<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1998
REGISTRATION NO. 333-62785
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLOBAL MARKETS ACCESS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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BERMUDA 6351 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
<TABLE>
<S> <C>
VICTORIA HALL, VICTORIA STREET CT CORPORATION SYSTEM
P.O. BOX HM1262 1633 BROADWAY
HAMILTON, HM FX, BERMUDA NEW YORK, NEW YORK 10019
(441) 295-3278 (212) 664-1666
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA
PRINCIPAL EXECUTIVE OFFICES) CODE, OF AGENT FOR SERVICE)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
F. DOUGLAS RAYMOND, III, ESQ. CHARLES G. COLLIS, ESQ. CRAIG B. BROD, ESQ.
DRINKER BIDDLE & REATH LLP CONYERS DILL & PEARMAN CLEARY, GOTTLIEB, STEEN & HAMILTON
1100 PHILADELPHIA NATIONAL BANK CLARENDON HOUSE ONE LIBERTY PLAZA
BUILDING 2 CHURCH STREET, P.O. BOX HM666 NEW YORK, NEW YORK 10006
1345 CHESTNUT STREET HAMILTON, HM CX, BERMUDA (212) 225-2000
PHILADELPHIA, PENNSYLVANIA (441) 295-1422
19107-3496
(215) 988-2700
</TABLE>
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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. [ ]
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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EXPLANATORY NOTE
This Registration Statement contains three forms of prospectus: one to be
used in connection with an offering of the Common Shares in the United States
and Canada (the "U.S. Prospectus"), a second to be used in connection with a
concurrent offering of the Common Shares outside the United States and Canada
(the "International Prospectus") and a third to be used in connection with a
concurrent direct offering of the Common Shares by the Company to its directors
and officers (the "Direct Sales Prospectus"). The three prospectuses are
identical in all respects except for the front cover page, the Section entitled
"Underwriting" ("Plan of Distribution" in the Direct Sales Prospectus) and the
back cover page. Pages included in the International Prospectus and the Direct
Sales Prospectus and not in the U.S. Prospectus are marked "Alternative Page for
the International Prospectus" and "Alternative Page for the Direct Sales
Prospectus," respectively.
<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 OCTOBER 30, 1998
PROSPECTUS
16,750,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
------------------------
All of the 16,750,000 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Global Markets Access Ltd. ("GMA").
Of the 16,750,000 Common Shares offered hereby, Common Shares are
being offered for sale initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and Common Shares are being
offered for sale initially in a concurrent offering outside the United States
and Canada by the International Managers (the "International Offering" and,
together with the U.S. Offering, the "Offerings"). The initial public offering
price and underwriting discount per Common Share will be identical for both
Offerings. The initial public offering price will be $15.00 per Common Share.
See "Underwriting." Prior to the Offerings, GMA has not conducted any business
and there has been no public market for the Common Shares.
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 "GMALF."
In connection with the formation of GMA and the establishment of a core
group of strategic investors, Risk Capital Reinsurance Company, The Trident
Partnership, L.P. and (collectively, the "Strategic Investors")
have severally agreed to purchase for investment directly from GMA an aggregate
of 7,092,197 Common Shares and Class B Warrants to purchase an aggregate of
700,000 Common Shares. Such purchases will be consummated immediately prior to
the consummation of the Offerings for an aggregate purchase price for the Common
Shares and the Class B Warrants of approximately $100.0 million. The aggregate
purchase price to be paid by each Strategic Investor is based on a price of
$14.10 for (i) one Common Share and (ii) the right to purchase a specified
fraction of a Common Share under the Class B Warrants. The exercise price for
the Class B Warrants will be $15.00 per share. The closing of the Offerings made
hereby is conditioned upon the closing of sales by GMA to the Strategic
Investors of Common Shares and related Class B Warrants with an aggregate
purchase price of at least $ million.
GMA is also offering by a separate prospectus up to 100,000 Common Shares
directly to certain of its directors and officers 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 Common
Shares are purchased of approximately $1.4 million. GMA has also contracted to
sell 115,000 Common Shares directly to certain persons involved in the formation
of the Company at a purchase price of $14.10 per share, for an aggregate
purchase price of approximately $1.6 million. All such purchases are expected to
be consummated simultaneously with the consummation of the Offerings and,
together with the purchases by the Strategic Investors, are referred to in this
Prospectus as the "Direct Sales." Upon consummation of the Offerings and the
Direct Sales, the Strategic Investors and GMA's directors and officers are
expected to own collectively approximately 30.0% of the outstanding Common
Shares. See "Direct Sales."
The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which (except with respect to The Trident
Partnership, L.P. and as otherwise described herein) generally prevent transfers
to holders beneficially owning 10% or more of the Common Shares, require
divestiture of Common Shares to reduce the beneficial ownership of any holder to
less than 10% of the Common Shares and reduce the voting power of any holder
beneficially owning 10% or more of the Common Shares to less than 10% of the
total voting power of GMA's capital stock. See "Description of Capital Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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>
<CAPTION>
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UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO GMA(2)
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<S> <C> <C> <C>
Per Common Share................................ $ $ $
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Total(3)........................................ $ $ $ (4)
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(1) GMA has agreed to indemnify the several U.S. Underwriters and the
International Managers (collectively, the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting certain advisory fees and other expenses related to the
Offerings payable by GMA estimated to be $ . See "Use of Proceeds."
(3) GMA has granted the U.S. Underwriters and the International Managers
options, exercisable within 30 days after the date hereof, to purchase up to
and additional Common Shares, respectively, solely to
cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to GMA will be $ , $ and $ , respectively. See
"Underwriting."
(4) Assuming completion of all the Direct Sales, the total Proceeds to GMA will
be $ . If the Underwriters' over-allotment options described above
are exercised in full, the total Proceeds to GMA including the Direct Sales
will be $ . See "Direct Sales."
------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offers and to reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York on or about
, 1998.
------------------------
Joint Lead Managers and Joint Bookrunners
MERRILL LYNCH & CO. PRUDENTIAL SECURITIES INCORPORATED
------------------------
, 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.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SUCH TRANSACTIONS MAY INCLUDE STABILIZATION, THE PURCHASE OF COMMON SHARES TO
COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. SEE
"UNDERWRITING."
2
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ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
GMA and Global Markets Guaranty Ltd., a wholly-owned subsidiary of GMA
through which GMA expects to conduct substantially all of its operations, are
both organized pursuant to the laws of Bermuda. In addition, certain of the
directors and officers of GMA, 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 GMA are or may be located in jurisdictions outside the
United States. Therefore, it may be difficult for investors to effect service of
process within the United States upon such persons or to recover against GMA 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, GMA 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 in the U.S. Offering by serving CT Corporation System, 1633
Broadway, New York, New York 10019, its United States agent irrevocably
appointed for that purpose.
GMA 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 GMA 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 GMA
or such persons predicated solely upon United States federal securities laws.
GMA 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 the balance sheet,
including the notes thereto, included elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to the "Company" mean Global
Markets Access Ltd. ("GMA"), together with its wholly-owned subsidiary, Global
Markets Guaranty Ltd. (the "Operating Company"), through which GMA expects to
conduct substantially all of its operations. GMA and the Operating Company were
both incorporated in August 1998 in Bermuda and neither has any operating
history. The Operating Company was licensed in Bermuda on August 28, 1998 as a
Class 3 insurer, which license authorizes it to write, among other things,
financial guaranty reinsurance and insurance. See "Glossary of Selected
Financial Guaranty Reinsurance and Insurance Terms" for definitions of certain
terms and financial strength, claims-paying ability and credit ratings used in
this Prospectus. Unless otherwise noted, this Prospectus assumes that the
Underwriters' over-allotment options will not be exercised and that all Direct
Sales have been made. In this Prospectus, amounts are expressed in United States
dollars unless expressly indicated otherwise. The notation "BD$" refers to
Bermuda dollars which currently have a fixed exchange ratio with United States
dollars of 1BD$ = 1US$. The financial statements contained herein have been
prepared in accordance with United States generally accepted accounting
principles ("GAAP").
THE COMPANY
GMA and the Operating Company were both recently organized in Bermuda to
provide "A" rated financial guaranty reinsurance and insurance on financial
obligations, principally municipal and asset-backed securities and other
structured finance obligations, that are rated from "A-" to "BB" or that are
unrated and have in the Company's opinion an equivalent credit quality. The
Company will seek to provide financial guaranty reinsurance on a worldwide basis
and direct financial guaranty insurance outside of the United States. Upon
consummation of the Offerings, the Company expects to be the only publicly
traded "A" rated financial guaranty insurance company and the first publicly
traded Bermuda-based company focused principally on the financial guaranty
industry.
The Company expects to have an equity capitalization of approximately
$333.7 million upon consummation of the Offerings and the Direct Sales.
Management believes that this level of capitalization will demonstrate a strong
financial position and a high level of commitment to potential clients and is
necessary to establish itself as a competitive financial guaranty reinsurer and
insurer. As a newly formed entity, the Company's capital is presently
unencumbered by such issues as insured portfolio leverage, 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 or plan to have any indebtedness other than obtaining letters of
credit in connection with its reinsurance agreements. In part because of the
Company's expected capitalization following the Offerings and the Direct Sales,
the Operating Company has been assigned a preliminary financial strength rating
of "A" by , and a preliminary claims-paying ability rating of "A"
by and . Such ratings have been granted subject to
the Company raising gross proceeds of $ million in the Offerings and
the Direct Sales.
BUSINESS STRATEGY
The Company's objective is to capitalize on what it believes to be an
opportunity to provide innovative and cost-effective forms of third-party credit
enhancement. The Company will seek to achieve this objective through the
implementation of its business strategy, the principal components of which are:
- - Participate in the Development of the "A" Rated Financial Guaranty Market in
the United States
Historically, the United States financial guaranty insurance market has
generally been served by "AAA" rated financial guaranty insurance
companies. The Company will seek to capitalize on what it believes is a
growing market for "A" rated financial guaranty reinsurance and insurance
in the United States. ACA Financial Guaranty Corporation ("ACA"), an
affiliate of one of the Company's Sponsors, has since the
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commencement of its operations in October 1997 been developing the market
for "A" rated financial guaranty insurance by offering a lower rated
alternative to "AAA" rated financial guaranty insurance, which it believes
may be particularly attractive to issuers that have previously had limited
access to the financial markets. The Company believes that in many cases
"A" rated financial guaranty insurance can reduce an issuer's overall cost
of borrowing and increase the liquidity of a financial obligation trading
in the secondary market while costing less than traditional "AAA" rated
financial guaranty insurance or other forms of third-party credit
enhancement. The Company has entered into three reinsurance treaties with
ACA that will become effective upon consummation of the Offerings. The
Company believes that such treaties will provide ACA with additional
insurance capacity and will permit ACA to develop further the market for
"A" rated financial guaranty insurance. See "-- Reinsurance Treaties with
ACA." In addition, the Company will also seek in the United States to enter
into reinsurance arrangements with higher rated financial guaranty insurers
and reinsurers as well as other providers of third-party credit
enhancement. Such arrangements would be structured so that the Company
would assume a portion of the risk guaranteed by an insurer or other
third-party credit enhancement provider on a basis that would result in the
rating agencies and regulatory bodies treating the underlying obligation as
"A" rated, thereby providing such insurers or other third-party credit
enhancement providers capital relief and other benefits.
- - Penetrate the International Credit Enhancement Market
Traditionally, issuers and holders of financial obligations outside the
United States have relied on banks and other financial institutions
offering letters of credit and other guaranties rather than financial
guaranty insurance. The Company believes that, as is the case in the United
States, an opportunity exists to provide "A" rated financial guaranty
insurance as an innovative and cost-effective alternative to existing forms
of credit enhancement. The Company's principal international focus will be
to seek to insure and reinsure financial obligations backed by assets
originating in European Union countries by capitalizing on the
relationships its management team has developed and will seek to develop
with investment banks, commercial banks and other financial services firms.
The Company is not currently licensed as a financial guaranty insurer in
any European Union country because it believes that it can effectively
insure and reinsure such financial obligations while operating from
Bermuda. As the Company's business develops, management will monitor the
need to obtain licenses in such markets in order to comply with applicable
law or to be able to engage in additional insurance-related activities.
- - Utilize a Disciplined Underwriting Approach
The Company's underwriting strategy is to reinsure and insure financial
obligations which are expected to make full and timely payment of principal
and interest. Nevertheless, given that the Company will be reinsuring and
insuring obligations rated from "A-" to "BB" or that are unrated and have
in the Company's opinion an equivalent credit quality, the Company does
anticipate that its insurance portfolio as a whole may generate a certain
level of losses. The Company will over time seek to diversify the risks it
reinsures and insures by type of obligor, type of pledged assets,
transaction size, geographic location of the obligor, revenue sources and
risk duration. Such diversification is intended to mitigate the impact on
the Company's insurance portfolio as a whole in the event that higher than
expected losses arise in certain segments of the Company's business. The
Company also intends initially to seek a private or "shadow" rating
evaluation from one or more nationally recognized rating agencies on
substantially all unrated financial obligations insured by the Company on a
direct basis.
- - Capitalize on Skill and Experience of Management and Board of Directors
The Company has assembled a senior management team of experienced
reinsurance and insurance professionals to implement its business strategy.
The Company's Chairman of the Board and Chief Executive Officer, Donald J.
Matthews, has over 24 years of experience in the insurance and reinsurance
industries and was President, Chief Operating Officer and a director of ACA
from its formation in October 1997 to August 1998 when he resigned as an
officer and director of ACA to join the Company. From 1985 to 1997, he
served as Senior Vice President and a Principal of Johnson & Higgins (now
Marsh & McLennan Companies, Inc.), where he was employed for 23 years. At
Johnson & Higgins, Mr. Matthews most recently served as Chairman of its
Global Financial Group, where he oversaw the
5
<PAGE> 8
firm's insurance and reinsurance relationships with financial services
companies, including commercial banks and investment banks, on a worldwide
basis. Also while at Johnson & Higgins, Mr. Matthews was instrumental in
the formation of Corporate Officers & Directors Assurance Ltd. ("CODA") and
Executive Risk Inc. , Managing Principal and the Chief
Underwriter of the Company, has over years of experience in the
financial guaranty insurance and reinsurance industries and was formerly
. Mary Jane Robertson, Managing Principal and the Chief
Financial Officer and Treasurer of the Company, has over 21 years
experience in the insurance industry and from 1993 to 1997 was the Chief
Financial Officer and a Senior Vice President of Capsure Holdings Corp., an
insurance holding company (now part of CNA Surety Corp.) conducting
principally surety and fidelity insurance business. From 1986 to 1996, Ms.
Robertson served as the Chief Financial Officer and an Executive Vice
President of United Capitol Insurance Company, a property/casualty
insurance company. Bruce W. Bantz, Managing Principal, Marketing and
Business Development of the Company, has over 16 years experience in the
investment and consumer banking industries, specializing in asset
securitization. From 1997 to 1998, Mr. Bantz was a Director and Global Head
of Asset Securitization of Dresdner Kleinwort Benson, an investment banking
division of Dresdner Bank A.G. From 1994 to 1997, Mr. Bantz served as a
Director and Global Head of Asset Securitization for NatWest Markets, an
investment banking division of NatWest Group PLC. The Company's Board of
Directors consists of several individuals with extensive experience in the
financial guaranty and financial services industries. Management believes
that the reputation and expertise possessed by the Company's officers and
directors should assist the Company with its underwriting analysis and
marketing efforts.
- - Maintain Low Cost Structure
Management believes that through controls on overhead expenses and the
absence of a corporate level tax in Bermuda on the Company's profits and
income, the Company will have a low cost structure. The Company expects
that its cost structure will help enable it to offer its products at
attractive prices and to compete effectively in the financial guaranty
reinsurance and insurance markets.
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) 295-3278.
REINSURANCE TREATIES WITH ACA
The Company has entered into three reinsurance treaties with ACA which will
become effective upon consummation of the Offerings. The first treaty is a quota
share treaty pursuant to which the Company is required to provide, and ACA is
required to purchase, reinsurance on a fixed percentage of certain risks insured
by ACA. The second and third treaties are facultative treaties under which the
Company and ACA each have the right of first refusal to reinsure each financial
obligation the other insures on a direct basis. Such treaties also set forth the
basic terms on which the Company and ACA may purchase such reinsurance from the
other on a case-by-case basis after individual underwriting decisions have been
made. The Company anticipates that at least in the early stages of its business
development, the premiums it receives under the treaties with ACA will account
for a substantial portion of the Company's total premium income.
ACA was established in October 1997 and, to the Company's knowledge, is the
only "A" rated financial guaranty insurer operating in the United States. ACA is
a privately-held Maryland-domiciled insurance company with its principal offices
in New York City. ACA is licensed to provide financial guaranty insurance in all
50 states, the District of Columbia, and the territories of Guam, the United
States Virgin Islands and Puerto Rico. ACA's primary business is the provision
of financial guaranty insurance on financial obligations that are rated from
"A-" to "BB" or that are unrated and have in ACA's opinion an equivalent credit
quality. ACA has issued such policies both to issuers of financial obligations
at the time of original issuance and to holders of financial obligations in
connection with secondary market transactions. From January 1, 1998 to August
31, 1998, ACA wrote financial guaranty insurance covering approximately 65
different underlying credits representing approximately $900 million in
aggregate principal amount for premiums totaling approximately $21.1 million.
Substantially all of the financial guaranty insurance written by ACA has covered
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municipal obligations and obligations issued by other tax-exempt organizations,
although ACA has insured some corporate and asset-backed securities.
SPONSORS AND STRATEGIC INVESTORS
The Company has been established through the sponsorship of American
Capital Access Service Corporation ("ACA Service"), Inter-Atlantic Securities
Corporation ("Inter-Atlantic"), Risk Capital Reinsurance Company ("Risk
Capital") and The Trident Partnership, L.P. ("Trident" and, together with ACA
Service, Inter-Atlantic and Risk Capital, the "Sponsors"). ACA Service is an
affiliate of ACA and currently provides management and support services to ACA.
Inter-Atlantic is a provider of investment banking services to insurance
companies and other financial services firms and was the sponsor of Annuity &
Life Re (Holdings), Ltd., the first publicly traded Bermuda-based reinsurance
company focusing principally on writing annuity and life reinsurance. Risk
Capital provides reinsurance and other forms of capital to insurance companies
with capital needs. Trident is a private investment partnership that invests on
a global basis in the insurance and reinsurance industries. Inter-Atlantic has
provided certain services to the Company in connection with the Offerings and
the sales to the Strategic Investors, and ACA Service, Risk Capital and Trident
have acted as consultants to Inter-Atlantic in connection with the delivery of
such services. See "Certain Relationships and Related Party Transactions."
The Company has also entered into agreements with Risk Capital , Trident
and (collectively, the "Strategic Investors") for the purchase for
investment directly from the Company of an aggregate of 7,092,197 Common Shares
and Class B Warrants to purchase an aggregate of 700,000 Common Shares. Such
purchases will be consummated immediately prior to the consummation of the
Offerings for an aggregate purchase price for the Common Shares and the Class B
Warrants of approximately $100.0 million. The aggregate purchase price to be
paid by each Strategic Investor is based on a price of $14.10 for (i) one Common
Share and (ii) the right to purchase a specified fraction of a Common Share
under the Class B Warrants. The exercise price of the Class B Warrants will be
$15.00 per share. Each of the Strategic Investors has agreed not to sell or
otherwise transfer their Common Shares and Class B Warrants for a period of nine
months from the date of this Prospectus without the prior written consent of
Merrill Lynch & Co. and Prudential Securities Incorporated on behalf of the
Underwriters, and the prior written consent of the Company. See "Shares Eligible
for Future Sale" and "Direct Sales."
RISK FACTORS
Businesses such as that of 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, results of
operations or financial condition. See "Risk Factors."
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THE OFFERINGS
Common Shares Offered in the
Offerings................... 16,750,000 shares
Direct Sales(1)............... 7,307,197 shares
Common Shares to be
Outstanding after the
Offerings and the Direct
Sales(2).................... 24,057,197 shares
Use of Proceeds from the
Offerings and the Direct
Sales....................... The net proceeds of the Offerings and the
Direct Sales (after deducting underwriting
discounts and commissions, certain advisory
fees and other expenses, including payments to
Inter-Atlantic for its services and
reimbursement for certain expenses related to
the Offerings and the sales to the Strategic
Investors) will be approximately $231.0 million
and $103.0 million, respectively. Substantially
all of the net proceeds will be contributed to
the capital and surplus of the Operating
Company to support its financial guaranty
business. See "Use of Proceeds."
Dividend Policy............... The Company intends to pay a quarterly cash
dividend of $.04 per Common Share following the
end of the first full fiscal quarter following
the consummation of the Offerings.
Proposed Nasdaq National
Market Symbol................. GMALF
- ---------------
(1) Unless otherwise noted, this Prospectus assumes that upon consummation of
the Offerings the sale of 7,092,197 Common Shares and Class B Warrants to
purchase 700,000 Common Shares to the Strategic Investors has been completed
and the 215,000 Common Shares offered by the Company to its directors,
officers and certain other persons involved in the formation of the Company
have been purchased. Such individuals who have not contracted with the
Company to make such purchases have indicated their intention to purchase
such Common Shares, but are not obligated to do so.
(2) The Global Purpose Trust, a Bermuda trust (the "Purpose Trust"), owns 12,000
Common Shares, which constitutes all of the Common Shares currently
outstanding. Upon consummation of the Offerings, the Purpose Trust has
agreed to sell such Common Shares to GMA for an aggregate price of $12,000
and such Common Shares will be cancelled. Common Shares to be outstanding
after the Offerings and the Direct Sales excludes the 12,000 Common Shares
currently held by the Purpose Trust, 3,247,715 Common Shares issuable upon
the exercise of outstanding Class A Warrants, 700,000 Common Shares issuable
upon the exercise of Class B Warrants to be included in the Direct Sales,
1,013,789 Common Shares issuable upon the exercise of options to be granted
to directors and officers of the Company upon consummation of the Offerings
and 309,357 Common Shares reserved for future issuance pursuant to the
Company's Initial Stock Option Plan (the "Stock Option Plan"). If the
Underwriters' over-allotment options are exercised in full,
26,569,697 Common Shares are expected to be outstanding, the number of
Common Shares issuable upon the exercise of outstanding Class A Warrants
will increase to 3,586,903 Common Shares, the number of Common Shares
issuable upon the exercise of options to be granted to directors and
officers of the Company upon consummation of the Offerings will increase to
1,064,039 Common Shares and the number of Common Shares reserved for future
issuance pursuant to the Stock Option Plan will increase to 397,294 Common
Shares. The number of Common Shares issuable upon the exercise of the Class
B Warrants will not change if the Underwriters' over-allotment options are
exercised. The Class A Warrants, Class B Warrants and options will not be
exercisable upon consummation of the Offerings. See "Management -- Stock
Option Plan," "Description of Capital Stock -- Warrants" and "Direct Sales."
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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 an 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) trends in
the financial guaranty reinsurance and insurance industries; (iii) the Company's
relationship with clients and third-party service providers; (iv) the use of the
net proceeds of the Offerings and the Direct Sales; (v) government regulations;
(vi) trends affecting the Company's financial condition or results of
operations; and (vii) the declaration and payment of dividends. Prospective
investors are cautioned that such 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. GMA and the Operating Company were both formed in
August 1998 and neither has any operating history. Businesses which are starting
up or in their initial stages of development present substantial business and
financial risks and may suffer significant losses. They must successfully
develop business relationships, establish operating procedures, hire staff and
complete other tasks appropriate for the conduct of their intended business
activities. In particular, the Company's ability to implement successfully its
strategy to enter the financial guaranty reinsurance and insurance market is
dependent on, among other things, (i) the demand for "A" rated financial
guaranty reinsurance and insurance both in the United States and
internationally; (ii) the Company's ability to attract clients other than ACA;
(iii) the Company's ability to attract and retain additional personnel with
underwriting and credit analysis expertise; and (iv) the Company's ability to
evaluate effectively the risks it assumes under the financial guaranty
reinsurance and insurance policies it writes. Furthermore, the market for "A"
rated financial guaranty insurance is in the early stages of its development and
there can be no assurance that the initial demand for such insurance will
continue or that the Company will be able to capture a sufficient portion of
such market to attain or maintain profitability.
