<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 5, 1998
REGISTRATION NO. 333-43301
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ANNUITY AND LIFE RE (HOLDINGS), LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
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<S> <C> <C>
BERMUDA 6311 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
VICTORIA HALL, VICTORIA STREET CT CORPORATION SYSTEM
P.O. BOX HM1262 1633 BROADWAY
HAMILTON, HM FX, BERMUDA NEW YORK, NEW YORK 10019
(441) 296-7667 (212) 664-1666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, (NAME, ADDRESS, INCLUDING ZIP CODE, AND
INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE,
PRINCIPAL EXECUTIVE OFFICES) OF AGENT FOR SERVICE)
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COPIES TO:
<TABLE>
<S> <C> <C>
F. DOUGLAS RAYMOND, III, ESQ. CHARLES G. COLLIS, JR., ESQ. CRAIG B. BROD, ESQ.
DRINKER BIDDLE & REATH LLP CONYERS DILL & PEARMAN CLEARY, GOTTLIEB, STEEN & HAMILTON
1100 PHILADELPHIA NATIONAL BANK BUILDING CLARENDON HOUSE ONE LIBERTY PLAZA
1345 CHESTNUT STREET 2 CHURCH STREET, P.O. BOX HM666 NEW YORK, NEW YORK 10006
PHILADELPHIA, PENNSYLVANIA 19107-3496 HAMILTON, HM CX, BERMUDA (212) 225-2000
(215) 988-2700 (441) 295-1422
</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. [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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 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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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 the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
=================================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Shares............. 19,726,139 $16.00 $315,618,224 $93,108(3)
=================================================================================================================================
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(1) Includes 2,512,500 Common Shares that may be sold pursuant to the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The Registrant has previously paid $90,919 of the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus, one to be
used in connection with the underwritten offering of the Common Shares (the
"Underwritten Offering Prospectus") and a second to be used in connection with
the direct offering of Common Shares by the Company to its directors and
officers and certain persons affiliated with Inter-Atlantic Capital Partners,
Inc. (the "Direct Sales Prospectus"). The two prospectuses are identical except
for the front and back cover pages and except that the section captioned
"Underwriting" in the Underwritten Offering Prospectus is replaced by the
section captioned "Plan of Distribution" in the Direct Sales Prospectus.
Alternative pages for use in the Direct Sales Prospectus are designated as such
and are set forth immediately following the form of the Underwritten Offering
Prospectus contained herein.
<PAGE> 3
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 MARCH 5, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
16,750,000 Shares
ANNUITY AND LIFE RE (HOLDINGS), LTD.
Common Shares
- --------------------------------------------------------------------------------
All of the 16,750,000 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby (the "Offering") are being sold by Annuity and Life Re
(Holdings), Ltd. (the "Company"). Prior to the Offering, the Company has not
conducted any business and there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price will
be between $14.00 and $16.00 per Common Share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price.
In connection with the formation of the Company and the establishment of a core
group of strategic investors, The Prudential Insurance Company of America, EXEL
Limited and Risk Capital Reinsurance Company (collectively, the "Strategic
Investors") have severally agreed to purchase for investment directly from the
Company an aggregate of 3,865,249 Common Shares and Class B Warrants to purchase
an aggregate of 272,500 Common Shares, provided that the initial public offering
price per share is at least $15.00. Such purchases will be consummated
simultaneously with the consummation of the Offering for an aggregate purchase
price for the Common Shares and the Class B Warrants of $54,500,000. The
exercise price for the Class B Warrants will be $15.00 per share. In addition,
the Company is offering by a separate prospectus up to 463,639 Common Shares
directly to its directors and officers and certain persons affiliated with
Inter-Atlantic Capital Partners, Inc. at a price per share equal to the initial
public offering price per share, less the per share underwriting discounts and
commissions, for an aggregate purchase price if all such purchases are made of
$6,537,310. Any such purchases are also expected to be consummated
simultaneously with the consummation of the Offering. The offering to such
directors, officers and other persons, together with the purchases by the
Strategic Investors, are referred to in this Prospectus as the "Direct Sales."
See "Direct Sales."
An application has been made to have the Common Shares approved for quotation in
The Nasdaq Stock Market's National Market (the "Nasdaq National Market") under
the symbol "ALREF."
The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which, among other things, generally prevent
transfers to holders beneficially owning 10% or more of the voting shares of the
Company (other than as described herein) and reduce the voting power of any
holder beneficially owning 10% or more of the voting shares of the Company to
less than 10% of the total voting power of the Company's capital stock. See
"Description of Capital Stock."
SEE "RISK FACTORS" ON PAGES 9 TO 16 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON SHARES
OFFERED HEREBY.
- --------------------------------------------------------------------------------
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>
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=============================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share............... $ $ $
- -------------------------------------------------------------------------------------------------------------
Total(3)....................... $ $ $ (4)
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting certain advisory fees and offering expenses payable by the
Company estimated to be $ . See "Use of Proceeds."
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 2,512,500 additional Common Shares on the same
terms and conditions as set forth above. If all such additional shares are
purchased by the Underwriters, the total Price to Public will be $ ,
the total Underwriting Discounts and Commissions will be $ and the
total Proceeds to Company will be $ . See "Underwriting."
(4) Assuming completion of all the Direct Sales, the total proceeds to the
Company will be $ . If the Underwriters' over-allotment option
described above is exercised in full, the total proceeds to the Company
including the Direct Sales will be $ . See "Direct Sales."
- --------------------------------------------------------------------------------
The Common Shares are offered by the several Underwriters subject to delivery by
the Company and acceptance by the Underwriters, to prior sale and to withdrawal,
cancellation or modification of the offer without notice. Delivery of the shares
to the Underwriters is expected to be made through the facilities of The
Depository Trust Company, New York, New York, on or about , 1998.
------------------------
Joint Lead Managers and Joint Bookrunners
PRUDENTIAL SECURITIES INCORPORATED MERRILL LYNCH & CO.
------------------------
BT ALEX. BROWN
CIBC OPPENHEIMER
SCHRODER & CO. INC.
, 1998
<PAGE> 4
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 THIS OFFERING. IN ADDITION, A COPY
OF THIS DOCUMENT HAS BEEN DELIVERED TO THE REGISTRAR OF COMPANIES IN BERMUDA FOR
FILING PURSUANT TO THE COMPANIES ACT 1981 OF BERMUDA. IN GIVING SUCH CONSENT AND
IN ACCEPTING THIS PROSPECTUS FOR FILING, THE BERMUDA MONETARY AUTHORITY AND THE
REGISTRAR OF COMPANIES IN BERMUDA ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL
SOUNDNESS OF ANY PROPOSAL OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE
OR OPINIONS EXPRESSED HEREIN.
------------------------
In this Prospectus, amounts are expressed in United States dollars and the
financial statements contained herein have been prepared in accordance with
United States generally accepted accounting principles ("GAAP").
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING PURCHASES OF THE COMMON SHARES TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 5
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 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 the assets of the Company are or may be located in
jurisdictions outside the United States. In particular, Annuity and Life
Reassurance, Ltd., the Company's sole subsidiary, through which the Company
expects to conduct all its operations, is also a Bermuda corporation. Therefore,
it may be difficult for investors to effect service of process within the United
States upon such persons or to recover against the Company or such persons on
judgments of courts in the United States, including judgments predicated upon
the civil liability provisions of the United States federal securities laws.
However, the Company may be served with process in the United States with
respect to actions against it arising out of or in connection with violations of
United States federal securities laws relating to offers and sales of Common
Shares made hereby by serving CT Corporation System, 1633 Broadway, New York,
New York 10019, its United States agent irrevocably appointed for that purpose.
The Company has been advised by Conyers Dill & Pearman, its Bermuda
counsel, that there is doubt as to whether the courts of Bermuda would enforce
(i) judgments of United States courts obtained in actions against the Company or
its directors and officers, as well as the experts named herein, who reside
outside the United States predicated upon the civil liability provisions of the
United States federal securities laws, or (ii) original actions brought in
Bermuda against the Company or such persons predicated solely upon United States
federal securities laws. The Company has also been advised by Conyers Dill &
Pearman that there is no treaty in effect between the United States and Bermuda
providing for such enforcement, and there are grounds upon which Bermuda courts
may not enforce judgments of United States courts. Certain remedies available
under the laws of United States jurisdictions, including certain remedies
available under the United States federal securities laws, may not be allowed in
Bermuda courts as contrary to that nation's public policy.
3
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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. Unless the
context otherwise requires, references herein to the "Company" mean Annuity and
Life Re (Holdings), Ltd., together with its wholly-owned subsidiary, Annuity and
Life Reassurance, Ltd. ("Annuity Reassurance"), through which the Company
expects to conduct all its operations. The Company and Annuity Reassurance were
incorporated on December 2, 1997 in Bermuda and neither has any operating
history. Annuity Reassurance has been licensed in Bermuda as a long-term
insurer, which license authorizes it to write reinsurance on annuity and life
insurance-related risks. See "Glossary of Selected Annuity and Life Insurance
Terms" for definitions of certain terms used in this Prospectus. Unless
otherwise noted, this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised.
THE COMPANY
The Company and Annuity Reassurance were recently organized in Bermuda to
provide annuity and life reinsurance. The Company intends to market its
reinsurance products to select insurers and reinsurers on a worldwide basis,
with its primary target market initially being North America. Upon consummation
of the Offering, the Company expects to be the first publicly-traded
Bermuda-based reinsurance company focused principally on writing annuity and
life reinsurance.
By focusing on annuity and life reinsurance, the Company will seek to
participate in what it believes to be a market with significant growth
potential. As of year end 1996, according to LIMRA International, Inc.
("LIMRA"), United States annuity assets under management totaled approximately
$919 billion, and, according to A.M. Best Company, Inc. ("A.M. Best"),
approximately $17.6 trillion of life insurance was in force in the United
States. Management believes that annuity reinsurance presents an attractive
opportunity because of the large potential size of the market coupled with the
limited number of companies currently providing such reinsurance on a
third-party basis. Furthermore, management believes that the demand for the
Company's life reinsurance products should be aided by growth in new life
reinsurance business production which, based on the annual Munich American
Survey, grew at a compounded annual rate of approximately 28% from 1993 to 1996,
excluding retrocessional and group life reinsurance.
The Company's business strategy has been developed to respond to a number
of trends in the insurance and reinsurance industries, which trends management
believes are increasing the demand for annuity and life reinsurance, including:
- Increasing risk-based capital and reserve requirements being applied to
annuity issuers and life insurers by regulatory bodies and rating
agencies;
- Continuing consolidation in the annuity and life insurance industry,
including strategic decisions to divest large blocks of business through
the use of reinsurance;
- Increasing demutualization activity by mutual life insurers leading to
increasing demand for reinsurance;
- Growing use of multiple reinsurance partners by annuity issuers and life
insurers; and
- Expanding price sensitivity among purchasers of reinsurance.
Management believes that through controls on overhead costs and the absence of a
corporate level tax in Bermuda on the Company's revenues and earnings, the
Company will be able to capitalize on these trends by having one of the lowest
cost structures in the annuity and life reinsurance industry. The Company
expects that these factors will enable it to offer its products at attractive
prices and to compete effectively in the annuity and life reinsurance market.
4
<PAGE> 7
Upon consummation of the Offering and the Direct Sales, the Company will
have an equity capitalization of approximately $293 million, assuming an initial
public offering price of $15.00 per share. Management believes that this level
of capitalization will demonstrate a strong financial position and a high level
of commitment to the annuity and life reinsurance market and will enable the
Company to compete for desirable business and establish long-term relationships
with a select group of primary insurers and reinsurers. As a newly-formed
entity, the Company's capital is presently unencumbered by issues of loss
reserve adequacy, unrealized losses in its investment portfolio and
uncollectible reinsurance. In addition, although the Company does expect that it
may seek a working capital line of credit to finance its operations, the Company
does not presently have any indebtedness. In part because of the Company's
expected capitalization following the Offering and the Direct Sales, A.M. Best
has assigned Annuity Reassurance a preliminary Best Rating of "A-" (Excellent),
and Duff & Phelps Credit Rating Co. ("Duff & Phelps") has assigned Annuity
Reassurance a preliminary claims paying ability rating of "A." Each such rating
is contingent on the Company raising gross proceeds of $250 million in the
Offering. A.M. Best assigns an "A-" (Excellent) rating to companies that have,
in its opinion, on balance, excellent financial strength, operating performance
and market profile, as well as strong abilities to meet their ongoing
obligations to policyholders. Duff & Phelps assigns an "A" rating to companies
that it characterizes as having high claims paying ability, average protection
factors and an expectation of variability in risk over time due to economic or
underwriting conditions.
The Company's principal executive office is located at Victoria Hall,
Victoria Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda, and its telephone
number is (441) 296-7667.
BUSINESS STRATEGY
The Company's objective is to develop an efficient, low cost annuity and
life reinsurance business that will enable it to achieve attractive total rates
of return for its shareholders through prudent underwriting of insurance risks
and careful management of its investment portfolio. The Company will seek to
achieve this objective through the implementation of its business strategy, the
principal components of which are:
- - Maintain Low Cost Structure
Management believes that the price of reinsurance is the primary determinant
used by its potential clients in selecting an annuity or life reinsurer.
Consequently, a key component of the Company's business strategy is to
maintain a low cost structure. The Company intends to focus on writing
primarily treaty reinsurance and reinsuring large blocks of business where the
underlying policies meet the underwriting criteria of the primary insurer. The
Company anticipates that this focus will permit it to make fewer underwriting
assessments than would typically be required with respect to the underwriting
of a large number of individual policies. As a consequence, the Company
expects to limit its number of employees initially to approximately ten and to
use third-party service providers to perform certain functions. As a part of
this strategy, the Company has contracted with Marsh & McLennan Management
Services (Bermuda) Limited ("Marsh & McLennan") to provide claims processing
and other administrative services. By minimizing its personnel and overhead
costs, the Company expects to be better able to control expense levels as
market conditions for writing reinsurance fluctuate. In addition, the Company
also expects to benefit from the absence of a corporate level tax in Bermuda
on the Company's revenues and earnings. As a result of these factors, the
Company expects to have one of the lowest cost structures in the annuity and
life reinsurance industry.
- - Utilize a Disciplined Underwriting Approach
The Company's reinsurance underwriting strategy is to utilize an experienced
underwriting team to select opportunities with acceptable risk/return profiles
based on sophisticated actuarial and investment modeling techniques. The
principal risks associated with the reinsurance of both annuity and life
insurance products are mortality risk and investment risk. Mortality risk is
actuarially quantifiable when spread across large numbers of insureds. The
Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance policies. In
addition, the Company's underwriting guidelines limit the maximum aggregate
net
5
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risk on any one life to $1.0 million and require any purchaser of reinsurance
from the Company to retain at least 10% of the total risk being reinsured.
Waivers of the Company's underwriting guidelines, including waivers of the 10%
retention requirement, must be approved by the Company's Board of Directors.
Initially, the Company intends to supplement its underwriting analyses with
commercially available actuarial models and may retain consultants to assist
in the analysis of the risks that it reinsures, while it develops its own
proprietary models. The Company believes that its focus on annuity and life
reinsurance will enable it to structure its reinsurance products to meet the
specific requirements of its clients while managing its exposure to the risks
being assumed. Furthermore, the reinsurance of annuity and life insurance
products will not expose the Company to the catastrophic risks normally
associated with property/casualty reinsurance, which the Company does not
intend to write.
- - Employ Professional Investment Management
The Company will seek to generate attractive levels of investment income
through a professionally managed fixed income investment portfolio. Annuity
Reassurance has entered into an investment advisory agreement with Pacific
Investment Management Company ("PIMCO"), which is anticipated to manage
initially approximately 50% of Annuity Reassurance's investment portfolio.
Annuity Reassurance also expects to retain Alliance Capital Management Company
and The Prudential Investment Corporation (together with PIMCO, the
"Investment Managers") to manage a portion of its investment portfolio.
Annuity Reassurance may also retain additional investment managers from time
to time. Each Investment Manager will have discretionary authority over the
portion of Annuity Reassurance's investment portfolio allocated to it, subject
to the investment guidelines established by Annuity Reassurance (the
"Investment Guidelines"). Annuity Reassurance's investment portfolio will
principally consist of investment grade fixed income securities and will be
invested in an effort to match Annuity Reassurance's anticipated liabilities
under the reinsurance policies it writes. Assets held in the investment
portfolio that Annuity Reassurance believes exceed such anticipated
liabilities, if any, will be invested in an attempt to maximize total return
as well as to provide for diversification of risk and maintenance of
liquidity, and up to 25% of such assets may be invested in fixed income
securities that are rated below investment grade. The Investment Guidelines
require Annuity Reassurance's overall fixed income portfolio to maintain a
minimum weighted average rating of "A". The Investment Guidelines prohibit any
investment in common equity securities or equity-based futures and options
other than pursuant to strategies intended to hedge the equity-based
investment risk associated with annuity and life insurance products which
Annuity Reassurance reinsures.
- - Capitalize on Skill and Experience of Management and Board of Directors
The Company has assembled a senior management team of experienced insurance
and reinsurance professionals to implement its strategy. The Company's
President and Chief Executive Officer, Lawrence S. Doyle, has over 32 years of
experience in the insurance and reinsurance industries and was formerly the
President and Chief Executive Officer of a Bermuda-based start up reinsurance
company, GCR Holdings Limited and its subsidiary Global Capital Reinsurance
Limited (together, "GCR"). Mr. Doyle founded GCR in 1993 as a reinsurer
specializing in catastrophe risk and was largely responsible for the
development of a new client base, the hiring of marketing, underwriting and
administrative personnel and the overall development of the business. In 1997,
GCR was acquired by EXEL Limited, and Mr. Doyle became an Executive Vice
President of EXEL Limited. Before founding GCR, Mr. Doyle was Senior Vice
President of Hartford Insurance Group in charge of international operations,
where he was employed for 27 years, the last six of which he was also the
President of Hartford Fire International. Robert J. Reale, a Senior Vice
President and the Chief Underwriter of the Company, has over 19 years of
experience in the insurance and reinsurance industries and was formerly a Vice
President of Swiss Re Life & Health. Mr. Reale also served as the President of
Swiss-Am Reassurance Company and Atlantic International Reinsurance Company
(Barbados), both affiliates of Swiss Re Life & Health. While employed by Swiss
Re Life & Health, Mr. Reale was assigned overall pricing responsibility for
that company's United States life and annuity reinsurance market. William W.
Atkin, the Chief Financial Officer and Treasurer of the Company, has 25 years
experience in the insurance industry. Mr. Atkin served as an Executive Vice
President, the Chief Financial Officer and a director of Security Mutual Life
Insurance Company of New York. While employed by Security Mutual Life
Insurance Company of New York, Mr. Atkin was responsible for that company's
operating plans, annuity product line and relationships with credit rating
agencies, investment advisors,
6
<PAGE> 9
banks and independent accountants. The Company's Board of Directors consists
of several individuals with extensive experience in the insurance and
financial services industries. Management believes that the reputation and
expertise possessed by the Company's officers and directors should provide the
Company with a marketing advantage.
STRATEGIC INVESTORS
In connection with the formation of the Company, management determined it
would be desirable to have a core group of investors composed of companies in
the insurance or reinsurance industries. In furtherance of this goal, the
Company has entered into agreements with The Prudential Insurance Company of
America ("Prudential Insurance"), EXEL Limited ("EXEL") and Risk Capital
Reinsurance Company ("Risk Capital") for the purchase for investment directly
from the Company of an aggregate of 3,865,249 Common Shares and Class B Warrants
to purchase an aggregate of 272,500 Common Shares, provided that the initial
public offering price per share is at least $15.00. Such purchases will be
completed simultaneously with the consummation of the Offering for an aggregate
purchase price for the Common Shares and the Class B Warrants of $54.5 million.
The exercise price of the Class B Warrants will be $15.00 per share. Prudential
Insurance is the largest life insurance company in the United States based on
total assets at December 31, 1997. EXEL is a diversified Bermuda-based insurer
and reinsurer. Risk Capital provides reinsurance and other forms of capital,
either on a stand-alone basis or as part of integrated solutions for insurance
companies with capital needs that cannot be met by reinsurance alone.
7
<PAGE> 10
THE OFFERING
<TABLE>
<S> <C>
Common Shares Offered in the Offering....................... 16,750,000 shares
Direct Sales(1)............................................. 4,328,888 shares
Common Shares to be Outstanding after the Offering and the
Direct Sales(2)........................................... 21,078,888 shares
Use of Proceeds from the Offering and the Direct Sales...... The net proceeds of the Offering
and Direct Sales are estimated to
be approximately $232.2 million
and $61.0 million, respectively
(at an assumed initial public
offering price of $15.00 per
share). Substantially all of the
net proceeds will be contributed
to the capital of Annuity
Reassurance to support its
reinsurance underwriting capacity.
See "Use of Proceeds."
Proposed Nasdaq National Market Symbol...................... ALREF
</TABLE>
- ---------------
(1) Unless otherwise noted, this Prospectus assumes that upon consummation of
the Offering the sale of 3,865,249 Common Shares and Class B Warrants to
purchase 272,500 Common Shares to the Strategic Investors has been completed
and the 463,639 Common Shares offered by the Company to its directors and
officers and certain persons affiliated with Inter-Atlantic Capital
Partners, Inc. have been purchased. Such directors, officers and other
persons have indicated their intention to make such purchases, but are not
obligated to do so.
(2) The Annuity Re Purpose Trust, a Bermuda trust (the "Purpose Trust"), owns
12,000 Common Shares, which constitute all of the currently outstanding
Common Shares. Upon consummation of the Offering, the Purpose Trust has
agreed to sell such Common Shares to the Company for an aggregate price of
$12,000 and such Common Shares will be cancelled. Common Shares to be
outstanding after the Offering and the Direct Sales excludes the 12,000
Common Shares currently held by the Purpose Trust, 2,529,465 Common Shares
issuable upon exercise of outstanding Class A Warrants, 272,500 Common
Shares issuable upon exercise of Class B Warrants to be included in the
Direct Sales, 1,089,063 Common Shares issuable upon exercise of options to
be granted to management and certain directors upon consummation of the
Offering and 220,276 Common Shares reserved for future issuance pursuant to
the Company's Initial Stock Option Plan (the "Stock Option Plan"). If the
Underwriters' over-allotment option is exercised in full, upon consummation
of the Offering and the Direct Sales 23,591,388 Common Shares will be
outstanding, the number of Common Shares issuable upon exercise of
outstanding Class A Warrants will increase to 2,830,966 Common Shares, the
number of Common Shares issuable upon exercise of options to be granted to
management and certain directors upon consummation of the Offering will
increase to 1,207,152 Common Shares and the number of Common Shares reserved
for future issuance pursuant to the Stock Option Plan will increase to
240,374 Common Shares. The number of Common Shares issuable upon exercise of
the Class B Warrants will not change if the Underwriters' over-allotment
option is exercised. The Class A Warrants, Class B Warrants and options are
not currently exercisable. See "Management -- Stock Option Plan,"
"Description of Capital Stock -- Warrants" and "Direct Sales."
RISK FACTORS
Business such as the Company which are in their initial stages of
development present substantial business and financial risks and may suffer
significant losses for reasons not anticipated by management. In addition, the
Company's business strategy has not been tested and may not succeed. Investors
should consider the material risk factors involved in connection with an
investment in the Common Shares and the impact to investors from various
circumstances which could adversely affect the Company's business. See "Risk
Factors."
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RISK FACTORS
An investment in the Common Shares involves a high degree of risk.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with the investment in the Common Shares.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "plan," "intend" and similar
expressions are intended to identify forward-looking statements regarding among
other things: (i) the Company's business and growth strategies; (ii) the
Company's relationship with third-party service providers and clients; (iii) the
use of the net proceeds of the Offering and the Direct Sales; (iv) trends in the
insurance and reinsurance industries; (v) government regulations; (vi) the
Company's financing plans; (vii) trends affecting the Company's financial
condition or results of operations; and (viii) the declaration and payment of
dividends. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Factors
that could cause or contribute to such differences include, but are not limited
to, those described below, and under the heading "Management's Discussion and
Analysis of Financial Condition and Plan of Operations" and elsewhere in this
Prospectus.
START UP OPERATIONS; RELIANCE ON SERVICE PROVIDERS. The Company and
Annuity Reassurance were formed on December 2, 1997, and neither has any
operating history. Annuity Reassurance has been licensed in Bermuda as a
long-term insurer, which license authorizes it to write reinsurance on annuity
and life insurance-related risks. 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 successfully develop business
relationships, establish operating procedures, hire staff and complete other
tasks appropriate for the conduct of their intended business activities.
Furthermore, the Company intends to have only a limited staff and at least
initially to outsource many functions, including claims processing and
investment management. The Company currently has retained Marsh & McLennan and
the Investment Managers to perform such functions. The Company will be dependent
upon the quality of the services provided by such firms. The inability of the
Company to retain qualified service providers or the failure of outside service
providers to perform adequately their functions could delay or prevent the
Company from fully implementing its business strategy or could otherwise
adversely affect the Company. See "Business."
COMPETITION AND FINANCIAL RATINGS. The reinsurance industry is highly
competitive. The Company will compete with major reinsurers, many of which have
substantially greater financial, marketing and management resources than the
Company. Competition in the types of reinsurance business that the Company
intends to underwrite is based on many factors, including the general reputation
and perceived financial strength of the reinsurers, premium charges, other terms
and conditions of products offered, ratings assigned by independent rating
agencies, speed of claims payment and reputation and experience in the
particular line of reinsurance to be written. The Company has no experience in
competing against such other companies, and there can be no assurance that it
will be successful. Furthermore, because the Company expects to rely at least
initially on a small number of clients, its business may be more susceptible to
the adverse effects of competition from other reinsurers.
Insurance ratings are used by insurers and reinsurance intermediaries as an
important means of assessing the financial strength and quality of reinsurers.
In addition, the rating of a company purchasing reinsurance may be adversely
affected by an unfavorable rating or the lack of a rating of its reinsurer. The
Company has received a preliminary Best Rating of "A-" (Excellent) from A.M.
Best and a preliminary claims paying ability rating of "A" from Duff & Phelps.
Each such rating is contingent upon the Company raising gross proceeds of $250
million in the Offering. If the Company fails to satisfy this condition and
consequently does not receive a final rating from A.M. Best or Duff & Phelps,
the Company's prospects would be adversely affected. See
"Business -- Competition."
DEPENDENCE ON KEY EMPLOYEES. The Company will be substantially dependent
in the implementation of its business strategy on Lawrence S. Doyle, the
President and Chief Executive Officer of the Company, Robert J. Reale, a Senior
Vice President and the Chief Underwriter of the Company, William W. Atkin, the
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Chief Financial Officer and Treasurer of the Company, and Robert P. Mills, Jr.,
a Vice President and the Chief Actuary of the Company. Messrs. Doyle, Reale,
Atkin and Mills have each entered into an employment contract with the Company
for a term expiring three years after the consummation of the Offering. See
"Management -- Employment Agreements." The loss of the services of these
individuals, or the inability of the Company to hire and retain other talented
personnel, could delay or prevent the Company from fully implementing its
business strategy or could otherwise adversely affect the Company.
Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may
not engage in any gainful occupation in Bermuda without an appropriate
Governmental work permit. Such a work permit may be granted or extended upon
showing that, after proper public advertisement, no Bermudian (or spouse of a
Bermudian) is available who meets the minimum standards for the advertised
position. Mr. Doyle, the Company's President and Chief Executive Officer, is
working in Bermuda under a work permit which expires in 2003. Messrs. Reale,
Atkin and Mills have not yet been issued work permits. While the Company is not
currently aware of any reason why the work permits for these officers would not
be issued, there can be no assurance to that effect. The failure of these work
permits to be issued could adversely affect the Company.
MARKET FOR ANNUITY AND LIFE REINSURANCE. The market for annuities and many
life insurance products in the United States is based in large part on the
favorable tax treatment such products receive relative to certain other
investment alternatives. Any material change in such tax treatment, including
the imposition of a "flat tax" or a national sales tax in lieu of the current
federal income tax structure in the United States, would have an adverse effect
on the market for such products. The current budget proposal submitted to
Congress by the Clinton Administration includes certain provisions which, if not
modified, would reduce the tax advantages of certain annuity and life insurance
products. These provisions include a tax on exchanges between certain types of
annuity and life insurance products, including exchanges among investment
options within a variable annuity, and increased taxes on the owners of certain
corporate-owned life insurance policies. If these proposed tax changes were
enacted into law, they would adversely affect the Company. Furthermore, a
general economic downturn or a downturn in the equity and other capital markets
could adversely affect the market for many annuity and life insurance products.
If the market for annuities or life insurance were adversely affected, it would
likely depress the demand for reinsurance of annuities or life insurance, which
would have an adverse effect on the Company. In addition, the market for annuity
reinsurance products is currently not well developed and there can be no
assurance that such a market will develop in the future. As the Company is not
aware of any other publicly-traded reinsurance company that focuses on the
annuity reinsurance market to the extent the Company intends, the Company
expects to be more sensitive to adverse conditions in such market than such
other reinsurance companies.
INVESTMENT RISKS. Risk management and the success of the Company's
investment strategy are expected to be crucial to the success of the Company's
business. In particular, the Company's ability to structure its investments to
match its anticipated liabilities under reinsurance policies has not been
tested. Therefore, no assurance can be given that the Company will successfully
match the structure of its investments with its liabilities under reinsurance
policies. If the Company's calculations with respect to these reinsurance
liabilities are incorrect, or if it improperly structures its investments to
match such liabilities, it could be forced to liquidate investments prior to
maturity at a significant loss.
The Investment Guidelines also permit up to 25% of the portion of Annuity
Reassurance's investment portfolio, if any, in excess of the amounts allocated
to offset liabilities under reinsurance policies to be invested in below
investment grade fixed income securities. While any investment carries some
risk, the risks associated with lower-rated securities are greater than the
risks associated with investment grade securities. The risk of loss of principal
or interest through default is greater because lower-rated securities are
usually unsecured and are often subordinated to an issuer's other obligations.
Additionally, the issuers of these securities frequently have high debt levels
and are thus more sensitive to difficult economic conditions, individual
corporate developments and rising interest rates which could impair an issuer's
capacity or willingness to meet its financial commitment on such lower-rated
securities. Consequently, the market price of these securities may be quite
volatile, and the risk of loss is greater.
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Annuity Reassurance may also from time to time purchase or sell common
equity securities or equity-based futures and options solely pursuant to
strategies intended to hedge the equity-based investment risk associated with
annuity and life insurance products which it reinsures. The failure of Annuity
Reassurance to match its equity investments accurately with its equity-based
liabilities could expose the Company to the volatility of the equity markets and
potential losses on such equity securities and equity-based futures and options.
In addition, the possible lack of liquidity for certain futures and options
could adversely affect the Company. See "Business -- Investment Strategy."
Annuity Reassurance has entered into an investment advisory agreement with
PIMCO, which firm is anticipated to manage initially approximately 50% of
Annuity Reassurance's investment portfolio. Annuity Reassurance also expects to
retain Alliance Capital Management Company and The Prudential Investment
Corporation to manage a portion of its investment portfolio. Annuity Reassurance
may also retain additional investment managers from time to time. Each
Investment Manager will have discretionary authority over the portion of Annuity
Reassurance's investment portfolio allocated to it, subject to the Investment
Guidelines adopted by Annuity Reassurance. The performance of Annuity
Reassurance's investment portfolio, therefore, will depend to a great extent on
the ability of the Investment Managers to select and manage appropriate
investments. There can be no assurance that the Investment Managers will be
successful in meeting the Company's investment objectives. See
"Business -- Investment Managers."
The success of any investment activity is affected by general economic
conditions, which may adversely affect the markets for interest-rate-sensitive
securities and equity securities, including the level and volatility of interest
rates and the extent and timing of investor participation in such markets.
Unexpected volatility or illiquidity in the markets in which Annuity Reassurance
directly or indirectly holds positions could adversely affect the Company.
REGULATION. Annuity Reassurance is a registered Bermuda insurance company
and is subject to regulation and supervision in Bermuda. Generally the Bermudian
statutes and regulations applicable to Annuity Reassurance are less restrictive
than those that would be applicable to Annuity Reassurance were it subject to
the insurance laws of any state in the United States. Among other things, the
Bermuda statutes and regulations require Annuity Reassurance to maintain minimum
levels of capital and surplus; prescribe solvency standards that it must meet;
limit transfers of ownership of its capital shares; and provide for the
performance of certain periodic examinations of Annuity Reassurance and its
financial condition. These statutes and regulations may, in effect, restrict the
ability of Annuity Reassurance to write reinsurance policies and distribute
funds to the Company. See "Business -- Regulation -- Bermuda."
Annuity Reassurance is not licensed or admitted as an insurer in any
jurisdiction except Bermuda. The insurance laws of each state in the United
States and of many other jurisdictions regulate the sale of insurance and
reinsurance within their jurisdiction by insurers, such as Annuity Reassurance,
which are not admitted to do business within such jurisdiction. With some
exceptions, the sale of insurance within a jurisdiction where the insurer is not
admitted to do business is prohibited. The Company expects to conduct its
business through its Bermuda office either directly or through intermediaries,
such as brokers and consultants. The Company does not intend to maintain an
office, and it does not expect its personnel to solicit, advertise, settle
claims or conduct other activities which may constitute the transaction of the
business of insurance, in any jurisdiction in which the Company is not licensed
or otherwise authorized to engage in such activities. However, there can be no
assurance that inquiries or challenges to the Company's insurance activities in
such jurisdictions will not be raised in the future or that the Company's
location, regulatory status or restrictions on its activities resulting
therefrom will not adversely affect the Company. Furthermore, 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 appropriate security measures are in place, it is anticipated
that the Company's reinsurance clients will typically require it to post a
letter of credit or other collateral. Although the Company has received
commitments from two commercial banks to provide standby letter of credit
facilities, such commitments are subject to several conditions, including the
negotiation of definitive documentation. If the Company is unable to obtain a
letter of credit facility from such banks or from other lenders on commercially
acceptable terms, the Company's ability to operate its business will be severely
limited. See "Business -- Regulation -- United States and Other" and
"Business -- Competition."
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Recently, the insurance and reinsurance regulatory framework has become
subject to increased scrutiny in many jurisdictions, including the United
States, various states within the United States and elsewhere. In the past,
there have been Congressional and other initiatives in the United States
regarding increased supervision and regulation of the insurance industry,
including proposals to supervise and regulate reinsurers domiciled outside the
United States ("alien reinsurers"). If the Company were to become subject to any
insurance laws of the United States or any state thereof or of any other
jurisdiction at any time in the future, there can be no assurance that it would
be in compliance with such laws or that coming into compliance with such laws
would not have an adverse effect on the Company.
It is not possible to predict the future impact of changing law or
regulation on the operations of the Company. Such changes, if any, could have an
adverse effect on the Company.
HOLDING COMPANY STRUCTURE. The Company is a holding company and will not
conduct reinsurance operations of its own. The Company, at least initially, will
have no significant operations or assets other than its ownership of the capital
stock of Annuity Reassurance. Dividends and other permitted payments from
Annuity Reassurance are expected to be the Company's sole source of funds to pay
expenses and dividends, if any. The payment of dividends by Annuity Reassurance
to the Company is limited under Bermuda law and regulations, including Bermuda
insurance law. Under the Insurance Act 1978 of Bermuda, as amended, and related
regulations (the "Insurance Act"), Annuity Reassurance must maintain long-term
business assets with a value at least $250,000 greater than its long-term
business liabilities and is prohibited from declaring or paying dividends that
would result in non-compliance with such requirement. In addition, under the
Bermuda Companies Act 1981, the Company and Annuity Reassurance may only declare
or pay a dividend if there are reasonable grounds for believing that they are,
or would after the payment be, able to pay their respective liabilities as they
become due. Accordingly, there is no assurance that dividends will be declared
or paid by the Company in the future. See "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Plan of
Operations -- Liquidity and Capital Resources" and "Business -- Regulation --
Bermuda."
FOREIGN CORPORATION, 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 the assets of the Company are or may be located in
jurisdictions outside the United States. Although the Company has irrevocably
appointed an agent in the City of New York to receive service of process with
respect to actions against it arising out of or in connection with violations of
United States federal securities laws relating to offers and sales of Common
Shares in the Offering, it may be difficult for investors to effect service of
process within the United States upon such persons or to recover against them or
the Company on judgments of United States courts, including judgments predicated
upon civil liability provisions of the United States federal securities laws.
See "Enforceability of Civil Liabilities Under United States Federal Securities
Laws."
INCOME TAX RISKS
Taxation of the Company and Annuity Reassurance. The Company and Annuity
Reassurance are Bermuda corporations and neither intends to file United States
tax returns. The Company and Annuity Reassurance plan to operate in such a
manner that they will not be subject to United States tax (other than United
States excise tax on reinsurance premiums and withholding tax on certain
investment income from United States sources) because they do not intend to
engage in business in the United States. However, because definitive
identification of activities which constitute being engaged in trade or business
in the United States is not provided by the Internal Revenue Code of 1986, as
amended (the "Code"), or regulations or court decisions, there can be no
assurance that the Internal Revenue Service ("IRS") will not contend that the
Company and/or Annuity Reassurance is engaged in trade or business in the United
States. If the Company or Annuity Reasurrance were considered to be engaged in
business in the United States (and, if such company were to qualify for benefits
under the income tax treaty between the United States and Bermuda, such business
were attributable to a "permanent establishment" in the United States), it would
be subject to United States tax at regular corporate rates on its taxable income
that is effectively connected with
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its United States business plus an additional 30% "branch profits" tax on such
income remaining after the regular tax, in which case there could be an adverse
affect on the Company. See "Certain Tax Considerations."
The United States currently imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. In addition, the Company may be subject to
withholding tax on certain investment income from United States sources. There
can be no assurance that such taxes will not be increased or that other taxes
will not be imposed on the Company's business.
Controlled Foreign Corporation Rules. United States persons who may,
directly or through certain attribution rules, acquire 10% or more of the Common
Shares of the Company, should consider the possible application of the
"controlled foreign corporation" ("CFC") rules. Each "United States shareholder"
of a CFC who owns shares in the CFC on the last day of the CFC's taxable year
generally must include in his gross income for United States federal income tax
purposes his pro-rata share of the CFC's "subpart F income," even if the subpart
F income has not been distributed. For these purposes, any United States person
who owns directly or indirectly 10% or more of the voting stock of a foreign
corporation will be considered to be a "United States shareholder." In general,
a foreign insurance company such as Annuity Reassurance 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 stock for an uninterrupted
period of 30 days or more during any year. The Company believes that, because of
the anticipated dispersion of the Company's share ownership among holders and
because of the restrictions in the Company's Bye-Laws on transfer, issuance or
repurchase of the voting shares of the Company, shareholders who acquire Common
Shares in the Offering will not be subject to treatment as "United States
shareholders" of a CFC. In addition, because under the Bye-Laws no single
shareholder will be permitted to exercise 10% or more of the total combined
voting power of the Company, shareholders of the Company should not be viewed as
"United States shareholders" of a CFC for purposes of these rules. There can be
no assurance, however, that these rules will not apply to shareholders of the
Company. See "Certain Tax Considerations."
Related Person Insurance Income Risks. If Annuity Reassurance's related
person insurance income ("RPII") determined on a gross basis were to equal or
exceed 20% of its gross insurance income in any taxable year, a United States
person who owns Common Shares in the Company directly or indirectly on the last
day of the taxable year may be required to include in income for United States
federal income tax purposes the shareholder's pro-rata share of Annuity
Reassurance's RPII for the taxable year, determined as if such RPII were
distributed proportionately to such United States persons at that date. RPII is
generally underwriting premium and related investment income attributable to
insurance or reinsurance policies where the direct or indirect insureds are
United States shareholders or are related to United States shareholders of the
insurance or reinsurance company issuing such policies. Although Annuity
Reassurance does not currently believe that the 20% threshold will be met in
1998 and subsequent years, the amount of RPII earned by Annuity Reassurance will
depend on a number of factors that may be beyond its control. Consequently,
there can be no assurance that Annuity Reassurance's RPII will not equal or
exceed 20% of its gross insurance income in any taxable year. See "Certain Tax
Considerations."
If a shareholder who is a United States person disposes of shares in a
foreign insurance corporation that has RPII (even if the amount of RPII is less
than 20% of the corporation's gross insurance income) and in which United States
persons own 25% or more of the shares, any gain from the disposition will
generally be treated as ordinary income to the extent of the shareholder's
portion of the corporation's undistributed earnings and profits that were
accumulated during the period that the shareholder owned the shares (potentially
whether or not such earnings and profits are attributable to RPII). In addition,
such a shareholder will be required to comply with certain reporting
requirements, regardless of the amount of shares owned by the shareholder. These
rules should not apply to dispositions of Common Shares because the Company is
not itself directly engaged in the insurance business and because proposed
United States Treasury regulations applicable to this situation appear to apply
only in the case of shares of corporations that are directly engaged in the
insurance business. There can be no assurance, however, that the IRS will
interpret the proposed
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regulations in this manner or that the proposed regulations will not be
promulgated in final form in a manner that would cause these rules to apply to
dispositions of Common Shares. See "Certain Tax Considerations."
Passive Foreign Investment Company Risks. To avoid significant potential
adverse United States federal income tax consequences for any United States
person who owns Common Shares of the Company, it is important that the Company
not constitute a "passive foreign investment company" (a "PFIC") in any year in
which such person is a shareholder. In general, a foreign corporation is a PFIC
for a taxable year if 75% or more of its income constitutes "passive income" or
50% or more of its assets produce passive income. "Passive income" generally
includes interest, dividends and other investment income. However, "passive
income" does not include 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. Because the Company, through Annuity
Reassurance, expects to be predominantly engaged in an insurance business and
does not expect to have financial reserves in excess of the reasonable needs of
its insurance business, the Company does not expect to be a PFIC. There can be
no assurance, however, that the IRS or a court will concur in this view. See
"Certain Tax Considerations."
Bermuda Taxes. The Company and Annuity Reassurance have each received an
assurance from the Bermuda Minister of Finance under The Exempted Undertakings
Tax Protection Act 1966 of Bermuda to the effect that if there is 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, Annuity Reassurance or to any of their operations or
the shares, debentures or other obligations of the Company or Annuity
Reassurance until March 2016. There can be no assurance that after such date the
Company or Annuity Reassurance would not be subject to any such tax.
LIMITATIONS ON OWNERSHIP, TRANSFERS AND VOTING RIGHTS. Under the Company's
Bye-Laws, the Company's directors (or their designee) are required to decline to
register any transfer of voting shares of the Company, including Common Shares,
if they have any reason to believe that such transfer would result in a person
(or any group of which such person is a member) beneficially owning, directly or
indirectly, 10% or more of the voting shares of the Company. Similar
restrictions apply to issuances and repurchases of voting shares by the Company.
The directors (or their designee) also may, in their absolute discretion,
decline to register the transfer of any shares if they have reason to believe
that such transfer may expose the Company, any subsidiary thereof, any
shareholder or any person purchasing reinsurance from the Company to adverse tax
or regulatory treatment in any jurisdiction or if they have reason to believe
that registration of such transfer under the Securities Act of 1933, as amended
(the "Securities Act"), or under any blue sky or other United States securities
laws or under the laws of any other jurisdiction is required and such
registration has not been duly effected. These restrictions would apply to the
registration of a transfer of Common Shares even if the transfer had been
executed on the Nasdaq National Market. A transferor of Common Shares will be
deemed to own such shares for dividend, voting and reporting purposes until a
transfer of such Common Shares has been registered on the Register of Members of
the Company. The Company is authorized to request information from any holder or
prospective acquiror of Common Shares as necessary to effect registration of any
such transaction, and may decline to register any such transaction if complete
and accurate information is not received as requested.
In addition, the Bye-Laws generally provide that any person (or any group
of which such person is a member) holding directly, or by attribution, or
otherwise beneficially owning voting shares of the Company carrying 10% or more
of the total voting rights attached to all of the Company's outstanding capital
shares, will have the voting rights attached to its voting shares reduced so
that it may not exercise more than approximately 9.9% of such total voting
rights. Because of the attribution provisions of the Code and the rules of the
Securities and Exchange Commission (the "Commission") regarding determination of
beneficial ownership, this requirement may have the effect of reducing the
voting rights of a shareholder whether or not such shareholder directly holds of
record 10% or more of the voting shares of the Company. Further, the directors
(or their designee) have the authority to request from any shareholder certain
information for the
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purpose of determining whether such shareholder's voting rights are to be
reduced. Failure to respond to such a notice, or submitting incomplete or
inaccurate information, gives the directors (or their designee) discretion to
disregard all votes attached to such shareholder's Common Shares. See
"Description of Capital Stock -- Common Shares."
NO PRIOR PUBLIC MARKET. Before the Offering there has been no public
market for the Common Shares. There can be no assurance that an active trading
market for the Common Shares will develop or be sustained following the
completion of the Offering or that the market price of the Common Shares will
not decline from the initial public offering price. The initial public offering
price for the Common Shares offered hereby will be determined through
negotiations between the Company and the representatives of the Underwriters and
may not be indicative of the market price of the Common Shares after the
Offering. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering and the
Direct Sales, the Company will have outstanding 21,078,888 Common Shares, Class
A Warrants to purchase an aggregate of 2,529,465 additional Common Shares, Class
B Warrants to purchase an aggregate of 272,500 additional Common Shares and
options to purchase an aggregate of 1,089,063 Common Shares. If the
Underwriters' over-allotment option is exercised in full, 23,591,388 Common
Shares will be outstanding, the number of additional Common Shares issuable upon
exercise of outstanding Class A Warrants will increase to an aggregate of
2,830,966 Common Shares and the number of Common Shares issuable upon exercise
of outstanding options will increase to an aggregate of 1,207,152 Common Shares.
The number of Common Shares issuable upon exercise of the Class B Warrants will
not change if the Underwriters' over-allotment option is exercised. The Class A
Warrants, Class B Warrants and options are not currently exercisable. See
"Management -- Stock Option Plan," "Description of Capital Stock -- Warrants"
and "Direct Sales." Except as disclosed in "Description of Capital
Stock -- Restrictions on Transfer" and as discussed below with respect to the
lock-up agreements, the Common Shares sold in the Offering and any Common Shares
sold in the Direct Sales to the Company's directors and officers and certain
persons affiliated with Inter-Atlantic Capital Partners, Inc. will be freely
transferable without restriction or further registration under the Securities
Act, except for any of those Common Shares owned by an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act (which sales
will be subject to volume limitations and certain other restrictions). The
Common Shares to be sold to the Strategic Investors in the Direct Sales and the
Common Shares underlying the Class A Warrants, the Class B Warrants and the
options are "restricted securities" as defined in Rule 144 under the Securities
Act and may not be resold in the absence of registration under the Securities
Act or pursuant to an exemption from registration. The Strategic Investors, the
holders of Class A Warrants and the holders of the Class B Warrants have been
granted rights to require the Company to register the Common Shares purchased by
the Strategic Investors in the Direct Sales and the Common Shares underlying the
Class A Warrants and the Class B Warrants, which rights are not exercisable
prior to the first anniversary of the consummation of the Offering. The Company
has agreed not to permit the acceleration of the vesting of such rights without
the prior written consent of Prudential Securities Incorporated and Merrill
Lynch & Co. on behalf of the Underwriters. The Company does intend to register
the resale of the Common Shares underlying the outstanding options promptly
following the first anniversary of the consummation of the Offering. The
Company, its directors and officers, the holders of Class A Warrants, the
Strategic Investors and the other purchasers in the Direct Sales have executed
agreements (the "lock-up agreements") under which they have agreed that they
will not, without the prior written consent of Prudential Securities
Incorporated and Merrill Lynch & Co. on behalf of the Underwriters and, in
addition, in the case of the Strategic Investors, the Company, directly or
indirectly offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase, or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any Common Shares or other capital stock of the
Company or any other securities convertible into, or exercisable or exchangeable
for, any Common Shares or other capital stock of the Company for a period of one
year after the date of this Prospectus, except for Prudential Insurance, which
has agreed to such restrictions for a period of 180 days after the date of this
Prospectus. Such agreements do not prevent the Company from granting options
under the Stock Option Plan so long as such options are not exercisable until
one year from the date of this Prospectus. Prudential Securities Incorporated,
Merrill Lynch & Co. and the Company may, in their discretion at any time and
without notice, jointly release
15
<PAGE> 18
all or any portion of the securities subject to such lock-up agreements. No
prediction can be made as to the effect, if any, that future sales of Common
Shares, or the availability of Common Shares for future sale, will have on the
market price of the Common Shares prevailing from time to time. Sales of
substantial amounts of Common Shares in the public market following the
Offering, or the perception that such sales could occur, could adversely affect
the market price of the Common Shares and may make it more difficult for the
Company to sell its equity securities in the future at a time and at a price
which it deems appropriate. If the persons holding the Class A Warrants, Class B
Warrants or options cause a large number of the Common Shares underlying such
securities to be sold in the market, such sales could have an adverse effect on
the market price for the Common Shares. See "Shares Eligible for Future Sale."
IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115. Annuity
Reassurance's investment portfolio is expected to consist primarily of
securities considered available for sale within the meaning of Financial
Accounting Standards No. 115. Securities available for sale may be disposed of
to meet liquidity requirements, or for any other reason, and are carried in the
balance sheet at fair (or market) value. Changes in the market value of these
securities are accounted for through adjustments to shareholders' equity.
Although not currently planned, Annuity Reassurance's investment portfolio may
in the future consist of securities to be held to maturity within the meaning of
Financial Accounting Standards No. 115. Securities held to maturity may be
disposed of only under certain specific circumstances and are carried in the
balance sheet at amortized cost. If Annuity Reassurance's investment portfolio
contained one or more securities classified as held to maturity and Annuity
Reassurance had to sell any of those securities, then all such securities
remaining in the held to maturity portfolio would have to be transferred to the
available for sale portfolio. This would result in those securities immediately
being valued on the balance sheet at market value, and any difference between
the market value and amortized cost at the date of transfer would then be
recognized as an adjustment to shareholders' equity at that date. Depending on
the market conditions for such securities at the date of transfer, this could
decrease the Company's reported shareholders' equity and adversely affect the
market price for the Common Shares.
FOREIGN CURRENCY FLUCTUATIONS. The Company's functional currency is the
United States dollar. However, because the Company expects that it may write a
portion of its business and receive premiums in currencies other than United
States dollars and may maintain a small portion of its investment portfolio in
investments denominated in currencies other than United States dollars, the
Company may experience exchange losses to the extent its foreign currency
exposure is not properly managed or otherwise hedged, which in turn would
adversely affect the Company's statement of operations and financial condition.
16
<PAGE> 19
USE OF PROCEEDS
The net proceeds from the sale of the 16,750,000 Common Shares offered in
the Offering are estimated to be $232.2 million, assuming an initial public
offering price of $15.00 per share (after deducting underwriting discounts and
commissions, certain advisory fees and other estimated expenses, including
payments to Inter-Atlantic Securities Corporation for its services and
reimbursement for certain expenses related to the Offering). See "Certain
Relationships and Related Party Transactions." The net proceeds from the Direct
Sales are estimated to be $61.0 million. Substantially all of the net proceeds
of the Offering and the Direct Sales will be contributed to the capital of
Annuity Reassurance to support its reinsurance underwriting capacity and will be
invested in accordance with the Investment Guidelines. See
"Business -- Investment Strategy." Until so invested, such proceeds will be
invested in short-term, investment grade, interest-bearing securities.
17
<PAGE> 20
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 22, 1997 and as adjusted to give effect to the Offering
and the Direct Sales and the receipt of the net proceeds therefrom (assuming an
initial public offering price of $15.00 per share). See "Use of Proceeds."
<TABLE>
<CAPTION>
AS ADJUSTED FOR
THE OFFERING AND THE
ACTUAL DIRECT SALES(2)
------ --------------------------
($ IN THOUSANDS)
<S> <C> <C>
Preferred Shares, par value $1.00 per share (50,000,000
shares authorized; no shares outstanding; no shares
outstanding as adjusted).................................. $ -- $ --
Common Shares, par value $1.00 per share (100,000,000 shares
authorized; 12,000 shares outstanding; 21,078,888 shares
outstanding as adjusted)(1)............................... 12 21,079
Additional paid-in capital.................................. 238 272,371
Retained earnings........................................... -- --
---- --------
Total shareholders' equity................................ 250 293,450
---- --------
Total capitalization........................................ $250 $293,450
==== ========
</TABLE>
- ---------------
(1) The Purpose Trust owns 12,000 Common Shares, which constitute all of the
currently outstanding Common Shares. Upon consummation of the Offering, the
Purpose Trust has agreed to sell such Common Shares to the Company for an
aggregate price of $12,000 and such Common Shares will be cancelled. Common
Shares outstanding excludes 2,529,465 Common Shares issuable upon exercise
of outstanding Class A Warrants, 272,500 Common Shares issuable upon
exercise of the Class B Warrants to be included in the Direct Sales,
1,089,063 Common Shares issuable upon exercise of options to be granted to
management and certain directors upon consummation of the Offering and
220,276 Common Shares reserved for future issuance pursuant to the Stock
Option Plan. If the Underwriters' over-allotment option is exercised in
full, 23,591,388 Common Shares will be outstanding, the number of Common
Shares issuable upon exercise of outstanding Class A Warrants will increase
to 2,830,966 Common Shares, the number of Common Shares issuable upon
exercise of options to be granted to management and certain directors upon
consummation of the Offering will increase to 1,207,152 Common Shares and
the number of Common Shares reserved for future issuance pursuant to the
Stock Option Plan will increase to 240,374 Common Shares. The number of
Common Shares issuable upon exercise of the Class B Warrants will not change
if the Underwriters' over-allotment option is exercised. The Class A
Warrants, Class B Warrants and options are not currently exercisable. See
"Management -- Stock Option Plan," "Description of Capital
Stock -- Warrants" and "Direct Sales."
(2) As adjusted does not give effect to any exercise of the Underwriters'
over-allotment option and excludes the 12,000 Common Shares currently held
by the Purpose Trust.
18
<PAGE> 21
DIVIDEND POLICY
The Company is a newly formed corporation and has not declared or paid any
cash dividends on its Common Shares. The Board of Directors of the Company
intends to declare and pay out of earnings a quarterly dividend of $.04 per
Common Share beginning at the end of the first full fiscal quarter following the
consummation of the Offering. It is the Company's policy to retain all earnings
in excess of such quarterly dividend to support the growth of its business. If
the Company's current and retained earnings do not support the payment of such
quarterly dividend, the dividend may be reduced or eliminated. In the event that
the Company makes a payment to shareholders in excess of its current and
retained earnings, such payment would be treated as a return of capital to
holders of the Common Shares. The declaration and payment of dividends by the
Company will be at the discretion of its Board of Directors and will depend upon
the Company's results of operations and cash flows, the financial position and
capital requirements of Annuity Reassurance, general business conditions, legal,
tax, regulatory and any contractual restrictions on the payment of dividends and
other factors the Board of Directors of the Company deems relevant. The
Company's ability to pay dividends depends on the ability of Annuity Reassurance
to pay dividends to the Company. While the Company is not itself subject to any
significant legal prohibitions on the payment of dividends, Annuity Reassurance
is subject to Bermuda regulatory constraints which affect its ability to pay
dividends to the Company. Accordingly, there is no assurance that dividends will
be declared or paid in the future. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations -- Liquidity and Capital Resources"
and "Business -- Regulation."
19
<PAGE> 22
DILUTION
Purchasers of the Common Shares offered in the Offering will experience an
immediate dilution in net tangible book value of their Common Shares from the
initial public offering price. After giving effect to the sale of 16,750,000
Common Shares in the Offering and 4,328,888 Common Shares in the Direct Sales,
the pro forma net tangible book value of the Common Shares (assuming an initial
public offering price of $15.00 per share and after deducting underwriting
discounts and commissions, certain advisory fees and other estimated expenses of
the Offering, including fees payable to Inter-Atlantic Securities Corporation)
will be approximately $293.2 million, or approximately $13.92 per outstanding
share. This represents an immediate dilution in net tangible book value to
investors purchasing shares in the Offering of approximately $1.08 per share,
without taking into account any Common Shares issuable upon exercise of Class A
Warrants, Class B Warrants and options. Pro forma "net tangible book value" per
outstanding share represents shareholders' equity divided by the number of
outstanding Common Shares, including the Common Shares issued in the Offering
and the Direct Sales. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Assumed initial public offering price....................... $15.00
Pro forma net tangible book value per outstanding share upon
completion of the Offering and the Direct Sales(1)........ 13.92
------
Dilution to new investors in the Offering................... $ 1.08
======
</TABLE>
- ---------------
(1) Does not include 2,529,465 Common Shares issuable upon exercise of
outstanding Class A Warrants (2,830,966 Common Shares if the Underwriters'
over-allotment option is exercised in full), 272,500 Common Shares issuable
upon exercise of the Class B Warrants to be included in the Direct Sales,
1,089,063 Common Shares issuable upon exercise of options to be granted to
management and certain directors upon consummation of the Offering
(1,207,152 Common Shares if the Underwriters' over-allotment option is
exercised in full) and 220,276 Common Shares reserved for future issuance
under the Stock Option Plan (240,374 Common Shares if the Underwriters'
over-allotment option is exercised in full). The number of Common Shares
issuable upon exercise of the Class B Warrants will not change if the
Underwriters' over-allotment option is exercised. The Class A Warrants,
Class B Warrants and options are not currently exercisable. The exercise of
the outstanding Class A Warrants and the options to be granted to management
and certain directors upon consummation of the Offering are not expected to
be dilutive to purchasers of the Common Shares in the Offering because the
exercise price per share of such warrants and options is equal to the
initial public offering price per share. Likewise, assuming an initial
public offering price of $15.00 per share, the Class B Warrants to be
included in the Direct Sales are not expected to be dilutive to purchasers
of the Common Shares in the Offering because the exercise price of the Class
B Warrants is $15.00 per share. See "Management -- Stock Option Plan,"
"Description of Capital Stock -- Warrants" and "Direct Sales."
The following table summarizes the number of Common Shares purchased from
the Company, the total consideration paid and the average price per share paid
in the Direct Sales and the Offering, assuming an initial public offering price
per share of $15.00 and estimated underwriting discounts and commissions:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
AMOUNT PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Direct Sales........................ 4,328,888 20.54% $ 61,037,321(1) 19.55% $14.10(2)
Offering............................ 16,750,000 79.46% $251,250,000 80.45% $15.00
---------- ------ ------------ ------ ------
Total............................... 21,078,888 100.00% $312,287,321 100.00% $14.82
========== ====== ============ ======
</TABLE>
- ---------------
(1) Represents amount paid in the aggregate for Common Shares and Class B
Warrants in the Direct Sales.
(2) The average price per share is based on the number of Common Shares
purchased in the Direct Sales and does not take into account the Class B
Warrants.
The calculations of net tangible book value and other computations above
assume no exercise of the Underwriters' over-allotment option.
20
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
The Company and Annuity Reassurance were formed on December 2, 1997 under
the laws of Bermuda, and neither has any operating history. Annuity Reassurance
has been licensed in Bermuda as a long-term insurer, which license authorizes it
to write reinsurance on annuity and life insurance-related risks. Their fiscal
years end on December 31. The Company's financial statements will be prepared in
accordance with GAAP.
LIQUIDITY AND CAPITAL RESOURCES
The Company will rely primarily on cash dividends from Annuity Reassurance
to pay its operating expenses and dividends, if any. The Board of Directors of
the Company intends to declare and pay out of earnings a quarterly dividend of
$.04 per Common Share beginning at the end of the first full fiscal quarter
following the consummation of the Offering. It is the Company's policy to retain
all earnings in excess of such quarterly dividend to support the growth of its
business. If the Company's current and retained earnings do not support the
payment of such quarterly dividend, the dividend may be reduced or eliminated.
In the event that the Company makes a payment to shareholders in excess of its
current and retained earnings, such payment would be treated as a return of
capital to holders of the Common Shares. The declaration and payment of
dividends by the Company will be at the discretion of its Board of Directors and
will depend upon the Company's results of operations and cash flows, the
financial position and capital requirements of Annuity Reassurance, general
business conditions, legal, tax, regulatory and any contractual restrictions on
the payment of dividends and other factors the Board of Directors of the Company
deems relevant. While the Company is not itself subject to any significant legal
prohibitions on the payment of dividends, Annuity Reassurance is subject to
Bermuda regulatory constraints which affect its ability to pay dividends to the
Company. Accordingly, there is no assurance that dividends will be declared or
paid in the future. See "Dividend Policy" and
"Business -- Regulation -- Bermuda."
The principal sources of funds for Annuity Reassurance's operations are
expected to be substantially all of the net proceeds of the Offering and the
Direct Sales, premiums, fees and net investment income, as well as maturities
and sales of invested assets. These funds are expected to be used primarily to
pay policy benefits, claims, operating expenses and commissions, as well as to
purchase new investments and, subject to Bermuda law, to make dividend payments
to the Company.
The principal risks associated with the reinsurance of both annuity and
life insurance products are mortality risk and investment risk. Mortality risk
is actuarially quantifiable when spread across large numbers of insureds. The
Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance policies. No
assurance can be given, however, that the Company will successfully match the
structure of its investments with its liabilities under reinsurance policies. If
the Company's calculations with respect to these reinsurance liabilities are
incorrect, or if it improperly structures its investments to match such
liabilities, it could be forced to liquidate investments prior to maturity at a
significant loss. Annuity Reassurance may also from time to time purchase or
sell common equity securities or equity-based futures and options solely
pursuant to strategies intended to hedge the equity-based investment risk
associated with the annuity and life insurance products which it reinsures. The
failure of Annuity Reassurance to match its equity investments accurately with
its equity-based liabilities could expose the Company to the volatility of the
equity markets and potential losses on such equity securities and equity-based
futures and options. In addition, the possible lack of liquidity for certain
futures and options could adversely affect the Company.
Annuity Reassurance 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 appropriate
security mechanisms are in place, it is anticipated that the Company's
reinsurance clients will typically require it to post a letter of credit or
other collateral. In the event that the Company should default under the letter
of credit facility, it may be required to liquidate prematurely all or a
substantial portion of its investment portfolio
21
<PAGE> 24
and/or its other assets which have been pledged as security for the facility or
otherwise secure its obligations to its reinsureds, which would likely have a
material adverse effect on the Company. Although the Company has received
commitments from two commercial banks to provide standby letter of credit
facilities, such commitments are subject to several conditions, including the
negotiation of definitive documentation. If the Company is unable to obtain a
letter of credit facility from such banks or from different lenders on
commercially acceptable terms, the Company's ability to operate its business
will be severely limited.
