESPECT TO THE
CONTROLLED SHARES OWNED BY SUCH PERSON SHALL BE LIMITED, IN THE AGGREGATE, TO A
VOTING POWER OF 9.5%. PURSUANT TO A FORMULA SPECIFIED IN THE BYE-LAWS (THE
"VOTING LIMITATION").
SUBJECT TO THE VOTING LIMITATION SET FORTH ABOVE, EACH COMMON SHARE WILL ENTITLE
THE HOLDER THEREOF TO ONE VOTE PER SHARE ON ALL MATTERS REQUIRED TO BE
SUBMITTED TO A VOTE OF THE SHAREHOLDERS OF ORACLE REINSURANCE COMPANY LTD., A
BERMUDA COMPANY AND A WHOLLY OWNED SUBSIDIARY OF DELPHI INTERNATIONAL LTD.
DELPHI INTERNATIONAL LTD. WILL FURNISH WITHOUT CHARGE TO EACH SHAREHOLDER WHO
SO REQUESTS A COPY OF THE BYE LAWS OF THE COMPANY WHICH SETS OUT THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF SHARES OR SERIES THEREOF OF DELPHI INTERNATIONAL LTD.,
AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF DELPHI INTERNATIONAL LTD.
AT ITS PRINCIPAL PLACE OF BUSINESS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -
--------------------- Custodian ---------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
------------------------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED
-------------------------------------------------------
(fill in amount for purposes of stamp duty)
- --------------------------------------------------------------------------
(name in full of Transferor)
hereby sell, assign and transfer unto
------------------------------------
(name in full of Transferee)
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
(address)
- ---------------------------------------------- shares of the capital stock
represented by the within Certificate.
Dated
------------------------- ---------------------
In the presence of:
- ----------------------------------- ------------------------------------
(Transferor)
- -----------------------------------
(2 witnesses sign here)
In the presence of:
- ----------------------------------- ------------------------------------
(Transferor)
- -----------------------------------
(2 witnesses sign here)
Signature(s) Guaranteed:
- ----------------------------------
The signature(s) should be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 1
EXHIBIT 4.2
NON-TRANSFERABLE
RIGHT TO PURCHASE COMMON SHARES OF
DELPHI INTERNATIONAL LTD.
INCORPORATED UNDER THE LAWS OF BERMUDA
THIS RIGHT EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ON ,1997
NO. DIR ____________________
NUMBER OF RIGHTS
CUSIP G2706W11 3
This Rights Certificate certifies that
is the owner of the number of Rights indicted above, one Right for every
ten shares of Class A Common Stock, par value $0.01 per share ("Delphi Class A
Common Stock"), of Delphi Financial Group, Inc., a Delaware corporation
("Delphi") Class B Common Stock, par value $0.01 per share, of Delphi ("Delphi
Class B Common Stock" and, together with the Delphi Class A Common Stock, the
"Delphi Common Stock"), and options to purchase Delphi Common Stock owned, on an
aggregate basis, on the record date of ,1997, each of which Right
entitles the owner thereof to purchase one fully paid and nonassessable Common
Share, par value $0.01 per Common Share ("Common Shares") of Delphi
International Ltd., a Bermuda corporation (the "Company"), expiring at 5:00 P.M.
New York City Time, on ,1997, unless extended by the Company (the
"Expiration Date"), upon payment of $10.00 per Common Share (the "Exercise
Price"). The Exercise Price is payable, upon the exercise of these Rights,
either in cash or by check or money order to the order of State Street Bank &
Trust Company.
Upon the exercise of these Rights, the form of election to purchase on
the reverse side hereof must be properly completed and executed and this Rights
Certificate must be surrendered, along with the Exercise Price as provided
above, to BankBoston, N.A. (the "Rights Agent"), prior to the Expiration Date.
In the event these Rights are exercised in respect of fewer than all of the
shares purchasable hereunder, a new Rights Certificate for the remaining number
of such Rights will be issued on such surrender if the Rights Agent is requested
to do so as provided on the reverse side hereof and to the extent the Rights
Agent is able to do so prior to the Expiration Date. This Rights Certificate is
issued under, and the Rights represented hereby are subject to the terms and
provisions contained in a Prospectus dated as of , 1997, included in
the Registration Statement filed by the Company under the Securities Act of
1933, as amended. Reference is hereby made to such Prospectus for a more
complete statement of the rights and limitations or rights of the registered
holder thereof and for information concerning the Company.