RELIANCE ON ACA. The Company anticipates that at least during the early
stages of its business development, it will depend to a significant extent on
reinsurance sold to ACA, an affiliate of one of the Company's Sponsors, pursuant
to the reinsurance treaties between the Company and ACA. To the Company's
knowledge, ACA is the only company engaged in the business of issuing "A" rated
financial guaranty insurance in the United States. Consequently, the Company
anticipates that the premiums it receives under its reinsurance treaties with
ACA will account for all of the Company's total premium income until such time
as the Company successfully develops business from other sources. At least
during such period, the success of the Company will depend on the performance of
ACA and any adverse development affecting ACA would adversely affect the
Company. Because ACA was formed only in October 1997, it is itself subject to
the risks associated with a start up operation described above, and there can be
no assurance that its business will continue to develop or that its demands for
reinsurance will be sufficient to provide the Company with a meaningful source
of business. If the market for "A" rated financial guaranty insurance fails to
develop further, ACA would be adversely affected and, consequently, its need for
reinsurance would be limited. Furthermore, if ACA's underwriting analysis fails
to assess accurately the risks it assumes under the financial guaranty insurance
policies it writes, a greater level of losses than anticipated by the Company
may be incurred under ACA's reinsurance treaties with the Company. If the
Company's reinsurance treaties with ACA were to be terminated for any reason,
the Company would be adversely affected.
CONCENTRATION OF REINSURANCE CLIENTS. The Company anticipates that at
least during the early stages of its business development, it will rely more
heavily on writing financial guaranty reinsurance than direct primary insurance.
Due to the limited number of companies providing financial guaranty insurance or
reinsurance or other forms of third-party credit enhancement, management expects
initially to target a
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<PAGE> 12
relatively small number of potential reinsurance clients. Furthermore,
management expects that a few of these potential clients will account for a high
percentage of the Company's revenues for the foreseeable future. If the Company
fails to attract or retain business from one or more of these significant
potential clients, the Company would be adversely affected.
ABILITY TO OPERATE BUSINESS FROM BERMUDA. The Operating Company, through
which GMA expects to conduct substantially all of its operations, is a
registered Bermuda insurance company. Neither GMA nor the Operating Company is
currently licensed as a financial guaranty insurer or reinsurer in any other
jurisdiction. 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 the Operating Company, which are not admitted
to do business within such jurisdiction. With some exceptions, the sale of
insurance within a jurisdiction where an insurer is not admitted to do business
is prohibited. In most jurisdictions within the United States, reinsurance
contracts can be issued by non-admitted insurers without obtaining an insurance
certificate of authority. Similarly, in jurisdictions outside the United States,
the Company intends to issue insurance policies through its Bermuda office and
not to conduct any activities which will require the Company to be licensed
outside of Bermuda. However, the definition of activities which may constitute
the transaction of the business of insurance is in some jurisdictions ambiguous
and susceptible to judicial interpretation. Accordingly, 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.
The Company may be at a competitive disadvantage in jurisdictions where it
is not licensed or does not enjoy an exemption from licensing relative to
companies that are licensed in such jurisdictions. As the Company's business
develops, management will monitor the need to obtain licenses in jurisdictions
other than Bermuda in order to comply with applicable law or to be able to
engage in additional insurance related activities. Development of the insurance
laws themselves in certain jurisdictions may cause management to determine that
the Company needs to be licensed in order to continue its insurance-related
activities in such jurisdictions. Should management determine that any such
licenses should be obtained, there can be no assurance that the Company will be
able to obtain such licenses. Furthermore, the process of obtaining such
licenses is often costly and may take a long time.
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 require it
to post a letter of credit or enter into other security arrangements. The
Company's quota share and facultative treaties with ACA contain a requirement
that the Company must satisfy all regulatory requirements in order to permit ACA
to receive credit for such reinsurance. In the event that the Company should
default under a letter of credit facility, it may be required to liquidate
prematurely all or a substantial portion of its investment portfolio and/or its
other assets which have been pledged as security for the facility or otherwise
to secure its obligations to its reinsureds, which would adversely affect the
Company. If the Company is unable to obtain a letter of credit facility on
commercially acceptable terms or is unable to arrange for other types of
security, the Company's ability to operate its business may be severely limited.
See "Business -- Regulation -- United States and Other."
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. For example,
there have been Congressional and other initiatives in the past 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") to a greater extent than currently regulated.
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.
FINANCIAL RATINGS. The Operating Company has been assigned a preliminary
financial strength rating of "A" by , and a preliminary
claims-paying ability rating of "A" by and . Such
ratings have been granted subject to the Company raising gross proceeds of
$
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million in the Offerings and the Direct Sales. These ratings are used by
potential purchasers of financial guaranty insurance and reinsurance as an
important means of assessing the financial strength and quality of financial
guaranty insurers and reinsurers. In addition, the level of capital charge
relief which the rating agencies provide to a financial guaranty insurer that
purchases reinsurance is directly dependent on the rating of the reinsurer.
Likewise, the decreased overall cost of borrowing realized by an issuer of a
financial obligation and the increase in liquidity in the secondary market of a
financial obligation that is subject to financial guaranty insurance is largely
dependent on the rating of the insurer. The Company's principal competitors are
all more highly rated than the Company, which, in some respects, will put the
Company at a competitive disadvantage. No assurance can be given that one or
more of the rating agencies will not downgrade or withdraw its rating of the
Operating Company in the future due to factors that may or may not be within the
control of the Company. A downgrade of any of the Operating Company's ratings
below "A-" or the withdrawal of any of the Operating Company's ratings would
give ACA the right to terminate its reinsurance treaties with the Company, which
would adversely affect the Company. Any reinsurance treaty entered into in the
future by the Company is expected to contain a similar provision. As a result, a
downgrade or withdrawal of any of the Operating Company's ratings would severely
limit or prevent the Operating Company from writing any new reinsurance or
insurance policies and, consequently, adversely affect the Company. Similarly, a
downgrade or withdrawal of any rating of ACA would have adverse consequences to
ACA which, in turn, would adversely affect the Company at least during the early
stages of its business development.
DEPENDENCE ON KEY EMPLOYEES. The Company will be substantially dependent
in the implementation of its business strategy on its executive officers and key
employees. If the Company experiences the unexpected loss of the services of one
of those individuals, particularly Donald J. Matthews, the Chairman of the Board
and Chief Executive Officer of the Company, , Managing Principal
and the Chief Underwriter of the Company, Mary Jane Robertson, Managing
Principal and the Chief Financial Officer and Treasurer of the Company, or Bruce
W. Bantz, Managing Principal, Marketing and Business Development of the Company,
the Company would be adversely affected. Although the Company has employment
agreements with each of such individuals, no assurance can be given that the
Company will be able to retain their services. In addition, in order for the
Company to assess accurately the risks associated with the financial guaranty
reinsurance and insurance policies it writes, it will need to hire and retain
additional personnel with underwriting and credit analysis expertise. The
Company currently has only five employees, including the individuals named
above. The loss of the services of the individuals identified above, 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 and
could otherwise adversely affect the Company. The Company does not carry key
person life insurance policies for any of its executive officers or key
employees.
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. Messrs. Matthews, and Bantz and Ms. Robertson have not
yet been issued work permits. In addition, the Company will need to obtain work
permits for any other non-Bermudian individuals it hires, including individuals
with underwriting and credit analysis expertise. While the Company is not
currently aware of any reason why the work permits for such individuals would
not be issued, there can be no assurance to that effect. The failure of these
work permits to be issued would adversely affect the Company.
UNDERWRITING RISK. Evaluating risk is central to the business of any
financial guaranty insurer or reinsurer, and will be particularly important in
the case of the Company, which will be engaged in reinsuring and insuring
financial obligations that have a credit quality ranging from "A-" to "BB" or
that are unrated and have in the Company's opinion an equivalent credit quality.
Financial guaranty losses are inherently unpredictable, and the types of
obligations insured by the Company will tend to be subject to a higher risk of
loss than financial obligations that carry higher ratings. As the Company's
insurance portfolio develops, the Company expects that up to % of its
insurance portfolio will consist of financial obligations that at the time the
Company insures such obligations are rated "BB" or are unrated and have in the
Company's opinion an equivalent credit quality. In addition, a substantial
portion of the Company's insurance portfolio will consist of
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<PAGE> 14
policies that cover unrated financial obligations that in the Company's opinion
have credit quality equivalent to investment grade obligations. There can be no
assurance that material losses will not occur on the insurance risks
underwritten by the Company.
The Company's success will be dependent on its ability to assess accurately
the risks associated with the financial obligations it reinsures or insures. If
the Company fails to assess accurately the risks it assumes, the Company may
fail to establish appropriate premium rates, its reserves may prove to be
inadequate to cover losses and, consequently, the Company would be adversely
affected. The Company will also need to hire and retain additional personnel
with underwriting and credit analysis expertise to assess the risks associated
with the financial obligations it reinsures or insures. The inability of the
Company to hire or retain such individuals could delay or prevent the Company
from fully implementing its business strategy and could otherwise adversely
affect the Company.
The financial guarantees issued by the Company will reinsure or insure the
financial performance of obligations over an extended period of time, in some
cases over 30 years, under policies that the Company cannot generally cancel.
The Company's policy is to provide for loss and loss adjustment expense reserves
that are adequate to cover losses that may arise from insured obligations that
are currently or imminently in default. The Company also intends to establish
general loss reserves in order to account for unidentified risks inherent in its
overall portfolio. The establishment of an appropriate level of loss reserves is
an inherently uncertain process, made even more so by the immature nature of the
"A" rated financial guaranty reinsurance and insurance market, and there can be
no assurance that claims made against the Company will not exceed the Company's
loss reserves. A significant economic event could trigger widespread claims,
particularly if the entire fixed income market were adversely affected.
Significant underwriting losses would adversely affect the Company and could
cause it to experience net losses. Over time, such losses could impair the
Operating Company's ability to maintain its financial strength and claims-paying
ability ratings or to pay dividends to GMA.
MARKET FOR FINANCIAL GUARANTY INSURANCE AND REINSURANCE. The market for
financial guaranty insurance is comprised primarily of the issuers of and
investors in municipal bonds and asset-backed securities who seek credit
enhancement of those financial obligations from insurance companies.
Consequently, changes in the underlying market for such obligations may have an
impact on the financial guaranty insurance and reinsurance industry. In
particular, during periods of rising interest rates or other adverse economic
conditions there may be fewer issues of financial obligations and, consequently,
a decreased demand for financial guaranty insurance and reinsurance. Similarly,
any material change in the United States tax treatment of municipal securities,
or the imposition of a "flat tax" or a national sales tax in lieu of the current
federal income tax structure in the United States, could adversely affect the
market for municipal obligations and, consequently, the demand for financial
guaranty insurance and reinsurance of such obligations. During periods of
decreasing interest rates, issuers have a greater incentive to enter the capital
markets, but typically the interest rate spread between insured and uninsured
obligations becomes more narrow, resulting in a decreased incentive to purchase
financial guaranty insurance. In addition, a general economic downturn or a
downturn in the debt markets could adversely affect the market for financial
guaranty insurance and reinsurance. The market for financial guaranty
reinsurance is largely dependent on the size and strength of the primary
financial guaranty insurance market, as well as the risk retention limitations
imposed on primary financial guaranty insurers and other providers of
third-party credit enhancement products by rating agencies and regulatory
authorities, which limitations are subject to change.
The market for international financial guaranty insurance and reinsurance
is substantially less developed than the market in the United States,
particularly with respect to "A" rated financial guaranty insurance. In addition
to the factors described above, the risks inherent in international markets,
including confiscatory taxation, nationalization of assets, establishment of
exchange controls, political or social instability and fluctuation in foreign
exchange rates, could adversely affect the Company's performance in the
international financial guaranty reinsurance and insurance market. Instability
of a country's currency or political situation could result in widespread
defaults on issues reinsured or insured by the Company in the country
experiencing such instability, which would adversely affect the Company.
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CONFIDENCE IN THE FINANCIAL GUARANTY INDUSTRY. Because the financial
guaranty industry is composed of a relatively small number of companies, should
any one major financial guaranty insurer suffer a downgrade of its financial
strength or claims-paying ability rating, investor confidence in the market as a
whole could suffer, causing a decrease in the demand for financial guaranty
insurance which would adversely affect the Company. In particular, if ACA's
financial strength or claims-paying ability rating is downgraded, its ability to
develop further its business would be severely limited and, in turn, the Company
would be adversely affected.
COMPETITION. The traditional financial guaranty insurance and reinsurance
industry is highly competitive. The United States market for financial guaranty
reinsurance is dominated by a small number of companies that have greater
financial resources and are more established than the Company. Similarly, the
international market for third-party credit enhancement products is dominated by
a number of large banks and other financial institutions, which also have
greater financial resources and are more established than the Company. There can
be no assurance that such insurers, banks and financial institutions will not
seek to duplicate the Company's business strategy and compete directly with the
Company by providing lower-priced financial guaranty reinsurance or insurance or
comparable forms of credit enhancement. Furthermore, the Company's reinsurance
treaties with ACA do not prohibit ACA from competing directly with the Company.
If ACA, other financial guaranty insurers, or other third-party credit
enhancement providers enter the Company's target markets, the Company could be
adversely affected. If ACA is adversely affected by competition in its target
markets, the Company would also be adversely affected. Under the Company's quota
share reinsurance treaty with ACA, the Company is not permitted to write direct
financial guaranty insurance in the United States so long as such treaty remains
in effect.
Competition in the financial guaranty insurance and reinsurance industry is
based on many factors, including premium charges, the general reputation and
perceived financial strength of the financial guaranty insurer, other terms and
conditions of products offered, and reputation and experience in the particular
line of financial guaranty to be written. The Company will also compete with
alternative methods of credit enhancement that do not employ third-parties, such
as over-collateralization of a structured finance transaction to achieve the
desired rating. There can be no assurance that the Company's strategy will
permit it to compete effectively with these alternative methods of credit
enhancement. See "Business -- Competition."
REGULATION. The Operating Company, through which GMA expects to conduct
substantially all of its operations, is a registered Bermuda insurance company
and is subject to regulation and supervision in Bermuda. Among other things, the
Bermuda statutes and regulations require the Operating Company to maintain
minimum levels of capital and surplus; prescribe minimum solvency and liquidity
standards that it must meet; limit transfers of ownership of its capital shares;
and provide for the performance of certain periodic examinations of the
Operating Company and its financial condition. These statutes and regulations
may, in effect, restrict the ability of the Operating Company to write
reinsurance and insurance policies and distribute funds to GMA. Generally the
Bermudian statutes and regulations applicable to the Operating Company are less
restrictive than those that would be applicable to the Operating Company were it
subject to the insurance laws of any state in the United States. 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. See "Business -- Regulation."
Neither GMA nor the Operating Company is currently licensed as a financial
guaranty insurer or reinsurer in any jurisdiction other than Bermuda. The
Company expects to issue insurance policies through its Bermuda office and does
not intend to conduct any 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, the definition of
such activities is in some jurisdictions ambiguous and susceptible to judicial
interpretation. Accordingly, 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. The Company may be at a competitive disadvantage in jurisdictions where
it is not licensed or does not enjoy an exemption from licensing relative to
companies that are licensed in such jurisdictions. As the Company's business
develops, management will monitor the need to obtain licenses in jurisdictions
other than
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Bermuda in order to comply with applicable law or to be able to engage in
additional insurance related activities. Development of the insurance laws
themselves in certain jurisdictions may cause management to determine that the
Company needs to be licensed in order to continue its insurance-related
activities in such jurisdictions. Should management determine that any such
licenses should be obtained, there can be no assurance that the Company will be
able to obtain such licenses. Furthermore, the process of obtaining such
licenses is often costly and may take a long time.
INVESTMENT RISKS. There can be no assurance that the investment objectives
of the Company will be achieved. The success of any investment activity is
affected by general economic conditions, which may adversely affect the markets
for interest-rate-sensitive securities, including the extent and timing of
investor participation in such markets, the level and volatility of interest
rates and, consequently, the value of such fixed income securities. Volatility
or illiquidity in the markets in which the Operating Company directly or
indirectly holds positions could adversely affect the Company. See
"Business -- Investment Strategy."
The Operating Company has retained Alliance Capital Management L.P. and The
Prudential Investment Corporation (collectively, the "Investment Managers") to
manage the Operating Company's investment portfolio. Each Investment Manager
will have discretionary authority over the portion of the Operating Company's
investment portfolio allocated to it, subject to the investment guidelines
adopted by the Operating Company (the "Investment Guidelines"). The performance
of the Operating Company'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. The Operating
Company may retain additional or different firms to manage its investment
portfolio from time to time. See "Business -- Investment Managers."
INCOME TAX RISKS
United States Taxation of GMA and the Operating Company. GMA and the
Operating Company are Bermuda corporations and neither intends to file United
States tax returns. GMA and the Operating Company 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 a trade or business in the United States. However, because definitive
identification of activities which constitute being engaged in a 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 GMA
and/or the Operating Company is engaged in a trade or business in the United
States. If GMA or the Operating Company were considered to be engaged in a trade
or 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 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 GMA, should consider the possible application of the "controlled
foreign corporation" ("CFC") rules. (Such persons also should see "Limitations
on Ownership, Transfers and Voting Rights," below.) 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
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<PAGE> 17
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 the Operating Company 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. Because of the
anticipated dispersion of GMA's share ownership following the Offerings and
because under GMA's Bye-Laws no single shareholder (other than Trident) will be
permitted to own or to exercise 10% or more of the total combined voting power
of GMA, and because neither Trident nor its general partner is a United States
person and no direct or indirect Trident partner who is a United States person
will own a large enough interest in Trident to own, by attribution, 10% or more
of the vote or value of GMA stock, shareholders of GMA should not be viewed as
"United States shareholders" of a CFC for purposes of these rules. There can be
no assurance, however, that the IRS will not successfully take a contrary
position. See "Certain Tax Considerations."
Related Person Insurance Income Risks. If the Operating Company'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 and direct or
indirect insureds and persons related to such insureds were directly or
indirectly to own more than 20% of the voting power or value of the Operating
Company's capital stock, a United States person who owns Common Shares in GMA
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 the Operating Company'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. The Operating Company believes it is highly unlikely that it will
enter into reinsurance agreements in which, in the aggregate, the direct or
indirect insureds are, or are related to, owners of 20% or more of the Common
Shares. Furthermore, the Operating Company believes it is highly unlikely that
the 20% gross insurance income threshold will be met or exceeded in 1998 and
subsequent years. However, there can be no assurances regarding either of these
thresholds, particularly because the Operating Company's direct insureds are
likely to include the owners of securities with respect to which the Operating
Company issues financial guaranty insurance or reinsurance, and many of these
securities, as well as the Common Shares, are expected to be publicly traded.
Consequently, there can be no assurance that a United States person will not be
required to include amounts in its income in respect of RPII in any taxable
year. Furthermore, no effort will be made by GMA or the Operating Company to
identify the extent to which owners of securities for which the Operating
Company has issued financial guaranty insurance or reinsurance are also
shareholders of GMA. Thus, GMA, the Operating Company and GMA's United States
shareholders may not know with certainty whether GMA's United States
shareholders are subject to the RPII rules, or how much RPII the Operating
Company has earned in any taxable year. See "Certain Tax Considerations."
Even if the 20% thresholds described in the preceding paragraph are not
met, if a shareholder who is a United States person disposes of shares in a
foreign insurance corporation that has RPII and in which United States persons
own 25% or more of the voting power or value of the corporation's 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 GMA 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 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."
15
<PAGE> 18
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 GMA, it is important that GMA 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 GMA, through the Operating Company, intends to be
predominantly engaged in an insurance business and does not intend to have
financial reserves in excess of the reasonable needs of its insurance business,
GMA does not expect to meet the requirements for 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. 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. GMA
and the Operating Company 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 GMA, the
Operating Company or to any of their operations or the shares, debentures or
other obligations of GMA or the Operating Company until March 2016. There can be
no assurance that after such date GMA or the Operating Company would not be
subject to any such tax.
Other Taxes. GMA and the Operating Company plan to operate in such a
manner that they will not generally be subject to tax in other jurisdictions
except for withholding taxes on certain kinds of investment income, excise taxes
as described above and other taxes attributable to marketing activities in
certain jurisdictions. It is possible, however, that the Operating Company may
be held to be doing business in one or more foreign jurisdictions and therefore
subject to tax on the profits of such business beyond that contemplated above.
LIMITATIONS ON OWNERSHIP, TRANSFERS AND VOTING RIGHTS. Except as described
below with respect to transfers of Common Shares executed on The Nasdaq National
Market under GMA's Bye-Laws, GMA's directors (or their designee) are required to
decline to register any transfer of shares of GMA, including Common Shares, if
they have any reason to believe that such transfer would result in a person
other than Trident (or any group of which such person is a member) beneficially
owning, directly or indirectly, 10% or more of any class of shares of GMA.
Similar restrictions apply to issuances and repurchases of shares by GMA. 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 GMA, any subsidiary or shareholder thereof or any person
purchasing reinsurance or insurance from the Operating 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. 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 GMA. GMA 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.
GMA's directors will not decline to register any transfer of Common Shares
executed on The Nasdaq National Market for the reasons described above. However,
if any transfer results in the transferee other than Trident (or any group of
which such transferee is a member) beneficially owning, directly or indirectly,
10% or more of any class of GMA's shares or causes GMA's directors (or their
designee) to have reason to believe
16
<PAGE> 19
that such transfer may expose GMA, any subsidiary or shareholder thereof or any
person purchasing reinsurance or insurance from the Operating 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 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, under
GMA's Bye-Laws, the directors (or their designee) are empowered to deliver a
notice to the transferee demanding that such transferee surrender to an agent
designated by the directors (the "Agent") certificates representing the shares
and any dividends or distributions that the transferee has received as a result
of owning the shares. A transferee who has resold the shares before receiving
such notice will be required to transfer to the Agent the proceeds of the sale,
to the extent such proceeds exceed the amount that the transferee paid for the
shares, together with any dividends or distributions that the transferee
received from GMA. As soon as practicable after receiving the shares and any
dividends or distributions that the transferee received, the Agent will use its
best efforts to sell such shares and any non-cash dividends or distributions in
an arm's-length transaction on The Nasdaq National Market. After applying the
proceeds from such sale toward reimbursing the transferee for the price paid for
the shares, the Agent will pay any remaining proceeds and any cash dividends and
distributions to organizations described in Section 501(c)(3) of the Code that
the directors designate. The proceeds of any such sale by the Agent or the
surrender of dividends or distributions will not inure to the benefit of the
Company or the Agent, but such amounts may be used to reimburse expenses
incurred by the Agent in performing its duties.
In addition, GMA's Bye-Laws generally provide that any person other than
Trident (or any group of which such person is a member) holding directly, or by
attribution, or otherwise beneficially owning voting shares of GMA carrying 10%
or more of the total voting rights attached to all of GMA'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 GMA. Further, the directors (or their
designee) have the authority to request from any shareholder certain information
for the 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."
FOREIGN CURRENCY FLUCTUATIONS. The Company's functional currency is the
United States dollar. However, because the Company's business strategy includes
reinsuring and insuring financial obligations issued outside the United States,
the Company expects that it will write a portion of its business and receive
premiums in currencies other than United States dollars. Furthermore, the
Operating Company may maintain a small portion of its investment portfolio in
investments denominated in currencies other than United States dollars.