The Company does not currently have any material commitments for any
capital expenditures over the next twelve months. Its principal expenditures are
expected to consist of settlement of claims, compensation expenses and payments
to third-party service providers. The Company began incurring operating expenses
on January 1, 1998.
Marsh & McLennan has informed the Company that the information systems it
will use on the Company's behalf are Year 2000 compliant. Although the Company
has not independently tested such compliance, the Company does not believe that
it will have to commit any material resources to address any deficiencies in its
information systems related to Year 2000 issues.
Pursuant to an agreement between Inter-Atlantic Securities Corporation and
the Company, Inter-Atlantic Securities Corporation has agreed to provide certain
services in connection with the formation of the Company, including assistance
in recruiting senior management and obtaining necessary governmental permits.
Furthermore, in return for certain services related to the Offering, including
assistance in preparing a registration statement for the Common Shares,
retaining underwriters in connection with the Offering and such other services
as the Company or Inter-Atlantic Securities Corporation deems appropriate, the
Company has agreed to pay Inter-Atlantic Securities Corporation a fee of $2.0
million upon consummation of the Offering. Pursuant to such agreement,
Inter-Atlantic Securities Corporation is also entitled to receive an annual fee
of $600,000 for services provided after the consummation of the Offering, which
is payable in quarterly installments commencing on the first anniversary of the
consummation of the Offering through the fifth anniversary of the consummation
of the Offering. In exchange for such annual fee, Inter-Atlantic Securities
Corporation will assist the Company in the development of products, financial
planning, management of assets and liabilities, international marketing efforts
and such other services as the Company may request. The Company is also
obligated to reimburse Inter-Atlantic Securities Corporation for expenses it
incurs in connection with performing services related to the formation of the
Company, the Offering and the Company's ongoing operations. At December 22,
1997, Inter-Atlantic Securities Corporation had incurred expenses in connection
with the Company's organization of approximately $75,000 and costs in connection
with the Offering of approximately $400,000. If the Offering is successfully
completed prior to June 30, 1998, certain of these incurred but not currently
payable expenses may be paid directly by the Company rather than paid to
Inter-Atlantic Securities Corporation as a reimbursement. If the Offering is not
successfully completed prior to June 30, 1998, Inter-Atlantic Securities
Corporation will only be entitled to reimbursement of expenses incurred by it on
or after December 23, 1997. Upon consummation of the Offering, expenses incurred
by Inter-Atlantic Securities Corporation are currently estimated to be
approximately $ , of which approximately $ relates to services
provided in connection with the formation of the Company, approximately
$ relates to the Offering and approximately $ relates to
operating expenses incurred on the Company's behalf. The expenses payable to
Inter-Atlantic Securities Corporation that relate to the formation of the
Company will be capitalized and amortized to income evenly over five years. The
fees and expenses payable to Inter-Atlantic Securities Corporation that relate
to services provided to the Company in connection with the Offering will be
deducted from the gross proceeds of the Offering. The annual fee of $600,000 and
the expenses payable to Inter-Atlantic Securities Corporation as reimbursement
of operating expenses incurred on the Company's behalf will be expensed by the
Company when incurred.
Upon consummation of the Offering, the Company has agreed to pay Prudential
Securities Incorporated an advisory fee equal to $1.0 million (plus
reimbursement of related out-of-pocket expenses) for investment banking and
financial advisory services related to the Offering.
The Company expects that the net proceeds of the Offering and Direct Sales
will permit it to begin implementation of its business strategy. Over time,
internally generated funds plus a working capital line of
22
<PAGE> 25
credit and the capital base established by the Offering and Direct Sales are
expected to be sufficient to operate the Company's business, although no such
working capital line has yet been established and no assurance can be given that
such a facility will be obtained on terms acceptable to the Company.
Consequently, the Company does not presently anticipate that it will incur any
material indebtedness in the ordinary course of its business other than
obtaining letters of credit as security for its reinsurance agreements and a
working capital line of credit. However, there can be no assurance that the
Company will not be required to incur other indebtedness in order to implement
its business strategy.
CURRENCY
The Company's functional currency is the United States dollar. However,
because the Company expects that it may write a portion of its business and
receive premiums in currencies other than United States dollars and may maintain
a small portion of its investment portfolio in investments denominated in
currencies other than United States dollars, the Company may experience exchange
losses to the extent its foreign currency exposure is not properly managed or
otherwise hedged, which in turn would adversely affect the Company's statement
of operations and financial condition. The Company will attempt to manage its
foreign currency risk by seeking to match its liabilities under reinsurance
policies that are payable in foreign currencies with investments that are
denominated in such currencies. Furthermore, the Company may use forward foreign
currency exchange contracts in an effort to hedge against movements in the value
of foreign currencies relative to the United States dollar. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Foreign currency exchange contracts will not eliminate fluctuations in the value
of the Company's assets and liabilities denominated in foreign currencies but
rather allow the Company to establish a rate of exchange for a future point in
time. The Company does not expect that it will enter into such contracts with
respect to a material amount of its assets.
TAXATION
Bermuda does not currently impose a corporate level tax on the profits or
income of the Company, although it may do so in the future. The Company and
Annuity Reassurance have each received an assurance from the Bermuda Minister of
Finance under The Exempted Undertakings Tax Protection Act 1966 of Bermuda to
the effect that if there is 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, Annuity
Reassurance or to any of their operations or shares, debentures or other
obligations of the Company or Annuity Reassurance until March 2016. There can be
no assurance that after such date the Company or Annuity Reassurance would not
be subject to any such tax. See "Certain Tax Considerations -- Taxation of the
Company and Annuity Reassurance -- Bermuda." Because the Company and Annuity
Reassurance are not expected to conduct business in the United States, and
Annuity Reassurance will not be licensed to do business in the United States or
any other jurisdiction except Bermuda, and because Annuity Reassurance expects
to qualify for the benefits of the tax treaty between the United States and
Bermuda, it is not expected that the Company or Annuity Reassurance will be
subject to United States federal income taxes or any other corporate level tax.
The United States does impose 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 applicable to reinsurance premiums to be paid
to Annuity Reassurance is currently 1%. In addition, the Company may be subject
to withholding tax on certain investment income from United States sources, but
the Company does not expect to incur such withholding taxes in any material
amounts. See "Certain Tax Considerations."
EFFECTS OF INFLATION
The effects of inflation on the Company will be implicitly considered in
pricing and estimating reserves for unpaid losses. The actual effects of
inflation on the results of the Company cannot be accurately known until claims
are ultimately settled.
23
<PAGE> 26
BUSINESS
The Company and Annuity Reassurance were recently organized in Bermuda to
provide annuity and life reinsurance. The Company intends to market its
reinsurance products to select insurers and reinsurers on a worldwide basis,
with its primary target market initially being North America. Upon consummation
of the Offering, the Company expects to be the first publicly-traded
Bermuda-based reinsurance company focused principally on writing annuity and
life reinsurance.
By focusing on annuity and life reinsurance, the Company will seek to
participate in what it believes to be a market with significant growth
potential. As of year end 1996, according to LIMRA, United States annuity assets
under management totaled approximately $919 billion, and, according to A.M.
Best, approximately $17.6 trillion of life insurance was in force in the United
States. Management believes that annuity reinsurance presents an attractive
opportunity because of the large potential size of the market coupled with the
limited number of companies currently providing such reinsurance on a
third-party basis. Furthermore, management believes that the demand for the
Company's life reinsurance products should be aided by growth in new life
reinsurance business production which, based on the annual Munich American
Survey, grew at a compounded annual rate of approximately 28% from 1993 to 1996,
excluding retrocessional and group life reinsurance.
The Company's business strategy has been developed to respond to a number
of trends in the insurance and reinsurance industries, which trends management
believes are increasing the demand for annuity and life reinsurance, including:
- Increasing risk-based capital and reserve requirements being applied to
annuity issuers and life insurers by regulatory bodies and rating
agencies;
- Continuing consolidation in the annuity and life insurance industry,
including strategic decisions to divest large blocks of business through
the use of reinsurance;
- Increasing demutualization activity by mutual life insurers leading to
increasing demand for reinsurance;
- Growing use of multiple reinsurance partners by annuity issuers and life
insurers; and
- Expanding price sensitivity among purchasers of reinsurance.
Management believes that through controls on overhead costs and the absence of a
corporate level tax in Bermuda on the Company's revenues and earnings, the
Company will be able to capitalize on these trends by having one of the lowest
cost structures in the annuity and life reinsurance industry. The Company
expects that these factors will enable it to offer its products at attractive
prices and to compete effectively in the annuity and life reinsurance market.
Upon consummation of the Offering and the Direct Sales, the Company will
have an equity capitalization of approximately $293 million, assuming an initial
public offering price of $15.00 per share. Management believes that this level
of capitalization will demonstrate a strong financial position and a high level
of commitment to the annuity and life reinsurance market and will enable the
Company to compete for desirable business and establish long-term relationships
with a select group of primary insurers and reinsurers. As a newly-formed
entity, the Company's capital is presently unencumbered by issues of loss
reserve adequacy, unrealized losses in its investment portfolio and
uncollectible reinsurance. In addition, although the Company does expect that it
may seek a working capital line of credit to finance its operations, the Company
does not presently have any indebtedness. In part because of the Company's
expected capitalization following the Offering and the Direct Sales, A.M. Best
has assigned Annuity Reassurance a preliminary Best Rating of "A-" (Excellent),
and Duff & Phelps has assigned Annuity Reassurance a preliminary claims paying
ability rating of "A." Each such rating is contingent on the Company raising
gross proceeds of $250 million in the Offering . A.M. Best assigns an "A-"
(Excellent) rating to companies that have, in its opinion on balance, excellent
financial strength, operating performance and market profile, as well as strong
abilities to meet their ongoing obligations to policy holders. Duff & Phelps
assigns an "A" rating to companies that it characterizes as having high claims
paying ability, average protection factors and an expectation of variability in
risk over time due to economic or underwriting conditions.
24
<PAGE> 27
The Company's principal executive office is located at Victoria Hall,
Victoria Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda, and its telephone
number is (441) 296-7667.
BUSINESS STRATEGY
The Company's objective is to develop an efficient, low cost annuity and
life reinsurance business that will enable it to achieve attractive total rates
of return for its shareholders through prudent underwriting of insurance risks
and careful management of its investment portfolio. The Company will seek to
achieve this objective through the implementation of its business strategy, the
principal components of which are:
- - Maintain Low Cost Structure
Management believes that the price of reinsurance is the primary determinant
used by its potential clients in selecting an annuity or life reinsurer.
Consequently, a key component of the Company's business strategy is to
maintain a low cost structure. The Company intends to focus on writing
primarily treaty reinsurance and reinsuring large blocks of business where the
underlying policies meet the underwriting criteria of the primary insurer. The
Company anticipates that this focus will permit it to make fewer underwriting
assessments than would typically be required with respect to the underwriting
of a large number of individual policies. As a consequence, the Company
expects to limit its number of employees initially to approximately ten and to
use third-party service providers to perform certain functions. As a part of
this strategy, the Company has contracted with Marsh & McLennan to provide
claims processing and other administrative services. By minimizing its
personnel and overhead costs, the Company expects to be better able to control
expense levels as market conditions for writing reinsurance fluctuate. In
addition, the Company also expects to benefit from the absence of a corporate
level tax in Bermuda on the Company's revenues and earnings. As a result of
these factors, the Company expects to have one of the lowest cost structures
in the annuity and life reinsurance industry.
- - Utilize a Disciplined Underwriting Approach
The Company's reinsurance underwriting strategy is to utilize an experienced
underwriting team to select opportunities with acceptable risk/return profiles
based on sophisticated actuarial and investment modeling techniques. The
principal risks associated with the reinsurance of both annuity and life
insurance products are mortality risk and investment risk. Mortality risk is
actuarially quantifiable when spread across large numbers of insureds. The
Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance policies. In
addition, the Company's underwriting guidelines limit the maximum aggregate
net risk on any one life to $1.0 million and require any purchaser of
reinsurance from the Company to retain at least 10% of the total risk being
reinsured. Waivers of the Company's underwriting guidelines, including waivers
of the 10% retention requirement, must be approved by the Company's Board of
Directors. Initially, the Company intends to supplement its underwriting
analyses with commercially available actuarial models and may retain
consultants to assist in the analysis of the risks that it reinsures, while it
develops its own proprietary models. The Company believes that its focus on
annuity and life reinsurance will enable it to structure its reinsurance
products to meet the specific requirements of its clients while managing its
exposure to the risks being assumed. Furthermore, the reinsurance of annuity
and life insurance products will not expose the Company to the catastrophic
risks normally associated with property/casualty reinsurance, which the
Company does not intend to write.
- - Employ Professional Investment Management
The Company will seek to generate attractive levels of investment income
through a professionally managed fixed income investment portfolio. Annuity
Reassurance has entered into an investment advisory agreement with PIMCO,
which is anticipated to manage initially approximately 50% of Annuity
Reassurance's investment portfolio. Annuity Reassurance also expects to retain
Alliance Capital Management Company and The Prudential Investment Corporation
to manage a portion of its investment portfolio. Annuity Reassurance may also
retain additional investment managers from time to time. Each Investment
Manager will have discretionary authority over the portion of Annuity
Reassurance's investment portfolio allocated to it, subject to Annuity
Reassurance's Investment Guidelines. Annuity Reassurance's investment
portfolio
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will principally consist of investment grade fixed income securities and will be
invested in an effort to match Annuity Reassurance's anticipated liabilities
under the reinsurance policies it writes. Assets held in the investment
portfolio that Annuity Reassurance believes exceed such anticipated
liabilities, if any, will be invested in an attempt to maximize total return
as well as to provide for diversification of risk and maintenance of
liquidity, and up to 25% of such assets may be invested in fixed income
securities that are rated below investment grade. The Investment Guidelines
require Annuity Reassurance's overall fixed income portfolio to maintain a
minimum weighted average rating of "A". The Investment Guidelines prohibit any
investment in common equity securities or equity-based futures and options
other than pursuant to strategies intended to hedge the equity-based
investment risk associated with annuity and life insurance products which
Annuity Reassurance reinsures.
- - Capitalize on Skill and Experience of Management and Board of Directors
The Company has assembled a senior management team of experienced insurance
and reinsurance professionals to implement its strategy. The Company's
President and Chief Executive Officer, Lawrence S. Doyle, has over 32 years of
experience in the insurance and reinsurance industries and was formerly the
President and Chief Executive Officer of a Bermuda-based start up reinsurance
Company, GCR. Mr. Doyle founded GCR in 1993 as a reinsurer specializing in
catastrophe risk and was largely responsible for the development of a new
client base, the hiring of marketing, underwriting and administrative
personnel and the overall development of the business. In 1997, GCR was
acquired by EXEL, and Mr. Doyle became an Executive Vice President of EXEL.
Before founding GCR, Mr. Doyle was Senior Vice President of Hartford Insurance
Group in charge of international operations, where he was employed for 27
years, the last six of which he was also the President of Hartford Fire
International. Robert J. Reale, a Senior Vice President and the Chief
Underwriter of the Company has over 19 years of experience in the insurance
and reinsurance industries and was formerly a Vice President of Swiss Re Life
& Health. Mr. Reale also served as the President of Swiss-Am Reassurance
Company and Atlantic International Reinsurance Company (Barbados), both
affiliates of Swiss Re Life & Health. While employed by Swiss Re Life &
Health, Mr. Reale was assigned overall pricing responsibility for that
company's United States life and annuity reinsurance market. William W. Atkin,
the Chief Financial Officer and Treasurer of the Company, has 25 years
experience in the insurance industry. Mr. Atkin served as an Executive Vice
President, the Chief Financial Officer and a director of Security Mutual Life
Insurance Company of New York. While employed by Security Mutual Life
Insurance Company of New York, Mr. Atkin was responsible for that company's
operating plans, annuity product line and relationships with credit rating
agencies, investment advisors, banks and independent accountants. The
Company's Board of Directors consists of several individuals with extensive
experience in the insurance and financial services industries. Management
believes that the reputation and expertise possessed by the Company's officers
and directors should provide the Company with a marketing advantage.
INDUSTRY TRENDS
The Company's business strategy has been developed to respond to a number
of trends in the insurance and reinsurance industries, which management believes
are increasing the demand for annuity and life reinsurance.
As of year end 1996, according to LIMRA, United States annuity assets under
management totaled approximately $919 billion, and, according to A.M. Best,
approximately $17.6 trillion of life insurance was in force in the United
States. Management believes that annuity reinsurance presents an attractive
opportunity because of the large potential size of the market coupled with the
limited number of companies currently providing such reinsurance on a
third-party basis. Furthermore, management believes that the demand for the
Company's life reinsurance products should be aided by the growth in new life
reinsurance business production which, based on the annual Munich American
Survey, grew at a compounded annual rate of approximately 28% from 1993 to 1996,
excluding retrocessional and group life reinsurance.
In recent years, state insurance regulators in the United States have
established increasingly stringent reserve and capital requirements applicable
to outstanding insurance policies, which management believes has created
additional demand for reinsurance. For example, certain regulations have
recently been approved by
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individual states that are expected to increase reserve requirements for many
annuity and life insurance products, the most prominent being the adoption by
New York of Regulation 147, which sets higher capital standards for certain
products, including guaranteed renewable term life insurance. Other states have
adopted a version of the National Association of Insurance Commissioners'
Valuation of Life Insurance Policies Model Regulation, which is similar to
Regulation 147. Management believes that this trend towards higher risk-based
capital and reserve requirements will continue in the future and that the
Company will benefit from an associated increased demand for reinsurance. In
addition, rating agencies are emphasizing quality of capital, as well as scale
of core operations, efficiency and cost structure in determining the financial
strength of primary life insurers. Management believes that these trends will
also increase the demand for reinsurance as primary insurers seek to improve
their return on equity, level of efficiency and accessibility to available
capital.
Management expects that there will be continuing consolidation in the
annuity and life insurance industry. This trend is likely to increase the need
for reinsurance of annuity and life insurance products as acquirers seek to
restructure the resulting entities, focus on core markets and achieve better
leveraging of existing capital to improve financial performance. In addition,
primary insurers are expected to continue to seek reinsurance for large blocks
of business as part of an effort towards greater strategic focus on well-defined
product markets.
Furthermore, some mutual life insurers have announced plans to
"demutualize" during the upcoming years. Demutualization is a process by which a
mutual life insurer, a non-stock corporation owned by its policyholders, becomes
a shareholder-owned insurance company. As part of the demutualization process,
mutual life insurers will be subject to close examination by regulatory
authorities and the investing public. Once demutualized, such insurers will
generally be required to report public financial results on a quarterly basis.
Management believes that these factors will cause many such companies to
restructure their lines of business, to improve the quality of their reinsurance
as well as to generate higher levels of earnings by accelerating the reporting
of the results of profitable blocks of business through reinsurance.
Management also believes that the growing use of multiple reinsurance
partners by annuity issuers and life insurers will present opportunities for the
Company to market its reinsurance products. Primary insurers often prefer to
diversify their risk among multiple reinsurers so as to reduce their dependence
upon any one reinsurer.
Management further believes that expanding price sensitivity among
purchasers of reinsurance will favor the Company's reinsurance products. The
Company, because of its anticipated control of overhead costs and the absence of
a corporate level tax in Bermuda, is expected to have one of the lowest cost
structures in the annuity and life reinsurance industry. This anticipated low
cost structure is expected to enable the Company to offer its products at
attractive prices and to take advantage of this increasing price sensitivity
among purchasers of reinsurance.
OVERVIEW OF REINSURANCE
Reinsurance is an arrangement under which an insurance company (the
"reinsurer") agrees to indemnify or assume the obligations of another insurance
company (the "ceding company" or "cedent") for all or a portion of the insurance
risks underwritten by the ceding company. It is standard industry practice for
primary insurers to reinsure portions of their insurance risks with other
insurance companies under indemnity reinsurance agreements. Such practice
permits primary insurers to write policies in amounts larger than the risks they
are willing to retain. Reinsurance is generally designed to (i) reduce the net
liability of the ceding company on individual risks, thereby assisting the
ceding company in increasing the volume of business it can underwrite, as well
as increasing the maximum risk it can underwrite on a single life or risk; (ii)
assist in stabilizing operating results by leveling fluctuations in the ceding
company's loss experience; (iii) assist the ceding company in meeting applicable
regulatory capital requirements; (iv) assist in reducing the short-term
financial impact of sales and other acquisition costs; and (v) enhance the
ceding company's financial strength and statutory capital. Ceding companies
typically contract with more than one reinsurer to reinsure their business.
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Reinsurance may be written on an indemnity or an assumption basis. However,
the Company presently expects to write only indemnity reinsurance. Indemnity
reinsurance does not discharge a ceding company from liability to the
policyholder; a ceding company is required to pay the full amount of its
insurance obligations regardless of whether it is entitled or able to receive
payments from its reinsurers. By contrast, reinsurance written on an assumption
basis effectively transfers the ceding company's obligations to the reinsurer
and, in some cases, eliminates the ceding company's further liability to the
insured. Reinsurers also may themselves purchase reinsurance, known as
retrocession reinsurance, to limit their own risk exposure. Reinsurance
companies enter into retrocession agreements with other reinsurers
("retrocessionaires") for reasons similar to those that cause primary insurers
to purchase reinsurance.
ANNUITY AND LIFE INSURANCE PRODUCTS TO BE REINSURED
The Company's primary business will be the reinsurance of the obligations
of insurers under annuity and life insurance contracts. The Company expects to
enter into reinsurance agreements with respect to cedents' obligations on one or
more of their individual and group annuity products, including fixed annuities,
variable annuities, equity-linked annuities, guaranteed investment contracts and
structured settlements, and individual life insurance products, including term
life insurance, universal life insurance, variable life insurance and whole life
insurance. The Company expects to write reinsurance both on a direct and
brokered basis with both primary annuity issuers and life insurers as well as
reinsurers.
When the Company enters into a reinsurance contract it will generally
receive periodic premium payments from the ceding company and will agree to
indemnify the ceding company for certain risks. Generally, the Company expects
to agree to indemnify the ceding company for a stated percentage of the cedings
company's risks associated with the reinsured business (often called "quota
share" or "proportional reinsurance"). The risks reinsured by the Company may
include mortality and investment risks and, to a lesser extent, early surrender
and lapse risks. Generally, most life reinsurance is written on a yearly
renewable term basis, where the predominant risk is the mortality of the
insured. However, most other types of fixed annuity and life reinsurance
typically contain a certain level of investment risk, with the reinsurer often
reinsuring a stated percentage of the ceding company's investment risk. The
Company's underwriting guidelines limit the maximum aggregate net risk on any
one life to $1.0 million and require any purchaser of reinsurance from the
Company to retain at least 10% of the total risk being reinsured. Waivers of the
Company's underwriting guidelines, including waivers of the 10% requirement,
must be approved by the Company's Board of Directors.
Annuity Products to be Reinsured
The Company expects to reinsure primarily "fixed" annuities, but may also
reinsure "variable" annuities from time to time. Fixed annuities are a type of
"general account" product because the assets backing fixed annuities are
recorded as part of the insurer's general funds and are subject to the claims of
its general creditors. In contrast, variable annuities are a type of "separate
account" product because the assets backing the variable annuities are placed in
segregated accounts and are generally not subject to the claims of the insurer's
general creditors. Annuities are long-term savings vehicles that generally are
marketed to customers over the age of 45 who are planning for retirement and
seeking secure, tax-deferred savings products. United States annuity products
generally enjoy an advantage over certain other retirement savings products
because the payment of United States federal income taxes on income credited on
annuity policies is deferred during the investment accumulation period. The
current budget proposal submitted to Congress by the Clinton Administration
includes certain provisions which, if not modified, would reduce the tax
advantages of certain annuity products. These provisions include a tax on
exchanges between certain types of annuity products, including exchanges among
investment options within a variable annuity. These tax changes would not affect
holders of annuities that do not make such exchanges. If these proposed tax
changes are enacted into law, they would adversely affect the Company. See "Risk
Factors -- Market for Annuity and Life Reinsurance."
General account annuities, which include equity-linked annuities, generally
have specified or minimum guaranteed performance levels. Consequently, general
account annuities involve a greater commitment of statutory surplus than
separate account annuities, as a reserve against the investment risk associated
with such policies, and therefore are more frequently reinsured. Separate
account annuities are investment vehicles that
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are held in segregated accounts for the benefit of the policyholder and are not
commingled with the other assets of the insurance company. Holders of such
annuities themselves generally bear the risks of the underlying investments. The
return on separate account annuities depends solely on the performance of the
assets underlying the particular separate account and, therefore, require less
capital reserves than fixed annuities.
The Company also may reinsure certain structured settlement contracts and
guaranteed investment contracts. Structured settlement contracts typically
provide for periodic payments arising from the settlement of personal injury and
other legal claims and from lottery payouts. Structured settlement contracts, as
well as guaranteed investment contracts issued by insurance companies, are often
classified as annuities in that they require periodic payments over a specified
period of time.
Insurance companies offer a variety of annuity products including (i)
single premium deferred annuities ("SPDAs"), which, in general, are savings
vehicles in which the policyholder, or annuitant, makes a single premium payment
to an insurance company and the insurance company credits the account of the
annuitant with earnings at a specified interest rate (the "crediting rate")
which may exceed but may not be lower than any contractually guaranteed minimum
crediting rate, and (ii) flexible premium deferred annuities ("FPDAs"), which
are deferred annuities in which the policyholder may elect to make more than one
premium payment. In addition, certain insurance companies in the United States
market a variety of tax-qualified retirement annuities to individuals
participating in tax-qualified plans, including employees of public schools and
certain other tax-exempt organizations. Tax-qualified retirement annuities tend
to be purchased by customers who are younger than purchasers of other annuity
products.
Insurance companies that issue annuities generally incorporate a number of
features in their annuity products designed to reduce the early withdrawal or
surrender of the policies and to partially compensate the company for lost
investment opportunities and costs if policies are withdrawn early. Typically,
the policyholder is permitted to withdraw all or part of the premium paid plus
the amount credited to his or her account, less a penalty or surrender charge
for withdrawals. Often, an insurer's deferred annuity contract provides for
penalty-free partial withdrawals, typically up to 10% of the accumulation value
annually. Annuity policies typically impose some surrender charge during the
period ranging from the first five years to the term of the policy. The initial
surrender charge on annuity policies generally ranges from 5% to 10% of the
premium and decreases over the surrender charge period. Surrender charges are
set at levels intended to protect the issuer from loss caused by early
terminations and to reduce the likelihood of policyholders terminating their
policies during periods of increasing interest rates, thereby lengthening the
effective duration of policy liabilities and improving the issuer's ability to
maintain profitability on such policies.
Life Insurance Products to be Reinsured
The Company expects to reinsure traditional life insurance products, such
as term life and whole life, and also non-traditional products, including
variable life and universal life. A term life insurance policy is a pure
mortality risk insurance product with no investment component. A term life
insurance policy is generally renewable for a fixed number of years, but the
policy expires without value at the end of the stated period. A traditional
whole life insurance policy is permanent life insurance combining an investment
component along with a death benefit. The insurance company credits the
investment component of the whole life policy with interest, generally
guaranteed, at regular intervals. Term life and whole life policies are
typically obligations of an insurance company's general account.
Variable life insurance provides a return linked to an underlying portfolio
in which policyholders are typically able to allocate their premiums among a
variety of investment funds. Like variable annuities, the assets backing
variable life insurance products are placed in separate accounts. As the total
return on the investment portfolio increases or decreases, as the case may be,
the death benefit or surrender value of the variable life policy may increase or
decrease. Single premium variable life products provide a death benefit to the
policy beneficiary based on a single premium deposit. Universal life and
interest-sensitive whole life insurance policies (which can either be single or
flexible premium policies) provide life insurance with adjustable rates of
return based on current interest rates. These policies provide policyholders
flexibility in the
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available coverage, timing and amount of premium payments and the amount of the
death benefit, provided there are sufficient policy funds to cover all
applicable policy charges.
The Company may also reinsure corporate owned life insurance ("COLI"). COLI
is life insurance purchased by a company on the life of its employees, with the
company named as the beneficiary under the policy. Through the purchase of COLI,
corporations have been able to use the favorable tax treatment of life insurance
to fund a variety of employee benefit liabilities such as post-retirement health
care and non-qualified benefit programs. The current budget proposal submitted
to Congress by the Clinton Administration includes certain provisions which, if
not modified, would increase taxes on the owners of certain COLI policies. If
these proposed tax changes were enacted into law, they could adversely affect
the Company; however, the Company does not expect the reinsurance of COLI
policies owned by United States persons to be a material portion of its
business. See "Risk Factors -- Market for Annuity and Life Insurance."
Like annuities, life insurance policies are subject to surrender. However,
they are generally less susceptible to surrender than are annuity contracts
because policyholders must generally undergo a new underwriting process and
incur new policy acquisition costs in order to obtain new life insurance
policies.
MARKETING
The Company has devised a marketing plan which calls for the development of
relationships with potential clients which management believes have a perceived
need for reinsurance based on regulatory filings, management's industry
knowledge and market trends. Given the nature of the Company's business, it
expects to target a limited number of potential clients which the Company
expects will be likely purchasers of its reinsurance products. Management
believes that these potential clients focus principally on price and, to a
lesser extent, service when making a decision between two or more reinsurance
companies offering similar products. The Company anticipates that it will be
able to capitalize on the relationships its officers and directors have
established in the insurance industry in the marketing of its products. The
Company also expects that its anticipated low cost structure will enable it to
offer its annuity and life reinsurance products at attractive prices. The
Company will also seek to compete on the basis of service by evaluating each
client's specific reinsurance needs and tailoring its reinsurance programs to
meet those needs, and by being responsive in processing claims. Initially, it is
anticipated that insurers and reinsurers located in North America will comprise
the majority of the Company's customers.
The Company may, from time to time, use intermediaries (reinsurance brokers
and consultants functioning as brokers) to enter into reinsurance treaties and,
to a lesser extent, facultative arrangements with ceding companies.
Intermediaries would generally not have the authority to bind the Company to any
reinsurance agreement, nor would the Company commit in advance to accept any
business generated by an intermediary. Any efforts of the intermediaries engaged
by the Company will be overseen and monitored by the Company's management and
Board of Directors. The Company has held discussions with several of such
intermediaries and has notified them of the Company's intention to write annuity
and life reinsurance upon completion of the Offering.
During its first year of operation, the Company expects to reinsure annuity
and life insurance-related business with a small number of ceding companies, and
three to five ceding companies may represent a majority of the Company's
reinsurance activities.
RETROCESSIONAL ARRANGEMENTS
The Company may reinsure, or retrocede, portions of certain risks for which
it has accepted liability. Retrocessional arrangements will allow the Company
greater underwriting capacity while limiting its risk profile. The Company's
current policy is not to retain a net liability on any one life in excess of
$1.0 million. Liability in excess of the established limit, if not approved by
the Board of Directors, will generally be retroceded to retrocessionaires.
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UNDERWRITING
The Company's reinsurance underwriting strategy is to utilize an
experienced underwriting team to select opportunities with acceptable
risk/return profiles based on sophisticated actuarial and investment modeling
techniques. The principal risks associated with the reinsurance of both annuity
and life insurance products are mortality risk and investment risk. Mortality
risk is actuarially quantifiable when spread across large numbers of insureds.
The Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance agreements.
Initially, the Company intends to supplement its underwriting analyses with
commercially available actuarial models and may retain consultants to assist in
the analysis of the risks that it reinsures, while it develops its own
proprietary models. The Company believes that its focus on annuity and life
reinsurance will enable it to structure its reinsurance products to meet the
specific requirements of its clients while managing its exposure to the risks
being assumed. The underwriting process will be designed to specify an adequate
premium for a given exposure that is intended to be commensurate with the amount
of capital the Company estimates it is placing at risk. The Company's Chief
Executive Officer and Chief Underwriter will jointly approve all underwriting
decisions made under the Company's underwriting guidelines.
The Company has developed and its Board of Directors has approved
underwriting guidelines, with the objective of controlling the risks of the
reinsurance policies written as well as to determine appropriate pricing levels.
The Company's current underwriting guidelines include the following policies:
(i) the Company will not assume more than 90% of a risk and will require the
ceding company to retain at least 10% of every reinsured risk; (ii) the Company
will limit its net liability on any one life to no more than $1.0 million; (iii)
the ceding company must, among other things, be domiciled in the United States,
Canada, Western Europe, Australia or Bermuda, and possess underwriting and
claims practices consistent with industry practice; and (iv) the ceding company
may not exercise recapture rights for a period of ten years. The Company's
underwriting guidelines also provide that the Company may not write reinsurance
on, among other things: (i) group conversions, non-contractual conversions,
rollover or policy exchanges, or in cases in which full evidence and selection
criteria are not applied; (ii) policies that do not provide the maximum normal
levels of suicide and contestable periods; or (iii) business issued under an
experimental underwriting program or if the business to be reinsured is
comprised of more than 10% of substandard issues.
Any deviation from the Company's underwriting guidelines, as they may be
amended from time to time, will require the approval of the Board of Directors,
as will the approval of contracts in excess of a certain size or involving a
certain level of risk and contracts involving equity investment risks. In
approving contracts in excess of a certain size, the Board may also waive or
relax the requirement that cedents retain 10% of the reinsured risk. The Company
expects to review regularly its underwriting guidelines in light of changing
industry conditions, market developments and changes in technology. The Company
reserves the right at all times to amend, modify or supplement its underwriting
guidelines in response to such factors or for other reasons, including changing
the approved domiciles for reinsurance clients. The Company also will endeavor
to ensure that the underwriting guidelines of its ceding clients are compatible
with those of the Company. Toward this end, the Company anticipates that it will
periodically retain unaffiliated service providers to conduct reviews of the
Company's ceding clients' underwriting and claims personnel and procedures.
The Company will determine whether to assume any particular reinsurance
business by considering many factors, including the type of risks to be covered,
actuarial evaluations, historical performance data for the cedent and the
industry as a whole, the cedent's retention, the product to be reinsured,
pricing assumptions, underwriting standards, reputation and financial strength
of the cedent, the likelihood of establishing a long-term relationship with the
cedent and the market share of the cedent. Pricing of the Company's reinsurance
products will be based on the Company's actuarial models which incorporate a
number of factors, including assumptions for mortality, expenses, demographics,
persistency and investment returns, as well as certain macroeconomic factors,
such as inflation, and certain regulatory factors, such as taxation and minimum
surplus requirements.
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REINSURANCE AGREEMENTS
Automatic and Facultative Treaties
Although the Company's reinsurance policies may be written on an automatic
treaty basis or a facultative basis, the Company expects to write policies
primarily on an automatic treaty basis. An automatic reinsurance treaty provides
that the ceding company will cede risks to a reinsurer on specified policies
where the underlying policies meet the ceding company's underwriting criteria.
The reinsurer does not approve each individual risk, but rather analyzes the
risks associated with the entire group of policies covered by the treaty.
Automatic reinsurance treaties generally provide that the reinsurer will be
liable for a stated portion of the risk associated with the specified policies
written by the ceding company and that the cedent will retain a specified
portion of the risk for its own account (the "retention"). Automatic reinsurance
treaties also specify the ceding company's mortality limit on an individual
life, which is the maximum amount of risk on a given life that can be ceded
automatically and that the reinsurer must accept. The mortality limit may be
stated either as a multiple of the ceding company's retention or as a stated
dollar amount. Automatic business tends to be very price-competitive.
The Company will generally require ceding companies to retain at least 10%
of every risk reinsured by the Company, thereby increasing the ceding companies'
incentive to underwrite risks with care and, when appropriate, to contest claims
diligently. The Company's reinsurance agreements may provide for rights of
recapture, which will permit the ceding company to increase the amount of
liability it retains on the reinsured policies after the policies have remained
in force for a designated period of time. Accordingly, an increase in the amount
of liability retained by the ceding company will decrease both the Company's
insurance in force and premiums to be received.
The Company intends to focus on writing primarily treaty reinsurance and on
reinsuring large blocks of business where the underlying policies meet the
underwriting criteria of the primary insurer. The Company anticipates that this
focus will permit it to make fewer underwriting assessments than would typically
be required with respect to the underwriting of a large number of individual
policies. As a consequence, the Company expects to limit its number of employees
initially to approximately ten and to use third-party service providers to
perform certain functions.
To a lesser extent, the Company may also enter into facultative reinsurance
arrangements. Facultative reinsurance is individually underwritten by the
reinsurer for each policy to be reinsured, with the pricing and other terms
established at the time the policy is underwritten based upon rates negotiated
in advance. Facultative reinsurance normally is purchased by insurance companies
for medically impaired lives, unusual risks or liabilities in excess of binding
limits on their automatic treaties. Facultative reinsurance requires
significantly more underwriting staff and other corporate infrastructure than
automatic treaty reinsurance.
Forms of Reinsurance
Annuity and life reinsurance may be written as coinsurance, modified
coinsurance or yearly renewable term insurance, which vary with the type of risk
assumed and the manner of pricing the reinsurance. Once a contract is reinsured,
it typically cannot be unilaterally removed from the reinsurance agreement,
except pursuant to a ceding company's recapture rights. Recapture rights permit
the ceding company to reassume all or a portion of the risk formerly ceded to
the reinsurer after an agreed-upon period of time (generally 10 years) and
subject to certain other conditions, including that the ceding company kept its
full retention.
Under a coinsurance or modified coinsurance arrangement, the reinsurer
will, depending upon the terms of the contract, share in all material risks
inherent in the underlying policies, including the risk of loss due to
mortality, surrender and lapse, as well as investment performance. Under
modified coinsurance arrangements the ceding company retains ownership of the
assets supporting the reserves, whereas in coinsurance the ceding company
transfers the right to ownership of the assets supporting the reserves to the
reinsurer. Annuity reinsurance is traditionally written on a coinsurance or
modified coinsurance basis. Under coinsurance or modified coinsurance
arrangements, the Company's reinsurance agreements may remain in force for the
life of the underlying policies reinsured. In such cases, it is expected that
the Company would be entitled to renewal
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premiums absent the death of the insured, voluntary surrender or lapse of the
policy due to nonpayment of premium or the recapture by the ceding company of
the risks reinsured. Both the cedent and the reinsurer generally have the right
to terminate the agreement, with respect to new policies only, upon reasonable
notice. While annuity contracts underlying coinsurance or modified coinsurance
reinsurance are long-term policies, they may or may not involve long-term
investment risk. Management estimates that a significant amount of annuity
contracts currently underlying reinsurance treaties call for an annual (or more
frequent) reset of credited interest rates to market rates.
Life reinsurance is primarily written on a yearly renewable term basis.
Under a yearly renewable term treaty, the reinsurer assumes only the mortality
risk. At the end of the year, premiums readjust based on the age of the policy
and the age of the insured.
Generally, the amount of life reinsurance ceded under reinsurance
agreements is stated on either an excess or a quota share basis. Reinsurance on
an excess basis covers amounts in excess of an agreed-upon retention limit.
Retention limits vary by ceding company and also vary by age and underwriting
classification of the insured, product and other factors. Under quota share or
"proportional" reinsurance, the ceding company states its retention in terms of
a fixed percentage of the risk that will be retained, with the remainder up to
the maximum binding limit to be ceded to one or more reinsurers. The Company
plans to write reinsurance on both excess and quota share bases.
The Company may occasionally reinsure insurance policies on an experience
rated basis, under which the ceding company receives a refund of a portion of
the profits (through the retention of future premiums) resulting from favorable
claims experience with respect to the underlying policies.
ADMINISTRATION
The Company has entered into a contract with Marsh & McLennan to provide
management, administrative and consulting services to the Company. These
services are anticipated initially to include: (i) policyholder services,
including the issuance, endorsement and cancellation of policies and the
collection of premiums; (ii) claims processing; (iii) analysis of reinsurance
programs; (iv) maintenance of the Company's books and records, the preparation
of periodic reports to the Company and the administration of payroll and
employee benefits; (v) maintenance of bank accounts; and (vi) preparation of
Bermuda governmental reports. The initial term of the contract expires on
December 31, 1998, and the contract is renewable annually thereafter. The
contract is subject to termination by either party at any time upon 90 days'
written notice. Pursuant to the contract, Marsh & McLennan is entitled to
receive fees based on hourly rates with a $15,000 per year minimum. In addition,
the Company has agreed to indemnify Marsh & McLennan with regard to certain
liabilities to which Marsh & McLennan may become subject in connection with
performing services for the Company. As the Company's business grows, management
expects that it may become more cost effective to retain additional employees to
perform some of the functions that will initially be provided by Marsh &
McLennan. Management believes that the contractual relationship with Marsh &
McLennan will provide the Company with the flexibility needed to add such
additional employees in an orderly fashion.
The Company may also employ third-party contractors to conduct periodic
audits of the underlying policies reinsured by the Company.
RESERVES
In accordance with Bermuda insurance regulations, the Company will
establish and carry as liabilities actuarially determined reserves which will be
calculated to meet the Company's future obligations. Future policy benefits and
policy claims are expected to comprise the majority of the Company's financial
obligations and reserves therefor will be maintained on both a Bermuda
regulatory and GAAP basis. Future policy benefits will be based upon the
Company's best estimates of mortality, persistency and investment income, with
appropriate provision for adverse deviation and other factors. The liabilities
for future policy benefits established by the Company with respect to individual
risks or classes of business may be greater or less than those established by
ceding companies due to the use of different investment, mortality and other
assumptions. The Company's reserves will be computed at amounts that, with
additions from premiums to be received and
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<PAGE> 36
with interest on such reserves compounded annually at certain assumed rates, are
expected to be sufficient to meet the Company's policy obligations at their
maturities or in the event of an insured's death. Reserves may include unearned
premiums, premium deposits, claims reported but not yet paid, claims incurred
but not reported and claims in the process of settlement.
Coinsurance agreements regarding variable products will ordinarily require
the Company to establish separate accounts to hold policyholder-controlled
assets and liabilities. Such assets and liabilities will be segregated from the
Company's other assets and liabilities on both the Company's Bermuda regulatory
and GAAP statements. While the Company has legal responsibility for the proper
maintenance of such segregated accounts, the books and records of such accounts
initially will be maintained by Marsh & McLennan as part of its insurance
services contract with the Company.
The stability of the Company's annuity and interest-sensitive life
reinsurance reserves is expected to be enhanced by policy restrictions on
withdrawal of funds by policyholders. Withdrawals in excess of allowable
penalty-free amounts are assessed a surrender charge during a penalty period,
ranging from the first five years to the term of the policy.
INVESTMENT STRATEGY
Investments made by Annuity Reassurance will be governed by the Investment
Guidelines and by accounting regulations prescribed by Bermuda insurance laws
and regulations. Annuity Reassurance's investment portfolio will principally
consist of investment grade fixed income securities and will be invested in an
effort to match Annuity Reassurance's anticipated liabilities under the
reinsurance policies it writes. Assets held in the investment portfolio that
Annuity Reassurance believes exceed such anticipated liabilities, if any, will
be invested in an attempt to maximize total return as well as to provide for
diversification of risk and maintenance of liquidity, and up to 25% of such
assets may be invested in fixed income securities that are rated below
investment grade. While any investment carries some risk, the risks associated
with lower-rated securities are greater than the risks associated with
investment grade securities. The risk of loss of principal or interest through
default is greater because lower-rated securities are usually unsecured and are
often subordinated to an issuer's other obligations. Additionally, the issuers
of these securities frequently have high debt levels and are thus more sensitive
to difficult economic conditions, individual corporate developments and rising
interest rates which could impair an issuer's capacity or willingness to meet
its financial commitment on such lower-rated securities. Consequently, the
market price of these securities may be quite volatile, and the risk of loss is
greater. The Investment Guidelines require Annuity Reassurance's overall fixed
income investment portfolio to maintain a minimum weighted average rating of
"A". A fixed income security rated "A" by Standard & Poor's Ratings Group is
somewhat susceptible to the adverse effects of changes in circumstances and
economic conditions, however, the issuer's capacity to meet its financial
commitment on the security is still strong. The Company will not invest in any
fixed income securities in emerging markets or which are not rated by a major
rating agency.
The Investment Guidelines also provide that Annuity Reassurance may
purchase, among other things, securities issued by the United States government
and its agencies and instrumentalities, securities issued by foreign governments
if rated "A" or better by at least one major rating agency, asset backed
securities, preferred stocks, mortgage backed securities and corporate debt
securities (including convertible debt securities), but may not include
payment-in-kind corporate securities.
Furthermore, the Investment Guidelines prohibit investments in (i) direct
real estate; (ii) oil and gas limited partnerships; (iii) commodities; (iv)
venture capital investments, including private equity or its equivalent; and (v)
United States investments consisting of (a) partnership interests, (b) residual
interests in Real Estate Mortgage Investment Conduits, (c) any "pass through"
certificate unless all underlying debt was issued on or after July 18, 1984, (d)
cash settlement options and forwards if no United States exchange traded future
on the same property exists, (e) options and forwards on indices which are not
traded on United States exchanges, (f) collateralized mortgage obligations,
unless issued with an opinion of counsel stating that such obligations will be
considered debt for tax purposes, (g) real property interests, including equity
in and convertible debt obligations of real property holding corporations the
sale of which would be subject to tax,
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(h) any tangible property, (i) any debt obligation the interest on which does
not qualify as "portfolio interest" or is otherwise subject to United States
withholding tax and (j) any investment that does not qualify as a stock or
security for purposes of Section 864(b)(2) of the Code.
The Company will be exposed to two primary sources of investment risk on
its fixed income investments: credit risk, relating to the uncertainty
associated with the continued ability of a given obligor to make timely payments
of principal and interest, and interest rate risk, relating to the market price
and/or cash flow variability associated with changes in market interest rates.
The Company will seek to manage credit risk through industry and issuer
diversification and asset allocation. The Company will seek to manage interest
rate risk by structuring its investments to match its anticipated liabilities
under reinsurance agreements, and through the use of hedging techniques. The
reinsurance of certain products may obligate the Company to credit a return with
respect to a reinsured policy which is derived from a market or other benchmark
rate. In order to manage the investment risks associated with these products,
the Company may enter into interest rate hedges or other similar transactions.
The Company may also enter into hedges to reduce potential mismatch between
durations of assets and liabilities and offset the potential cash flow impact
caused by interest rate changes. The Investment Guidelines provide that the
fixed income investment portfolio may not be leveraged and that purchases of
securities on margin and short sales may not be made without approval from the
Finance and Investment Committee of the Company's Board of Directors.
Annuity Reassurance may also from time to time purchase or sell common
equity securities or equity-based futures and options solely pursuant to
strategies intended to hedge the equity-based investment risk associated with
annuity and life insurance products which it reinsures. The failure of Annuity
Reassurance to match its equity investments accurately with its equity-based
liabilities could expose the Company to the volatility of the equity markets and
potential losses on such equity securities and equity-based futures and options.
In addition, the possible lack of liquidity for certain futures and options
could adversely affect the Company.
The Finance and Investment Committee of the Company's Board of Directors
will periodically review Annuity Reassurance's investment portfolio and the
performance of the Investment Managers. The Finance and Investment Committee can
approve exceptions to the Investment Guidelines and will periodically review the
Investment Guidelines in light of prevailing market conditions. The Investment
Managers and the Investment Guidelines may change from time to time as a result
of such reviews.
INVESTMENT MANAGERS
Annuity Reassurance has entered into an investment advisory agreement with
PIMCO, which is anticipated to manage initially approximately 50% of Annuity
Reassurance's investment portfolio. Annuity Reassurance also expects to retain
Alliance Capital Management Company and The Prudential Investment Corporation to
manage a portion of its investment portfolio. The Company conducted extensive
interviews with several investment management firms before selecting the
Investment Managers. The Investment Managers were selected primarily based on
their expertise in managing fixed-income investments. Each Investment Manager
will have discretionary authority over the portion of Annuity Reassurance's
investment portfolio allocated to it, subject to the Investment Guidelines.
PIMCO is one of the largest fixed income money managers in the United
States. PIMCO is a subsidiary of PIMCO Advisors L.P. According to information
supplied by PIMCO, as of December 31, 1997, PIMCO had aggregate assets under
management of approximately $118.0 billion, of which approximately 90% consisted
of fixed-income assets and approximately 10% consisted of equity-related assets.
The agreement with PIMCO will continue until December 31, 1999, although PIMCO
may terminate the agreement at any time upon 30 days' advance notice, and the
Company may terminate PIMCO's authority to manage the Company's investment
portfolio at any time, effective immediately upon notice, although PIMCO would
be entitled to its fees for 30 days after such notice is given. PIMCO is
entitled to receive a fee for its services at an annual rate between 0.50% and
0.20% of the value of the assets it manages on behalf of the Company.
The Company expects that Alliance Capital Management Company will receive a
fee for its services at an annual rate between 0.25% and 0.17% of the value of
the assets it manages on behalf of the Company and
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<PAGE> 38
that The Prudential Investment Corporation will receive a fee for its services
at an annual rate between 0.20% and 0.15% of the value of the assets it manages
on behalf of the Company. The exact fee rate charged by each Investment Manager
is dependent upon the amount of assets it manages on behalf of the Company.
COMPETITION
The reinsurance industry is highly competitive, and the Company expects to
compete with the major reinsurers. The Company's initial target market will be
North America. According to management's estimates, there are approximately 25
reinsurers of annuity or life insurance products located in the United States.
There are also numerous foreign reinsurers which compete for reinsurance
business in the United States and abroad. These competitors primarily reinsure
life insurance and health insurance risks and, to a lesser degree, annuity
risks. Upon consummation of the Offering, the Company expects to be the first
publicly-traded Bermuda based reinsurance company that focuses principally on
writing annuity and life reinsurance. Most, if not all, of these competitors are
expected to compete for annuity and life reinsurance business in the future.
Most of these competitors are well established, have significant operating
histories and strong claims paying ability ratings, and have developed
long-standing client relationships through existing treaties with cedents.
Reinsurers compete on the basis of many factors, including pricing and
other terms and conditions of reinsurance agreements, financial strength,
reputation, service and experience in the types of business underwritten. The
Company believes that the reinsurers with the largest market share in the United
States annuity and life reinsurance market include Lincoln National Corporation,
Transamerica Occidental Life Insurance Company, Reinsurance Group of America
Inc., General Re Corp., Life Re Corp. and Employers Reassurance Corporation, and
on a global basis also include Swiss Reinsurance and Munich Reinsurance. The
Company has no experience in competing with such other companies and there can
be no assurance that it will be successful.
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 an
unfavorable rating or the lack of a rating of its reinsurer. A.M. Best has
assigned Annuity Reassurance a preliminary Best Rating of "A-" (Excellent), and
Duff & Phelps has assigned Annuity Reassurance a preliminary claims paying
ability rating of "A." Each such rating is contingent on the Company raising
gross proceeds of $250 million in the Offering. A.M. Best assigns an "A-"
(Excellent) rating to companies that have, in its opinion, on balance, excellent
financial strength, operating performance and market profile, as well as strong
abilities to meet their ongoing obligations to policyholders. Duff & Phelps
assigns an "A" rating to companies that it characterizes as having high claims
paying ability, average protection factors and an expectation of variability in
risk over time due to economic or underwriting conditions.
Annuity Reassurance 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 appropriate
security measures are in place, it is anticipated that the Company's reinsurance
clients will typically require it to post a letter of credit or other
collateral. Although the Company has received commitments from two commercial
banks to provide standby letter of credit facilities, such commitments are
subject to several conditions, including the negotiation of definitive
documentation. If the Company is unable to obtain a letter of credit facility
from such banks or from other lenders on commercially acceptable terms, the
Company's ability to operate its business will be severely limited.
PROPERTY
The Company has subleased office space in Hamilton, Bermuda from Marsh &
McLennan at which the principal offices of the Company and Annuity Reassurance
are located. The subleased office space consists of offices and work stations
for eight employees. The $5,000 monthly rent payable to Marsh & McLennan
includes utilities and certain office furnishings and equipment. The sublease is
scheduled to expire on
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December 31, 1998, and is renewable annually thereafter by agreement of the
parties, but it may be terminated at any time by either party on 90 days'
written notice.
LEGAL PROCEEDINGS
The Company is not currently involved in any litigation or arbitration. The
Company anticipates that it will be subject to litigation and arbitration in the
ordinary course of business.
REGULATION
Bermuda
The Insurance Act 1978, as amended, and Related Regulations. As a holding
company, the Company is not subject to Bermuda insurance regulations. The
Insurance Act, which regulates the insurance business of Annuity Reassurance,
provides that no person shall carry on an insurance business in or from within
Bermuda unless registered as an insurer under the Insurance Act by the Minister
of Finance (the "Minister"). The Minister, in deciding whether to grant
registration, has broad discretion to act as the Minister thinks fit in the
public interest. The Minister is required by the Insurance 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. The registration of an applicant as an insurer is
subject to its complying with the terms of its registration and such other
conditions as the Minister may impose at any time.
An Insurance Advisory Committee appointed by the Minister advises the
Minister on matters connected with the discharge of the Minister's functions and
sub-committees thereof supervise and review the law and practice of insurance in
Bermuda, including reviews of accounting and administrative procedures.
The Insurance 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. Certain significant aspects of the Bermuda insurance
regulatory framework are set forth below.
Classification of Insurers. The Insurance Act distinguishes between
insurers carrying on long-term business and insurers carrying on general
business. As Annuity Reassurance has been incorporated to provide reinsurance of
annuity and life insurance-related risks, it has been registered as a long-term
insurer in Bermuda and expects to be regulated as such under the Insurance Act.
An insurer carrying on long-term business is required to keep its accounts
in respect of its long-term business separate from any accounts kept in respect
of any other business and all receipts of its long-term business form part of
its long-term business fund. No payment may be made from an insurer's long-term
business fund for any purpose other than a purpose related to the insurer's
long-term business, except insofar as such payment can be made out of any
surplus certified by the insurer's approved actuary to be available for
distribution otherwise than to policyholders. No insurer carrying on long-term
business may declare or pay a dividend to any person other than a policyholder
unless the value of the assets in its long-term business fund as certified by
the insurer's approved actuary exceeds the liabilities of the insurer's
long-term business by at least the $250,000 margin prescribed by the Insurance
Act, and the amount of any such dividend may not exceed the aggregate of (i)
that excess, and (ii) any other funds properly available for payment of
dividends, such as funds arising out of business of the insurer other than
long-term business. See "Risk Factors -- Holding Company Structure."
Annuity Reassurance may not carry on general business (e.g., property
casualty, aviation and marine) without first being registered as a general
business insurer by the Minister under the Insurance Act. The Company has no
current intention to do so.
Cancellation of Insurer's Registration. An insurer's registration may be
cancelled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance 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.
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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, which
are required to be filed annually with the Registrar of Companies in Bermuda.
The independent auditor of the insurer must be approved by the Minister and may
be the same person or firm which audits the insurer's financial statements and
reports for presentation to its shareholders. Annuity Reassurance's independent
auditor is KPMG Peat Marwick.
Approved Actuary. Annuity Reassurance, as a registered long-term insurer,
is required to submit an annual actuary's certificate when filing its Statutory
Financial Return. The actuary's certificate shall state whether or not, in the
opinion of the insurer's approved actuary, the aggregate amount of the
liabilities of the insurer in relation to long-term business as at the end of
the relevant year exceeded the aggregate amount of those liabilities as shown in
the insurer's statutory balance sheet. The approved actuary, who will normally
be a qualified life actuary, must be approved by the Minister. Annuity
Reassurance's approved actuary is John W. Rayner of Abbott Associates Limited.
Statutory Financial Statements. An insurer must prepare annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation and
substance of such Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, a statement of capital and surplus and
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 United States 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 be prepared in accordance with United States GAAP. An insurer is
required to submit the annual Statutory Financial Statements as part of the
annual Statutory Financial Return.
Minimum Solvency Margin. The Insurance Act provides that the value of the
long-term business assets of an insurer carrying on long-term business must
exceed the amount of its long-term business liabilities by at least $250,000.
Annual Statutory Financial Return. Annuity Reassurance is required to file
with the Registrar of Companies in Bermuda a Statutory Financial Return no later
than four months after its financial year end (unless specifically extended).
Annuity Reassurance expects that it will be granted an exemption from such
requirement for its financial year ended December 31, 1997 because it had not
commenced operations by such date. The Statutory Financial Return includes,
among other matters, a report of the approved independent auditor on the
Statutory Financial Statements of the insurer, a solvency certificate, the
Statutory Financial Statements themselves and a certificate of the approved
actuary. The solvency certificate must be signed by the principal representative
and at least two directors of the insurer who are required to certify whether
the Minimum Solvency Margin has been met, and the independent approved auditor
is required to state whether in its opinion it was reasonable for the directors
to so certify. Where an insurer's accounts have been audited for any purpose
other than compliance with the Insurance Act, a statement to that effect must be
filed with the Statutory Financial Return.
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 the Minister, the
Minister may direct an insurer to produce documents or information relating to
matters connected with the insurer's business.
If it appears to the Minister that there is a risk of the insurer becoming
insolvent, or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may, among other things, direct the
insurer (i) not to take on any new insurance business, (ii) not to vary any
insurance contract if the effect would be to increase the insurer's liabilities,
(iii) not to make certain investments, (iv) to realize certain investments, (v)
to maintain in Bermuda, or transfer to the custody of a Bermuda bank, certain
assets,
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(vi) not to declare or pay any dividends or other distributions or to restrict
the making of such payments, and/or (vii) to limit its premium income.
An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda. For the purpose of
the Insurance Act, the principal office of Annuity Reassurance is at the
Company's offices in Hamilton, Bermuda, and Lawrence S. Doyle, the Company's
President and Chief Executive Officer, is the principal representative of
Annuity Reassurance. 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 reaching the view that there is a
likelihood of the insurer for which the principal representative acts becoming
insolvent or that a reportable "event" has, to the principal representative's
knowledge, occurred or is believed to have occurred, to make a report in writing
to the Minister setting out all the particulars of the case that are available
to the principal representative. Examples of such a reportable "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.
Certain Bermuda Law Considerations. The Company and Annuity Reassurance
have been designated as non-resident for exchange control purposes by the
Bermuda Monetary Authority whose permission for the issue and transfer of the
Common Shares has been obtained. This designation allows the Company and Annuity
Reassurance to engage in transactions, or to pay dividends to non-residents of
Bermuda who are holders of the Common Shares, in currencies other than the
Bermuda Dollar.
The transfer of the Common Shares between persons regarded as non-resident
in Bermuda for exchange control purposes and the issue of the Common Shares
after the completion of the Offering to such persons may be effected without
specific consent under the Exchange Control Act 1972 and regulations thereunder.
Issues and transfers of the Common Shares to any person regarded as resident in
Bermuda for exchange control purposes requires specific prior approval under the
Exchange Control Act 1972. The common shares of Annuity Reassurance cannot be
transferred without the consent of the Bermuda Monetary Authority.
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 "exempted companies," the Company and Annuity Reassurance are exempt
from Bermuda laws restricting the percentage of share capital that may be held
by non-Bermudians, but as exempted companies they may not participate in certain
business transactions, including (i) the acquisition or holding of land in
Bermuda (except that required for their 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, (iii)
the acquisition of any bonds or debentures secured by any land in Bermuda, other
than certain types of Bermuda government securities, or (iv) the carrying on of
business of any kind in Bermuda, including insuring domestic risks, except in
furtherance of their business carried on outside Bermuda, and, in the case of
Annuity Reassurance, reinsuring any long-term business risks undertaken by any
company incorporated in Bermuda and permitted to engage in the insurance and
reinsurance business, or under a license granted by the Minister.
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United States and Other
Annuity Reassurance is not licensed or admitted as an insurer in any
jurisdiction except Bermuda. The insurance laws of each state in the United
States and of many other jurisdictions regulate the sale of insurance and
reinsurance within their jurisdiction by insurers, such as Annuity Reassurance,
which are not admitted to do business within such jurisdiction. With some
exceptions, such sale of insurance and reinsurance within a jurisdiction where
the insurer is not admitted to do business is prohibited. The Company expects to
conduct its business through its Bermuda office either directly or through
intermediaries, such as brokers and consultants. The Company does not intend to
maintain an office, and it does not expect its personnel 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 engage in such activities.
In addition to the regulatory requirements imposed by the jurisdictions in
which a reinsurer is licensed, a reinsurer's business operations are affected by
regulatory requirements in other jurisdictions in which its ceding companies are
located governing "credit for reinsurance" which are imposed on its ceding
companies. In general, a ceding company which obtains reinsurance from a
reinsurer that is licensed, accredited or approved by the jurisdiction in which
the ceding company files statutory financial statements is permitted to reflect
in its statutory financial statements a credit in an aggregate amount equal to
the liability for unearned premiums and loss reserves and loss expense reserves
ceded to the reinsurers. Many jurisdictions also permit ceding companies to take
credit on their statutory financial statements for reinsurance obtained from
unlicensed or non-admitted reinsurers if adequate security is posted. Because
Annuity Reassurance is not licensed, accredited or approved in any jurisdiction
except Bermuda, Annuity Reassurance expects that its reinsurance contracts will
typically require it to post a letter of credit or other security.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names, ages and titles of the directors and
executive officers of the Company and Annuity Reassurance.
<TABLE>
<CAPTION>
POSITION WITH
THE COMPANY AND
NAME AGE ANNUITY REASSURANCE
---- --- -------------------
<S> <C> <C>
Lawrence S. Doyle.......... 54 President, Chief Executive Officer and Director
Robert J. Reale............ 41 Senior Vice President and Chief Underwriter
William W. Atkin........... 49 Chief Financial Officer and Treasurer
Robert P. Mills, Jr. ...... 48 Vice President and Chief Actuary
Charles G. Collis*......... 35 Secretary and Director
Frederick S. Hammer........ 61 Chairman and Director
Robert M. Lichten.......... 57 Deputy Chairman and Director
Robert Clements............ 65 Director
Albert R. Dowden........... 56 Director
Michael P. Esposito,
Jr. ..................... 58 Director
Lee M. Gammill, Jr. ....... 63 Director
Donald J. Matthews......... 64 Director
Brian M. O'Hara............ 49 Director
Jerry S. Rosenbloom........ 58 Director
Walter A. Scott............ 60 Director
Jon W. Yoskin, II.......... 58 Director
</TABLE>
- ---------------
* Mr. Collis has indicated his intention to resign as a director of the Company
and Annuity Reassurance prior to the consummation of the Offering. Mr. Collis
will, however, continue to serve as Secretary of both companies.