The holder of these Rights shall not be entitled to any of the rights of
a shareholder of the Company prior to the issuance of Certificates representing
Common Shares of the Company purchased upon exercise of these Rights. This
Rights Certificate shall not be valid unless countersigned by the Rights Agent.
IN WITNESS WHEREOF, the Company has caused the facsimile signature of
its President and its Secretary to be printed hereon.
DATED: DELPHI INTERNATIONAL LTD.
[SEAL OF DEPHI INTERNATIONAL LTD.]
Countersigned:
BankBoston, N.A.
Rights Agent
By:
Authorized Signature
/s/
President and Chief Executive Officer
/s/
Secretary
<PAGE> 2
Please mail, deliver or transmit cash, check or money order payable to State
Street Bank & Trust Company for $10.00 for each Right exercised to the following
as appropriate.
BY MAIL: BY HAND:
BankBoston, N.A. BankBoston, N.A.
70 Campanelli Drive 70 Campanelli Drive
Braintree, Massachusetts 02814 Braintree, Massachusetts 02814
- --------------------------------------------------------------------------------
ELECTION TO PURCHASE
Delphi International Ltd. c/o BankBoston, N.A. (RIGHTS AGENT)
The undersigned irrevocably elects to exercise the right of purchase
represented by this Rights Certificate to purchase hereunder ___________
Common Shares of Delphi International Ltd. and tenders herewith payment of the
Exercise Price in full and requests that certificates for such shares be issued
in the name set forth on the face hereof.
- ------------------------------
Please Insert Social Security
Or other identifying number
and be delivered to
-------------------------------------------------------------
Name
- --------------------------------------------------------------------------------
Street Address City State Zip Code
---------------
If such number of Common Shares shall not be all the Common Shares
purchasable hereunder, then a new Rights Certificate for the balance remaining
of the Common Shares purchasable hereunder shall be registered in the name of
and delivered to the party named on the reverse hereof at the address stated
above. (Note: A new Rights Certificate representing the balance of the
unsubscribed Rights will be issued to the holders of such Rights to the extent
the Rights Agent is able to reissue a Rights Certificate prior to the
Expiration Date.)
- --------------------------------------------------------------------------------
Daytime Tel. No. of Rights Holder: ELECTION TO PURCHASE
------------
Dated: , 1997 IF JOINTLY OWNED, BOTH MUST SIGN
------------------
SIGNATURE(S)
----------------------------
----------------------------------------
NOTE: The above signature(s) must
correspond with the name as written upon
the face of this Rights Certificate in
every particular without alteration.
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF CONYERS DILL & PEARMAN]
October 31, 1997
Delphi International Ltd.
Chevron House
Church Street
Hamilton
Bermuda
Dear Sirs:
We have acted as Bermuda counsel for Delphi International Ltd. (the "Company"),
a Bermuda exempted company, in connection with the proposed issue and sale of
common shares of the Company.
In our capacity as Bermuda counsel to the Company, we participated in the
preparation of the registration statement ("Registration Statement") on Form S-1
registration no. 333-34829 which was filed with the Securities and Exchange
Commission ("Commission") under the Securities Act of 1933, as amended ("Act"),
of the United States of America together with all exhibits to the Registration
Statement and the forms of prospectus (the "Prospectus") also filed with the
Commission together with all amendments thereto filed in accordance with the
Act.
For the purposes of giving this opinion, we have examined and relied upon the
Registration Statement. We have also reviewed a copy of the memorandum of
association and bye-laws of the Company certified as a true copy thereof by the
secretary of the Company, minutes of meetings of the Company's board of
directors and minutes of shareholders' meetings and such other documents and
have made such enquiries as to questions of law as we have deemed necessary in
order to render the opinion set forth below.