Consequently, the Company may experience exchange losses to the extent its
foreign currency exposure is not properly hedged, which in turn would adversely
affect the Company. 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 will make determinations as to whether to hedge its foreign currency
exposure on a case-by-case basis. Given the contingent and long-term nature of
the Company's expected foreign currency exposure, it may not be feasible in all
instances to hedge effectively such exposure. If the Company does seek to hedge
its foreign currency exposure through the use of forward currency exchange
contracts or currency swaps, it will be subject to the risk that the
counterparties to such arrangements fail to perform.
17
<PAGE> 20
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Offerings and
the Direct Sales, GMA expects to have outstanding 24,057,197 Common Shares,
Class A Warrants to purchase an aggregate of 3,247,715 Common Shares, Class B
Warrants to purchase an aggregate of 700,000 Common Shares and options to
purchase an aggregate of 1,013,789 Common Shares. If the Underwriters'
over-allotment options are exercised in full, 26,569,697 Common Shares are
expected to be outstanding, the number of Common Shares issuable upon the
exercise of outstanding Class A Warrants will increase to an aggregate of
3,586,903 Common Shares and the number of Common Shares issuable upon the
exercise of outstanding options will increase to an aggregate of 1,064,039
Common Shares. The number of Common Shares issuable upon the exercise of the
Class B Warrants will not change if the Underwriters' over-allotment options are
exercised. The Class A Warrants, Class B Warrants and options will not be
exercisable upon consummation of the Offerings. 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 Offerings and any Common Shares sold in the Direct Sales to GMA's
directors and officers 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, the Common Shares the Company has contracted to
sell to its directors and officers 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 under the Securities Act 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 before the first anniversary of the consummation of the
Offerings. The Company has agreed not to permit the acceleration of the
exercisability of such rights without the prior written consent of Merrill Lynch
& Co. and Prudential Securities Incorporated on behalf of the Underwriters. The
Company does intend to register the resale of the Common Shares underlying any
outstanding options promptly following the first anniversary of the consummation
of the Offerings. The Company, its directors and officers, the Strategic
Investors and the holders of the Class A Warrants have executed agreements (the
"lock-up agreements") under which they have agreed that they will not, without
the prior written consent of Merrill Lynch & Co. and Prudential Securities
Incorporated on behalf of the Underwriters and, in the case of the Strategic
Investors, the Company, directly or indirectly offer, sell, offer to sell,
contract to sell, transfer, assign, pledge, hypothecate, grant any option to
purchase, or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, transfer, assignment, pledge, hypothecation, 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 or, in the
case of the Strategic Investors, nine months 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. Merrill Lynch & Co., Prudential Securities Incorporated
and, in the case of the Strategic Investors, 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.
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
Offerings, including sales by persons holding the Common Shares sold to the
Strategic Investors in the Direct Sales or the Class A Warrants, Class B
Warrants or options, 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. See "Shares Eligible for Future
Sale."
18
<PAGE> 21
YEAR 2000 RISK. Many existing computer programs use only two digits to
identify a year in the date field. These programs, if not corrected, could fail
or create erroneous results by or at the year 2000. This "Year 2000" issue is
believed to affect virtually all companies and organizations, including the
Company. Because the Company expects to purchase computer hardware and software
that is either new or less than two years old, the Company believes that its
exposure with respect to its own computer systems to Year 2000-related problems
will not be significant. However, the Company will be exposed to the risk that
its third-party service providers, reinsurance clients and issuers of financial
obligations insured or reinsured by the Company may be exposed to Year
2000-related problems. The Company is in the process of assessing whether its
third-party service providers are or on a timely basis will be Year 2000
compliant. Similarly, the Company has received assurances from ACA that its
computer systems are expected to be Year 2000 compliant on a timely basis and
the Company intends to seek similar assurances from other future reinsurance
clients. Furthermore, as part of the Company's underwriting analysis, it will
review the Year 2000 compliance efforts of the issuers of financial obligations
insured by the Company and, with respect to the Company's reinsurance
operations, will rely on the analysis performed by the primary insurer. There
can be no assurance, however, that the Company's operations will not experience
material disruptions due to the failure of the Company's third-party service
providers, reinsurance clients or the issuers of financial obligations reinsured
or insured by the Company to become fully Year 2000 compliant in a timely manner
or that such failure will not otherwise have an adverse effect on the Company.
Furthermore, the Company's strategy to penetrate the international financial
guaranty reinsurance and insurance markets may subject the Company to additional
Year 2000 risk resulting from the possibility that foreign entities may not
address Year 2000 compliance issues with as much vigor as their United States
counterparts. In the event the Company's plans with respect to its Year 2000
readiness fail to protect its operations from disruptions, the Company has no
contingency plan other than the replacement of existing third-party service
providers which are not Year 2000 compliant with comparable third-party service
providers which are Year 2000 compliant.
HOLDING COMPANY STRUCTURE. GMA is a holding company that will not conduct
significant operations of its own and, at least initially, will have no
significant operations or assets other than its ownership of the capital stock
of the Operating Company. Dividends and other permitted payments from the
Operating Company are expected to be GMA's sole source of funds to pay expenses
and dividends, if any. The payment of dividends by the Operating Company to GMA
is limited under Bermuda law and regulations, including Bermuda insurance law.
Under the Insurance Act 1978 of Bermuda, as amended, and the related regulations
(the "Insurance Act"), the Operating Company is prohibited from declaring or
paying dividends that would result in the Operating Company failing to comply
with its solvency margin and liquidity ratio. In addition, under the Bermuda
Companies Act 1981, GMA and the Operating Company 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. GMA
and the Operating Company are both organized pursuant to the laws of Bermuda. In
addition, certain of the directors and officers of GMA, 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 GMA are or may be located
in jurisdictions outside the United States. Although GMA has 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
U.S. 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 GMA 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."
19
<PAGE> 22
NO PRIOR PUBLIC MARKET. Before the Offerings 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 Offerings 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 was established by the Company and
the representatives of the Underwriters and may not be indicative of the market
price of the Common Shares after the Offerings.
DILUTION. Purchasers of Common Shares in the Offerings will experience
immediate and substantial dilution of approximately $1.13 per share in the net
tangible book value of their Common Shares from the initial public offering
price. See "Dilution."
20
<PAGE> 23
USE OF PROCEEDS
The net proceeds from the sale of the 16,750,000 Common Shares in the
Offerings are estimated to be approximately $231.0 million (after deducting
underwriting discounts and commissions, certain advisory fees and other
estimated expenses, including payments to Inter-Atlantic for its services and
reimbursement for certain expenses related to the Offerings and the sales to the
Strategic Investors). See "Certain Relationships and Related Party
Transactions." The net proceeds from the Direct Sales are estimated to be
approximately $103.0 million. The purpose of the Offerings and the Direct Sales
is to enable the Company to implement its business plan to provide financial
guaranty reinsurance and insurance. Substantially all of the net proceeds of the
Offerings and the Direct Sales will be contributed to the capital and surplus of
the Operating Company to support its financial guaranty business and will be
invested in accordance with the Investment Guidelines. See
"Business -- Investment Strategy." Until so invested, such proceeds will be
invested in short-term, investment grade, interest-bearing securities.
21
<PAGE> 24
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of August 28, 1998, as adjusted for amounts payable upon consummation
of the Offerings and as adjusted to give effect to the Offerings and the Direct
Sales and the receipt of the estimated net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS ADJUSTED FOR
AMOUNTS PAYABLE AS ADJUSTED FOR THE
UPON CONSUMMATION OFFERINGS AND THE
ACTUAL OF THE OFFERINGS DIRECT SALES(D)
------ ----------------- -------------------
($ IN THOUSANDS)
<S> <C> <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; 24,057,197 shares outstanding as
adjusted for the Offerings and the Direct
Sales)(a)....................................... 12 12 24,057
Additional paid-in capital........................ 108 (5,042)(b) 310,107
Accumulated deficit............................... -- (500)(c) (500)
---- -------- --------
Total shareholders' equity................... $120 $ (5,530) $333,664
---- -------- --------
Total capitalization.............................. $120 $ (5,530) $333,664
==== ======== ========
</TABLE>
- ---------------
(a) The Purpose Trust owns 12,000 Common Shares, which constitute all of the
Common Shares currently outstanding. Upon consummation of the Offerings, the
Purpose Trust has agreed to sell such Common Shares to GMA for an aggregate
price of $12,000 and such Common Shares will be cancelled. Common Shares
outstanding excludes 3,247,715 Common Shares issuable upon the exercise of
outstanding Class A Warrants, 700,000 Common Shares issuable upon the
exercise of the Class B Warrants to be included in the Direct Sales,
1,013,789 Common Shares issuable upon the exercise of options to be granted
to directors and officers of the Company upon consummation of the Offerings
and 309,357 Common Shares reserved for future issuance pursuant to the Stock
Option Plan. If the Underwriters' over-allotment options are exercised in
full, 26,569,697 Common Shares are expected to be outstanding, the number of
Common Shares issuable upon the exercise of outstanding Class A Warrants
will increase to 3,586,903 Common Shares, the number of Common Shares
issuable upon the exercise of options to be granted to directors and
officers of the Company upon consummation of the Offerings will increase to
1,064,039 Common Shares and the number of Common Shares reserved for future
issuance pursuant to the Stock Option Plan will increase to 397,294 Common
Shares. The number of Common Shares issuable upon the exercise of the Class
B Warrants will not change if the Underwriters' over-allotment options are
exercised. The Class A Warrants, Class B Warrants and options will not be
exercisable upon consummation of the Offerings. See "Management -- Stock
Option Plan," "Description of Capital Stock -- Warrants" and "Direct Sales."
(b) Reflects amounts payable upon consummation of the Offerings of $3.9 million
to Inter-Atlantic for certain advisory services related to the Offerings and
the sales to the Strategic Investors; and $1.25 million for estimated
out-of-pocket expenses consisting of legal, accounting and printing expenses
as well as filing fees and other costs related to the Offerings and the
sales to the Strategic Investors. Inter-Atlantic has contracted with ACA
Service, Risk Capital and Trident to provide consulting services to
Inter-Atlantic in connection with the services Inter-Atlantic has agreed to
provide to the Company. Pursuant to such arrangements, Inter-Atlantic has
agreed to pay $1.95 million to ACA Service, $108,225 to Risk Capital and
$324,675 to Trident upon consummation of the Offerings.
(c) Reflects estimated expenses incurred by the Company in connection with its
operations in the period subsequent to August 28, 1998, including expenses
incurred by Inter-Atlantic on the Company's behalf for which Inter-Atlantic
is entitled to be reimbursed by the Company upon consummation of the
Offerings.
(d) Reflects 24,057,197 Common Shares sold in the Offerings and the Direct Sales
and the receipt of the estimated net proceeds therefrom. Does not give
effect to any exercise of the Underwriters' over-allotment options and
excludes the 12,000 Common Shares currently held by the Purpose Trust.
22
<PAGE> 25
DIVIDEND POLICY
GMA is a newly formed corporation and has not declared or paid any cash
dividends on its Common Shares. The Board of Directors of GMA intends to declare
and pay out of current and retained earnings a quarterly cash dividend of $.04
per Common Share following the first full fiscal quarter following the
consummation of the Offerings. It will be GMA's policy to retain all earnings in
excess of such quarterly dividends to support the growth of its business. If
GMA's current and retained earnings do not support the payment of such quarterly
dividends, future dividends may be reduced or eliminated. If GMA 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 GMA will be at the discretion of its
Board of Directors and will depend upon GMA's results of operations and cash
flows, the financial position and capital requirements of the Operating Company,
general business conditions, legal, tax, regulatory and any contractual
restrictions on the payment of dividends and other factors the Board of
Directors of GMA deems relevant. GMA's ability to pay dividends depends on the
ability of the Operating Company to pay dividends to GMA. While GMA is not
itself subject to any significant legal prohibitions on the payment of dividends
on its Common Shares, the Operating Company is subject to Bermuda regulatory
constraints which affect its ability to pay dividends to GMA. Accordingly, there
is no assurance that dividends on the Common Shares 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."
23
<PAGE> 26
DILUTION
Purchasers of the Common Shares offered in the Offerings will experience an
immediate and substantial dilution in net tangible book value of their Common
Shares from the initial public offering price. After giving effect to the
Offerings and the Direct Sales, the pro forma net tangible book value of the
Common Shares (after deducting underwriting discounts and commissions, certain
advisory fees and other estimated expenses, including payments to Inter-Atlantic
for its services and reimbursement of certain expenses related to the Offerings
and the sales to the Strategic Investors) will be approximately $333.7 million,
or approximately $13.87 per outstanding Common Share. This represents an
immediate and substantial dilution in net tangible book value to investors
purchasing shares in the Offerings of approximately $1.13 per share, without
taking into account any Common Shares issuable upon the 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 Offerings
and the Direct Sales. The following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial public offering price............................... $15.00
Pro forma net tangible book value per outstanding share upon
completion of the Offerings and the Direct Sales(1)....... 13.87
------
Dilution to new investors in the Offerings.................. $ 1.13
======
</TABLE>
- ---------------
(1) Does not include 3,247,715 Common Shares issuable upon the exercise of
outstanding Class A Warrants (3,586,903 Common Shares if the Underwriters'
over-allotment options are exercised in full), 700,000 Common Shares
issuable upon the exercise of Class B Warrants to be included in the Direct
Sales, 1,013,789 Common Shares issuable upon the exercise of options
expected to be granted to directors and officers of the Company upon
consummation of the Offerings (1,064,039 Common Shares if the Underwriters'
over-allotment options are exercised in full) and 309,357 Common Shares
reserved for future issuance under the Stock Option Plan (397,294 Common
Shares if the Underwriters' over-allotment options are exercised in full).
The number of Common Shares issuable upon the exercise of the Class B
Warrants will not change if the Underwriters' over-allotment options are
exercised. The Class A Warrants, Class B Warrants and options will not be
exercisable upon consummation of the Offerings. The exercise of the Class A
Warrants, Class B Warrants and the options are not expected to be dilutive
to purchasers of the Common Shares in the Offerings because the exercise
price per share of such warrants and options is equal to the initial public
offering price per share. See "Management -- Stock Option Plan,"
"Description of Capital Stock -- Warrants" and "Direct Sales."
The following table summarizes the number of Common Shares issued by GMA,
the total consideration paid and the average price per share paid in the Direct
Sales and the Offerings:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
AMOUNT PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Direct Sales........................ 7,307,197 30.37% $103,031,478(a) 29.08% $14.10(b)
Offerings........................... 16,750,000 69.63 251,250,000 70.92 $15.00
---------- ------ ------------ ------ ------
Total..................... 24,057,197 100.00% $354,281,478 100.00% $14.73
========== ====== ============ ======
</TABLE>
- ---------------
(a) Includes amounts paid in the aggregate for Common Shares and Class B
Warrants in the Direct Sales.
(b) 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 Common
Shares underlying the Class B Warrants.
24
<PAGE> 27
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following unaudited pro forma consolidated balance sheet has been based
on the historical consolidated balance sheet of the Company as of August 28,
1998, and gives effect to the amounts payable upon consummation of the Offerings
and to the receipt of the net proceeds of the Offerings and the Direct Sales as
if they were consummated on August 28, 1998. The unaudited pro forma
consolidated balance sheet is based on assumptions management believes are
reasonable and is presented for informational purposes only and does not purport
to be indicative of the balance sheet data as of any future date. The unaudited
pro forma consolidated balance sheet should be read in conjunction with the
Company's historical consolidated balance sheet and notes thereto and other
information contained herein. As the Company had no operations on or prior to
August 28, 1998, pro forma consolidated statements of income and cash flows are
not presented.
PRO FORMA CONSOLIDATED BALANCE SHEET
AUGUST 28, 1998
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
AS ADJUSTED FOR AMOUNTS RECEIPT OF THE NET
PAYABLE UPON PROCEEDS OF THE
HISTORICAL CONSUMMATION OFFERINGS AND THE
INFORMATION OF THE OFFERINGS DIRECT SALES
----------- ----------------------- -------------------
<S> <C> <C> <C>
ASSETS
Cash....................................... $120,000 $ 120,000 $334,164,478(d)
-------- ----------- ------------
Total Assets..................... $120,000 $ 120,000 $334,164,478
======== =========== ============
LIABILITIES
Accounts payable........................... $ -- $ 5,650,000(a) $ 500,000(e)
-------- ----------- ------------
Total Liabilities................ $ -- $ 5,650,000 $ 500,000
======== =========== ============
STOCKHOLDERS' EQUITY
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
outstanding; 24,057,197 shares
outstanding as adjusted for the receipt
of the net proceeds of the Offerings and
the Direct Sales)........................ 12,000 12,000 24,057,197(f)
Additional paid-in capital................. 108,000 (5,042,000)(b) 310,107,281(g)
Accumulated deficit........................ -- (500,000)(c) (500,000)
-------- ----------- ------------
Total stockholders' equity....... $120,000 $(5,530,000) $333,664,478
======== =========== ============
Total liabilities and stockholders'
equity................................... $120,000 $ 120,000 $334,164,478
======== =========== ============
</TABLE>
- ---------------
(a) Reflects amounts payable upon consummation of the Offerings of $3.9 million
to Inter-Atlantic for certain advisory services related to the Offerings and
the sales to the Strategic Investors; and $1.25 million for estimated
out-of-pocket expenses consisting of legal, accounting and printing expenses
as well as filing fees and other costs related to the Offerings and the
sales to the Strategic Investors. Inter-Atlantic has contracted with ACA
Service, Risk Capital and Trident to provide consulting services to
Inter-Atlantic in connection with the services that Inter-Atlantic has
agreed to provide to the Company. Pursuant to such arrangements,
Inter-Atlantic has agreed to pay $1.95 million to ACA Service, $108,225 to
Risk Capital and $324,675 to Trident upon consummation of the Offerings.
Also reflects $500,000 of estimated expenses incurred by the Company in
connection with its operations in the period subsequent to August 28, 1998,
including expenses incurred by Inter-Atlantic on the Company's behalf for
which Inter-Atlantic is entitled to be reimbursed by the Company upon
consummation of the Offerings.
(b) Reflects the estimated costs associated with the Offerings and the sales to
the Strategic Investors described in the first two sentences of footnote
(a).
25
<PAGE> 28
(c) Reflects the estimated operating expenses described in the final sentence of
footnote (a).
(d) Reflects the estimated net proceeds of the Offerings and the Direct Sales,
less $12,000 which will be paid to the Purpose Trust in exchange for the
Common Shares it currently holds, net of the estimated costs associated with
the Offerings and the sales to the Strategic Investors described in the
first two sentences of footnote (a).
(e) Reflects payment of the estimated costs associated with the Offerings and
the sales to the Strategic Investors described in the first two sentences of
footnote (a).
(f) Reflects 24,057,197 Common Shares sold in the Offerings and the Direct
Sales, less the 12,000 Common Shares to be repurchased by the Company from
the Purpose Trust.
(g) Reflects additional paid-in capital received in the Offerings and the Direct
Sales, net of the estimated costs associated with the Offerings and the
sales to the Strategic Investors described in the first two sentences of
footnote (a).
26
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
GMA and the Operating Company were both incorporated in August 1998 in
Bermuda and neither has any operating history. The Operating Company was
licensed in Bermuda on August 28, 1998 as a Class 3 insurer, which license
authorizes it to write, among other things, financial guaranty reinsurance and
insurance. The Operating Company is not currently licensed or admitted as an
insurer in any jurisdiction other than Bermuda. The Company's fiscal year ends
on December 31 and its financial statements are prepared in accordance with
GAAP.
LIQUIDITY AND CAPITAL RESOURCES
GMA will rely primarily on cash dividends and other permissible payments
from the Operating Company to pay its operating expenses and dividends on its
Common Shares. The Board of Directors of GMA intends to declare and pay out of
current and retained earnings a quarterly cash dividend of $.04 per Common Share
following the end of the first full fiscal quarter following the consummation of
the Offerings. It will be GMA's policy to retain all earnings in excess of such
quarterly dividends to support the growth of its business. If GMA's current and
retained earnings do not support the payment of such quarterly dividends, future
dividends may be reduced or eliminated. If GMA 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 GMA will be at the discretion of its Board of Directors and will
depend upon GMA's results of operations and cash flows, the financial position
and capital requirements of the Operating Company, general business conditions,
legal, tax, regulatory and any contractual restrictions on the payment of
dividends and other factors the Board of Directors of GMA deems relevant. GMA's
ability to pay dividends depends on the ability of the Operating Company to pay
dividends to GMA. While GMA is not itself subject to any significant legal
prohibitions on the payment of dividends on its Common Shares, the Operating
Company is subject to Bermuda regulatory constraints which affect its ability to
pay dividends to GMA. Accordingly, there is no assurance that dividends on the
Common Shares will be declared or paid in the future. See "Dividend Policy" and
"Business -- Regulation -- Bermuda."
The principal sources of funds for the Operating Company's operations are
initially expected to be substantially all of the net proceeds of the Offerings
and the Direct Sales (after deducting underwriting discounts and commissions,
certain advisory fees and other expenses, including payments to Inter-Atlantic
for its services and reimbursement for certain expenses related to the Offerings
and the sales to the Strategic Investors), financial guaranty reinsurance
premiums and realized net investment income. These funds are expected to be used
primarily to pay operating expenses (including personnel expenses), the cost of
new computer equipment and software and, subject to Bermuda law, to make
dividend payments to GMA. The balance of the net proceeds will be invested in
accordance with the Investment Guidelines. The Company believes that the net
proceeds of the Offerings and the Direct Sales will be sufficient to fund its
planned growth and operating activities for the next several years.
The Company's underwriting strategy is to reinsure and insure financial
obligations which are expected to make full and timely payment of principal and
interest. Nevertheless, given that the Company will be reinsuring and insuring
obligations rated from "A-" to "BB" or that are unrated and have in the
Company's opinion an equivalent credit quality, the Company does anticipate that
its insurance portfolio as a whole may generate a certain level of losses. If
the Company fails to assess accurately the risks it assumes, the Company may
fail to establish appropriate premium rates, and its reserves may prove to be
inadequate to cover losses. The financial guarantees issued by the Company will
reinsure or insure the financial performance of obligations over an extended
period of time, in some cases over 30 years, under policies that the Company
cannot generally cancel. The Company's policy is to provide for loss and loss
adjustment expense reserves that the Company expects are adequate to cover
losses that may arise from insured obligations that are currently or imminently
in default. The Company also intends to establish general loss reserves in order
to account for unidentified risks inherent in its overall portfolio. The
establishment of an appropriate level of loss reserves is
27
<PAGE> 30
an inherently uncertain process, made even more so by the immature nature of the
"A" rated financial guaranty reinsurance and insurance market, and there can be
no assurance that claims made against the Company will not exceed the Company's
loss reserves. See "Business -- Reserves."
Historically, insured losses in the financial guaranty insurance business
have occurred infrequently. When such losses occur, they have the potential to
be significant in amount. While the Company would be required to establish a
case basis reserve equal to the present value of all payments due under an
insured obligation that goes into default, the Company is only obligated to make
payments of principal and interest as they would otherwise become due under such
obligation. A significant economic event could trigger widespread claims,
particularly if the entire fixed income market were adversely affected.
Significant underwriting losses would adversely affect the Company and could
cause it to experience net losses. Over time, such losses could impair the
Operating Company's ability to maintain its financial strength and claims-paying
ability ratings or to pay dividends to GMA.
The Operating Company, through which GMA expects to conduct substantially
all of its operations, is a registered Bermuda insurance company. Neither GMA
nor the Operating Company is currently licensed as a financial guaranty insurer
or reinsurer in any other jurisdiction. 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 the Operating
Company, which are not admitted to do business within such jurisdiction. 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 require it to post a
letter of credit or enter into other security arrangements. The Company's quota
share and facultative treaties with ACA contain a requirement that the Company
must satisfy all regulatory requirements in order to permit ACA to receive
credit for such reinsurance. In the event that the Company should default under
a letter of credit facility, it may be required to liquidate prematurely all or
a substantial portion of its investment portfolio and/or its other assets which
have been pledged as security for the facility or otherwise secure its
obligations to its reinsureds, which would adversely affect the Company. If the
Company is unable to obtain a letter of credit facility on commercially
acceptable terms or is unable to arrange for other types of security, the
Company's ability to operate its business may be severely limited.