Lawrence S. Doyle, age 54, was elected President, Chief Executive Officer
and a director of the Company upon its formation. Mr. Doyle, who has over 32
years of experience in the insurance and reinsurance industries, was the
President and Chief Executive Officer of GCR Holdings Limited, a Bermuda-based
start up reinsurer specializing in catastrophe risk, and its subsidiary Global
Capital Reinsurance Limited from 1993 until their acquisition by EXEL Limited in
1997, whereupon Mr. Doyle became an Executive Vice President of EXEL Limited.
Mr. Doyle founded GCR in 1993 and was largely responsible for the development of
a new client base, the hiring of marketing, underwriting and administrative
personnel and the overall development of the business. Prior thereto, Mr. Doyle
was Senior Vice President of the Hartford Insurance Group in charge of
international operations, where he was employed for 27 years, the last six of
which he was also the President of Hartford Fire International.
Robert J. Reale, age 41, became a Senior Vice President and the Chief
Underwriter of the Company on February 1, 1998. Prior thereto, Mr. Reale, who
has over 19 years of experience in the insurance and reinsurance industries, was
a consultant at Tillinghast-Towers Perrin, a consulting and actuarial company,
from 1997 to 1998. He served as a Vice President of Swiss Re Life & Health from
1989 to 1997 and as the President of Swiss-Am Reassurance Company and Atlantic
International Reinsurance Company (Barbados), two companies affiliated with
Swiss Re Life & Health, from 1995 to 1996. While employed by Swiss Re Life &
Health, Mr. Reale was assigned overall pricing responsibility for that company's
United States life and annuity reinsurance market. Mr. Reale has been a Fellow
of the Society of Actuaries since 1986.
William W. Atkin, age 49, will become Chief Financial Officer and Treasurer
of the Company on March 15, 1998. Prior thereto, Mr. Atkin served from 1987 to
1998 as an Executive Vice President, the Chief Financial Officer and a director
of Security Mutual Life Insurance Company of New York, where he was
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employed for 25 years. While employed by Security Mutual Life Insurance Company
of New York, Mr. Atkin was responsible for that company's operating plans,
annuity product line and relationships with credit rating agencies, investment
advisors, banks and independent accountants.
Robert P. Mills, Jr., age 48, became a Vice President and the Chief Actuary
of the Company on January 15, 1998. Prior thereto, Mr. Mills served as Assistant
Vice President and Actuary for Allmerica Financial, a life insurance provider,
where he was employed for 26 years. Mr. Mills spent 15 years working in
reinsurance administration and pricing while at Allmerica Financial. Mr. Mills
has been a Fellow of the Society of Actuaries since 1975.
Charles G. Collis, age 35, is an attorney in the law firm of Conyers Dill &
Pearman, the Company's Bermuda counsel, where he has worked since 1990.
Frederick S. Hammer, age 61, was elected Chairman of the Board and a
director of the Company upon its formation. Mr. Hammer has been Vice Chairman of
Inter-Atlantic Capital Partners, Inc. since 1994. He is non-executive Chairman
of the Board of National Media Corporation and serves as a director of IKON
Office Solutions, Inc., Provident American Corporation and Medallion Financial
Corporation. Mr. Hammer served as Chairman and Chief Executive Officer of Mutual
of America Capital Management Corporation from 1993 to 1994 and as President of
SEI Asset Management Group from 1989 to 1993. From 1985 to 1989, Mr. Hammer was
Chairman and Chief Executive Officer of Meritor Savings Bank, and prior thereto
he was an Executive Vice President of The Chase Manhattan Corporation, where he
was responsible for its global consumer activities.
Robert M. Lichten, age 57, was elected Deputy Chairman of the Board and a
director of the Company upon its formation. Mr. Lichten has been Vice Chairman
of Inter-Atlantic Capital Partners, Inc. since 1994. Mr. Lichten served as a
Managing Director of Smith Barney Inc. from 1990 to 1994 and as a Managing
Director of Lehman Brothers Inc. from 1988 to 1990. Prior thereto, he served as
an Executive Vice President of The Chase Manhattan Corporation, where he was
responsible for asset liability management and was President of The Chase
Investment Bank.
Robert Clements, age 65, was elected a director of the Company on February
19, 1998. Mr. Clements has been Chairman and a director of Risk Capital
Holdings, Inc., a global reinsurance company, since its formation in 1995. He
also currently serves as an advisor to Marsh & McClennan Risk Capital Corp., a
subsidiary of J&H Marsh & McClennan Companies, Inc., and he served as Chairman
of the Board and Chief Executive Officer of Marsh & McClennan Risk Capital Corp.
from 1994 to 1996. Prior thereto, he served as President of Marsh & McClennan
Companies, Inc. since 1992, having been Vice Chairman of the Board in 1991. Mr.
Clements was Chairman of Marsh & McClennan, Incorporated, a subsidiary of Marsh
& McClennan Companies, Inc., from 1988 to 1992. Mr. Clements presently serves as
a director of EXEL Limited and Hiscox plc. and serves as Chairman of the Board
of the College of Insurance.
Albert R. Dowden, age 56, was elected a director of the Company on February
19, 1998. Mr. Dowden has been President and Chief Executive Officer of Volvo
Group North America, Inc. and Senior Vice President of AB Volvo since 1991.
Prior to 1991, Mr. Dowden served as Executive Vice President of Volvo Group
North America, Inc., having previously served as Executive Vice President and
Deputy Managing Director of Volvo Cars North America, Inc. He currently serves
as a director of National Media Corporation.
Michael P. Esposito, Jr., age 58, was elected a director of the Company
upon its formation. Mr. Esposito has been Vice Chairman of Inter-Atlantic
Capital Partners, Inc. since 1995. He has been non-executive Chairman of the
Board of EXEL Limited since 1995 and a director since 1986. He also serves as a
director of Mid Ocean Limited, Risk Capital Holdings, Inc. and Forest City
Enterprises, Inc. Mr. Esposito served as Executive Vice President and Chief
Corporate Compliance, Control and Administration Officer of The Chase Manhattan
Corporation from 1992 to 1995, having previously served as Executive Vice
President and Chief Financial Officer from 1987 to 1992.
Lee M. Gammill, Jr., age 63, was elected a director of the Company on
February 19, 1998. From 1994 to 1997, Mr. Gammill served as Vice Chairman of the
Board of New York Life Insurance Company, where he
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was employed for more than 40 years. He currently serves as a director of
Guarantee Life Insurance Company and National Affiliated Corporation.
Donald J. Matthews, age 64, was elected a director of the Company on
February 19, 1998. Mr. Matthews has been President and Chief Operating Officer
of American Capital Access, a financial guarantee company, since 1997. From 1992
to 1997, he served as Senior Vice President and a Principal of Johnson and
Higgins where he was employed for 23 years and where he also most recently
served as Chairman of the Global Financial Group.
Brian M. O'Hara, age 49, was elected a director of the Company on February
19, 1998. Mr. O'Hara has been Chairman of the Board, President and Chief
Executive Officer of X.L. Insurance Company, Ltd. and President and Chief
Executive Officer of EXEL Limited since 1994. Mr. O'Hara served as President and
Chief Operating Officer of X.L. Insurance Company, Ltd. and as Vice Chairman of
the Board of EXEL Limited from 1986 to 1994. Prior thereto, he served as a
director and Senior Vice President and Chief Underwriting Officer of Trenwick
America Group from 1979 to 1986. Mr. O'Hara currently serves as a director of
EXEL Limited and Mid Ocean Limited.
Jerry S. Rosenbloom, age 58, was elected a director of the Company on
February 19, 1998. Mr. Rosenbloom has been the Frederick H. Ecker Professor of
Insurance and Risk Management at the Wharton School of the University of
Pennsylvania since 1974. He currently serves as a director of Mutual Risk
Management Ltd. and Harleysville Insurance Company and has been nominated to
serve as a director of Terra Nova Bermuda Holdings.
Walter A. Scott, age 60, was elected a director of the Company on February
19, 1998. Mr. Scott has been a director of ACE Ltd., a Bermuda property casualty
insurance company, since 1989. He served as a consultant to ACE Ltd. from 1994
to 1996 and was Chairman of the Board, President and Chief Executive Officer of
ACE Ltd. from 1991 to 1994 and was President and Chief Executive Officer of ACE
Ltd. from 1989 to 1991. Mr. Scott currently serves as a director of Overseas
Partners Limited.
Jon W. Yoskin, II, age 58, was elected a director of the Company on
February 19, 1998. Mr. Yoskin has been Chairman of the Board and Chief Executive
Officer of Tri-Arc Financial Services, Inc., an insurance broker, since 1988 and
has served as Chairman of the Board and Chief Executive Officer of Magellan
Insurance Company, Ltd. since 1996. He currently serves as a director of
National Media Corporation.
PROVISIONS GOVERNING THE COMPANY'S BOARD OF DIRECTORS
Number and Terms of Directors
The Company's Bye-Laws provide that the Board of Directors shall be divided
into three classes. The first class, whose initial term expires at the first
annual meeting of the Company's shareholders following completion of the
Offering, is comprised of Messrs. Hammer, Clements, Collis, Gammill and Yoskin;
the second class, whose initial term expires at the second annual meeting of the
Company's shareholders following completion of the Offering, is comprised of
Messrs. Lichten, Dowden, O'Hara and Scott; and the third class, whose initial
term expires at the third annual meeting of the Company's shareholders following
completion of the Offering, is comprised of Messrs. Doyle, Esposito, Matthews
and Rosenbloom. Following their initial terms, all classes of directors shall be
elected to three-year terms.
In connection with the Direct Sale to Risk Capital, and, for so long as
Risk Capital owns at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of the Company one person selected by Risk
Capital. In exchange for such right, and, for so long as any person selected by
Risk Capital is a director (and during any period after such person's
designation but before his or her election) Risk Capital will not vote or permit
any of the Common Shares beneficially owned by it to be voted for the election
of any director of the Company, other than the nominee selected by Risk Capital.
Risk Capital is permitted to assign its right to select one person to be
nominated for election as a director of the Company only upon the prior written
consent of the Company, which may not be unreasonably withheld. Risk Capital has
currently selected Robert Clements as the person it wishes to have serve as a
director of the Company.
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Committees of the Board
The Board has established Executive, Finance and Investment, Audit and
Compensation committees. Each committee reports to the Board.
Executive Committee. The Board has appointed an Executive Committee to
exercise all of the authority of the Board between meetings of the full Board.
The Executive Committee does not, however, have authority to take any action on
matters committed or reserved by Bermuda law, the Company's Bye-Laws or
resolution of the Board of Directors to the full Board or another committee of
the Board. The Executive Committee will regularly review the Company's business
and report or make recommendations to the Board thereon. The Executive Committee
presently consists of five directors of the Company (presently Messrs. Hammer
(Chairman), Doyle, Esposito, Lichten and Scott).
Finance and Investment Committee. The Board has appointed a Finance and
Investment Committee to establish and monitor the Company's investment policies
and the performance of the Investment Managers. The Finance and Investment
Committee presently consists of six members (presently Messrs. Lichten
(Chairman), Hammer, Esposito, Gammill, O'Hara and Doyle, who serves as an ex
officio member).
Audit Committee. The Board has appointed an Audit Committee to review the
Company's internal administrative and accounting controls and to recommend to
the Board the appointment of independent auditors. The Audit Committee presently
consists of four directors of the Company (presently Messrs. Scott (Chairman),
Dowden, Matthews and Rosenbloom), none of whom is an officer or employee of the
Company or Annuity Reassurance.
Compensation Committee. The Board has appointed a Compensation Committee
to review the performance of corporate officers and the Company's compensation
policies and procedures and to make recommendations to the Board with respect to
such policies and procedures. The Compensation Committee also administers any
stock option plans and incentive compensation plans of the Company. The
Compensation Committee presently consists of four directors of the Company
(presently Messrs. Esposito (Chairman), Clements, Matthews and Yoskin), none of
whom is an officer or employee of the Company or Annuity Reassurance.
Compensation of Directors
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 will receive cash in
the amount of $20,000 per annum and $1,000 per board or committee meeting
attended. The Chairman of the Board and Committee Chairmen will receive an
additional $1,000 per annum. Non-employee directors who are not directors,
officers or employees of Inter-Atlantic Capital Partners, Inc. or its affiliates
will also receive options to acquire 15,000 Common Shares upon the later of (i)
their election to the Company's Board of Directors and (ii) the consummation of
the Offering. Such options become exercisable in three equal annual installments
commencing on the first anniversary of the date of grant and will have an
exercise price equal to the fair market value of the Common Shares on the date
of grant. On the date of each annual meeting of the Company's shareholders, each
non-employee director whose term as a director has not ended as of the date of
such annual meeting will receive options to acquire 2,000 Common Shares. Such
options will be immediately exercisable if granted after the first anniversary
of the consummation of the Offering and will have an exercise price equal to the
fair market value of the Common Shares on the date of grant. If any such options
are granted before the first anniversary of the consummation of the Offering,
they will not become exercisable until such first anniversary. All directors
will be reimbursed for travel and other expenses incurred in attending meetings
of the Board or committees thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is currently composed of Messrs. Esposito
(Chairman), Clements, Matthews and Yoskin. No member of the Compensation
Committee is or was an officer or employee of the Company or Annuity
Reassurance, nor has any executive officer of the Company served as a director
or a
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member of the compensation committee of any other company, one of whose
executive officers serves as a member of the Company's Board or Compensation
Committee.
EXECUTIVE COMPENSATION
The Company did not pay any compensation to its executive officers during
the fiscal period ended December 31, 1997. Messrs. Doyle, Reale and Mills are
currently receiving compensation from the Company pursuant to the terms of their
respective employment agreements.
EMPLOYMENT AGREEMENTS
The Company, Annuity Reassurance and Mr. Doyle have entered into an
Employment Agreement that became effective on January 1, 1998. The Employment
Agreement provides that Mr. Doyle will serve as Chief Executive Officer and
President of the Company and Annuity Reassurance for an initial term ending on
the third anniversary of the consummation of the Offering and for consecutive
one year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Doyle of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Doyle began receiving an annual salary of $240,000 on
January 1, 1998. Upon consummation of the Offering, Mr. Doyle's salary will
increase to $350,000 per year, he will be eligible to participate in all
employee benefit programs maintained by the Company, and he will receive a
monthly housing and travel allowance of $8,333.
The Company, Annuity Reassurance and Mr. Reale have entered into an
Employment Agreement that became effective on February 1, 1998. The Employment
Agreement provides that Mr. Reale will serve as a Senior Vice President and the
Chief Underwriter of the Company and Annuity Reassurance for an initial term
ending on the third anniversary of the consummation of the Offering and for
consecutive one year terms thereafter, subject to three months' advance notice
by either the Company or Mr. Reale of a decision not to renew. Pursuant to the
terms of his Employment Agreement, Mr. Reale is entitled to receive an annual
salary of $200,000. Upon consummation of the Offering, the Company will
contribute monthly ten percent of Mr. Reale's base monthly salary to a
retirement plan for his benefit, he will be eligible to participate in all
employee benefit programs maintained by the Company and will receive a monthly
housing and travel allowance of $8,333. At that time, Mr. Reale will also
receive a one-time cash bonus of $25,000, which will be treated as an advance of
and deducted from any cash bonus that may be awarded for the Company's initial
fiscal year.
The Company, Annuity Reassurance and Mr. Atkin have entered into an
Employment Agreement that becomes effective on March 15, 1998. The Employment
Agreement provides that Mr. Atkin will serve as Chief Financial Officer and
Treasurer of the Company and Annuity Reassurance for an initial term ending on
the third anniversary of the consummation of the Offering and for consecutive
one year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Atkin of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Atkin will begin receiving an annual salary of
$180,000 on March 15, 1998. Upon consummation of the Offering, Mr. Atkin will be
eligible to participate in all employee benefit programs maintained by the
Company, and he will receive a monthly housing and travel allowance of $8,333.
The Company, Annuity Reassurance and Mr. Mills have entered into an
Employment Agreement that became effective on January 15, 1998. The Employment
Agreement provides that Mr. Mills will serve as a Vice President and the Chief
Actuary of the Company and Annuity Reassurance for an initial term ending on the
third anniversary of the consummation of the Offering and for consecutive one
year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Mills of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Mills is entitled to receive an annual salary of
$125,000. Upon consummation of the Offering, Mr. Mills will be eligible to
participate in all employee benefit programs maintained by the Company and he
will receive a monthly housing and travel allowance of $10,416.
The Employment Agreements of Messrs. Doyle, Reale, Atkin and Mills provide
that they will be eligible for an annual cash bonus based on performance targets
established by the Compensation Committee of the Company's Board of Directors.
Mr. Doyle's bonus will be equal to 60% of the total amount available for
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<PAGE> 48
bonuses to senior management based on the performance targets established by the
Compensation Committee, up to a maximum of $2.0 million per year. Messrs. Reale,
Atkin and Mills will each be eligible to receive a bonus of up to two times his
annual salary based on performance targets established by the Compensation
Committee. The Compensation Committee has not yet set such performance targets
for the Company's initial fiscal year.
The Employment Agreements of Messrs. Doyle, Reale, Atkin and Mills provide
that each of them will receive, subject to the consummation of the Offering,
options to purchase Common Shares under the Company's Stock Option Plan. Mr.
Doyle will receive options to purchase Common Shares equal to three percent of
the Common Shares outstanding immediately following the consummation of the
Offering and the Direct Sales. Mr. Reale will receive options to purchase Common
Shares equal to seven-tenths of one percent of the Common Shares outstanding
immediately following the consummation of the Offering and the Direct Sales. Mr.
Atkin will receive options to purchase Common Shares equal to one-half of one
percent of the Common Shares outstanding immediately following the consummation
of the Offering and the Direct Sales. Mr. Mills will receive options to purchase
Common Shares equal to one-half of one percent of the Common Shares issued in
the Offering. The exercise price of the options to be awarded under the
Employment Agreements is equal to the initial public offering price per share.
The options become exercisable in three equal annual installments beginning on
the first anniversary of the consummation of the Offering.
Each Employment Agreement provides that if the officer is terminated by the
Company for serious cause or the officer resigns without good reason, the
officer will forfeit all bonus amounts for the then current fiscal year, and the
Company will be liable to the officer only for accrued but unpaid salary,
accrued but unpaid bonuses from a prior fiscal year and reimbursable business
expenses incurred prior to the termination. If the employment of Mr. Doyle is
terminated by the Company without serious cause or by Mr. Doyle with good
reason, the Company will continue to pay Mr. Doyle's base salary for a period of
18 months from such termination. If the employment of Messrs. Reale or Mills is
terminated by the Company without serious cause or by Messrs. Reale or Mills
with good reason, the Company will continue to pay Messrs. Reale's or Mills'
base salary, as the case may be, for a period of one year from such termination.
If the employment of Mr. Atkin is terminated by the Company without serious
cause or by Mr. Atkin with good reason, the Company will pay Mr. Atkin not less
than $15,000 per month for a period of one year from such termination.
Additionally, in each such case, Messrs. Doyle, Reale, Atkin and Mills shall be
entitled to any accrued but unpaid salary, any earned but unpaid bonuses from a
prior fiscal year, reimbursement of business expenses incurred prior to the
termination, travel and housing allowances for six months after the date of
termination and reasonable relocation expenses from Bermuda to the United
States.
The Employment Agreements of Messrs. Doyle and Mills provide that neither
will, for a period of (i) one year following the termination of his employment
by the Company without serious cause or by such officer for good reason or (ii)
two years following the termination of his employment with the Company for any
other reason, acquire any financial or beneficial interest (unless such interest
is less than one percent in a publicly traded corporation) in, provide
consulting or other services to, be employed by, or own, manage, operate or
control any entity engaged in any business similar to that of the Company at the
time of the termination of his employment. Mr. Atkin's Employment Agreement
provides that he will not, for the same time periods, acquire any financial or
beneficial interest (unless such interest is less than one percent in a publicly
traded corporation) in, provide consulting or other services to, be employed by,
or own, manage, operate or control any entity engaged in any business similar to
that of the Company at the time of the termination of his employment.
Notwithstanding the preceding restrictions, Mr. Atkin's Employment Agreement
provides that he is not prohibited, following the termination of his employment
with the Company, from obtaining employment with an employer in the life
insurance industry that does not have reinsurance operations. Mr. Reale's
Employment Agreement provides that he will not, for the same time periods,
acquire any financial or beneficial interest (unless such interest is less than
one percent in a publicly traded corporation) in any entity engaged in any
business similar to that of the Company at the time of the termination of his
employment or become employed by any such entity that does not have its
headquarters in the United States. Furthermore, Mr. Reale is prohibited from
soliciting business from any clients of the Company or Annuity Reassurance for a
period of two years following the termination of his employment. The Employment
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Agreements of Messrs. Doyle, Reale, Atkin and Mills also provide that they will
keep secret and retain in the strictest confidence all confidential matters that
relate to the Company or any affiliate of the Company. In addition, pursuant to
each of the Employment Agreements, upon a change in control of the Company,
Messrs. Doyle's, Reale's, Atkin's and Mills' respective options to purchase
Common Shares will become exercisable immediately, and if their employment with
the Company is terminated without serious cause, or if they terminate their
employment with the Company for good reason within one year following a change
in control, they will be entitled to receive a lump sum payment equal to two
times their respective annual base salaries as of the date of termination,
travel and housing allowances for one year from the date of termination,
reasonable relocation expenses from Bermuda to the United States and a gross-up
of any income taxes payable by them by reason of such payments occurring in
connection with a change of control.
STOCK OPTION PLAN
The Company's Board of Directors adopted the Annuity and Life Re
(Holdings), Ltd. Initial Stock Option Plan on December 3, 1997 and amended it on
February 19, 1998. The Stock Option Plan is intended to attract and retain
selected employees, directors and consultants (collectively, the "Eligible
Individuals") and to motivate them to exercise their best efforts on behalf of
the Company and any subsidiary or parent of the Company (a "Related
Corporation"). Options granted under the Stock Option Plan may be "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Code, or may be
options not intended to be ISOs ("Non-Qualified Stock Options"). The aggregate
maximum number of Common Shares for which options may be granted under the Stock
Option Plan will be equal to the lesser of (i) 5.5% of the Common Shares
outstanding immediately following the consummation of the Offering and the
Direct Sales plus 150,000 Common Shares or (ii) 1,700,000 Common Shares. No
option may be granted under the Stock Option Plan after December 2, 2007,
although options outstanding on December 2, 2007 may extend beyond that date.
Administration. The Stock Option Plan is administered by the Compensation
Committee, whose members are designated by the Company's Board of Directors.
Under the terms of the Stock Option Plan, the Compensation Committee must
consist of at least two directors. It is intended (although not required) that
each member of the Compensation Committee administering the Plan be a
"non-employee" director within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside director"
within the meaning of Treasury Regulation sec.1.162-27(e)(3) or any successor
provision. If the Compensation Committee does not consist solely of two or more
non-employee directors (within the meaning of Rule 16b-3), each option must be
approved by the full Board. The Compensation Committee has the authority to (i)
select the Eligible Individuals to be granted ISOs and Non-Qualified Stock
Options under the Stock Option Plan, (ii) grant options on behalf of the Company
and (iii) set the date of grant and other terms of the options, including the
times and the price at which options will be granted. Unless otherwise specified
in the Option Agreement, options under the Stock Option Plan are exercisable in
three equal annual installments, commencing with the first anniversary of the
grant date. The Compensation Committee may, in its discretion, accelerate the
date on which an option may be exercised.
Eligibility. Only employees of the Company and/or a Related Corporation
are eligible to receive ISOs under the Stock Option Plan. Non-Qualified Stock
Options may be granted to all Eligible Individuals. (An Eligible Individual who
receives an option grant is hereinafter be referred to as an "Optionee.") As of
February 27, 1998, there were four employees of the Company eligible to receive
ISOs and sixteen Eligible Individuals (including employees) eligible to receive
non-qualified stock options.
Terms and Conditions of Option. All options terminate on the earliest of:
(i) the expiration of the term specified in the option document, which may not
exceed ten years (five years, in the case of an ISO if the Optionee on the date
of grants owns, directly or by attribution, shares possessing more than 10% of
the total combined voting power of all classes of shares of the Company); or
(ii) an accelerated expiration date if the Optionee's employment or service as a
director terminates before the expiration of the term specified in the option
document, unless otherwise provided in the stock option agreement related to the
option. However, if the Optionee's employment or service as a director
terminates for "cause" (as defined in the Stock Option Plan) prior to the
expiration date of the option, such option will terminate immediately.
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The option price for an ISO may not be less than 100% of the fair market
value of the shares subject to the option on the date that the option is
granted. If an ISO is granted to an employee who then owns, directly or by
attribution under the Code, Common Shares possessing more than 10% of the total
combined voting power of all classes of shares of the Company, the option price
must be at least 110% of the fair market value of the shares on the date that
the option is granted. The aggregate fair market value of the Common Shares
(determined on the date the ISOs are granted) with respect to which ISOs are
exercisable for the first time by any one employee during any calendar year will
not exceed $100,000.
An Optionee may, in the discretion of the Committee, pay for Common Shares
covered by his or her option (i) in cash or its equivalent, (ii) in Common
Shares previously acquired by the Optionee (subject, in the discretion of the
Compensation Committee, to certain holding period requirements), (iii) in whole
or in part, in Common Shares newly acquired by the Optionee upon exercise of the
option (which will be a "disqualifying disposition" in the case of an ISO),
determined at the Compensation Committee's discretion, (iv) through a
combination of (i), (ii) or (iii), above, or (v) in the case of options granted
to an employee or consultant, by delivering a properly executed notice of
exercise of the option to the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the Company the amount of sale
or loan proceeds necessary to pay the exercise price of the option.
If an Optionee's employment or service with the Company (or a Related
Corporation in case of an employee or consultant) is terminated prior to the
expiration date fixed for his or her option for any reason other than death,
disability or cause, the Optionee may exercise such options that would have been
exercisable as of the termination date, or in the case of an employee or
consultant, to such other extent permitted by the Compensation Committee, at any
time prior to the earlier of the expiration date of such option or (i) in the
case of a director, three months after the date of such termination of service
as a director, and (ii) in the case of an employee or consultant, an accelerated
termination date determined by the Compensation Committee, which, unless
otherwise determined by the Compensation Committee, may not be later than three
months after the date of such termination of employment or service.
If an Optionee's employment or service with the Company (or a Related
Corporation in the case of an employee or consultant) is terminated by reason of
death or disability, or if an Optionee dies after termination of the Optionee's
employment or service but before expiration of the Optionee's option, such
option may be exercised to the extent of the number of Common Shares with
respect to which the Optionee could have exercised it on the date of such
termination or death, or in the case of an employee or consultant, to any
greater extent determined by the Compensation Committee, prior to the earlier of
the expiration date of the option or (i) in the case of a director, one year
after the date of such termination of service or death, and (ii) in the case of
an employee or consultant, an accelerated termination date determined by the
Compensation Committee, which, in the case of disability, unless otherwise
determined by the Compensation Committee, may not be later than one year after
the termination of employment, and in the case of death, may not be later than
one year after the date of death.
In the event of a corporate transaction such as a merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation,
each outstanding option will be assumed by the surviving corporation or by a
parent or subsidiary of such corporation if such corporation is the employer
corporation; provided, however, the Compensation Committee has the discretion to
terminate all or a portion of the outstanding options if it determines it is in
the best interests of the Company. Additionally, upon a "change in control" of
the Company, all outstanding options shall become fully vested and exercisable.
In the event of a change in control in which outstanding options are not assumed
by the surviving entity, the Compensation Committee will terminate all
outstanding options on at least seven days' notice.
Option Document; Restriction on Transferability. All options will be
evidenced by a written option document containing provisions consistent with the
Stock Option Plan and such other provisions as the Compensation Committee deems
appropriate. Except as may be provided in an option agreement with regard to
Non-Qualified Stock Options, no option granted under the Stock Option Plan may
be transferred, except by will or the laws of descent and distribution. If the
Optionee is married at the time of exercise and if the
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<PAGE> 51
Optionee requests at the time of exercise, the certificate will be registered in
the name of the Optionee and his or her spouse, jointly, with right of
survivorship.
Amendments to Options and the Stock Option Plan; Discontinuance of the
Stock Option Plan. Subject to the provisions of the Stock Option Plan, the
Compensation Committee may not amend an option document without an Optionee's
consent if the amendment is unfavorable to the Optionee. The Board of Directors
may suspend or discontinue the Stock Option Plan or amend it in any respect
whatsoever, except that, without the approval of the holders of a majority of
the shares of the Company present, in person or by proxy, and entitled to vote
at a duly called meeting, no such action may be taken, with respect to ISOs, to
change the class of employees eligible to participate in the Stock Option Plan,
increase the maximum number of Common Shares with respect to which ISOs may be
granted under the Stock Option Plan (except as permitted under the Stock Option
Plan with respect to capital adjustments) or extend the duration of the Stock
Option Plan. Shareholder approval is also required for any amendment that
requires shareholder approval to comply with Rule 16b-3 or any successor
thereto, if such compliance is intended.
Registration Statement on Form S-8. The Company intends to file with the
Commission a Registration Statement on Form S-8 relating to the Stock Option
Plan promptly following the first anniversary of the consummation of the
Offering.
Stock Option Grants. The following table sets forth information concerning
the stock options to be granted upon consummation of the Offering by the Company
to its executive officers under the Stock Option Plan.
INITIAL OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATE OF
---------------------------------------------------------------- COMMON SHARE PRICE
NUMBER OF APPRECIATION FOR OPTION
COMMON SHARES PERCENT OF TOTAL EXERCISE TERM(2)
UNDERLYING OPTIONS GRANTED TO PRICE EXPIRATION ------------------------------
NAME OPTIONS GRANTED(1) EMPLOYEES PER SHARE DATE 5% 10%
---- ------------------ ------------------ --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Lawrence S. Doyle.... 632,367 65.26% (3) (4) $5,965,383 $15,117,452
Robert J. Reale 147,552 15.23% (3) (4) $1,391,920 $ 3,527,398
William W. Atkin 105,394 10.88% (3) (4) $ 994,226 $ 2,519,563
Robert P. Mills, Jr. 83,750 8.64% (3) (4) $ 790,049 $ 2,002,139
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of Common Shares underlying Mr. Doyle's options will increase to 707,742
Common Shares, the Common Shares underlying Mr. Reale's options will
increase to 165,140 Common Shares, the Common shares underlying Mr. Atkin's
options will increase to 117,957 Common Shares and the Common Shares
underlying Mr. Mills' options will increase to 96,313 Common Shares.
(2) Potential realizable value assumes an initial public offering price of
$15.00 per share. The assumed annual rates of Common Share price
appreciation have been provided for illustrative purposes only in accordance
with the rules and regulations of the Commission and should not be construed
as projected appreciation rates for price of the Common Shares.
(3) The exercise price per share is equal to the initial public offering price
per share.
(4) The options expire on the tenth anniversary of the consummation of the
Offering.
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<PAGE> 52
PRINCIPAL STOCKHOLDERS
The table below sets forth the expected beneficial ownership of Common
Shares, after giving effect to the Offering and the Direct Sales, by all persons
who are expected to beneficially own 5% or more of the Common Shares and by each
director and executive officer of the Company and by the directors and executive
officers of the Company as a group (assuming no exercise of the Underwriters'
over-allotment option). The directors and officers of the Company have expressed
their intention to purchase the Common Shares indicated in the table below, but
are under no obligation to purchase such Common Shares.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) NUMBER OF SHARES PERCENT OF CLASS
---------------------------------------- ---------------- ----------------
<S> <C> <C>
EXEL Limited(2)............................................. 1,418,440 6.73%
Risk Capital Reinsurance Company(3)......................... 1,418,440 6.73
Michael P. Esposito, Jr.(4)................................. 116,945 *
Lawrence S. Doyle(5)........................................ 70,922 *
Robert M. Lichten(4)........................................ 49,037 *
Frederick S. Hammer(4)...................................... 41,945 *
Robert Clements(6).......................................... 30,000 *
William W. Atkin(7)......................................... 21,277 *
Robert J. Reale(8).......................................... 21,277 *
Robert P. Mills, Jr.(9)..................................... 14,184 *
Jerry S. Rosenbloom(6)...................................... 10,000 *
Donald J. Matthews(6)....................................... 5,000 *
Walter A. Scott(6).......................................... 5,000 *
Albert R. Dowden(6)......................................... 2,000 *
Lee M. Gammill, Jr.(6)...................................... 2,000 *
Brian M. O'Hara(6).......................................... 2,000 *
Jon W. Yoskin, II(6)........................................ 2,000 *
Charles G. Collis........................................... 0 --
All directors and executive officers as a group (sixteen
persons).................................................. 393,587 1.87%
</TABLE>
- ---------------
* Less than 1%.
(1) The address for EXEL is Cumberland House, One Victoria Street, P.O. Box
HM2245, Hamilton HM JX, Bermuda. The address of Risk Capital is 20 Horseneck
Lane, Greenwich, Connecticut 06830. The address for each other beneficial
owner is c/o Annuity and Life Re (Holdings), Ltd., Victoria Hall, Victoria
Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda.
(2) Does not include 100,000 Common Shares issuable upon exercise of Class B
Warrants which are not currently exercisable.
(3) Does not include 100,000 Common Shares issuable upon exercise of Class B
Warrants which are not currently exercisable. For so long as Risk Capital
owns at least 500,000 Common Shares, the Company has agreed to nominate for
election as a director of the Company one person selected by Risk Capital.
In exchange for such right and for so long as any person selected by Risk
Capital is a director (and during any period after such person's designation
but before his or her election) Risk Capital will not vote or permit any of
the Common Shares beneficially owned by it to be voted for the election of
any director of the Company, other than the nominee selected by Risk
Capital.
(4) Does not include 542,781 Common Shares (607,478 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of Class A Warrants which are not currently exercisable.
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<PAGE> 53
(5) Does not include 632,367 Common Shares (707,742 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.
(6) Does not include 15,000 Common Shares issuable upon exercise of options
which are not currently exercisable.
(7) Does not include 105,394 Common Shares (117,957 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.
(8) Does not include 147,552 Common Shares (165,140 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.
(9) Does not include 83,750 Common Shares (96,313 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.
The Purpose Trust currently owns 12,000 Common Shares, which constitute all
of the currently outstanding Common Shares. Upon consummation of the Offering,
the Purpose Trust has agreed to sell such Common Shares to the Company for an
aggregate price of $12,000 and such Common Shares will be cancelled.
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<PAGE> 54
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following descriptions summarize certain relationships and the terms of
certain agreements of the Company. Such summaries of agreements do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the relevant agreements. A copy of each
such agreement is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
INTER-ATLANTIC RELATIONSHIPS
Certain directors of the Company (Messrs. Esposito, Hammer and Lichten) are
owners, directors and/or officers of Inter-Atlantic Capital Partners, Inc.
and/or its subsidiary, Inter-Atlantic Securities Corporation. Inter-Atlantic
Capital Partners, Inc. is a United States domiciled corporation and
Inter-Atlantic Securities Corporation is a registered broker-dealer which
provides investment banking services for insurance companies and other financial
services firms. Inter-Atlantic Capital Partners, Inc. has loaned $12,000 to the
Purpose Trust which will be repaid upon consummation of the Offering. Pursuant
to an agreement between Inter-Atlantic Securities Corporation and the Company,
Inter-Atlantic Securities Corporation has agreed to provide certain services in
connection with the formation of the Company, including assistance in recruiting
senior management and obtaining necessary governmental permits. Furthermore, in
return for certain services related to the Offering, including assistance in
preparing a registration statement for the Common Shares, retaining underwriters
in connection with the Offering and such other services as the Company or Inter-
Atlantic Securities Corporation deems appropriate, the Company has agreed to pay
Inter-Atlantic Securities Corporation a fee of $2.0 million upon consummation of
the Offering. Pursuant to such agreement, Inter-Atlantic Securities Corporation
is also entitled to receive an annual fee of $600,000 for services provided
after the consummation of the Offering, which is payable in quarterly
installments commencing on the first anniversary of the consummation of the
Offering through the fifth anniversary of the consummation of the Offering. In
exchange for such annual fee, Inter-Atlantic Securities Corporation will assist
the Company in the development of products, financial planning, management of
assets and liabilities, international marketing efforts and such other services
as the Company may request. The Company is also obligated to reimburse
Inter-Atlantic Securities Corporation for expenses it incurs in connection with
performing services related to the formation of the Company, the Offering and
the Company's ongoing operations. At December 22, 1997, Inter-Atlantic
Securities Corporation had incurred expenses in connection with the Company's
organization of approximately $75,000 and costs in connection with the Offering
of approximately $400,000. If the Offering is successfully completed prior to
June 30, 1998, certain of these incurred but not currently payable expenses may
be paid directly by the Company rather than paid to Inter-Atlantic Securities
Corporation as a reimbursement. If the Offering is not successfully consummated
prior to June 30, 1998, Inter-Atlantic Securities Corporation will only be
entitled to reimbursement of expenses incurred by it on or after December 23,
1997. Upon consummation of the Offering, expenses incurred by Inter-Atlantic
Securities Corporation are currently estimated to be approximately $ ,
of which approximately $ relates to services provided in connection
with the formation of the Company, approximately $ relates to the
Offering and approximately $ relates to operating expenses incurred on
the Company's behalf. The expenses payable to Inter-Atlantic Securities
Corporation that relate to the formation of the Company will be capitalized and
amortized to income evenly over five years. The fees and expenses payable to
Inter-Atlantic Securities Corporation that relate to services provided to the
Company in connection with the Offering will be deducted from the gross proceeds
of the Offering. The annual fee of $600,000 and the expenses payable to
Inter-Atlantic Securities Corporation as reimbursement of operating expenses
incurred on the Company's behalf will be expensed by the Company when incurred.
In connection with the formation of the Company, six individuals employed
by Inter-Atlantic Capital Partners, Inc. and/or Inter-Atlantic Securities
Corporation (Messrs. Esposito, Hammer, Andrew S. Lerner, Lichten, William S.
Ogden, Jr. and Arnold Welles) purchased for $238,000 in the aggregate Class A
Warrants to purchase up to an aggregate number of Common Shares equal to 12% of
the sum of (i) the Common Shares outstanding immediately following the
consummation of the Offering (including the Direct Sales, but excluding any
Common Shares held by the Purpose Trust) and (ii) the Common Shares issuable
upon exercise or conversion of any security outstanding immediately following
the consummation of the
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<PAGE> 55
Offering except for the Class A Warrants, the Class B Warrants and any options
granted by the Company under its Initial Stock Option Plan. The exercise price
of the Class A Warrants will be equal to the initial public offering price per
share, subject to customary anti-dilution adjustments for certain events,
including stock splits and the issuance of Common Shares at a price below the
initial public offering price per share. The Class A Warrants become exercisable
in three equal annual installments commencing on the first anniversary of the
consummation of the Offering. In the event of a change of control of the
Company, the Class A Warrants then outstanding will become immediately
exercisable. The Class A Warrants will expire on January 15, 2008. The holders
of the Class A Warrants have also been granted rights to require the Company to
register the Common Shares underlying the Class A Warrants, which rights become
exercisable on the first anniversary of the consummation of the Offering. See
"Description of Capital Stock -- Warrants."
Messrs. Esposito, Hammer, Lerner, Lichten, Ogden and Welles have also
expressed their non-binding intention to purchase $1,648,925, $591,425,
$276,200, $691,425, $591,425 and $120,100 of Common Shares, respectively,
directly from the Company as part of the Direct Sales. Collectively, such
purchases are expected to total $3,919,500 of Common Shares. Because such Common
Shares will not be sold through the Underwriters as part of the Offering, the
purchase price per share will be equal to the initial public offering price per
share, less the per share underwriting discounts and commissions. Assuming an
initial public offering price of $15.00 per share, the number of Common Shares
that Messrs. Esposito, Hammer, Lerner, Lichten, Ogden and Welles are expected to
purchase would be 116,945, 41,945, 19,589, 49,037, 41,945 and 8,518 Common
Shares, respectively, and, collectively, such purchases are expected to total
277,979 Common Shares.
STRATEGIC INVESTOR RELATIONSHIPS
Prudential Insurance has agreed to purchase Common Shares and Class B
Warrants to purchase Common Shares in connection with the Direct Sales. See
"Direct Sales." Prudential Securities Incorporated, a representative of the
Underwriters, and The Prudential Investment Corporation, one of the Investment
Managers, are wholly-owned subsidiaries of Prudential Insurance. See
"Underwriting."
EXEL has agreed to purchase Common Shares and Class B Warrants to purchase
Common Shares in connection with the Direct Sales. See "Direct Sales." Brian M.
O'Hara, a director of the Company, currently serves as the President and Chief
Executive Officer of EXEL. In addition, Michael P. Esposito, Jr., a director of
the Company, currently serves as a non-executive Chairman of the Board of EXEL,
and Robert Clements, a director of the Company, currently serves as a director
of EXEL. Robert M. Lichten, a director of the Company, has agreed to serve as a
director of a United States-based subsidiary of EXEL.
Risk Capital has agreed to purchase Common Shares and Class B Warrants to
purchase Common Shares as part of the Direct Sales. See "Direct Sales." Michael
P. Esposito, Jr., a director of the Company, is a director of Risk Capital and
Risk Capital Holdings, Inc., the parent company of Risk Capital. Robert
Clements, a director of the Company, currently serves as Chairman and a director
of Risk Capital and Risk Capital Holdings, Inc. Furthermore, an affiliate of
Marsh & McLennan was a sponsor of Risk Capital Holdings, Inc. and currently
holds a 12.8% ownership interest in Risk Capital Holdings, Inc. The Company has
contracted with Marsh & McLennan to provide office space and certain
administrative services. See "Business -- Administration" and
"Business -- Property." EXEL was also an initial investor in Risk Capital
Holdings, Inc. and currently holds a 27.9% ownership interest in such company
and has the right to designate two of its directors.
MANAGEMENT RELATIONSHIPS
The Company's officers, Messrs. Doyle, Reale, Atkin and Mills, have
expressed their non-binding intention to purchase $1,000,000, $300,000, $300,000
and $200,000 of Common Shares, respectively, directly from the Company as part
of the Direct Sales. Assuming an initial public offering price of $15.00 per
share, the number of Common Shares that Messrs. Doyle, Reale, Atkin and Mills
are expected to purchase would be 70,922, 21,277, 21,277 and 14,184 Common
Shares, respectively, and, collectively, such purchases are expected to total
127,660 Common Shares. Similarly, in addition to the directors of the Company
who are affiliated with Inter-Atlantic Capital Partners, Inc., the other
directors of the Company have expressed their intention to purchase an aggregate
of 58,000 Common Shares directly from the Company as part of the Direct
53
<PAGE> 56
Sales. Because such Common Shares will not be sold through the Underwriters as
part of the Offering, the purchase price per share will be equal to the initial
public offering price per share, less the per share underwriting discounts and
commissions. The Company intends to make loans to Messrs. Doyle, Reale, Atkin
and Mills in the amounts of $500,000, $225,000, $225,000 and $100,000,
respectively, to partially finance such purchases in the event such purchases
are completed. Such loans will bear interest at 7% per annum and must be repaid
within five years of the consummation of the Direct Sales, except that $75,000
of the loans made to Messrs. Reale and Atkin must be repaid within 14 months of
the consummation of the Direct Sales. Any such purchases will be completed
simultaneously with the consummation of the Offering and the other Direct Sales.
54
<PAGE> 57
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock summarizes certain
provisions of the Company's Memorandum of Association and Bye-Laws. Such
summaries do not purport to be complete and are subject to, and are qualified in
their entirely by reference to, all of the provisions of the Memorandum of
Association and Bye-Laws. A copy of the Memorandum of Association and Bye-Laws
are filed as exhibits to the Registration Statement of which this Prospectus is
a part.
GENERAL
The Company's authorized share capital upon consummation of the Offering
and the Direct Sales will consist of: (i) 100,000,000 Common Shares, of which
21,078,888 Common Shares will be outstanding and (ii) 50,000,000 preferred
shares, par value $1.00 per share (the "Preferred Shares"), none of which will
be outstanding. In addition an aggregate of 2,529,465 Common Shares will be
issuable upon exercise of outstanding Class A Warrants, an aggregate of 272,500
Common Shares will be issuable upon exercise of Class B Warrants to be included
in the Direct Sales and an aggregate of 1,089,063 Common Shares will be issuable
upon exercise of options to be granted to management and certain directors upon
consummation of the Offering, in each case, subject to adjustment as provided
therein. If the Underwriters' over-allotment option is exercised in full,
23,591,388 Common Shares will be outstanding, the number of Common Shares
issuable upon exercise of outstanding Class A Warrants will increase to an
aggregate of 2,830,966 Common Shares and the number of Common Shares issuable
upon exercise of options to be granted to management and certain directors upon
consummation of the Offering will increase to an aggregate of 1,207,152 Common
Shares. The number of Common Shares issuable upon exercise of the Class B
Warrants will not change if the Underwriters' over-allotment option is
exercised. The outstanding Class A Warrants, Class B Warrants and options are
not currently exercisable. The Purpose Trust currently owns 12,000 Common
Shares, which constitute all of the currently outstanding Common Shares. Upon
consummation of the Offering, the Purpose Trust has agreed to sell such Common
Shares to the Company for an aggregate price of $12,000, and such Common Shares
will be cancelled.
COMMON SHARES
Holders of the Common Shares have no pre-emptive, redemption, conversion or
sinking fund rights. The quorum required for a general meeting of shareholders
is two or more persons present in person and representing in person or by proxy
more than 50% of the Common Shares (without giving effect to the limitation on
voting rights described below). Subject to the limitation on voting rights
described below, holders of Common Shares are entitled to one vote per share on
all matters submitted to a vote of holders of Common Shares. Most matters to be
approved by holders of Common Shares require approval by a simple majority of
the votes cast at a meeting at which a quorum is present. Furthermore, a
resolution to remove the Company's auditor before the expiration of the
auditor's term of office must be approved by the holders of at least two-thirds
of the Common Shares present in person or by proxy and voting thereon (after
giving effect to the limitation on voting rights) at a meeting at which a quorum
is present.
In the event of a liquidation, dissolution or winding-up of the Company,
the holders of Common Shares are entitled to share equally and ratably in the
assets of the Company, if any remain after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
Preferred Shares.
Limitation on Voting Rights. Each Common Share has one vote on a poll of
the shareholders, except that, if and for as long as the number of issued
Controlled Shares (as defined below) of any person would constitute 10% or more
of the combined voting power of the issued voting shares of the Company (after
giving effect to any prior reduction in voting power as described below), each
such issued Controlled Share,
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<PAGE> 58
regardless of the identity of the registered holder thereof, will confer only a
fraction of a vote as determined by the following formula (the "Formula"):
(T - C) / (9.1 X C)
Where: "T" is the aggregate number of votes conferred by all the issued shares
immediately prior to that application of the Formula with respect to any
particular shareholder, adjusted to take into account any prior reduction
taken with respect to any other shareholder pursuant to the "sequencing
provision" described below; and
"C" is the number of issued Controlled Shares attributable to such
person. "Controlled Shares" of any person refers to all Common Shares or
voting Preferred Shares owned by such person, whether (i) directly, (ii)
with respect to persons who are United States persons, by application of
the attribution and constructive ownership rules of Sections 958(a) and
958(b) of the Code or (iii) beneficially, directly or indirectly, within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations
thereunder.
The Formula will be applied successively as many times as may be necessary
to ensure that no person will be a 10% Shareholder (as defined below) at any
time (the "sequencing provision"). For the purposes of determining the votes
exercisable by shareholders as of any date, the Formula will be applied to the
shares of each shareholder in declining order based on the respective numbers of
total Controlled Shares attributable to each shareholder. Thus, the Formula will
be applied first to the votes of shares held by the shareholder to whom the
largest number of total Controlled Shares is attributable and thereafter
sequentially with respect to the shareholder with the next largest number of
total Controlled Shares. In each case, calculations are made on the basis of the
aggregate number of votes conferred by the issued voting shares as of such date,
as reduced by the application of the Formula to any issued voting shares of any
shareholder with a larger number of total Controlled Shares as of such date.
"10% Shareholder" means a person who owns, in aggregate, (i) directly, (ii) with
respect to persons who are United States persons, by application of the
attribution and constructive ownership rules of Sections 958(a) and 958(b) of
the Code or (iii) beneficially, directly or indirectly, within the meaning of
Section 13(d)(3) of the Exchange Act, issued voting shares of the Company
carrying 10% or more of the total combined voting rights attaching to all issued
shares.
The directors are empowered to require any shareholder to provide
information as to that shareholder's beneficial share ownership, the names of
persons having beneficial ownership of the shareholder's shares, relationships
with other shareholders or any other facts the directors may deem relevant to a
determination of the number of Controlled Shares attributable to any person. The
directors may disregard the votes attached to shares of any holder failing to
respond to such a request or submitting incomplete or untrue information.
The directors retain certain discretion to make such final adjustments to
the aggregate number of votes attaching to the voting shares of any shareholder
that they consider fair and reasonable in all the circumstances to ensure that
no person will be a 10% Shareholder at any time.
Restrictions on Transfer. The Bye-Laws contain several provisions
restricting the transferability of Common Shares. The directors are required to
decline to register a transfer of shares if they have reason to believe that the
result of such transfer would be to increase the number of total Controlled
Shares of any person to 10% or more of the issued voting shares without giving
effect to the limitation on voting rights described above. Similarly, the
Company is restricted from issuing or repurchasing Common Shares if such
issuance or repurchase would increase the number of total Controlled Shares of
any person to 10% or more of the issued voting shares without giving effect to
the limitations on voting rights described above.
The directors also may, in their absolute discretion, decline to register
the transfer of any Common Shares if they have reason to believe (i) that such
transfer may expose the Company, any subsidiary thereof, any shareholder or any
person ceding insurance to the Company or any such subsidiary to adverse tax or
regulatory treatment in any jurisdiction or (ii) that registration of such
transfer under the Securities Act or under any United States state securities
laws or under the laws of any other jurisdiction is required and such
registration has not been duly effected.
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<PAGE> 59
The Company is authorized to request information from any holder or
prospective acquiror of Common Shares as necessary to give effect to the
transfer, issuance and repurchase restrictions described above, and may decline
to effect any such transaction if complete and accurate information is not
received as requested.
Conyers Dill & Pearman, Bermuda counsel to the Company, have advised the
Company that while the precise form of the restrictions on transfer contained in
the Bye-Laws is untested, as a matter of general principle, restrictions on
transfers are enforceable under Bermuda law and are not uncommon. A proposed
transferee will be permitted to dispose of any Common Shares purchased that
violate the restrictions and as to the transfer of which registration is
refused. The transferor of such Common Shares will be deemed to own such Common
Shares for dividend, voting and reporting purposes until a transfer of such
Common Shares has been registered on the Register of Members of the Company.
If the directors refuse to register a transfer for any reason, they must
notify the proposed transferor and transferee within thirty days of such
refusal. The Bye-Laws also provide that the Board may suspend the registration
of transfers at such time and for such periods as the Board may determine,
provided that they may not suspend the registration of transfers for more than
45 days in any period of 365 consecutive days.
The directors have designated the Company's Chief Executive Officer to
exercise their authority to decline to register transfers or to limit voting
rights as described above, or to take any other action, for as long as such
officer is also a director.
PREFERRED SHARES
Pursuant to the Bye-Laws and Bermuda law, the Board by resolution may
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 without any
further shareholder approval, which, if any such Preferred Shares are issued,
will include restrictions on voting and transfer intended to avoid having the
Company constitute a "controlled foreign corporation" for United States federal
income tax purposes. Such rights, preferences, powers and limitations as may be
established could have the effect of discouraging an attempt to obtain control
of the Company. The issuance of Preferred Shares could also adversely affect the
voting power of the holders of Common Shares, deny shareholders the receipt of a
premium on their Common Shares in the event of a tender or other offer for the
Common Shares and have a depressive effect on the market price of the Common
Shares. The Company has no present plan to issue any Preferred Shares.
WARRANTS
Class A Warrants. Upon completion of the Offering and the Direct Sales,
Class A Warrants to purchase an aggregate of 2,529,465 Common Shares, subject to
adjustment as provided in the warrants, will be outstanding. If the
Underwriters' over-allotment option is exercised in full, the number of Common
Shares issuable upon exercise of the Class A Warrants will increase to 2,830,966
Common Shares. The exercise price of the Class A Warrants is equal to the
initial public offering price per share, subject to customary anti-dilution
adjustments for certain events, including stock splits and the issuance of
Common Shares at a price below the initial public offering price per share. The
Class A Warrants become exercisable in three equal annual installments
commencing on the first anniversary of the consummation of the Offering. In the
event of a change of control of the Company, the Class A Warrants then
outstanding will become immediately exercisable. The Class A Warrants expire on
January 15, 2008.
The Class A Warrant holders have been granted certain registration rights
with respect to the sale of the Common Shares underlying the warrants, and have
entered into agreements with the Underwriters under which they have agreed not
to dispose of such shares or the warrants for a one-year period from the date of
this Prospectus without the prior written consent of Prudential Securities
Incorporated and Merrill Lynch & Co. on behalf of the Underwriters. See "Shares
Eligible for Future Sale" and "Underwriting."
Class B Warrants. Upon completion of the Offering and the Direct Sales,
Class B Warrants to purchase an aggregate of 272,500 Common Shares will be
outstanding. The exercise price of the Class B Warrants is
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$15.00 per share, subject to customary anti-dilution adjustments for certain
events, including stock splits and the issuance of Common Shares below the
exercise price for the Class B Warrants or below the then current fair market
value of the Common Shares. The Class B Warrants become exercisable in three
equal annual installments commencing on the first anniversary of the
consummation of the Direct Sales. In the event of a change of control of the
Company, the Class B Warrants then outstanding will become immediately
exercisable. The Class B Warrants will expire on the tenth anniversary of the
consummation of the Direct Sales.
The Class B Warrant holders have been granted certain registration rights
with respect to the sale of the Common Shares underlying the Warrants, and have
entered into agreements with the Underwriters under which they have agreed not
to dispose of such shares or warrants for a one-year period from the date of
this Prospectus without the prior written consent of Prudential Securities
Incorporated and Merrill Lynch & Co. on behalf of the Underwriters and the
Company, except for Prudential Insurance, which has agreed to such restriction
for a period of 180 days from the date of this Prospectus. See "Shares Eligible
for Future Sale," "Direct Sales" and "Underwriting."
OPTIONS
Upon consummation of the Offering, the Company will grant options to
purchase an aggregate of 1,089,063 Common Shares pursuant to its Stock Option
Plan. An additional 220,276 Common Shares are reserved for future issuance under
the Stock Option Plan. If the Underwriters' over-allotment option is exercised
in full, the number of Common Shares issuable upon exercise of the options to be
issued upon consummation of the Offering will increase to 1,207,152 Common
Shares, and the number of Common Shares reserved for future issuance under the
Stock Option Plan will increase to 240,374 Common Shares. See
"Management -- Stock Option Plan."
The Company intends to file with the Commission a Registration Statement on
Form S-8 relating to the Stock Option Plan promptly following the first
anniversary of the consummation of the Offering. The individuals who will be
granted options upon consummation of the Offering have entered into agreements
with the Underwriters under which they have agreed not to dispose of such
options for a one-year period from the date of this Prospectus without the prior
written consent of Prudential Securities Incorporated and Merrill Lynch & Co. on
behalf of the Underwriters. See "Shares Eligible for Future Sale" and
"Underwriting."
BYE-LAWS
The Bye-Laws provide for the corporate governance of the Company, including
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 and other debts or liabilities of a shareholder to the
Company, calls on shares which are not fully paid, the transfer of shares,
alterations to capital, the calling and conduct of general meetings, proxies,
the appointment and removal of directors, conduct and powers of directors, the
payment of dividends, the appointment of an auditor and the winding-up of the
Company.
The Bye-Laws provide that the Board shall be elected annually and shall
consist of three approximately equal classes, each class to be elected to serve
for a three year term. Shareholders may only remove a director prior to the
expiration of such director's term at a special meeting of shareholders at which
a majority of the votes cast thereon is cast in favor of such action. A special
meeting of shareholders may be convened by the Chairman or any two directors or
any director and the Secretary or on the request of shareholders holding not
less than 10% of the paid-up share capital of the Company as carries the right
to vote at general shareholders' meetings.
The Bye-Laws also provide that if the Board in its absolute discretion
determines that share ownership by any shareholder may result in adverse tax,
regulatory or legal consequences to the Company, any of its subsidiaries or any
other shareholder, then the Company will have the option, but not the
obligation, to repurchase all or part of the shares held by such shareholder to
the extent the Board determines it is necessary or advisable to avoid or cure
such adverse or potential adverse consequences. The Company will also be
entitled to assign this repurchase right to one or more third parties, including
other shareholders. The price to be paid for such Common Shares will be the fair
market value of such shares.
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The Bye-Laws provide that each director may appoint an alternate director,
who shall have the power to attend and vote at any meeting of the Board at which
such director is not personally present and generally to perform at such meeting
all the functions of such director. In addition, the Board may delegate any of
its powers to a committee appointed by the Board, which may consist partly or
entirely of non-directors.
TRANSFER AGENT
The Company's registrar and transfer agent for the Common Shares is First
Chicago Trust Company of New York.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda (the "Act"), which applies to the
Company, differs in certain material respects from laws generally applicable to
United States corporations and their shareholders. Set forth below is a summary
of certain significant provisions of the Act (including modifications adopted
pursuant to the Bye-Laws) applicable to the Company which differ in certain
respects from provisions of Delaware corporate law. The following statements are
summaries and do not purport to deal with all aspects of Bermuda law that may be
relevant to the Company and its shareholders.
Interested Directors. Bermuda law and 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 a transaction in which such director derived an
improper personal benefit.
Mergers and Similar Arrangements. The Company may acquire the business of
another Bermuda exempted company or a company incorporated outside Bermuda when
such business is within its business purpose as set forth in its Memorandum of
Association. The Company may, with the approval of a majority of votes cast at a
general meeting of the shareholders at which a quorum is present, 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
disapprove the transaction on that ground absent evidence of fraud or bad faith.
Under Delaware law, with certain exceptions, a 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
thereon. Under Delaware law, a stockholder of a corporation participating in
certain major corporate transactions may, under certain circumstances, be
entitled to appraisal rights pursuant to which such stockholder may receive cash
in the amount of the fair value of the shares held by such stockholder (as
determined by a court) 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
a 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 direction to enjoin the
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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 subsidiary of which it owns at least 90% of each class of capital
stock. 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 where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association or
Bye-Laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys' fees incurred in connection with such
action. The Bye-Laws provide that shareholders waive all claims or rights of
action that they might have, individually or in the right of the Company,
against any director or officer for any act or failure to act in the performance
of such director's or officer's duties, except with respect to any fraud or
dishonesty of such director or officer. Class actions and derivative actions
generally are available to stockholders under Delaware law for, among other
things, breach of fiduciary duty, corporate waste and actions not taken in
accordance with applicable law. In such actions, the court has discretion to
permit the winning party to recover attorneys' fees incurred in connection with
such action.
Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may be
guilty in relation to the Company other than in respect of his own fraud or
dishonesty. Under Delaware law, a corporation may indemnify a director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in defense of an action, suit or proceeding by reason of such position if (i)
such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
(ii) without reasonable cause to believe his conduct was unlawful.
Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda, which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to any increase or reduction of
authorized capital. The shareholders have the additional right to inspect 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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering and the Direct Sales, the Company will have
outstanding 21,078,888 Common Shares, Class A Warrants to purchase an aggregate
of 2,529,465 additional Common Shares, Class B Warrants to purchase an aggregate
of 272,500 additional Common Shares and options to purchase an aggregate of
1,089,063 Common Shares. If the Underwriters' over-allotment option is exercised
in full, 23,591,388 Common Shares will be outstanding, the number of additional
Common Shares issuable upon exercise of outstanding Class A Warrants will
increase to an aggregate of 2,830,966 Common Shares and the number of Common
Shares issuable upon exercise of outstanding options will increase to an
aggregate of 1,207,152 Common Shares. The number of Common Shares issuable upon
exercise of the Class B Warrants will not change if the Underwriters'
over-allotment option is exercised. The Class A Warrants, Class B Warrants and
options are not currently exercisable. See "Management -- Stock Option Plan,"
"Description of Capital Stock -- Warrants" and "Direct Sales." Except as
disclosed in "Description of Capital Stock -- Restrictions on Transfer" and as
discussed below with respect to the lock-up agreements, the Common Shares sold
in the Offering and any Common Shares sold in the Direct Sales to the Company's
directors and officers and certain persons affiliated with the Inter-Atlantic
Capital Partners, Inc. will be freely transferable without restriction or
further registration under the Securities Act, except for any of those Common
Shares owned at any time by an "affiliate" of the Company within the meaning of
Rule 144 under the Securities Act (which sales will be subject to the volume
limitations and certain other restrictions). The Common Shares to be sold to the
Strategic Investors in the Direct Sales and the Common Shares underlying the
Class A Warrants, the Class B Warrants and the options are "restricted
securities" as defined in Rule 144 under the Securities Act and may not be
resold in the absence of registration under the Securities Act or pursuant to an
exemption from registration.
The Company, its directors and officers, the holders of Class A Warrants,
the Strategic Investors and the other purchasers in the Direct Sales have
executed agreements (the "lock-up agreements") under which they have agreed that
they will not, without the prior written consent of Prudential Securities
Incorporated and Merrill Lynch & Co. on behalf of the Underwriters and, in
addition, in the case of the Strategic Investors, the Company, directly or
indirectly offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase, or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any Common Shares or other capital stock of the
Company or any other securities convertible into, or exercisable or exchangeable
for, any Common Shares or other capital stock of the Company for a period of one
year after the date of this Prospectus, except for Prudential Insurance, which
has agreed to such restrictions for a period of 180 days after the date of this
Prospectus. Such agreements do not prevent the Company from granting options
under the Stock Option Plan so long as such options are not exercisable until
one year from the date of this Prospectus. Prudential Securities Incorporated,
Merrill Lynch & Co. and the Company may, in their discretion at any time and
without notice, jointly release all or any portion of the securities subject to
such lock-up agreements.