<PAGE> 2
-2-
We have assumed:
(i) the genuineness and authenticity of all signatures and the conformity to
the originals of all copies (whether or not certified) of all documents
examined by us and the authenticity and completeness of the originals
from which such copies were taken;
(ii) the correctness, accuracy and completeness of all factual representations
made in the Registration Statement and in the other documents which we
have reviewed; and
(iii) that there is no provision of the law of any jurisdiction, other than
Bermuda, which would have any implication in relation to the opinions
expressed herein.
We have made no investigation and express no opinion in relation to the laws of
any jurisdiction other than Bermuda. This opinion is to be governed by and
construed in accordance with the laws or Bermuda and is limited to and is given
on the basis of the current law and practice in Bermuda.
The term "non assessability" is not a legal concept under Bermuda law, but when
we describe shares as being "non assessable" (see paragraph 2 below) we mean
with respect to the shareholders of a company, in relation to fully paid shares
of the Company and subject to any contrary provision in any agreement in
writing between the Company and any one of its shareholders holding such shares
but only with respect to such shareholder, that such shareholder shall not be
bound by an alteration to the memorandum of association or the bye-laws of that
company after the date upon which they became such shareholders, if and insofar
as the alteration requires them to take, or subscribe for additional shares, or
in any way increases their liability to contribute to the share capital of, or
otherwise pay money to, such company.
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is an existing limited
liability exempted company under the laws of Bermuda, with corporate
power and corporate authority to own, lease and operate its properties
and conduct its business as described in the Prospectus.
2. The Common Shares to be sold by the Company have been duly authorised
and, when duly paid for, will be legally issued, fully paid and non-
assessable; such Common Shares are not subject to the pre-emptive rights
of any shareholder of the Company; all corporate action required to be
taken for the authorisation, issue and the sale of the Common Shares has
been validly taken and, when such Common Shares have been duly paid for,
no personal liability will attach to a holder thereof solely by reason of
the ownership thereof.
3. The statements in the Registration Statement and Prospectus under the
caption "Regulation - Bermuda", "The Bye-Laws", "Differences in
Corporate Law", "Certain Tax Considerations - Taxation of the Company
and Oracle Re - Bermuda", "Certain Tax Considerations - Taxation
<PAGE> 3
-3-
of Shareholders - Bermuda" and "Certain Bermuda Law Considerations" have
been prepared and reviewed by us and are correct in all material
respects.
Yours faithfully
CONYERS DILL & PEARMAN
<PAGE> 1
EXHIBIT 8.1
[Baker & McKenzie Letterhead]
October 31, 1997
Delphi International Ltd.
Chevron House
Church Street
Hamilton, Bermuda
Ladies and Gentlemen:
We are delivering this opinion in connection with the Registration
Statement on Form S-1 (the "Registration Statement") (Registration No.
333-34829) filed by Delphi International Ltd. (the "Company") with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended, with respect to the offering of Rights to acquire up to 2,200,000 of
the Company's Common Shares, $.01 par value per share (the "Common Shares").
We have reviewed the Registration Statement and have considered such
aspects of United States law as we have deemed relevant for purposes of the
opinion set forth below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity to authentic originals of all documents submitted
to us as copies.
Based upon and subject to the foregoing and to the conditions and
limitations contained in the discussion in the Registration Statement, we are
of the opinion that the discussion in the Registration Statement under the
headings "Risk Factors-Tax Matters," "The Rights Offering-Federal Income Tax
Consequences" and "Certain Tax Considerations," except for those sections
dealing with Bermuda tax considerations, addresses all material U.S. Federal
income tax considerations affecting the Company, Oracle Reinsurance Company
Ltd., a Bermuda company, and holders of Common Shares (other than those tax
considerations that depend on circumstances specific to such holders) and the
statements of law contained therein are accurate in all material respects, and
such discussion reflects our opinion with respect to the matters of law
referred to therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above.
Very truly yours,
Baker & McKenzie
<PAGE> 1
EXHIBIT 8.3
Registration No. EC 23791
[INSIGNIA]
BERMUDA
TAX ASSURANCE
WHEREAS the Minister of Finance ("the Minister"), pursuant to section 2 of the
Exempted Undertakings Tax Protection Act 1966, is authorised to enter into an
arrangement with any exempted undertaking upon application.