Because the Company expects to purchase computer hardware and software that
is either new or less than two years old, the Company believes that its exposure
with respect to its own computer systems to Year 2000-related problems will not
be significant. However, the Company will be exposed to the risk that its third-
party service providers, reinsurance clients and issuers of financial
obligations insured or reinsured by the Company may be exposed to Year
2000-related problems. The Company is in the process of assessing whether its
third-party service providers are or on a timely basis will be Year 2000
compliant. Similarly, the Company has received assurances from ACA that its
computer systems are expected to be Year 2000 compliant on a timely basis and
the Company intends to seek similar assurances from other future reinsurance
clients. Furthermore, as part of the Company's underwriting analysis, it will
review the Year 2000 compliance efforts of the issuers of financial obligations
insured by the Company and, with respect to the Company's reinsurance
operations, will rely on the analysis performed by the primary insurer. There
can be no assurance, however, that the Company's operations will not experience
material disruptions due to the failure of the Company's third-party service
providers, reinsurance clients or the issuers of financial obligations reinsured
or insured by the Company to become fully Year 2000 compliant in a timely manner
or that such failure will not otherwise have an adverse effect on the Company.
Furthermore, the Company's strategy to penetrate the international financial
guaranty reinsurance and insurance markets may subject the Company to additional
Year 2000 risk resulting from the possibility that foreign entities may not
address Year 2000 compliance issues with as much vigor as their United States
counterparts. In the event the Company's plans with respect to its Year 2000
readiness fail to protect its operations from disruptions, the Company has no
contingency plan other than the replacement of existing third-party service
providers which are not Year 2000 compliant with comparable third-party service
providers which are Year 2000 compliant.
28
<PAGE> 31
Pursuant to an agreement between Inter-Atlantic and the Company,
Inter-Atlantic has agreed to provide certain services in connection with the
Offerings and the sales to the Strategic Investors, including assistance in
preparing a registration statement for the Common Shares, retaining underwriters
in connection with the Offerings and such other services as the Company or
Inter-Atlantic deems appropriate. Pursuant to such Agreement, the Company has
agreed to pay Inter-Atlantic a fee of $3.9 million upon consummation of the
Offerings. Inter-Atlantic has in turn contracted with ACA Service, Risk Capital
and Trident to provide consulting services to Inter-Atlantic in connection with
the services Inter-Atlantic has agreed to provide to the Company. Pursuant to
such agreement, Inter-Atlantic has agreed to pay $1.95 million to ACA Service,
$108,225 to Risk Capital and $324,675 to Trident upon consummation of the
Offerings. The Company is also obligated upon consummation of the Offerings to
reimburse Inter-Atlantic for expenses it incurs in connection with performing
services under its agreement with the Company. Such expense reimbursements will
not include the fees Inter-Atlantic is obligated to pay ACA Service, Risk
Capital and Trident, but will include expenses incurred by ACA Service, Risk
Capital and Trident in connection with performing services under their
agreements with Inter-Atlantic for which Inter-Atlantic is obligated to
reimburse ACA Service, Risk Capital and Trident upon consummation of the
Offerings. At September 30, 1998, Inter-Atlantic had incurred expenses in
connection with the Company's operations of approximately $38,000 and expenses
in connection with the Offerings and the sales to the Strategic Investors of
approximately $278,000, including reimbursements it owed to ACA Service, Risk
Capital and Trident. Upon consummation of the Offerings, expenses incurred by
the Company, including expenses incurred by Inter-Atlantic on the Company's
behalf are currently estimated to be approximately $1,750,000, of which
approximately $500,000 is estimated to relate to expenses in connection with the
Company's operations and approximately $1,250,000 is estimated to relate to
expenses in connection with the Offerings and the sales to the Strategic
Investors, including reimbursements it will owe to ACA Service, Risk Capital and
Trident.
The Company has retained Insurance Consulting Services Limited ("ICS"), a
Bermuda corporation, to provide risk management services and other related
financial services. Pursuant to such agreement, ICS is entitled to receive an
annual fee of $425,000, which is payable in quarterly installments commencing on
the consummation of the Offerings through the fifth anniversary of the
consummation of the Offerings. See "Certain Relationships and Related Party
Transactions."
PLAN OF OPERATION
The Company's plan of operation for the remainder of fiscal 1998 is to
begin full-scale implementation of its business plan. 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
operating expenses (including personnel expenses), the cost of new computer
equipment and software and, subject to Bermuda law, the payment of dividends. By
the end of 1999, the Company anticipates that it will hire thirteen additional
employees, which would bring the total number of employees to eighteen.
The Company expects that the net proceeds of the Offerings and Direct Sales
(after deducting underwriting discounts and commissions, certain advisory fees
and other expenses, including payments to Inter-Atlantic for its services and
reimbursement for certain expenses related to the Offerings and the sales to the
Strategic Investors) will be sufficient to satisfy its cash requirements and to
provide a level of capital sufficient to enable the Company to provide financial
guaranty reinsurance and insurance for the next several years and that, at a
minimum, the Company believes that it will not be necessary during the six
months immediately following the Offerings and the Direct Sales to raise
additional funds to meet the expenditures required to operate the Company's
business. Over time, internally generated funds from the Company's insurance
operations and investment portfolio plus a working capital line of credit and
the capital base established by the Offerings 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.
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<PAGE> 32
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's business strategy includes reinsuring and insuring
financial obligations issued outside the United States, the Company expects that
it will write a portion of its business and receive premiums in currencies other
than United States dollars. Furthermore, the Operating Company may maintain a
small portion of its investment portfolio in investments denominated in
currencies other than United States dollars. Consequently, the Company may
experience exchange losses to the extent its foreign currency exposure is not
properly hedged, which in turn would adversely affect the Company. 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 will make
determinations as to whether to hedge its foreign currency exposure on a
case-by-case basis. Given the contingent and long-term nature of the Company's
expected foreign currency exposure, it may not be feasible in all instances to
hedge effectively such exposure. If the Company does seek to hedge its foreign
currency exposure through the use of forward foreign currency exchange contracts
or currency swaps, it will be subject to the risk that the counterparties to
such arrangements will fail to perform.
TAXATION
Bermuda does not currently impose a corporate level tax on the profits or
income of the Company. GMA and the Operating Company 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 GMA, the Operating Company or to any of their operations or
shares, debentures or other obligations of GMA or the Operating Company until
March 2016. There can be no assurance that after such date GMA or the Operating
Company would not be subject to any such tax. See "Certain Tax
Considerations -- Taxation of GMA and the Operating Company -- Bermuda."
Because GMA and the Operating Company are not expected to conduct business
in the United States, and because GMA and the Operating Company expect to
qualify for the benefits of the tax convention between the United States and
Bermuda, it is not expected that GMA or the Operating Company will be subject to
United States federal income taxes or any other corporate level tax. 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. The rate of tax applicable to reinsurance premiums to be paid to
the Operating Company is currently 1%. The rate of tax for any premiums for
direct issuance of financial guarantees would be 4%. 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. See "Certain
Tax Considerations."
GMA and the Operating Company plan to operate in such a manner that they
will not generally be subject to tax in other jurisdictions except for
withholding taxes on certain kinds of investment income, excise taxes as
described above and other taxes attributable to marketing activities in certain
jurisdictions. It is possible, however, that the Operating Company may be held
to be doing business in one or more foreign jurisdictions and therefore subject
to tax on the profits of such business beyond that contemplated above.
30
<PAGE> 33
IMPACT OF INFLATION
The effects of inflation will be implicitly considered in pricing the
Company's products and estimating the Company's loss reserves. The actual
effects of inflation on the results of the Company cannot be accurately known
until claims are ultimately settled.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as "derivatives") and for
hedging activities. This statement requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The statement also sets forth the criteria for
determining whether a derivative may be specifically designated as a hedge of a
particular exposure with the intent of measuring the effectiveness of that hedge
in the statement of operations. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Management does not
believe that the adoption of this statement will have a material impact on the
Company's consolidated financial position, results of operations or cash flows
although the Company does expect to hold certain derivative instruments that
pursuant to SFAS No. 133 may have to be valued on the Company's balance sheet at
their fair value.
31
<PAGE> 34
BUSINESS
GMA and the Operating Company were both recently organized in Bermuda to
provide "A" rated financial guaranty reinsurance and insurance on financial
obligations, principally municipal and asset-backed securities and other
structured finance obligations, that are rated from "A-" to "BB" or that are
unrated and have in the Company's opinion an equivalent credit quality. The
Company will seek to provide financial guaranty reinsurance on a worldwide basis
and direct financial guaranty insurance outside of the United States. Upon
consummation of the Offerings, the Company expects to be the only publicly
traded "A" rated financial guaranty insurance company and the first publicly
traded Bermuda-based company focused principally on the financial guaranty
industry.
Financial guaranty insurance provides the holder of a financial obligation
with a guaranty against financial loss. Such insurance is principally used to
guarantee the payment of principal and interest on a debt security, and is
typically unconditional, irrevocable and, except for non-payment of premiums,
non-cancelable. Financial guaranty insurance is primarily offered as a credit
enhancement to municipal and asset-backed securities, and can be provided at the
time of the original issuance of financial obligations or to holders of such
obligations in connection with secondary market transactions. Issuers of
financial obligations generally purchase financial guaranty insurance to raise
the credit ratings of their financial obligations and, consequently, to reduce
their overall cost of borrowing. Holders of financial obligations benefit from
financial guaranty insurance because the risk of loss associated with an
issuer's default is reduced and because an obligation that is insured is
typically more liquid in the secondary market than it would be without such
insurance. Under a financial guaranty reinsurance contract, the reinsurer agrees
to bear part or all of the loss the primary insurer may sustain under a
financial guaranty insurance policy it has written. In consideration for this
reinsurance, the primary insurer pays premiums to the reinsurer. Reinsurance in
the financial guaranty industry serves to (i) increase the insurance capacity of
a primary insurer; (ii) assist a primary insurer in meeting applicable capital
and other requirements imposed by rating agencies and regulatory authorities;
and (iii) manage the risk exposure of a primary insurer.
The Company expects to have an equity capitalization of approximately
$333.7 million upon consummation of the Offerings and the Direct Sales.
Management believes that this level of capitalization will demonstrate a strong
financial position and a high level of commitment to potential clients and is
necessary to establish itself as a competitive financial guaranty reinsurer and
insurer. As a newly formed entity, the Company's capital is presently
unencumbered by such issues as insured portfolio leverage, 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 or plan to have any indebtedness other than obtaining letters of
credit in connection with its reinsurance agreements. In part because of the
Company's expected capitalization following the Offerings and the Direct Sales,
the Operating Company has been assigned a preliminary financial strength rating
of "A" by , and a preliminary claims-paying ability rating of "A"
by and . Such ratings have been granted subject to
the Company raising gross proceeds of $ million in the Offerings and
the Direct Sales.
BUSINESS STRATEGY
The Company's objective is to capitalize on what it believes to be an
opportunity to provide innovative and cost-effective forms of third-party credit
enhancement. The Company will seek to achieve this objective through the
implementation of its business strategy, the principal components of which are:
- - Participate in the Development of the "A" Rated Financial Guaranty Market in
the United States
Historically, the United States financial guaranty insurance market has
generally been served by "AAA" rated financial guaranty insurance
companies. The Company will seek to capitalize on what it believes is a
growing market for "A" rated financial guaranty reinsurance and insurance
in the United States. ACA, an affiliate of one of the Company's Sponsors,
has since the commencement of its operations in October 1997 been
developing the market for "A" rated financial guaranty insurance by
offering a lower rated alternative to "AAA" rated financial guaranty
insurance, which it believes may be particularly attractive
32
<PAGE> 35
to issuers that have previously had limited access to the financial
markets. The Company believes that in many cases "A" rated financial
guaranty insurance can reduce an issuer's overall cost of borrowing and
increase the liquidity of a financial obligation trading in the secondary
market while costing less than traditional "AAA" rated financial guaranty
insurance or other forms of third-party credit enhancement. The Company has
entered into three reinsurance treaties with ACA that will become effective
upon consummation of the Offering. The Company believes that such treaties
will provide ACA with additional insurance capacity and will permit ACA to
develop further the market for "A" rated financial guaranty insurance. See
"-- Reinsurance Treaties with ACA." In addition, the Company will also seek
in the United States to enter into reinsurance arrangements with higher
rated financial guaranty insurers and reinsurers as well as other providers
of third-party credit enhancement. Such arrangements would be structured so
that the Company would assume a portion of the risk guaranteed by an
insurer or other third-party credit enhancement provider on a basis that
would result in the rating agencies and regulatory bodies treating the
underlying obligation as "A" rated, thereby providing such insurers or
other third-party credit enhancement providers capital relief and other
benefits.
- - Penetrate the International Credit Enhancement Market
Traditionally, issuers and holders of financial obligations outside the
United States have relied on banks and other financial institutions
offering letters of credit and other guaranties rather than financial
guaranty insurance. The Company believes that, as is the case in the United
States, an opportunity exists to provide "A" rated financial guaranty
insurance as an innovative and cost-effective alternative to existing forms
of credit enhancement. The Company's principal international focus will be
to seek to insure and reinsure financial obligations backed by assets
originating in European Union countries by capitalizing on the
relationships its management team has developed and will seek to develop
with investment banks, commercial banks and other financial services firms.
The Company is not currently licensed as a financial guaranty insurer in
any European Union country because it believes that it can effectively
insure and reinsure such financial obligations while operating from
Bermuda. As the Company's business develops, management will monitor the
need to obtain licenses in such markets in order to comply with applicable
law or be able to engage in additional insurance related activities.
- - Utilize a Disciplined Underwriting Approach
The Company's underwriting strategy is to reinsure and insure financial
obligations which are expected to make full and timely payment of principal
and interest. Nevertheless, given that the Company will be reinsuring and
insuring obligations rated from "A-" to "BB" or that are unrated and have
in the Company's opinion an equivalent credit quality, the Company does
anticipate that its insurance portfolio as a whole may generate a certain
level of losses. The Company will over time seek to diversify the risks it
reinsures and insures by type of obligor, type of pledged assets,
transaction size, geographic location of the obligor, revenue sources and
risk duration. Such diversification is intended to mitigate the impact on
the Company's insurance portfolio as a whole in the event that higher than
expected losses arise in certain segments of the Company's business. The
Company also intends initially to seek a private or "shadow" rating
evaluation from one or more nationally recognized rating agencies on
substantially all unrated financial obligations insured by the Company on a
direct basis.
- - Capitalize on Skill and Experience of Management and Board of Directors
The Company has assembled a senior management team of experienced
reinsurance and insurance professionals to implement its business strategy.
The Company's Chairman of the Board and Chief Executive Officer, Donald J.
Matthews, has over 24 years of experience in the insurance and reinsurance
industries and was President, Chief Operating Officer and a director of ACA
from its formation in October 1997 to August 1998 when he resigned as an
officer and director of ACA to join the Company. From 1985 to 1997, he
served as Senior Vice President and a Principal of Johnson & Higgins (now
Marsh & McLennan Companies, Inc.), where he was employed for 23 years. At
Johnson & Higgins, Mr. Matthews most recently served as Chairman of its
Global Financial Group, where he oversaw the firm's insurance and
reinsurance relationships with financial services companies, including
commercial banks and investment banks, on a worldwide basis. Also while at
Johnson & Higgins, Mr. Matthews was instrumental in the formation of
Corporate Officers & Directors Assurance Ltd. ("CODA") and
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Executive Risk Inc., , Managing Principal and the Chief
Underwriter of the Company, has over years of experience in the
financial guaranty insurance and reinsurance industries and was formerly
. Mary Jane Robertson, Managing Principal and the Chief
Financial Officer and Treasurer of the Company, has over 21 years
experience in the insurance industry and from 1993 to 1997 was the Chief
Financial Officer and a Senior Vice President of Capsure Holdings Corp., an
insurance holding company (now part of CNA Surety Corp.) conducting
principally surety and fidelity insurance business. From 1986 to 1996, Ms.
Robertson served as the Chief Financial Officer and an Executive Vice
President of United Capitol Insurance Company, a property/casualty
insurance company. Bruce W. Bantz, Managing Principal, Marketing and
Business Development of the Company, has over 16 years experience in the
investment and consumer banking industries, specializing in asset
securitization. From 1997 to 1998, Mr. Bantz was a Director and Global Head
of Asset Securitization of Dresdner Kleinwort Benson, an investment banking
division of Dresdner Bank A.G. From 1994 to 1997, Mr. Bantz served as a
Director and Global Head of Asset Securitization for NatWest Markets, an
investment banking division of NatWest Group PLC. The Company's Board of
Directors consists of several individuals with extensive experience in the
financial guaranty and financial services industries. Management believes
that the reputation and expertise possessed by the Company's officers and
directors should assist the Company with its underwriting analysis and
marketing efforts.
- - Maintain Low Cost Structure.
Management believes that through controls on overhead expenses and the
absence of a corporate level tax in Bermuda on the Company's profits and
income, the Company will have a low cost structure. The Company expects
that its cost structure will help enable it to offer its products at
attractive prices and to compete effectively in the financial guaranty
reinsurance and insurance markets.
REINSURANCE TREATIES WITH ACA
The following description of the reinsurance treaties between the Company
and ACA does not purport to be complete and is subject to, and qualified in its
entirety by reference to, all of the provisions of such treaties. A copy of each
reinsurance treaty is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
The Company has entered into three reinsurance treaties with ACA, an
affiliate of a Sponsor of the Company, which will become effective upon
consummation of the Offerings. The first treaty is a "quota share" treaty
pursuant to which the Company is required to provide, and ACA is required to
purchase, reinsurance on a fixed percentage of certain risks insured by ACA. The
second and third treaties are "facultative" treaties under which the Company and
ACA each have the right of first refusal to reinsure each financial obligation
the other insures on a direct basis. Such treaties also set forth the basic
terms on which the Company and ACA may purchase such reinsurance from the other
on a case-by-case basis after individual underwriting decisions have been made.
The Company anticipates that at least in the early stages of its business
development, the premiums it receives under the treaties with ACA will account
for a substantial portion of the Company's total premium income.
Quota-Share Reinsurance Treaty
Under a quota-share reinsurance treaty, dated , 1998 and
effective as of the closing of the Offerings, between ACA as reinsured and the
Company as reinsurer, ACA has agreed to cede and the Company has agreed to
accept as reinsurance a pro rata share of the insurance policies, surety bonds,
indemnity contracts, financial guaranties and other evidences of insurance
(including contracts, agreements, binders and endorsements) written by ACA
during the term of the agreement. ACA will pay the Company a premium for each
calendar quarter equal to the Company's pro rata share of the gross net written
premium income collected by ACA with respect to policies covered by the treaty
during each quarter less a 35% ceding commission. The premiums are payable in
full 60 days following the close of each calendar quarter. Under the quota-share
treaty, the Company is not permitted to write direct financial guaranty
insurance in the United States so long as such treaty remains in effect.
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The Company's pro rata share will be equal to 22.5% of each transaction for
which the total premium is estimated to equal at least $100,000; however, the
quota-share treaty will not apply to any portion of a transaction that would
cause the risk retained by ACA to exceed any single-risk limit applicable to ACA
assessed by any rating agency or regulatory authority or by ACA's internal
guidelines. Any risks not covered by the quota-share treaty may be ceded under
the master facultative treaty between the Company and ACA as described below.
The Company will have no obligation to accept any share of a transaction to the
extent such acceptance would cause the Company to exceed any applicable single-
or aggregate-risk limit established by law or by a nationally recognized rating
agency. In addition, the Company will not be required to accept a share of a
transaction that would cause the Company to violate its internal underwriting
guidelines, provided that such guidelines are not made more restrictive in the
future without ACA's written consent. In the event that the Company is obligated
to accept a share of a transaction that would cause the Company to violate its
internal underwriting guidelines, the Company will seek to reinsure such
exposure. There can be no assurance that the Company will be able to obtain such
reinsurance.
The quota-share treaty expires on December 31, 1999 but will be
automatically renewed for successive one-year terms, unless the Company gives
written notice at least 90 days prior to any December 31 of its intent not to
renew for the succeeding calendar year. In the event the Company gives such
notice, the business reinsured under the quota-share treaty will become fixed
(i.e., no new business will be added to the business already reinsured) as of
such December 31. The business reinsured will also become fixed on the day that
any of the following events occurs: (i) either ACA or the Company ceases to have
a financial strength rating or claims-paying ability rating from any of Standard
& Poor's, Fitch IBCA or Duff & Phelps that is at least "A-" and such rating has
not been restored within one month (a "Ratings Event"); (ii) either ACA or the
Company becomes insolvent or has a final order of liquidation, rehabilitation,
conservatorship or receivership entered against it; (iii) the Company, in its
sole discretion, determines that ACA has materially violated its underwriting
guidelines and delivers a notice to such effect to ACA; (iv) either ACA or the
Company breaches certain covenants set forth in the quota share treaty and such
breach is not cured within 60 days of notice to the breaching party by the other
party; or (v) ACA fails to pay the premiums owed to the Company and such failure
is not remedied within ten days of notice thereof. In the event of termination,
the Company will remain liable for the reinsurance liabilities ceded thereunder
until the earlier of (i) the settlement, natural expiration or cancellation of
such liabilities and (ii) the cut-off date, if any. The cut-off date is any
December 31 as to which ACA has given at least 90 days' prior written notice and
either (i) the business reinsured has become fixed as described above (provided
that such December 31 falls in the year 2000 or later) or (ii) no net incurred
losses have been paid by the Company under the quota-share treaty (provided that
such December 31 falls in the year 2003 or later). The Company's liability
thereunder will terminate on such cut-off date, if any, and the Company will
return all unearned premiums to ACA within 30 business days.
Master Facultative Reinsurance Treaties
Under reciprocal master facultative reinsurance agreements, each dated
, 1998 and effective as of the closing of the Offerings between (in
the case of one of such agreements) ACA as reinsured and the Company as
reinsurer and (in the case of the other such agreement) the Company as reinsured
and ACA as reinsurer, the Company or ACA (as the case may be) as reinsured will
agree to cede and the reinsurer will agree to accept as reinsurance such share
of any risk insured by the reinsured as may be specified and agreed upon by the
parties in a reinsurance memorandum. The reinsured under each master facultative
treaty will present to the reinsurer each of the risks it incepts or renews
during the term of such agreement, and the reinsurer will have the right, in its
sole discretion, to reject or accept any individual risk presented to it by the
reinsured. Such arrangements are equivalent to a right of first refusal of the
Company and ACA with respect to all business originated by the other.
Each reinsured will pay the related reinsurer its share of the premium
related to any policy after first deducting a ceding commission allowed by the
reinsurer, as such premium and ceding commission are set forth in the related
reinsurance memorandum. Such reinsurance memorandum may also modify any of the
terms, conditions or coverage set forth in the related master facultative
treaty.
Each master facultative treaty will be a continuous contract until
canceled. It may be canceled at any time by mutual consent, or by either party
by giving at least 90 days prior written notice. In either such event,
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the reinsurer will continue to be liable with respect to policies ceded pursuant
to such agreement until the natural expiration or cancellation of such policies,
except to the extent that both parties agree to a withdrawal of the reinsured
risks from the reinsurer and return or payment by the reinsurer of an amount
equal to its share of incurred loss and loss expenses and of unearned premiums
(less the corresponding ceding commission). Such agreement may also be canceled
at the discretion (in the case of the Company) of the Minister of Finance of
Bermuda or (in the case of ACA) the Commissioner of Insurance of the State of
Maryland acting (in either case) as rehabilitator, liquidator or receiver of the
reinsured party.