The Strategic Investors, the holders of the Class A Warrants and the
holders of the Class B Warrants have been granted rights to require the Company
to register the Common Shares purchased by the Strategic Investors in the Direct
Sales and the Common Shares underlying the Class A Warrants and the Class B
Warrants, which rights are not exercisable prior to the first anniversary of the
consummation of the Offering. The Company has agreed not to permit the
acceleration of the vesting of such rights without the prior written consent of
Prudential Securities Incorporated and Merrill Lynch & Co. on behalf of the
Underwriters.
The holders of the Class A Warrants have the right to require the
registration under the Securities Act of all or a portion of the Common Shares
underlying such warrants for sale in an underwritten public offering if, at any
time on or after the first anniversary of the consummation of the Offering and
before the tenth anniversary thereof, holders of 10% or more of such shares give
written notice to the Company requesting such registration. Holders of Class A
Warrants also have the right to require the registration under the Securities
Act of all or a portion of the Common Shares underlying such Warrants for sale
in open market transactions or negotiated block trades if, at any time on or
after the first anniversary of the consummation of the Offering and before the
tenth anniversary thereof, holders of 5% or more of such shares give written
notice to the Company
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requesting such registration. In addition, if the Company proposes, other than
pursuant to the two methods mentioned immediately above, to file a registration
statement under the Securities Act to register any of its Common Shares for
public sale under the Securities Act (including pursuant to requests of the
holders of Class B Warrants or the Common Shares sold to the Strategic Investors
in the Direct Sales), the holders of the Class A Warrants have the right to
request the inclusion of all or a portion of their Common Shares underlying the
Class A Warrants in the registration statement, and the Company is required to
use commercially reasonable efforts to include such shares in the registration
statement.
The holders of the Class B Warrants and the Common Shares sold to the
Strategic Investors in the Direct Sales each have the right to require the
registration under the Securities Act for sale in an underwritten public
offering of all or a portion of the Common Shares underlying such warrants or
sold to the Strategic Investors in the Direct Sales if, at any time on or after
the first anniversary of the consummation of the Direct Sales and before the
tenth anniversary thereof, such holder gives written notice to the Company
requesting such registration. Holders of Class B Warrants and the Common Shares
sold to the Strategic Investors in the Direct Sales also each have the right to
require the registration under the Securities Act for sale in open market
transactions or negotiated block trades of all or a portion of the Common Shares
underlying such warrants or sold in the Direct Sales if, at any time on or after
the first anniversary of the consummation of the Direct Sales and before the
tenth anniversary thereof, such holder gives written notice to the Company
requesting such registration. In addition, if the Company proposes, other than
pursuant to the two methods mentioned immediately above, to file a registration
statement under the Securities Act to register any of its Common Shares for
public sale under the Securities Act (including pursuant to requests of the
holders of Class A Warrants, other Class B Warrants or other Common Shares sold
to Strategic Investors in the Direct Sales), the holders of the Class B Warrants
and the Common Shares sold to the Strategic Investors in the Direct Sales have
the right to request the inclusion of all or a portion of the Common Shares
underlying the Class B Warrants or sold in the Direct Sales in the registration
statement, and the Company is required to use commercially reasonable efforts to
include such shares in the registration statement.
Each of the registration rights agreements entered into by the Company
provides that at any time when a registration statement covering Common Shares
sold to the Strategic Investors in the Direct Sales and the Common Shares
underlying the warrants is effective, if the Company determines after a good
faith inquiry that a sale of such Common Shares would require disclosure of
non-public material information, the disclosure of which would have a material
adverse effect on the Company, sales of such Common Shares will be suspended
until the earlier of (i) 20 days after the Company makes notification of its
good faith determination or (ii) such time as the Company makes notification
that the material information has been disclosed to the public, or ceases to be
material or that sales pursuant to the registration statement can resume.
In connection with such registrations, the Company is required to bear all
registration and selling expenses, including underwriters' discounts and
compensation, brokers' commissions or similar selling expenses. The registration
rights may be transferred to any assignee or transferee of the Common Shares,
the Class A Warrants, the Class B Warrants or the Common Shares underlying such
warrants. The Company also intends to file a registration statement on Form S-8
covering the resale of the Common Shares issuable upon exercise of options
issued under the Stock Option Plan promptly following the first anniversary of
the consummation of the Offering.
No prediction can be made as to the effect, if any, that future sales of
Common Shares, or the availability of Common Shares for future sale, will have
on the market price of the Common Shares prevailing from time to time. Sales of
substantial amounts of Common Shares in the public market following the
Offering, or the perception that such sales could occur, could adversely affect
the market price of the Common Shares and may make it more difficult for the
Company to sell its equity securities in the future at a time and at a price
which it deems appropriate. If the persons holding the outstanding Class A
Warrants, Class B Warrants or options cause a large number of the Common Shares
underlying such securities to be sold in the market, such sales could have an
adverse effect on the market price for the Common Shares.
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DIRECT SALES
The Company has entered into a securities purchase agreement with each of
the Strategic Investors for the purchase of Common Shares and Class B Warrants
as part of the Direct Sales. Prudential Insurance has agreed to purchase
1,028,369 Common Shares and Class B Warrants to purchase an additional 72,500
Common Shares for an aggregate purchase price of $14.5 million. EXEL and Risk
Capital have each agreed to purchase 1,418,440 Common Shares and Class B
Warrants to purchase an additional 100,000 Common Shares for an aggregate
purchase price for each such purchaser of $20.0 million. The Class B Warrants
will be exercisable at $15.00 per share. The issuance of the Common Shares and
Class B Warrants in the Direct Sales is subject to a number of conditions
precedent customary in transactions of this nature, including the accuracy of
the parties' respective representations and warranties, delivery of legal
opinions and compliance with the parties' respective covenants set forth in the
securities purchase agreement. In addition, such issuances are further subject
to (1) the consummation of a public offering of the Common Shares at a price to
the public of at least $15.00 per share in which the Company shall have received
not less than $150 million in net proceeds (after deducting underwriting
discounts and commissions), and (2) the amount of such net proceeds from the
public offering must exceed the net proceeds to the Company from the Direct
Sales to the Strategic Investors and to the Company's directors and officers and
certain persons affiliated with Inter-Atlantic Capital Partners, Inc. by a ratio
of at least 2.5 to 1.0.
In addition to the sales being made to the Strategic Investors, the Company
is offering by a separate prospectus up to 463,639 Common Shares directly to its
directors and officers and certain persons affiliated with Inter-Atlantic
Capital Partners, Inc. at the initial public offering price per share, less the
per share underwriting discounts and commissions, for an aggregate purchase
price if all such purchases are made of $6.5 million. All such purchases are
expected to be consummated simultaneously with the consummation of the Offering.
In connection with the Direct Sale to Risk Capital, and, for so long as
Risk Capital owns at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of the Company one person selected by Risk
Capital. In exchange for such right and for so long as any person selected by
Risk Capital is a director (and during any period after such person's
designation but before his or her election) Risk Capital will not vote or permit
any of the Common Shares beneficially owned by it to be voted for the election
of any director of the Company, other than the nominee selected by Risk Capital.
Risk Capital is permitted to assign its right to select one person to be
nominated for election as a director of the Company only upon the prior written
consent of the Company, which may not be unreasonably withheld. Risk Capital has
currently selected Robert Clements as the person it wishes to have serve as a
director of the Company.
Each of the Strategic Investors and the individuals that are expected to
purchase Common Shares as part of the Direct Sales has executed an agreement
under which they have agreed that they will not, without the prior written
consent of Prudential Securities Incorporated and Merrill Lynch & Co. on behalf
of the Underwriters and, in addition, in the case of the Strategic Investors,
the Company, directly or indirectly offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale, pledge, grant of any
option to purchase or other sale or disposition) of any Common Shares or other
capital stock of the Company or any other securities convertible into, or
exercisable or exchangeable for, any Common Shares or other capital stock of the
Company for a period of one year after the date of this Prospectus, except for
Prudential Insurance, which has agreed to such restrictions for a period of 180
days after the date of this Prospectus. Prudential Securities Incorporated,
Merrill Lynch & Co. and the Company may, in their discretion at any time and
without notice, jointly release all or any portion of the securities subject to
such lock-up agreements. The Company has granted the Strategic Investors rights
to require the Company to register the Common Shares they purchase in the Direct
Sales and the Common Shares underlying the Class B Warrants issued in the Direct
Sales. Such rights become exercisable on the first anniversary of the
consummation of the Offering. The Company has agreed not to permit the
acceleration of the vesting of such rights without the prior written consent of
Prudential Securities Incorporated and Merrill Lynch & Co. on behalf of the
Underwriters. See "Shares Eligible for Future Sales" and "Underwriting."
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CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of the Company and Annuity
Reassurance and the taxation of the Company's shareholders is based upon current
law. Legislative, judicial or administrative changes may be forthcoming that
could affect this summary. Except for statements as to the Company's beliefs and
conclusions, the statements as to United States federal income tax law set forth
below represent the opinion of Drinker Biddle & Reath LLP, United States counsel
to the Company, subject to the qualifications and assumptions set forth in such
statements. The statements as to Bermuda tax law set forth below represent the
opinion of Conyers Dill & Pearman, Bermuda counsel to the Company, subject to
the qualifications and assumptions set forth in such statements. The statements
as to the Company's beliefs and conclusions as to the application of such tax
laws to the Company (for example, "While there can be no assurance, the Company
does not believe that Annuity Reassurance will have a permanent establishment in
the United States") represent the views of the Company's management as to the
application of such laws and do not represent legal opinions of the Company or
its counsel.
TAXATION OF THE COMPANY AND ANNUITY REASSURANCE
Bermuda
Under current Bermuda law, there is no income tax or capital gains tax
payable by the Company or Annuity Reassurance. The Company and Annuity
Reassurance have each received an assurance from the Bermuda Minister of Finance
under The Exempted Undertakings Tax Protection Act 1966 of Bermuda to the effect
that if there is 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, Annuity Reassurance or to
any of their operations or the shares, debentures or other obligations of the
Company or Annuity Reassurance until March 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
and Annuity Reassurance are not so currently 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 property leased to
the Company or Annuity Reassurance. The Company and Annuity Reassurance, under
current rates, will pay annual Bermuda government fees of $25,000 and $3,360,
respectively, and Annuity Reassurance will pay annual insurance fees of $2,500.
United States
The Company believes that under its current plans of operation, the Company
and Annuity Reassurance will not conduct business within the United States.
Accordingly, the Company and Annuity Reassurance do not currently plan to file
United States income tax returns. However, because definitive identification of
activities that constitute being engaged in a trade or business in the United
States is not provided by the Code or regulations or court decisions, there can
be no assurance that the IRS will not contend that the Company and/or Annuity
Reassurance is engaged in a trade or business in the United States. A foreign
corporation deemed to be so engaged would be subject to United States income
tax, as well as branch profits tax, on its income that is treated as effectively
connected with the conduct of that trade or business unless the corporation is
entitled to relief under the permanent establishment provision of a tax treaty,
as discussed below. Section 842 of the Code requires that foreign insurance
companies carrying on an insurance business within the United States have a
certain minimum amount of effectively connected net investment income even if
they have no United States source investment income. Otherwise, the 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 the
taxable year only if the return for that year is timely filed under rules set
forth therein. Penalties may be assessed for failure to file tax returns. The
federal income tax rates currently are a maximum of 35% for a corporation's
effectively connected income and 30% for branch profits
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tax. The branch profits tax is imposed on net income after subtracting the
regular corporate tax and making certain other adjustments.
Under the income tax treaty between Bermuda and the United States (the
"Treaty"), provided that the predominant business activity of Annuity
Reassurance is acting as the reinsurer of risks underwritten by other insurance
companies (together with the investing or reinvesting of assets held in respect
of insurance reserves, capital and surplus incident to the carrying on of its
insurance business), Annuity Reassurance will be subject to United States income
tax on any income found to be effectively connected with a United States trade
or business only if that trade or business is conducted through a permanent
establishment in the United States. No regulations interpreting the Treaty have
been issued. While there can be no assurance, the Company does not believe that
Annuity Reassurance will have a permanent establishment in the United States.
Annuity Reassurance would not be entitled to the benefits of the Treaty if (i)
less than 50% of Annuity Reassurance's stock were beneficially owned, directly
or indirectly, by Bermuda residents or United States citizens or residents, or
(ii) Annuity Reassurance's income were used in substantial part to make
disproportionate distributions to, or to meet certain liabilities to, persons
who are not Bermuda residents or United States citizens or residents. While
there can be no assurance, the Company believes that no exception to Treaty
benefits will apply after the sale of Common Shares offered hereby. The treaty
may not, however, provide relief from United States branch profits tax.
Foreign corporations not engaged in a trade or business in the United
States are nonetheless subject to United States income tax at a rate of 30% of
the gross amount of certain "fixed or determinable annual or periodical gains,
profits, and income" derived from sources within the United States as enumerated
in Section 881(a) of the Code (such as dividends and interest on certain
investments). The Company does expect Annuity Reassurance to be subject to such
taxes on dividends from United States companies in which Annuity Reassurance
will make portfolio 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 applicable to reinsurance premiums paid to
Annuity Reassurance is currently 1%.
Other Countries
Annuity Reassurance may be subject to taxes imposed by other countries on
dividends or interest received from payors located in those countries.
TAXATION OF SHAREHOLDERS
Bermuda Taxation
Currently, there is no Bermuda withholding tax on dividends paid by the
Company or Annuity Reassurance.
United States Taxation
UNITED STATES SHAREHOLDERS
General. The following discussion summarizes certain United States federal
income tax consequences relating to the acquisition, ownership and disposition
of Common Shares by a beneficial owner who is (i) a citizen or resident of the
United States, (ii) a United States domestic corporation or (iii) otherwise
subject to United States federal income taxation on a net income basis in
respect of the Common Shares. This summary deals only with Common Shares
acquired by purchasers in the 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 who hold Common Shares as part of hedging or
conversion transactions and investors whose functional currency is not the
United States dollar) may be subject to special rules. Prospective purchasers of
the Common Shares are advised to consult their own tax advisers with respect to
their particular circumstances and with respect to the effects of United States
federal, state, local or other laws to which they may be subject.
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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 United States 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 Section
243 of 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 and Annuity Reassurance as Controlled Foreign
Corporations. Under Section 951(a) of the Code, each "United States
shareholder" of a foreign corporation that is a "controlled foreign corporation"
(a "CFC") for an uninterrupted period of 30 days or more during a taxable year
who owns shares in the CFC directly or indirectly through foreign entities on
the last day during such taxable year on which the corporation is a CFC must
include in its gross income for United States federal income tax purposes his
pro-rata share of the CFC's "subpart F income," even if the subpart F income is
not distributed. The Company anticipates that substantially all of the income of
the Company and Annuity Reassurance will be subpart F income. Under Section
951(b) of the Code, any United States corporation, citizen, resident or other
United States person who owns, directly or indirectly through foreign entities,
or is considered to own (by application of the rules of constructive ownership
set forth in Section 958(b) of the Code, generally applying to family members,
partnerships, estates, trusts, controlled corporations or holders of certain
options), 10% or more of the total combined voting power of all classes of stock
of the foreign corporation will be considered to be a "United States
shareholder." In general, a foreign insurance company such as Annuity
Reassurance 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 corporation's stock. The Company believes that, because of the expected
dispersion of the Company's share ownership following the Offering and the
restrictions on transfer, issuance or repurchase of Common Shares, shareholders
who acquire Common Shares in the Offering will not be subject to treatment as
United States shareholders of a CFC. In addition, because the Company's Bye-Laws
provide that no single shareholder is permitted to hold 10% or more of the total
combined voting power of the Company, shareholders of the Company should not be
viewed as United States shareholders of a CFC for purposes of these rules.
RPII Companies. Different definitions of "United States shareholder" and
"controlled foreign corporation" are applicable in the case of a foreign
corporation which earns "related person insurance income" ("RPII"). RPII is
defined in Section 953(c)(2) of the Code as any "insurance income" of a foreign
corporation attributable to policies of insurance or reinsurance with respect to
which the person (directly or indirectly) insured is a "United States
shareholder" of such corporation or a "related person" to such a shareholder. In
general, "insurance income" is income (including underwriting premium and
investment income) attributable to the issuing of any insurance or reinsurance
contract in connection with risks located in a country other than the country
under the laws of which the CFC is created or organized and which would be taxed
under the provisions of the Code relating to insurance companies if the income
were the income of a domestic insurance company.
Generally, the term "related person" for this purpose means someone who
controls or is controlled by the United States shareholder or someone who is
controlled by the same person or persons who control the United States
shareholder. "Control" is measured by either more than 50% in value or more than
50% in voting power of stock, applying constructive ownership principles similar
to the rules of Section 958 of the Code. For purposes of inclusion of Annuity
Reassurance's RPII in the income of United States shareholders, unless an
exception applies, the term "United States shareholder" includes all United
States persons who own, directly or indirectly, any amount (rather than 10% or
more) of Annuity Reassurance's stock. Annuity Reassurance will be subject to the
CFC provisions for RPII purposes if such persons collectively own directly,
indirectly or constructively 25% or more of the stock of Annuity Reassurance by
vote or value for an uninterrupted period of at least 30 days during any taxable
year.
RPII Exceptions. The special RPII rules do not apply if (i) direct or
indirect insureds and persons related to such insureds, whether or not United
States persons, are treated at all times during the taxable year
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as owning less than 20% of the voting power and less than 20% of the value of
the stock of Annuity Reassurance, (ii) RPII, determined on a gross basis, is
less than 20% of Annuity Reassurance's gross insurance income for the taxable
year, (iii) Annuity Reassurance elects to be taxed on its RPII as if the RPII
were effectively connected with the conduct of a United States trade or business
and to waive all treaty benefits with respect to RPII or (iv) Annuity
Reassurance elects to be treated as a United States corporation. Annuity
Reassurance does not intend to make either of the described elections. Thus,
only exceptions (i) and (ii) may be available.
The Company does not expect that Annuity Reassurance will knowingly enter
into reinsurance arrangements in which the direct or indirect insureds are, or
are related to, owners of 20% or more of the Common Shares. Accordingly, the
Company anticipates that exception (i) will, and that exception (ii) may, apply
to Annuity Reassurance. If, however, neither of these exceptions were to apply,
each United States person owning, directly or indirectly, stock in the Company
(and therefore, indirectly in Annuity Reassurance) at the end of any taxable
year would generally be required to include in its gross income for United
States federal income tax purposes its share of the RPII for the entire taxable
year, determined as if such RPII were distributed proportionately only to such
United States shareholders at that date, but limited to Annuity Reassurance's
current-year earnings and profits reduced by the shareholder's pro-rata share,
if any, of certain prior-year deficits in earnings and profits.
Computation of RPII. In order to determine how much RPII Annuity
Reassurance has earned in each taxable year the Company intends to obtain and
rely upon information from its insureds to determine whether any of the insureds
or persons related to such insureds own shares of the Company and are United
States persons. Annuity Reassurance intends to include in its insurance
application and renewal forms, or related documents, a provision requesting
information as to whether the policyholders (or a related person) are or have
been, and a notice if they should become, a shareholder of the Company. In
addition, Annuity Reassurance will send a letter after each taxable year to each
person who was a policyholder to represent whether it was a shareholder of the
Company or related to a shareholder during the year. For any taxable year in
which Annuity Reassurance's gross RPII is 20% or more of its gross insurance
income for the year, the Company may also seek information from its shareholders
as to whether direct or indirect owners of its shares at the end of the year are
United States persons so that the RPII may be determined and apportioned among
such persons. To the extent the Company is unable to determine whether a direct
or indirect owner of shares is a United States person, the Company may assume
that such owner is not a United States person, thereby increasing the per share
RPII amount for all United States shareholders. Although, Annuity Reassurance
intends to operate in a manner that would minimize RPII, there can be no
assurance that an investor will not be required to include amounts in its income
in respect of RPII in any taxable year.
Apportionment of RPII to United States Shareholders. If direct or indirect
insureds and persons related to such insureds were to own more than 20% of the
voting power or value of Annuity Reassurance's common shares and Annuity
Reassurance's RPII determined on a gross basis for any future taxable year were
to be 20% or more of its gross insurance income, every United States person who
owns directly or indirectly Common Shares on the last day of that year would be
required to include in its gross income its share of Annuity Reassurance's RPII
for such year, whether or not distributed. A United States person who owns
Common Shares during the Company's taxable year but not on the last day of the
taxable year on which Annuity Reassurance is a controlled foreign corporation
within the meaning of the RPII provision of the Code, which would normally be
December 31, would not be required to include in its gross income any part of
Annuity Reassurance's RPII. Correspondingly, a United States person who owns
directly or indirectly, Common Shares on the last day of the taxable year on
which Annuity Reassurance is a controlled foreign corporation for purposes of
those provisions would be required to include in its income its share of the
RPII for the entire year even though such holder does not own the Common Shares
for the entire year.
Information Reporting. Each United States person who is a direct or
indirect shareholder of the Company on the last day of the Company's taxable
year would be required to attach to the income tax or information return such
holder would normally file for the period which includes that date a Form 5471
if Annuity Reassurance were a CFC for RPII purposes for any continuous
thirty-day period during its taxable year whether or not any net RPII income is
required to be reported. Annuity Reassurance will not be
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considered to be a CFC for this purpose and, therefore, Form 5471 will not be
required, for any taxable year in which (i) Annuity Reassurances's gross RPII
constitutes less than 20% of its gross insurance income or (ii) less than 20% of
the voting power or value of Annuity Reassurance's common shares is owned by
direct or indirect insureds and persons related to such insureds. For any year
in which Annuity Reassurance's gross RPII constitutes 20% or more of its gross
insurance income and its direct or indirect insureds and persons related to such
insureds own more than 20% of the voting power or value of Annuity Reassurance's
common shares, the Company intends to provide Form 5471 to its direct or
indirect United States shareholders for attachment to the returns of
shareholders. The amounts of the RPII inclusions may be subject to adjustment
based upon subsequent IRS examination. A tax-exempt organization would 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,
United States persons who at any time own 10% or more of the shares of the
Company may have an independent obligation to file certain information returns.
Tax-Exempt Shareholders. United States tax-exempt organizations would
generally be required to treat subpart F insurance income, including RPII, that
is includable in income by the tax-exempt entity, as unrelated business taxable
income within the meaning of Section 512 of the Code.
Dividend; Basis; Exclusion of Dividends from Gross Income. A United States
shareholder's tax basis in his Common Shares would be increased by the amount of
any RPII that the shareholder includes in his income. The shareholder could
exclude from income the amount of any distribution by the Company to the extent
of the RPII included in such shareholder's income for the year in which the
distribution was paid or for any prior year. A shareholder's tax basis in his
Common Shares would be reduced by the amount of such distributions that are
excluded from his income. Although, in certain circumstances, a United States
shareholder might be able to exclude from his income distributions with respect
to RPII that a prior shareholder included in his income, that exclusion would
not generally be available to holders who purchase Common Shares in the public
trading markets and are therefore unable to identify the previous shareholder
and demonstrate that such shareholder had previously included the RPII in his
income.
Dispositions of Common Shares. Subject to the discussion below relating to
the potential application of Section 1248 of the Code or the passive foreign
investment company rules, a United States shareholder will, upon the sale or
exchange of any Common Shares, recognize a gain or loss for United States income
tax purposes equal to the difference between the amount realized upon such sale
or exchange and the shareholder's basis in the Common Shares. If the
shareholder's holding period for such Common Shares is more than eighteen
months, any gain will be subject to tax at a current maximum marginal tax rate
of 20% for individuals and 35% for corporations.
Section 1248 of the Code provides that if a United States person disposes
of stock in a foreign corporation and such person owned directly, indirectly or
constructively 10% or more of the voting shares of the corporation at any time
during the five-year period ending on the date of disposition when the
corporation was a CFC, any gain from the sale or exchange of the shares may be
treated as ordinary income to the extent of the CFC's previously untaxed
earnings and profits during the period that the shareholder held the shares
(with certain adjustments). A 10% United States shareholder may in certain
circumstances be required to report a disposition of shares of a CFC by
attaching IRS Form 5471 to the United States income tax or information return
that the shareholder would normally file for the taxable year in which the
disposition occurs. Section 953(c)(7) of the Code generally provides that
Section 1248 will also apply to any sale or exchange of shares in a foreign
corporation that earns RPII if the foreign corporation would be taxed as an
insurance company if it were a domestic corporation, regardless of whether the
selling shareholder is or was a 10% shareholder or whether RPII constitutes 20%
or more of the corporation's gross insurance income. Existing Treasury
regulations do not address whether Section 1248 of the Code and the requirement
to file Form 5471 would apply if the foreign corporation is not a CFC but the
foreign corporation has a subsidiary that is a CFC or that would be taxed as an
insurance company if it were a domestic corporation (although, as discussed
above, shareholders of 10% or more of the shares of the Company may have an
independent obligation to file Form 5471). Section 1248 of the Code and the
requirement to file Form 5471 should not apply to dispositions of Common Shares
because the Company is not directly engaged in the insurance business and, under
proposed regulations, these provisions appear to be applicable only in the case
of shares of corporations that
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are directly engaged in the insurance business. There can be no assurance,
however, that the IRS will interpret the proposed regulations in this manner or
that the proposed regulations will not be amended or promulgated in final form
so as to provide that Section 1248 of the Code and the requirement to file Form
5471 will apply to dispositions of Common Shares. In that event, the Company
would notify shareholders that Section 1248 of the Code and the requirement to
file Form 5471 will apply to dispositions of Common Shares. Thereafter, the
Company would send a notice after the end of each calendar year to all persons
who were shareholders during the year notifying them that Section 1248 of the
Code and the requirement to file Form 5471 apply to dispositions of Common
Shares. The Company would attach to this notice a copy of Form 5471 completed
with all Company information and instructions for completing the shareholder
information.
Foreign Tax Credit. Because it is anticipated that United States persons
will own a majority of the Company's shares, only a portion of the current
income inclusions under the CFC, RPII and passive foreign investment company
rules, if any, and of dividends paid by the Company (including any gain from the
sale of Common Shares that is treated as a dividend under Section 1248 of the
Code) will be treated as foreign source income for purposes of computing a
shareholder's United States foreign tax credit limitations. The Company will
consider providing shareholders with information regarding the portion of such
amounts constituting foreign source income to the extent such information is
reasonably available. It is also 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 United States shareholders to utilize excess
foreign tax credits to reduce United States tax on such income.
Uncertainty as to Application of RPII. Regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes might
ultimately be made thereto or whether any such changes, as well as any
interpretation or application of the RPII rules 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 Annuity Reassurance is uncertain. These
provisions include the grant of authority to the United States Treasury
Department to prescribe "such regulations as may be necessary to carry out the
purpose of this subsection including . . . regulations preventing the avoidance
of this subsection through cross insurance arrangements or otherwise." In
addition, there can be no assurance that the IRS will not challenge any
determinations by the Company or Annuity Reassurance as to the amount, if any,
of RPII that should be includable in the income of a holder of Common Shares or
that the amounts of the RPII inclusions will not be subject to adjustment based
upon subsequent IRS examination. Each United States person who is considering an
investment in Common Shares should consult his tax advisor as to the effects of
these uncertainties.
Passive Foreign Investment Companies. Sections 1291 through 1297 of the
Code contain special rules applicable 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, their Common Shares, unless such shareholders elected from the
outset to be taxed on their pro-rata share of the Company's earnings whether or
not such earnings were distributed. 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 computed by assuming that the excess distribution or
gain (in the case of a sale) with respect to the shares was taxed in equal
annual portions at the highest applicable ordinary income tax rate throughout
the holder's period of ownership, and that interest accrued on each tax amount
for each prior year from the due date of such prior year's return. The interest
charge is equal to the applicable rate imposed on underpayments of United States
federal income tax for such period.
For the above purposes, passive income is defined to include income of the
kind which would be foreign personal holding company income under Section 954(c)
of the Code, and generally includes interest, dividends, annuities and other
investment income. However, the PFIC statutory provisions contain an express
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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. In the Company's view, Annuity Reassurance will be
predominantly engaged in an insurance business and will not have financial
reserves in excess of the reasonable needs of its insurance business. The PFIC
statutory provisions (unlike the RPII provisions of the Code) 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% by value of the stock. While no explicit guidance is provided
by the statutory language, under the look-through rule the Company should be
deemed to own the assets and to have received the income of Annuity Reassurance
directly for purposes of determining whether the Company qualifies for the
aforementioned insurance exception. This 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 be no
assurance, however, as to what positions the IRS or a court might take in the
future on whether the Company or Annuity Reassurance is predominantly engaged in
an insurance business and does not have financial reserves in excess of the
reasonable needs of such business. United States persons who are considering an
investment in Common Shares should consult their tax advisors as to the effects
of the PFIC rules.
Other. 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 United States persons. Thus, a holder of
Common Shares may be subject to backup withholding at the rate of 31% with
respect to dividends paid to such persons, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) 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. Backup
withholding is not an additional tax and may be credited against a holder's
regular federal income tax liability.
NON-UNITED STATES SHAREHOLDERS
Subject to certain exceptions, non-United States 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. Nonresident alien individuals will not be subject to
United States estate tax with respect to Common Shares of the Company.
* * *
The foregoing discussion is based upon current law. The tax treatment of an
owner of Common Shares, or a person treated as an owner of Common Shares for
United States federal income, state, local or non-United States tax purposes,
may vary depending on the owner'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 owners of Common
Shares. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX CONSEQUENCES OF OWNERSHIP
AND DISPOSITION OF THE COMMON SHARES.
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UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT
Alex. Brown Incorporated, CIBC Oppenheimer Corp. and Schroder & Co. Inc. are
acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions contained in the Underwriting Agreement, to
purchase from the Company the number of Common Shares set forth below opposite
their respective names:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ----------
<S> <C>
Prudential Securities Incorporated..........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
BT Alex. Brown Incorporated.................................
CIBC Oppenheimer Corp. .....................................
Schroder & Co. Inc. ........................................
----------
Total....................................................... 16,750,000
==========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Common Shares set forth above if any are purchased. The
closing of the Offering made hereby is conditioned upon the simultaneous closing
of the sales by the Company to the Strategic Investors in the Direct Sales of
Common Shares with an aggregate purchase price of at least $50.0 million.
The Underwriters, through the Representatives, have advised the Company
that they propose to offer the Common Shares set forth above initially at the
public offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $ per share;
and that such dealers may reallow a concession of $ per share to
certain other dealers. After the Offering, the initial public offering price and
the concessions may be changed by the Representatives.
The Company has granted to the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
2,512,500 additional Common Shares at the initial public offering price per
share, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely for
the purpose of covering any over-allotments incurred in the sale of the Common
Shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional Common Shares as the number set forth
next to such Underwriter's name in the preceding table bears to 16,750,000.
The Company, its directors and officers, the holders of the Class A
Warrants, the Strategic Investors and the other purchasers in the Direct Sales
have executed agreements pursuant to which they have agreed, except for certain
limited exceptions, that they will not directly or indirectly, without the prior
written consent of
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Prudential Securities Incorporated and Merrill Lynch & Co. on behalf of the
Underwriters and, in addition, in the case of the Strategic Investors, the
Company, offer, sell, offer to sell, contract to sell, pledge, grant any option
to purchase, or otherwise sell or dispose (or announce any offer, sale, offer to
sell, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any Common Shares or other capital stock of the Company or any
other securities convertible into, or exercisable or exchangeable for, any
Common Shares or other capital stock of the Company for a period of one year
after the date of this Prospectus, except for Prudential Insurance, which has
agreed to such restrictions for a period of 180 days after the date of this
Prospectus. Such agreements do not prevent the Company from granting options
under the Stock Option Plan so long as such options are not exercisable until
one year from the date of this Prospectus. Prudential Securities Incorporated,
Merrill Lynch & Co. and the Company may, in their discretion, at any time and
without notice, jointly release all or any portion of the securities subject to
such lock-up agreements. The Company also has agreed not to accelerate the
vesting of the registration rights granted to the Strategic Investors, the Class
A Warrant holders and the Class B Warrant holders and not to file any
registration statement on Form S-8 with respect to, or otherwise register for
resale with the Commission, Common Shares underlying stock options or warrants
for a period of one year from the date of this Prospectus, in each case, without
the prior written consent of Prudential Securities Incorporated and Merrill
Lynch and Co. on behalf of the Underwriters.
The Company has agreed to indemnify the several Underwriters and contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
Prior to the Offering, there has been no public market for the Common
Shares. Consequently, the initial public offering price will be determined
through negotiations between the Company and the Representatives. Among the
factors to be considered in making such determination will be the prevailing
market conditions, the Company's prospects and the prospects for its industry in
general, the management of the Company and the market prices of securities for
companies in businesses similar to that of the Company.
Upon consummation of the Offering, the Company will pay Prudential
Securities Incorporated an advisory fee equal to $1.0 million (plus
reimbursement of related out-of-pocket expenses) for investment banking and
financial advisory services related to the Offering.
The Company has entered into an investment advisory agreement with The
Prudential Investment Corporation, as one of the Investment Managers. See
"Business -- Investment Managers." Prudential Securities Incorporated and The
Prudential Investment Corporation are wholly-owned subsidiaries of Prudential
Insurance. Prudential Insurance, one of the Strategic Investors, has agreed to
purchase 1,028,369 Common Shares and Class B Warrants to purchase an additional
72,500 Common Shares for an aggregate purchase price of $14.5 million. See
"Direct Sales."
In connection with the Offering, certain Underwriters and selling group
members (if any) and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Shares.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Shares for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Shares in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Shares in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 2,512,500 Common Shares, by exercising
the Underwriters' over-allotment option referred to above. In addition,
Prudential Securities Incorporated and Merrill Lynch & Co., on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby they may reclaim from an Underwriter (or any selling group
member participating in the Offering) for the account of the other Underwriters,
the selling concession with respect to Common Shares that are distributed in the
Offering but subsequently purchased by Prudential Securities Incorporated for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph
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may result in the maintenance of the price of the Common Shares at a level above
that which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required and, if they are undertaken, they may be
discontinued at any time.
LEGAL MATTERS
The validity of the Common Shares under Bermuda law will be passed upon for
the Company by Conyers Dill & Pearman, Hamilton, Bermuda. Certain matters as to
United States law in connection with the Offering will be passed upon for the
Company by Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania. Certain
matters as to United States law in connection with the Offering will be passed
upon for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York. Drinker Biddle & Reath LLP, who serve as United States counsel to the
Company, also served as United States counsel to Inter-Atlantic Capital
Partners, Inc. in connection with the establishment of the Company and Annuity
Reassurance in 1997 and continues to represent Inter-Atlantic Capital Partners,
Inc. on an ongoing basis.
EXPERTS
The consolidated balance sheet of the Company as of December 22, 1997
included in this Prospectus and in the Registration Statement has been audited
by KPMG Peat Marwick, independent auditors, as indicated in their report with
respect thereto, and is included herein in reliance on the authority of said
firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Shares offered hereby. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the Common Shares offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
Upon completion of the Offering, the Company will be subject to the
informational reporting requirements of the Exchange Act and, in accordance
therewith, will file reports, proxy and information statements and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof, as well as such reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the public reference
section of the Commission at its Washington address at prescribed rates. The
Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.
After giving effect to the Offering, the Company will be treated as a
domestic corporation for purposes of certain requirements of the Exchange Act,
including the proxy rules. Pursuant to Rule 3b-4 under the Exchange Act, a
"foreign private issuer" is a non-United States issuer other than an issuer that
meets the
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following conditions: (1) more than 50% of the outstanding voting securities of
the issuer are held of record by residents of the United States and (2) any of
the following: (i) the majority of the executive officers or directors of the
issuer are United States citizens or residents, (ii) more than 50% of the assets
of the issuer are located in the United States or (iii) the business of the
issuer is administered principally in the United States. By virtue of (1) and
(2)(i), the Company does not expect that it will be a "foreign private issuer,"
although there is no assurance of such. If the Company were to be treated as a
"foreign private issuer," it would be exempted from the proxy and short-swing
profit rules under Sections 14 and 16 of the Exchange Act and, for reporting
purposes under the Exchange Act, would be subject to rules applicable to
"foreign private issuers."
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
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GLOSSARY OF SELECTED ANNUITY AND LIFE INSURANCE TERMS
A.M. Best rating........... A.M. Best Company, Inc.'s Best Ratings provide an
overall opinion of an insurance company's ability
to meet its obligations to policyholders based on
a quantitative and qualitative evaluation of a
company's financial strength, operating
performance and market profile. A.M. Best
maintains a letter scale rating system consisting
of 14 different ratings ranging from "A++"
(superior) to "F" (in liquidation). An "A-"
(excellent) rating is the fourth highest rating
assigned by A.M. Best and is assigned to
companies which have, on balance, excellent
financial strength, operating performance and
market profile when compared to the standards
established by the A.M. Best Company and which in
A.M. Best's opinion have a strong ability to meet
their ongoing obligations to policyholders.
Acquisition costs.......... Commission and brokerage fees paid for the
production of premiums written and certain other
acquisition and underwriting expenses.
Alien insurer or
reinsurer.................. An insurer or reinsurer organized under the laws of
a non-United States jurisdiction.
Annuitant.................. The person on whose life or life expectancy the
annuity payouts are based.
Annuity.................... A form of contract sold by an insurer that
guarantees a fixed or variable payment to the
annuitant over time. Annuity payments can
commence immediately or be deferred.
Annuity payouts............ An amount paid at regular intervals under one of
several plans typically available to the annuity
owner and/or any other payee. This amount may be
paid on a variable or fixed basis or a
combination of both.
Approved actuary........... A person approved by the Minister of Finance of
Bermuda that certifies whether or not, in his
opinion, the aggregate amount of the long-term
business liabilities of an insurer in relation to
its long-term business assets at the end of the
relevant year exceeded the aggregate amount of
those liabilities as shown in the insurer's
statutory balance sheet.
Assumption Reinsurance..... An arrangement under which an insurance company
(the "reinsurer") agrees to assume the
obligations of another insurance company (the
"ceding company" or "cedent") for all or a
portion of the insurance risks underwritten by
the ceding company. Reinsurance written on an
assumption basis effectively transfers the ceding
company's obligations to the reinsurer and, in
some cases, eliminates the ceding company's
further liability to the insured.
Automatic reinsurance...... Reinsurance of a specified type or category of risk
defined in a reinsurance agreement (often called
a "treaty") between a ceding company and a
reinsurer. Typically, in automatic reinsurance
the ceding company is obligated to offer and the
reinsurer is obligated to accept a specified
portion of all such type or category of risks
originally insured or reinsured by the ceding
company.
Beneficiary................ The person designated to receive life or annuity
benefits in case of the policy owner's or
annuitant's death.
Broker..................... One who negotiates contracts of insurance or
reinsurance, receiving a commission for placement
and other services rendered, between (i) a
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policy holder and a primary insurer, on behalf of
the insured party, (ii) a primary insurer and
reinsurer, on behalf of the primary insurer, or
(iii) a reinsurer and a retrocessionaire, on
behalf of the reinsurer.
Cedent; Ceding company..... See "Reinsurance; Reinsure."
Coinsurance................ A form of reinsurance with respect to which the
risk generally is reinsured on the same plan as
that of the original policy. The reinsurer
receives the gross premium charged to the
policyholder on the reinsured part of the policy
less expense allowances granted the ceding
company by the reinsurer. The reinsurer maintains
policy reserves and is liable for its share of
policy benefits.
Corporate owned life
insurance ("COLI")......... An individual or group life insurance policy owned
by a company or a trust sponsored by a company.
The proceeds from such a policy may be used to
help fund general corporate liabilities, such as
the cost of employee benefit programs.
Credited rates............. Interest rates applied to annuity and life
insurance policies, whether contractually
guaranteed or currently declared for a specified
period, as outlined in the policy or contract.
Minimum crediting rates are often set by laws or
regulations.
Duration................... A measure, expressed in years, of the price
sensitivity of a financial instrument to changes
in interest rates.
Facultative reinsurance.... A type of reinsurance whereby the ceding company is
not obligated to offer, and the reinsurer is not
obligated automatically to accept, all or a
portion of each risk originally insured by the
ceding company. Facultative risks are typically
underwritten on a case-by-case basis.
Fixed annuity.............. An annuity which guarantees an annuitant that a
specific sum of money will be paid in the future,
either as a lump sum or as periodic income.
Assets supporting fixed annuities are subject to
claims of general creditors of the issuer of the
annuity and are sometimes referred to as "general
account" annuities.
United States generally
accepted accounting
principles ("GAAP")...... United States accounting principles as set forth in
opinions of the Accounting Principles Board of
the American Institute of Certified Public
Accountants and/or statements of the Financial
Accounting Standards Board and/or their
respective successors and which are applicable in
the circumstances as of the date in question.
Guaranteed investment
contracts.................. Insurance contracts that guarantee a specified rate
of return.
Indemnity reinsurance...... An arrangement under which an insurance company
(the "reinsurer") agrees to indemnify another
insurance company (the "ceding company" or
"cedent") for all or a portion of the insurance
risks underwritten by the ceding company.
Reinsurance written on an indemnity basis does
not legally discharge the primary insurer from
its liability with respect to its obligations to
the insured.
Long term insurer.......... Under Bermuda law, a long term insurer means an
insurer carrying on long-term business, which
includes effecting and carrying out con-
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tracts of insurance on human life or contracts to
pay annuities on human life.
Modified coinsurance....... A form of reinsurance that differs from coinsurance
only in that reserves are retained by the ceding
company while the risk remains with the
reinsurer. The ceding company normally pays
interest to replace the interest the reinsurer
would have earned if it had held the assets
corresponding to the reserves in its own
investment portfolio.
Mortality.................. The relative incidence of death.
Persistency................ The rate which insurance policies or annuity
contracts remain in force, expressed as a
percentage of the number of policies remaining in
force over the previous year.
Primary insurer............ An insurance company that contracts with the
consumer (the insured) to provide insurance
coverage. Such primary insurer may then cede a
portion of its business to one or more
reinsurers.
Quota share reinsurance.... A term describing all forms of reinsurance in which
the reinsurer receives a pro-rata part of the
premiums and pays a pro-rata part of the losses
arising in connection with the policies reinsured
(sometimes known as "proportional" reinsurance,
"pro-rata" reinsurance or "participating"
reinsurance).
Recapture right............ The ceding company's right to cancel reinsurance
under certain conditions. A recapture occurs when
a ceding company cancels an in force reinsurance
cession to increase the risk it retains.
Reinsurance; Reinsurer..... An arrangement under which an insurance company
(the"reinsurer") agrees to indemnify or assume
the obligations of another insurance company (the
"ceding company" or "cedent") for all or a
portion of the insurance risks underwritten by
the ceding company.
Reserves................... Liabilities established by insurers that generally
represent the estimated discounted present value
of the net cost of claims, repayments or contract
liabilities and the related expenses that the
insurer will ultimately be required to pay in
respect of insurance or annuities it has written.
Retention.................. The amount or portion of insurance risk that a
ceding company retains for its own account. In
quota share reinsurance, the retention may be a
percentage of the original policy's limit. In
excess of loss business, the retention typically
is a dollar amount of loss, a loss ratio or a
percentage.
Retrocessional reinsurance;
Retrocessionaire......... An arrangement under which a reinsurer cedes to
another reinsurer (the "retrocessionaire") all or
a portion of the insurance risks underwritten by
the first reinsurer. Retrocessional reinsurance
does not legally discharge the ceding reinsurer
from its liability with respect to its
obligations to the original ceding company.
Standard & Poor's insurance
claims-paying ability
ratings.................. Standard & Poor's insurance claims-paying ability
rating is the opinion of Standard & Poor's of an
operating insurance company's financial capacity
to meet the obligations of its insurance policies
in accordance
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with their terms. Standard & Poor's ratings range
from "AAA" (superior) to "CCC" (extremely
vulnerable).
Separate account........... A segregated account established by an insurance
company to hold customer assets and liabilities
on behalf of a customer in connection with
variable life and variable annuity products. The
funds in a separate account are maintained
separately from those in other separate accounts
and other assets of the insurer, and are not
subject to claims of the insurer's general
creditors.
Structured settlement
contracts.................. Contracts providing for periodic payments to a
person for a determinable number of years or for
life, typically in settlement of an injury claim
or a lottery award.
Surplus relief reinsurance;
Financial reinsurance.... A type of reinsurance which is primarily designed
to increase temporarily a ceding company's
statutory capital.
Surrender charge........... A charge applied if an annuity or life insurance
policy is surrendered for its cash value prior to
a specified date. Such a charge is usually
intended to recover all or a portion of the
policy acquisition costs and act as a deterrent
to early surrender.
Term life insurance........ A form of life insurance which provides mortality
protection during a stated period of time, but
expires without policy cash value in the event
the policy owner survives the stated period.
Treaty reinsurance......... See "Automatic reinsurance."
Underwriting............... The insurer's or reinsurer's process of reviewing
contracts submitted for insurance or reinsurance
coverage, deciding whether to accept all or part
of the coverage requested and determining the
applicable premiums.
Underwriting capacity...... The maximum amount of insurance that an insurance
or reinsurance company can underwrite, which is
limited by its existing surplus. Reinsurance
serves to increase an insurer's underwriting
capacity by reducing its exposure from particular
risks and thereby increasing available surplus.
Underwriting expenses...... The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.
Unearned premiums.......... Premiums written but not yet earned, as they are
attributable to the unexpired portion of the
related contract term.
Universal life insurance... A form of life insurance that combines term
insurance and a cash value savings component.
Premium payments and coverage usually can vary at
the option of the policyholder. This coverage can
be fixed or variable. Premiums are credited to
the account as is interest on the underlying
assets. Specific charges are made against the
account for the cost of insurance protection and
for the insurer's expenses. This form of life
insurance allows considerable flexibility as to
the amount and timing of premium payments and for
the level of death benefits provided.
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Variable annuity........... An annuity which includes a provision for benefit
payments to vary according to the investment
experience of the separate account in which the
premiums paid for the annuity are allocated.
Variable life insurance.... An investment-oriented form of life insurance that
offers fixed premiums and a minimum death benefit
as well as providing a return linked to an
underlying portfolio of securities that may be in
either a separate or general account of the
insurer.
Whole life insurance....... A form of life insurance which provides guaranteed
death benefits and guaranteed cash values to
policy holders.
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INDEX TO CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Balance Sheet as of December 22, 1997................................................. F-3
Notes to Consolidated Balance Sheet................................................... F-4
</TABLE>
F-1
<PAGE> 83
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Annuity and Life Re (Holdings), Ltd.
We have audited the accompanying consolidated balance sheet of Annuity and
Life Re (Holdings), Ltd. as at December 22, 1997 (date of inception). This
financial statement is the responsibility of the company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the company as at December
22, 1997 in conformity with United States generally accepted accounting
principles.
KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
December 22, 1997,
except for Notes 5 and 8,
as to which the date is March 4, 1998.
F-2
<PAGE> 84
ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED BALANCE SHEET
DECEMBER 22, 1997 (DATE OF INCEPTION)
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
ASSETS
Cash.............................................................................. $250,000
========
STOCKHOLDERS' EQUITY (NOTE 4)
Preferred Shares -- (par value $1.00; 50,000,000 shares authorized; no shares
outstanding).................................................................... $ --
--------
Common Shares -- (par value $1.00; 100,000,000 shares authorized; 12,000 shares
issued and outstanding)......................................................... 12,000
Additional paid-in capital........................................................ 238,000
--------
Total stockholders' equity........................................................ $250,000
========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 85
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION
Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda to provide annuity and life
reinsurance to insurers and reinsurers. Holdings will operate through a
wholly-owned subsidiary, Annuity and Life Reassurance, Ltd. ("Annuity
Reassurance," and together with Holdings, the "Company"). Annuity Reassurance
will be licensed under the insurance laws of Bermuda. The Company's initial
capitalization of $250,000, as reflected on the Balance Sheet, was provided by
Frederick S. Hammer, Robert M. Lichten, Michael P. Esposito, Jr., Andrew S.
Lerner, William S. Ogden, Jr. and Arnold Welles (referred to as the "Class A
Warrant Holders") (see notes 3 and 4) and the Annuity Re Purpose Trust, which
was lent $12,000 by Inter-Atlantic Capital Partners, Inc. See note 3. The
Company's fiscal year end will be December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statement is prepared in accordance with United
States generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statement. Actual results could differ from those estimates. The
following are the significant accounting policies adopted by the Company:
(a) Premium income and related expenses
Reinsurance premiums from traditional life and annuity policies with life
contingencies will be recognized generally as revenue when due from
policyholders. Traditional life policies include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies. Benefits and expenses are matched with such income so as to
result in the recognition of profits over the life of the contracts. This is
achieved by means of the provision for liabilities for future policy benefits
and deferral and subsequent amortization of policy acquisition costs.
For contracts with a single premium or a limited number of premium payments
due over a significantly shorter period than the total period over which
benefits are provided ("limited payment contracts"), reinsurance premiums will
be recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to the insurance in force or, for annuities,
in relation to the amount of expected future benefit payments.
Premiums from universal life and investment-type contracts will be reported
as deposits to policy holders' account balances. Revenues from these contracts
will consist of amounts assessed during the period against policyholders'
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense will
include benefit claims incurred in the period in excess of related
policyholders' account balances.
(b) Deferred policy acquisition costs
The costs of acquiring new business, principally commissions, underwriting,
agency and policy issue expenses, all of which vary with and are primarily
related to the production of new business, will be deferred. Deferred policy
acquisition costs will be subject to recoverability testing at the time of the
policy issuance and loss recognition testing at the end of each accounting
period.
For traditional life and annuity policies with life contingencies, deferred
policy acquisition costs will be charged to expense using assumptions consistent
with those used in computing policy reserves. Assumptions as to anticipated
premiums will be estimated at the date of the policy issuance and will be
consistently applied during the life of the contracts. Deviations from estimated
experience will be reflected in earnings in the period
F-4
<PAGE> 86
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
such deviations occur. For these contracts, the amortization periods generally
will be for the estimated life of the policy.
For universal life and investment-type products, deferred acquisition costs
will be amortized over the expected average life of the contracts as a constant
percentage of the present value of estimated gross profits arising principally
from investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, which is updated at the
end of each accounting period. In computing amortization, interest shall accrue
to the unamortized balance of capitalized acquisition costs at the rate used to
discount expected gross profit. The effect on the amortization of deferred
policy acquisition costs of revisions to estimated gross profits will be
reflected in earnings in the period such estimated gross profits are revised.
(c) Policyholders' account balances and future policy benefits
The development of policy reserves for the Company's products will require
management to make estimates and assumptions regarding mortality, lapse, expense
and investment experience. Such estimates will be primarily based on historical
experience and information provided by ceding companies. Actual results could
differ materially from those estimates. Management will monitor actual
experience, and where circumstances warrant, will revise its assumptions and the
related reserve estimates.
For traditional life policies, future benefit and dividend liabilities will
be estimated using a net level premium method on the basis of actuarial
assumptions as to mortality, persistency and interest established at policy
issue. Assumptions established at policy issue as to mortality and persistency
are based on anticipated experience which, together with interest and expense
assumptions, provide a margin for adverse deviation. When the liabilities for
future policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future benefits and
expenses for that product, deferred acquisition costs will be written off and
thereafter, if required, a premium deficiency reserve will be established by a
charge to income. Benefit liabilities for traditional annuities during the
accumulation period are equal to the accumulated present value of expected
future payments.
Premiums for universal life and investment-type contracts will be reported
as deposits to clients' account balances. Revenues from these contracts will
consist of amounts assessed during the period against clients' account balances
for mortality charges, policy administration and surrender charges. Policy
benefits and claims that are charged to expense will include benefit claims
incurred in the period in excess of related clients' account balances and
interest credited to clients' account balances.
(d) Investments
The Company will classify its investments in fixed income and equity
securities as available for sale and, accordingly, such securities will be
carried at fair value. The cost of fixed income securities will be adjusted for
amortization of premiums and discounts. The cost of fixed income and equity
securities will be adjusted for declines in value that are considered other than
temporary.
Realized gains and losses on investments will be recognized in net income,
net of related amortization of deferred acquisition costs, using the specific
identification method. Changes in fair values of securities carried at fair
value are reflected directly in shareholders' equity, after deductions for
related adjustments for deferred acquisition expenses and amounts required to
satisfy policyholder commitments that would have been recorded had these
securities been sold at their fair value.
(e) Translation of foreign currencies
The Company's functional currency is the United States dollar. Premiums
written and receivable in foreign currencies will be recorded at exchange rates
prevailing on the date the contract attaches and liabilities
F-5
<PAGE> 87
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
for future benefits payable in foreign currencies at the time such liabilities
are first recorded. Exchange gains or losses resulting from the periodic
revaluation and settlement of such assets and liabilities will be recorded in
the Company's statement of operations.
(f) Organizational expenses
Organization expenses consist of legal, accounting and incorporation
expenses incurred in connection with the formation and organization of the
Company and include certain expense reimbursements to Inter-Atlantic Securities
Corporation ("Inter-Atlantic"). Such costs will be capitalized and amortized to
income evenly over five years.
Costs incurred in connection with the Company's planned initial public
offering, including certain amounts payable for investment banking and financial
advisory services, will be deducted from the gross proceeds of the offering.
(g) Earnings per Common Share
The Company will calculate earnings per common share based upon the
guidance provided in Financial Accounting Standards Board Statement No. 128
"Earnings per Share." This statement requires the presentation of two amounts of
earnings per share when the company has a complex capital structure. These
amounts are earnings per common share and earnings per common share-assuming
dilution.
Basic earnings per common share will be calculated by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the period.
Diluted earnings per common share will be calculated by dividing the net
income attributable to common shareholders by the weighted average number of
common shares outstanding during the period, plus dilutive potential common
shares. Options and warrants issued by the Company will be considered dilutive
potential common shares and will be included in the calculation using the
treasury stock method.
3. AGREEMENTS WITH RELATED PARTIES
Formation and Initial Public Offering
The Company has entered into an agreement with Inter-Atlantic, whereby
Inter-Atlantic has agreed to provide financial advisory services to the Company
in connection with its organization and planned initial public offering. Certain
officers and directors of the Company are also beneficial owners, directors or
officers of Inter-Atlantic and/or its parent company, Inter-Atlantic Capital
Partners, Inc.
The Company will reimburse Inter-Atlantic for expenses incurred in
connection with the organization of the Company and the planned initial public
offering provided that such offering is successfully consummated prior to June
30, 1998. Subsequent to the successful consummation of the planned initial
public offering, Inter-Atlantic will also receive a fee equal to $2.0 million as
compensation for financial advisory services provided to the Company in
connection with its planned initial public offering. If such offering is not
successfully consummated prior to June 30, 1998, Inter-Atlantic will only be
entitled to reimbursement of expenses incurred on or after December 23, 1997. At
the balance sheet date, Inter-Atlantic had incurred expenses in connection with
the Company's organization of approximately $75,000 and costs in connection with
the planned initial public offering of approximately $400,000. In addition,
Inter-Atlantic will provide financial advisory and other services to the Company
for a term of five years in exchange for four annual payments of $600,000
beginning on the first anniversary of the consummation of the planned initial
public offering.
In connection with the formation of the Company, the Class A Warrant
Holders purchased Class A Warrants to purchase up to an aggregate number of
common shares equal to 12% of the sum of (i) the
F-6
<PAGE> 88
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
common shares outstanding immediately following the consummation of the planned
initial public offering (but excluding any shares held by the Annuity Re Purpose
Trust) and (ii) the common shares issuable upon exercise or conversion of any
security outstanding immediately following the consummation of the planned
initial public offering, except for certain warrants issued by the Company and
any options granted by the Company under its Initial Stock Option Plan.
4. STOCKHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 50,000,000 preferred shares of par value
$1.00 each. At the balance sheet date there were no preferred shares issued or
outstanding.
Common Stock
The Company is authorized to issue 100,000,000 common shares of par value
$1.00 each. At the balance sheet date 12,000 common shares were outstanding.
Warrants
In connection with its initial capitalization, the Company has issued Class
A Warrants to the Class A Warrant Holders to purchase up to an aggregate number
of common shares equal to 12% of the sum of (i) the common shares outstanding
immediately following the consummation of the planned initial public offering
(but excluding any shares held by the Annuity Re Purpose Trust) and (ii) the
Common Shares issuable upon exercise or conversion of any security outstanding
immediately following the consummation of the planned initial public offering,
except for certain warrants issued by the Company and any options granted by the
Company under its Initial Stock Option Plan. The consideration paid for these
warrants of $238,000 has been recorded as additional paid in capital. The
exercise price of the warrants will be equal to the initial public offering
price per share of the Company's common shares. The Class A Warrants become
exercisable over three years commencing on the first anniversary of the
consummation of the Company's initial public offering. The Class A Warrants will
expire on January 15, 2008.
5. STOCK PLANS
Stock Option Plan
On December 3, 1997, the Board of Directors adopted a Stock Option Plan
(the "plan") under which it may grant, subject to certain restrictions,
Incentive Stock Options (ISO's) and Non-Qualified Stock Options (NQSO's). The
plan was amended on February 19, 1998. The aggregate number of common shares for
which options may be granted under the plan is limited to the lessor of (i) 5.5
percent of the common shares outstanding immediately following the consummation
of the Company's initial public offering, plus 150,000 shares or (ii) 1,700,000
common shares. Only eligible employees of the Company are entitled to ISO's,
while NQSO's may be granted to eligible employees, non-employee Directors and
consultants.
The plan will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the authority to select the parties to
be granted ISO's and NQSO's, to set the date of grant and other terms of the
options granted under the plan.
The minimum exercise price of the ISO's will be equal to the fair market
value, as defined in the plan, of the Company's optioned common shares at the
date of grant. The term of the ISO's is not more than ten years from the date of
grant. Unless otherwise provided in the option agreement, the ISO's shall be
exercisable in three equal annual installments, commencing on the first
anniversary of the grant date.
F-7
<PAGE> 89
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
Subject to the consummation of the offering, options will be granted to the
President and Chief Executive Officer and other senior executives of the Company
to purchase common shares. The exercise price of such options will be equal to
the public offering price per share.
Each person who becomes an eligible non-employee Director, as defined in
the plan, shall be granted an option to purchase 15,000 common shares on the
later of (i) the date he or she becomes an eligible non-employee Director or
(ii) the date the planned initial public offering is consummated. The options
shall have an exercise price equal to the fair market value of the optioned
common shares on the date the options are granted and shall be exercisable in
three equal installments commencing with the first anniversary of the grant
date. In addition, subject to certain conditions, each non-employee Director
shall be granted an option to purchase 2,000 common shares at each successive
annual general meeting after December 31, 1998. These options shall have an
exercise price equal to the fair market value of the optioned common shares on
the date the options are granted and shall be immediately exercisable if granted
after the first anniversary of the consummation of the planned initial public
offering. If such options are granted prior to the first anniversary of the
consummation of the planned initial public offering, such options shall become
exercisable on such anniversary.
In addition, Directors shall receive cash of $20,000 per annum plus $1,000
per board or committee meeting attended. Committee Chairmen shall receive an
additional $1,000 per annum.
6. TAXATION
Under current Bermuda law neither the Company nor Annuity Reassurance is
required to pay any taxes in Bermuda on either income or capital gains. The
Company and Annuity Reassurance have applied for an assurance from the Minister
of Finance in Bermuda that in the event of any such taxes being imposed the
Company will be exempted from taxation until the year 2016. The Company intends
to operate in a manner such that it will owe no United States tax other than
premium excise taxes and withholding taxes on certain investments.
7. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
Under The Bermuda Insurance Act, 1978, and related regulations, Annuity
Reassurance is required to maintain certain levels of solvency and liquidity.
The minimum statutory capital and surplus requirement of $250,000 was met at the
balance sheet date.
The Company's ability to pay dividends depends on the ability of Annuity
Reassurance to pay dividends to the Company. While the Company itself is not
subject to any significant legal prohibitions on the payment of dividends,
Annuity Reassurance will be subject to Bermuda regulatory constraints which
affect its ability to pay dividends to the Company. Annuity Reassurance is
prohibited from declaring or paying a dividend if such payment would reduce its
statutory surplus below $250,000.
NOTE 8. SUBSEQUENT EVENTS
On March 4, 1998 the Company entered into Securities Purchase Agreements
with three investors ("the strategic investors") whereby the strategic investors
agreed to purchase an aggregate of 3,865,249 common shares and Class B Warrants
to purchase an aggregate of 272,500 common shares for an aggregate purchase
price of $54.5 million. The exercise price of the Class B Warrants is $15.00 per
share, and they are exercisable in equal amounts over a three year period
commencing one year after the closing of the sales to the strategic investors
and expire ten years after the closing of such sales. Certain sales restrictions
apply to the common shares purchased by the strategic investors directly from
the Company and to the common shares issuable upon the exercise of the Class B
Warrants.
One of the strategic investors is affiliated with Prudential Securities
Incorporated, one of the underwriters of the Company's planned initial public
offering, and with The Prudential Investment Corporation, which is expected to
act as one of the Company's investment managers after the closing of the
Company's planned
F-8
<PAGE> 90
ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
initial public offering. The Company has agreed to pay a fee of $1.0 million
(plus reimbursement of related out-of-pocket expenses) to Prudential Securities
Incorporated for investment banking and financial advisory services related to
the Company's planned initial public offering. Marsh & McLennan Management
Services (Bermuda) Limited, which has contracted to provide office space and
administrative services to the Company, is affiliated with a significant
shareholder of one of the other strategic investors.
F-9
<PAGE> 91
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON
SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Enforceability of Civil Liabilities under
United States Federal Securities Laws.... 3
Prospectus Summary......................... 4
Risk Factors............................... 9
Use of Proceeds............................ 17
Capitalization............................. 18
Dividend Policy............................ 19
Dilution................................... 20
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 21
Business................................... 24
Management................................. 41
Principal Stockholders..................... 50
Certain Relationships and Related Party
Transactions............................. 52
Description of Capital Stock............... 55
Shares Eligible for Future Sale............ 61
Direct Sales............................... 63
Certain Tax Considerations................. 64
Underwriting............................... 71
Legal Matters.............................. 73
Experts.................................... 73
Additional Information..................... 73
Glossary of Selected Annuity and Life
Insurance Terms.......................... 75
Index to Consolidated Balance Sheet........ F-1
</TABLE>
======================================================
======================================================
16,750,000 Shares
ANNUITY AND
LIFE RE (HOLDINGS), LTD.