WHEREAS such undertakings may be given an assurance 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, then the imposition of any tax
described herein shall not be applicable to such undertakings or to any of its
operations or the shares, debentures or other obligations of the said
undertakings.
THEREFORE the Minister, upon application, hereby grants the aforementioned
assurance to:
Delphi International Ltd.
("the Undertaking")
PROVIDED THAT this assurance shall not be construed so as to:
(i) prevent the application of any such tax or duty to such persons as are
ordinarily resident in these Islands; and
(ii) prevent the application of any tax payable in accordance with the
provisions of the Land Tax Act 1967 or otherwise payable in relation to
the land leased to the Undertaking.
THIS TAX ASSURANCE shall be in effect until the 28th day of March, 2016.
Given under my hand this
15th day of September, 1997.
/s/ Jeremy Cox
Jeremy Cox
Acting Registrar of Companies
for MINISTER OF FINANCE
<PAGE> 1
EXHIBIT 8.4
Registration No. EC/23826
[INSIGNIA]
BERMUDA
TAX ASSURANCE
WHEREAS the Minister of Finance ("the Minister"), pursuant to section 2 of the
Exempted Undertakings Tax Protection Act 1966, is authorised to enter into an
arrangement with any exempted undertaking upon application.
WHEREAS such undertakings may be given an assurance 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, then the imposition of any tax
described herein shall not be applicable to such undertakings or to any of its
operations or the shares, debentures or other obligations of the said
undertakings.
THEREFORE the Minister, upon application, hereby grants the aforementioned
assurance to:
ORACLE REINSURANCE COMPANY LTD.
("the Undertaking")
PROVIDED THAT this assurance shall not be construed so as to:
(i) prevent the application of any such tax or duty to such persons as are
ordinarily resident in these Islands; and
(ii) prevent the application of any tax payable in accordance with the
provisions of the Land Tax Act 1967 or otherwise payable in relation to the
land leased to the Undertaking.
THIS TAX ASSURANCE shall be in effect until the 28th day of March, 2016.
Given under my hand this
17th day of October, 1997.
/s/ Kymn Astwood
Mr. Kymn Astwood
Registrar of Companies
for MINISTER OF FINANCE
<PAGE> 1
EXHIBIT 8.5
[LETTERHEAD OF REGISTRAR OF COMPANIES]
RC/EC/INS/23826 17th October, 1997
CONYERS, DILL & PEARMAN
P.O. Box HM 666
Hamilton HM CX
Attn: David Doyle
Dear Sirs:
RE: ORACLE REINSURANCE COMPANY LTD.
We refer to your letter dated 2nd October, 1997, in which you requested
clarification as to whether the proposed "investments made in securities of
investment entities" may be accepted as "Relevant Assets" in accordance with
Regulation 11 of the Insurance Returns and Solvency Regulations 1980.
Your request was made on the grounds than the underlying assets to be held
by these entities would be marketable securities and other liquid assets.
Clearly, it would appear that the underlying investments as described in your
correspondence would, if held directly by the company, satisfy the definition
of "Quoted Investments". The Insurance Accounts Regulations 1980 ("the 1980
Regulations") define "quoted" as follows:
"quoted" means an investment as respects which there has been granted a
quotation or permission to deal on a stock exchange in Bermuda recognized
by the Minister for the purposes of the Act or on any stock exchange or
over-the-counter-market of repute outside Bermuda.
It would therefore appear that there is sufficient evidence to support a
recommendation to the Minister of Finance that these "investment entities" be
treated as "Relevant Assets", on the basis that their underlying financial
strength is sustained by assets that are considered "quoted investments" under
the 1980 Regulations. However, it should be noted that until the company is
registered and an application is made to this Department, no recommendation can
be made to Minister of Finance and the approval process can not be initiated.
This letter can in no way be construed as pre-empting a decision which rests
with the Minister of Finance.
Should you have any further questions, please feel free to contact us.