In addition, the reinsured under each master facultative treaty will have
the right to terminate its participation in policies covered thereunder by
giving written notice thereof if any of: (i) the performance of such agreement
is prohibited or rendered impossible by any applicable law or regulation, such
reinsured fails to receive all or substantially all financial credit for the
reinsurance provided by such agreement in all applicable jurisdictions, or the
insurance regulator in the applicable jurisdiction directs such reinsured to
cancel its participation in such agreement; (ii) the related reinsurer becomes
insolvent, fails to maintain (in the case of the Company) the minimum capital
and surplus or surplus to policyholders requirements required by the laws of its
domicile or (in the case of ACA) by certain applicable sections of the New York
Insurance Law, is the subject of a voluntary or involuntary filing of a petition
in bankruptcy, goes into liquidation or rehabilitation, has a receiver
appointed, allows its surplus to policyholders to decline by 25% during any
twelve-month period as reported in any financial statement or fails to maintain
the approval of (in the case of the Company) the Minister of Finance of Bermuda
or (in the case of ACA) the Commissioner of Insurance of the State of Maryland;
(iii) such reinsurer (a) is acquired, or comes under the control of any other
insurance company or organization, provided that the reinsured gives notice of
its intention to terminate within fifteen days of its receipt of notice of such
occurrence, or (b) fails to timely cure a breach of any of its respective
covenants as set forth in the master facultative treaty; or (iv) a Ratings Event
occurs with respect to such reinsurer. Termination will be effective upon the
related reinsurer's receipt of written notice thereof, except that termination
in the case of clause (iii) will be effective 60 days after such reinsurer's
receipt of written notice thereof. Upon any such termination, the reinsurer will
return the reinsured risks to the reinsured and pay to such reinsured an amount
equal to such reinsurer's share of incurred loss and loss expenses and of
statutory unearned premiums (less the corresponding ceding commission), unless
such reinsurer's notice of termination provides that it will continue to cover
all policies written by such reinsured prior to such termination and coming
within the scope of such master facultative treaty until the natural expiration
or cancellation of such policies.
DESCRIPTION OF ACA
ACA was established in October 1997 and, to the Company's knowledge, is the
only "A" rated financial guaranty insurer operating in the United States. ACA is
a privately-held Maryland-domiciled insurance company with its principal offices
in New York City. ACA is licensed to provide financial guaranty insurance in all
50 states, the District of Columbia and the territories of Guam, the United
States Virgin Islands and Puerto Rico. ACA's primary business is the provision
of financial guaranty insurance on financial obligations that are rated from
"A-" to "BB" or that are unrated and have in ACA's opinion an equivalent credit
quality. ACA has issued such policies both to issuers of financial obligations
at the time of original issuance and to holders of financial obligations in
connection with secondary market transactions. Standard & Poor's currently rates
ACA's financial strength as "A," and its claims-paying ability is currently
rated "A" by Duff & Phelps and Fitch IBCA.
ACA was founded by H. Russell Fraser, a director of the Company, Mr.
Matthews, the Chairman and Chief Executive Officer of the Company, and a group
of senior executives having extensive experience in financial guaranty
insurance, credit analysis and related areas. Mr. Fraser, the Chairman of the
Board and Chief Executive Officer of ACA, formerly served as the Chairman and
Chief Executive Officer of Fitch Investors Service, L.P. (now Fitch IBCA) and
the President and Chief Executive Officer of AMBAC Indemnity Corporation (now
Ambac Assurance Corporation).
From January 1, 1998 to August 31, 1998, ACA wrote financial guaranty
insurance covering approximately 65 different underlying credits representing
approximately $900 million in aggregate principal amount for premiums totaling
approximately $21.1 million. Substantially all of the financial guaranty
insurance written
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by ACA has covered municipal obligations and obligations issued by other
tax-exempt organizations, although ACA has insured some corporate and
asset-backed securities. ACA's insured portfolio as of August 31, 1998 consisted
solely of financial obligations of obligors located in the United States,
although the portfolio was diversified across different states within the United
States. Also as of August 31, 1998, approximately 40% of ACA's insured portfolio
consisted of obligations issued by obligors in the health care sector and
approximately 10% consisted of obligations issued by obligors in the education
sector. Because ACA has only recently commenced operations, the composition and
diversification of its insured portfolio is expected to change as its business
continues to mature, although there can be no assurance as to the future
composition of ACA's insured portfolio. As of June 30, 1998, ACA had admitted
assets of $127.2 million, total liabilities of $19.6 million, and total capital
and surplus of $107.6 million, as determined in accordance with statutory
accounting practices prescribed or permitted by United States insurance
regulatory authorities.
ACA's initial gross capital raised consisted of $126.25 million, of which
$120.0 million was contributed by five institutional investors and $6.25 million
by ACA management and employees. ACA also has $125.0 million of reinsurance
capacity in the form of two excess of loss facilities, one for $50.0 million
with Zurich Reinsurance (North America) Inc. and the other for $75.0 million
with Capital Credit Reinsurance Company.
To evaluate the credit quality of each potential transaction, ACA has
established underwriting guidelines that incorporate conventional credit
criteria, including adequacy of projected cash flows, value and availability of
collateral, legal structure and documentation and due diligence. As part of its
business strategy, however, ACA considers variations from such guidelines that,
in its view, do not materially impair credit quality and analyzes each
transaction individually. ACA's underwriting process, which requires approval of
all substantial transactions by a committee that includes (among others) its
Chief Executive Officer, Chief Financial Officer and General Counsel, is
designed to ensure the full utilization of the experience and expertise of its
staff of eight underwriters and three attorneys. All transactions that ACA
enters into are reviewed by the rating agencies that have assigned financial
strength or claims-paying ability ratings to ACA. In addition, ACA has an
experienced surveillance staff that, with its legal department, monitors the
performance of all transactions. In the event a claim is made under a policy,
ACA will aggressively pursue its remedies to ensure maximum recoveries.
So as to maintain its "A" rating, ACA adheres to the capital charges,
single-risk limits and investment-grade limits prescribed by its rating
agencies. Standard & Poor's, for example, has published rating-sensitive capital
charges for municipal and corporate obligations and representative capital
charges for asset-backed securities; it has also established single-risk limits
applicable to ACA for investment-grade and non-investment-grade municipal and
corporate bonds and asset-backed securities. Standard & Poor's requires at least
70% of ACA's "public finance volume" (as defined by Standard & Poor's) and at
least 75% of its "asset-backed volume" (as so defined) to be investment grade.
In addition, although ACA operates as a financial guaranty insurance
company throughout the United States, legislation in effect in most states does
not provide for financial guaranty insurance as a distinct type of insurance;
such states classify ACA's business differently depending on their statutory
framework. As a result, ACA is regulated as a financial guaranty insurer, as a
surety and as a property/casualty insurer depending on the jurisdiction
involved. State laws regulate the amount of both the aggregate and individual
risks that may be insured, the amount of reinsurance from any one reinsurer for
which regulatory credit will be given, the payment of dividends by ACA, changes
in control, and certain transactions among affiliates. ACA is also required to
maintain varying contingency reserves with respect to its liabilities in certain
amounts and for certain periods of time.
UNDERWRITING STRATEGY
The Company's underwriting strategy is to reinsure and insure financial
obligations which are expected to make full and timely payment of principal and
interest. Nevertheless, given that the Company will be reinsuring and insuring
obligations rated from "A-" to "BB" or that are unrated and have in the
Company's opinion an equivalent credit quality, the Company does anticipate that
its insurance portfolio as a whole may
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generate a certain level of losses. The Company will over time seek to diversify
the risks it reinsures and insures by type of obligor, type of pledged assets,
transaction size, geographic location of the obligor, revenue sources and risk
duration. Such diversification is intended to mitigate the impact on the
Company's insurance portfolio as a whole in the event that higher than expected
losses arise in certain segments of the Company's business. In addition, the
Company intends to limit its risk exposure to the single-risk limits and non-
investment grade limits prescribed by its rating agencies and the Company's
internal underwriting guidelines. Such limitation is intended to help mitigate
the financial effect upon the Company of a catastrophic event affecting any
single issuer.
The Company has hired to act as its Chief Underwriter. Mr.
has over years of experience in analyzing the risks
associated with financial guaranty insurance. All risks insured by the Company
will be approved by its Credit Committee, which consists of Mr.
as well as the Company's Chief Executive Officer and Chief Financial Officer.
Each risk insured by the Company must comply with the underwriting guidelines
the Company has established in consultation with the rating agencies that have
assigned preliminary financial strength and claims-paying ratings to the
Operating Company, unless an exception to the guidelines is specifically
approved by the Company's Board of Directors. The Company's underwriting
guidelines will regularly be reviewed and modified when necessary to conform to
changing market, economic and legal conditions.
Whenever necessary, the Company intends to retain external assistance to
expedite and support its underwriting review process, including contracting for
analytical, legal, technical and engineering expertise. The Company also intends
initially to seek a private or "shadow" rating evaluation from on
most unrated financial obligations insured by the Company on a direct basis.
RESERVES
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. The financial guarantees issued by the
Company will reinsure or insure the financial performance of obligations over an
extended period of time, in some cases over 30 years, under policies that the
Company cannot generally cancel. The Company's policy is to provide for loss and
loss adjustment expense reserves that the Company expects are adequate to cover
losses that may arise from insured obligations that are currently or imminently
in default. When a default occurs or is imminent with respect to a particular
insured obligation, a case basis reserve will be established in an amount that
is sufficient to cover the present value of the anticipated defaulted debt
service payments over the expected period of default and the estimated expenses
associated with settling relevant claims, less any estimated recoveries under
salvage or subrogation rights.
Consistent with industry practice, the Company also intends to establish
general loss reserves in order to account for unidentified risks inherent in its
overall portfolio. The general reserve amount will be calculated by applying a
loss factor to the total exposure of the Operating Company's insured obligations
outstanding over the term of such insured obligations and discounted to present
value. The loss factor used for this purpose will be determined based on a
variety of criteria including industry data, the Company's actual claims
exposure, the characteristics and exposure to risk of the Operating Company's
insured portfolio, the insurance portfolios of the Operating Company's ceding
companies, obligations of the Operating Company under its reinsurance treaties,
and general economic conditions. At least initially, the Company intends to
establish a general loss reserve equal to 15% of earned premium income, which
amount is consistent with the current general loss reserve policy of ACA. The
Company will, on an ongoing basis, monitor the general reserve and may
periodically adjust such reserve based on the Company's actual loss experience,
its future mix of business and future economic conditions. The establishment of
an appropriate level of loss reserves is an inherently uncertain process, made
even more so by the immature nature of the "A" rated financial guaranty
reinsurance and insurance market, and there can be no assurance that claims made
against the Company will not exceed the Company's loss reserves.
Historically, insured losses in the financial guaranty insurance business
have occurred infrequently. When such losses occur, they have the potential to
be significant in amount. While the Company would be required
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to establish a case basis reserve (as described above) equal to the present
value of all payments due under an insured obligation that goes into default,
the Company is only obligated to make payments of principal and interest as they
would otherwise become due under such obligation. A significant economic event
could trigger widespread claims, particularly if the entire fixed income market
were adversely affected. Significant underwriting losses would adversely affect
the Company and could cause it to experience net losses. Over time, such losses
could impair the Operating Company's ability to maintain its financial strength
and claims-paying ability ratings or to pay dividends to GMA.
RETROCESSIONAL ARRANGEMENTS
The Company may reinsure, or retrocede, portions of certain risks for which
it has accepted liability, including through its master facultative reinsurance
agreement with ACA. Retrocessional arrangements will allow the Company greater
underwriting capacity while limiting its risk profile. There can be no assurance
that there will be companies other than ACA that are willing to reinsure risks
for which the Company has accepted liability.
SALES AND MARKETING
The Company expects that the relationships developed by its experienced
management team with domestic and international firms and persons in the markets
the Company has targeted will allow the Company to develop business
opportunities. With respect to the Company's reinsurance operations, the Company
will seek to capitalize on the relationships its management team has developed
with primary financial guaranty insurers, particularly ACA, as well as other
providers of third-party credit enhancement. With respect to the Company's
direct insurance operations, the Company will seek to capitalize on the
relationships its management team has developed with investment banks,
commercial banks and other financial services firms involved in the distribution
and structuring of financial obligations which are typically in a position to
refer business to the Company. It is expected that such entities will seek the
Company's direct insurance products in circumstances in which an "A" rated
financial guaranty would serve to facilitate in a material way the offering or
placement of the underlying financial obligation. Senior management of the
Company intends to take an active part in the sale and promotion of the
Company's products.
COMPETITION
The traditional financial guaranty insurance and reinsurance industry is
highly competitive. The United States market for financial guaranty reinsurance
is dominated by a small number of companies, including Capital Reinsurance Co.
and Enhance Reinsurance Co., that have greater financial resources and are more
established than the Company. Similarly, the international market for
third-party credit enhancement products is dominated by a number of large banks
and other financial institutions, which also have greater financial resources
and are more established than the Company. There can be no assurance that such
insurers, banks and financial institutions will not seek to duplicate the
Company's business strategy and compete directly with the Company by providing
lower-rated financial guaranty reinsurance or insurance or comparable forms of
credit enhancement. Furthermore, the Company's reinsurance treaties with ACA do
not prohibit ACA from competing directly with the Company. If ACA, other
financial guaranty insurers, or other third-party credit enhancement providers
enter the Company's target markets, the Company could be adversely affected. If
ACA is adversely affected by competition in its target markets, the Company
would also be adversely affected. Under the Company's quota share reinsurance
treaty with ACA, the Company is not permitted to write direct financial guaranty
insurance in the United States so long as such treaty remains in effect.
Competition in the financial guaranty insurance and reinsurance industry is
based on many factors, including premium charges, the general reputation and
perceived financial strength of financial guaranty providers, other terms and
conditions of products offered, and reputation and experience in the particular
line of financial guaranty to be written. The Company will also compete with
alternative methods of credit enhancement that do not employ third-parties, such
as over-collateralization of a structured financial
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transaction to achieve the desired rating. There can be no assurance that the
Company's strategy will permit it to compete effectively with these alternative
methods of credit enhancement.
The Operating Company has been assigned a preliminary financial strength
rating of "A" by , and a preliminary claims-paying ability rate
of "A" by and . Such ratings have been granted
subject to the Company raising gross proceeds of $ million in the Offerings
and the Direct Sales. These ratings are used by potential purchasers of
financial guaranty insurance and reinsurance as an important means of assessing
the financial strength and quality of financial guaranty insurers and
reinsurers. In addition, the level of capital charge relief which the rating
agencies may provide to a financial guaranty insurer that purchases reinsurance
is directly dependent on the rating of the reinsurer. Likewise, the decreased
overall cost of borrowing realized by an issuer of a financial obligation and
the increase in liquidity in the secondary market of a financial obligation that
is subject to financial guaranty insurance is largely dependent on the rating of
the insurer. The Company's principal competitors are all more highly rated than
the Company, which, in some respects, will put the Company at a competitive
disadvantage.
INVESTMENT STRATEGY
Investments made by the Operating Company will be governed by the
Investment Guidelines and by accounting regulations prescribed by Bermuda
insurance laws and regulations. The Operating Company's investment portfolio
will consist of investment grade fixed income securities and will be invested in
an effort to maximize total return while providing for appropriate liquidity and
diversification of risk. The Investment Guidelines require the Operating
Company's overall investment portfolio to maintain a minimum weighted average
credit quality rating of "A." A fixed income security rated "A" by Standard &
Poor's 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 Operating Company
will not invest in any securities in emerging markets.
The Investment Guidelines also provide that the Operating Company 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 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; (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, (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 Operating 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 Operating Company will seek to manage credit risk through industry and
issuer diversification. The Operating Company will seek to manage interest rate
risk by monitoring the duration of its investment portfolio relative to current
market conditions. The Investment Guidelines provide that the 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.
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The Finance and Investment Committee of the Company's Board of Directors
will periodically review the Operating Company's investment portfolio and the
performance of the Investment Managers. The Finance and Investment Committee can
approve exceptions to the Investment Guidelines. For example, although the
Investment Guidelines do not currently permit investments in below investment
grade securities, the Finance and Investment Committee may in certain situations
allow portions of the investment portfolio to be invested in below investment
grade securities. The risks associated with below investment grade securities
are greater than the risks associated with investment grade securities. The
Finance and Investment Committee will also 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
The Operating Company has entered into investment advisory agreements with
the Investment Managers, Alliance Capital Management L.P. ("Alliance") and The
Prudential Investment Corporation ("Prudential Investment"), each of which is
anticipated to manage initially approximately 50% of the Operating Company's
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 the Operating Company's investment portfolio
allocated to it, subject to the Investment Guidelines.
Alliance will receive a fee for its services at an annual rate of
% of the value of the assets it manages on behalf of the Operating
Company and Prudential Investment will receive a fee for its services at an
annual rate of % of the value of the assets it manages on behalf of
the Operating Company. The exact fee rate charged by each Investment Manager is
dependent upon the amount of assets it manages on behalf of the Company. The
agreement with Alliance may be terminated by either party upon 30 days' prior
written notice. The agreement with Prudential Investment may be terminated by
the Company without advance notice and by Prudential Investment upon 45 days'
prior written notice.
ADMINISTRATION
The Company has entered into an agreement with J&H Marsh & McLennan
Management (Bermuda) Ltd. ("Marsh & McLennan") to provide management,
administrative and consulting services to the Company. These services are
anticipated initially to include (i) maintenance of the Company's books and
records, (ii) preparation of periodic reports to the Company, (iii)
administration of payroll and employee benefits, (iv) maintenance of bank
accounts, and (v) preparation of Bermuda governmental reports. The contract is
subject to termination by either party at any time upon 90 days' written notice
or upon shorter notice in specified circumstances including an uncured breach or
bankruptcy. Pursuant to the contract, Marsh & McLennan is entitled to receive
fees based on hourly rates with a $20,000 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.
PROPERTY
The Company has leased office space in Hamilton, Bermuda at which the
principal offices of GMA and the Operating Company are located. The leased
office space consists of square feet. The $ monthly rent
includes utilities and certain office furnishings and equipment. The lease is
scheduled to expire on .
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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, GMA is not subject to Bermuda insurance regulations. The Insurance Act
1978, as amended (the "Insurance Act"), which regulates the insurance business
of the Operating Company, 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
the subcommittees 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. There are four classifications of insurers carrying on general
business, with Class 4 insurers subject to the strictest regulation. As the
Operating Company has been incorporated to provide reinsurance and insurance of
financial guaranty insurance-related risks, it has been registered as a Class 3
insurer in Bermuda and will be regulated as such under the Insurance Act.
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.
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. The Operating Company's
independent auditor is KPMG Peat Marwick.
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.
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Annual Statutory Financial Return. The Operating Company 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). 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 an opinion of the Operating Company's loss reserve specialist in
respect of the Operating Company's loss and loss expense provisions. 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. The Operating Company's loss reserve
specialist is Andre Perez of KPMG Peat Marwick.
Minimum Solvency Margin. The Insurance Act provides that the statutory
assets of an insurer must exceed its statutory liabilities by an amount greater
than the prescribed minimum solvency margin.
Pursuant to the Insurance Act, the Operating Company, is registered as a
Class 3 insurer and, as such: (i) is required to maintain a minimum solvency
margin equal to the greatest of: (a) $1,000,000, (b) 20% of net premium written
up to $6,000,000 plus 15% of net premiums written over $6,000,000, and (c) 15%
of loss reserves; (ii) is prohibited from declaring or paying any dividends
during any financial year it is in breach of its minimum solvency margin or
minimum liquidity ratio or if the declaration or payment of such dividends would
cause it to fail to meet such margin or ratio (if it fails to meet its minimum
solvency margin or minimum liquidity ratio on the last day of any financial
year, the insurer will be prohibited, without the approval of the Minister, from
declaring or paying any dividends during the next financial year); (iii) is
prohibited, without the approval of the Minister, from reducing by 15% or more
its total statutory capital, as set out in its previous year's financial
statements; and (iv) 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, in addition to the
restrictions specified above, direct the insurer not to declare or pay any
dividends or any other distributions or may restrict it from making such
payments to such extent as the Minister may think fit.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business. An insurer engaged in general business is required
to maintain the value of its relevant assets of not less than 75% of the amount
of its relevant liabilities. Relevant assets include cash and time deposits,
quoted investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, account and premiums receivable and
reinsurance balances receivable. There are certain categories of assets which,
unless specifically permitted by the Minister, do not automatically qualify as
relevant assets, such as unquoted equity securities, investments in and advances
to affiliates and real estate and collateral loans. The relevant liabilities are
total general business insurance reserves and total other liabilities less
deferred income tax and sundry liabilities (by interpretation, those not
specifically defined).
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, or transfer to the custody of a specified bank, certain assets,
(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.
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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 the Operating Company is at the
Company's offices in Hamilton, Bermuda, and Donald J. Matthews is the principal
representative of the Operating Company. 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 ratio.
Certain Bermuda Law Considerations. GMA and the Operating Company 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 GMA and the Operating Company
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 Offerings 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 the Operating Company 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, GMA is not
bound to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust. GMA 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," GMA and the Operating Company 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 and the risks
of other Bermuda-exempted companies, except in furtherance of their business
carried on outside Bermuda, and, in the case of the Operating Company,
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.
United States and Other
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 the Operating Company, which are not admitted
to do business within such jurisdiction. With some exceptions, the sale of
insurance within a jurisdiction where an insurer is not admitted to do business
is prohibited. The Company expects to conduct its business through its Bermuda
office and does not intend to conduct any 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, the definition of such activities is in some jurisdictions
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ambiguous and susceptible to judicial interpretation. Accordingly, 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.
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 in certain instances that the Company's reinsurance
clients will require it to post a letter of credit or enter into other security
arrangements. The Company's quota share and facultative treaties with ACA
contain a requirement that the Company must satisfy all regulatory requirements
in order to permit ACA to receive credit for such reinsurance. In the event that
the Company should default under a letter of credit facility, it may be required
to liquidate prematurely all or a substantial portion of its investment
portfolio and/or its other assets which have been pledged as security for the
facility or otherwise to secure its obligations to its reinsureds, which would
adversely affect the Company. If the Company is unable to obtain a letter of
credit facility on commercially acceptable terms or is unable to arrange for
other types of security, the Company's ability to operate its business may be
severely limited.
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OVERVIEW OF THE FINANCIAL GUARANTY INDUSTRY
Financial guaranty insurance provides the holder of a financial obligation
with a guaranty against financial loss. Such insurance is principally used to
guaranty the payment of principal and interest on a debt security, and is
typically unconditional, irrevocable and, except for non-payment of premiums,
non-cancelable. Financial guaranty insurance is primarily offered as a credit
enhancement to municipal and asset-backed securities, and can be provided at the
time of the original issuance of financial obligations or to holders of such
obligations in connection with secondary market transactions. Issuers of
financial obligations generally purchase financial guaranty insurance to raise
the credit ratings of their financial obligations and, consequently, to reduce
their overall cost of borrowing. Holders of financial obligations benefit from
financial guaranty insurance because the risk of loss associated with an
issuer's default is reduced and because an obligation that is insured is
typically more liquid than it would be without such insurance. Under a financial
guaranty reinsurance contract, the reinsurer agrees to bear part or all of the
loss the primary insurer may sustain under a financial guaranty insurance policy
it has written. In consideration for this reinsurance, the primary insurer pays
premiums to the reinsurer.
Financial guaranty insurers write secondary market insurance on financial
obligations that were issued on an uninsured basis. Secondary market financial
guaranty insurance and reinsurance has been issued to holders of municipal
bonds, asset-backed securities and, to a lesser extent, corporate obligations.
The premium for financial guaranty insurance is generally paid by the
issuer of the obligation either in periodic installments, as is generally the
case with asset-backed securities, or, with respect to municipal debt
obligations, in full at the inception of the policy. Financial guaranty premiums
are non-refundable and those paid in full at the inception of the policy are
earned over the term of the related insured obligation. Because many obligations
insured by financial guaranty insurers have long maturities, the portion of
premiums earned on a policy in any year represents a relatively small percentage
of the initial premium received. Premium rates are typically calculated as a
percentage of the principal amount of the insured obligation or the principal
and interest scheduled to come due during the stated term of the insured
obligation. Premium rates reflect such factors as the credit strength of the
issuer, size and type of an issue, rating agency capital charges, sources of
income, collateral pledged, restrictive covenants, maturity, prevailing market
spreads between insured and uninsured obligations and competition from other
insurers, other providers of credit enhancements and alternatives to credit
enhancement.