Common Shares
----------------------
PROSPECTUS
----------------------
Joint Lead Managers
and Joint Bookrunners
PRUDENTIAL SECURITIES INCORPORATED
MERRILL LYNCH & CO.
--------------------
BT ALEX. BROWN
CIBC OPPENHEIMER
SCHRODER & CO. INC.
, 1998
======================================================
<PAGE> 92
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.
[ALTERNATE PAGE FOR THE DIRECT SALES PROSPECTUS]
SUBJECT TO COMPLETION -- DATED MARCH 5, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
463,639 SHARES
ANNUITY AND LIFE RE (HOLDINGS), LTD.
COMMON SHARES
- --------------------------------------------------------------------------------
All of the 463,639 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Annuity and Life Re (Holdings), Ltd.
(the "Company"). The Company is offering such Common Shares directly to its
directors and officers and certain persons affiliated with Inter-Atlantic
Capital Partners, Inc. at a price per share equal to the initial public offering
price per share in the Offering (as defined below), less the per share
underwriting discounts and commissions therein, for an aggregate purchase price
if all such Common Shares are sold of $6,537,310. This Prospectus, other than
this page and the section entitled "Plan of Distribution," was also used in the
Company's underwritten initial public offering of 16,750,000 Common Shares, and
unless the context otherwise requires, references herein to the "Offering" are
to such underwritten offering. The offering made hereby will be consummated
simultaneously with the consummation of the Offering. Prior to the Offering, the
Company has not conducted any business and there has been no public market for
the Common Shares.
In connection with the formation of the Company and the establishment of a core
group of strategic investors, The Prudential Insurance Company of America, EXEL
Limited and Risk Capital Reinsurance Company (collectively, the "Strategic
Investors") have severally agreed to purchase for investment directly from the
Company an aggregate of 3,865,249 Common Shares and Class B Warrants to purchase
an aggregate of 272,500 Common Shares, provided that the initial public offering
price per share is at least $15.00. Such purchases will be consummated
simultaneously with the consummation of the Offering for an aggregate purchase
price for the Common Shares and the Class B Warrants of $54,500,000. The
exercise price for the Class B Warrants will be $15.00 per share. Such purchases
by the Strategic Investors, together with the Common Shares being offered
hereby, are collectively referred to in this Prospectus as the "Direct Sales."
See "Direct Sales."
An application has been made to have the Common Shares approved for quotation in
The Nasdaq Stock Market's National Market (the "Nasdaq National Market") under
the symbol "ALREF."
The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which, among other things, generally prevent
transfers to holders beneficially owning 10% or more of the voting shares of the
Company (other than as described herein) and reduce the voting power of any
holder beneficially owning 10% or more of the voting shares of the Company to
less than 10% of the total voting power of the Company's capital stock. See
"Description of Capital Stock."
SEE "RISK FACTORS" ON PAGES 9 TO 16 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON SHARES
OFFERED HEREBY.
- --------------------------------------------------------------------------------
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.
, 1998
<PAGE> 93
[ALTERNATE PAGE FOR THE DIRECT SALES PROSPECTUS]
PLAN OF DISTRIBUTION
The Company is offering directly the Common Shares offered hereby to its
directors and officers and to certain persons affiliated with Inter-Atlantic
Capital Partners, Inc. at a per share price equal to the initial public offering
price per Common Share in the Offering, less the per share underwriting
discounts and commissions. Such sales are to be consummated simultaneously with
the other Direct Sales and the Offering.
<PAGE> 94
[ALTERNATE PAGE FOR THE DIRECT SALES PROSPECTUS]
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON
SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE COMMON SHARES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Enforceability of Civil Liabilities under
United States Federal Securities Laws... 3
Prospectus Summary........................ 4
Risk Factors.............................. 9
Use of Proceeds........................... 17
Capitalization............................ 18
Dividend Policy........................... 19
Dilution.................................. 20
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations.............................. 21
Business.................................. 24
Management................................ 41
Principal Stockholders.................... 50
Certain Relationships and Related Party
Transactions............................ 52
Description of Capital Stock.............. 55
Shares Eligible for Future Sale........... 61
Direct Sales.............................. 63
Certain Tax Considerations................ 64
Plan of Distribution......................
Legal Matters............................. 73
Experts................................... 73
Additional Information.................... 73
Glossary of Selected Annuity and Life
Insurance Terms......................... 75
Index to Consolidated Balance Sheet....... F-1
</TABLE>
======================================================
======================================================
463,639 Shares
ANNUITY AND
LIFE RE (HOLDINGS), LTD.
Common Shares
----------------------
PROSPECTUS
----------------------
, 1998
======================================================
<PAGE> 95
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Registrant in
connection with this Registration Statement. All of such expenses are estimates,
other than the filing and quotation fees payable to the Securities and Exchange
Commission, the National Association of Securities Dealers, Inc. and The Nasdaq
National Market.
<TABLE>
<S> <C>
Filing Fee -- Securities and Exchange Commission............ $ 96,182
Filing Fee -- National Association of Securities Dealers,
Inc....................................................... 30,500
Quotation Fees -- The Nasdaq National Market................ 90,000
Advisory Fees............................................... 3,000,000
Reimbursement of other expenses to Inter-Atlantic Securities
Corporation............................................... *
Fees and Expenses of Counsel................................ *
Fees and Expenses of Accountants............................ *
Printing Expenses........................................... *
Blue Sky Fees and Expenses.................................. *
Fees and Expenses of Transfer Agent......................... *
Miscellaneous Expenses...................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 31 of the Registrant's Bye-Laws provides that: (a) the directors
and officers of the Registrant shall be indemnified from and against all
actions, costs, charges, losses, damages and expenses which they shall incur by
reason of any act done in connection with their duty as a director or officer of
the Registrant (b) each director and officer of the Registrant shall be
indemnified out of the funds of the Registrant against all liabilities incurred
by him as such a director or officer of the Registrant in defending any
proceedings in which judgment is given in his favor or he is acquitted or
relieved from liability and (c) funds shall be advanced to each director or
officer of the Registrant on his incurring liability prior to judgment provided
that should he be found guilty of a criminal or other offense for which he
cannot by law be indemnified he shall reimburse the Registrant for the funds
advanced.
Section 32 of the Registrant's Bye-Laws provides that each shareholder
agrees to waive any claim or right of action such shareholder might have against
any director or officer on account of any action taken by such director or
officer, or the failure of such director or officer to take any action in the
performance of his or her duties with or for the Registrant, provided that such
waiver does not extend to any matter in respect of any fraud or dishonesty that
may attach to such director or officer.
The Registrant has obtained a Directors and Officers and Company
Reimbursement Policy from Underwriters at Lloyd's, London that provides
liability insurance for the Registrant's directors and officers.
Reference is made to the form of Underwriting Agreement to be filed as
Exhibit 1.1 hereto for provisions providing that the Underwriters are obligated,
under certain circumstances, to indemnify the directors, certain officers and
the controlling persons of the Registrant against certain liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
Reference is made to the Agreement to be filed as Exhibit 10.4 hereto for
provisions providing that the Registrant and Inter-Atlantic Securities
Corporation are each obligated to indemnify the other for certain actions.
II-1
<PAGE> 96
Reference is made to the Registration Rights Agreements filed as Exhibits
10.5 and 10.13 hereto for provisions providing that the Registrant and certain
holders of Common Shares, Class A Warrants and/or Class B Warrants are each
obligated to indemnify the other for certain actions.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its formation, the Registrant has issued the following securities
that were not registered under the Securities Act:
(a) On December 3, 1997, the Registrant sold 12,000 Common Shares to
the Annuity Re Purpose Trust, a Bermuda trust, for an aggregate price of
$12,000. The Registrant will repurchase these shares upon consummation of
the Offering and such shares will be cancelled.
(b) On December 9, 1997, the Registrant sold Class A Warrants for an
aggregate price of $238,000 to Frederick S. Hammer, Robert M. Lichten,
Michael P. Esposito, Jr., William S. Ogden, Jr., Andrew S. Lerner and
Arnold Welles to purchase up to an aggregate number of Common Shares equal
to 12% of the sum of (i) the Common Shares outstanding immediately
following the consummation of the Offering (but excluding any shares held
by the Annuity Re Purpose Trust) and (ii) the Common Shares issuable upon
exercise or conversion of any security outstanding immediately following
the consummation of the Offering, except for the Class A Warrants and any
options granted by the Company under its Initial Stock Option Plan at an
exercise price equal to the initial public offering price per share. On
February 27, 1997, the outstanding Class A Warrants were amended to provide
that the aggregate number of Common Shares issuable upon exercise thereof
would be equal to 12% of the sum of (i) the Common Shares outstanding
immediately following the consummation of the Offering (but excluding any
shares held by the Annuity Re Purpose Trust) and (ii) the Common Shares
issuable upon exercise or conversion of any security outstanding
immediately following the consummation of the Offering, except for the
Class A Warrants, the Class B Warrants and any options granted by the
Company under its Initial Stock Option Plan.
(c) On March 4, 1998, the Registrant contracted to sell 1,028,369
Common Shares and Class B Warrants to purchase an additional 72,500 Common
Shares to The Prudential Insurance Company of America for an aggregate
price of $14.5 million.
(d) On March 4, 1998, the Registrant contracted to sell 1,418,440
Common Shares and Class B Warrants to purchase an additional 100,000 Common
Shares to EXEL Limited for an aggregate price of $20.0 million.
(e) On March 4, 1998, the Registrant contracted to sell 1,418,440
Common Shares and Class B Warrants to purchase an additional l00,000 Common
Shares to Risk Capital Reinsurance Company for an aggregate price of $20.0
million.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving a public offering. All of the foregoing securities are
deemed restricted securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1** Memorandum of Association, as amended.
3.2** Bye-Laws.
4.1* Specimen Common Share Certificate.
</TABLE>
II-2
<PAGE> 97
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
4.2*** Form of Amended and Restated Class A Warrant.
4.3*** Form of Class B Warrant.
5.1** Form of opinion of Conyers Dill & Pearman.
8.1** Form of opinion of Conyers Dill & Pearman (included in
Exhibit 5.1).
8.2** Form of opinion of Drinker Biddle & Reath LLP.
10.1** Employment Agreement, dated as of December 5, 1997, between
Lawrence S. Doyle and the Registrant.
10.2** Initial Stock Option Plan.
10.3*** Insurance Management Agreement, dated as of December 22,
1997, between Marsh & McLennan Management Services (Bermuda)
Limited and the Registrant and Addendum to Insurance
Management Agreement.
10.4** Agreement, dated as of December 23, 1997, between
Inter-Atlantic Securities Corp. and the Registrant.
10.5** Registration Rights Agreement dated as of January 9, 1998
between the Registrant and the holders of the Class A
Warrants.
10.6*** Employment Agreement, dated as of January 8, 1998, between
Robert J. Reale and the Registrant.
10.7*** Employment Agreement, dated as of January 5, 1998, between
Robert P. Mills, Jr. and the Registrant.
10.8*** Amendment No. 1, dated as of February 27, 1998, to
Employment Agreement, dated as of December 5, 1997, between
Lawrence S. Doyle and the Registrant.
10.9*** Amendment No. 1, dated as of February 27, 1998, to
Employment Agreement, dated as of January 8, 1998, between
Robert J. Reale and the Registrant.
10.10*** Amendment No. 1, dated as of February 27, 1998, to
Employment Agreement, dated as of January 5, 1998, between
Robert P. Mills, Jr. and the Registrant.
10.11*** Amendment No. 1 to the Initial Stock Option Plan.
10.12*** Form of Securities Purchase Agreement to be entered into by
The Prudential Insurance Company of America and the
Registrant, EXEL Limited and the Registrant and Risk Capital
Reinsurance Company and the Registrant.
10.13*** Form of Registration Rights Agreement between The Prudential
Insurance Company of America and the Registrant, EXEL
Limited and the Registrant and Risk Capital Reinsurance
Company and the Registrant.
10.14*** Letter Agreement, dated as of March 4, 1998, between Risk
Capital Reinsurance Company and the Registrant.
10.15*** Employment Agreement, dated as of March 2, 1998, between
William W. Atkin and the Registrant.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
23.2** Consent of Drinker Biddle & Reath LLP (included in Exhibit
8.2).
23.3*** Consent of KPMG Peat Marwick.
</TABLE>
II-3
<PAGE> 98
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
24.1**** Powers of Attorney of Michael P. Esposito, Jr., Frederick S.
Hammer and Robert M. Lichten.
24.2*** Powers of Attorney of Albert R. Dowden, Donald J. Matthews,
Lee M. Gammill, Jr., Walter A. Scott and Jon W. Yoskin, II.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
**** Included on signature page to Company's Registration Statement on Form S-1
(333-43301) previously filed with the Securities and Exchange Commission on
December 24, 1997.
(b) Financial Statement Schedules
All schedules of the Registrant for which provision is made in the
applicable accounting regulations of the Commission are not required, are
inapplicable, or have been disclosed in the notes to the consolidated financial
statements and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer, or controlling person of the Registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
2. For the purposes of determining any liability under the Securities
Act of 1933, each posteffective amendment that contains a form of
prospectus 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.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-4
<PAGE> 99
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on the 4th day of March, 1998.
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By: /s/ LAWRENCE S. DOYLE
------------------------------------
Lawrence S. Doyle
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the 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/ LAWRENCE S. DOYLE President, Chief Executive March 4, 1998
- --------------------------------------------------- Officer and Director
Lawrence S. Doyle (Principal Executive Officer)
/s/ ANDREW S. LERNER Interim Chief Financial Officer March 4, 1998
- --------------------------------------------------- (Principal Financial and
Andrew S. Lerner Accounting Officer)
* Chairman and Director March 4, 1998
- ---------------------------------------------------
Frederick S. Hammer
* Deputy Chairman and Director March 4, 1998
- ---------------------------------------------------
Robert M. Lichten
Director March 4, 1998
- ---------------------------------------------------
Robert Clements
* Director March 4, 1998
- ---------------------------------------------------
Albert R. Dowden
* Director March 4, 1998
- ---------------------------------------------------
Michael P. Esposito, Jr.
* Director March 4, 1998
- ---------------------------------------------------
Lee M. Gammill, Jr.
* Director March 4, 1998
- ---------------------------------------------------
Donald J. Matthews
Director March 4, 1998
- ---------------------------------------------------
Brian M. O'Hara
</TABLE>
II-5
<PAGE> 100
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Director March 4, 1998
- ---------------------------------------------------
Jerry S. Rosenbloom
Director March 4, 1998
- ---------------------------------------------------
Charles G. Collis
* Director March 4, 1998
- ---------------------------------------------------
Walter A. Scott
* Director March 4, 1998
- ---------------------------------------------------
Jon W. Yoskin, II
</TABLE>
* Lawrence S. Doyle, pursuant to a Power of Attorney executed by each of the
directors and officers noted above and included in the signature page of the
initial filing of this Registration Statement or as an exhibit to this filing,
by signing his name hereto, does hereby sign and execute this Amendment No. 2
to the Registration Statement on behalf of each of the persons noted above, in
the capacities indicated, and does hereby sign and execute this Amendment No.
2 to the Registration Statement on his own behalf, in the capacities
indicated.
/s/ LAWRENCE S. DOYLE
--------------------------------------
Lawrence S. Doyle
II-6
<PAGE> 101
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ----
<S> <C> <C>
1.1* Form of Underwriting Agreement.
3.1** Memorandum of Association, as amended.
3.2** Bye-Laws.
4.1* Specimen Common Share Certificate.
4.2*** Form of Amended and Restated Class A Warrant.
4.3*** Form of Class B Warrant.
5.1** Form of opinion of Conyers Dill & Pearman.
8.1** Form of opinion of Conyers Dill & Pearman (included in
Exhibit 5.1).
8.2** Form of opinion of Drinker Biddle & Reath LLP.
10.1** Employment Agreement, dated as of December 5, 1997, between
Lawrence S. Doyle and the Registrant.
10.2** Initial Stock Option Plan.
10.3*** Insurance Management Agreement, dated as of December 22,
1997, between Marsh & McLennan Management Services (Bermuda)
Limited and the Registrant and Addendum to Insurance
Management Agreement.
10.4** Agreement, dated as of December 23, 1997, between
Inter-Atlantic Securities Corp. and the Registrant.
10.5** Registration Rights Agreement, dated as of January 9, 1998,
between the Registrant and the holders of the Class A
Warrants.
10.6*** Employment Agreement, dated as of January 8, 1998, between
Robert J. Reale and the Registrant.
10.7*** Employment Agreement, dated as of January 5, 1998, between
Robert P. Mills, Jr. and the Registrant.
10.8*** Amendment No. 1, dated as of February 27, 1998, to
Employment Agreement, dated as of December 5, 1997, between
Lawrence S. Doyle and the Registrant.
10.9*** Amendment No. 1, dated as of February 27, 1998, to
Employment Agreement, dated as of January 8, 1998, between
Robert J. Reale and the Registrant.
10.10*** Amendment No. 1, dated as of February 27, 1998, to
Employment Agreement, dated as of January 5, 1998, between
Robert P. Mills, Jr. and the Registrant.
10.11*** Amendment No. 1 to the Initial Stock Option Plan.
10.12*** Form of Securities Purchase Agreement to be entered into by
The Prudential Insurance Company of America and the
Registrant, EXEL Limited and the Registrant and Risk Capital
Reinsurance Company and the Registrant.
10.13*** Form of Registration Rights Agreement between The Prudential
Insurance Company of America and the Registrant, EXEL
Limited and the Registrant and Risk Capital Reinsurance
Company and the Registrant.
10.14*** Letter Agreement, dated as of March 4, 1998, between Risk
Capital Reinsurance Company and the Registrant.
10.15*** Employment Agreement, dated as of March 2, 1998, between
William W. Atkin and the Registrant.
21.1** Subsidiaries of the Registrant.
23.1** Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
</TABLE>
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ----
<S> <C> <C>
23.2** Consent of Drinker Biddle & Reath LLP (included in Exhibit
8.2).
23.3*** Consent of KPMG Peat Marwick.
24.1**** Powers of Attorney of Michael P. Esposito, Jr., Frederick S.
Hammer and Robert M. Lichten.
24.2*** Powers of Attorney of Albert R. Dowden, Lee M. Gammill, Jr.,
Donald J. Matthews, Walter A. Scott and Jon W. Yoskin, II.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
*** Filed herewith.
**** Included on signature page to Company's Registration Statement on Form S-1
(333-43301) previously filed with the Securities and Exchange Commission on
December 24, 1997.
<PAGE> 1
Exhibit 4.2
Form of Amended and
Restated Class A Warrant
Class A Warrants have been purchased by the following individuals in
substantially the form attached hereto for a number of Common Shares equal to
the percentage set forth next to his name of the sum of (i) the Common Shares
outstanding immediately following the offering (but excluding any shares held by
the Annuity Re Purpose Trust) and (ii) the Common Shares issuable upon exercise
or conversion of any security outstanding immediately following the offering,
except for all Class A Warrants, Class B Warrants and any options granted by
the Company pursuant to its Initial Stock Option Plan:
<TABLE>
<CAPTION>
Name Applicable Percentage
- ------- ---------------------
<S> <C>
Frederick S. Hammer 2.575%
Robert M. Lichten 2.575%
Michael P. Esposito, Jr. 2.575%
William S. Ogden, Jr. 2.575%
Andrew S. Lerner 1.200%
Arnold Welles 0.500%
</TABLE>
<PAGE> 2
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW, AND THEY MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND THE
OTHER RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
--------------------
Date:
AMENDED AND RESTATED
CLASS A WARRANT
TO PURCHASE COMMON SHARES OF
ANNUITY AND LIFE RE (HOLDINGS), LTD.
Void after 5:00 P.M. (United States Eastern Time),
January 15, 2008, as provided herein.
WHEREAS, on December 9, 1997, __________ (the "Warrant Holder") and
Annuity and Life Re (Holdings), Ltd. (the "Company") executed the Class A
Warrant; and
WHEREAS, the Warrant Holder and the Company wish to clarify their
intention that the calculation of the Common Shares of the Company purchasable
under the Class A Warrant does not include shares underlying certain other
warrants issued by the Company; and
WHEREAS, the Company has issued a new class of warrants (the "Class B
Warrants") which was not anticipated on December 9, 1997.
NOW, THEREFORE, the Warrant Holder and the Company hereby amend and
restate the Class A Warrant as follows.
THIS CERTIFIES that, for value received, the Warrant Holder,
or registered assigns, is entitled to purchase from the Company, a Bermuda
corporation, upon the satisfaction of the conditions stated herein and during
the period (subject to Section 2 hereof) from and after the first anniversary of
the consummation of the Company's initial public offering (the "IPO") of its
common shares, par value $1.00 per share (the "Common Shares"), to 5:00 p.m.
(United States Eastern Time) on January 15, 2008, a number of fully paid and
nonassessable Common Shares equal to ___% of the sum of (i) the Common Shares
outstanding immediately following the consummation of the Company's IPO
(including all Common Shares issued and sold by the Company upon exercise of any
overallotment option granted to the underwriters of the IPO and all Common
Shares issued and sold by the Company in any private placement consummated prior
to or simultaneously with the IPO, but excluding any shares held by the Annuity
Re Purpose Trust) and (ii) the Common Shares issuable upon exercise or
conversion of any security outstanding immediately following the consummation of
the IPO, except for all Class A Warrants, Class B Warrants and any options
granted by the Company pursuant to its Initial Stock Option Plan, subject to
adjustment as provided herein, at a per share purchase price equal to the sales
price to the public of a Common Share in the IPO. The Company acknowledges
receipt from the initial Warrant Holder of _________ ($_________) in full
payment for the issuance of this warrant.
1. Definitions. For the purpose of this Warrant:
(a) "Capital Stock" shall mean the Company's Common
Shares and any other shares of any class, or series within a class, whether now
or hereafter authorized, which has the right to participate in the distribution
of earnings or assets of the Company without limit as to amount or percentage.
<PAGE> 3
(b) "Warrants" shall mean the original Warrant to
purchase Common Shares of the Company issued by the Company pursuant hereto and
any and all Warrants which are issued in exchange or substitution for any
outstanding Warrant pursuant to the terms of the Warrant.
(c) "Warrant Price" shall mean the price per share at
which Common Shares of the Company are purchasable hereunder, as such price may
be adjusted from time to time hereunder.
(d) "Warrant Shares" shall mean the Common Shares
purchasable upon exercise of Warrants.
(e) "Additional Shares of Capital Stock" shall mean
all shares of Capital Stock issued by the Company, except:
(i) Common Shares issuable upon
exercise of the Warrant;
(ii) Common Shares
outstanding on the date hereof;
(iii) Common Shares
issued pursuant to the IPO and any concurrent private placement by the Company;
(iv) Common Shares
issuable upon the exercise of options and warrants which are outstanding on the
date hereof; and
(v) Options to purchase Common Shares
granted by the Company as an incentive for performance to the Company's
officers, directors, employees and consultants after the date hereof, the Common
Shares issuable upon the exercise of such options, and the Common Shares awarded
to such persons as share grants by the Company as incentive for performance
after the date hereof.
2. Exercise of Warrants.
(a) This Warrant may be exercised at any time or from
time to time on or after (i) the first anniversary of the consummation of the
IPO for up to one-third of the number of Warrant Shares provided for on page 1
hereof, (ii) the second anniversary of the consummation of the IPO for up to an
additional one-third of the number of Warrant Shares provided for on page 1
hereof, and (iii) the third anniversary of the consummation of the IPO for up to
an additional one-third of the number of Warrant Shares provided for on page 1
hereof, in each case subject to adjustment as provided in Section 6. Subject to
the foregoing, this Warrant may be exercised at any time or from time to time in
whole or in part (but not as to fractional
-2-
<PAGE> 4
shares) prior to 5:00 p.m. United States Eastern Time on January 15, 2008, at
which time this Warrant and all of the Warrant Holder's rights hereunder shall
terminate, except as expressly provided herein. Notwithstanding the foregoing,
upon a Change in Control of the Company (as defined below) this Warrant shall
become immediately exercisable for the full number of Warrant Shares provided
for on page 1 hereof. For purposes of this Section 2(a), a "Change in Control"
of the Company shall be deemed to have occurred if:
(i) Any person, including a group of
persons acting in concert, becomes the beneficial owner of shares of the Company
having 50 percent or more of the total number of votes that may be cast for the
election of directors of the Company;
(ii) There occurs any cash tender or
exchange offer for shares of the Company, merger or other business combination,
or any combination of the foregoing transactions, and as a result of or in
connection with any such event, persons who were directors of the Company before
the event shall cease to constitute a majority of the board of directors of the
Company or any successor to the Company; or
(iii) The sale, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred by reason of a change in beneficial ownership occurring in connection
with the IPO.
(b) This Warrant may be exercised at the time(s) or
upon the occurrence of the event(s) specified in Subsection 2(a) hereof by the
surrender of this Warrant, with the Purchase Agreement attached hereto as Rider
A properly completed and duly executed, at the principal office of the Company
at Victoria Hall, Victoria Street, Hamilton, HM FX, Bermuda, or such other
location which shall at that time be the principal office of the Company and of
which the Company shall have notified the Warrant Holder in writing (the
"Principal Office"), or at the office of its stock transfer agent, and upon
payment to the Company of the Warrant Price for the Warrant Shares to be
purchased upon such exercise. The person entitled to the Warrant Shares so
purchased shall be treated for all purposes as the holder of such shares as of
the close of business on the date of exercise and certificates for the shares so
purchased shall be delivered to the person so entitled within a reasonable time,
not exceeding thirty (30) days, after such exercise. Certificates representing
the Warrant Shares issued upon exercise of this Warrant shall bear a legend
referring to the restrictions on transfer set forth herein.
-3-
<PAGE> 5
Unless this Warrant has expired, a new Warrant of like tenor and for such number
of Common Shares as the holder of this Warrant shall direct, representing in the
aggregate the right to purchase the number of Common Shares with respect to
which this Warrant shall not have been exercised, shall also be issued to the
holder of this Warrant within such time.
(c) The Warrant Price shall be payable (i) in
cash or its equivalent, (ii) in Common Shares newly acquired upon exercise of
this Warrant, or (iii) in any combination of (i) and (ii). In the event the
Warrant Price is paid, in whole or in part, with Common Shares, the portion of
the Warrant Price so paid shall be equal to the current market value of the
Common Shares determined as follows:
If the Common Shares are listed on a national
securities exchange or listed for trading on The Nasdaq Stock
Market, the current market value shall be the closing price of
the Common Shares on such exchange or in such market on the
day this Warrant is exercised, or if there have been no sales
on such exchange or in such market, the average of the highest
bid and lowest asked prices on such exchange or in such market
at the end of such day.
If the Common Shares are not so listed, the current
market value of the Common Shares shall be an amount
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
3. Exchange. This Warrant is exchangeable, upon its surrender
by the Warrant Holder to the Company at its Principal Office, or to the
Company's stock transfer agent at its office, for new Warrants of like tenor
registered in the Warrant Holder's name and representing in the aggregate the
right to purchase the same number of Common Shares purchasable hereunder, each
of such new Warrants to represent the right to subscribe for and purchase such
number of Common Shares as shall be designated by the Warrant Holder at the time
of such surrender.
4. Transfer. Subject to restrictions on transfer set forth in
Section 11, this Warrant is transferable, in whole or in part, by the holder
thereof at the Principal Office of the Company or at the office of its stock
transfer agent, in person or by duly authorized attorney, upon presentation of
this Warrant properly endorsed for transfer, the Assignment attached hereto as
Rider A duly executed, and funds sufficient to pay any transfer tax (the
"Transfer Documents"). Within a reasonable time after receiving the Transfer
Documents, not exceeding thirty (30) days, the Company shall execute and deliver
a new Warrant in the name of the assignee named in the Assignment and this
Warrant shall be cancelled. Each holder of this Warrant, by holding it, agrees
-4-
<PAGE> 6
that this Warrant, when endorsed in blank, may be deemed negotiable, and that,
when this Warrant shall have been so endorsed, the holder of this Warrant may be
treated by the Company and all other persons dealing with this Warrant as the
absolute owner of this Warrant for any purpose and as the person entitled to
exercise the rights represented by this Warrant, or to the transfer of this
Warrant on the books of the Company, any notice to the contrary notwithstanding.
5. Certain Covenants of the Company. The Company covenants and
agrees that all Common Shares which may be issued upon the exercise of this
Warrant, will, upon issuance, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of issue
upon exercise of the purchase rights evidenced by this Warrant, a sufficient
number of Common Shares to provide for the exercise of the rights represented by
this Warrant.
6. Adjustment of Purchase Price and Number of Shares. The
number and kind of securities purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. At any time
while this Warrant remains outstanding and unexpired, in case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value to
no par value, or from no par value to par value, or as a result of a subdivision
or combination of outstanding securities issuable upon the exercise of this
Warrant) or in case of any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation in which the
Company is a continuing corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination of outstanding securities issuable upon the exercise
of this Warrant), the Company, or such successor corporation, as the case may
be, shall, without payment of any additional consideration therefor, execute a
new Warrant providing that the Warrant Holder shall have the right to exercise
such new Warrant (upon terms not less favorable to the Warrant Holder than those
then applicable to this Warrant) and to receive upon such exercise, in lieu of
each Common Share theretofore issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities, money or property receivable
upon such reclassification, change, consolidation or
-5-
<PAGE> 7
merger, by the holder of one Common Share issuable upon exercise of this Warrant
had it been exercised immediately prior to such reclassification, change,
consolidation or merger. Such new Warrant shall provide for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 6. Notwithstanding the foregoing, in the case of any
transaction which pursuant to this Section 6(a) would result in the execution
and delivery by the Company of a new Warrant to the Warrant Holder, and in which
the holders of Common Shares are entitled only to receive money or other
property exclusive of securities, then in lieu of such new Warrant being
exercisable as provided above, the Warrant Holder shall have the right, at its
sole option, to require the Company to purchase this Warrant (without prior
exercise by the Warrant Holder) at its fair value as of the day before such
transaction became publicly known, as determined by an unaffiliated
internationally recognized accounting firm or investment bank selected by the
Warrant Holder and reasonably acceptable to the Company. Any purchase and sale
of the Warrant pursuant to the immediately preceding sentence shall be
consummated as provided in Section 2(b), mutatis mutandi. The provisions of this
Subsection 6(a) shall similarly apply to successive reclassifications, changes,
consolidations, mergers, sales and transfers.
(b) Subdivision or Combination of Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its Capital Stock, the Warrant Price shall be proportionately reduced,
in case of subdivision of such shares, as of the effective date of such
subdivision, or, if the Company shall take a record of holders of its Capital
Stock for the purpose of so subdividing, as of such record date, whichever is
earlier, or shall be proportionately increased, in the case of combination of
such shares, as of the effective date of such combination, or, if the Company
shall take a record of holders of its Capital Stock for the purpose of so
combining, as of such record date, whichever is earlier.
(c) Certain Dividends and Distributions. If the Company at
any time while this Warrant remains outstanding and unexpired shall:
(i) Stock Dividends. Pay a dividend in shares of, or
make other distribution of shares of, its Capital Stock, then the Warrant Price
shall be adjusted, as of the date the Company shall take a record of the holders
of its Capital Stock for the purpose of receiving such dividend or other
distribution (or if no such record is taken, as of the date of such payment or
other distribution), to that price determined by multiplying the Warrant Price
in effect immediately prior to such payment or other distribution by a fraction
(a) the numerator of which shall be the total number of shares of Capital Stock
outstanding immediately prior to such dividend or distribution,
-6-
<PAGE> 8
and (b) the denominator of which shall be the total number of shares of Capital
Stock outstanding immediately after such dividend or distribution; or
(ii) Liquidating Dividends, Etc. Make a distribution
of its assets to the holders of its Capital Stock as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for dividends under applicable law, the
Warrant Holder shall be entitled to receive upon the exercise hereof, in
addition to the number of Common Shares receivable thereupon, and without
payment of any additional consideration therefor, a sum equal to the amount of
such assets as would have been payable to him as owner of that number of Common
Shares receivable by exercise of the Warrant had he been the holder of record of
such Common Shares on the record date for such distribution, or if no such
record is taken, as of the date of such distribution, and an appropriate
provision therefor shall be made a part of any such distribution.
(d) Issuance of Additional Shares of Capital Stock. If the
Company at any time while the Warrant remains outstanding and unexpired shall
issue any Additional Shares of Capital Stock (otherwise than as provided in the
foregoing subsections (a) through (c) above) at a price per share less, or for
other consideration lower, than the Warrant Price, or without consideration,
then upon such issuance the Warrant Price shall be adjusted to that price
determined by multiplying the Warrant Price by a fraction (a) the numerator of
which shall be the number of shares of Capital Stock outstanding immediately
prior to the issuance of such Additional Shares of Capital Stock plus the number
of shares of Capital Stock which the aggregate consideration for the total
number of such Additional Shares of Capital Stock so issued would purchase at
the Warrant Price, and (b) the denominator of which shall be the number of
shares of Capital Stock outstanding immediately prior to the issuance of such
Additional Shares of Capital Stock plus the number of such Additional Shares of
Capital Stock so issued. The provisions of this subsection 6(d) shall not apply
under any of the circumstances for which an adjustment is provided in
subsections 6(a), 6(b), or 6(c). No adjustment of the Warrant Price shall be
made under this subsection 6(d) upon the issuance of any Additional Shares of
Capital Stock which are issued pursuant to the exercise of any warrants, options
or other subscription or purchase rights or pursuant to the exercise of any
conversion or exchange rights in any convertible securities if any such
adjustments shall previously have been made upon the issuance of any such
warrants, options or other rights or upon the issuance of any convertible
securities (or upon the issuance of any warrants, options or any rights
therefor) pursuant to subsections 6(e) or 6(f) hereof.
-7-
<PAGE> 9
(e) Issuance of Warrants, Options or Other Rights. In case
the Company shall issue any warrants, options or other rights to subscribe for
or purchase any Additional Shares of Capital Stock and the price per share for
which Additional Shares of Capital Stock may at any time thereafter be issuable
pursuant to such warrants, options or other rights shall be less than the
Warrant Price, then upon such issuance the Warrant Price shall be adjusted as
provided in subsection 6(d) hereof on the basis that the aggregate consideration
for the Additional Shares of Capital Stock issuable pursuant to such warrants,
options or other rights, shall be deemed to be the consideration received by the
Company for the issuance of such warrants, options, or other rights plus the
minimum consideration to be received by the Company for the issuance of
Additional Shares of Capital Stock pursuant to such warrants, options, or other
rights.
(f) Issuance of Convertible Securities. In case the Company
shall issue any convertible securities and the consideration per share for which
Additional Shares of Capital Stock may at any time thereafter be issuable
pursuant to the terms of such convertible securities shall be less than the
Warrant Price, then upon such issuance the Warrant Price shall be adjusted as
provided in subsection 6(d) hereof on the basis that (i) the maximum number of
Additional Shares of Capital Stock necessary to effect the conversion or
exchange of all such convertible securities shall be deemed to have been issued
as of the date of issuance of such convertible securities, and (ii) the
aggregate consideration for such maximum number of Additional Shares of Capital
Stock shall be deemed to be the minimum consideration received by the Company
for the issuance of such Additional Shares of Capital Stock pursuant to the
terms of such convertible securities. No adjustment of the Warrant Price shall
be made under this subsection upon the issuance of any convertible securities
which are issued pursuant to the exercise of any warrants or other subscription
or purchase rights therefor, if any such adjustment shall previously have been
made upon the issuance of such warrants or other rights pursuant to subsection
6(e) hereof.
(g) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to any provision of this Section 6, the number of
Common Shares purchasable hereunder at the Warrant Price shall be adjusted, to
the nearest one hundredth of a whole share, to the product obtained by
multiplying such number of Common Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(h) Other Provisions Applicable to Adjustments Under this
Section. The following provisions will be applicable
-8-
<PAGE> 10
to the making of adjustments in the Warrant Price hereinabove provided in this
Section 6:
(i) Computation of Consideration. To the extent that
any Additional Shares of Capital Stock or any convertible securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Capital Stock or any convertible securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Shares of Capital Stock or convertible securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Capital Stock or convertible securities are sold to underwriters or
dealers for public offering without a subscription offering, or through
underwriters or dealers for public offering without a subscription offering, the
initial public offering price, in any such case disregarding any amounts paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with the issue thereof. To the extent that such issuance shall be for
a consideration other than cash, then, except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair value
of such consideration at the time of such issuance as determined in good faith
by the Company's Board of Directors. The consideration for any Additional Shares
of Capital Stock issuable pursuant to any warrants, options or other rights to
subscribe for or purchase the same shall be the consideration received by the
Company for issuing such warrants, options or other rights, plus the additional
consideration payable to the Company upon the exercise of such warrants, options
or other rights. The consideration for any Additional Shares of Capital Stock
issuable pursuant to the terms of any convertible securities shall be the
consideration paid or payable to the Company in respect of the subscription for
or purchase of such convertible securities, plus the additional consideration,
if any, payable to the Company upon the exercise of the right of conversion or
exchange in such convertible securities. In case of the issuance at any time of
any Additional Shares of Capital Stock or convertible securities in payment or
satisfaction of any dividends in a fixed amount, the Company shall be deemed to
have received for such Additional Shares of Capital Stock or convertible
securities a consideration equal to the amount of such dividend so paid or
satisfied.
(ii) Readjustment of Warrant Price. Upon the
expiration of the right to convert or exchange any convertible securities, or
upon the expiration of any rights, options or warrants, the issuance of which
convertible securities, rights, options or warrants effected an adjustment in
the Warrant Price, if any such convertible securities shall not have been
converted or exchanged, or if any such rights, options or warrants shall not
have been exercised, the number of shares
-9-
<PAGE> 11
of Capital Stock deemed to be issued and outstanding by reason of the fact that
they were issuable upon conversion or exchange of any such convertible
securities or upon exercise of any such rights, options, or warrants shall no
longer be computed as set forth above, and the Warrant Price shall forthwith be
readjusted and thereafter be the price which it would have been (but reflecting
any other adjustments in the Warrant Price made pursuant to the provisions of
this Section 6 after the issuance of such convertible securities, rights,
options or warrants) had the adjustment of the Warrant Price made upon the
issuance or sale of such convertible securities or issuance of rights, options
or warrants been made on the basis of the issuance only of the number of
Additional Shares of Capital Stock actually issued upon conversion or exchange
of such convertible securities, or upon the exercise of such rights, options or
warrants, and thereupon only the number of Additional Shares of Capital Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in subsection (h)(i)
hereof) shall be deemed to have been received by the Company.
(iii) Treasury Shares. The number of shares of
Capital Stock at any time outstanding shall not include any shares thereof then
directly or indirectly owned or held by or for the account of the Company or any
subsidiary of the Company.
(iv) Other Action Affecting Capital Stock. In case
after the date hereof the Company shall take any action affecting the Capital
Stock, other than an action described in any of the foregoing subsection (a) to
(f) hereof, inclusive, which in the opinion of the Company's Board of Directors
would have a materially adverse effect upon the rights of the holders of the
Warrant, the Warrant Price shall be adjusted in such manner and at such time as
the Board of Directors on the advice of the Company's independent public
accountants may in good faith determine to be equitable in the circumstances.
(v) Limitation or Adjustment of Warrant Price.
Notwithstanding any other provision of this Warrant, no adjustment of the
Warrant Price shall be made which would reduce such Warrant Price below the par
value of the Warrant Shares.
7. Notice of Adjustments. Whenever the Warrant Price or the
number of Common Shares purchasable under the terms of this Warrant at that
Warrant Price shall be adjusted pursuant to Section 6 hereof, the Company shall
prepare a certificate signed by its President or a Vice President and by its
Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary,
setting forth in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which
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<PAGE> 12
such adjustment was calculated (including a description of the basis on which
the Company's Board of Directors made any determination hereunder), and the
Warrant Price and number of Common Shares purchasable at that Warrant Price
after giving effect to such adjustment, and shall promptly cause copies of such
certificate to be mailed (by first class and postage prepaid) to the registered
holder of this Warrant.
In the event the Company shall, at a time when this Warrant is
exercisable, take any action which pursuant to Section 6 may result in an
adjustment of any of the Warrant Price or the number of Common Shares
purchasable at that Warrant Price upon exercise of this Warrant, the Company
will give to the registered holder of this Warrant at such holder's last address
known to the Company written notice of such action ten (10) days in advance of
its effective date in order to afford to such holder of this Warrant an
opportunity to exercise this Warrant and to purchase Common Shares prior to such
action becoming effective.
8. Payment of Taxes. All Common Shares issued upon the
exercise of this Warrant shall be validly issued, fully paid and nonassessable,
and the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for Common Shares in any name
other than that of the registered holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any share certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
9. Fractional Shares. No fractional Common Shares will be
issued in connection with any purchase hereunder but in lieu of such fractional
shares, the Company shall make a cash refund therefor equal in amount to the
product of the applicable fraction multiplied by the Warrant Price paid by the
holder for its Warrant Shares upon such exercise.
10. Loss, Theft, Destruction or Mutilation. Upon receipt by
the Company of evidence reasonably satisfactory to it that this Warrant has been
mutilated, destroyed, lost or stolen, and in the case of a destroyed, lost or
stolen Warrant, a bond of indemnity reasonably satisfactory to the Company, or
in the case of a mutilated Warrant, upon surrender and cancellation of this
Warrant, the Company will execute and deliver in the Warrant Holder's name, in
exchange and substitution for the Warrant so mutilated, destroyed, lost or
stolen, a new Warrant of like tenor substantially in the form hereof with
appropriate insertions and variations.
-11-
<PAGE> 13
11. Securities Laws Representations and Warranties; Transfer
to Comply with Securities Laws.
(a) The Warrant Holder, by acceptance of this Warrant,
represents and warrants to the Company that this Warrant is being, and any
Warrant Shares acquired on exercise of this Warrant will be, acquired by the
Warrant Holder for his own account, not as nominee or agent, and not with a view
to resale or distribution within the meaning of the Securities Act of 1933, as
amended (the "1933 Act") and the Warrant Holder will not distribute this Warrant
or any Warrant Shares in violation of the 1933 Act or any applicable state or
foreign law.
(b) The Warrant Holder, by acceptance of this Warrant, (i)
acknowledges that this Warrant and the Warrant Shares are not registered under
the 1933 Act or any state securities laws and that this Warrant and any Warrant
Shares to be issued to it upon the exercise of this Warrant must be held
indefinitely by it unless they are subsequently registered under the 1933 Act
and all applicable state securities laws or an exemption from registration is
available, (ii) is aware that any routine sales under Rule 144 of the Securities
and Exchange Commission under the 1933 Act of this Warrant and the Warrant
Shares may be made only in limited amounts and in accordance with the terms and
conditions of that Rule and that in such cases where the Rule is not applicable,
compliance with some other registration exemption will be required, (iii) is
aware that Rule 144 is not presently available for use by the Warrant Holder for
resale of such Warrant and Warrant Shares, and (iv) is aware that the Company is
not obligated to register under the 1933 Act any sale, transfer or other
disposition of this Warrant or the Warrant Shares, except pursuant to the terms
and conditions of that certain Registration Rights Agreement by and between the
Company, the Warrant Holder and certain other persons.
(c) The Warrant Holder, by acceptance of this Warrant,
confirms that the Company has made available to him the opportunity to ask
questions of and receive answers from the Company's officers and directors
concerning the terms and conditions of the offering and the business and
financial condition of the Company, and to acquire, and the Warrant Holder has
received to his satisfaction, such additional information about the business and
financial condition of the Company and the terms and conditions of the offering
as it has requested.
(d) The Warrant Holder, by acceptance of this Warrant,
represents that (i) he is an "accredited investor" as such term is defined in
Rule 501 promulgated under the 1933 Act, (ii) his financial situation is such
that he can afford to bear the economic risk of holding this Warrant and the
Warrant Shares for an indefinite period of time and suffer complete loss of his
investment in this Warrant and the Warrant Shares, and (iii) his
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<PAGE> 14
knowledge and experience in financial and business matters are such that he is
capable of evaluating the merits and risks of his purchase of this Warrant and
the Warrant Shares as contemplated by this Agreement.
(e) The certificate representing any Warrant Shares
acquired upon exercise of this Warrant, and any Common Shares or other
securities issued in respect of such Warrant Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall be
stamped or otherwise imprinted with the following legend (unless such a legend
is no longer required under the 1933 Act):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE SOLD EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT. IN ADDITION, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN A
WARRANT OF THE COMPANY DATED DECEMBER 9, 1997."
(f) The Company shall not be required to register the
transfer of this Warrant or any Warrant Shares on the books of the Company
unless the Company shall have been provided with an opinion of counsel
satisfactory to it or no-action letters from the Securities and Exchange
Commission and the appropriate state regulatory agencies prior to such transfer
to the effect that registration under the 1933 Act and any applicable state
securities law is not required in connection with the transaction resulting in
such transfer; provided, however, that no such opinion of counsel or no-action
letter shall be necessary in order to effectuate a transfer in accordance with
the provisions of Rule 144(k) promulgated under the 1933 Act. Each Warrant or
certificate for Warrant Shares issued upon any transfer as above provided shall
bear the restrictive legend set forth in Subsection 11(e) above, except that
such restrictive legend shall not be required if the opinion of counsel
satisfactory to the Company or no-action letters referred to above are to the
further effect that such legend is not required in order to establish compliance
with the provisions of the 1933 Act and any applicable state securities law, or
if the transfer is made in accordance with the provisions of Rule 144(k) under
the 1933 Act. The cost of obtaining any legal opinion or no-action letter
required under this Section shall be borne by the Warrant Holder.
12. Survival. The provisions of Section 11 shall survive any
expiration, cancellation or exercise of this Warrant.
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<PAGE> 15
13. Headings. The descriptive headings of the several sections
of this Warrant are inserted for convenience only and do not constitute a part
of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer under its corporate seal, attested by its
duly authorized officer, on the date of this Warrant.
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By:_________________________________
Attest:_____________________________
ACCEPTED, ACKNOWLEDGED
AND AGREED
By:________________________
Attest:____________________
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<PAGE> 16
Rider A
PURCHASE AGREEMENT
Date: __________________________
TO:
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby agrees to purchase _________________ Common Shares
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by this Warrant.
Signature: _______________________
Address: _______________________
* * * *
ASSIGNMENT
For Value Received, ________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of Common Shares covered by such
Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
Dated: Signature: _______________________
Address: _______________________
<PAGE> 1
Exhibit 4.3
Form of Class B Warrant
Class B Warrants have been agreed to be purchased by the following entities in
substantially the form attached hereto for a number of Common Shares equal to
the number set forth next to their names:
<TABLE>
<CAPTION>
Name Common Shares
- ---- -------------
<S> <C>
EXEL Limited 100,000
Risk Capital Reinsurance Company 100,000
The Prudential Insurance
Company of America 72,500
</TABLE>
<PAGE> 2
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW, AND THEY MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND THE
OTHER RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
--------------------
Date: March __, 1998
CLASS B WARRANT
TO PURCHASE COMMON SHARES OF
ANNUITY AND LIFE RE (HOLDINGS), LTD.
Void after 5:00 P.M. (United States Eastern Time),
___________, 2008, as provided herein.
THIS CERTIFIES that, for value received, _______________ (the
"Warrant Holder"), or registered assigns, is entitled to purchase from ANNUITY
AND LIFE RE (HOLDINGS), LTD. (the "Company"), a Bermuda corporation, upon the
satisfaction of the conditions stated herein and during the period (subject to
Section 2 hereof) from and after March __, 1999 to 5:00 p.m. (United States
Eastern Time) on March __, 2008, __________ fully paid and nonassessable common
shares, par value $1.00 per share (the "Common Shares"), subject to adjustment
as provided herein, at a per share purchase price equal to $15.00; provided,
however, that if on March __, 2008, the Company is then required, pursuant to
an effective request therefor under the Registration Rights Agreement (as
defined herein), or is in the process of effecting a registration under the
Securities Act of 1933, as amended (the "1933 Act") for a public offering in
which Warrant Shares (as defined herein) are entitled to be included as
provided in the Registration Rights Agreement, or if the Company is in default
of any such obligations to register the sale of such shares, the right to
exercise this Warrant shall continue until 5:00 p.m. (United States Eastern
Time) on the 30th day following the date on which such registration shall have
become effective or on the 30th day following the date all such defaults shall
have been cured, whichever is the later date.
<PAGE> 3
1. Definitions. For the purpose of this Warrant:
(a) "Capital Stock" shall mean the Company's
Common Shares and any other shares of any class, or series within a class,
whether now or hereafter authorized, which has the right to participate in the
distribution of earnings or assets of the Company without limit as to amount or
percentage.
(b) "Warrants" shall mean the original Warrant to
purchase Common Shares of the Company issued by the Company pursuant hereto and
any and all Warrants which are issued in exchange or substitution for any
outstanding Warrant pursuant to the terms of the Warrant.
(c) "Warrant Price" shall mean the price per
share at which Common Shares of the Company are purchasable hereunder, as such
price may be adjusted from time to time hereunder.
(d) "Warrant Shares" shall mean the Common
Shares purchasable upon exercise of Warrants.
(e) "Additional Shares of Capital Stock" shall
mean all shares of Capital Stock issued by the Company, except:
(i) Common Shares issuable upon
exercise of the Warrant;
(ii) Common Shares outstanding on
the date hereof, including all Common Shares issued to the Warrant Holder and
certain other investors on the date hereof;
(iii) Common Shares issued pursuant
to the initial public offering of the Company's Common Shares (the "IPO");
(iv) Common Shares issuable upon the
exercise of options and warrants which are outstanding on the date hereof; and
(v) Options to purchase Common
Shares granted by the Company as an incentive for performance to the Company's
officers, directors, employees and consultants after the date hereof, the
Common Shares issuable upon the exercise of such options, and the Common Shares
awarded to such persons as share grants by the Company as incentive for
performance after the date hereof.
(f) "Registration Rights Agreement" shall mean
the agreement so entitled, dated March __, 1998, between the Company and the
Warrant Holder providing for the registration of the Warrant Shares in certain
events.
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<PAGE> 4
(g) "Base Price" shall mean the greater of (x)
the Warrant Price, as adjusted from time to time as provided herein, or (y)
the per share closing price as reported on the Nasdaq Stock Market (or
other principal exchange or automated quotation system on which Common Shares
are then admitted or listed for trading) of the Common Shares for the trading
day last prior to the date on which the Base Price is determined for purposes
of this Warrant.
2. Exercise of Warrants.
(a) This Warrant may be exercised at any time or
from time to time on or after (i) March __, 1999 for up to one-third of the
number of Warrant Shares provided for on page 1 hereof, (ii) March __, 2000 for
up to an additional one-third of the number of Warrant Shares provided for on
page 1 hereof, and (iii) March __, 2001 for up to an additional one-third of
the number of Warrant Shares provided for on page 1 hereof, in each case
subject to adjustment as provided in Section 6. Subject to the foregoing, this
Warrant may be exercised at any time or from time to time in whole or in part
(but not as to fractional shares) prior to 5:00 p.m. United States Eastern Time
on March __, 2008 (subject to extension as provided above), at which time this
Warrant and all of the Warrant Holder's rights hereunder shall terminate,
except as expressly provided herein. Notwithstanding the foregoing, upon a
Change in Control of the Company (as defined below) this Warrant shall become
immediately exercisable for the full number of Warrant Shares provided for on
page 1 hereof. For purposes of this Section 2(a), a "Change in Control" of the
Company shall be deemed to have occurred if:
(i) Any person, including a group
of persons acting in concert, becomes the beneficial owner of shares of the
Company having 50 percent or more of the total number of votes that may be cast
for the election of directors of the Company;
(ii) There occurs any cash tender or
exchange offer for shares of the Company, merger or other business combination,
or any combination of the foregoing transactions, and as a result of or in
connection with any such event, persons who were directors of the Company
before the event shall cease to constitute a majority of the board of directors
of the Company or any successor to the Company; or
(iii) The sale, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company.
(b) This Warrant may be exercised at the time(s)
or upon the occurrence of the event(s) specified in Subsection
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<PAGE> 5
2(a) hereof by the surrender of this Warrant, with the Purchase Agreement
attached hereto as Rider A properly completed and duly executed, at the
principal office of the Company at Victoria Hall, Victoria Street, Hamilton, HM
FX, Bermuda, or such other location which shall at that time be the principal
office of the Company and of which the Company shall have notified the Warrant
Holder in writing (the "Principal Office"), or at the office of its stock
transfer agent, and upon payment to the Company of the Warrant Price for the
Warrant Shares to be purchased upon such exercise. The person entitled to the
Warrant Shares so purchased shall be treated for all purposes as the holder of
such shares as of the close of business on the date of exercise and
certificates for the shares so purchased shall be delivered to the person so
entitled within a reasonable time, not exceeding thirty (30) days, after such
exercise. Certificates representing the Warrant Shares issued upon exercise of
this Warrant shall bear a legend referring to the restrictions on transfer set
forth herein. Unless this Warrant has expired, a new Warrant of like tenor and
for such number of Common Shares as the holder of this Warrant shall direct,
representing in the aggregate the right to purchase the number of Common Shares
with respect to which this Warrant shall not have been exercised, shall also be
issued to the holder of this Warrant within such time.
(c) The Warrant Price shall be payable (i) in
cash or its equivalent, (ii) in Common Shares newly acquired upon exercise of
this Warrant, (iii) by surrendering to the Company the right to purchase a
number of Warrant Shares equal to the product obtained by multiplying the
number of Warrant Shares to be purchased by a fraction, the numerator of which
is the Warrant Price and the denominator of which is the current market value
of the Common Shares, or (iv) in any combination of (i), (ii) and (iii). In
the event the Warrant Price is paid, in whole or in part, with Common Shares,
the portion of the Warrant Price so paid shall be equal to the current market
value of the Common Shares. The current market value of the Common Shares
shall be determined as follows:
If the Common Shares are listed on a national
securities exchange or listed for trading on The Nasdaq Stock
Market, the current market value shall be the closing price of
the Common Shares on such exchange or in such market on the
day this Warrant is exercised, or if there have been no sales
on such exchange or in such market, the average of the highest
bid and lowest asked prices on such exchange or in such market
at the end of such day.
If the Common Shares are not so listed, the current
market value of the Common Shares shall be an amount
determined in such reasonable manner as may be prescribed by
the Board of Directors of the Company.
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<PAGE> 6
3. Exchange. This Warrant is exchangeable, upon its
surrender by the Warrant Holder to the Company at its Principal Office, or to
the Company's stock transfer agent at its office, for new Warrants of like
tenor registered in the Warrant Holder's name and representing in the aggregate
the right to purchase the same number of Common Shares purchasable hereunder,
each of such new Warrants to represent the right to subscribe for and purchase
such number of Common Shares as shall be designated by the Warrant Holder at
the time of such surrender.
4. Transfer. Subject to restrictions on transfer set
forth in Section 11, this Warrant is transferable, in whole or in part, by the
holder thereof at the Principal Office of the Company or at the office of its
stock transfer agent, in person or by duly authorized attorney, upon
presentation of this Warrant properly endorsed for transfer, the Assignment
attached hereto as Rider A duly executed, and funds sufficient to pay any
transfer tax (the "Transfer Documents"). Within a reasonable time after
receiving the Transfer Documents, not exceeding thirty (30) days, the Company
shall execute and deliver a new Warrant in the name of the assignee named in
the Assignment and this Warrant shall be cancelled. Each holder of this
Warrant, by holding it, agrees that this Warrant, when endorsed in blank, may
be deemed negotiable, and that, when this Warrant shall have been so endorsed,
the holder of this Warrant may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner of this Warrant for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer of this Warrant on the books of the Company, any notice to
the contrary notwithstanding.
5. Certain Covenants of the Company. The Company
covenants and agrees that all Common Shares which may be issued upon the
exercise of this Warrant, will, upon issuance, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof. The Company further covenants and agrees that
during the period within which the rights represented by this Warrant may be
exercised, the Company will at all times have authorized, and reserved for the
purpose of issue upon exercise of the purchase rights evidenced by this
Warrant, a sufficient number of Common Shares to provide for the exercise of
the rights represented by this Warrant. The Company will, at the time of each
exercise of this Warrant, upon request of the holder thereof, acknowledge in
writing its continuing obligation to afford such holder all rights (including,
without limitation, any rights to registration under the Registration Rights
Agreement) to which such holder shall be entitled after the exercise hereof in
accordance with the terms hereof, but the failure to make any such request, or
the failure of the Company to give such acknowledgement shall not affect the
continuing obligations of the Company in respect of such rights.
-5-
<PAGE> 7
6. Adjustment of Purchase Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this Warrant
and the Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(a) Reclassification, Consolidation or Merger. At
any time while this Warrant remains outstanding and unexpired, in case of any
reclassification or change of outstanding securities of the class issuable upon
exercise of this Warrant (other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination of outstanding securities issuable upon the exercise
of this Warrant) or in case of any consolidation or merger of the Company with
or into another corporation (other than a merger with another corporation in
which the Company is a continuing corporation and which does not result in any
reclassification or change, other than a change in par value, or from par value
to no par value, or from no par value to par value, or as a result of a
subdivision or combination of outstanding securities issuable upon the exercise
of this Warrant), the Company, or such successor corporation, as the case may
be, shall, without payment of any additional consideration therefor, execute a
new Warrant providing that the Warrant Holder shall have the right to exercise
such new Warrant (upon terms not less favorable to the Warrant Holder than
those then applicable to this Warrant) and to receive upon such exercise, in
lieu of each Common Share theretofore issuable upon exercise of this Warrant,
the kind and amount of shares of stock, other securities, money or property
receivable upon such reclassification, change, consolidation or merger, by the
holder of one Common Share issuable upon exercise of this Warrant had it been
exercised immediately prior to such reclassification, change, consolidation or
merger. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 6. Notwithstanding the foregoing, in the case of any transaction which
pursuant to this Section 6(a) would result in the execution and delivery by the
Company of a new Warrant to the Warrant Holder, and in which the holders of
Common Shares are entitled only to receive money or other property exclusive of
securities, then in lieu of such new Warrant being exercisable as provided
above, the Warrant Holder shall have the right, at its sole option, to require
the Company to purchase this Warrant (without prior exercise by the Warrant
Holder) at its fair value as of the day before such transaction became publicly
known, as determined by an unaffiliated internationally recognized accounting
firm or investment bank selected by the Warrant Holder and reasonably
acceptable to the Company. Any purchase and sale of the Warrant pursuant to
the immediately preceding sentence shall be consummated as provided in Section
2(b), mutatis mutandis. The provisions of this Subsection 6(a) shall similarly
apply to successive reclassifications, changes, consolidations, mergers, sales
and transfers.
-6-
<PAGE> 8
(b) Subdivision or Combination of Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine its Capital Stock, the Warrant Price shall be
proportionately reduced, in case of subdivision of such shares, as of the
effective date of such subdivision, or, if the Company shall take a record of
holders of its Capital Stock for the purpose of so subdividing, as of such
record date, whichever is earlier, or shall be proportionately increased, in
the case of combination of such shares, as of the effective date of such
combination, or, if the Company shall take a record of holders of its Capital
Stock for the purpose of so combining, as of such record date, whichever is
earlier.
(c) Certain Dividends and Distributions. If the
Company at any time while this Warrant remains outstanding and unexpired shall:
(i) Stock Dividends. Pay a
dividend in shares of, or make other distribution of shares of, its Capital
Stock, then the Warrant Price shall be adjusted, as of the date the Company
shall take a record of the holders of its Capital Stock for the purpose of
receiving such dividend or other distribution (or if no such record is taken,
as of the date of such payment or other distribution), to that price determined
by multiplying the Warrant Price in effect immediately prior to such payment or
other distribution by a fraction (a) the numerator of which shall be the total
number of shares of Capital Stock outstanding immediately prior to such
dividend or distribution, and (b) the denominator of which shall be the total
number of shares of Capital Stock outstanding immediately after such dividend
or distribution; or
(ii) Liquidating Dividends, Etc.
Make a distribution of its assets to the holders of its Capital Stock as a
dividend in liquidation or by way of return of capital or other than as a
dividend payable out of earnings or surplus legally available for dividends
under applicable law, the Warrant Holder shall be entitled to receive upon the
exercise hereof, in addition to the number of Common Shares receivable
thereupon, and without payment of any additional consideration therefor, a sum
equal to the amount of such assets as would have been payable to him as owner
of that number of Common Shares receivable by exercise of the Warrant had he
been the holder of record of such Common Shares on the record date for such
distribution, or if no such record is taken, as of the date of such
distribution, and an appropriate provision therefor shall be made a part of any
such distribution.
(d) Issuance of Additional Shares of Capital
Stock. If the Company at any time while the Warrant remains outstanding and
unexpired shall issue any Additional Shares of Capital Stock (otherwise than as
provided in the foregoing subsections (a) through (c) above) at a price per
share less, or
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<PAGE> 9
for other consideration lower, than the Base Price, or without consideration,
then upon such issuance the Warrant Price shall be adjusted to that price
determined by multiplying the Warrant Price by a fraction (a) the numerator of
which shall be the number of shares of Capital Stock outstanding immediately
prior to the issuance of such Additional Shares of Capital Stock plus the
number of shares of Capital Stock which the aggregate consideration for the
total number of such Additional Shares of Capital Stock so issued would
purchase at the Base Price, and (b) the denominator of which shall be the
number of shares of Capital Stock outstanding immediately prior to the issuance
of such Additional Shares of Capital Stock plus the number of such Additional
Shares of Capital Stock so issued. The provisions of this subsection 6(d)
shall not apply under any of the circumstances for which an adjustment is
provided in subsections 6(a), 6(b), or 6(c). No adjustment of the Warrant
Price shall be made under this subsection 6(d) upon the issuance of any
Additional Shares of Capital Stock which are issued pursuant to the exercise of
any warrants, options or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any convertible securities
if any such adjustments shall previously have been made upon the issuance of
any such warrants, options or other rights or upon the issuance of any
convertible securities (or upon the issuance of any warrants, options or any
rights therefor) pursuant to subsections 6(e) or 6(f) hereof.
(e) Issuance of Warrants, Options or Other
Rights. In case the Company shall issue any warrants, options or other rights
to subscribe for or purchase any Additional Shares of Capital Stock and the
price per share for which Additional Shares of Capital Stock may at any time
thereafter be issuable pursuant to such warrants, options or other rights shall
be less than the Base Price, then upon such issuance the Warrant Price shall be
adjusted as provided in subsection 6(d) hereof on the basis that the aggregate
consideration for the Additional Shares of Capital Stock issuable pursuant to
such warrants, options or other rights, shall be deemed to be the consideration
received by the Company for the issuance of such warrants, options, or other
rights plus the minimum consideration to be received by the Company for the
issuance of Additional Shares of Capital Stock pursuant to such warrants,
options, or other rights.