Yours faithfully,
/s/ KYMN ASTWOOD
Mr. Kymn Astwood
REGISTRAR OF COMPANIES
<PAGE> 1
EXHIBIT 10.1
NOTE AGREEMENT
This Note Agreement dated as of , 1997 (the "Agreement"), is
entered into by and between Delphi International Ltd., a Bermuda corporation
(the "Company"), and Delphi Financial Group, Inc., a Delaware corporation
("Delphi"), Reliance Standard Life Insurance Company, an Illinois corporation
("RSL") and Safety National Casualty Corporation, a Missouri corporation
("Safety National") (Delphi, RSL and Safety National are referred to
collectively as the "Purchasers").
W I T N E S S E T H
WHEREAS, the Company proposes to grant to the holders of the outstanding
Class A Common Stock, par value $.01 per share of Delphi (the "Delphi Class A
Common Stock"), to the holders of the outstanding Class B Common Stock of Delphi
(the "Delphi Class B Common Stock" and, together with the Delphi Class A Common
Stock, the "Delphi Common Stock"), and to the holders of options to purchase
Delphi Common Stock, non-transferable rights (collectively, the "Rights") to
purchase Common Shares, par value $.01 per share, of the Company ("Common
Shares");
WHEREAS, the Company's offering of Common Shares pursuant to the Rights is
hereinafter referred to as the "Rights Offering"; and
WHEREAS, the Purchasers desire to purchase notes from the Company and the
Company desires to sell notes to the Purchasers, upon the terms and subject to
the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and considerations contained below, the parties hereto
agree as follows:
1. THE NOTE. The Purchasers will purchase the note (the "Note") from the
Company in the aggregate principal amount of Thirty Million U.S. Dollars
($30,000,000.00) (the "Principal Amount"), which amount shall be used in whole
and in substantial part by the Company to capitalize Oracle Reinsurance Company,
Ltd., the Company's wholly-owned reinsurance subsidiary.
2. DATE MADE. The Note shall be made on the date concurrent with the
completion of the Rights Offering. That date shall be the day upon which the
exercise period for the Rights shall expire.
3. PROMISSORY NOTE. In conjunction with the Note, the Company has issued
to the Purchasers a promissory note, in the form attached hereto as Annex A
representing the Company's promise to repay the Principal Amount and interest
then accrued on the Maturity Date (as defined herein).
4. INTEREST. The Principal Amount of the Note will bear simple interest
at a rate equal to % per annum payable semiannually in arrears. Interest on
the Principal Amount shall begin to accrue on the date this Note is made, as
defined in Section 2 of this Agreement.
5. METHOD OF PAYMENT OF INTEREST. During any five (5) year period that
this Note shall be outstanding, the Company shall have the option to pay accrued
interest in either cash or through the issuance of additional promissory notes
given to the Purchasers, in the same form and under the same terms as in Annex A
(attached hereto), in lieu of cash.
6. MATURITY. The Principal Amount shall mature on (the
"Maturity Date"). On the Maturity Date, the Principal Amount, along with all
interest then accrued and outstanding, shall become due and payable by the
Company.
7. SUBORDINATION. The payment by the Company of the Principal Amount and
interest accrued on the Note shall be subordinated and junior in right of
payment to the prior payment in full of all Senior Indebtedness (as defined
herein) of the Company, whether presently outstanding or hereafter incurred and
<PAGE> 2
shall rank pari passu with all subordinated indebtedness of the Company, whether
presently outstanding or hereinafter incurred. Senior Indebtedness includes all
indebtedness of the Company which is not expressly pari passu or subordinate to
the Note.
8. ADDITIONAL NOTES. During the five (5) year period after issuance of
the Note the Purchasers will purchase an additional Five Million U.S. Dollars
($5,000,000.00) at the option of the Company.
9. GOVERNING LAW. This Agreement shall be governed by, and construed and
interpreted in accordance with the laws of the State of New York, without regard
to the conflict of laws principles thereof.
10. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. MISCELLANEOUS. The Company hereby expressly waives presentment for
payment, protest and demand, notice of protest, demand and dishonor and
nonpayment.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
DELPHI INTERNATIONAL LTD.
By:
------------------------------------
Name:
Title:
DELPHI FINANCIAL GROUP, INC.