Municipal Bond Market. Municipal bond insurance issued by financial
guaranty insurance companies provides a credit enhancement of debt obligations
issued by or on behalf of states or other political subdivisions (counties,
cities, towns and villages, utility districts, public universities, hospitals,
public housing and transportation authorities) and other public and quasi-public
entities (including non-United States sovereigns and subdivisions thereof).
Municipal bonds insured include, among others, the following types: general
obligations, special tax and assessment transactions, development districts,
utilities (electric, water, sewer and gas), housing (local agency, taxable,
single and multi-family), transportation (airports, ports and mass transit),
toll facilities (highways, tunnels, parking facilities and bridges), education
(private and certain public universities, private colleges, community colleges,
vocational and technical schools, elementary and high schools, special education
and research facilities), healthcare (acute, rehabilitation, assisted living,
nursing homes and congregate care), lease transactions and economic and
industrial development transactions. Municipal bonds are generally supported by
the issuer's taxing power in the case of general obligation or special
tax-supported bonds, or by its ability to impose and collect fees and charges
for public services or specific projects in the case of most revenue bonds.
Asset-Backed Securities Market. Asset-backed securities are payable
primarily from the payments on and proceeds of a specific financial asset or
pool of financial assets. In contrast to secured financing, in which an
operating company retains ownership of the pledged collateral, the assets of
asset-backed securities are insulated from the credit risk of any operating
company. As a result, asset-backed securities may be, and typically are, rated
independently of the rating of the company that originated the assets. While
non-agency residential mortgages, home equity loans, credit card receivables,
auto loans and student loans constitute the largest percentage of assets backing
asset-backed securities, the variety of asset-backed obligations available to
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investors has continued to expand to include different types of assets. In
recent years, "hybrid" asset-backed structures have been developed in which the
rating of the securities is more or less loosely linked to (rather than
dependent on) the rating of an operating company. Such structures include, for
example, "future flow" transactions in which payment of the securities depends
on the generation and payment of future receivables and, as a result, on the
continued operation of the company originating the receivables. Because
companies frequently continue to operate even when in default on their financial
obligations, such companies' operating risk is significantly lower than their
credit risk.
Financial Guaranty Reinsurance Market. Reinsurance is an arrangement under
which a financial guaranty 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
(reinsurers) under indemnity reinsurance agreements. Such practice permits
primary insurers to write policies in amounts larger than the risks they are
willing to retain for their own account.
The two principal kinds of reinsurance are automatic treaty reinsurance and
facultative reinsurance. Automatic treaty reinsurance requires the ceding
company automatically to cede and the reinsurer to assume specific classes of
risk underwritten by the ceding company over a period of time. Facultative
reinsurance is the reinsurance of part or all of one or more insurance policies
or specific risks which is subject to separate negotiation for each reinsurance
placement. It offers the option of accepting or rejecting individual submissions
by a ceding company as distinguished from the obligation to automatically accept
specified classes of risk as an automatic treaty reinsurer.
Reinsurance in the financial guaranty industry serves to (i) increase the
insurance capacity of a primary insurer, (ii) assist a primary insurer in
meeting applicable capital and other requirements imposed by rating agencies and
regulatory authorities; and (iii) manage the risk exposure of a primary insurer.
State insurance laws and regulations, as well as the rating agencies, impose
minimum capital requirements on financial guaranty insurance companies, limiting
the aggregate amount of insurance which may be written and the maximum size of
any single risk which may be insured. Reinsurance enables the reinsured to
increase its capacity to write new business by effectively reducing the
reinsured's gross liability on an aggregate and single-risk basis. Furthermore,
primary insurers manage the risk of their insured portfolios based on internal
underwriting criteria and portfolio management guidelines. Reinsurance is
instrumental in achieving those portfolio management goals. The reinsurer
sometimes pays a ceding commission to the primary insurer to compensate the
insurer for its costs of producing and underwriting the insured risk.
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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 GMA and the Operating Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH GMA AND THE OPERATING COMPANY
- ---- --- -------------------------------------------
<S> <C> <C>
Donald J. Matthews................... 64 Chairman of the Board, Chief Executive Officer and
Director
Mary Jane Robertson.................. 45 Managing Principal, Chief Financial Officer and
Treasurer
Bruce W. Bantz....................... 48 Managing Principal, Marketing and Business
Development
Charles G. Collis*................... 36 Director and Secretary
Charles A. Davis..................... 49 Director
H. Russell Fraser.................... 57 Director
William M. Goldstein................. 63 Director
Frederick S. Hammer.................. 63 Director
Robert M. Lichten.................... 58 Deputy Chairman of the Board and Director
Paul T. Walker....................... 63 Director
</TABLE>
- ---------------
* Mr. Collis has indicated his intention to resign as a director of GMA and the
Operating Company upon consummation of the Offerings.
Donald J. Matthews was elected Chairman of the Board, Chief Executive
Officer and a director of GMA and the Operating Company upon their formation.
Mr. Matthews was President, Chief Operating Officer and a director of ACA from
its formation in October 1997 to August 1998 when he resigned as an officer and
director of ACA to join the Company. From 1985 to 1997, he served as Senior Vice
President and a Principal of Johnson & Higgins (now Marsh & McLennan Companies,
Inc.), an international insurance intermediary and employee benefits consulting
firm, where he was employed for 23 years. At Johnson & Higgins, Mr. Matthews
most recently served as Chairman of its Global Financial Group, where he oversaw
the firm's insurance and reinsurance relationships with financial services
companies, including commercial banks and investment banks, on a worldwide
basis. Also while at Johnson & Higgins, Mr. Matthews was instrumental in the
formation of Corporate Officers & Directors Assurance Ltd. ("CODA") and
Executive Risk Inc. Prior to joining Johnson & Higgins, Mr. Matthews was
Chairman of the Board and President of Midland Insurance Company. Mr. Matthews
is currently a director of Annuity and Life Re (Holdings), Ltd., and from 1985
to 1988 served as a director of AMBAC Indemnity Corporation (now Ambac Assurance
Corporation).
Mary Jane Robertson became Managing Principal and the Chief Financial
Officer and Treasurer of GMA and the Operating Company on October 28, 1998. Ms.
Robertson was Chief Financial Officer and a Senior Vice President of Capsure
Holdings Corp., an insurance holding company (now part of CNA Surety Corp.)
conducting principally surety and fidelity insurance business, from 1993 to
1997. From 1986 to 1996, Ms. Robertson served as the Chief Financial Officer and
an Executive Vice President of United Capitol Insurance Company, a
property/casualty insurance company. Prior thereto, Ms. Robertson served as an
Audit Manager of Coopers & Lybrand from 1978 to 1986.
Bruce W. Bantz became Managing Principal, Marketing and Business
Development of GMA and the Operating Company on September 1, 1998. Mr. Bantz was
a Director and the Global Head of Asset Securitization of Dresdner Kleinwort
Benson, an investment banking division of Dresdner Bank A.G., from 1997 to 1998.
From 1994 to 1997, he served as a Director and the Global Head of Asset
Securitization for NatWest Markets, an investment banking division of NatWest
Group PLC. Prior thereto, Mr. Bantz served as a Vice President of Citibank from
1982 to 1994, where he was responsible for creating many of the innovations for
Citibank's credit card asset securitization program that have become basic
features of the asset-backed securities market and where he assisted in the
formation of CIESCO, an innovative multi-seller securitization conduit.
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Charles G. Collis was elected a director of GMA and the Operating Company
upon their formation. He is a partner in the law firm of Conyers Dill & Pearman,
the Company's Bermuda counsel, where he has worked since 1990.
Charles A. Davis was elected a director of GMA and the Operating Company on
October 28, 1998. Mr. Davis has been the President and Chief Operating Officer
of Marsh & McLennan Risk Capital Corp. since April 1998. Prior thereto, Mr.
Davis worked at Goldman, Sachs & Co. for 23 years. He was a Senior Director and
Limited Partner at Goldman, Sachs & Co. from 1995 to 1998 and, prior to that,
was Head of Investment Banking Services worldwide, Co-head of the Americas
Group, Head of the Financial Services Industry Group, a member of the
International Executive Committee and a General Partner. Mr. Davis is also a
director of Media General, Inc., Heilig-Meyers Company, Progressive Corporation,
Lechters, Inc., Merchants Bancshares, Inc. and Sen-Tech International Holdings,
Inc.
H. Russell Fraser was elected a director of GMA and the Operating Company
on August 25, 1998. Mr. Fraser has been Chairman and Chief Executive Officer of
ACA since its formation in October 1997. From April 1989 to February 1995, he
served as Chairman and Chief Executive Officer of Fitch Investors Service, L.P.
(now Fitch IBCA). Mr. Fraser also served as President and Chief Executive
Officer of AMBAC Indemnity Corporation (now Ambac Assurance Corporation), a
financial guaranty insurer, from 1980 to 1988.
William M. Goldstein was elected a director of GMA and the Operating
Company upon their formation. Mr. Goldstein is Chairman of the Tax Department
and former Chairman of the Managing Partners of the law firm of Drinker Biddle &
Reath LLP, the Company's United States counsel, where he has been a partner
since 1982. Mr. Goldstein served as Deputy Assistant Secretary for Tax Policy
with the United States Department of Treasury from 1975 to 1976.
Frederick S. Hammer was elected a director of GMA and the Operating Company
upon their formation. Mr. Hammer has been Vice Chairman of Inter-Atlantic
Capital Partners, Inc. since 1994. He is the non-executive Chairman of the Board
of Annuity and Life Re (Holdings), Ltd., a Bermuda-based reinsurance company,
and serves as a director of IKON Office Solutions, Inc., Provident American
Corporation, an insurance company, and Medallion Financial Corporation. Mr.
Hammer served as Chairman and Chief Executive Officer of Mutual of America
Capital Management Corporation, an investment management company, from 1993 to
1994 and as President of SEI Asset Management Group, an investment management
company, 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 was elected a director of GMA and the Operating Company
upon their formation. Mr. Lichten has been Vice Chairman of Inter-Atlantic
Capital Partners, Inc. since 1994. He is the non-executive Deputy Chairman of
the Board of Annuity and Life Re (Holdings), Ltd., a Bermuda-based reinsurance
company. 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.
Paul T. Walker was elected a director of GMA and the Operating Company on
October 28, 1998. Mr. Walker has served as President of Walker, Truesdell &
Associates, a financial consulting firm, since its formation in 1996. From 1992
to 1996, Mr. Walker served as a Trustee of the DBL Liquidating Trust, which was
responsible for liquidating Drexel Burnham Lambert for investors. Prior thereto,
he was employed at The Chase Manhattan Bank, N.A. from 1957 to 1990, where he
most recently served as an Executive Vice President and the Senior Credit Policy
Officer.
PROVISIONS GOVERNING THE BOARD OF DIRECTORS
Number and Terms of Directors
GMA's Bye-Laws provide that the Board of Directors will be divided into
three classes. The first class, whose initial term expires at the first annual
meeting of GMA's shareholders following completion of the
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Offerings, is comprised of Messrs. Collis and Davis; the second class, whose
initial term expires at the second annual meeting of GMA's shareholders
following completion of the Offerings, is comprised of Messrs. Hammer and
Goldstein; and the third class, whose initial term expires at the third annual
meeting of GMA's shareholders following completion of the Offerings, is
comprised of Messrs. Matthews, Fraser, Lichten and Walker. Following their
initial terms, all classes of directors will be elected to three-year terms.
Committees of the Board
The Board of Directors has established Executive, Finance and Investment,
Audit, Compensation and Underwriting committees. Each committee reports to the
Board.
Executive Committee. The Board has established 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, GMA's Bye-Laws or resolution of
the Board of Directors to the full Board or another committee of the Board. The
Executive Committee presently consists of four members (presently Messrs.
Matthews (Chairman), Davis, Hammer and Lichten).
Finance and Investment Committee. The Board has established a Finance and
Investment Committee to establish and monitor the Operating Company's investment
policies and the performance of the Investment Managers. The Finance and
Investment Committee presently consists of four members (presently Messrs.
Lichten (Chairman), Goldstein, Hammer and Matthews).
Audit Committee. The Board has established 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 members (presently Messrs. Davis (Chairman), Fraser,
Goldstein and Walker).
Compensation Committee. The Board has established 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 the
Company's stock option plans and incentive compensation plans. The Compensation
Committee presently consists of two members (presently Messrs. Hammer (Chairman)
and Collis).
Underwriting Committee. The Board has established an Underwriting
Committee to review and monitor the risks insured by the Company. The
Underwriting Committee presently consists of three members (presently Messrs.
Walker (Chairman), Hammer and Lichten).
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 BD$20,000 per annum and BD$1,000 per board or committee meeting
attended. The non-employee Deputy Chairman of the Board and non-employee
Committee Chairmen will receive an additional BD$1,000 per annum. Mr. Fraser
will receive options to acquire 100,000 Common Shares; Mr. Davis will receive
options to acquire 75,000 Common Shares; Messrs. Hammer and Lichten will receive
options to acquire 33,333 Common Shares; the director to be designated by Risk
Capital will receive options to acquire 25,000 Common Shares; and other
non-employee directors (excluding Mr. Collis) will receive options to acquire
15,000 Common Shares, in each case upon the later of (i) their election to the
Company's Board of Directors or (ii) the consummation of the Offerings. Michael
P. Esposito, Jr., a former director of the Company, will receive options to
acquire 33,333 Common Shares upon consummation of the Offerings as compensation
for services rendered in connection with the formation of the Company. All 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, except for any
options granted upon consummation of the Offerings, which will have an exercise
price equal to the initial public offering price per share. 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 on or after the first anniversary
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<PAGE> 53
of the consummation of the Offerings 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
Offerings, 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
No member of the Compensation Committee is or was an officer or employee of
the Company, nor has any executive officer of the Company served as a director
or a member of the compensation committee of any other company, one of whose
executive officers serves as a member of GMA's Board or Compensation Committee.
Mr. Hammer has contracted with GMA to purchase 12,500 Common Shares
directly from the Company as part of the Direct Sales at a price of $14.10 per
share. Such purchase is expected to be consummated simultaneously with the
consummation of the Offering. Mr. Hammer also purchased on August 25, 1998 for
$11,007 a Class A Warrant to purchase an aggregate number of Common Shares equal
to 1.37593% of the sum of (i) the Common Shares outstanding immediately
following the consummation of the Offerings (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 Offerings except for the Class A
Warrants, the Class B Warrants and any options granted by the Company under its
Stock Option Plan. Mr. Hammer has transferred a portion of his Class A Warrants
to certain family members or trusts that have been established for the benefit
of certain family members. Mr. Hammer is also an owner and officer of
Inter-Atlantic Capital Partners, Inc., the parent corporation of Inter-Atlantic.
See "Certain Relationships and Related Party Transactions."
EXECUTIVE COMPENSATION
The Company did not pay any compensation to its executive officers during
the fiscal period ended August 28, 1998. Messrs. Matthews, Bantz, ________ and
Ms. Robertson are currently receiving compensation from the Company pursuant to
the terms of their respective employment agreements.
EMPLOYMENT AGREEMENTS
GMA, the Operating Company and Mr. Matthews have entered into an Employment
Agreement under which Mr. Matthews has agreed to serve as Chairman of the Board
and Chief Executive Officer of GMA and the Operating Company for an initial term
ending on the third anniversary of the consummation of the Offerings and for
consecutive one year terms thereafter, subject to three months' advance notice
by either party of a decision not to renew the Employment Agreement. Pursuant to
the terms of his Employment Agreement, Mr. Matthews is entitled to receive an
annual salary of BD$360,000 as of October 1, 1998. Upon consummation of the
Offerings, Mr. Matthews will be eligible to participate in all employee benefit
programs maintained by the Company and will receive a monthly housing and travel
allowance of BD$12,000. Mr. Matthews' Employment Agreement provides that he will
be eligible for an annual cash bonus based on performance targets to be
established by the Compensation Committee of the Company's Board of Directors.
GMA, the Operating Company and Ms. Robertson have entered into an
Employment Agreement under which Ms. Robertson has agreed to serve as Managing
Principal and the Chief Financial Officer and Treasurer of GMA and the Operating
Company for an initial term ending on the third anniversary of the consummation
of the Offerings and for consecutive one year terms thereafter, subject to three
months' advance notice by either party of a decision not to renew the Employment
Agreement. Pursuant to the terms of her Employment Agreement, Ms. Robertson is
entitled to receive an annual salary of BD$250,000 as of October 15, 1998. Upon
consummation of the Offerings, Ms. Robertson will be eligible to participate in
all employee benefit programs maintained by GMA and will receive a monthly
travel and housing allowance of BD$8,333. Ms. Robertson's Employment Agreement
provides that she will be eligible for an annual cash bonus based on performance
targets to be established by the Compensation Committee of the Company's Board
of Directors.
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<PAGE> 54
GMA, the Operating Company and Mr. Bantz have entered into an Employment
Agreement under which Mr. Bantz has agreed to serve as Managing Principal,
Marketing and Business Development, of GMA and the Operating Company for an
initial term ending on the third anniversary of the consummation of the
Offerings and for consecutive one year terms thereafter, subject to three
months' advance notice by either party of a decision not to renew the Employment
Agreement. Pursuant to the terms of his Employment Agreement, Mr. Bantz is
entitled to receive an annual salary of BD$250,000 as of October 1, 1998. Upon
consummation of the Offerings, Mr. Bantz will be eligible to participate in all
employee benefit programs maintained by the Company and will receive a monthly
housing allowance of L7,200. Mr. Bantz's Employment Agreement provides that he
will be eligible for an annual cash bonus based on performance targets to be
established by the Compensation Committee of the Company's Board of Directors.
The Employment Agreements of Messrs. Matthews and Bantz and of Ms.
Robertson provide that each of them will receive, subject to the consummation of
the Offerings, options to purchase Common Shares under the Stock Option Plan.
Mr. Matthews will receive options to purchase Common Shares equal to 2.0% of the
Company's Common Shares outstanding immediately following the consummation of
the Offerings and the Direct Sales, provided, however, that such amount shall
not exceed 727,272 Common Shares. Mr. Bantz and Ms. Robertson will each receive
options to purchase 100,000 Common Shares. The exercise price of the options to
be awarded under the Employment Agreements will be 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
Offerings provided, however, that upon a change in control of the Company, the
options will become exercisable immediately.
Each Employment Agreement also provides that if the officer is terminated
by the Company for serious cause or resigns without good reason, the officer
will forfeit all bonus amounts for the then current fiscal year, and the
Operating 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 date of termination. If the employment
of the officer is terminated by the Company without serious cause or by the
officer with good reason, the Operating Company will continue to pay the
officer's base salary for a period of 18 months from such termination (or, if
such termination occurs 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, a
lump sum payment equal to two times the officer's annual base salary as of the
date of termination plus, with respect to Mr. Matthews, an amount equal to any
income taxes payable by them by reason of such payments occurring in connection
with a change of control). Additionally, the officer shall be entitled to any
accrued but unpaid salary, any accrued but unpaid bonuses from a prior fiscal
year, reimbursable business expenses incurred prior to the termination, travel
and housing allowances for twelve months after the date of termination and
reasonable relocation expenses.
The Employment Agreements of Messrs. Matthews and Bantz and of Ms.
Robertson provide that none of them will for a period of one year following the
termination of the officer's employment for any 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.
Furthermore, the officers are prohibited from directly or indirectly employing
or seeking to employ any person or entity employed by the Company at the time
their employment is terminated or enticing any such person or entity to leave
such employment for a period of two years following the termination of their
employment. The Employment Agreements of Messrs. Matthews and Bantz and Ms.
Robertson 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.
STOCK OPTION PLAN
The Company's Board of Directors adopted the Global Markets Access Ltd.
Initial Stock Option Plan on October 28, 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 GMA and any subsidiary or parent of GMA (a
"Related Corporation"). Options granted under the
52
<PAGE> 55
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 Offerings and the Direct Sales or (ii) 2,000,000 Common
Shares. No option may be granted under the Stock Option Plan after August 25,
2008, although options outstanding on that date 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 Section 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 may be exercised.
Except for annual grants of options to GMA's non-employee directors and except
as may be otherwise specified in a particular 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 GMA 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 referred to as an "Optionee.") As of
October 30, 1998, there were five employees of the Company eligible to receive
ISOs and twelve Eligible Individuals (including employees) eligible to receive
Non-Qualified Stock Options.
Terms and Conditions of Option. All options will terminate on the earliest
of: (i) the expiration of the term specified in the option agreement, which may
not exceed ten years (five years, in the case of an ISO if the Optionee on the
date of grant 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 or consultant terminates before the expiration of the term specified in
the option agreement, unless otherwise provided in the option agreement.
However, if the Optionee's employment or service as a director or consultant
terminates for "cause" (as defined in the Stock Option Plan) prior to the
expiration date of the option, such option will terminate immediately.
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 Compensation 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
Common Shares newly acquired by the Optionee upon exercise of the option (which
will be a "disqualifying disposition" in the case of an ISO), (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 GMA (or a Related Corporation
in the case of an employee or consultant) is terminated prior to the expiration
date fixed for his or her option for any reason other than
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<PAGE> 56
death, disability or cause, the Optionee may exercise such option 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 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 GMA (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, the
Optionee may exercise such option 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 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, 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 Agreement; Restriction on Transferability. All options will be
evidenced by a written option agreement 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 Optionee requests at
the time of exercise, the certificate for the Common Shares 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 agreement 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 Common Shares 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, to 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 to 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 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
Offerings.
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<PAGE> 57
Stock Option Grants. The following table sets forth information concerning
the outstanding options and options expected to be granted by the Company to its
executive officers upon consummation of the Offerings under the Stock Option
Plan.
INITIAL OPTION GRANTS
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------- VALUE AT ASSUMED
NUMBER OF ANNUAL RATE OF
COMMON COMMON SHARE PRICE
SHARES PERCENT OF APPRECIATION FOR OPTION
UNDERLYING OPTIONS EXERCISE TERM(2)
OPTIONS GRANTED TO PRICE PER EXPIRATION -------------------------
NAME GRANTED(1) EMPLOYEES SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Matthews.... 481,143 70.64% $15.00 (3) $4,538,824 $11,502,270
Mary Jane Robertson... 100,000 14.68% $15.00 (3) $ 943,342 $ 2,390,614
Bruce W. Bantz........ 100,000 14.68% $15.00 (3) $ 943,342 $ 2,390,614
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment options are exercised in full, the
number of Common Shares underlying Mr. Matthews' options will increase to
531,393 Common Shares.
(2) 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 the price of the Common Shares.
(3) The options expire on the tenth anniversary of the consummation of the
Offerings.
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<PAGE> 58
PRINCIPAL STOCKHOLDERS
The table below sets forth the expected beneficial ownership of Common
Shares, after giving effect to the Offerings and the Direct Sales, by all
persons who are expected beneficially to own 5% or more of the Common Shares and
by each director and executive officer of GMA and by the directors and executive
officers of GMA as a group (assuming no exercise of the Underwriters'
over-allotment options). Certain directors and officers of GMA have expressed
their intention to purchase the Common Shares indicated in the table below in
the Direct Sales, but are under no obligation to purchase any such Common
Shares.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) SHARES CLASS
---------------------------------------- --------- ----------
<S> <C> <C>
The Trident Partnership, L.P.(2)............................ 3,191,489 13.27%
Risk Capital Reinsurance Company(3)......................... 1,063,829 4.42%
Donald J. Matthews(4).......................................
Robert M. Lichten(5)........................................ 12,500 *
Frederick S. Hammer(6)...................................... 12,500 *
H. Russell Fraser(7)........................................
Charles A. Davis(8).........................................