(f) Issuance of Convertible Securities. In case
the Company shall issue any convertible securities and the consideration per
share for which Additional Shares of Capital Stock may at any time thereafter
be issuable pursuant to the terms of such convertible securities shall be less
than the Base Price, then upon such issuance the Warrant Price shall be
adjusted as provided in subsection 6(d) hereof on the basis that (i) the
maximum number of Additional Shares of Capital Stock necessary to effect the
conversion or exchange of all such convertible
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<PAGE> 10
securities shall be deemed to have been issued as of the date of issuance of
such convertible securities, and (ii) the aggregate consideration for such
maximum number of Additional Shares of Capital Stock shall be deemed to be the
minimum consideration received by the Company for the issuance of such
Additional Shares of Capital Stock pursuant to the terms of such convertible
securities. No adjustment of the Warrant Price shall be made under this
subsection upon the issuance of any convertible securities which are issued
pursuant to the exercise of any warrants or other subscription or purchase
rights therefor, if any such adjustment shall previously have been made upon
the issuance of such warrants or other rights pursuant to subsection 6(e)
hereof.
(g) Adjustment of Number of Shares. Upon each
adjustment in the Warrant Price pursuant to any provision of this Section 6,
the number of Common Shares purchasable hereunder at the Warrant Price shall be
adjusted, to the nearest one hundredth of a whole share, to the product
obtained by multiplying such number of Common Shares purchasable immediately
prior to such adjustment in the Warrant Price by a fraction, the numerator of
which shall be the Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately thereafter.
(h) Other Provisions Applicable to Adjustments
Under this Section. The following provisions will be applicable to the making
of adjustments in the Warrant Price hereinabove provided in this Section 6:
(i) Computation of Consideration.
To the extent that any Additional Shares of Capital Stock or any convertible
securities or any warrants, options or other rights to subscribe for or
purchase any Additional Shares of Capital Stock or any convertible securities
shall be issued for a cash consideration, the consideration received by the
Company therefor shall be deemed to be the amount of the cash received by the
Company therefor, or, if such Additional Shares of Capital Stock or convertible
securities are offered by the Company for subscription, the subscription price,
or, if such Additional Shares of Capital Stock or convertible securities are
sold to underwriters or dealers for public offering without a subscription
offering, or through underwriters or dealers for public offering without a
subscription offering, the initial public offering price, in any such case
disregarding any amounts paid or incurred by the Company for and in the
underwriting of, or otherwise in connection with the issue thereof. To the
extent that such issuance shall be for a consideration other than cash, then,
except as herein otherwise expressly provided, the amount of such consideration
shall be deemed to be the fair value of such consideration at the time of such
issuance as determined in good faith by the Company's Board of Directors. The
consideration for
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<PAGE> 11
any Additional Shares of Capital Stock issuable pursuant to any warrants,
options or other rights to subscribe for or purchase the same shall be the
consideration received by the Company for issuing such warrants, options or
other rights, plus the additional consideration payable to the Company upon the
exercise of such warrants, options or other rights. The consideration for any
Additional Shares of Capital Stock issuable pursuant to the terms of any
convertible securities shall be the consideration paid or payable to the
Company in respect of the subscription for or purchase of such convertible
securities, plus the additional consideration, if any, payable to the Company
upon the exercise of the right of conversion or exchange in such convertible
securities. In case of the issuance at any time of any Additional Shares of
Capital Stock or convertible securities in payment or satisfaction of any
dividends in a fixed amount, the Company shall be deemed to have received for
such Additional Shares of Capital Stock or convertible securities a
consideration equal to the amount of such dividend so paid or satisfied.
(ii) Readjustment of Warrant Price.
Upon the expiration of the right to convert or exchange any convertible
securities, or upon the expiration of any rights, options or warrants, the
issuance of which convertible securities, rights, options or warrants effected
an adjustment in the Warrant Price, if any such convertible securities shall
not have been converted or exchanged, or if any such rights, options or
warrants shall not have been exercised, the number of shares of Capital Stock
deemed to be issued and outstanding by reason of the fact that they were
issuable upon conversion or exchange of any such convertible securities or upon
exercise of any such rights, options, or warrants shall no longer be computed
as set forth above, and the Warrant Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any other
adjustments in the Warrant Price made pursuant to the provisions of this
Section 6 after the issuance of such convertible securities, rights, options or
warrants) had the adjustment of the Warrant Price made upon the issuance or
sale of such convertible securities or issuance of rights, options or warrants
been made on the basis of the issuance only of the number of Additional Shares
of Capital Stock actually issued upon conversion or exchange of such
convertible securities, or upon the exercise of such rights, options or
warrants, and thereupon only the number of Additional Shares of Capital Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in subsection
(h)(i) hereof) shall be deemed to have been received by the Company.
(iii) Treasury Shares. The number of
shares of Capital Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for the account of the
Company or any subsidiary of the Company.
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(iv) Other Action Affecting Capital
Stock. In case after the date hereof the Company shall take any action
affecting the Capital Stock, other than an action described in any of the
foregoing subsection (a) to (f) hereof, inclusive, which in the opinion of the
Company's Board of Directors would have a materially adverse effect upon the
rights of the holders of the Warrant, the Warrant Price shall be adjusted in
such manner and at such time as the Board of Directors on the advice of the
Company's independent public accountants may in good faith determine to be
equitable in the circumstances.
(v) Limitation or Adjustment of
Warrant Price. Notwithstanding any other provision of this Warrant, no
adjustment of the Warrant Price shall be made which would reduce such Warrant
Price below the par value of the Warrant Shares.
(vi) No Impairment. The Company
will not, by amendment of its constitutive documents or through any
consolidation, merger, reorganization, transfer of assets, dissolution,
securities issuance or any other action, avoid or seek to avoid the observance
or performance of the terms of this Warrant, or to deprive the holder hereof of
the intended benefits hereof, and will at all times in good faith take such
actions (or refrain therefrom) as shall be necessary or appropriate to effect
the intended purposes and benefits of this Warrant. Without limiting the
generality of the foregoing, the Company will not permit the par value of the
Warrant Shares to exceed the Warrant Price.
7. Notice of Adjustments. Whenever the Warrant Price or
the number of Common Shares purchasable under the terms of this Warrant at that
Warrant Price shall be adjusted pursuant to Section 6 hereof, the Company shall
prepare a certificate signed by its President or a Vice President and by its
Treasurer or Assistant Treasurer or its Secretary or Assistant Secretary,
setting forth in reasonable detail the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Company's Board of Directors
made any determination hereunder), and the Warrant Price and number of Common
Shares purchasable at that Warrant Price after giving effect to such
adjustment, and shall promptly cause copies of such certificate to be mailed
(by first class and postage prepaid) to the registered holder of this Warrant.
In the event the Company shall, at a time when this Warrant is
exercisable, take any action which pursuant to Section 6 may result in an
adjustment of any of the Warrant Price or the number of Common Shares
purchasable at that Warrant Price upon exercise of this Warrant, the Company
will give to the registered holder of this Warrant at such holder's last
address known to the Company written notice of such action ten (10) days in
advance of
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<PAGE> 13
its effective date in order to afford to such holder of this Warrant an
opportunity to exercise this Warrant and to purchase Common Shares prior to
such action becoming effective.
8. Payment of Taxes. All Common Shares issued upon the
exercise of this Warrant shall be validly issued, fully paid and nonassessable,
and the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with
any transfer involved in the issue of any certificate for Common Shares in any
name other than that of the registered holder of the Warrant surrendered in
connection with the purchase of such shares, and in such case the Company shall
not be required to issue or deliver any share certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no tax or other charge is due.
9. Fractional Shares. No fractional Common Shares will
be issued in connection with any purchase hereunder but in lieu of such
fractional shares, the Company shall make a cash refund therefor equal in
amount to the product of the applicable fraction multiplied by the Warrant
Price paid by the holder for its Warrant Shares upon such exercise.
10. Loss, Theft, Destruction or Mutilation. Upon receipt
by the Company of evidence reasonably satisfactory to it that this Warrant has
been mutilated, destroyed, lost or stolen, and in the case of a destroyed, lost
or stolen Warrant, a bond of indemnity reasonably satisfactory to the Company,
or in the case of a mutilated Warrant, upon surrender and cancellation of this
Warrant, the Company will execute and deliver in the Warrant Holder's name, in
exchange and substitution for the Warrant so mutilated, destroyed, lost or
stolen, a new Warrant of like tenor substantially in the form hereof with
appropriate insertions and variations.
11. Securities Laws Representations and Warranties;
Transfer to Comply with Securities Laws.
(a) The Warrant Holder, by acceptance of this
Warrant, acknowledges that the transfer of this Warrant and the Warrant Shares
is subject to the provisions of the Securities Purchase Agreement, dated
__________, 1998, between the Company and the initial purchaser of the
Warrants.
(b) The certificate representing any Warrant
Shares acquired upon exercise of this Warrant, and any Common Shares or other
securities issued in respect of such Warrant Shares upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall be
stamped or
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<PAGE> 14
otherwise imprinted with the following legend (unless such a legend is no
longer required under the 1933 Act):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE SOLD EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT. IN ADDITION, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN A
WARRANT OF THE COMPANY DATED _________, 1998."
(c) The Company shall not be required to register
the transfer of this Warrant or any Warrant Shares on the books of the Company
unless the Company shall have been provided with an opinion of counsel
satisfactory to it or no-action letters from the Securities and Exchange
Commission and the appropriate state regulatory agencies prior to such transfer
to the effect that registration under the 1933 Act and any applicable state
securities law is not required in connection with the transaction resulting in
such transfer; provided, however, that no such opinion of counsel or no-action
letter shall be necessary in order to effectuate a transfer in accordance with
the provisions of Rule 144(k) promulgated under the 1933 Act. Each Warrant or
certificate for Warrant Shares issued upon any transfer as above provided shall
bear the restrictive legend set forth in Subsection 11(e) above, except that
such restrictive legend shall not be required if the opinion of counsel
satisfactory to the Company or no-action letters referred to above are to the
further effect that such legend is not required in order to establish
compliance with the provisions of the 1933 Act and any applicable state
securities law, or if the transfer is made in accordance with the provisions of
Rule 144(k) under the 1933 Act. The cost of obtaining any legal opinion or
no-action letter required under this Section shall be borne by the Warrant
Holder.
12. Survival. The provisions of Section 11 shall survive
any expiration, cancellation or exercise of this Warrant.
13. Headings. The descriptive headings of the several
sections of this Warrant are inserted for convenience only and do not
constitute a part of this Warrant.
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<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer under its corporate seal, attested by its
duly authorized officer, on the date of this Warrant.
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By:
---------------------------------
Lawrence S. Doyle, President
and Chief Executive Officer
Attest:
-----------------------------
ACCEPTED, ACKNOWLEDGED
AND AGREED
By:
------------------------
Attest:
--------------------
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<PAGE> 16
Rider A
PURCHASE AGREEMENT
Date:
---------------------
TO:
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby agrees to purchase _________________ Common Shares
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by this Warrant.
Signature:
--------------------------------
Address:
----------------------------------
* * * *
ASSIGNMENT
For Value Received, ________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of Common Shares covered by such
Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
- ---------------- ------- -------------
Dated: Signature:
--------------------------------
Address:
----------------------------------
<PAGE> 1
EXHIBIT 10.3
Insurance Management Agreement
INSURANCE MANAGEMENT AGREEMENT
THIS AGREEMENT, dated as of the 22nd day of December, 1997, by and between
MARSH & McLENNAN MANAGEMENT SERVICES (BERMUDA) LIMITED, a Bermuda corporation
("MMB"), and Annuity and Life Reassurance, Ltd., a Bermuda corporation
("INSURANCE CO.").
WITNESSETH:
WHEREAS, INSURANCE CO. has received authority from the Registrar of
Companies in Bermuda (the "Registrar") under the provisions of the Insurance Act
(Bermuda), 1978 and the Regulations made thereunder (the "Insurance Act") to
engage in the underwriting of insurance or reinsurance as an insurance company;
and
WHEREAS, in conjunction with such underwriting INSURANCE CO. will require
management, administrative and consulting services and MMB is willing to furnish
such services; and
WHEREAS, the parties desire to enter into an agreement whereby MMB will
render, itself or through others retained by MMB, management, administrative and
consulting services with regard to the operation of INSURANCE CO.;
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NOW, THEREFORE, it is hereby mutually agreed by the parties as follows:
1. MMB'S SERVICES. MMB will render the following services with regard to the
business of INSURANCE CO., subject to the limitations and exceptions set forth
herein:
(a) Underwriting of Insurance by INSURANCE CO. Upon the prior written
instructions of INSURANCE CO. MMB shall use its best efforts to cause INSURANCE
CO. to underwrite specific insurance risks within a given class of insurance
business: provided, however, that MMB shall act within any restrictions set
forth by INSURANCE CO. and/or the Registrar for that class of business.
(b) Policyholder Service. Subject to the risks being accepted by the
INSURANCE CO. or the underwriters retained by INSURANCE CO., MMB shall issue and
endorse policies, and, if so instructed in writing by INSURANCE CO., terminate
or cancel policies and issue notices of cancellation. MMB shall bill, receive
and render receipts for premiums due to INSURANCE CO. in accordance with the
terms and conditions of each policy of insurance issued and in accordance with
the written instructions of INSURANCE CO. MMB shall have full authority
hereunder to take whatever action it deems necessary or appropriate to attempt
to collect premiums, including, if so instructed by INSURANCE CO., the
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<PAGE> 3
cancellation of policies. MMB shall have no liability for uncollected premiums.
(c) Claims. MMB shall, in accordance with written instructions from
INSURANCE CO., accept or reject claims, settle claims and arrange for the
adjustment of losses and defense of actions, as necessary or appropriate,
arising out of contracts of insurance and reinsurance.
(d) Ceding Reinsurance. If INSURANCE CO. desires to cede reinsurance, MMB
shall administer the cessions to the reinsurers in accordance with instructions
provided by INSURANCE CO. Any such reinsurance arranged shall be on a "gross
premiums" basis and any brokerage normal to such transactions shall be retained
by any insurance broker, including any MMB affiliate, appointed by INSURANCE CO.
to place such reinsurance.
(e) Assuming Reinsurance. If INSURANCE CO. desires to underwrite
reinsurance, MMB shall administer the cessions received from the ceding
companies in accordance with instructions received from INSURANCE CO. INSURANCE
CO. acknowledges that the Registrar may restrict or impose conditions on
INSURANCE CO.'s assumption of reinsurance.
(f) Advice on Insurance Programs. Upon the request of INSURANCE CO. and to
the extent authorized by applicable law, MMB shall assist INSURANCE CO. in the
analysis of insurance and reinsurance programs for
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<PAGE> 4
which INSURANCE CO. is contemplating or has issued insurance or reinsurance
policies.
(g) Other Services. MMB shall perform such other services as may from time
to time be agreed upon between MMB and INSURANCE CO. Initially this will involve
administration of payroll and employee benefits. If an employee of MMB acts as a
director or officer of Insurance Co., such person shall be included as an
additional insured under INSURANCE CO.'s directors and officers liability
policy.
2. OFFICE RECORDS; REPORTS; EXAMINATIONS; INVESTMENTS AND ACCOUNTS.
(a) Office, Books and Records. MMB shall maintain an office in Bermuda,
which shall be appropriately identified as an office of INSURANCE CO. MMB shall
keep at such office, in a manner and form approved by or acceptable to INSURANCE
CO., true and complete books of account and records of all business conducted
under and pursuant to this Agreement and shall, at all reasonable times, make
available for examination and inspection to a duly authorized representative of
INSURANCE CO. or the Registrar, all such books and records. Such books and
records shall remain the property of INSURANCE CO. and shall be delivered
promptly to INSURANCE CO. or its designee following any termination hereof, but
MMB shall have the right at any time within six
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<PAGE> 5
years after any termination of this Agreement to inspect such books and records
and to make copies thereof or extracts therefrom.
(b) Reports to INSURANCE CO. INSURANCE CO.'s fiscal year shall commence on
January 1st and shall end on December 31st of each year. Based on information
made available to MMB, and if requested by INSURANCE CO., MMB shall
periodically prepare such reports as shall be agreed to by MMB and INSURANCE
CO. Financial Statements of INSURANCE CO. for each fiscal year shall be audited
at INSURANCE CO.'s expense by a firm of independent chartered accountants which
shall be selected by INSURANCE CO.
(c) Reports and Examinations. All Bermudian governmental reports,
including tax reports, and all other applications and reports as shall be
required by the Insurance Act shall be prepared and filed by MMB after review
by INSURANCE CO. INSURANCE CO. shall be responsible for any fees or taxes.
INSURANCE CO. shall cooperate with MMB in connection with the preparation of
such reports by furnishing to MMB any information in its possession necessary
for such reports.
MMB shall notify INSURANCE CO. to the extent it obtains knowledge of any
proposed or actual examination or investigation by the Registrar or other
authorized parties of the business and affairs of INSURANCE CO. and MMB shall
cooperate with any such examination or investigation.
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<PAGE> 6
(d) Investments. INSURANCE CO. shall provide MMB with written Investment
Guidelines and MMB shall invest the funds of INSURANCE CO., or liquidate or
change such investments only in accordance with such Guidelines. Such
Investment Guidelines may be changed by INSURANCE CO. from time to time but MMB
shall not be required to recognize such change until MMB has received written
notice thereof. In the event and so long as INSURANCE CO. has not provided MMB
with Investment Guidelines, MMB will invest the funds of INSURANCE CO. solely in
overnight deposits in a Bank chosen by INSURANCE CO.
MMB shall have no liability whatsoever for the soundness of any
investments made hereunder, the amount of return from such investments, the
solvency of the institution in which they may be deposited or invested or any
other liability based upon MMB's actions or failures to act unless MMB's acts
or failures to act are proven to be wilful misconduct or gross negligence.
(e) Bank Accounts. Upon the request of INSURANCE CO., MMB shall open,
maintain and operate bank accounts in Bermuda or elsewhere in the name of
INSURANCE CO., and shall made deposits therein and disbursements therefrom in
accordance with such limitations and restrictions as may be set forth in
written instructions from, or in resolutions passed by the board of directors,
of INSURANCE CO.
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<PAGE> 7
(f) Information Provided to MMB. INSURANCE CO. shall keep MMB informed
during the term of this Agreement of all material developments relating to the
business of INSURANCE CO. and shall promptly furnish to MMB executed sets of
all minutes of the meetings of and the resolutions adopted by the stockholders
and the board of directors of INSURANCE CO.
(g) Authority of MMB. MMB shall have all the power and authority necessary
or desirable to carry out its duties and obligations under this Agreement,
which shall include the right to engage, as an independent contractor, any
person, corporation or other organization to perform any functions to be
performed hereunder by MMB. The authority granted hereunder shall specifically
include the right to engage other operating units within J&H Marsh & McLennan,
Incorporated, or any subsidiary or affiliated company thereof, to perform any
such functions.
3. RELATIONSHIP BETWEEN PARTIES; LIMITATION OF RESPONSIBILITY.
(a) Independent Contractors. The relationship between the parties
established by this Agreement is that of independent contracting parties. As
such, subject to the terms of this Agreement, each shall conduct its business
at its own initiative, responsibility and expense, and shall have no authority
to incur any obligation on
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<PAGE> 8
behalf of the other party. No third party shall have or be deemed to acquire
any rights under this Agreement. Neither party shall use the name of the other
party or any affiliate of such other party in any public document, advertising,
public relations release or any other publicity without the prior written
consent of such other party.
(b) Compliance with Laws. MMB shall use its best efforts to advise
INSURANCE CO. regarding compliance with the insurance Laws of Bermuda. MMB
shall not be responsible for advice on compliance with the laws in any other
jurisdiction in which INSURANCE CO. does business.
(c) Scope of Services. The obligations of MMB hereunder are limited to the
good faith performance of the services to INSURANCE CO. set forth herein and
MMB shall have no liability to INSURANCE CO. or any other person for any action
taken pursuant hereto other than as a result of its wilful misconduct or gross
negligence. MMB is entitled to rely on information or instructions (oral or
written) provided by INSURANCE CO. and MMB shall have no responsibility for the
accuracy or completeness of such information or instructions. MMB shall not
have any other or further obligations or responsibilities to INSURANCE CO.,
including, but not limited to, any obligation or responsibility for the payment
of any insurance or reinsurance premiums, the profitability of the business of
INSURANCE CO., the solvency of any person (including INSURANCE CO.) or the
failure of third parties
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<PAGE> 9
(including insurers and reinsurers) to fulfill their obligations.
(d) Indemnification. INSURANCE CO. shall indemnify and hold harmless
MMB, its officers, directors, employees, agents and affiliates from and against
any losses, claims, damages, liabilities, cost or expenses, including reasonable
attorneys fees and expenses of investigation (collectively, "Losses"), to which
MMB may become subject in connection with the services it provides hereunder;
provided, however, that INSURANCE CO. shall not be liable under the
foregoing indemnity in respect of any Losses to the extent that a court having
jurisdiction shall have determined by a final judgment that such Loss resulted
from MMB's wilful misconduct or gross negligence. The provisions of this section
shall survive the expiration or termination of this Agreement, including any
extensions thereof.
4. COMPENSATION AND EXPENSES.
Fees and expenses for MMB's services hereunder shall be determined and
paid in accordance with Schedule 1, which is attached hereto and made a part
hereof.
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<PAGE> 10
5. EFFECTIVE DATE AND TERMINATION.
(a) Effective Date and Normal Termination. This Agreement shall become
effective on the date set forth on page one hereof (the "Effective Date") and
shall continue until the 31st day of December 1998 and shall be renewable
annually thereafter by the agreement of the parties; provided, however, that
either party may terminate this Agreement at any time by giving not less than
ninety (90) days' written notice to the other party of its intention to do so.
Upon the expiration or termination hereof, MMB shall have no further duties or
obligations hereunder unless specifically set forth herein or otherwise agreed
to by the parties.
(b) Termination for Breach or Bankruptcy. This Agreement may also be
terminated forthwith by written notice of termination to the other party upon
the occurrence of either of the following:
(i) If such other party fails to perform or observe, or commits a
breach of, any provision of this Agreement, and fails to cure, remedy or
satisfactorily explain such failure or breach within thirty (30) days following
delivery to such other party of a written notice of the alleged failure or
breach, or
(ii) If such other party become insolvent (in the legal sense) or
files a voluntary petition in bankruptcy, or makes an assignment for
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<PAGE> 11
the benefit of creditors; or if a committee of creditors or other
representative is appointed to represent its business or an involuntary
petition in bankruptcy is filed against it, and the party fails within thirty
(30) days following the appointment of such committee or representative or the
filing of such involuntary petition to cause the discharge of such committee or
representative or the dismissal of such petition; or if the other party commits
any other act indicating insolvency.
6. MISCELLANEOUS.
(a) Non-Exclusivity. This Agreement shall not in any way prevent MMB
from performing similar services for others.
(b) Foreign Exchange. All expenses and costs paid by MMB on behalf of
INSURANCE CO. in any currency other than United States dollars shall be
converted to United States dollars at the conversion rate in effect on the date
that the expenses or costs were paid by MMB, so that all exchange gain or loss
incident thereto shall be incurred by or inure to the benefit of INSURANCE CO.;
provided, however, that MMB will obtain the written consent of INSURANCE CO.
before making such disbursement.
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(c) Assignments. Neither this Agreement nor any right, benefit or
obligation conferred or imposed hereunder is assignable in whole or in part,
whether by operation of law or otherwise, by either party hereto without the
prior written consent of the other party; provided, however, that either party
may make such an assignment to a corporation which controls, is controlled by,
or is under common control with the assignor.
(d) Successors and Assigns. This Agreement shall be binding upon the
successors, legal representatives or permitted assigns of the parties hereto.
(e) Notices. Any notice or other communication required or permitted
hereunder shall be deemed given upon delivery if delivered personally, or three
days after mailing if mailed by an international overnight courier if such
courier provides evidence of receipt, or the next business day if sent by
facsimile and confirmed by mail, as follows:
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To MMB: Marsh & McLennan Management
(Bermuda) Limited
P.O. Box HM 1262
Hamilton HM FX, Bermuda
To INSURANCE CO.: Annuity and Life Reassurance, Ltd.
P.O. Box HM 1262
Hamilton HM FX, Bermuda
or to such other addresses as such parties shall have last designated by notice
to the other parties.
(f) Entire Agreement. All prior negotiations and agreement between the
parties hereto relating to the subject matter hereof are superseded by this
Agreement, and there are no representations, warranties, understandings or
agreements other than those expressly set forth herein, except as modified by
an instrument signed by the parties hereto.
(g) Waivers. The failure of either party at any time to require the other
party's performance of any obligation under this Agreement shall not affect the
right to require performance of that obligation in the future. Any waiver by
either party of any breach of any provision hereof shall not be construed as a
waiver of any continuing or succeeding breach of such provision, a waiver or
modification of the provision itself, or a waiver or modification of any other
right under this Agreement.
13
<PAGE> 14
(h) Captions. The captions of the several sections of this Agreement are
inserted solely for convenience of reference, and are neither a part of nor
intended to govern, limit or aid in the construction of any term or provision
hereof.
(i) Governing Law. The validity, construction and enforceability of this
Agreement shall be governed in all respects by the Laws of Bermuda.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(k) Survival. The representations, warranties and agreements contained or
referred to herein, shall survive the termination hereof, provided that no
claims may be initiated by or on behalf of any party against any other party on
the basis of such representations, warranties and agreements after three years
from the termination hereof, unless based upon a breach or failure to comply
with an agreement which is to be performed or complied with in whole or in part
after three years from the termination hereof.
14
<PAGE> 15
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first-above written.
MARSH & McLENNAN MANAGEMENT (BERMUDA) LIMITED
("MMB")
By: /s/ David Lindo
-----------------------
Title: Senior Vice President
Annuity and Life Reassurance, Ltd.
("INSURANCE CO.")
By: /s/ Lawrence S. Doyle
-----------------------
Title: CEO
15
<PAGE> 16
SCHEDULE 1
COMPENSATION PROVISION
Fees and Expenses with Minimum Fees
(a) Fees
(i) MMB's fees are based on a number of factors including time charges,
complexity, and the value of its services. Individual hourly rates vary
according to the degree of responsibility involved and the experience and skill
required and are reviewed and adjusted annually.
(ii) In consideration for the services to be performed hereunder by MMB,
INSURANCE CO. shall pay to MMB the greater of an amount equal to MMB's fees as
calculated in accordance with (i) above, or fifteen thousand dollars ($15,000;
fee per contract year commencing February 1, 1998 (the "Minimum Fee"). For
purposes of this Agreement a contract year shall mean a twelve (12) month period
commencing on February 1st of each year. If a notice of termination is delivered
prior to February 1, 1998 no fee shall be payable under this paragraph (a)(ii)
only. Costs incurred up to that point under paragraph (iv) shall be reimbursed
to MMB by INSURANCE CO.
(iii) If this Agreement is in effect for only a portion of any contract
year, MMB shall be entitled to fees commensurate with the
16
<PAGE> 17
services rendered during such shorter period.
(iv) In addition to the aforementioned services MMB will provide certain
facilities where INSURANCE CO. may maintain its principal office as required,
including but not limited to office space and computer equipment and office
furniture at a fee to be agreed between the parties. All such facilities will be
regarded as ancillary to the provision of services as described or to be added.
(b) Increases. MMB shall notify INSURANCE CO. not less than fifteen (15)
days prior to any increase in MMB's schedule of hourly rates over those in
effect at the time this Agreement is executed.
(c) Expenses. All salaries and fringe benefits of MMB personnel rendering
services under this Agreement shall be at the expense of MMB without
reimbursement by INSURANCE CO. INSURANCE CO. shall be responsible for all costs,
expenses and charges incurred in, or incidental to, its business, including but
not limited to printing costs (e.g. policies and endorsement forms); office
supplies (e.g. stationery, office forms and invoices); photocopy and other
reproduction charges; telephone and facsimile charges; filing and examination
fees; lawyers' and accountants' fees, and any other services contracted for or
on behalf of INSURANCE CO. under the
17
<PAGE> 18
provisions of Section 2(g) hereof; premium and other taxes; and all costs,
charges and expenses relative to the processing, handling and adjustment of
claims and losses under coverages authorized and/or written by INSURANCE CO. If
any such expenses are advanced and paid by MMB on behalf of INSURANCE CO.
INSURANCE CO. shall reimburse MMB therefor upon receipt of the statement noted
below.
(d) Billing and Payments. MMB shall render, within thirty (30) days after
the end of each month, a statement to INSURANCE CO. setting forth its fees and
expenses incurred during the immediately preceding month. Payment of the amount
set forth in the statement rendered shall be due ten (10) days subsequent to the
date of the statement.
18
<PAGE> 19
MANAGEMENT FEE SCHEDULE
Time charges incurred on behalf of MMB's clients are recorded by each employee
on an hourly rate basis, and are administered through its computerized Time
Recording System.
MMB's hourly charge out rates are as follows:
<TABLE>
<S> <C>
Management $185
Supervisor $170
Technical $140
Support $110
Junior $ 65
</TABLE>
<PAGE> 20
ADDENDUM
TO
INSURANCE MANAGEMENT AGREEMENT
(1) Facilities
It is hereby understood and agreed with respect to Schedule I article
(iv) that the "facilities" to be provided shall be defined as follows:
Rental of office space, electricity (heat and light), air-
conditioning, janitorial services, rental of fixtures, fittings,
furniture, telephone equipment and infrastructure e.g. lights, walls,
doors, carpeting, etc. inclusive of general wear and tear. Rental
of filing cabinets, computer infrastructure, computer operations
including backup and server access. Maintenance including security,
landscaping and other items of a maintenance nature.
Such facilities re fully described in Appendix One.
In consequence of the provision of stated facilities a fee of $5,000
per month shall be payable by Insurance Co. to MMB, commencing
February 1st, 1998.
(2) Other Services
It is hereby understood and agreed with respect to clause 1 (g) of the
Agreement that "other services'' shall be defined as follows, with
accompanying time charges:
* Personnel, Immigration, Payroll, Health and Dental Insurance
Administration
Personnel Consulting:
$250 per hour (15 minute minimum).
Immigration negotiation:
New Work Permit - $2,500 per permit.
Work Permit Renewal - $500 per permit.
Advertising and Permit Fees as incurred.
<PAGE> 21
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Payroll, Health and Dental Insurance Administration:
$175 per hour.
* Computer Consulting, Computer setup, Configuration and Trouble
Shooting.
$175 per hour
Consumables at cost as incurred.
* Building and Space Management
$200 per hour
* Telephone, Courier
Billed through "out of pocket" expenses along with all other
similar expenses as part of general management service.
<PAGE> 22
APPENDIX ONE
FACILITIES
- - Three (3) adjacent private offices, all 14' x 6" by 10' 6" with windows the
full length of the north side (14' 6") and glass on the internal wall on
the south side. Each office to be furnished with a desk, side return and
chair.
- - Four (4) open plan workstations adjacent to the private offices, all fitted
with 80" worktops and office chair. Sizes as follows:
- a. 80" by 6' Back to back with b.
- b. 80" by 6' Back to back with a.
- c. 80" by 6' 8"
- d. 80" by 6' Open sided - suitable as secretarial
workstation.
- - All offices and workstations to be fitted with Mitel Superset 420 telephone
handsets. Each handset capable of answering the incoming line and engaging
in conference calling.
- - Limited number of income / outgoing trunk lines, one line dedicated to
facsimile traffic.
- - Housing for one fax machine, machine to be purchased and the asset of
Annuity Re. (Purchasing can be facilitated by J&H Marsh & McLennan if
required).
- - Housing for one photocopy machine, machine to be purchased and the asset of
Annuity Re. (Purchasing can be facilitated by J&H Marsh & McLennan if
required).
- - Three (3) 5 drawer filing cabinets.
- - Five (5) IBM-compatible personal computers of a specification yet to be
determined. Machines to be purchased and the asset of Annuity Re.
(Purchasing can be facilitated by J&H Marsh & McLennan if required).
- - One (1) HP laser printer of a specification yet to be determined. Machine
to be purchased and the asset of Annuity Re. (Purchasing can be facilitated
by J&H Marsh & McLennan if required).
- - Computer networking and cabling for five PCs and one laser printer.
- - Print and File Server hosting services for standard PC files. Backup
performed daily and off site storage of data provided.
<PAGE> 23
-2-
- - One company name displayed in lobby directory.
- - Access to J&H Marsh & McLennan commissioned courier services for overseas
mail delivery on a time and materials basis.
- - Supply of hot beverages and use of staff pantry on 6th floor.
<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Addendum as of the effective
date of the Agreement, of which it shall form an integral part.
MARSH & McLENNAN MANAGEMENT (BERMUDA) LIMITED
("MMB")
By: /s/ David Lindo
----------------------------
Title: Senior Vice President
Annuity and Life Reassurance, Ltd.
("INSURANCE CO.")
By: /s/ Lawrence S. Doyle
-----------------------------
Title: Chief Executive Officer
<PAGE> 1
EXHIBIT 10.6
Employment Agreement with
Robert J. Reale
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of January 8, 1998 by and between
Annuity and Life Re (Holdings), Ltd., a Bermudian corporation (the "Company"),
Annuity and Life Reassurance, Ltd., a subsidiary of the Company organized under
the laws of Bermuda to engage in worldwide life and annuity reinsurance (the
"Operating Company"), and Robert J. Reale (hereinafter called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company is contemplating an initial public
offering or a private placement of its Common Shares in excess of $100 million
(the "IPO"); and
WHEREAS, the Company and the Operating Company desire that the
Employee serve as Senior Vice President and Chief Underwriter of the Company
and the Operating Company and the Employee is willing to serve in such
capacities; and
WHEREAS, if the IPO has not been completed prior to May 31,
1998, both Company and the Employee desire the option to terminate this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree as follows:
Section: 1. Employment.
Effective as of February 1, 1998, the Company and the
Operating Company will employ the Employee and the Employee will perform
services for the Company and the Operating Company on the terms and conditions
set forth in this Agreement and for the period ("Term of Employment") specified
in Section 3 hereof.
Section: 2. Duties.
The Employee, during the Term of Employment, shall serve the
Company as its Senior Vice President and Chief Underwriter. The Employee shall
also serve as Senior Vice President and Chief Underwriter of the Operating
Company. The Employee shall be based at the Operating Company's headquarters
in Bermuda, other than for periodic travel in the ordinary course of business.
The Employee shall have such duties and responsibilities as are assigned to him
by the Boards of Directors of the Company and the Operating Company
commensurate with his positions as Senior Vice President and Chief Underwriter
of the Company and the Operating Company.
<PAGE> 2
The Employee shall perform his duties hereunder faithfully and
to the best of his abilities and in furtherance of the business of the Company,
and shall devote his full business time, energy, attention and skill to the
business of the Company and to the promotion of its interests except as
otherwise agreed by the Company.
The Employee warrants and represents that he is free to enter
into this Agreement and is not restricted by any prior or existing agreement
and the Company and the Operating Company may rely on such representation in
entering into this Agreement.
Section: 3. Term of Employment.
The initial Term of Employment of this Agreement shall be the
period commencing on February 1, 1998 and ending on the third anniversary of
the IPO. At the end of the initial Term of Employment, and on each anniversary
thereof, the Term of Employment shall automatically be extended for one
additional year, unless the Company or the Employee shall have given written
notice to the other that it does not wish to extend this Agreement at least
three months in advance.
Section: 4. Salary.
The Employee shall receive, as compensation for his duties and
obligations to the Company and the Operating Company, a salary at the annual
rate of $200,000, payable in substantially equal installments in accordance
with the Operating Company's payroll practice. It is agreed between the
parties that the Company shall review the base annual salary annually and in
light of such review may, in the discretion of the Board of Directors of the
Company (but shall not be obligated to), increase such base annual salary
taking into account any change in the Employee's then responsibilities,
increases in the cost of living, performance by the Employee, and other
pertinent factors.
Upon consummation of the IPO, the Company shall contribute
monthly ten percent of the base monthly salary of the Employee to a retirement
plan for the benefit of the Employee.
Section: 5. Bonus.
During the Term of Employment, the Employee shall, subject to
and effective upon the consummation of the IPO, participate in the Company's
Incentive Compensation Plan, a summary of which is attached hereto as Exhibit
A, and will be eligible for an annual cash bonus of up to two times his annual
salary based on performance targets as determined in accordance with the terms
of the Plan.
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<PAGE> 3
The Employee shall receive, upon the consummation of the IPO,
a one-time cash bonus advance of $25,000 (the "Advance Bonus"). Such Advance
Bonus shall be an advance of and deducted from the annual cash bonus for the
1998 year to which the Employee may be entitled in February 1999 under the
Company's Incentive Compensation Plan.
Section: 6. Options.
(a) Initial Options. The Company shall grant to the
Employee, subject to and effective as of the consummation of the IPO, options
(the "Initial Options") to purchase at a price per share equal to the price per
share in the IPO, .7 of one percent of the Company's ordinary shares issued in
the IPO (the "Ordinary Shares"), but not to exceed an aggregate value of $2.8
million (valued at the IPO per share price). Thirty three and one-thirds
percent (33 1/3%) of the Initial Options shall become exercisable after the
first anniversary of the IPO, 33 1/3% of the Initial Options shall become
exercisable after the second anniversary of the IPO, and an additional 33 1/3%
of the Initial Options shall become exercisable after the third anniversary
thereof. In addition, no Initial Option may be exercised after the earlier of
(A) the date that is (i) ninety (90) days following the termination of the
Employee's employment for any reason other than death, disability or Serious
Cause (as defined in Section 11), or (ii) six (6) months after the termination
of the Employee's employment by reason of death or disability or (iii) the date
upon which the Employee's employment is terminated for Serious Cause; or (B)
the tenth anniversary of the IPO date.
The consideration for the Ordinary Shares purchased upon
exercise of the Initial Options may be paid in cash or by any other method
permitted by the terms of the Company's Initial Option Plan. The issuance of
any Ordinary Shares pursuant to the Initial Options shall in all events be
subject to all applicable securities laws and the Employee shall enter into any
agreement reasonably requested by the Company in order to ensure that all such
issuances are in full compliance therewith. The Employee shall not have any of
the rights and privileges of a shareholder of the Company with respect to the
Ordinary Shares issuable upon any exercise of Initial Options unless and until
his name is entered into the register of members of the Company in respect of
such Ordinary Shares. If there is any change in the number or nature of
outstanding shares of the Company's capital stock by reason of a share
dividend, recapitalization, merger, consolidation, scheme of arrangement, share
split, combination or exchange, share repurchase or otherwise, which in any
such case has a dilutive or anti-dilutive effect on the Ordinary Shares, the
number of Ordinary Shares subject to each outstanding Initial Option, the
exercise price thereof and/or other terms thereof shall be appropriately
adjusted by the Board of Directors of the Company (or any committee thereof),
whose determination shall be
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<PAGE> 4
conclusive, so as to restore the option holder to his rights thereunder.
(b) Other Options. During the Term of Employment, the
Employee shall, subject to the consummation of the IPO, be eligible to be
granted options (in addition to the Initial Options) to purchase Ordinary
Shares at such price and subject to such terms as provided by the Company's
Initial Stock Option Plan, in the sole discretion of the Board of Directors of
the Company.
Section: 7. Employee Benefits.
During the Term of Employment the Employee shall, subject to
the consummation of the IPO, be entitled to participate in all employee benefit
programs of the Company, as such programs may be in effect from time to time,
including without limitation, pension and other retirement plans, profit
sharing plans, group life insurance, accidental death and dismemberment
insurance, hospitalization, surgical and major medical coverage, sick leave
(including salary continuation arrangements), long term disability, holidays
and vacations.
Section: 8. Business Expenses.
All reasonable travel and other expenses incidental to the
rendering of services by the Employee hereunder shall be paid by the Company
and if expenses are paid in the first instance by the Employee, the Company
will reimburse him therefor upon presentation of proper invoices; subject in
each case to compliance with the Company's reimbursement policies and
procedures.
Section: 9. Housing and Travel Expenses.
Effective upon consummation of the IPO, the Company shall
provide to the Employee the sum of $8,333.00 monthly as an allowance to cover
the expenses of housing in Bermuda and for his personal travel.
Section: 10. Vacations and Sick Leave.
The Employee shall be entitled to reasonable vacation and
reasonable sick leave each year (beginning with 1998), in accordance with
policies of the Company, as determined by the Board of Directors, provided,
however, that the Employee shall be entitled to a minimum of 4 weeks vacation
per year.
Section: 11. Termination.
(a) In the event of Serious Cause, as defined below, the
Company may terminate the Employee's employment and the Term
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<PAGE> 5
of Employment upon written notice of such termination stating the Serious Cause
upon which the Company relies for its termination. The Employee's employment
and the Term of Employment shall be terminated effective as of the date
specified in such notice, which shall in no event be earlier than the effective
date of such notice as provided in Section 20.
"Serious Cause" shall mean (i) the willful and continued
failure by the Employee to perform substantially his duties hereunder, other
than by reasons of health, after demand for substantial performance is
delivered by the Company that identifies the manner in which the Company
believes the Employee has not substantially performed his duties, (ii) the
Employee shall have been indicted by any federal, state or local authority in
any jurisdiction for, or shall have pleaded guilty or nolo contendere to, an
act constituting a felony, (iii) the Employee shall have habitually abused any
substance (such as narcotics or alcohol), or (iv) the Employee shall have (A)
engaged in acts of fraud, material dishonesty or gross misconduct in connection
with the business of the Company or (B) committed a material breach of this
Agreement.
(b) The Employee may terminate his employment and the
Term of his Employment in the event of Good Reason, as defined below, upon 30
days' prior written notice of such termination stating the Good Reason upon
which the Employee relies for his termination. The Employee's employment and
the Term of Employment shall be terminated effective as of the date specified
in such notice, which in no event shall be earlier than the effective date of
such notice as provided in Section 20.
"Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) the demotion of the Employee, (iii) a material
reduction of the Employee's duties hereunder, or (iv) a material breach of this
Agreement by the Company.
(c) In the event of termination of the Employee's
employment and the Term of Employment by the Company for Serious Cause or by
the Employee without Good Reason, the Employee shall forfeit all bonus amounts
for the then current fiscal year, except for the Advance Bonus paid upon
consummation of the IPO, and the Company shall be liable to the Employee only
for (i) any accrued but unpaid salary, (ii) any accrued but unpaid bonus from a
prior fiscal year, and (iii) reimbursement of business expenses incurred prior
to the date of termination.
(d) In the event of the death, retirement or disability
of the Employee, the Employee's employment and Term of Employment shall be
terminated as of the date of such death, retirement or disability and the
Company shall pay the Employee, or the Employee's estate or legal
representative, as appropriate, (i) any accrued but unpaid salary, (ii) any
earned but unpaid
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<PAGE> 6
bonus from a prior fiscal year, (iii) reimbursement of business expenses
incurred prior to the date of termination, (iv) travel and housing allowances
under Section 9 for six months after the date of termination, and (v)
reasonable relocation expenses from Bermuda to the United States. The date of
the Employee's disability shall be deemed to be the last day of the sixth month
during which the Employee has been unable to carry out his position as provided
below.
"Disability" shall mean the Employee's inability, for reasons
of health, to carry out the functions of his position for a total of 6 months
during any 12 month period of this Agreement. "Retirement" shall mean
retirement from employment upon attaining age 65 or such earlier age agreed to
by the Company.
In addition, in such event, if the Company's Ordinary Shares
are not then publicly traded, the Company shall have the right to call any or
all of the Ordinary Shares of the Company owned by the Employee within six (6)
months of death, retirement or disability, and the Employee, the Employee's
estate or legal representative, whichever is appropriate, shall have the right
to put any or all of the Employee's Ordinary Shares to the Company within
twelve (12) months after death or within six (6) months after retirement or
disability. The price at which such put or call is exercisable shall be equal
to the appraised value, in each case measured as of the date of termination.
(e) If the Company should (i) terminate the Term of
Employment and the Employee's employment herein without Serious Cause; or (ii)
if the Employee should terminate the Term of Employment and his employment
hereunder for Good Reason, the Company shall continue to pay the Employee his
base salary for a period of one year from such termination. In addition, the
Employee shall be entitled to (A) any accrued but unpaid salary, (B) any earned
but unpaid bonus from a prior fiscal year, (C) reimbursement of business
expenses incurred prior to the date of termination, and (D) travel and housing
allowances under Section 9 for six months after the date of termination, and
(E) reasonable relocation expenses from Bermuda to the United States.
(f) In the event of the liquidation of the Company or in
the event that the Board of Directors elects to discontinue permanently
operating the Company, the Term of Employment and the Employee's employment
herein shall be terminated as of the date of such liquidation or discontinuance
and the Company shall pay the Employee (i) any accrued but unpaid salary, (ii)
any earned but unpaid bonus from a prior fiscal year, (iii) unreimbursed
business expenses incurred prior to the date of termination, (iv) travel and
housing allowances under Section 9 for two months after the date of
termination, and (v) reasonable relocation expenses from Bermuda to the United
States. In addition, the
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<PAGE> 7
Employee shall be entitled to receive one year's base salary from the date on
which the Employee's employment is terminated.
(g) Notwithstanding any other provision of this
Agreement, if the IPO has not been consummated by May 31, 1998, either the
Employee or Company may terminate the Employee's employment and the Term of
Employment upon 30 days' written notice, in which event the Company shall be
liable to the Employee only for such amounts as would be payable upon a
termination described in Section 11(c).
Section: 12. Change of Control.
(a) Notwithstanding any other provision contained herein,
the Employee's Initial Options and other options issued under the Company's
share option plans that are not then exercisable shall become exercisable (and
be deemed to be vested) on the date on which a Change of Control of the Company
occurs. In addition, restricted Ordinary Shares granted under any of the
Company's share option plans shall immediately vest upon a Change of Control of
the Company.
(b) If (i) the employment of the Employee is terminated
by the Company (or successor thereto) without Serious Cause or (ii) the
Employee terminates employment with the Company (or successor thereto) for Good
Reason, within the period commencing on the date that a Change of Control is
formally proposed to the Company's Board of Directors and ending on the first
anniversary of the date on which such Change of Control occurs, then the
Employee shall be entitled to receive (in lieu of the benefits described in
Section 11): (1) any accrued but unpaid salary, (2) a lump sum payment equal
to two times such Employee's annual base salary as of the date of termination,
(3) any accrued but unpaid bonus from a prior fiscal year, (4) reimbursement of
business expenses incurred prior to the date of termination, (5) travel and
housing allowances under Section 9 for one year following the date of
termination, (6) reasonable relocation expenses from Bermuda to the United
States, together with (7) a gross-up of any income taxes payable by the
Employee by reason of such payments occurring in connection with a change of
control.
The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.
(c) A "Change of Control" of the Company shall be deemed
to have occurred if, following consummation of the IPO (i) any "person" (as
such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"), excluding the
Company or any of its subsidiaries, a trustee or any fiduciary holding
securities under
-7-
<PAGE> 8
an employee benefit plan of the Company or any of its subsidiaries, an
underwriter temporarily holding securities pursuant to an offering of such
securities or a corporation owned, directly or indirectly, by shareholders of
the Company in substantially the same proportion as their ownership of the
Company, is or becomes the "beneficial owner" (as defined in rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities ("Voting Securities"); (ii) during any period of not
more than two years, individuals who constitute the Board of Directors of the
Company (the "Board") as of the beginning of the period and any new director
(other than a director designated by a person who has entered into an agreement
with the Company to effect a transaction described in clause (i) or (iii) of
this sentence) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at such time or
whose election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; (iii) the shareholders of the
Company approve a merger, consolidation or reorganization or a court of
competent jurisdiction approves a scheme of arrangement of the Company, other
than a merger, consolidation, reorganization or scheme of arrangement which
would result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 50% of
the combined voting power of the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger, consolidation,
reorganization or scheme of arrangement; or (iv) the shareholders of the
Company approve a plan of complete liquidation of the Company or any agreement
for the sale of substantially all of the Company's assets.
(d) The provisions of this Section 12 shall only apply
following the consummation of an IPO.
Section: 13. Agreement Not to Compete.
(a) The Employee hereby covenants and agrees that at no
time during the Term of Employment nor for a period of (i) one year immediately
following the termination of the Employee's employment by the Company without
Serious Cause or by the Employee for Good Reason or (ii) two years following
the termination of the Employee's employment for any other reason, will he for
himself or on behalf of any other person, partnership, company or corporation,
directly or indirectly, acquire any financial or beneficial interest in (except
as provided in the next sentence) any entity engaged in any business similar to
the business engaged in by the Company or the
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<PAGE> 9
Operating Company at the time of such termination of employment.
Notwithstanding the preceding sentence, the Employee shall not be prohibited
from owning less than one (1%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company or the
Operating Company. Additionally,the Employee will not become employed by any
non-United States entity engaged in a similar business. Furthermore, the
employee will not enter into competition with the Company or Operating Company
for a period of two years following termination. For purposes of this
Employment Agreement, "competition" will mean soliciting business from any
clients of the Company and/or Operating Company. Clients of the Company and/or
Operating Company are those companies for whom the Company and/or Operating
Company has reinsured business during the Employee's period of employment under
this agreement.
(b) The Employee hereby covenants and agrees that, at all
times during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee shall not directly or
indirectly employ or seek to employ any person or entity employed at that time
by the Company or any of its subsidiaries, or otherwise encourage or entice
such person or entity to leave such employment.
(c) This Section 13 shall be null and void if the Board
of Directors elects to discontinue permanently Company operations or if the IPO
has not been consummated by May 31, 1998.
Section: 14. Confidential Information.
(a) The Employee agrees to keep secret and retain in the
strictest confidence all confidential matters which relate to the Company or
any affiliate of the Company, including, without limitation, customer lists,
client lists, trade secrets, pricing policies and other business affairs of the
Company and any affiliate of the Company learned by him from the Company or any
such affiliate or otherwise before or after the date of this Agreement, and not
to disclose any such confidential matter to anyone outside the Company or any
of its affiliates, whether during or after his period of service with the
Company, except as may be required in the course of a legal or governmental
proceeding. Upon request by the Company, the Employee agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company or affiliate
memoranda, notes, records, reports, manuals, drawings, designs, computer files
in any media and other documents (and all copies thereof) relating to the
Company's or any affiliate's business and all property of the Company or any
affiliate associated therewith, which he may then possess or have under his
control.
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<PAGE> 10
Section: 15. Remedy.
(a) Should the Employee engage in or perform, either
directly or indirectly, any of the acts prohibited by Sections 13 or 14 hereof,
it is agreed that the Company shall be entitled to full injunctive relief, to
be issued by any competent court of equity, enjoining and restraining the
Employee and each and every other person, firm, organization, association, or
corporation concerned therein, from the continuance of such violative acts.
The foregoing remedy available to the Company shall not be deemed to limit or
prevent the exercise by the Company of any or all further rights and remedies
which may be available to the Company hereunder or at law or in equity.
(b) The Employee acknowledges and agrees that the
covenants contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof. If any provision hereof is
determined to be invalid or unenforceable by a court of competent jurisdiction,
the Employee shall negotiate in good faith to provide Company with protection
as nearly equivalent to that found to be invalid or unenforceable and if any
such provision shall be so determined to be invalid or unenforceable by reason
of the duration or geographical scope of the covenants contained therein, such
duration or geographical scope, or both, shall be considered to be reduced to a
duration or geographical scope to the extent necessary to cure such invalidity.
Section: 16. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the Employee, his heirs, executors, administrators and beneficiaries, and
the Company, the Operating Company and their successors and assigns.
Section: 17. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York, without reference to
rules relating to conflicts of law.
Section: 18. Entire Agreement.
This Agreement constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements as to employment of the Employee. This Agreement cannot be amended,
changed, modified or terminated without the written consent of the parties
hereto.
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<PAGE> 11
Section: 19. Waiver of Breach.
The waiver by either party of a breach of any term of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach thereof.
Section: 20. Notices.
Any notice, report, request or other communication given under
this Agreement shall be written and shall be effective upon delivery when
delivered personally, by Federal Express or by fax.
Unless otherwise notified by any of the parties, notices shall
be sent to the parties as follows:
To Employee: Robert Reale
185 East Palisades Avenue
Unit A5-B
Englewood, NJ 07631
With a
Copy to:
---------------------
---------------------
---------------------
---------------------
To the
Company: Annuity and Life Reassurance, Ltd.
c/o Conyers Dill & Pearman
Clarendon House
2 Church Street
Hamilton HM-CX
Section: 21. Severability.
If any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
Section: 22. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as on the day and year first above written.
/s/ Robert J. Reale
--------------------------------
Robert Reale
Annuity and Life Re (Holdings), Ltd.
By: /s/ Lawrence S. Doyle
--------------------------------
Annuity and Life Reassurance, Ltd.
By: /s/ Lawrence S. Doyle
--------------------------------
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<PAGE> 13
Exhibit A
Initial Cash Bonus Plan
20% of the Company's consolidated pretax earnings from normal
operations in excess of a benchmark return on equity (such benchmark is
expected to be set at approximately 8%), as determined by the Board of
Directors in accordance with Generally Accepted Accounting Principles,
consistently applied, shall be available for all senior executives. All
determinations by the Board of Directors shall be final and conclusive for all
purposes of the Plan.
<PAGE> 1
EXHIBIT 10.7
Employment Agreement with
Robert P. Mills, Jr.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of January 5, 1998, by and between
Annuity and Life Re (Holdings), Ltd., a Bermudian corporation (the "Company"),
Annuity and Life Reassurance, Ltd., a subsidiary of the Company organized under
the laws of Bermuda to engage in worldwide life and annuity reinsurance (the
"Operating Company"), and Robert P. Mills, Jr. (hereinafter called the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company is contemplating an initial public
offering or a private placement of its Common Shares in excess of $100 million
(the "IPO"); and
WHEREAS, the Company and the Operating Company desire that the
Employee serve as Senior Vice President of the Company and the Operating
Company and the Employee is willing to serve in such capacities; and
WHEREAS, if the IPO has not been completed prior to May 31,
1998, both Company and the Employee desire the option to terminate this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree as follows:
Section: 1. Employment.
Effective as of January 15, 1998, the Company and the
Operating Company will employ the Employee and the Employee will perform
services for the Company and the Operating Company on the terms and conditions
set forth in this Agreement and for the period ("Term of Employment") specified
in Section 3 hereof.
Section: 2. Duties.
The Employee, during the Term of Employment, shall serve the
Company as its Senior Vice President. The Employee shall also serve as Senior
Vice President of the Operating Company. The Employee shall be based at the
Operating Company's headquarters in Bermuda, other than for periodic travel in
the ordinary course of business. The Employee shall have such duties and
responsibilities as are assigned to him by the Boards of Directors of the
Company and the Operating Company commensurate with his positions as Senior
Vice President of the Company and the Operating Company.
<PAGE> 2
The Employee shall perform his duties hereunder faithfully and
to the best of his abilities and in furtherance of the business of the Company,
and shall devote his full business time, energy, attention and skill to the
business of the Company and to the promotion of its interests except as
otherwise agreed by the Company.
The Employee warrants and represents that he is free to enter
into this Agreement and is not restricted by any prior or existing agreement
and the Company and the Operating Company may rely on such representation in
entering into this Agreement.
Section: 3. Term of Employment.
The initial Term of Employment of this Agreement shall be the
period commencing on January 15, 1998 and ending on the third anniversary of
the IPO. At the end of the initial Term of Employment, and on each anniversary
thereof, the Term of Employment shall automatically be extended for one
additional year, unless the Company or the Employee shall have given written
notice to the other that it does not wish to extend this Agreement at least
three months in advance.
Section: 4. Salary.
The Employee shall receive, as compensation for his duties and
obligations to the Company and the Operating Company, a salary at the annual
rate of $125,000, payable in substantially equal installments in accordance
with the Operating Company's payroll practice. It is agreed between the
parties that the Company shall review the base annual salary annually and in
light of such review may, in the discretion of the Board of Directors of the
Company (but shall not be obligated to), increase such base annual salary
taking into account any change in the Employee's then responsibilities,
increases in the cost of living, performance by the Employee, and other
pertinent factors.
Section: 5. Bonus.
During the Term of Employment, the Employee shall, subject to
and effective upon the consummation of the IPO, participate in the Company's
Incentive Compensation Plan, a summary of which is attached hereto as Exhibit
A, and will be eligible for an annual cash bonus of up to two times his annual
salary based on performance targets as determined in accordance with the terms
of the Plan.
Section: 6. Options.
(a) Initial Options. The Company shall grant to the
Employee, subject to and effective as of the consummation of the IPO, options
(the "Initial Options") to purchase at a price per
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<PAGE> 3
share equal to the price per share in the IPO, one-half of one percent of the
Company's ordinary shares issued in the IPO (the "Ordinary Shares"), but not to
exceed an aggregate value of $2.0 million (valued at the IPO per share price).
Thirty three and one-thirds percent (33 1/3%) of the Initial Options shall
become exercisable after the first anniversary of the IPO, 33 1/3% of the
Initial Options shall become exercisable after the second anniversary of the
IPO, and an additional 33 1/3% of the Initial Options shall become exercisable
after the third anniversary thereof. In addition, no Initial Option may be
exercised after the earlier of (A) the date that is (i) ninety (90) days
following the termination of the Employee's employment for any reason other
than death, disability or Serious Cause (as defined in Section 11), or (ii) six
(6) months after the termination of the Employee's employment by reason of
death or disability or (iii) the date upon which the Employee's employment is
terminated for Serious Cause; or (B) the tenth anniversary of the IPO date.
The consideration for the Ordinary Shares purchased upon
exercise of the Initial Options may be paid in cash or by any other method
permitted by the terms of the Company's Initial Option Plan. The issuance of
any Ordinary Shares pursuant to the Initial Options shall in all events be
subject to all applicable securities laws and the Employee shall enter into any
agreement reasonably requested by the Company in order to ensure that all such
issuances are in full compliance therewith. The Employee shall not have any of
the rights and privileges of a shareholder of the Company with respect to the
Ordinary Shares issuable upon any exercise of Initial Options unless and until
his name is entered into the register of members of the Company in respect of
such Ordinary Shares. If there is any change in the number or nature of
outstanding shares of the Company's capital stock by reason of a share
dividend, recapitalization, merger, consolidation, scheme of arrangement, share
split, combination or exchange, share repurchase or otherwise, which in any
such case has a dilutive or anti-dilutive effect on the Ordinary Shares, the
number of Ordinary Shares subject to each outstanding Initial Option, the
exercise price thereof and/or other terms thereof shall be appropriately
adjusted by the Board of Directors of the Company (or any committee thereof),
whose determination shall be conclusive, so as to restore the option holder to
his rights thereunder.
(b) Other Options. During the Term of Employment, the
Employee shall, subject to the consummation of the IPO, be eligible to be
granted options (in addition to the Initial Options) to purchase Ordinary
Shares at such price and subject to such terms as provided by the Company's
Initial Stock Option Plan, in the sole discretion of the Board of Directors of
the Company.
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<PAGE> 4
Section: 7. Employee Benefits.
During the Term of Employment the Employee shall, subject to
the consummation of the IPO, be entitled to participate in all employee benefit
programs of the Company, as such programs may be in effect from time to time,
including without limitation, pension and other retirement plans, profit
sharing plans, group life insurance, accidental death and dismemberment
insurance, hospitalization, surgical and major medical coverage, sick leave
(including salary continuation arrangements), long term disability, holidays
and vacations.
Section: 8. Business Expenses.
All reasonable travel and other expenses incidental to the
rendering of services by the Employee hereunder shall be paid by the Company
and if expenses are paid in the first instance by the Employee, the Company
will reimburse him therefor upon presentation of proper invoices; subject in
each case to compliance with the Company's reimbursement policies and
procedures.
Section: 9. Housing and Travel Expenses.
Effective upon consummation of the IPO, the Company shall
provide to the Employee the sum of $10,416.00 monthly as an allowance to cover
the expenses of housing in Bermuda and for his personal travel including spouse
and immediate family to and from Bermuda.
Section: 10. Vacations and Sick Leave.
The Employee shall be entitled to reasonable vacation and
reasonable sick leave each year (beginning with 1998), in accordance with
policies of the Company, as determined by the Board of Directors, provided,
however, that the Employee shall be entitled to a minimum of 4 weeks vacation
per year.
Section: 11. Termination.
(a) In the event of Serious Cause, as defined below, the
Company may terminate the Employee's employment and the Term of Employment upon
written notice of such termination stating the Serious Cause upon which the
Company relies for its termination. The Employee's employment and the Term of
Employment shall be terminated effective as of the date specified in such
notice, which shall in no event be earlier than the effective date of such
notice as provided in Section 20.
"Serious Cause" shall mean (i) the willful and continued
failure by the Employee to perform substantially his duties hereunder, other
than by reasons of health, after demand
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<PAGE> 5
for substantial performance is delivered by the Company that identifies the
manner in which the Company believes the Employee has not substantially
performed his duties, (ii) the Employee shall have been indicted by any
federal, state or local authority in any jurisdiction for, or shall have
pleaded guilty or nolo contendere to, an act constituting a felony, (iii) the
Employee shall have habitually abused any substance (such as narcotics or
alcohol), or (iv) the Employee shall have (A) engaged in acts of fraud,
material dishonesty or gross misconduct in connection with the business of the
Company or (B) committed a material breach of this Agreement.
(b) The Employee may terminate his employment and the
Term of his Employment in the event of Good Reason, as defined below, upon 30
days' prior written notice of such termination stating the Good Reason upon
which the Employee relies for his termination. The Employee's employment and
the Term of Employment shall be terminated effective as of the date specified
in such notice, which in no event shall be earlier than the effective date of
such notice as provided in Section 20.
"Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) the demotion of the Employee, (iii) a material
reduction of the Employee's duties hereunder, or (iv) a material breach of this
Agreement by the Company.
(c) In the event of termination of the Employee's
employment and the Term of Employment by the Company for Serious Cause or by
the Employee without Good Reason, the Employee shall forfeit all bonus amounts
for the then current fiscal year, and the Company shall be liable to the
Employee only for (i) any accrued but unpaid salary, (ii) any accrued but
unpaid bonus from a prior fiscal year, and (iii) reimbursement of business
expenses incurred prior to the date of termination.