By:
------------------------------------
Name:
Title:
RELIANCE STANDARD LIFE
INSURANCE COMPANY
By:
------------------------------------
Name:
Title:
SAFETY NATIONAL
CASUALTY CORPORATION
By:
------------------------------------
Name:
Title:
<PAGE> 3
ANNEX A
PROMISSORY NOTE
U.S. $30,000,000 New York, New York
, 1997
FOR VALUE RECEIVED, the undersigned, Delphi International Ltd., a Bermuda
corporation (the "Company"), hereby promises to pay to the order of the
Purchasers (as defined in the Note Agreement of even date herewith by and
between the undersigned and Delphi Financial Group, Inc., a Delaware
corporation, Reliance Standard Life Insurance Company, an Illinois corporation
and Safety National Casualty Corporation, a Missouri corporation) at such places
as the Purchasers shall designate, the principal amount of Thirty Million U.S.
Dollars ($30,000,000.00), on and to pay interest in
like money (or in promissory notes of the Company in lieu thereof, as provided
for in the Note Agreement) at said office, or at such other place as the
Purchaser shall designate, from the date hereof, on the principal balance hereof
from time to time in accordance with the provisions of that certain Note
Agreement.
This Promissory Note has been executed by the undersigned in the State of
New York and shall be construed in accordance with and governed by the laws of
the State of New York, without regard to the conflict of laws provisions
thereof.
DELPHI INTERNATIONAL LTD.
By:
------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 21.1
DELPHI INTERNATIONAL LTD.
LIST OF SUBSIDIARIES
Name of Subsidiary Place of Incorporation
Oracle Reinsurance Company Ltd. Bermuda
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 2, 1997, except for Note 5, as to which
the date is September 10, 1997, in Amendment No. 1 to the Registration Statement
(Form S-1 No. 333-34829) and related Prospectus of Delphi International Ltd.
dated , 1997, for the registration of 2,200,000 common shares and
granting of common stock purchase rights.
/s/ ERNST & YOUNG
Hamilton, Bermuda
October 29, 1997
<PAGE> 1
Exhibit 23.3
[CONYERS DILL & PEARMAN LETTERHEAD]
October 31, 1997
Delphi International Ltd.
Clarendon House
2 Church Street
Hamilton
Bermuda
Dear Sirs:
We have acted as Bermuda counsel for Delphi International Ltd. (the "Company"),
a Bermuda exempted company, in connection with the proposed issue and sale of
common shares of the Company.
In our capacity as Bermuda counsel to the Company, we participated in the
preparation of the registration statement ("Registration Statement") on Form S-1
registration no. 333-34829 which was filed with the Securities and Exchange
Commission ("Commission") under the Securities Act of 1933 as amended ("Act") of
the United States of America together with all exhibits to the Registration
Statement and the forms of prospectus (the "Prospectus") also filed with the
Commission together with all amendments thereto filed in accordance with the
Act.
For the purposes of giving this opinion, we have examined and relied upon the
Registration Statement. We have also reviewed a copy of the memorandum of
association and bye-laws of the Company certified as a true copy thereof by the
secretary of the Company, minutes of meetings of the Company's board of
directors and minutes of shareholders' meetings and such other documents and
have made such enquiries as to questions of law as we have deemed necessary in
order to render the opinion set forth below.
<PAGE> 2
-2-
We have assumed:
(i) the genuineness and authenticity of all signatures and the conformity to
the originals of all copies (whether or not certified) of all documents
examined by us and the authenticity and completeness of the originals from
which such copies were taken;
(ii) the correctness, accuracy and completeness of all factual representations
made in the Registration Statement and in the other documents which we
have reviewed; and
(iii) that there is no provision of the law of any jurisdiction, other than
Bermuda, which would have any implication in relation to the opinions
expressed herein.
We have made no investigation of and express no opinion in relation to the laws
of any jurisdiction other than Bermuda. This opinion is to be governed by and
construed in accordance with the laws of Bermuda and is limited to and is given
on the basis of the current law and practice in Bermuda.
On the basis of and subject to the foregoing, we hereby consent to the filing of
this opinion with the Commission and as an exhibit to the Registration Statement
and Prospectus and to the reference to this Firm under the captions
"Enforceability of Civil Liabilities under United State Federal Securities
Laws", "Certain Tax Considerations" and "Legal Matters".
Yours faithfully
/s/ Conyers Dill & Pearman