William M. Goldstein(9).....................................
Paul T. Walker(9)...........................................
Mary Jane Robertson(7)......................................
Bruce W. Bantz(7)...........................................
Charles G. Collis........................................... -- --
All directors and executive officers as a group (ten
persons).................................................. *
</TABLE>
- ---------------
* Less than 1%.
(1) The address for Trident is Victoria Hall, Victoria Street, Hamilton, HM FX,
Bermuda. The address for Risk Capital is 20 Horseneck Lane, Greenwich,
Connecticut 06830. The address for each other beneficial owner is c/o
Global Markets Access Ltd., Victoria Hall, Victoria Street, P.O. Box
HM1262, Hamilton, HM FX, Bermuda.
(2) Does not include 270,643 Common Shares (298,909 Common Shares if the
Underwriters' over-allotment options are exercised in full) issuable upon
the exercise of Class A Warrants which are not currently exercisable, and
375,000 Common Shares issuable upon the exercise of Class B Warrants which
are not currently exercisable.
(3) Does not include 90,214 Common Shares (99,636 Common Shares if the
Underwriters' over-allotment options are exercised in full) issuable upon
the exercise of Class A Warrants which are not currently exercisable, and
125,000 Common Shares issuable upon the exercise of Class B Warrants which
are not currently exercisable.
(4) Does not include Common Shares ( Common Shares if the
Underwriters' over-allotment options are exercised in full) issuable upon
the exercise of Class A Warrants which are not currently exercisable, and
481,143 Common Shares (531,393 Common Shares if the Underwriters' over-
allotment options are exercised in full) issuable upon the exercise of
options which are not currently exercisable. Also does not include
Common Shares issuable upon the exercise of Class A Warrants initially
acquired by Mr. Matthews and subsequently transferred to certain trusts for
the benefit of his children and grandchildren, as to which he disclaims
beneficial ownership. The trustees of such trusts have executed lock-up
agreements for a period of one year after the date of this Prospectus. See
"Underwriting."
(5) Does not include 231,010 Common Shares (265,580 Common Shares if the
Underwriters' over-allotment options are exercised in full) issuable upon
the exercise of Class A Warrants which are not currently exercisable, and
33,333 Common Shares issuable upon the exercise of options which are not
currently exercisable. Also does not include 100,000 Common Shares issuable
upon the exercise of Class A Warrants initially acquired by Mr. Lichten and
subsequently transferred to certain trusts for the
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<PAGE> 59
benefit of his children and grandchildren, as to which he disclaims
beneficial ownership. The trustees of such trusts have executed lock-up
agreements for a period of one year after the date of this Prospectus. See
"Underwriting."
(6) Does not include 231,010 Common Shares (265,580 Common Shares if the
Underwriters' over-allotment options are exercised in full) issuable upon
the exercise of Class A Warrants which are not currently exercisable, and
33,333 Common Shares issuable upon the exercise of options which are not
currently exercisable. Also does not include 100,000 Common Shares issuable
upon the exercise of Class A Warrants initially acquired by Mr. Hammer and
subsequently transferred to certain trusts for the benefit of his children
and grandchildren, as to which he disclaims beneficial ownership. The
trustees of such trusts have executed lock-up agreements for a period of
one year after the date of this Prospectus. See "Underwriting."
(7) Does not include 100,000 Common Shares issuable upon the exercise of
options which are not currently exercisable.
(8) Does not include 75,000 Common Shares issuable upon the exercise of options
which are not currently exercisable.
(9) Does not include 15,000 Common Shares issuable upon the 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 Offerings,
the Purpose Trust has agreed to sell such Common Shares to GMA for an aggregate
price of $12,000 and such Common Shares will be cancelled.
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<PAGE> 60
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.
SPONSORS RELATIONSHIPS
Certain directors of the Company (Messrs. Hammer and Lichten) are owners,
directors and/or officers of Inter-Atlantic and/or its parent corporation,
Inter-Atlantic Capital Partners, Inc. Inter-Atlantic is a registered
broker-dealer which provides investment banking services for insurance companies
and other financial services firms. Pursuant to an agreement between
Inter-Atlantic and the Company, Inter-Atlantic has agreed to provide certain
services in connection with the Offerings and the sales to the Strategic
Investors, including assistance in preparing a registration statement for the
Common Shares, retaining underwriters in connection with the Offerings and such
other services as the Company or Inter-Atlantic deems appropriate. Pursuant to
such Agreement, the Company has agreed to pay Inter-Atlantic a fee of
$3.9 million upon consummation of the Offerings. Inter-Atlantic has in turn
contracted with ACA Service, Risk Capital and Trident to provide consulting
services to Inter-Atlantic in connection with the services Inter-Atlantic has
agreed to provide to the Company. Pursuant to such agreements, Inter-Atlantic
has agreed to pay $1.95 million to ACA Service, $108,225 to Risk Capital and
$324,675 to Trident upon consummation of the Offerings. The Company is also
obligated upon consummation of the Offering to reimburse Inter-Atlantic for
expenses it incurs in connection with performing services under its agreement
with the Company. Such expense reimbursements will not include the fees
Inter-Atlantic is obligated to pay ACA Service, Risk Capital and Trident, but
will include expenses incurred by ACA Service, Risk Capital and Trident in
connection with performing services under their agreements with Inter-Atlantic
for which Inter-Atlantic is obligated to reimburse ACA Service, Risk Capital and
Trident. At September 30, 1998, Inter-Atlantic had incurred expenses in
connection with the Company's operations of approximately $38,000 and expenses
in connection with the Offerings and the sales to the Strategic Investors of
approximately $278,000, including reimbursements it owed to ACA Service, Risk
Capital and Trident. Upon consummation of the Offerings, expenses incurred by
the Company, including expenses incurred by Inter-Atlantic on the Company's
behalf are currently estimated to be approximately $1,750,000, of which
approximately $500,000 is estimated to relate to expenses in connection with the
Company's operations and approximately $1,250,000 is estimated to relate to
expenses in connection with the Offerings and the sales to the Strategic
Investors, including reimbursements it will owe to ACA Service, Risk Capital and
Trident.
In connection with the formation of the Company, ACA Holdings, Donald J.
Matthews, five individuals associated with Inter-Atlantic and/or its parent
corporation, Inter-Atlantic Capital Partners, Inc. (Messrs. Michael P. Esposito,
Jr., Frederick S. Hammer, Andrew S. Lerner, Robert M. Lichten and William S.
Ogden, Jr.), Risk Capital and Trident purchased for an aggregate of $108,000
Class A Warrants to purchase up to an aggregate number of Common Shares equal to
13.5% of the sum of (i) the Common Shares outstanding immediately following the
consummation of the Offerings (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 Offering other than the Class A Warrants, the Class B
Warrants and any options granted by the Company under its Stock Option Plan.
Messrs. Esposito, Hammer and Lichten have each transferred a portion of their
Class A Warrants to certain family members or trusts that have been established
for the benefit of certain family members. 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 future events, including stock
splits and the issuance of Common Shares at a price below the exercise price or
the market price of the Common Shares at the time of such issuance. The Class A
Warrants become exercisable in three equal annual installments commencing on the
first anniversary of the consummation of the Offerings. In the event of a change
of control of GMA, the Class A Warrants then outstanding will become immediately
exercisable. The Class A Warrants will expire on September 30, 2008. The holders
of the Class A Warrants have also been granted rights to require the Company to
register under the Securities Act the Common Shares underlying the Class A
Warrants, which
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rights become exercisable on the first anniversary of the consummation of the
Offerings. See "Description of Capital Stock -- Warrants."
The Company has retained ICS, a Bermuda corporation, to provide risk
management and other related financial services. Pursuant to such agreement, ICS
is entitled to receive an annual fee of $425,000, which is payable in quarterly
installments commencing on the consummation of the Offerings through the fifth
anniversary of the consummation of the Offerings. ICS is owned by Messrs.
Esposito, Hammer, Lerner and Lichten, each of whom is affiliated with
Inter-Atlantic. Messrs. Hammer and Lichten are directors of GMA and the
Operating Company. ICS intends to sub-contract a portion of the services that it
is required to provide to the Company to Risk Capital, one of the Company's
Sponsors, in exchange for an annual fee of $94,000.
ICS has loaned $12,000 to the Purpose Trust which will be repaid upon
consummation of the Offerings.
The Company believes that the arrangements between the Company and the
Sponsors, ICS and certain individuals associated with the Sponsors or ICS
described above were entered into on an arm's-length basis in the ordinary
course of the Company's business and on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
OTHER ACA RELATIONSHIPS
H. Russell Fraser, a director of the Company, is the Chairman of the Board
and Chief Executive Officer of ACA and its parent corporation, ACA Holdings.
The Company has entered into three reinsurance treaties with ACA, an
affiliate of a Sponsor of the Company, which will become effective upon
consummation of the Offerings. The first treaty is a "quota share" treaty
pursuant to which the Company is required to provide, and ACA is required to
purchase, reinsurance on a fixed percentage of certain risks insured by ACA. The
second and third treaties are "facultative" treaties under which the Company and
ACA each have the right of first refusal to reinsure each financial obligation
the other insures on a direct basis. Such treaties also set forth the basic
terms on which the Company and ACA may purchase such reinsurance from the other
on a case-by-case basis after individual underwriting decisions have been made.
See "Business -- Reinsurance Treaties with ACA."
The Company believes that each of the reinsurance treaties with ACA
described above was entered into on an arm's-length basis in the ordinary course
of the Company's business and on terms no less favorable to the Company than
could be obtained from an unaffiliated third party.
OTHER INTER-ATLANTIC RELATIONSHIPS
On August 27, 1998, Messrs. Esposito, Lichten, Hammer and Lerner subscribed
to purchase from the Company an aggregate of 115,000 Common Shares at a purchase
price of $14.10 per share. The purchases of the Common Shares are subject to a
number of conditions precedent customary in transactions of this nature,
including the accuracy of the parties' respective representations and warranties
and compliance with the parties' respective covenants set forth in the purchase
agreements. The purchases are also subject to the condition that an initial
public offering of not less than 14,000,000 Common Shares shall have been
consummated.
STRATEGIC INVESTOR RELATIONSHIPS
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." Charles
A. Davis, a director of the Company, currently serves as the President and Chief
Operating Officer of Marsh & McLennan Capital, Inc., an affiliate of Risk
Capital and Marsh & McLennan. The Company has contracted with Marsh & McLennan
to provide certain administrative services. See "Business -- Administration."
In connection with the Direct Sales to Risk Capital and Trident, the
Company has agreed to nominate for election as a director of the Company one
person selected by Risk Capital and one person selected by Trident. Risk Capital
and Trident will each have such right for so long as they own
Common Shares. In exchange for such right, and, for so long as any person
selected by Risk Capital or Trident, respectively, is a director (and during any
period after such person's designation but before his or her election), each
such Strategic Investor will not vote or permit any of the Common Shares
beneficially owned by it to be voted for
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the election of any director of the Company, other than the nominee selected by
it. Each such Strategic Investor 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.
is serving as a director of the Company as the nominee of
Risk Capital and Charles A. Davis is serving as a director of the Company as the
nominee of Trident.
MANAGEMENT RELATIONSHIPS
The Company's executive officers, Messrs. Matthews, Bantz and
and Ms. Robertson, have expressed their non-binding intention to purchase
approximately $ , $ , $ and $ of Common
Shares, respectively, directly from the Company as part of the Direct Sales.
Based on the initial public offering price of $15.00 per share, the number of
Common Shares that Messrs. Matthews, Bantz and and Ms. Robertson are
expected to purchase would be , , and
Common Shares, respectively, and, collectively, such purchases are expected to
total Common Shares. Similarly, certain directors of the Company have
expressed their intention to purchase an aggregate of Common Shares
directly from the Company as part of the Direct Sales. Because the Common Shares
sold to the officers and directors will not be sold through the Underwriters as
part of the Offerings, 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. Matthews, Bantz and
and Ms. Robertson in the amounts of $ , $ ,
$ and $ , respectively, to partially finance such purchases in
the event such purchases are completed. Such loans will bear interest at % per
annum and must be repaid within five years of the consummation of the Direct
Sales. Any such purchases will be completed simultaneously with the consummation
of the Offerings and the other Direct Sales.
OTHER RELATIONSHIPS
Charles G. Collis, a director of the Company, is a partner in the law firm
of Conyers Dill & Pearman, the Company's Bermuda counsel.
William M. Goldstein, a director of the Company, is a partner in the law
firm of Drinker Biddle & Reath LLP, the Company's United States counsel.
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DESCRIPTION OF CAPITAL STOCK
The following description of GMA's capital stock summarizes certain
provisions of GMA's Memorandum of Association and Bye-Laws. Such summaries do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of GMA's Memorandum of
Association and Bye-Laws. A copy of GMA's Memorandum of Association and Bye-Laws
are filed as exhibits to the Registration Statement of which this Prospectus is
a part.
GENERAL
GMA's authorized share capital upon consummation of the Offerings and the
Direct Sales will consist of: (i) 100,000,000 Common Shares, of which 24,057,197
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 3,247,715 Common Shares will be
issuable upon the exercise of outstanding Class A Warrants, an aggregate of
700,000 Common Shares will be issuable upon the exercise of Class B Warrants to
be included in the Direct Sales and an aggregate of 1,013,789 Common Shares will
be issuable upon the exercise of options to be granted to directors and officers
of the Company upon consummation of the Offerings, in each case, subject to
adjustment as provided therein. If the Underwriters' over-allotment options are
exercised in full, 26,569,697 Common Shares will be outstanding, the number of
Common Shares issuable upon the exercise of outstanding Class A Warrants will
increase to an aggregate of 3,586,903 Common Shares and the number of Common
Shares issuable upon the exercise of options to be granted to directors and
officers of the Company upon consummation of the Offerings will increase to an
aggregate of 1,064,039 Common Shares. The number of Common Shares issuable upon
the exercise of the Class B Warrants will not change if the Underwriters'
over-allotment options are exercised. The Class A Warrants, Class B Warrants and
options will not be exercisable upon consummation of the Offerings. The Purpose
Trust currently owns 12,000 Common Shares, which constitutes all of the
currently outstanding Common Shares. Upon consummation of the Offerings, the
Purpose Trust has agreed to sell such Common Shares to GMA 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 outstanding 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. However, a
resolution to remove GMA'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 GMA, the
holders of Common Shares are entitled to share equally and ratably in the assets
of GMA, if any remain after the payment of all debts and liabilities of GMA 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 other than Trident would
constitute 10% or more of the combined voting power of the issued voting shares
of GMA (after giving effect to any prior reduction in voting power as described
below), each such issued Controlled
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Share, 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 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 (except as excluded from the application of the Formula
above) will be a Controlling 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. "Controlling
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 GMA 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 Controlling Shareholder at any time.
Restrictions on Transfer. GMA's Bye-Laws contain several provisions
restricting the transferability of Common Shares. Except as described below with
respect to transfers of Common Shares executed on The Nasdaq National Market,
the directors (or their designee) 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 other than
Trident to 10% or more of a class of GMA's shares. Similarly, GMA is restricted
from issuing or repurchasing Common Shares if such issuance or repurchase would
increase the number of total Controlled Shares of any person other than Trident
to 10% or more of a class of GMA's shares.
The directors (or their designee) also may, in their absolute discretion,
decline to register the transfer of any Common Shares, except for transfers
executed on The Nasdaq National Market, if they have reason to believe (i) that
such transfer may expose GMA, any subsidiary or shareholder thereof or any
person purchasing insurance or reinsurance from GMA or any subsidiary thereof to
adverse tax or regulatory treatment in any jurisdiction, or (ii) that
registration of such transfer under the Securities Act or under any
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United States state securities laws or under the laws of any other jurisdiction
is required and such registration has not been duly effected.
GMA's directors will not decline to register any transfer of Common Shares
executed on The Nasdaq National Market for the reasons described above. However,
if any such transfer results in the transferee other than Trident (or any group
of which such transferee is a member) beneficially owning, directly or
indirectly, 10% or more of any class of GMA's shares or causes GMA's directors
(or their designee) to have reason to believe that such transfer may expose GMA,
any subsidiary or shareholder thereof or any person purchasing insurance or
reinsurance from GMA or any subsidiary thereof to adverse tax or regulatory
treatment in any jurisdiction or 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, under GMA's Bye-Laws, the directors (or their designee) are
empowered to deliver a notice to the transferee demanding that such transferee
surrender to an agent designated by the directors (the "Agent") certificates
representing the shares and any dividends or distributions that the transferee
has received as a result of owning the shares. A transferee who has resold the
shares before receiving such notice will be required to transfer to the Agent
the proceeds of the sale, to the extent such proceeds exceed the amount that the
transferee paid for the shares, together with any dividends or distributions
that the transferee received from the Company. As soon as practicable after
receiving the shares and any dividends or distributions that the transferee
received, the Agent will use its best efforts to sell such shares and any
non-cash dividends or distributions in an arm's-length transaction on The Nasdaq
National Market. After applying the proceeds from such sale toward reimbursing
the transferee for the price paid for the shares, the Agent will pay any
remaining proceeds and any cash dividends and distributions to organizations
described in Section 501(c)(3) of the Code that the directors designate. The
proceeds of any such sale by the Agent or the surrender of dividends or
distributions will not inure to the benefit of GMA or the Agent, but such
amounts may be used to reimburse expenses incurred by the Agent in performing
its duties.
GMA 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
GMA's 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 GMA.
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. GMA's 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 GMA's 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, powers 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 GMA 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 GMA. The issuance of Preferred Shares could
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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. In connection with the formation of the Company, ACA
Holdings, an affiliate of ACA, Donald J. Matthews, five individuals associated
with Inter-Atlantic and/or its parent corporation, Inter-Atlantic Capital
Partners, Inc. (Messrs. Esposito, Hammer, Lerner, Lichten and Ogden), Risk
Capital and Trident purchased on August 25, 1998 for an aggregate of $108,000
Class A Warrants to purchase up to an aggregate number of Common Shares equal to
13.5% of the sum of (i) the Common Shares outstanding immediately following the
consummation of the Offerings (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 Offerings other than the Class A Warrants, the Class B
Warrants and any options granted by the Company under its Stock Option Plan. 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
future events, including stock splits and the issuance of Common Shares at a
price below the exercise price or the market price of the Common Shares at the
time of such issuance. The Class A Warrants become exercisable in three equal
annual installments commencing on the first anniversary of the consummation of
the Offerings. In the event of a change of control of GMA, the Class A Warrants
then outstanding will become immediately exercisable. The Class A Warrants will
expire on September 30, 2008.
The holders of the Class A Warrants have also been granted rights to
require the Company to register under the Securities Act the Common Shares
underlying the Class A Warrants, which rights become exercisable on the first
anniversary of the consummation of the Offerings, and have entered into
agreements with the Underwriters under which they have agreed not to dispose of
such Common Shares or the Class A Warrants for a one-year period from the date
of this Prospectus without the prior written consent of Merrill Lynch & Co. and
Prudential Securities Incorporated on behalf of the Underwriters. See "Shares
Eligible for Future Sale" and "Underwriting."
Class B Warrants. Upon consummation of the Offerings and the Direct Sales,
Class B Warrants to purchase an aggregate of 700,000 Common Shares, subject to
adjustment as provided in the warrants, will be outstanding. The exercise price
of the Class B Warrants is $15.00 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 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 GMA, 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 Common Shares or the Class B Warrants for a nine month period
from the date of this Prospectus without the prior written consent of Merrill
Lynch & Co. and Prudential Securities Incorporated on behalf of the Underwriters
and the prior written consent of the Company. See "Shares Eligible for Future
Sale," "Direct Sales" and "Underwriting."
OPTIONS
Upon consummation of the Offerings, there will be 1,013,789 Common Shares
issuable upon the exercise of outstanding options and 309,357 Common Shares
reserved for future issuance pursuant to the Stock Option Plan. If the
Underwriters' over-allotment options are exercised in full, the number of Common
Shares issuable upon exercise of outstanding options will increase to 1,064,039
Common Shares and the number of Common
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Shares reserved for future issuance pursuant to the Stock Option Plan will
increase to 397,294 Common Shares. See "Management -- Stock Option Plan."
The Company intends to file with the Commission 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 Offerings. The individuals who will be
granted options upon consummation of the Offerings 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 Merrill Lynch & Co. and Prudential Securities Incorporated on
behalf of the Underwriters. See "Shares Eligible for Future Sale" and
"Underwriting."
BYE-LAWS
GMA's Bye-Laws provide for the corporate governance of GMA, 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 GMA, 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 GMA.
GMA's 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 GMA that carries the right to vote
at general shareholders' meetings.
GMA's 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 GMA, any of its subsidiaries or any other
shareholder, then GMA 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. GMA 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.
GMA's 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
ChaseMellon Shareholder Services, L.L.C.
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 GMA's 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 GMA's 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
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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.
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
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 GMA's 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. GMA's 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.
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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), with respect to any criminal action or proceeding, such director or
officer had no 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 consummation of the Offerings and the Direct Sales, GMA expects to
have outstanding 24,057,197 Common Shares, Class A Warrants to purchase an
aggregate of 3,247,715 Common Shares, Class B Warrants to purchase an aggregate
of 700,000 Common Shares and options to purchase an aggregate of 1,013,789
Common Shares. If the Underwriters' over-allotment options are exercised in
full, 26,569,697 Common Shares are expected to be outstanding, the number of
Common Shares issuable upon the exercise of outstanding Class A Warrants will
increase to an aggregate of 3,586,903 Common Shares and the number of Common
Shares issuable upon the exercise of outstanding options will increase to an
aggregate of 1,064,039 Common Shares. The number of Common Shares issuable upon
exercise of the Class B Warrants will not change if the Underwriters'
over-allotment options are exercised. The Class A Warrants, Class B Warrants and
options will not be exercisable upon consummation of the Offerings. 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 Offerings and any Common
Shares sold in the Direct Sales to GMA's directors and officers 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 the volume limitations and certain other restrictions). The
Common Shares to be sold to the Strategic Investors in the Direct Sales, the
Common Shares the Company has contracted to sell to its directors and officers
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.
GMA, its directors and officers, the Strategic Investors and the holders of
Class A Warrants have executed agreements (the "lock-up agreements") under which
they have agreed that they will not, without the prior written consent of
Merrill Lynch & Co. and Prudential Securities Incorporated on behalf of the
Underwriters and, in the case of the Strategic Investors, the Company, directly
or indirectly offer, sell, offer to sell, contract to sell, transfer, assign,
pledge, hypothecate, grant any option to purchase, or otherwise sell or dispose
(or announce any offer, sale, offer of sale, contract of sale, transfer,
assignment, pledge, hypothecation, 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 or, in the case of the Strategic Investors,
for a period of nine months 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. Merrill Lynch & Co., Prudential Securities Incorporated and, in the
case of the Strategic Investors, 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 under the Securities Act 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
before the first anniversary of the consummation of the Offerings. The Company
has agreed not to permit the acceleration of the vesting of such rights without
the prior written consent of Merrill Lynch & Co. and Prudential Securities
Incorporated 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 Offerings and
before the tenth anniversary thereof, holders of 10% or more of such Common
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 Offerings and
before the tenth anniversary thereof, holders of 5% or more of such Common
Shares give
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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 B Warrants or the Common Shares
sold to the Strategic Investors in the Direct Sales) other than on Form S-4 or
Form S-8 or in certain other circumstances including mergers or acquisitions,
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 Common 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 of all or a portion of the Common Shares
underlying such warrants or sold to the Strategic Investors in the Direct Sales
for sale in an underwritten public offering if, at any time on or after the
first anniversary of the consummation of the Direct Sales and before the tenth
anniversary thereof, holders of 30% or more of such Common Shares give 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 of all
or a portion of the Common Shares underlying such warrants or sold to the
Strategic Investors in the Direct Sales 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 Direct Sales and before the tenth anniversary thereof,
holders of 30% or more of such Common Shares give 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 or other Common Shares sold to the Strategic
Investors in the Direct Sales) other than on Form S-4 or Form S-8 or in certain
other circumstances including mergers or acquisitions, 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 Common 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) 120 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
certain legal, accounting, printing, filing fee and other expenses, including
underwriters' discounts and compensation, brokers' commissions and similar
selling expenses. The registration rights may be transferred to any assignee or
transferee of the Common Shares sold to the Strategic Investors in the Direct
Sales, the Class A Warrants, the Class B Warrants or the Common Shares
underlying such warrants.