(d) In the event of the death, retirement or disability
of the Employee, the Employee's employment and Term of Employment shall be
terminated as of the date of such death, retirement or disability and the
Company shall pay the Employee, or the Employee's estate or legal
representative, as appropriate, (i) any accrued but unpaid salary, (ii) any
earned but unpaid bonus from a prior fiscal year, (iii) reimbursement of
business expenses incurred prior to the date of termination, (iv) travel and
housing allowances under Section 9 for six months after the date of
termination, and (v) reasonable relocation expenses from Bermuda to the United
States. The date of the Employee's disability shall be deemed to be the last
day of the sixth month during which the Employee has been unable to carry out
his position as provided below.
"Disability" shall mean the Employee's inability, for reasons
of health, to carry out the functions of his position for
-5-
<PAGE> 6
a total of 6 months during any 12 month period of this Agreement. "Retirement"
shall mean retirement from employment upon attaining age 65 or such earlier age
agreed to by the Company.
In addition, in such event, if the Company's Ordinary Shares
are not then publicly traded, the Company shall have the right to call any or
all of the Ordinary Shares of the Company owned by the Employee within six (6)
months of death, retirement or disability, and the Employee, the Employee's
estate or legal representative, whichever is appropriate, shall have the right
to put any or all of the Employee's Ordinary Shares to the Company within
twelve (12) months after death or within six (6) months after retirement or
disability. The price at which such put or call is exercisable shall be equal
to the appraised value, in each case measured as of the date of termination.
(e) If the Company should (i) terminate the Term of
Employment and the Employee's employment herein without Serious Cause; or (ii)
if the Employee should terminate the Term of Employment and his employment
hereunder for Good Reason, the Company shall continue to pay the Employee his
base salary for a period of one year from such termination. In addition, the
Employee shall be entitled to (A) any accrued but unpaid salary, (B) any earned
but unpaid bonus from a prior fiscal year, (C) reimbursement of business
expenses incurred prior to the date of termination, and (D) travel and housing
allowances under Section 9 for six months after the date of termination, and
(E) reasonable relocation expenses from Bermuda to the United States.
(f) In the event of the liquidation of the Company or in
the event that the Board of Directors elects to discontinue permanently
operating the Company, the Term of Employment and the Employee's employment
herein shall be terminated as of the date of such liquidation or discontinuance
and the Company shall pay the Employee (i) any accrued but unpaid salary, (ii)
any earned but unpaid bonus from a prior fiscal year, (iii) unreimbursed
business expenses incurred prior to the date of termination, (iv) travel and
housing allowances under Section 9 for two months after the date of
termination, and (v) reasonable relocation expenses from Bermuda to the United
States. In addition, the Employee shall be entitled to receive one year's base
salary from the date on which the Employee's employment is terminated.
(g) Notwithstanding any other provision of this
Agreement, if the IPO has not been consummated by May 31, 1998, either the
Employee or Company may terminate the Employee's employment and the Term of
Employment upon 30 days' written notice, in which event the Company shall be
liable to the Employee only for such amounts as would be payable upon a
termination described in Section 11(c).
-6-
<PAGE> 7
Section: 12. Change of Control.
(a) Notwithstanding any other provision contained herein,
the Employee's Initial Options and other options issued under the Company's
share option plans that are not then exercisable shall become exercisable (and
be deemed to be vested) on the date on which a Change of Control of the Company
occurs. In addition, restricted Ordinary Shares granted under any of the
Company's share option plans shall immediately vest upon a Change of Control of
the Company.
(b) If (i) the employment of the Employee is terminated
by the Company (or successor thereto) without Serious Cause or (ii) the
Employee terminates employment with the Company (or successor thereto) for Good
Reason, within the period commencing on the date that a Change of Control is
formally proposed to the Company's Board of Directors and ending on the first
anniversary of the date on which such Change of Control occurs, then the
Employee shall be entitled to receive (in lieu of the benefits described in
Section 11): (1) any accrued but unpaid salary, (2) a lump sum payment equal
to two times such Employee's annual base salary as of the date of termination,
(3) any accrued but unpaid bonus from a prior fiscal year, (4) reimbursement of
business expenses incurred prior to the date of termination, (5) travel and
housing allowances under Section 9 for one year following the date of
termination, (6) reasonable relocation expenses from Bermuda to the United
States, together with (7) a gross-up of any income taxes payable by the
Employee by reason of such payments occurring in connection with a change of
control.
The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.
(c) A "Change of Control" of the Company shall be deemed
to have occurred if, following consummation of the IPO (i) any "person" (as
such term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act"), excluding the
Company or any of its subsidiaries, a trustee or any fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities ("Voting Securities"); (ii) during any
period of not more than two years, individuals who constitute the Board of
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<PAGE> 8
Directors of the Company (the "Board") as of the beginning of the period and
any new director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in clause
(i) or (iii) of this sentence) whose election by the Board or nomination for
election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at such time or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof;
(iii) the shareholders of the Company approve a merger, consolidation or
reorganization or a court of competent jurisdiction approves a scheme of
arrangement of the Company, other than a merger, consolidation, reorganization
or scheme of arrangement which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either
by remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger, consolidation, reorganization or scheme of arrangement; or
(iv) the shareholders of the Company approve a plan of complete liquidation of
the Company or any agreement for the sale of substantially all of the Company's
assets.
(d) The provisions of this Section 12 shall only apply
following the consummation of an IPO.
Section: 13. Agreement Not to Compete.
(a) The Employee hereby covenants and agrees that at no
time during the Term of Employment nor for a period of (i) one year immediately
following the termination of the Employee's employment by the Company without
Serious Cause or by the Employee for Good Reason or (ii) two years following
the termination of the Employee's employment for any other reason, will he for
himself or on behalf of any other person, partnership, company or corporation,
directly or indirectly, acquire any financial or beneficial interest in (except
as provided in the next sentence), provide consulting or other services to, be
employed by, or own, manage, operate or control any entity engaged in any
business similar to the business engaged in by the Company or the Operating
Company at the time of such termination of employment. Notwithstanding the
preceding sentence, the Employee shall not be prohibited from owning less than
one (1%) percent of any publicly traded corporation, whether or not such
corporation is in competition with the Company or the Operating Company.
(b) The Employee hereby covenants and agrees that, at all
times during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee
-8-
<PAGE> 9
shall not directly or indirectly employ or seek to employ any person or entity
employed at that time by the Company or any of its subsidiaries, or otherwise
encourage or entice such person or entity to leave such employment.
(c) This Section 13 shall be null and void if the Board
of Directors elects to discontinue permanently Company operations or if the IPO
has not been consummated by May 31, 1998.
Section: 14. Confidential Information.
(a) The Employee agrees to keep secret and retain in the
strictest confidence all confidential matters which relate to the Company or
any affiliate of the Company, including, without limitation, customer lists,
client lists, trade secrets, pricing policies and other business affairs of the
Company and any affiliate of the Company learned by him from the Company or any
such affiliate or otherwise before or after the date of this Agreement, and not
to disclose any such confidential matter to anyone outside the Company or any
of its affiliates, whether during or after his period of service with the
Company, except as may be required in the course of a legal or governmental
proceeding. Upon request by the Company, the Employee agrees to deliver
promptly to the Company upon termination of his services for the Company, or at
any time thereafter as the Company may request, all Company or affiliate
memoranda, notes, records, reports, manuals, drawings, designs, computer files
in any media and other documents (and all copies thereof) relating to the
Company's or any affiliate's business and all property of the Company or any
affiliate associated therewith, which he may then possess or have under his
control.
Section: 15. Remedy.
(a) Should the Employee engage in or perform, either
directly or indirectly, any of the acts prohibited by Sections 13 or 14 hereof,
it is agreed that the Company shall be entitled to full injunctive relief, to
be issued by any competent court of equity, enjoining and restraining the
Employee and each and every other person, firm, organization, association, or
corporation concerned therein, from the continuance of such violative acts.
The foregoing remedy available to the Company shall not be deemed to limit or
prevent the exercise by the Company of any or all further rights and remedies
which may be available to the Company hereunder or at law or in equity.
(b) The Employee acknowledges and agrees that the
covenants contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other
-9-
<PAGE> 10
provisions or parts hereof. If any provision hereof is determined to be
invalid or unenforceable by a court of competent jurisdiction, the Employee
shall negotiate in good faith to provide Company with protection as nearly
equivalent to that found to be invalid or unenforceable and if any such
provision shall be so determined to be invalid or unenforceable by reason of
the duration or geographical scope of the covenants contained therein, such
duration or geographical scope, or both, shall be considered to be reduced to a
duration or geographical scope to the extent necessary to cure such invalidity.
Section: 16. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the Employee, his heirs, executors, administrators and beneficiaries, and
the Company, the Operating Company and their successors and assigns.
Section: 17. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York, without reference to
rules relating to conflicts of law.
Section: 18. Entire Agreement.
This Agreement constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements as to employment of the Employee. This Agreement cannot be amended,
changed, modified or terminated without the written consent of the parties
hereto.
Section: 19. Waiver of Breach.
The waiver by either party of a breach of any term of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach thereof.
Section: 20. Notices.
Any notice, report, request or other communication given under
this Agreement shall be written and shall be effective upon delivery when
delivered personally, by Federal Express or by fax.
Unless otherwise notified by any of the parties, notices shall
be sent to the parties as follows:
To Employee: Robert P. Mills, Jr.
176 Stawicki Road
No. Grosvenordale, CT 06255
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<PAGE> 11
With a
Copy to:
---------------------
---------------------
---------------------
---------------------
To the
Company: Annuity and Life Reassurance, Ltd.
c/o Conyers Dill & Pearman
Clarendon House
2 Church Street
Hamilton HM-CX
Section: 21. Severability.
If any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
Section: 22. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as on the day and year first above written.
/s/ Robert P. Mills, Jr.
-----------------------------------
Robert P. Mills, Jr.
Annuity and Life Re (Holdings), Ltd.
By: /s/ Lawrence S. Doyle
--------------------------------
Annuity and Life Reassurance, Ltd.
By: /s/ Lawrence S. Doyle
--------------------------------
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<PAGE> 12
Exhibit A
Initial Cash Bonus Plan
20% of the Company's consolidated pretax earnings from normal
operations in excess of a benchmark return on equity (such benchmark is
expected to be set at approximately 8%), as determined by the Board of
Directors in accordance with Generally Accepted Accounting Principles,
consistently applied, shall be available for all senior executives. All
determinations by the Board of Directors shall be final and conclusive for all
purposes of the Plan.
<PAGE> 1
EXHIBIT 10.8
Amendment No. 1 to
Employment Agreement
with Lawrence S. Doyle
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to the Employment Agreement dated
as of December 5, 1997 (the "Employment Agreement") between Annuity and Life Re
(Holdings), Ltd., a Bermuda corporation (the "Company"), Annuity and Life
Reassurance, Ltd., a subsidiary of the Company organized under the laws of
Bermuda (the "Operating Company"), and Lawrence S. Doyle (the "Employee") is
hereby entered into as of February 27, 1998 by and between the Company, the
Operating Company and the Employee. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Employment
Agreement.
WHEREAS, the Company, the Operating Company and the Employee wish to
modify certain provisions of the Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the parties hereto agree to the
following amendment to the Employment Agreement:
1. Options. The first sentence of the first paragraph of Section 6(a) is
hereby amended to read as follows:
The Company shall grant to the Employee, subject to and effective as
of the consummation of the IPO, options (the "Initial Options") to
purchase at a price per share equal to the price per share in the
IPO, three percent of the Company's ordinary shares outstanding
immediately after the consummation of the IPO and any concurrent
private placement of the Company's ordinary shares (the "Ordinary
Shares"), but not to exceed an aggregate value of $12.0 million
(valued at the IPO per share price).
2. Entire Agreement. The Employment Agreement, as amended by this
Amendment, constitutes the entire agreement between the parties pertaining to
the subject matter hereof and fully supercedes any and all prior or
contemporaneous agreements or understandings between the parties hereto
pertaining to the subject matter hereof.
3. Full Force and Effect. Except as expressly amended in this Amendment,
the Employment Agreement shall remain in full force and effect.
4. Termination of Amendment. Notwithstanding anything to the contrary
herein, this Amendment shall immediately and automatically terminate and have no
further force and effect upon
<PAGE> 2
the termination or expiration, if any, of the Employment Agreement, in
accordance with the provisions thereunder.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same interest.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
By: /s/ Lawrence S. Doyle
-----------------------------------
Lawrence S. Doyle
Annuity and Life Re (Holdings), Ltd.
By: /s/ Robert M. Lichten
-----------------------------------
Robert M. Lichten, Vice Chairman
Annuity and Life Reassurance, Ltd.
By: /s/ Robert M. Lichten
-----------------------------------
Robert M. Lichten, Vice Chairman
-2-
<PAGE> 1
EXHIBIT 10.9
Amendment No. 1 to
Employment Agreeement
with Robert J. Reale
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to the Employment Agreement dated
as of January 8, 1998 (the "Employment Agreement") between Annuity and Life Re
(Holdings), Ltd., a Bermuda corporation (the "Company"), Annuity and Life
Reassurance, Ltd., a subsidiary of the Company organized under the laws of
Bermuda (the "Operating Company"), and Robert J. Reale (the "Employee") is
hereby entered into as of February 27, 1998 by and between the Company, the
Operating Company and the Employee. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Employment
Agreement.
WHEREAS, the Company, the Operating Company and the Employee wish to
modify certain provisions of the Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the parties hereto agree to the
following amendment to the Employment Agreement:
1. Options. The first sentence of the first paragraph of Section 6(a) is
hereby amended to read as follows:
The Company shall grant to the Employee, subject to and effective as
of the consummation of the IPO, options (the "Initial Options") to
purchase at a price per share equal to the price per share in the
IPO, seven-tenths of one percent of the Company's ordinary shares
outstanding immediately after the consummation of the IPO and any
concurrent private placement of the Company's ordinary shares (the
"Ordinary Shares"), but not to exceed an aggregate value of $2.8
million (valued at the IPO per share price).
2. Entire Agreement. The Employment Agreement, as amended by this
Amendment, constitutes the entire agreement between the parties pertaining to
the subject matter hereof and fully supercedes any and all prior or
contemporaneous agreements or understandings between the parties hereto
pertaining to the subject matter hereof.
3. Full Force and Effect. Except as expressly amended in this Amendment,
the Employment Agreement shall remain in full force and effect.
4. Termination of Amendment. Notwithstanding anything to the contrary
herein, this Amendment shall immediately and automatically terminate and have no
further force and effect upon
<PAGE> 2
the termination or expiration, if any, of the Employment Agreement, in
accordance with the provisions thereunder.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same interest.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
By: /s/ Robert J. Reale
------------------------------------
Robert J. Reale
Annuity and Life Re (Holdings), Ltd.
By: /s/ Lawrence S. Doyle
------------------------------------
Lawrence S. Doyle, President
Annuity and Life Reassurance, Ltd.
By: /s/ Lawrence S. Doyle
------------------------------------
Lawrence S. Doyle, President
-2-
<PAGE> 1
EXHIBIT 10.10
Amendment No. 1 to
Employment Agreement
with Robert P. Mills, Jr.
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment") to the Employment Agreement dated
as of January 5, 1998 (the "Employment Agreement") between Annuity and Life Re
(Holdings), Ltd., a Bermuda corporation (the "Company"), Annuity and Life
Reassurance, Ltd., a subsidiary of the Company organized under the laws of
Bermuda (the "Operating Company"), and Robert P. Mills, Jr. (the "Employee") is
hereby entered into as of February 27, 1998 by and between the Company, the
Operating Company and the Employee. Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Employment
Agreement.
WHEREAS, the Company, the Operating Company and the Employee wish to
modify certain provisions of the Employment Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and other good and valuable consideration, the parties hereto agree to the
following amendment to the Employment Agreement:
1. Duties. The first paragraph of Section 2 is hereby amended to read as
follows:
The Employee, during the Term of Employment, shall serve the Company
as a Vice President and the Chief Actuary. The Employee shall also
serve as a Vice President and the Chief Actuary of the Operating
Company. The Employee shall be based at the Operating Company's
headquarters in Bermuda, other than for periodic travel in the
ordinary course of business. The Employee shall have such duties and
responsibilities as are assigned to him by the Boards of Directors
of the Company and the Operating Company commensurate with his
positions as a Vice President and the Chief Actuary of the Company
and the Operating Company.
2. Entire Agreement. The Employment Agreement, as amended by this
Amendment, constitutes the entire agreement between the parties pertaining to
the subject matter hereof and fully supercedes any and all prior or
contemporaneous agreements or understandings between the parties hereto
pertaining to the subject matter hereof.
3. Full Force and Effect. Except as expressly amended in this Amendment,
the Employment Agreement shall remain in full force and effect.
<PAGE> 2
4. Termination of Amendment. Notwithstanding anything to the contrary
herein, this Amendment shall immediately and automatically terminate and have no
further force and effect upon the termination or expiration, if any, of the
Employment Agreement, in accordance with the provisions thereunder.
5. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same interest.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first written above.
By: /s/ Robert P. Mills, Jr.
------------------------------------
Robert P. Mills, Jr.
Annuity and Life Re (Holdings), Ltd.
By: /s/ Lawrence S. Doyle
------------------------------------
Lawrence S. Doyle, President
Annuity and Life Reassurance, Ltd.
By: /s/ Lawrence S. Doyle
------------------------------------
Lawrence S. Doyle, President
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<PAGE> 1
EXHIBIT 10.11
Amendment No. 1 to the
Initial Stock Option Plan
ANNUITY AND LIFE RE (HOLDINGS), LTD.
AMENDMENT NO. 1 TO INITIAL STOCK OPTION PLAN
WHEREAS, Annuity and Life Re (Holdings), Ltd. (the "Company")
maintains the Annuity and Life Re (Holdings), Ltd. Initial Stock Option Plan
(the "Plan");
WHEREAS, on February 19, 1998, the Board of Directors of the Company
passed resolutions providing for the amendment of the Plan (the "Amendment");
and
WHEREAS, on February 27, 1998, the Sole Member of the Company
consented to the Amendment;
NOW, THEREFORE, effective as of February 27, 1998, the first
sentence of Section 4 of the Plan is hereby amended to read as follows:
Options may be granted under the Plan to purchase up to a maximum of
1,700,000 Common Shares, provided that, if prior to June 30, 1998,
there has been an initial public offering of the Common Shares, such
maximum number of Common Shares shall be automatically adjusted to
equal the lesser of (a) the sum of 5.5% of the Common Shares
outstanding immediately following the consummation of such initial
public offering plus 150,000 Common Shares or (b) 1,700,000 Common
Shares, and provided further that such maximum number of Common
Shares shall be subject to further adjustment as provided in Section
10 hereof.
IN WITNESS WHEREOF, the Company has caused these presents to be duly
executed, under seal, as of this 27th day of February, 1998.
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By: /s/ Lawrence S. Doyle
------------------------------------
Lawrence S. Doyle, President
<PAGE> 1
Exhibit 10.12
Form of Securities Purchase Agreement
SECURITIES PURCHASE AGREEMENT
between
[Purchaser]
and
ANNUITY AND LIFE RE (HOLDINGS), LTD.
March 4, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. AUTHORIZATION OF SECURITIES.......................................................................1
SECTION 2. PURCHASE AND SALE OF SECURITIES...................................................................1
2.1. Issuance of Securities.........................................................................1
2.2. Closing of Issuance............................................................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................................................2
3.1. Corporate Organization.........................................................................2
3.2. Subsidiaries...................................................................................2
3.3. Capitalization.................................................................................3
3.4. Corporate Proceedings, etc.....................................................................4
3.5. Consents and Approvals.........................................................................4
3.6. Absence of Defaults, Conflicts, etc............................................................4
3.7. Financial Statements...........................................................................5
3.8. Absence of Certain Developments................................................................5
3.9. Compliance with Law............................................................................5
3.10. Litigation....................................................................................6
3.11. Material Contracts............................................................................6
3.12. Absence of Undisclosed Liabilities............................................................6
3.13. Employees.....................................................................................7
3.14. Tax Matters...................................................................................7
3.15. Employee Benefit Plans........................................................................7
3.16. Patents, Licenses, etc........................................................................8
3.17. Insurance.....................................................................................9
3.18. Transactions with Related Parties.............................................................9
3.19. Private Offering..............................................................................9
3.20. Brokerage.....................................................................................10
3.21. Illegal or Unauthorized Payments; Political Contributions.....................................10
3.22. Material Facts................................................................................10
3.23. Foreign Assets Control Regulations, etc.......................................................11
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR....................................................11
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES...............................................................12
5.1. Resale of Securities...........................................................................12
5.2. Covenants Pending Closing......................................................................12
5.3. Further Assurance..............................................................................12
SECTION 6. INVESTOR'S CLOSING CONDITIONS.....................................................................13
6.1. Representations and Warranties.................................................................13
6.2. Compliance with Agreement......................................................................13
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
6.3. Officer's Certificate..........................................................................13
6.4. Delivery of Shares and Warrants................................................................13
6.5. Injunction.....................................................................................13
6.6. Counsel's Opinions.............................................................................13
6.7. Consummation of Public Offering................................................................16
6.8. Purchase by Other Investors....................................................................17
6.9. Registration Rights Agreement..................................................................17
6.10. Process Agent.................................................................................17
6.11. Proceedings...................................................................................17
SECTION 7. COMPANY CLOSING CONDITIONS........................................................................17
7.1. Representations and Warranties.................................................................18
7.2. Compliance with Agreement......................................................................18
7.3. Injunction.....................................................................................18
7.4. Consummation of Public Offering................................................................18
SECTION 8. LIMITATION ON DISPOSITION.........................................................................18
SECTION 9. COVENANTS.........................................................................................18
9.1. Financial and Business Information.............................................................18
9.2. Inspection.....................................................................................20
9.3. Keeping of Books...............................................................................20
9.4. Lost, etc. Certificates; Exchange..............................................................20
9.5. Review of Documents............................................................................21
9.6. Confidential Information.......................................................................21
SECTION 10. INTERPRETATION OF THIS AGREEMENT.................................................................21
10.1. Terms Defined.................................................................................21
10.2. Directly or Indirectly........................................................................23
10.3. Section Headings..............................................................................23
SECTION 11. MISCELLANEOUS....................................................................................23
11.1. Notices.......................................................................................23
11.2. Expenses and Taxes............................................................................24
11.3. Reproduction of Documents.....................................................................24
11.4. Termination and Survival......................................................................25
11.5. Successors and Assigns........................................................................25
11.6. Entire Agreement; Amendment and Waiver........................................................25
11.7. Severability..................................................................................25
11.8. Governing Law; Submission to Jurisdiction.....................................................26
11.9. Counterparts..................................................................................27
</TABLE>
- ii -
<PAGE> 4
EXHIBIT A Class B Warrant
EXHIBIT B Registration Rights Agreement
Schedule 2.1 Investors
Schedule 3.1(a) Memorandum of Association
Schedule 3.1(b) Bye-Laws
Schedule 3.1(c) Contemplated Business
Schedule 3.3 Warrants, Options and Convertible Securities
Schedule 3.7 Financial Statements
Schedule 3.8 Certain Developments
Schedule 3.11 Material Contracts
Schedule 3.12 Certain Liabilities
Schedule 3.13 For Cause Employees
Schedule 3.15 Employee Benefit Arrangements
Schedule 3.16 Intellectual Property
Schedule 3.18 Transactions with Related Parties
- iii -
<PAGE> 5
ANNUITY AND LIFE RE (HOLDINGS), LTD.
SECURITIES PURCHASE AGREEMENT
Dated as of March 4, 1998
To the Investor executing
this Agreement on the
signature page hereof
Ladies and Gentlemen:
ANNUITY AND LIFE RE (HOLDINGS), LTD., a Bermuda corporation
(the "Company"), hereby agrees with you (the "Investor") as follows:
SECTION 1. AUTHORIZATION OF SECURITIES
The Company has duly authorized the issuance, sale and
delivery of its common shares, par value $1.00 per share (the "Common Shares")
and its Class B Warrants to purchase its Common Shares, the form of which is
attached hereto as Exhibit A (the "Class B Warrants").
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1. Issuance of Securities
Subject to the terms and conditions set forth in this
Agreement and in reliance upon the Company's and the Investor's representations
set forth below, on the Closing Date (as defined below) the Company shall sell
to the Investor, and the Investor shall purchase from the Company, the number of
Common Shares (the "Shares") and Class B Warrants (the "Warrants"), and at the
aggregate cash purchase price (the "Purchase Price"), set forth opposite its
name on Schedule 2.1. Such sale and purchase shall be effected on the Closing
Date by the Company executing and delivering to the Investor, duly registered in
its name (or that of its nominee), a duly executed stock certificate and warrant
certificate evidencing the Shares and the Warrants being purchased by it,
against delivery by the Investor to the Company of the Purchase Price by wire
transfer of immediately available funds to such account as the Company shall
designate, not less than three Business Days prior to the Closing Date. The
Company is entering into securities purchase agreements (the "Other Agreements")
substantially in the form of this Agreement with the other investors listed on
Schedule 2.1 ("Other Investors" and, collectively with the Investor, the
"Investors"). The Company's agreements with each of the Investors are separate
agreements, and the sales to each of the Investors are separate sales.
<PAGE> 6
2.2. Closing of Issuance
The closing of such sale and purchase (the "Closing") shall
take place at 10:00 A.M., New York City time, on the IPO Closing Date or such
other date as the Investor and the Company agree in writing (the "Closing
Date"), at the offices of Willkie Farr & Gallagher, 153 East 53rd Street, New
York, New York, or such other location as the Investor and the Company shall
mutually select.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
3.1. Corporate Organization
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda. True and complete
copies of the Memorandum of Association, Bye-Laws and other constitutive
documents as amended through the date hereof (collectively, the "Organizational
Documents") have been attached as Schedule 3.1(a) and Schedule 3.1(b)
respectively.
(b) The Company has all requisite power and authority and has
all necessary approvals, licenses, permits and authorization to own its
properties and to carry on its business as presently contemplated to be
conducted as described in Schedule 3.1(c). The Company has all requisite power
and authority to execute and deliver the Transaction Documents and to perform
its obligations hereunder and thereunder.
(c) The Company has filed all necessary documents to qualify
to do business as a foreign corporation in, and the Company is in good standing
under the laws of, each jurisdiction in which the conduct of the Company's
business as presently contemplated as described in Schedule 3.1(c) or the nature
of the property owned by it or proposed to be owned requires such qualification,
except where the failure to so qualify would not have a material adverse effect
on the business, properties, prospects, profits or condition (financial or
otherwise) of the Company and its subsidiaries taken as a whole (a "Material
Adverse Effect").
3.2. Subsidiaries
Except for Annuity Life Reassurance Ltd., the Company has no
subsidiaries and no interests or investments in any partnership, trust or other
entity or organization. Each subsidiary of the Company has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its properties and to conduct its business as
-2-
<PAGE> 7
presently contemplated as described in Schedule 3.1(c) and is duly registered,
qualified and authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such registration, qualification or authorization, except
where the failure to be so registered, qualified and authorized would not have a
Material Adverse Effect; all of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable, and is owned of record and beneficially by the Company free and
clear of any mortgage, pledge, lien, encumbrance, security interest, claim or
equity.
3.3. Capitalization
(a) On the Closing Date (i) the authorized capital stock of
the Company will consist of 100,000,000 Common Shares, par value $1.00 per share
and 50,000,000 preferred shares, par value $1.00 per share, and (ii) the issued
and outstanding shares of capital stock of the Company will consist of Common
Shares which will, to the best knowledge of the Company, be held beneficially by
the persons and in the amounts set forth in Schedule 3.3.
(b) All the outstanding shares of capital stock of the Company
have been duly and validly issued and are fully paid and non-assessable, and
were issued in accordance with the registration or qualification requirements of
the Securities Act and any other relevant securities laws or pursuant to valid
exemptions therefrom. The Company has authorized (or as of the Closing Date will
have authorized) the issuance, sale and delivery of the Shares and Warrants in
accordance with this Agreement and, subject to the issuance of the Warrants, the
Company has reserved (or as of the Closing Date will have reserved) for issuance
Common Shares initially issuable upon conversion of the Warrants. Upon issuance,
sale and delivery as contemplated by this Agreement, the Shares will be duly
authorized, validly issued, fully paid and non-assessable shares of the Company,
free of all preemptive or similar rights, and entitled to the rights described
in the Organizational Documents and in Schedule 3.3. Upon their issuance in
accordance with the terms of the Warrants, the Common Shares issuable upon
exercise of the Warrants will be duly authorized, validly issued, fully paid and
non-assessable Common Shares of the Company, free of all preemptive or similar
rights.
(c) Except for the rights which attach to the warrants,
options and convertible securities which are listed on Schedule 3.3 hereto and
to the Warrants referred to herein and in the Other Agreements, on the Closing
Date there will be no Common Shares or any other equity security of the Company
issuable upon conversion or exchange or exercise of any security of the Company
nor will there be any rights, options or warrants outstanding or
-3-
<PAGE> 8
other agreements to acquire any Common Shares nor will the Company be
contractually obligated to purchase, redeem or otherwise acquire any of its
outstanding shares. No shareholder of the Company is entitled to any preemptive
or similar rights to subscribe for shares of capital stock of the Company.
3.4. Corporate Proceedings, etc.
The Company has duly authorized the execution, delivery, and
performance of the Transaction Documents and each of the transactions and
agreements contemplated hereby and thereby. No other corporate action (including
shareholder approval) is necessary to authorize such execution, delivery and
performance of the Transaction Documents, and upon such execution and delivery
each of the Transaction Documents shall constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and general principles of equity.
3.5. Consents and Approvals
The execution and delivery by the Company of the Transaction
Documents, the performance by the Company of its obligations hereunder and
thereunder and the consummation by the Company of the transactions contemplated
hereby and thereby do not require the Company or any of its subsidiaries to
obtain any consent, approval or action of, or make any filing with or give any
notice to, any corporation, person or firm or any public, governmental or
judicial authority (except for filings in connection with the Public Offering,
all of which shall have been duly made as of the Closing Date).
3.6. Absence of Defaults, Conflicts, etc.
The execution and delivery of the Transaction Documents do
not, and the fulfillment of the terms hereof and thereof by the Company, and the
issuance of the Shares and Warrants (and the issuance of Common Shares issuable
upon exercise of the Warrants) will not, result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or permit the
acceleration of rights under or termination of, any Material Contract or the
Organizational Documents, or any order, rule or regulation of any court or
federal, state or foreign regulatory board or body or administrative agency
having jurisdiction over the Company or any of its subsidiaries or over their
respective properties or businesses. No event has occurred and no condition
exists which, upon notice or the passage of time (or both), would constitute a
default under any such Material Contract or in any license, permit or
authorization to which the Company or any subsidiary is a party or by which any
of them may be bound.
-4-
<PAGE> 9
3.7. Financial Statements
The audited balance sheet of the Company as at December 22,
1997 set forth in Schedule 3.7, fairly presents the financial position of the
Company as at the date thereof. Such balance sheet, including the schedules and
notes thereto, was prepared in accordance with GAAP.
3.8. Absence of Certain Developments
Since December 22, 1997, except as described in Schedule 3.8,
there has been no (i) material adverse change in the condition, financial or
otherwise, of the Company and its subsidiaries taken as a whole or in their
assets, liabilities, properties, or business or prospects, (ii) declaration,
setting aside or payment of any dividend or other distribution with respect to
the capital stock of the Company, (iii) issuance of capital stock (other than
pursuant to the exercise of options, warrants, or convertible securities
outstanding on the date hereof or as contemplated by this Agreement and the
Other Agreements) or options, warrants or rights to acquire capital stock (other
than the rights granted to the Investors hereunder and under the Company's Stock
Option Plan, the Other Agreements), (iv) material loss, destruction or damage to
any property of the Company or any subsidiary, whether or not insured, (v)
acceleration or prepayment of any indebtedness for borrowed money or the
refunding of any such indebtedness, (vi) labor trouble involving the Company or
any subsidiary or any material change in their personnel or the terms and
conditions of employment, (vii) waiver of any valuable right, (viii) loan or
extension of credit to any officer or employee of the Company or any subsidiary
or (ix) acquisition or disposition of any material assets (or any contract or
arrangement therefor), or any other material transaction by the Company or any
subsidiary otherwise than for fair value in the ordinary course of business.
3.9. Compliance with Law
(a) Neither the Company nor any of its subsidiaries is in
material violation of any laws, ordinances, governmental rules or regulations to
which it is subject, including without limitation laws or regulations relating
to the environment or to occupational health and safety, and no material
expenditures are or will be required in order to cause its currently
contemplated operations or properties to comply with any such law, ordinances,
governmental rules or regulations.
(b) The Company and its subsidiaries have all licenses,
permits (other than certain employee work permits), franchises or other
governmental authorizations necessary to the ownership of their property or to
the conduct of their respective businesses as presently contemplated as
described in Schedule 3.1(c) (including, without limitation, such licenses and
-5-
<PAGE> 10
permissions in Bermuda which are necessary to carry on the business of a
long-term insurer), all to the extent necessary to avoid a Material Adverse
Effect. Neither the Company nor any subsidiary has finally been denied any
application for any such licenses, permits, franchises or other governmental
authorizations necessary to its business.
3.10. Litigation
There is no legal action, suit, arbitration or other legal,
administrative or other governmental investigation, inquiry or proceeding
(whether federal, state, local or foreign) pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any
subsidiary or any of their respective properties, assets or presently
contemplated businesses. Neither the Company nor any subsidiary is subject to
any order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal, state,
local or foreign).
3.11. Material Contracts
Schedule 3.11 sets forth a true and complete list of each
material contract, agreement, instrument, commitment and other arrangement to
which the Company or any subsidiary is a party or otherwise relating to or
affecting any of their respective assets, including without limitation:
employment, severance or consulting agreements; loan, credit or security
agreements; joint venture agreements and distribution agreements (each, a
"Material Contract"). Each Material Contract is valid, binding and enforceable
against the Company or such subsidiary and, to the Company's best knowledge, the
other parties thereto, in accordance with its terms, and in full force and
effect on the date hereof.
3.12. Absence of Undisclosed Liabilities
Except as disclosed in Schedule 3.12, neither the Company nor
any of its subsidiaries has any debt, obligation or liability (whether accrued,
absolute, contingent, liquidated or otherwise, whether due or to become due,
whether or not known to the Company) arising out of any transaction entered into
at or prior to the Closing, or any act or omission at or prior to the Closing,
or any state of facts existing at or prior to the Closing, including taxes with
respect to or based upon the transactions or events occurring at or prior to the
Closing, and including, without limitation, unfunded past service liabilities
under any pension, profit sharing or similar plan, except current liabilities
incurred and obligations under agreements entered into, in the usual and
ordinary course of business, none of which (individually or in the aggregate)
would have a Material Adverse Effect.
-6-
<PAGE> 11
3.13. Employees
(a) The Company and its subsidiaries are in full compliance
with all laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of social security and other taxes (except that certain
employees may be required to obtain work permits under Bermuda law).
(b) Except as set forth on Schedule 3.13, the employment of
all Persons and officers employed by the Company or any of its subsidiaries is
terminable at will without any penalty or severance obligation of any kind on
the part of the employer. All sums due for employee compensation and benefits
and all vacation time owing to any employees of the Company or any of its
subsidiaries have been duly and adequately accrued on the accounting records of
the Company and its subsidiaries.
(c) To the best knowledge of the Company none of its employees
is obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted.
(d) To the best knowledge of the Company no officer or key
employee, nor any group of key employees, intends to terminate their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing (other than temporary employees who are also
employees of Inter-Atlantic Capital Partners, Inc. or Conyers Dill & Pearman).
3.14. Tax Matters
There are no taxes due and payable by the Company or any of
its subsidiaries which have not been paid. The provisions for taxes on the
audited balance sheet described in Section 3.7 has been established in
accordance with GAAP. The Company and its subsidiaries have duly filed all tax
returns required to have been filed by it. Neither the Company nor any of its
subsidiaries has been subject to a tax audit of any kind.
3.15. Employee Benefit Plans
The Company and its subsidiaries have no employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974) covering
former and current employees of the Company or any of its subsidiaries, or under
which the Company or any of its subsidiaries has any obligation or liability.
Schedule 3.15 lists all material plans, contracts, bonuses, commissions,
profit-sharing, savings, stock options,
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<PAGE> 12
insurance, deferred compensation, or other similar fringe or employee benefits
covering former or current employees of the Company or any of its subsidiaries
or under which the Company or any of its subsidiaries has any obligation or
liability (each, a "Benefit Arrangement"). True and complete copies of all
Benefit Arrangements have been provided or made available to the Investor prior
to the date hereof. The Benefit Arrangements are and have been administered in
substantial compliance with their terms and with the requirements of applicable
law.
3.16. Patents, Licenses, etc.
Except as provided on Schedule 3.16, the Company or one of its
subsidiaries owns, free and clear of all encumbrances, restrictions, liens,
security interests and charges, and have good and marketable title to, or hold
adequate licenses or otherwise possess all such rights as are necessary to use
all patents (and applications therefor), patent disclosures, trademarks, service
marks, trade names, copyrights (and applications therefor), inventions,
discoveries, processes, know-how, scientific, technical, engineering and
marketing data, computer software, formulae and techniques used or proposed to
be used, in or necessary for the conduct of its business as now conducted or as
proposed to be conducted (collectively, "Intellectual Property").
Neither the Company nor any of its subsidiaries has received
notice nor otherwise has reason to know of any conflict or alleged conflict with
the rights of others pertaining to the Intellectual Property described in this
Section 3.16. The Company's business, as presently conducted and as proposed to
be conducted, does not infringe upon or violate any patent rights or trade
secrets of others. The Company and its subsidiaries have the unrestricted right
to use, free and clear of any rights or claims of others, all trade secrets,
processes, customer lists and other rights incident to their respective
businesses as now conducted or as proposed to be conducted.
Except as provided for on Schedule 3.16, neither the Company
nor any of its subsidiaries is currently obligated or under any existing
liability to make royalty or other payments to any owner of, licensor of, or
other claimant to, any patent, trademark, service names, trade names,
copyrights, or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business as now conducted or as proposed to
be conducted, or otherwise. To the Company's best knowledge, no employee of the
Company or any of its subsidiaries has violated any employment agreement or
proprietary information agreement which he had with a previous employer or any
patent policy of such employer, or is a party to or threatened by any litigation
concerning any patents, trademarks, trade secrets, service names, trade names,
copyrights, licenses and the like.
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3.17. Insurance
The Company and its subsidiaries and their respective
properties are insured in such amounts, against such losses and with such
insurers as are prudent when considered in light of the nature of the properties
and businesses of the Company and its subsidiaries. The Company maintains (or as
of the Closing Date will maintain) directors and officers insurance (in
customary form) in amounts not less than $10,000,000.
3.18. Transactions with Related Parties
Except as disclosed on Schedule 3.18, neither the Company nor
any subsidiary is a party to any agreement with any of the Company's directors,
officers or shareholders (other than shareholders which become such as a result
of the Public Offering and other than the Investors) or any Affiliate or family
member of any of the foregoing under which it: (i) leases any real or personal
property (either to or from such Person), (ii) licenses technology (either to or
from such Person), (iii) is obligated to purchase any tangible or intangible
asset from or sell such asset to such Person, (iv) purchases products or
services from such Person or (v) has borrowed money from or loaned money to such
Person. Except as set forth in Schedule 3.18, neither the Company nor any
subsidiary employs as an employee or engages as a consultant any family member
of any of the Company's directors, officers or shareholders. To the best
knowledge of the Company, there exist no agreements among shareholders of the
Company to act in concert with respect to their voting or holding of Company
securities.
3.19. Private Offering
Neither the Company nor anyone acting on its behalf, directly
or indirectly, has sold or has offered any of the Shares or Warrants (or any
similar security) for sale to, or solicited offers to buy from, or otherwise
approached or negotiated with respect thereto with, any prospective purchaser,
other than the Investors and not more than 10 other institutional investors,
each of which was offered such securities for purposes of investment. Neither
the Company nor anyone acting on its behalf shall offer the Shares or Warrants
(or any similar security) for issue or sale to, or solicit any offer to acquire
any of the same from, anyone so as to bring the issuance and sale of such Shares
or Warrants or Common Shares issuable upon exercise of the Warrants, or any part
thereof, within the provisions of Section 5 of the Securities Act or in
violation of the provisions of any securities or Blue Sky law of any applicable
jurisdiction. Based upon the representations of the Investors set forth in
Section 4 hereof and of the Other Agreements, the offer, issuance and sale of
the Shares and the Warrants and the issuance of the Common Shares issuable upon
exercise of the Warrants are and will be exempt from the registration and
prospectus delivery requirements
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of the Securities Act, and have been registered or qualified (or are exempt from
registration and qualification) under the registration, permit or qualification
requirements of all other applicable securities laws.
3.20. Brokerage
There are no claims for brokerage commissions or finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement made by or on behalf of the Company and the
Company agrees to indemnify and hold the Investor harmless against any costs
(including, without limitation, reasonable attorneys fees and disbursements for
the defense of any such claims) or damages incurred as a result of any such
claim.
3.21. Illegal or Unauthorized Payments; Political
Contributions
Neither the Company or any of its subsidiaries nor, to the
best of the Company's knowledge (after reasonable inquiry of its officers and
directors), any of the officers, directors, employees, agents or other
representatives of the Company or any of its subsidiaries or any other business
entity or enterprise with which the Company or any subsidiary is or has been
affiliated or associated, has, directly or indirectly, made or authorized any
payment, contribution or gift of money, property, or services, whether or not in
contravention of applicable law, (a) as a kickback or bribe to any Person or (b)
to any political organization, or the holder of or any aspirant to any elective
or appointive public office except for personal political contributions not
involving the direct or indirect use of funds of the Company or any of its
subsidiaries.
3.22. Material Facts
This Agreement, the schedules hereto and the other agreements,
documents, certificates or written statements furnished or to be furnished to
the Investor through the Closing Date by or on behalf of the Company in
connection with the transactions contemplated hereby taken as a whole, do not
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein or herein, in
light of the circumstances in which they were made, not misleading. There is no
fact which is known to the Company and which has not been disclosed herein or
otherwise by the Company to the Investor which may materially adversely affect
the business, properties, assets or condition, financial or otherwise, or
prospects of the Company and its subsidiaries taken as a whole.
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3.23. Foreign Assets Control Regulations, etc.
Neither the sale of the Shares and Warrants by the Company
hereunder nor its use of the proceeds thereof will violate the Trading with the
Enemy Act, as amended, or any of the foreign assets control regulations of the
United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or
any enabling legislation or executive order relating thereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company as
follows:
(a) It is acquiring the Shares and Warrants (and will acquire
the Common Shares issuable upon conversion of the Warrants) for its own account
for investment and not with a view towards the distribution thereof, nor with
any present intention of distributing the Shares or Warrants (or the Common
Shares acquired upon exercise of the Shares), but subject, nevertheless, to any
requirement of law that the disposition of the Investor's property shall at all
times be within the Investor's control, and without prejudice to the Investor's
right at all times to sell or otherwise dispose of all or any part of such
securities under a registration under the Securities Act or under an exemption
from said registration available under the Securities Act to the extent
permitted by the Transaction Documents.
(b) It is either (x) a "qualified institutional buyer" within
the meaning of Rule 144A under the Securities Act or (y) an "accredited
investor" within the meaning of Rule 501(a)(3) under the Securities Act.
(c) It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
investment in the Company as contemplated by this Agreement, and is able to bear
the economic risk of such investment for an indefinite period of time. It has
been furnished access to such information and documents as it has requested and
has been afforded an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement and the purchase of the Shares and Warrants contemplated hereby.
(d) It has all requisite power and authority to execute this
Agreement and the Registration Rights Agreement, to perform its obligations
hereunder and thereunder and to acquire and hold the Shares and Warrants.
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SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1. Resale of Securities
(a) The Investor covenants that it will not sell or otherwise
transfer (and the Company shall not be required to register the transfer of) any
Shares or Warrants (or any Common Shares acquired upon exercise of the Warrants)
except pursuant to an effective registration under the Securities Act or in a
transfer effected under the provisions of Rule 144(k) under the Securities Act
or in a transaction which, in the opinion of counsel (which may be in-house
counsel to the Investor), qualifies as an exempt transaction under the
Securities Act and the rules and regulations promulgated thereunder and any
applicable state securities laws and in a manner consistent with the Investor's
representations and warranties set forth in Section 4 and subject to the
provisions of the Transaction Documents.
(b) The certificates evidencing the Shares and Warrants and
Common Shares issuable upon exercise of the Warrants will bear the following
legend reflecting the foregoing restrictions on the transfer of such securities:
"The securities evidenced hereby have not
been registered under the Securities Act of 1933, as amended
(the "Act"), and may not be transferred except pursuant to an
effective registration under the Act or in a transaction
which, in the opinion of counsel, qualifies as an exempt
transaction under the Act and the rules and regulations
promulgated thereunder. The transfer of such securities is
also subject to certain limitations on transfer as set forth
in certain agreements between the Company and certain
institutional investors in the Company, copies of which are
available upon request of the Company."
5.2. Covenants Pending Closing
Pending the Closing the Company will not, without the
Investor's prior written consent take any action which would result in any of
the representations or warranties contained in this Agreement not being true in
all material respects at and as of the time immediately after such action, or in
any of the covenants contained in this Agreement becoming incapable of
performance in all material respects. The Company will promptly advise the
Investor in writing of any action or event of which it becomes aware which has
the effect of making incorrect any of such representations or warranties in any
material respect or which has the effect of rendering any of such covenants
incapable of performance.
5.3. Further Assurance
Each of the parties shall execute such documents and other
papers and take such further actions as may be reasonably
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<PAGE> 17
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall use its reasonable efforts to fulfill
or obtain the fulfillment of the conditions to the Closing as promptly as
practicable.
SECTION 6. INVESTOR'S CLOSING CONDITIONS
The obligation of the Investor to purchase and pay for the
Shares and Warrants on the Closing Date, as provided in Section 2 hereof, shall
be subject to the performance by the Company of its agreements theretofore to be
performed hereunder and to the satisfaction, prior thereto or concurrently
therewith, of the following further conditions:
6.1. Representations and Warranties
The representations and warranties of the Company contained in
this Agreement shall be true in all material respects on and as of the Closing
Date as though such warranties and representations were made at and as of such
date, except as otherwise affected by the transactions contemplated hereby.
6.2. Compliance with Agreement
The Company shall have performed and complied in all material
respects with all agreements, covenants and conditions contained in this
Agreement which are required to be performed or complied with by the Company
prior to or on the Closing Date.
6.3. Officer's Certificate
The Investor shall have received a certificate, dated the
Closing Date, signed by each of the President and the Chief Operating Officer of
the Company, certifying that the conditions specified in the foregoing Sections
6.1 and 6.2 hereof have been fulfilled.
6.4. Delivery of Shares and Warrants
The Company shall have delivered to the Investor the
certificates evidencing the Shares and Warrants being purchased by it hereunder
as provided in Section 2.1.
6.5. Injunction
There shall be no injunction, writ, preliminary restraining
order or any order of any nature issued by a court of competent jurisdiction
directing that the transactions provided for herein or any of them not be
consummated as herein provided.
6.6. Counsel's Opinions
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The Investors shall have received (x) from the Company's
counsel delivering opinions to the Underwriters in connection with the Public
Offering on the IPO Closing Date, copies of such opinions together with letters
from such counsel allowing the Investor to rely thereon and (x) opinions, dated
the Closing Date, from counsel for the Company substantially to the effect that:
(i) Each of the Company and its subsidiaries is duly organized
and validly existing in good standing under the laws of
Bermuda, has the all requisite power and authority and has all
necessary approvals, licenses, permits and authorization to
own its properties and to carry on its business as proposed to
be conducted as contemplated by the Registration Statement.
The Company has all requisite power and authority to execute
and deliver the Transaction Documents and to perform its
obligations thereunder.
(ii) Each of the Company and its subsidiaries are duly
qualified as a foreign corporation in every jurisdiction in
which such qualification is necessary, except where the
failure to so qualify would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
(iii) Section 3.3(a) of this Agreement accurately reflects the
share records of the Company as to its authorized and issued
capital stock and the Company has duly reserved for issuance
such number of Common Shares initially issuable upon exercise
of the Warrants.
(iv) Except for the rights which attach to the Warrants and to
the warrants, options and convertible securities listed on
Schedule 3.3 hereto, to the best knowledge of such counsel,
there are no Common Shares issuable upon conversion or
exchange or exercise of any security of the Company nor are
there any rights, options or warrants outstanding or other
agreements to acquire Common Shares from the Company nor is
the Company contractually obligated to purchase, redeem or
otherwise acquire any of its outstanding shares. Except as
disclosed in Schedule 3.3, no shareholder of the Company is
entitled to any preemptive or similar right to subscribe for
shares of capital stock of the Company
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<PAGE> 19
provided by statute or the Organizational Documents or, to the
best knowledge of such counsel, by any other agreement or
instrument.
(v) All the outstanding shares of capital stock of the Company
have been duly and validly issued and are fully paid and
non-assessable. When issued in accordance with the terms of
this Agreement, the Shares will be (and upon their issuance
the Common Shares issuable upon exercise of the Warrants will
be) (x) duly authorized, validly issued, fully paid and
non-assessable Common Shares of the Company, free of all
preemptive or similar rights provided by statute or the
Organizational Documents or, to the best knowledge of such
counsel, any other agreement or instrument and (y) entitled to
the rights described in Schedule 3.3.
(vi) The Company has duly authorized the execution, delivery,
and performance of the Transaction Documents and each of the
transactions and agreements contemplated thereby, and no other
corporate action is necessary to authorize such execution,
delivery or performance. The Transaction Documents have been
duly executed and delivered on behalf of the Company and
constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with their
terms, except as such enforcement may be subject to
bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors'
rights and general principles of equity.
(vii) The execution and delivery by the Company of the
Transaction Documents, the performance by the Company of its
obligations thereunder and the consummation by the Company of
the transactions contemplated thereby do not require the
Company to obtain any consent, approval or action of, or make
any filing with or give any notice to, any corporation, person
or firm or any public, governmental or judicial authority
except such as have been duly obtained or made, as the case
may be, and are in full force and effect.
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<PAGE> 20
(viii) The execution and delivery of the Transaction Documents
do not, and the fulfillment of the terms hereof and thereof by
the Company and the issuance of Common Shares upon conversion
of the Warrants as herein contemplated will not, (A) result in
a breach of any of the terms, conditions or provisions of, or
constitute a default under, any material indenture, mortgage,
deed of trust, credit agreement, note or other evidence of
indebtedness, or other material agreement to which the Company
or any of its subsidiaries is a party and which is listed on
Schedule 3.11, (B) violate the Organizational Documents, or
any law, rule or regulation known to such counsel of any court
or other regulatory board or body or administrative agency
having jurisdiction over the Company or over its properties or
businesses or (C) conflict with or constitute a default under
any judgment, writ, decree or order known to such counsel to
be applicable by its terms to the Company or any of its
subsidiaries.
(ix) To the best knowledge of such counsel, there is no
action, suit, investigation or proceeding pending or
threatened, against the Company or any of its properties or
assets by or before any court, arbitrator or governmental
body, department, commission, board, bureau, agency or
instrumentality, which questions the validity of the
Transaction Documents, the Shares or the Warrants or any
action taken or to be taken pursuant hereto or thereto.
(x) The issuance and sale of the Shares and Warrants do not
(and the issuance of Common Shares issuable upon exercise of
the Warrants will not) require registration under Section 5 of
the Securities Act or qualification under any state securities
or Blue Sky laws.
(xi) The choice of New York law and the submission by the
Company to the jurisdiction of New York State courts and
federal courts sitting in New York as provided in Section
10.04 are valid and enforceable in New York and in Bermuda.
6.7. Consummation of Public Offering
The Company shall have consummated the Public Offering as
contemplated by the Registration Statement at a price to the
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public of at least $15.00 per share and shall have received not less than
$150,000,000 in net proceeds (after underwriting discounts and commissions which
shall not in any event exceed 6%) therefrom (the "Public Offering Proceeds").
The Public Offering Proceeds shall exceed Other Sale Proceeds by the ratio of at
least 2.5 to 1.0. "Other Sale Proceeds" means the net proceeds to the Company
from (x) the sale of the Shares and Warrants hereunder and under the Other
Agreements and (y) all other sales of Common Shares (except to the underwriters
in the Public Offering) and securities convertible into, or exchangeable or
exercisable for, Common Shares (herein called "Other Sales"). The Company agrees
that on and prior to the Closing Date it will not make or agree to make Other
Sales on terms more favorable to the purchasers involved in such Other Sales
than the terms of the Agreement relating to the Shares and Warrants unless such
more favorable terms are also extended to the Investor.
6.8. Purchase by Other Investors
Each of the Other Investors shall have purchased the Shares
and Warrants to be purchased by it under the Other Agreements and the Company
shall have received payment of the Purchase Price under such Other Agreements.
6.9. Registration Rights Agreement
The Company shall have executed and delivered to the Investor
the Registration Rights Agreement, the form of which is attached as Exhibit B
hereto (the "Registration Rights Agreement").
6.10. Process Agent
The Investor shall have received a copy of the acceptance by
CT Corporation System of its appointment under the provisions of Section
11.8(d).
6.11. Proceedings
The Investor shall have received copies of all documents or
other evidence which it and its special counsel, Willkie Farr & Gallagher, may
reasonably request in connection with the transactions contemplated hereby and
of all records of corporate proceedings in connection therewith.
SECTION 7. COMPANY CLOSING CONDITIONS
The obligation of the Company to issue and deliver the Shares
and Warrants on the Closing Date, as provided in Section 2 hereof, shall be
subject to the performance by the Investor of its agreements theretofore to be
performed hereunder and to the satisfaction, prior thereto or concurrently
therewith, of the following further conditions:
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7.1. Representations and Warranties
The representations and warranties of the Investor contained
in this Agreement shall be true on and as of the Closing Date as though such
warranties and representations were made at and as of such date, except as
otherwise affected by the transactions contemplated hereby.
7.2. Compliance with Agreement
The Investor shall have performed and complied with all
agreements, covenants and conditions contained in this Agreement which are
required to be performed or complied with by it prior to or on the Closing Date.
7.3. Injunction
There shall be no injunction, writ, preliminary restraining
order or any order of any nature issued by a court of competent jurisdiction
directing that the transactions provided for herein or any of them not be
consummated as herein provided.
7.4. Consummation of Public Offering.
The Company shall have consummated the Public Offering as
contemplated by the Registration Statement at a price to the public of at least
$15.00 per share and shall have received not less than $150,000,000 in net
proceeds (after underwriting discounts and commissions) therefrom.
SECTION 8. LIMITATION ON DISPOSITION
The Investor will not, without the consent of the Company,
sell, transfer or otherwise dispose of the Shares or Warrants for a period of
one year after the Closing Date except (i) to one or more of its Affiliates, or
(ii) to any institutional investor purchasing all of the Shares and Warrants
then held by the Investor (or if not all such Shares and Warrants, Shares and/or
Warrants representing at least 1,000,000 Common Shares (assuming exercise of the
Warrants)); provided that any such transferee shall agree to be bound by the
provisions of this Section 8. The Investor will agree to execute a "lock-up"
agreement with the Underwriters in connection with the Public Offering in
customary form and as more particularly described in Exhibit C hereto.
SECTION 9. COVENANTS
9.1. Financial and Business Information
From and after the date hereof, the Company shall deliver to
each of the Investors so long as such Investor owns beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) any Shares or Warrants or Common
Shares issuable upon exercise of the Warrants:
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(a) Quarterly Statements - as soon as practicable, and in any
event within 45 days after the close of each of the first three fiscal quarters
of each fiscal year of the Company in the case of quarterly statements, a
consolidated balance sheet, statement of income and statement of cash flows of
the Company and any subsidiaries as at the close of such month or quarter and
covering operations for such month or quarter, as the case may be, and the
portion of the Company's fiscal year ending on the last day of such month or
quarter, all in reasonable detail and prepared in accordance with GAAP, subject
to audit and year-end adjustments, setting forth in each case in comparative
form the figures for the comparable period of the previous fiscal year.
(b) Annual Statements - as soon as practicable after the end
of each fiscal year of the Company, and in any event within 90 days thereafter,
duplicate copies of:
(1) consolidated balance sheet of the Company and any
subsidiaries at the end of such year; and
(2) consolidated statements of income, stockholders' equity
and cash flows of the Company and any subsidiaries for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and accompanied by an
opinion thereon of independent certified public accountants of
recognized national standing selected by the Company, which opinion
shall state that such financial statements fairly present the financial
position of the Company and any subsidiaries on a consolidated basis
and have been prepared in accordance with GAAP (except for changes in
application in which such accountants concur) and that the examination
of such accountants in connection with such financial statements has
been made in accordance with generally accepted auditing standards, and
accordingly included such tests of the accounting records and such
other auditing procedures as were considered necessary in the
circumstances.
(c) Audit Reports - promptly upon receipt thereof, one copy of
each other financial report and internal control letter submitted to the Company
or any subsidiary by independent accountants in connection with any annual,
interim or special audit made by them of the books of the Company or any
subsidiary.
(d) Other Reports - promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent by
the Company to shareholders generally, of each financial statement, report,
notice or proxy statement filed by the Company or any of its subsidiaries with
the SEC or any successor agency, if applicable, of each regular or periodic
report and any registration statement, prospectus or written communication
(other than transmittal letters) in respect thereof filed by the Company or any
subsidiary with, or received by such
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Person in connection therewith from, any domestic or foreign securities
exchange, the SEC or any successor agency or any foreign regulatory authority
performing functions similar to the SEC, of any press release issued by the
Company or any subsidiary, and of any material of any nature whatsoever prepared
by the SEC or any successor agency thereto or any state blue sky or securities
law commission which relates to or affects in any way the Company or any
subsidiary.
(e) Requested Information - with reasonable promptness, the
Company shall furnish each of the Investors with such other data and information
as from time to time may be reasonably requested.
9.2. Inspection
As long as an Investor owns beneficially (within the meaning
of Rule 13d-3 under the Exchange Act) at least two percent (2%) of the
outstanding Common Shares, the Company shall permit such Investor, its nominee,
assignee, and its representative during normal business hours and upon
reasonable advance notice to visit and inspect any of the properties of the
Company and its subsidiaries, to examine all its books of account, records,
reports and other papers not contractually required of the Company to be
confidential or secret, to make copies and extracts therefrom, and to discuss
its affairs, finances and accounts with its officers, directors, key employees
and independent public accountants or any of them (and by this provision the
Company authorizes said accountants to discuss with such Investor, its nominees,
assignees and representatives the finances and affairs of the Company and any
subsidiaries), all at such reasonable times and as often as may be reasonably
requested.
9.3. Keeping of Books
The Company will keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions and
the assets and business of the Company and its subsidiaries in accordance with
GAAP.
9.4. Lost, etc. Certificates; Exchange
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
certificate evidencing any Shares or Warrants (or Common Shares issuable upon
exercise of the Warrants) owned by one of the Investors, and (in the case of
loss, theft or destruction) of an unsecured indemnity satisfactory to it, and
upon reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of such certificate, if mutilated, the
Company will make and deliver in lieu of such certificate a new certificate of
like tenor and for the number of
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shares evidenced by such certificate which remain outstanding. Such Investor's
agreement of indemnity shall constitute indemnity satisfactory to the Company
for purposes of this Section 9.5. Upon surrender of any certificate representing
any Shares (or Common Shares issuable upon exercise of the Warrants) for
exchange at the office of the Company, the Company at its expense will cause to
be issued in exchange therefor new certificates in such denomination or
denominations as may be requested for the same aggregate number of Shares,
Warrants or Common Shares, as the case may be, represented by the certificate so
surrendered and registered as such holder may request. The Company will also pay
the cost of all deliveries of certificates for such securities to the office of
such Investor (including the cost of insurance against loss or theft in an
amount satisfactory to the holders) upon any exchange provided for in this
Section 9.5.
9.5. Review of Documents
The Investor shall have the right to review and approve all
statements or disclosures (in the Registration Statement or in press releases or
elsewhere) made by the Company in relation to the Investor's investment in and
relationship to the Company.
9.6. Confidential Information
The Investor acknowledges that its receipt of material
non-public information as a consequence of its exercise of its rights under
Sections 9.1 and 9.2 may obligate it not to trade in securities of the Company
which it may hold so long as such information is not publicly disclosed by the
Company. Such information will be utilized by the Investor to analyze its
investment in the Company.
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1. Terms Defined
As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in the Section hereof following
such term:
Affiliate: means any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
Business Day: shall mean a day other than a Saturday, Sunday
or other day on which banks in New York, New York and Hamilton, Bermuda are not
required or authorized by law to close.
Closing: shall have the meaning set forth in Section 2.2.
Closing Date: shall have the meaning set forth in Section 2.2.
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Common Shares: shall have the meaning set forth in Section 1.
Exchange Act: shall mean the Securities Exchange Act of 1934,
as amended.
GAAP: at any time shall mean United States generally accepted
accounting principles at the time in effect.
Intellectual Property: shall have the meaning set forth in
Section 3.16.
Investor: shall mean the Person executing this Agreement on
the signature page hereof and its successors and assigns as the holder of
Shares, Warrants or Common Shares issuable upon exercise of the Warrants.
IPO Closing Date: shall mean the date of the consummation of
the Public Offering.
Material Adverse Effect: shall have the meaning set forth in
Section 3.1(c).
Material Contract: shall have the meaning set forth in Section
3.11.
Other Agreements: shall have the meaning set forth in Section
2.1.
Organizational Documents: shall have the meaning set forth in
Section 3.1(a).
Person: shall mean an individual, partnership, joint-stock
company, corporation, limited liability company, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
Public Offering: shall mean the sale by the Company of its
Common Shares to the underwriters as contemplated by the Registration Statement.
Registration Rights Agreement: shall have the meaning set
forth in Section 6.8.
Registration Statement: shall mean the Registration Statement
filed by the Company with the SEC on Form S-1 (No.333-43301) on December 24,
1997, as amended, in the form it becomes effective under the Securities Act.
SEC: shall mean the Securities and Exchange Commission.
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<PAGE> 27
Securities Act: shall mean the Securities Act of 1933, as
amended.
Shares: shall have the meaning set forth in Section 2.1.
subsidiary: shall mean a corporation of which a Person owns,
directly or indirectly, more than 50% of the Voting Stock.
Transaction Documents: shall mean this Agreement, the Other
Agreements, the Class B Warrants and the Registration Rights Agreement.
Voting Stock: shall mean securities of any class or classes of
a corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
Warrants: shall have the meaning set forth in Section 2.1.
10.2. Directly or Indirectly
Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
10.3. Section Headings
The headings of the sections and subsections of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
thereof.
SECTION 11. MISCELLANEOUS
11.1. Notices
(a) All communications under this Agreement shall be in
writing and shall be delivered by hand or facsimile or mailed by overnight
courier or by registered mail or certified mail, postage prepaid:
(1) if to the Investor, at: the address specified in Schedule
2.1, or at such other address as the Investor may have
furnished the Company in writing, or
(2) if to the Company, at: Victoria Hall, Victoria Street,
P.O. Box HM1262, Hamilton, HM FX, Bermuda, marked for the
attention of President, or at such other address as it may
have furnished the Investor in writing.
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<PAGE> 28
(b) Any notice so addressed shall be deemed to be given: if
delivered by hand or facsimile, on the date of such delivery; if mailed by
courier, on the first business day following the date of such mailing; and if
mailed by registered or certified mail, on the third business day after the date
of such mailing.
11.2. Expenses and Taxes
(a) Whether or not the issue and sale of the Shares and
Warrants contemplated hereby are consummated, the Company will pay all costs and
expenses (including attorneys' fees and disbursements of counsel) incurred by
the Investor in connection with such issue and sale and all costs and expenses
(including attorneys' fees and disbursements of counsel) incurred by the
Investor in connection with any amendments, waivers or consents under or in
respect of the Transaction Documents (whether or not such amendment, waiver or
consent becomes effective). In addition, the Company will pay the Investor the
costs and expenses (including attorneys' fees and disbursements) incurred by it
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under the Transaction Documents or in responding to any subpoena or
other legal process or informal investigative demand (which investigative demand
shall have been issued by a governmental agency or official) issued in
connection with the Transaction Documents or the Investor's investment in the
Company.
(b) The Company will pay, and save and hold the Investor
harmless from, any and all claims arising out of or relating to the transactions
contemplated by the Transaction Documents or the performance thereof and all
liabilities (including interest and penalties) with respect to, or resulting
from any delay or failure in paying, stamp and other taxes (other than income
taxes), if any, which may be payable or determined to be payable on the
execution and delivery or acquisition of the Shares or Warrants or the Common
Shares issuable upon exercise of the Warrants.
11.3. Reproduction of Documents
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications which may hereafter
be executed, (b) documents received by the Investors on the Closing Date (except
for certificates evidencing the Shares themselves), and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Investors, may be reproduced by the Investors by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and either Investor may destroy any original document so reproduced. All
parties hereto agree and stipulate that any such reproduction shall be
admissible in evidence as the original itself in any
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<PAGE> 29
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by an Investor in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
11.4. Termination and Survival
Unless the Closing has occurred prior thereto, this Agreement
and, except as herein provided, all the rights of the parties hereto, shall
terminate on June 30, 1998 (unless such date is extended by mutual written
consent). Notwithstanding the foregoing, Section 11.2 hereof shall survive the
termination of this Agreement. All warranties, representations, and covenants
made by the Investor and the Company herein or in any certificate or other
instrument delivered by the Investor or the Company under this Agreement shall
be considered to have been relied upon by the Company or the Investor, as the
case may be, regardless of any investigation made by the Investor and shall
survive all deliveries to the Investor of the Shares, or payment to the Company
for such Shares and Warrants, regardless of any investigation made by the
Company or the Investor, as the case may be, or on the Company's or the
Investor's behalf. All statements in any such certificate or other instrument
shall constitute warranties and representation by the Company hereunder, except
that the Investor shall not be required to purchase Shares or Warrants from any
Person other than the Company.
11.5. Successors and Assigns
This Agreement shall inure to the benefit of and be binding
upon the successors and permitted assigns of each of the parties.
11.6. Entire Agreement; Amendment and Waiver
This Agreement and the agreements attached as Exhibits hereto
constitute the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and the Investor.
11.7. Severability
In the event that any part or parts of this Agreement shall be
held illegal or unenforceable by any court or administrative body of competent
jurisdiction, such determination shall not effect the remaining provisions of
this Agreement which shall remain in full force and effect.
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<PAGE> 30
11.8. Governing Law; Submission to Jurisdiction
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
(b) Each of the Company and the Investor (each a "Party")
irrevocably submits to the non-exclusive in personam jurisdiction of any New
York State or United States federal court sitting in the Borough of Manhattan,
The City of New York, over any suit, action or proceeding arising out of or
relating to the Transaction Documents. To the full extent it may effectively do
so under applicable law, each Party irrevocably waives and agrees not to assert,
by way of motion, as a defense or otherwise, any claim that it is not subject to
the in personam jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit, action or proceeding
brought in any such court has been brought in an inconvenient forum.
(c) Each Party agrees, to the full extent it may effectively
do so under applicable law, that a final judgment in any suit, action or
proceeding of the nature referred to in paragraph (b) of this Section 11.8
brought in any such court shall be conclusive and binding upon such Party,
subject to rights of appeal and may be enforced in the courts of the United
States or the State of New York (or any other courts to the jurisdiction of
which such Party is or may be subject) by a suit upon such judgment.
(d) Each Party consents to process being served in any suit,
action or proceeding of the nature referred to in paragraph (b) of this Section
11.8 by mailing a copy thereof by registered or certified mail, postage prepaid,
return receipt requested, to the address of such Party specified in Section 11.1
or at such other address of which the other Party shall then have been notified
pursuant to said Section. Without limiting the foregoing, the Company hereby
appoints, in the case of any such suit, action or proceeding brought in the
courts of or in the State of New York, CT Corporation, 1633 Broadway, New York,
NY 10019, to receive, for it and on its behalf, service of process in the State
of New York with respect thereto. Each Party agrees that such service upon
receipt by it or its agent, as the case may be, (i) shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding and (ii) shall, to the full extent permitted by applicable law, be
taken and held to be valid personal service upon and personal delivery to such
Party. Notices hereunder shall be conclusively presumed received as evidenced by
a delivery receipt furnished by the United States Postal Service or the Bermuda
Post or any reputable commercial delivery service.
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<PAGE> 31
(e) Nothing in this Section 11.8 shall affect the right of any
Party to serve process in any manner permitted by law, or limit any right that
such Party may have to bring proceedings against the other Party in the courts
of any appropriate jurisdiction or to enforce in any lawful manner a judgment
obtained in one jurisdiction in any other jurisdiction.
(f) Each Party waives trial by jury in any action brought on
or with respect to the Transaction Documents or any other document executed in
connection therewith.
11.9. Counterparts
This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original and all of which together shall be
considered one and the same agreement.
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<PAGE> 32
If you are in agreement with the foregoing please so indicate
by executing the acceptance set forth below and return a copy of this Agreement
to the Company, whereupon this Agreement shall be a binding agreement between
us.
Very truly yours,
ANNUITY AND LIFE RE
(HOLDINGS), LTD.
By:
----------------------------------
Name:
Title:
The foregoing Agreement is
hereby accepted:
[Investor]
By:
------------------------------------
Name:
Title:
<PAGE> 33
Schedule 2.1
Investors
<TABLE>
<CAPTION>
Number of
Shares and Purchase
Investor Name and Address Warrants* Price
- ------------------------- --------- -----
<S> <C> <C>
Risk Capital Reinsurance 1,418,440 Shares $20,000,000
Company 100,000
20 Horseneck Lane Warrants
Greenwich, CT 06830
Attention:
The Prudential Insurance 1,063,830 $15,000,000
Company of America Shares
751 Broad Street 75,000
Newark, NJ 07102 Warrants
Attention: Randy Hood
EXEL Limited 1,418,440 $20,000,000
1 Victoria Street Shares
Hamilton, Bermuda 100,000
HM 11 Warrants
Attention:
</TABLE>
- --------
* The number of Shares to be purchased by The Prudential Insurance Company of
America shall not exceed 4.9% of the outstanding Common Shares on the
Closing Date. To the extent the number of shares purchased is less than
that specified above, the Purchase Price shall be reduced by $14.10 for
each share not so purchased. The number of Warrants shall be reduced to the
number obtained by dividing the reduced Purchase Price by $200.
<PAGE> 1
Exhibit 10.13
Form of Registration Rights Agreement
REGISTRATION RIGHTS AGREEMENT dated March ___, 1998, among ANNUITY
AND LIFE RE (HOLDINGS), LTD., a Bermuda corporation (the "Company"), and the
Person executing this Agreement as a holder (such Person and its permitted
successors and assigns, the "Holder").
The Company has issued its common shares, par value $1.00 per share
("Common Shares") and its Class B Warrants to purchase Common Shares (the
"Warrants") to the Holder pursuant to the terms of that certain Securities
Purchase Agreements, between the Company and the Holder dated as of March 4,
1998 (the "Securities Purchase Agreement"). Pursuant to the Securities Purchase
Agreement, the Company has agreed to register such shares for sale under the
Securities Act of 1933, as amended, as more specifically provided below.
NOW, THEREFORE, in consideration of the completion of the
transactions contemplated by the Securities Purchase Agreement and of the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows, intending to be legally bound.
Section 1. Definitions. As used in this Agreement, the following
terms have the following meanings:
"Business Day": any day on which the Company's Common Shares are
available for trading on the principal stock exchange or market upon which they
are traded.
"Closing Date": the date on which is consummated the transactions
contemplated by the Securities Purchase Agreement between the Company and the
Holder.
"Common Shares": the Company's Common Shares, par value $1.00 per
share.
"Exchange Act": the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
"Holder": the Person (other than the Company) executing this
Agreement, and each permitted successor or assignee of the Holder, for so long
as (and to the extent that) such Person owns or has the right to acquire any
Registrable Securities.
"Holder Agreements": This Agreement and any other Agreement between
the Company and one of the Other Investors which is substantially similar to
this Agreement.
<PAGE> 2
"Other Investors": The Persons (other than the Company) which are
parties to Securities Purchase Agreements in substantially the form entered into
between the Company and the Holder on March 4, 1998.
"Person": an individual, a partnership (general or limited),
corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business organization, whether or not
regarded as a legal entity under applicable law, a trust (inter vivos or
testamentary), an estate of a deceased, insane or incompetent person, a
quasi-governmental entity, a government or any agency, authority, political
subdivision or other instrumentality thereof, or any other entity.
"Registrable Securities": (1) the Common Shares issued pursuant to
the terms of the Securities Purchase Agreement; (2) the Common Shares issued or
issuable pursuant to the Warrants issued pursuant to the terms of the Securities
Purchase Agreement, and (3) any additional Common Shares or other equity
securities of the Company issued or issuable in respect of such Common Shares
(or other equity securities issued in respect thereof) by way of a stock
dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Company securities, or
pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Company; provided that as to any
particular Registrable Securities, such securities shall cease to constitute
Registrable Securities (a) when a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of thereunder, (b) when such securities
shall have been disposed of pursuant to Rule 144 (or any successor provision to
such Rule) under the Securities Act, or (c) when such securities shall have
ceased to be outstanding.
"Registration Expenses": all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement including, without limitation, the following: (a) the fees,
disbursements and expenses of the Company's counsel, accountants, and experts in
connection with the registration under the Securities Act of Registrable
Securities; (b) all expenses in connection with the preparation, printing and
filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto,
and the mailing and delivering of copies thereof to underwriters and dealers, if
any; (c) the cost of printing or producing any agreement(s) among underwriters,
underwriting agreement(s) and blue sky or legal investment memoranda, any
selling agreements, and any other documents in connection with the offering,
sale or delivery of Registrable Securities to be disposed of; (d) the fees and
expenses incurred in connection with the listing of Registrable Securities on
each securities exchange on which Company securities of the same class are then
listed or with the Nasdaq National Market System; (e) the fees and expenses, not
to exceed $25,000, of a single counsel retained by any and all Persons
participating in a registration pursuant to a Holder Agreement, (f) any
underwriters' discounts or compensation, brokers' commissions or similar selling
expenses attributable to the sale of Registrable Securities; (g) any SEC or blue
sky registration or filing fees attributable to Registrable Securities or
transfer taxes applicable to Registrable Securities, (h) any other expenses in
connection with the qualification of Registrable
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<PAGE> 3
Securities for offer and sale under state securities laws, including the fees
and disbursements of counsel for the underwriters in connection with such
qualification and in connection with any blue sky and legal investment surveys;
and (i) the filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of Registrable
Securities to be disposed of.
"Registration Statement": a registration statement under the
Securities Act filed by the Company pursuant to this Agreement, including all
amendments thereto, all preliminary and final prospectuses included therein and
all exhibits thereto.
"SEC": the United States Securities and Exchange Commission, or such
other federal agency at the time having the principal responsibility for
administering the Securities Act.
"Securities Act": the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as the same shall be in effect
at the relevant time.
"Warrant": the Class B Warrants of the Company.
Section 2. Underwritten Demand Registration.
(a) At any time on or after the first anniversary of the Closing
Date, and before the tenth anniversary of the Closing Date the Holder may (by
written notice delivered to the Company) require registration of all or any
portion of its Registrable Securities for sale in an underwritten public
offering. In each such case, such notice shall specify the number of Registrable
Securities for which such underwritten offering is to be made. Within ten
Business Days of receipt of such notice, the Company shall notify the Holder of
the proposed commencement date of the offering, which shall be a date not more
than thirty days after the Company gives such notice. The managing underwriter
for such offering shall be chosen by the Holder and shall be satisfactory to the
Company.
(b) If any request for an underwriting shall have been made pursuant
to subsection (a), the Company shall, at the request of the managing underwriter
for such offering, prepare and file a Registration Statement with the SEC as
promptly as reasonably practicable, but in any event within 45 days after the
managing underwriter's request therefor.
(c) The Company shall not have any obligation to permit or
participate in more than two underwritten public offerings pursuant to this
Section, or to file a Registration Statement pursuant to this Section with
respect to less than thirty (30) percent of the Registrable Securities initially
purchased by the Holder pursuant to the Securities Purchase Agreement.
(d) The Company shall have the right to defer the filing or
effectiveness of a Registration Statement relating to any registration requested
under this Section for a reasonable
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<PAGE> 4
period of time not to exceed 180 days if (1) the Company is, at such time,
working on an underwritten public offering of its securities and is advised by
its managing underwriter that such offering would in its opinion be materially
adversely affected by such filing; or (2) the Company in good faith determines
that any such filing or the offering of any Registrable Securities would (A)
materially impede, delay or interfere with any proposed financing, offer or sale
of securities, acquisition, corporate reorganization or other significant
transaction involving the Company or (B) require the disclosure of material
non-public information, the disclosure of which would materially and adversely
affect the Company.
(e) The Company shall have no obligation to file a Registration
Statement pursuant to this Section earlier than 360 days after the effective
date of a prior registration statement of the Company covering an underwritten
public offering for the account of the Company the effective date of which is
after the first anniversary of the Closing Date if (1) the Company shall have
offered pursuant to Section 4 to include the Holder's Registrable Securities in
such Registration Statement; (2) the Holder shall not have elected to include in
such Registration Statement at least thirty (30) percent of the Registrable
Securities initially purchased by the Holder pursuant to the Securities Purchase
Agreement; and (3) no Registrable Securities requested to be included in such
registration statement shall have been excluded therefrom pursuant to Section
4(c).
(f) The Holder may elect by written notice to the Company not to
proceed with the offering, in which case the Company shall not be obligated to
proceed with such offering. If it does so, the Holder shall pay all Registration
Expenses incurred by the Company in connection with such offering prior to
receipt of such notice.
(g) No registration of Registrable Securities under this Section
shall relieve the Company of its obligation to effect registrations of
Registrable Securities pursuant to Sections 3 and 4.
Section 3. Shelf Registrations.
(a) At any time on or after the first anniversary of the Closing
Date, and before the tenth anniversary of the Closing Date, the Holder may (by
written notice to the Company) require registration of all or any portion of its
Registrable Securities for sale in open market transactions or negotiated block
trades.
(b) If any request for registration shall have been made pursuant to
subsection (a) the Company shall prepare and file a Registration Statement with
the SEC as promptly as reasonably practicable, but in any event within 45 days
of receipt of such request.
(c) The Company shall have no obligation to file a Registration
Statement pursuant to this Section earlier than 180 days after the effective
date of any earlier Registration Statement filed pursuant to this Section.
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<PAGE> 5
(d) The Holder may elect by written notice to the Company not to
proceed with such registration, in which case the Company will not be obligated
to proceed therewith. If it does so, the Holder shall pay all Registration
Expenses incurred by the Company in connection with such registration price to
receipt of such notice.
(e) No registration of Registrable Securities under this Section
shall relieve the Company of its obligation to effect registrations of
Registrable Securities under Sections 2 and 4.
Section 4. Incidental Registration.
(a) From and after the first anniversary of the Closing Date, if the
Company proposes, other than pursuant to Section 2 or 3 of this Agreement, to
file a Registration Statement under the Securities Act to register any of its
Common Shares for public sale under the Securities Act (whether proposed to be
offered for sale by the Company or by any other Person), it will give prompt
written notice (which notice shall specify the intended method or methods of
disposition) to the Holder of its intention to do so, and upon the written
request of the Holder delivered to the Company within ten Business Days after
any such notice (which request shall specify the number of Registrable
Securities intended to be disposed of by the Holder), the Company will use
commercially reasonable efforts to include in such Registration Statement all
Registrable Securities which the Company has been so requested to register by
the Holder.
(b) If at any time prior to the effective date of any Registration
Statement described in subsection (a), the Company shall determine for any
reason not to proceed with such registration, the Company may, at its election,
give written notice of such determination to the Holder and thereupon the
Company shall be relieved of its obligation to register such Registrable
Securities in connection with such registration.
(c) The Company will not be required to effect any registration of
Registrable Securities pursuant to this Section in connection with an offering
of securities solely for the account of the Company if the Company shall have
been advised in writing (with a copy to the Holder) by a nationally recognized
investment banking firm (which may be the managing underwriter for the offering)
selected by the Company that, in such firm's opinion, registration of
Registrable Securities and of any other securities requested to be included in
such registration by Persons having rights to include securities therein at that
time may interfere with an orderly sale and distribution of the securities being
sold by the Company in such offering or adversely affect the price of such
securities; but if an offering of less than all of the Registrable Securities
requested to be registered by the Holder and other securities requested to be
included in such registration by such other Persons would not, in the opinion of
such firm, adversely affect the distribution or price of the securities to be
sold by the Company in the offering, the aggregate number of Registrable
Securities requested to be included in such offering by the Holder shall be
reduced pro rata in accordance with the proportion that the number of shares
proposed to be included in such registration by the Holder
-5-
<PAGE> 6
bears to the number of shares proposed to be included in such registration by
the Holder and all other such Persons.
(d) The Company shall not be required to give notice of, or effect
any registration of Registrable Securities under this Section incidental to, the
registration of any of its securities in connection with mergers,
consolidations, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock options or other employee benefit or compensation
plans.
(e) No registration of Registrable Securities effected under this
Section shall relieve the Company of its obligations to effect registrations of
Registrable Securities pursuant to Sections 2 and 3.
Section 5. Holdbacks and Other Transfer Restrictions.
(a) The Holder shall not, if requested by the managing underwriter
in an underwritten offering: (1) that includes the Holder's Registrable
Securities, effect any public sale or distribution of securities of the Company
of the same class as the securities included in such Registration Statement (or
convertible into such class), including a sale pursuant to Rule 144(k) under the
Securities Act effect (except as part of such underwritten registration) any
public sale or distribution of securities of the Company of the same class as
the securities included in such Registration Statement (or convertible into such
class), including a sale pursuant to Rule 144(k) under the Securities Act during
the ten day period prior to, and during the 180-day period beginning on the
closing date of each underwritten offering made pursuant to such registration
statement, to the extent timely notified in writing by the Company or the
managing underwriter; and (2) in the event of an offering for the account of the
Company, to the extent the Holder does not elect (or is not permitted under
Section 4(c)) to sell such securities in connection with such offering, effect
any public sale or distribution of securities of the Company of the same class
as the securities included in such Registration Statement (or convertible into
such class), including a sale pursuant to Rule 144(k) under the Securities Act
during the period of distribution of the Company's securities in such offering
and during the period in which the underwriting syndicate, if any, participates
in the aftermarket. In any such case the Company shall require the managing
underwriter to notify the Company and the Company, in turn, shall notify the
Holder after such participation ceases. If the Company or such managing
underwriter so requests, the Holder shall enter into an agreement reflecting
such restrictions.
(b) The Holder shall not, during any period in which any of its
Registrable Securities are included in any effective Registration Statement, (1)
effect any stabilization transactions or engage in any stabilization activity in
connection with the Common Shares or other equity securities of the Company in
contravention of Regulation M under the Exchange Act; (2) permit any Affiliated
Purchaser (as that term is defined in Rule 100(b) of Regulation M under the
Exchange Act) to bid for or purchase for any account in which such Holder has a
beneficial interest, or attempt to induce any other person to purchase, any
Common Shares or Registrable Securities
-6-
<PAGE> 7
in contravention of Regulation M under the Exchange Act; or (3) offer or agree
to pay, directly or indirectly, to anyone any compensation for soliciting
another to purchase, or for purchasing (other than for the Holder's own
account), any securities of the Company on a national securities exchange in
contravention of Regulation M under the Exchange Act.
(c) The Holder shall not, in the case of a registration including
Registrable Securities to be offered by it for sale through brokers
transactions, furnish each broker through whom the Holder offers Registrable
Securities such number of copies of the prospectus as the broker may require and
otherwise comply with the prospectus delivery requirements under the Securities
Act.
Section 6. Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to effect a registration of
Registrable Securities:
(a) The Company will use commercially reasonable efforts to prepare
and file with the SEC, within the time periods specified herein, a Registration
Statement on Form S-3 or its equivalent (or on such other registration form
available to the Company that permits the greatest extent of incorporation by
reference of materials filed by the Company, under the Exchange Act), and will
use commercially reasonable efforts to cause such registration statement to
become effective as promptly as practicable thereafter and to remain effective
under the Securities Act until (1) the earlier of such time as all securities
covered thereby have been disposed of pursuant to such Registration Statement or
180 days after such Registration Statement becomes effective, in the case of
registrations pursuant to Section 2, or (2) 90 days after such Registration
Statement becomes effective, in the case of registrations pursuant to Section 3,
in every case as any such period may be extended pursuant to subsection (h) or
Section 8.
(b) The Company will prepare and file with the SEC such amendments,
post-effective amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for such period of time required by subsection
(a), as such period may be extended pursuant to subsection (h) or Section 8.
(c) The Company will comply in all material respects with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the period during which
any such Registration Statement is required to be effective.
(d) The Company will furnish to any Holder and any underwriter of
Registrable Securities (1) such number of copies (including manually executed
and conformed copies) of such Registration Statement and of each amendment
thereof and supplement thereto (including all annexes, appendices, schedules and
exhibits), (2) such number of copies of the prospectus used in connection with
such Registration Statement (including each preliminary prospectus, any summary
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<PAGE> 8
prospectus and the final prospectus and including prospectus supplements), and
(3) such number of copies of other documents, in each case as the Holder or such
underwriter may reasonably request.
(e) The Company will use commercially reasonable efforts to register
or qualify all Registrable Securities covered by such Registration Statement
under the securities or "blue sky" laws of states of the United States and any
other jurisdiction as the Holder or any underwriter shall reasonably request,
and do any and all other acts and things which may be reasonably requested by
the Holder or such underwriter to consummate the offering and disposition of
Registrable Securities in such jurisdictions; but the Company shall not be
required to qualify generally to do business as a foreign corporation or as a
dealer in securities, subject itself to taxation, or consent to general service
of process in any jurisdiction wherein it is not then so qualified or subject.
(f) The Company will use, as soon as practicable after the
effectiveness of the Registration Statement, commercially reasonable efforts to
cause the Registrable Securities covered by such Registration Statement to be
registered with, or approved by, such other United States and Bermuda public,
governmental or regulatory authorities, if any, as may be required in connection
with the disposition of such Registrable Securities.
(g) The Company will use commercially reasonable efforts to list the
Registrable Securities covered by such Registration Statement on any securities
exchange (or if applicable, the Nasdaq National Market System) on which any
securities of the Company are then listed, if the listing of such Registrable
Securities is then permitted under the applicable rules of such exchange (or if
applicable, the Nasdaq National Market System).
(h) The Company will notify the Holder as promptly as practicable
and, if requested by the Holder, confirm such notification in writing, (1) when
a prospectus or any prospectus supplement has been filed with the SEC, and when
a Registration Statement or any post-effective amendment thereto has been filed
with and declared effective by the SEC, (2) of the issuance by the SEC of any
stop order or the coming to its knowledge of the initiation of any proceedings
for that purpose, (3) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (4) of the occurrence of any event which requires
the making of any changes to a Registration Statement or related prospectus so
that such documents will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (and the Company shall promptly prepare and furnish to each
Holder a reasonable number of copies of a supplemented or amended prospectus
such that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading), and (5) of the Company's determination that the
filing of a post-effective amendment to a Registration Statement shall be
necessary or appropriate. Upon the receipt of any notice from the Company of the
occurrence of any event of
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<PAGE> 9
the kind described in clause (4), the Holder shall forthwith discontinue any
offer and disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until the Holder shall have
received copies of a supplemented or amended prospectus which is no longer
defective and, if so directed by the Company, shall deliver to the Company all
copies (other than permanent file copies) of the defective prospectus covering
such Registrable Securities which are then in the Holder's possession. If the
Company shall provide any notice of the type referred to in the preceding
sentence, the period during which the Registration Statement is required by
subsection (a) to be effective shall be extended by the number of days from and
including the date such notice is provided, to and including the date when the
Holder shall have received copies of the corrected prospectus.
(i) The Company will enter into such agreements and take such other
appropriate actions as are customary and reasonably necessary to expedite or
facilitate the disposition of such Registrable Securities, and in that regard,
will deliver to the Holder such documents and certificates as may be reasonably
requested by the Holder or, as applicable, the managing underwriters, to
evidence the Company's compliance with this Agreement, including, in the case of
any underwritten offering, using commercially reasonable efforts to cause its
independent accountants to deliver to the managing underwriters an accountants'
comfort letter substantially similar to that in scope delivered in an
underwritten public offering and covering audited and interim financial
statements included in the registration statement, or if such letter can not be
obtained through the exercise of commercially reasonable efforts, cause its
independent accountants to deliver to the managing underwriters a comfort letter
based on negotiated procedures providing comfort with respect to the Company's
financial statements included or incorporated by reference in the registration
statement at the highest level permitted to be given by such accountants under
the then applicable standards of the American Institute of Certified Public
Accountants with respect to such Registration Statement.
Section 7. Underwriting.
(a) If requested by the underwriters for any underwritten offering
of Registrable Securities pursuant to a registration under Section 2, the
Company will enter into and perform its obligations under an underwriting
agreement with the underwriters for such offering, such agreement to contain
such representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, customary provisions
relating to indemnities and contribution and the provision of opinions of
counsel and accountants' comfort letters. If Registrable Securities are to be
distributed by such underwriters on behalf of the Holder, the Holder shall also
be a party to any such underwriting agreement.
(b) If any registration pursuant to Section 4 shall involve an
underwritten offering, the Company may require Registrable Securities requested
to be registered pursuant to Section 4 to be included in such underwriting on
the same terms and conditions as shall be
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applicable to the securities being sold through underwriters under such
registration. In such case, the Holder shall be a party to any such underwriting
agreement. Such agreement shall contain such representations and warranties by
the Holder and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, provisions relating to indemnities and contribution.
(c) In any offering of Registrable Securities pursuant to a
registration hereunder, the Holder shall also enter into such additional or
other agreements as may be customary in such transactions, which agreements may
contain, among other provisions, such representations and warranties as the
Company or the underwriters of such offering may reasonably request (including,
without limitation, those concerning the Holder, its Registrable Securities, the
Holder's intended plan of distribution and any other information supplied by it
to the Company for use in such registration statement), and customary provisions
relating to indemnities and contribution.
Section 8. Information Blackout.
(a) At any time when a Registration Statement is effective, upon
written notice from the Company to the Holder that the Company has determined in
good faith that sale of Registrable Securities pursuant to the Registration
Statement would require disclosure of non-public material information, the
disclosure of which would have a material adverse effect on the Company, the
Holder shall suspend sales of Registrable Securities pursuant to such
Registration Statement until the earlier of (1) 20 days after the Company
notifies the Holder of such good faith determination, and (2) such time as the
Company notifies the Holder that such material information has been disclosed to
the public or has ceased to be material or that sales pursuant to such
Registration Statement may otherwise be resumed (the number of days from such
suspension of sales by the Holder until the day when such sales may be resumed
hereunder is hereinafter called a "Sales Blackout Period").
(b) The time period set forth in Section 6(a)(1) or (2) shall be
extended for a number of days equal to the number of days in the Sales Blackout
Period.
(c) No Sales Blackout Period shall be commenced by the Company
within 90 days after the end of a Sales Blackout Period.
Section 9. Rule 144. The Company shall take all actions reasonably
necessary to comply with the filing requirements described in Rule 144(c)(1)
under the Securities Act so as to enable the Holder to sell Registrable
Securities without registration under the Securities Act. Upon the written
request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with the filing requirements under such
Rule 144(c)(1).
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Section 10. Preparation; Reasonable Investigation; Information. In
connection with the preparation and filing of each Registration Statement
registering Registrable Securities under the Securities Act, (a) the Company
will give the Holder and the underwriters, if any, and their respective counsel
and accountants, drafts of such registration statement for their review and
comment prior to filing and (during normal business hours and subject to such
reasonable limitations as the Company may impose to prevent disruption of its
business) such reasonable and customary access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the reasonable opinion of the Holder and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act and (b) as a condition precedent to
including any Registrable Securities of the Holder in any such registration, the
Company may require the Holder to furnish the Company such information regarding
the Holder and the distribution of such securities as the Company may from time
to time reasonably request in writing or as shall be required by law or the SEC
in connection with any registration.
Section 11. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities made
pursuant to this Agreement, the Company shall, to the extent permitted by
applicable law, indemnify and hold harmless the Holder, its officers and
directors, each underwriter of Registrable Securities so offered and each
Person, if any, who controls any of the foregoing persons within the meaning of
the Securities Act ("Holder Indemnitees"), from and against any and all claims,
liabilities, losses, damages, expenses and judgments, joint or several, to which
they or any of them may become subject, including any amount paid in settlement
of any litigation commenced or threatened, and shall promptly reimburse them, as
and when incurred, for any legal or other expenses incurred by them in
connection with investigating any claims and defending any actions, insofar as
such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any violation or alleged violation by the Company of the
Securities Act, any blue sky laws, securities laws or other applicable laws of
any state or county in which the Registrable Securities are offered, and
relating to action taken or action or inaction required of the Company in
connection with such offering, or shall arise out of, or shall be based upon,
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement (or in any preliminary or final prospectus included
therein) relating to the offering and sale of such Registrable Securities, or
any amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; but the Company shall not be liable to any Holder
Indemnitee in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement, or any omission or alleged omission, if such statement
or omission shall have been made in reliance upon and in conformity with
information furnished to the Company in writing by or on behalf of the Holder
specifically for use in the preparation of the Registration Statement (or in any
preliminary
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<PAGE> 12
or final prospectus included therein), or any amendment thereof or supplement
thereto. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder and shall survive the transfer
of such securities. The foregoing indemnity agreement is in addition to any
liability which the Company may otherwise have to any Holder Indemnitee.
(b) In the case of each offering of Registrable Securities made
pursuant to this Agreement, the Holder, shall, to the extent permitted by
applicable law, indemnify and hold harmless the Company, its officers and
directors and each person, if any, who controls any of the foregoing within the
meaning of the Securities Act (the "Company Indemnitees"), from and against any
and all claims, liabilities, losses, damages, expenses and judgments, joint or
several, to which they or any of them may become subject, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any violation by the Holder of the Securities
Act, any blue sky laws, securities laws or other applicable laws of any state or
country in which the Registrable Securities are offered and relating to action
taken or action or inaction required of the Holder in connection with such
offering, or shall arise out of, or shall be based upon, any untrue statement of
a material fact contained in the Registration Statement (or in any preliminary
or final prospectus included therein) relating to the offering and sale of such
Registrable Securities or any amendment thereof or supplement thereto, or any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each case only
to the extent that such untrue statement is contained in, or such fact is
omitted from, information furnished in writing to the Company by or on behalf of
the Holder specifically for use in the preparation of such Registration
Statement (or in any preliminary or final prospectus included therein). Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of any Company Indemnitee. In no event shall the liability
of the Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by it upon the sale of Registrable Securities pursuant to such
offering. The foregoing indemnity is in addition to any liability which the
Holder may otherwise have to any Company Indemnitee.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 11, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing, but the failure
to give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party. In case any such
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party
and shall pay as incurred the fees and disbursements of such counsel related to
such proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying
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party shall pay as incurred the fees and expenses of the counsel retained by the
indemnified party in the event (1) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (2) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
for all such indemnified parties. Such firm shall be designated in writing by
the Holder in the case of Holder Indemnitees and by the Company in the case of
Company Indemnitees. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgement for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) in respect of any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) referred to therein, or if the
indemnified party failed to give the notice required under subsection (c), then
each indemnifying party shall, to the extent permitted by applicable law,
contribute to the amount paid or payable by the indemnified party as a result of
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) in such proportion as is appropriate to reflect not only both
the relative benefits received by such party (as compared to the benefits
received by all other parties) from the offering in respect of which indemnity
is sought, but also the relative fault of all parties in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by a party
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by it bear to the total amounts
received by each other party. Relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The parties agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above in this subsection (d). The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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(e) The indemnity provided for hereunder shall not inure to the
benefit of any indemnified party to the extent that such indemnified party
failed to comply with the applicable prospectus delivery requirements of the
Securities Act as then applicable to the person asserting the loss, claim,
damage or liability for which indemnity is sought.
Section 12. Expenses. In connection with any registration under this
Agreement the Company shall pay all Registration Expenses (to the extent not
borne by underwriters or others), except as provided in Section 2(f) or 3(d),
and the Holder shall pay its pro rata share of the items described in clause (i)
of the definition of "Registration Expenses" in Section 1.
Section 13. Notices. Except as otherwise provided below, whenever it
is provided in this Agreement that any notice, demand, request, consent,
approval, declaration or other communication shall or may be given to or served
upon any of the parties hereto, or whenever any of the parties hereto, wishes to
provide to or serve upon the other party any other communication with respect to
this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be delivered in
person or sent by telecopy, as follows: (a) if to the Holder, at the most
current address given by the Holder to the Company by means of a notice given in
accordance with the provisions of this Section 13, and with respect to all other
holders is as set forth in the register for the Registrable Securities; and (b)
if to the Company, initially at the Company's principal address and thereafter
at such other address, notice of which is given in accordance with the
provisions of this Section 13. The furnishing of any notice required hereunder
may be waived in writing by the party entitled to receive such notice. Every
notice, demand, request, consent, approval, declaration or other communication
hereunder shall be deemed to have been duly furnished or served on the party to
which it is addressed, in the case of delivery in person or by telecopy, on the
date when sent (with receipt personally acknowledged in the case of telecopied
notice), and in all other cases, five business days after it is sent. Failure or
delay in delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to the persons designated above to receive
copies shall in no way adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
Section 14. Entire Agreement. This Agreement represents the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof and supersedes any and all prior oral and written agreements,
arrangements and understandings among the parties hereto with respect to such
subject matter; and this Agreement can be amended, supplemented or changed, and
any provision hereof can be waived or a departure from any provision hereof can
be consented to, only by a written instrument making specific reference to this
Agreement signed by the Company and the Holder.
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<PAGE> 15
Section 15. Headings. The section headings contained in this
Agreement are for general reference purposes only and shall not affect in any
manner the meaning, interpretation or construction of the terms or other
provisions of this Agreement.
Section 16. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of New York applicable to
contracts to be made, executed, delivered and performed wholly within such state
and, in any case, without regard to the conflicts of law principles of such
state.
Section 17. Severability. If any provision of this Agreement shall
be held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
Section 18. No Waiver. The failure of any party at any time or times
to require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
Section 19. 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 but one and the same original instrument. Not all
parties need sign the same counterpart. Delivery by facsimile of a signature
page to this Agreement shall have the same effect or delivery of an original
executed counterpart.
Section 20. Successors and Assigns. This Agreement shall inure to
the benefit of and be binding upon the successors, assigns and transferees of
each of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; but nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of applicable law. If any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registerable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such
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<PAGE> 16
Holder shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, including the restrictions on
resale set forth in this Agreement, and such Holder shall be entitled to receive
the benefits hereof.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
as of the date first above written.
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By
----------------------------------------
Lawrence S. Doyle
President and Chief Executive Officer
HOLDER
----------------------------------------
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Exhibit 10.14
Letter Agreement
[Annuity and Life Re (Holdings), Ltd. letterhead]
March 4, 1998
Risk Capital Reinsurance Company
c/o Marsh & McLennan Risk Capital Corp.
20 Horseneck Lane
Greenwich, CT 06830
Re: Securities Purchase Agreement
Gentlemen:
Reference is made to the Securities Purchase Agreement dated as of
March 4, 1998 (the "Agreement"), between Risk Capital Reinsurance Company (the
"Investor") and Annuity and Life Re (Holdings), Ltd. (the "Company"). All
capitalized terms used but not defined herein shall have the meanings ascribed
to such terms in the Agreement.
In connection with the Agreement, the Investor and the Company hereby
agree and acknowledge that, for so long as the Investor beneficially owns at
least 500,000 Common Shares of the Company (including for this purpose shares
issuable pursuant to the Class B Warrants held by the Investor), the Investor
shall have the right to designate one individual for election to the board of
directors of the Company. Upon timely receipt by the Company of the Investor's
written exercise of such right, the Company shall cause such individual to be
nominated for election as a director of the Company at the next annual general
meeting of the Company (provided no person previously selected by the Investor
is a member of a class of directors of the Company not standing for election at
such meeting). In consideration of such right, and for so long as any person
selected by the Investor is a director (and during any period after such
person's designation by the Investor but before his or her election), the
Investor shall not vote or permit any of the shares of the Company beneficially
owned by it to be voted for any other nominee for election as a director of the
Company. The Investor may assign its rights hereunder to any transferee of the
required minimum number of shares referred to above or agree to exercise such
right at the direction of any other person, provided that it has received the
prior written consent of the Company, such written consent not to be
unreasonably withheld. The Investor further agrees that it shall be reasonable
for the Company to withhold such prior written consent in situations including,
but not limited to, those in which the Investor agrees to assign its right to or
to act at the direction of Lincoln National Corporation, Transamerica Occidental
Life Insurance Company, Reinsurance Group of America Inc., General Re Corp.,
Life Re Corp., Employers Reassurance Corporation, Swiss Reinsurance or Munich
Reinsurance, or situations in which the Investor agrees to assign its right or
to act at the direction of an entity where such assignment or act would result
in any person owning, directly or indirectly, or being considered to own, 10% or
more of the total combined voting power of all classes of stock of the Company
under the "controlled foreign corporation" rules of the United States Internal
Revenue Code. As a condition of any such assignment or agreement to act at the
direction of any other person, such assignee or other person shall execute an
agreement indicating its intention to be bound by the terms of this letter.
Very truly yours,
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By: /s/ Lawrence S. Doyle
--------------------------------
Lawrence S. Doyle, President
Acknowledged by:
- ----------------------------------
RISK CAPITAL REINSURANCE COMPANY
<PAGE> 1
Exhibit 10.15
Employment Agreement with William W. Atkin
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of February 27, 1998, by and between
Annuity and Life Re (Holdings), Ltd., a Bermudian corporation (the "Company"),
Annuity and Life Reassurance, Ltd., a subsidiary of the Company organized under
the laws of Bermuda to engage in worldwide life and annuity reinsurance (the
"Operating Company"), and William W. Atkin (hereinafter called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company is contemplating an initial public
offering or a private placement of its Common Shares in excess of $100 million
(the "IPO"); and
WHEREAS, the Company and the Operating Company desire that the
Employee serve as Chief Financial Officer and Treasurer of the Company and the
Operating Company and the Employee is willing to serve in such capacities; and
WHEREAS, if the IPO has not been completed prior to May 1,
1998, both Company and the Employee desire the option to terminate this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree as follows:
Section: 1. Employment.
Effective as of March 15, 1998, the Company and the Operating
Company will employ the Employee and the Employee will perform services for the
Company and the Operating Company on the terms and conditions set forth in this
Agreement and for the period ("Term of Employment") specified in Section 3
hereof.
Section: 2. Duties.
The Employee, during the Term of Employment, shall serve the
Company as its Chief Financial Officer and Treasurer. The Employee shall also
serve as Chief Financial Officer and Treasurer of the Operating Company. The
Employee shall be based at the Operating Company's headquarters in Bermuda,
other than for periodic travel in the ordinary course of business. The Employee
shall have such duties and responsibilities as are assigned to him by the Boards
of Directors of the Company and the Operating Company commensurate with his
positions as Chief Financial Officer and Treasurer of the Company and the
Operating Company.
<PAGE> 2
The Employee shall perform his duties hereunder faithfully and
to the best of his abilities and in furtherance of the business of the Company,
and shall devote his full business time, energy, attention and skill to the
business of the Company and to the promotion of its interests except as
otherwise agreed by the Company.
The Employee warrants and represents that he is free to enter
into this Agreement and is not restricted by any prior or existing agreement and
the Company and the Operating Company may rely on such representation in
entering into this Agreement.
Section: 3. Term of Employment.
The initial Term of Employment of this Agreement shall be the
period commencing on March 15, 1998 and ending on the third anniversary of the
IPO. At the end of the initial Term of Employment, and on each anniversary
thereof, the Term of Employment shall automatically be extended for one
additional year, unless the Company or the Employee shall have given written
notice to the other that it does not wish to extend this Agreement at least
three months in advance.
Section: 4. Salary.
The Employee shall receive, as compensation for his duties and
obligations to the Company and the Operating Company, a salary at the annual
rate of $180,000, payable in substantially equal installments in accordance with
the Operating Company's payroll practice. It is agreed between the parties that
the Company shall review the base annual salary annually and in light of such
review may, in the discretion of the Board of Directors of the Company (but
shall not be obligated to), increase such base annual salary taking into account
any change in the Employee's then responsibilities, increases in the cost of
living, performance by the Employee, and other pertinent factors.
Section: 5. Bonus.
During the Term of Employment, the Employee shall, subject to
and effective upon the consummation of the IPO, participate in the Company's
Incentive Compensation Plan, a summary of which is attached hereto as Exhibit A,
and will be eligible for an annual cash bonus of up to two times his annual
salary based on performance targets as determined in accordance with the terms
of the Plan.
Section: 6. Options.
(a) Initial Options. The Company shall grant to the
Employee, subject to and effective as of the consummation of the IPO, options
(the "Initial Options") to purchase at a price per
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<PAGE> 3
share equal to the price per share in the IPO, one-half of one percent of the
Company's outstanding ordinary shares immediately following the consummation of
the Company's initial public offering and any concurrent private placements (the
"Ordinary Shares"), but not to exceed an aggregate value of $2.0 million (valued
at the IPO per share price). Thirty three and one-third percent (33 1/3%) of the
Initial Options shall become exercisable after the first anniversary of the IPO,
33 1/3% of the Initial Options shall become exercisable after the second
anniversary of the IPO, and an additional 33 1/3% of the Initial Options shall
become exercisable after the third anniversary thereof. In addition, no Initial
Option may be exercised after the earlier of (A) the date that is (i) ninety
(90) days following the termination of the Employee's employment for any reason
other than death, disability or Serious Cause (as defined in Section 11), or
(ii) six (6) months after the termination of the Employee's employment by reason
of death or disability or (iii) the date upon which the Employee's employment is
terminated for Serious Cause; or (B) the tenth anniversary of the IPO date.
The consideration for the Ordinary Shares purchased upon
exercise of the Initial Options may be paid in cash or by any other method
permitted by the terms of the Company's Initial Option Plan. The issuance of any
Ordinary Shares pursuant to the Initial Options shall in all events be subject
to all applicable securities laws and the Employee shall enter into any
agreement reasonably requested by the Company in order to ensure that all such
issuances are in full compliance therewith. The Employee shall not have any of
the rights and privileges of a shareholder of the Company with respect to the
Ordinary Shares issuable upon any exercise of Initial Options unless and until
his name is entered into the register of members of the Company in respect of
such Ordinary Shares. If there is any change in the number or nature of
outstanding shares of the Company's capital stock by reason of a share dividend,
recapitalization, merger, consolidation, scheme of arrangement, share split,
combination or exchange, share repurchase or otherwise, which in any such case
has a dilutive or anti-dilutive effect on the Ordinary Shares, the number of
Ordinary Shares subject to each outstanding Initial Option, the exercise price
thereof and/or other terms thereof shall be appropriately adjusted by the Board
of Directors of the Company (or any committee thereof), whose determination
shall be conclusive, so as to restore the option holder to his rights
thereunder.
(b) Other Options. During the Term of Employment, the Employee
shall, subject to the consummation of the IPO, be eligible to be granted options
(in addition to the Initial Options) to purchase Ordinary Shares at such price
and subject to such terms as provided by the Company's Initial Stock Option
Plan, in the sole discretion of the Board of Directors of the Company.
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<PAGE> 4
Section: 7. Employee Benefits.
During the Term of Employment the Employee shall, subject to
the consummation of the IPO, be entitled to participate in all employee benefit
programs of the Company, as such programs may be in effect from time to time,
including without limitation, pension and other retirement plans, profit sharing
plans, group life insurance, accidental death and dismemberment insurance,
hospitalization, surgical and major medical coverage, sick leave (including
salary continuation arrangements), long term disability, holidays and vacations.
Following the termination of the Employee's employment with the Company, the
Company will, for a period of six months, pay for health benefits for the
Employee equivalent to the health benefits that the Employee received while
employed by the Company.
Section: 8. Business Expenses.
All reasonable travel and other expenses incidental to the
rendering of services by the Employee hereunder shall be paid by the Company and
if expenses are paid in the first instance by the Employee, the Company will
reimburse him therefor upon presentation of proper invoices; subject in each
case to compliance with the Company's reimbursement policies and procedures.
Section: 9. Housing and Travel Expenses.
Effective upon consummation of the IPO, the Company shall
provide to the Employee the sum of $8,333.00 monthly as an allowance to cover
the expenses of housing in Bermuda and for his personal travel including spouse
and immediate family to and from Bermuda.
Section: 10. Vacations and Sick Leave.
The Employee shall be entitled to reasonable vacation and
reasonable sick leave each year (beginning with 1998), in accordance with
policies of the Company, as determined by the Board of Directors, provided,
however, that the Employee shall be entitled to a minimum of 4 weeks vacation
per year. If the Employee chooses not to take all of the vacation time allotted
to him in a particular year, the Company shall pay the Employee at the end of
that year for each week of vacation that the Employee did not take during the
year at a rate equivalent to the Employee's weekly base salary.
Section: 11. Termination.
(a) In the event of Serious Cause, as defined below,
the Company may terminate the Employee's employment and the Term
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<PAGE> 5
of Employment upon written notice of such termination stating the Serious Cause
upon which the Company relies for its termination. The Employee's employment and
the Term of Employment shall be terminated effective as of the date specified in
such notice, which shall in no event be earlier than the effective date of such
notice as provided in Section 20.
"Serious Cause" shall mean (i) the willful and continued
failure by the Employee to perform substantially his duties hereunder, other
than by reasons of health, after demand for substantial performance is delivered
by the Company that identifies the manner in which the Company believes the
Employee has not substantially performed his duties, (ii) the Employee shall
have been indicted by any federal, state or local authority in any jurisdiction
for, or shall have pleaded guilty or nolo contendere to, an act constituting a
felony, (iii) the Employee shall have habitually abused any substance (such as
narcotics or alcohol), or (iv) the Employee shall have (A) engaged in acts of
fraud, material dishonesty or gross misconduct in connection with the business
of the Company or (B) committed a material breach of this Agreement.
(b) The Employee may terminate his employment and the Term of
his Employment in the event of Good Reason, as defined below, upon 30 days'
prior written notice of such termination stating the Good Reason upon which the
Employee relies for his termination. The Employee's employment and the Term of
Employment shall be terminated effective as of the date specified in such
notice, which in no event shall be earlier than the effective date of such
notice as provided in Section 20.
"Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) the demotion of the Employee, (iii) a material reduction
of the Employee's duties hereunder, or (iv) a material breach of this Agreement
by the Company.
(c) In the event of termination of the Employee's employment
and the Term of Employment by the Company for Serious Cause or by the Employee
without Good Reason, the Employee shall forfeit all bonus amounts for the then
current fiscal year, and the Company shall be liable to the Employee only for
(i) any accrued but unpaid salary, (ii) any accrued but unpaid bonus from a
prior fiscal year, and (iii) reimbursement of business expenses incurred prior
to the date of termination.
(d) In the event of the death, retirement or disability of the
Employee, the Employee's employment and Term of Employment shall be terminated
as of the date of such death, retirement or disability and the Company shall pay
the Employee, or the Employee's estate or legal representative, as appropriate,
(i) any accrued but unpaid salary, (ii) any earned but unpaid bonus from a prior
fiscal year, (iii) reimbursement of business
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<PAGE> 6
expenses incurred prior to the date of termination, (iv) travel and housing
allowances under Section 9 for six months after the date of termination, and (v)
reasonable relocation expenses from Bermuda to the United States. The date of
the Employee's disability shall be deemed to be the last day of the sixth month
during which the Employee has been unable to carry out his position as provided
below.
"Disability" shall mean the Employee's inability, for reasons
of health, to carry out the functions of his position for a total of 6 months
during any 12 month period of this Agreement. "Retirement" shall mean retirement
from employment upon attaining age 65 or such earlier age agreed to by the
Company.
In addition, in such event, if the Company's Ordinary Shares
are not then publicly traded, the Company shall have the right to call any or
all of the Ordinary Shares of the Company owned by the Employee within six (6)
months of death, retirement or disability, and the Employee, the Employee's
estate or legal representative, whichever is appropriate, shall have the right
to put any or all of the Employee's Ordinary Shares to the Company within twelve
(12) months after death or within six (6) months after retirement or disability.
The price at which such put or call is exercisable shall be equal to the
appraised value, in each case measured as of the date of termination.
(e) If the Company should (i) terminate the Term of Employment
and the Employee's employment herein without Serious Cause; or (ii) if the
Employee should terminate the Term of Employment and his employment hereunder
for Good Reason, the Company shall continue to pay the Employee not less than
$15,000 per month for a period of one year from such termination. In addition,
the Employee shall be entitled to (A) any accrued but unpaid salary, (B) any
earned but unpaid bonus from a prior fiscal year, (C) reimbursement of business
expenses incurred prior to the date of termination, and (D) travel and housing
allowances under Section 9 for six months after the date of termination, and (E)
reasonable relocation expenses from Bermuda to the United States.
(f) In the event of the liquidation of the Company or in the
event that the Board of Directors elects to discontinue permanently operating
the Company, the Term of Employment and the Employee's employment herein shall
be terminated as of the date of such liquidation or discontinuance and the
Company shall pay the Employee (i) any accrued but unpaid salary, (ii) any
earned but unpaid bonus from a prior fiscal year, (iii) unreimbursed business
expenses incurred prior to the date of termination, (iv) travel and housing
allowances under Section 9 for two months after the date of termination, and (v)
reasonable relocation expenses from Bermuda to the United States. In addition,
the
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<PAGE> 7
Employee shall be entitled to receive one year's base salary from the date on
which the Employee's employment is terminated.
(g) Notwithstanding any other provision of this Agreement, if
the IPO has not been consummated by May 1, 1998, either the Employee or Company
may terminate the Employee's employment and the Term of Employment upon 30 days'
written notice, in which event the Company shall continue to pay the Employee's
monthly salary for the lesser of (i) the amount of time it takes for the
Employee to enter into employment with another entity or (ii) six months.
Section: 12. Change of Control.
(a) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then exercisable shall become exercisable (and be
deemed to be vested) on the date on which a Change of Control of the Company
occurs. In addition, restricted Ordinary Shares granted under any of the
Company's share option plans shall immediately vest upon a Change of Control of
the Company.
(b) If (i) the employment of the Employee is terminated by the
Company (or successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Company (or successor thereto) for Good Reason,
within the period commencing on the date that a Change of Control is formally
proposed to the Company's Board of Directors and ending on the first anniversary
of the date on which such Change of Control occurs, then the Employee shall be
entitled to receive (in lieu of the benefits described in Section 11): (1) any
accrued but unpaid salary, (2) a lump sum payment equal to two times such
Employee's annual base salary as of the date of termination, (3) any accrued but
unpaid bonus from a prior fiscal year, (4) reimbursement of business expenses
incurred prior to the date of termination, (5) travel and housing allowances
under Section 9 for one year following the date of termination, (6) reasonable
relocation expenses from Bermuda to the United States, together with (7) a
gross-up of any income taxes payable by the Employee by reason of such payments
occurring in connection with a change of control.
The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.
(c) A "Change of Control" of the Company shall be deemed to
have occurred if, following consummation of the IPO (i) any "person" (as such
term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), excluding the Company
or any of its
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<PAGE> 8
subsidiaries, a trustee or any fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by shareholders of the Company in
substantially the same proportion as their ownership of the Company, is or
becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of the combined voting power of the Company's then outstanding securities
("Voting Securities"); (ii) during any period of not more than two years,
individuals who constitute the Board of Directors of the Company (the "Board")
as of the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (iii) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof; (iii) the shareholders of the Company approve a merger,
consolidation or reorganization or a court of competent jurisdiction approves a
scheme of arrangement of the Company, other than a merger, consolidation,
reorganization or scheme of arrangement which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 50% of the combined voting power of
the Voting Securities of the Company or such surviving entity outstanding
immediately after such merger, consolidation, reorganization or scheme of
arrangement; or (iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or any agreement for the sale of substantially all of
the Company's assets.
(d) The provisions of this Section 12 shall only apply
following the consummation of an IPO.
Section: 13. Agreement Not to Compete.
(a) The Employee hereby covenants and agrees that at no time
during the Term of Employment nor for a period of (i) one year immediately
following the termination of the Employee's employment by the Company without
Serious Cause or by the Employee for Good Reason or (ii) two years following the
termination of the Employee's employment for any other reason, will he for
himself or on behalf of any other person, partnership, company or corporation,
directly or indirectly, acquire any financial or beneficial interest in (except
as provided in the next sentence), provide consulting or other
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<PAGE> 9
services to, be employed by, or own, manage, operate or control any entity
engaged in any business similar to the business engaged in by the Company or the
Operating Company at the time of such termination of employment. Notwithstanding
the preceding sentence, the Employee shall not be prohibited from (i) obtaining
employment with an employer in the life insurance industry that does not have
reinsurance operations or (ii) owning less than one (1%) percent of any publicly
traded corporation, whether or not such corporation is in competition with the
Company or the Operating Company.
(b) The Employee hereby covenants and agrees that, at all
times during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee shall not directly or indirectly
employ or seek to employ any person or entity employed at that time by the
Company or any of its subsidiaries, or otherwise encourage or entice such person
or entity to leave such employment.
(c) This Section 13 shall be null and void if the IPO
has not been consummated by August 31, 1998.
Section: 14. Confidential Information.
(a) The Employee agrees to keep secret and retain in the
strictest confidence all confidential matters which relate to the Company or any
affiliate of the Company, including, without limitation, customer lists, client
lists, trade secrets, pricing policies and other business affairs of the Company
and any affiliate of the Company learned by him from the Company or any such
affiliate or otherwise before or after the date of this Agreement, and not to
disclose any such confidential matter to anyone outside the Company or any of
its affiliates, whether during or after his period of service with the Company,
except as may be required in the course of a legal or governmental proceeding.
Upon request by the Company, the Employee agrees to deliver promptly to the
Company upon termination of his services for the Company, or at any time
thereafter as the Company may request, all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any media
and other documents (and all copies thereof) relating to the Company's or any
affiliate's business and all property of the Company or any affiliate associated
therewith, which he may then possess or have under his control.
Section: 15. Remedy.
(a) Should the Employee engage in or perform, either directly
or indirectly, any of the acts prohibited by Sections 13 or 14 hereof, it is
agreed that the Company shall be entitled to full injunctive relief, to be
issued by any competent court of equity, enjoining and restraining the Employee
and each and every
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<PAGE> 10
other person, firm, organization, association, or corporation concerned therein,
from the continuance of such violative acts. The foregoing remedy available to
the Company shall not be deemed to limit or prevent the exercise by the Company
of any or all further rights and remedies which may be available to the Company
hereunder or at law or in equity.
(b) The Employee acknowledges and agrees that the covenants
contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof. If any provision hereof is
determined to be invalid or unenforceable by a court of competent jurisdiction,
the Employee shall negotiate in good faith to provide Company with protection as
nearly equivalent to that found to be invalid or unenforceable and if any such
provision shall be so determined to be invalid or unenforceable by reason of the
duration or geographical scope of the covenants contained therein, such duration
or geographical scope, or both, shall be considered to be reduced to a duration
or geographical scope to the extent necessary to cure such invalidity.
Section: 16. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the Employee, his heirs, executors, administrators and beneficiaries, and the
Company, the Operating Company and their successors and assigns.
Section: 17. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York, without reference to rules
relating to conflicts of law.
Section: 18. Entire Agreement.
This Agreement constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements as to employment of the Employee. This Agreement cannot be amended,
changed, modified or terminated without the written consent of the parties
hereto.
Section: 19. Waiver of Breach.
The waiver by either party of a breach of any term of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach thereof.
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<PAGE> 11
Section: 20. Notices.
Any notice, report, request or other communication given under
this Agreement shall be written and shall be effective upon delivery when
delivered personally, by Federal Express or by fax.
Unless otherwise notified by any of the parties, notices shall
be sent to the parties as follows:
To Employee: William W. Atkin
------------------------------------
------------------------------------
------------------------------------
With a
Copy to:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
To the
Company: Annuity and Life Reassurance, Ltd.
Victoria Hall, Victoria Street
P.O. Box HM1262
Hamilton, HM FX, Bermuda
Section: 21. Severability.
If any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
Section: 22. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as on the day and year first above written.
/s/ William W. Atkin
-----------------------------------
William W. Atkin
Annuity and Life Re (Holdings), Ltd.
By: /s/ Lawrence S. Doyle
--------------------------------
Lawrence S. Doyle, President
Annuity and Life Reassurance, Ltd.
By: /s/ Lawrence S. Doyle
--------------------------------
Lawrence S. Doyle, President
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<PAGE> 13
Exhibit A
Initial Cash Bonus Plan
20% of the Company's consolidated pretax earnings from normal
operations in excess of a benchmark return on equity (such benchmark is expected
to be set at approximately 8%), as determined by the Board of Directors in
accordance with Generally Accepted Accounting Principles, consistently applied,
shall be available for all senior executives. All determinations by the Board of
Directors shall be final and conclusive for all purposes of the Plan.
<PAGE> 1
Exhibit 23.3
Consent of
KPMG Peat Marwick
The Board of Directors and Shareholders
Annuity and Life Re (Holdings), Ltd.
We consent to the use of our report included herein and to the reference to our
firm in the prospectus, under the heading "Experts".
/s/ KPMG Peat Marwick
- ---------------------
Chartered Accountants
Hamilton, Bermuda
March 4, 1998
<PAGE> 1
EXHIBIT 24.2
POWERS OF ATTORNEY
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints Lawrence S. Doyle as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to the Registration Statement on Form S-1 of Annuity and
Life Re (Holdings), Ltd., and to file the same with all exhibits thereto and
other documents in connection therewith, or in connection with the registration
of the common shares of Annuity and Life Re (Holdings), Ltd. under the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters, as fully and to all intents and
purposes as he might or could do in person, and hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitutes may do or cause to
be done by virtue hereof.
Dated: February 19, 1998 /s/ Albert R. Dowden
----------------------------------
Albert R. Dowden
1
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints Lawrence S. Doyle as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to the Registration Statement on Form S-1 of Annuity and
Life Re (Holdings), Ltd., and to file the same with all exhibits thereto and
other documents in connection therewith, or in connection with the registration
of the common shares of Annuity and Life Re (Holdings), Ltd. under the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters, as fully and to all intents and
purposes as he might or could do in person, and hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitutes may do or cause to
be done by virtue hereof.
Dated: February 19, 1998 /s/ Lee M. Gammill, Jr.
----------------------------------
Lee M. Gammill, Jr.
2
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints Lawrence S. Doyle as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to the Registration Statement on Form S-1 of Annuity and
Life Re (Holdings), Ltd., and to file the same with all exhibits thereto and
other documents in connection therewith, or in connection with the registration
of the common shares of Annuity and Life Re (Holdings), Ltd. under the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters, as fully and to all intents and
purposes as he might or could do in person, and hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitutes may do or cause to
be done by virtue hereof.
Dated: February 19, 1998 /s/ Donald J. Matthews
----------------------------------
Donald J. Matthews
3
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints Lawrence S. Doyle as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to the Registration Statement on Form S-1 of Annuity and
Life Re (Holdings), Ltd., and to file the same with all exhibits thereto and
other documents in connection therewith, or in connection with the registration
of the common shares of Annuity and Life Re (Holdings), Ltd. under the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters, as fully and to all intents and
purposes as he might or could do in person, and hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitutes may do or cause to
be done by virtue hereof.
Dated: February 19, 1998 /s/ Walter A. Scott
----------------------------------
Walter A. Scott
4
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the person whose signature appears
below hereby constitutes and appoints Lawrence S. Doyle as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign
any or all amendments to the Registration Statement on Form S-1 of Annuity and
Life Re (Holdings), Ltd., and to file the same with all exhibits thereto and
other documents in connection therewith, or in connection with the registration
of the common shares of Annuity and Life Re (Holdings), Ltd. under the
Securities Exchange Act of 1934, as amended, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary in connection with such matters, as fully and to all intents and
purposes as he might or could do in person, and hereby ratifying and confirming
all that said attorney-in-fact and agent or his substitutes may do or cause to
be done by virtue hereof.
Dated: February 19, 1998 /s/ Jon W. Yoskin, II
----------------------------------
Jon W. Yoskin, II
5