The Company also intends to file with the Commission 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, including sales by persons holding the Common Shares sold to the
Strategic Investors in the Direct Sales or the Class A Warrants, Class B
Warrants or options, 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.
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DIRECT SALES
The Company has entered into an agreement with each of the Strategic
Investors for the purchase of Common Shares and Class B Warrants as part of the
Direct Sales. Risk Capital has agreed to purchase 1,063,829 Common Shares and
Class B Warrants to purchase an additional 125,000 Common Shares for an
aggregate purchase price of approximately $15.0 million. Trident has agreed to
purchase 3,191,489 Common Shares and Class B Warrants to purchase an additional
375,000 Common Shares for an aggregate purchase price of approximately $45.0
million. has agreed to purchase Common Shares and
Class B Warrants to purchase an additional Common Shares for an
aggregate purchase price of approximately $ million. The Company did
not separately negotiate a price for the Common Shares and the Class B Warrants
issued to the Strategic Investors. The aggregate purchase price to be paid by
each Strategic Investor is based on a price of $14.10 for (i) one Common Share
and (ii) the right to purchase a specified fraction of a Common Share under the
Class B Warrants. 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 agreements. In
addition, such issuances to the Strategic Investors are further subject to the
satisfaction or waiver of the closing conditions contained in the Underwriting
Agreement with respect to the Offerings other than the condition that the sales
in excess of $ million have been made to the Strategic Investors.
Furthermore, such issuances are subject to the condition that the Company will
receive net proceeds of not less than $150.0 million from the Offerings when
they are consummated. The issuances to Risk Capital and Trident are each further
subject to the completion of mutually acceptable definitive purchase agreements
and other documentation and approval by Risk Capital's and Trident's respective
Boards of Directors. Risk Capital and Trident also have the right not to
consummate their investments if they are not satisfied with the terms of the
Company's reinsurance treaties with ACA, including the non-compete provision
contained in the quota share treaty. If the Offerings are not consummated prior
to November 30, 1998, Risk Capital and Trident will not be obligated to complete
their purchases of Common Shares and Class B Warrants, unless the Underwriters
have advised the Company that the Offerings should be delayed past such date due
to market conditions, provided that such delay may not extend for more than 90
days. If the issuance of Common Shares and Class B Warrants to Risk Capital or
Trident is not consummated prior to the consummation of the Offerings, the
Company will have the option to purchase Risk Capital's and Trident's Class A
Warrants in exchange for the original purchase price therefor.
STRATEGIC INVESTOR RELATIONSHIPS
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." Charles
A. Davis, a director of the Company, currently serves as the President and Chief
Operating Officer of Marsh & McLennan Risk Capital Corp., an affiliate of Risk
Capital and Marsh & McLennan. The Company has contracted with Marsh & McLennan
to provide certain administrative services. See "Business -- Administration."
In connection with the Direct Sales to Risk Capital and Trident, the
Company has agreed to nominate for election as a director of the Company one
person selected by Risk Capital and one person selected by Trident. Risk Capital
and Trident will each have such right for so long as they own Common
Shares. In exchange for such right, and, for so long as any person selected by
Risk Capital or Trident, respectively, is a director (and during any period
after such person's designation but before his or her election), each such
Strategic Investor 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 it. Each such Strategic Investor 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. is serving as a director of the Company
as the nominee of Risk Capital and Charles A. Davis is serving as a director of
the Company as the nominee of Trident.
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The Company has also agreed with Risk Capital and Trident that such parties
will mutually agree on the number of directors that will compose the Company's
Board of Directors and that Risk Capital and Trident shall assist the Company in
jointly attracting additional nominees for the Company's Board of Directors,
which nominees must be satisfactory to Risk Capital and Trident. Similarly, Risk
Capital and Trident have the right to assist the Company in jointly attracting
additional members of the Company's management team, which members must be
satisfactory to Risk Capital and Trident. The Company has also granted Risk
Capital and Trident the right to participate in the discussions held between the
Pricing Committee of the Company's Board of Directors and the Underwriters
concerning the initial public offering price per Common Share.
In addition to the sales being made to the Strategic Investors, the Company
is offering by a separate prospectus up to 100,000 Common Shares directly to its
directors and officers at a per share price equal to the initial public offering
price per share, less the per share underwriting discounts and commissions, for
an aggregate purchase price of approximately $1.4 million. All such purchases
are expected to be consummated simultaneously with the consummation of the
Offerings.
GMA has also contracted to sell 115,000 Common Shares directly to certain
of its directors and officers at a purchase price of $14.10 per share, for an
aggregate purchase price of approximately $1.6 million. Such purchases of the
Common Shares are subject to a number of conditions precedent customary in
transactions of this nature, including the accuracy of the parties' respective
representations and warranties and compliance with the parties' respective
covenants set forth in the purchase agreements. The purchases are also subject
to the condition that an initial public offering of not less than 14,000,000
Common Shares shall have been consummated. All such purchases are expected to be
consummated simultaneously with the consummation of the Offerings.
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 Merrill Lynch & Co. and Prudential Securities Incorporated on behalf
of the Underwriters and, in the case of the Strategic Investors, the Company,
directly or indirectly offer, sell, offer to sell, contract to sell, transfer,
assign, pledge, hypothecate, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of sale, transfer,
assignment, pledge, hypothecation, 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 nine months
after the date of this Prospectus in the case of the Strategic Investors and one
year after the date of this Prospectus in the case of the other individuals that
are expected to purchase Common Shares as part of the Direct Sales. Merrill
Lynch & Co., Prudential Securities Incorporated and, in the case of the
Strategic Investors, 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
Offerings. The Company has agreed not to permit the acceleration of the vesting
of such rights without the prior written consent of Merrill Lynch & Co. and
Prudential Securities Incorporated 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 GMA and the Operating Company and
the taxation of GMA's shareholders is based upon current law. Legislative,
judicial or administrative changes may be forthcoming that could affect this
summary. 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 intentions as to factual matters represent the
views of the Company's management and do not represent legal opinions of its
counsel.
TAXATION OF GCA AND THE OPERATING COMPANY
Bermuda
Under current Bermuda law, there is no income tax or capital gains tax
payable by GMA or the Operating Company. GMA and the Operating Company 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 GMA, the Operating Company or to any of their operations or the
shares, debentures or other obligations of GMA or the Operating Company 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 (GMA and the Operating Company 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 GMA or the Operating Company. GMA
and the Operating Company, under current rates, will pay annual Bermuda
government fees of $15,900 and $3,460, respectively, and the Operating Company
will pay annual insurance fees of $2,500.
United States
GMA's Board of Directors has adopted operating guidelines, developed in
consultation with its United States counsel, that prescribe how GMA and the
Operating Company are to conduct their businesses in a manner consistent with
their intent not to be engaged in a trade or business within the United States.
Accordingly, GMA and the Operating Company 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 GMA and/or the Operating
Company 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 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 convention between Bermuda and the United States (the
"Treaty"), provided that the predominant business activity of the Operating
Company is acting as an insurer or as a reinsurer of risks
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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), the Operating Company
will be subject to United States income tax (including branch profits 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. While there can be no assurance, the
operating guidelines adopted by GMA's Board of Directors and described in the
preceding paragraph are similarly intended to prescribe how the Operating
Company will conduct its business without establishing a permanent establishment
in the United States. The Operating Company would not be entitled to the
benefits of the Treaty if (i) less than 50% of the Operating Company's stock
were beneficially owned, directly or indirectly, by Bermuda residents or United
States citizens or residents, or (ii) the Operating Company'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, it is not expected that
either of those factual situations will exist after the sale of Common Shares
offered hereby.
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 Operating Company will be subject to such taxes on dividends
from United States companies in which it makes 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
the Operating Company is currently 1%. The rate of tax for any premiums for
direct issuance of financial guarantees would be 4%.
Other Countries
GMA and the Operating Company plan to operate in such a manner that they
will not generally be subject to tax in other jurisdictions, except for
withholding taxes on certain kinds of investment income, excise taxes as
described above and other taxes attributable to marketing activities in certain
jurisdictions. It is possible, however, that the Operating Company may be held
to be doing business in one or more foreign jurisdictions and therefore subject
to tax on the profits of such business beyond that contemplated above.
TAXATION OF SHAREHOLDERS
Bermuda Taxation
Currently, there is no Bermuda withholding tax on dividends paid by GMA or
the Operating Company.
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.
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
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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 GMA and the Operating Company 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 Subpart F income includes, among other things, "insurance
income," which is generally defined as income (including premium and investment
income) attributable to the issuing (or reinsuring) of any insurance contract in
connection with risks located in, or liabilities arising out of, activities in
or lives or health of residents of a country other than the country under the
laws of which the insurance company is organized. Accordingly, it is anticipated
that substantially all of the income of the Company 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 the Operating Company 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. Because of the expected
dispersion of GMA's share ownership following the Offerings and the restrictions
on transfer, issuance or repurchase of Common Shares, and because GMA's Bye-Laws
provide that no single shareholder other than Trident is permitted to hold 10%
or more of the total combined voting power of GMA, and because neither Trident
nor its general partner is a United States person and no direct or indirect
Trident partner who is a United States person will own a large enough interest
in Trident to own, by attribution, 10% or more of the vote or value of GMA
stock, shareholders of GMA should not be viewed as United States shareholders of
a CFC for purposes of these rules. Accordingly, based on the foregoing factual
assumptions, in the opinion of Drinker Biddle & Reath LLP, neither GMA nor the
Operating Company will be a CFC following the Offerings. However, there can be
no assurance that the IRS will not successfully take a contrary position.
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 the
Operating Company'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 the Operating Company's stock. The Operating Company 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 the Operating Company
by vote or value for an uninterrupted period of at least 30 days during any
taxable year. The Company anticipates that United
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States persons will own directly, indirectly or constructively 25% or more of
the stock of the Operating Company by vote or value for the requisite period;
accordingly, the RPII rules of the Code will apply to the Operating Company
unless one of several exceptions (discussed below) applies to the Operating
Company.
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 as owning less
than 20% of the voting power and less than 20% of the value of the stock of the
Operating Company, (ii) RPII, determined on a gross basis, is less than 20% of
the Operating Company's gross insurance income for the taxable year, (iii) the
Operating Company 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) the Operating Company elects to be
treated as a United States corporation. The Operating Company does not intend to
make either of the described elections. Thus, only exceptions (i) and (ii) may
be available.
GMA believes it is highly unlikely that the Operating Company will enter
into insurance or reinsurance arrangements in which, in the aggregate, the
direct or indirect insureds are, or are related to, owners of 20% or more of the
Common Shares. If this belief is correct, exception (i) will, and exception (ii)
may, apply to the Operating Company. On the assumption that this belief is
correct, therefore, in the opinion of Drinker Biddle & Reath LLP, United States
persons who own stock of GMA will not be taxable on RPII of the Operating
Company following the Offerings. There can be no assurance, however, that this
will be the case. Indeed, because the Operating Company's direct or indirect
insureds are likely to include the owners of publicly traded securities with
respect to which the Operating Company issues financial guaranty insurance, it
may be difficult, if not impossible, to determine with certainty whether either
of these 20% tests is or is not met as of any particular point in time. No
effort will be made by GMA or the Operating Company to identify the extent to
which owners of securities for which the Operating Company has issued financial
guaranty insurance or reinsurance are also shareholders of GMA or persons
related thereto. Thus, GMA, the Operating Company and GMA's United States
shareholders may not know whether GMA's United States shareholders are subject
to the RPII rules, or how much RPII the Operating Company has earned in any
taxable year. If neither of these exceptions were to apply, each United States
person owning, directly or indirectly, stock in GMA (and therefore, indirectly
in the Operating Company) 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 the Operating Company'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.
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 the Operating Company's common shares and the Operating
Company's RPII determined on a gross basis for a 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 the Operating Company's RPII for such
year, whether or not distributed. A United States person who owns Common Shares
during GMA's taxable year but not on the last day of the taxable year on which
the Operating Company 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 the Operating Company's
RPII. Correspondingly, a United States person who owns directly or indirectly,
Common Shares on the last day of the taxable year on which the Operating Company
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.
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 GMA and the Operating Company is uncertain. These
provisions include the grant of
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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 GMA or the
Operating Company 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.
Information Reporting. Each United States person who is a direct or
indirect shareholder of GMA on the last day of GMA'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 the
Operating Company 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. The Operating Company will not be considered to be a CFC for this
purpose and, therefore, Form 5471 will not be required, for any taxable year in
which (i) the Operating Company's gross RPII constitutes less than 20% of its
gross insurance income or (ii) less than 20% of the voting power or value of the
Operating Company's common shares is owned by direct or indirect insureds and
persons related to such insureds. For any year in which GMA has information that
the Operating Company'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 the Operating
Company's common shares, GMA intends to provide Form 5471 to its direct or
indirect United States shareholders for attachment to the returns of
shareholders. However, no effort will be made by GMA or the Operating Company to
identify the extent to which owners of securities for which the Operating
Company has issued financial guaranty insurance or reinsurance are also
shareholders of GMA. Thus, GMA, the Operating Company and GMA's United States
shareholders may not know with certainty whether GMA's United States
shareholders are required to file Form 5471 with the IRS. 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 GMA 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 GMA 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 twelve 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
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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 GMA 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 GMA does not intend to directly
engage in the insurance business and, under proposed regulations, these
provisions appear to be applicable 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 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, GMA would
notify shareholders that Section 1248 of the Code and the requirement to file
Form 5471 will apply to dispositions of Common Shares. Thereafter, GMA 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. GMA
would attach to this notice a copy of Form 5471 completed with all GMA
information and instructions for completing the shareholder information.
Foreign Tax Credit. Because it is anticipated that United States persons
will own a majority of GMA'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 GMA (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. GMA 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.
Passive Foreign Investment Companies. Sections 1291 through 1298 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 GMA 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 (i) elected from the outset to be
taxed on their pro-rata share of GMA's earnings whether or not such earnings
were distributed or (ii) elected to mark their Common Shares to market as of the
end of each taxable year and to treat as ordinary income (or loss) the annual
appreciation (or depreciation) in the value of such shares. In general, a
shareholder receives an "excess distribution" if the amount of the distribution
is more than 125% of the average distribution with respect to the stock during
the three preceding taxable years (or shorter period during which the taxpayer
held the stock). In general, the penalty tax is 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
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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
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. The Operating Company expects to be exclusively engaged in
an insurance business and does not expect to 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 GMA should be deemed to own the assets and to have
received the income of the Operating Company directly for purposes of
determining whether GMA 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. On the assumption that the Operating Company is
exclusively engaged in an insurance business and does not have financial
reserves in excess of the reasonable needs of its insurance business, in the
opinion of Drinker Biddle & Reath LLP, neither GMA nor the Operating Company
will be a PFIC after the Offerings. There can be no assurance, however, as to
what positions the IRS or a court might take in the future on whether GMA or the
Operating Company 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 GMA.
* * *
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
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch");
Prudential Securities Incorporated; and are acting as
representatives (the "U.S. Representatives") of each of the Underwriters named
below (the "U.S. Underwriters"). Subject to the terms and conditions set forth
in a U.S. Underwriting Agreement (the "U.S. Underwriting Agreement") among the
Company and the U.S. Underwriters, and concurrently with the sale of Common
Shares to the International Managers (as defined below), the Company has agreed
to sell to the U.S. Underwriters, and each of the U.S. Underwriters severally
and not jointly has agreed to purchase from the Company, the number of Common
Shares set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
- ---------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Prudential Securities Incorporated..........................
----------
Total..........................................
==========
</TABLE>
GMA has also entered into an international underwriting agreement (the
"International Underwriting Agreement" and, together with the U.S. Underwriting
Agreement, the "Underwriting Agreements") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters") for whom Merrill Lynch International;
Prudential-Bache Securities (U.K.) Inc.; and are acting
as lead managers (the "Lead Managers"). Subject to the terms and conditions set
forth in the International Underwriting Agreement, and concurrently with the
sale of Common Shares to the U.S. Underwriters pursuant to the U.S.
Underwriting Agreement, GMA has agreed to sell to the International Managers,
and the International Managers severally have agreed to purchase from GMA, an
aggregate of Common Shares. The initial public offering price per share
and the total underwriting discount per Common Share are identical under the
U.S. Underwriting Agreement and the International Underwriting Agreement.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the several U.S. Underwriters and the several International Managers,
respectively, have agreed, subject to the terms and conditions set forth
therein, to purchase all of the Common Shares being sold pursuant to such
Underwriting Agreement if any of the Common Shares being sold pursuant to such
Underwriting Agreements are purchased. In certain circumstances under the
Underwriting Agreements, the commitments of non-defaulting Underwriters may be
increased. The closings with respect to the sale of Common Shares to be
purchased by the U.S. Underwriters and the International Managers are
conditioned upon one another and upon the closing of sales to the Strategic
Investors of Common Shares and related Class B Warrants with an aggregate
purchase price of at least $ million.
The U.S. Representatives have advised GMA that the U.S. Underwriters
propose initially to offer the Common Shares to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per Common Share.
The U.S. Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per Common Share
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on sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
GMA has granted an option to the U.S. Underwriters, exercisable for 30 days
after the date of this Prospectus, to purchase up to an aggregate of
additional Common Shares at the initial public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
The U.S. Underwriters may exercise this option solely to cover over-allotments,
if any, made on the sale of the Common Shares offered hereby. To the extent that
the U.S. Underwriters exercise this option, each U.S. Underwriter will be
obligated, subject to certain conditions, to purchase a number of additional
Common Shares proportionate to such U.S. Underwriter's initial amount reflected
in the foregoing table. GMA has also granted an option to the International
Managers, exercisable for 30 days after the date of this Prospectus, to purchase
up to an aggregate of additional Common Shares to cover
over-allotments, if any, on terms similar to those granted to the U.S.
Underwriters.
At the request of GMA, the U.S. Underwriters have reserved for sale, at the
initial public offering price, up to % of the Common Shares offered
hereby to be sold to certain directors, officers, employees and related persons
of GMA. The number of Common Shares available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not orally confirmed for purchase within one day of
the pricing of the Offerings will be offered by the U.S. Underwriters to the
general public on the same terms as the other Common Shares offered by this
Prospectus.
GMA, its directors and officers, the holders of the Class A Warrants and
the Strategic Investors have executed lock-up 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 Merrill Lynch and Prudential
Securities Incorporated on behalf of the Underwriters and, in addition, in the
case of the Strategic Investors, GMA, offer, sell, offer to sell, contract to
sell, transfer, assign, pledge, hypothecate, grant any option to purchase, or
otherwise sell or dispose (or announce any offer, sale, offer to sell, contract
of sale, transfer, assignment, pledge, hypothecation, grant of any option to
purchase or other sale or disposition) of any Common Shares or other capital
stock of GMA or any other securities convertible into, or exercisable or
exchangeable for, any Common Shares or other capital stock of GMA for a period
of one year after the date of this Prospectus or, in the case of the Strategic
Investors, for a period of nine months after the date of this Prospectus. Such
agreements do not prevent GMA 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. Merrill Lynch, Prudential Securities Incorporated and, in the case
of the Strategic Investors, GMA 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. GMA also has agreed not to accelerate the
exercisability 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 Merrill Lynch and Prudential Securities
Incorporated on behalf of the Underwriters.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
U.S. Underwriters and the International Managers are permitted to sell Common
Shares to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom
they sell Common Shares will not offer to sell or sell Common Shares to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, and the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to U.S. persons or to Canadian persons or to
persons they believe intend to resell to U.S. persons or Canadian persons,
except in the case of transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common
Shares. The initial public offering price was determined by GMA and the U.S.
Representatives and the Lead Managers as an
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appropriate per share price in light of the Company's desired capitalization.
There can be no assurance that an active trading market will develop for the
Common Shares or that the Common Shares will trade in the public market
subsequent to the Offerings at or above the initial public offering price.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Until the distribution of the Common Shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Shares. As an
exception to these rules, the U.S. Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Shares. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Shares.
If the Underwriters create a short position in the Common Shares in
connection with the Offerings, i.e., if they sell more Common Shares than are
set forth on the cover pages of this Prospectus, the U.S. Representatives and
Lead Managers, respectively, may reduce that short position by purchasing Common
Shares in the open market. The U.S. Representatives and Lead Managers,
respectively, may also elect to reduce any short position by exercising all or
part of the over-allotment options described above.
The U.S. Representatives and Lead Managers, respectively, may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the U.S. Representatives or the Lead Managers purchase Common Shares in the
open market to reduce the Underwriters' short position or to stabilize the price
of the Common Shares they may reclaim the amount of the selling concession from
the Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Shares to the extent that
it were to discourage resales of the Common Shares.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
GMA nor any of the Underwriters makes any representation that the U.S.
Representatives or the Lead Managers will engage in such transactions or that
such transactions, once commenced, will not be discontinued without notice.
The U.S. Underwriters and the International Managers have informed GMA that
they do not intend to confirm sales of the Common Shares offered hereby to any
accounts over which they exercise discretionary authority.
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, one of
the Joint Lead Managers, and The Prudential Investment Corporation are wholly
owned subsidiaries of The Prudential Insurance Company of America.
LEGAL MATTERS
The validity of the Common Shares under Bermuda law will be passed upon for
the Company by Conyers Dill & Pearman, Hamilton, Bermuda. Charles G. Collis, a
director of the Company, is a partner in such firm. Certain matters as to United
States law in connection with the Offerings will be passed upon for the Company
by Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania. Drinker Biddle &
Reath LLP, which serves 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 GMA and the Operating Company in 1998 and represents
Inter-Atlantic Capital Partners, Inc. on an ongoing basis. William M. Goldstein,
a director of the Company, is a partner in such firm. Mr. Goldstein will receive
an option to purchase 15,000 Common Shares of the Company upon consummation of
the Offerings pursuant to the Stock Option Plan. See "Manage-
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<PAGE> 84
ment -- Provisions Governing the Board of Directors." Certain matters as to
United States law in connection with the Offerings will be passed upon for the
Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheet of the Company as of August 28, 1998
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
GMA 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 GMA 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 Offerings, GMA 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 GMA,
that file electronically with the Commission.
After giving effect to the Offerings, GMA 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 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), GMA does not expect that it will be a "foreign private issuer," although
there is no assurance of such. If GMA 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."
GMA 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.
82
<PAGE> 85
GLOSSARY OF SELECTED FINANCIAL GUARANTY
REINSURANCE AND INSURANCE TERMS
Alien insurer or reinsurer.... An insurer or reinsurer organized under the
laws of a non-United States jurisdiction.
Asset-backed debt obligation
or asset-backed security...... A debt instrument that is supported by a pool
of assets, such as automobile loans or single
family mortgage loans. The payments on the
assets produce the revenue stream that services
the interest and principal on the asset-backed
debt obligation.
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 defined
insurance risks underwritten by the ceding
company. Assumption reinsurance written
effectively transfers the ceding company's
obligations to the reinsurer and, in most
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.
Capacity...................... The measure of an insurer's financial ability
to issue contracts of insurance, usually
determined by the largest amount acceptable on
a given risk or, in certain other situations,
by the maximum volume of business it is
prepared to accept.
Cedent; Ceding company........ See "Reinsurance; Reinsurer."
Coinsurance................... A form of proportional 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, less a proportionate amount
of expenses. The reinsurer maintains policy
reserves and is liable for its proportionate
share of policy benefits.
Credit enhancement............ A form of financial guaranty whereby the credit
quality of a security is upgraded through the
use of an insurance policy or letter of credit.
Credit rating................. An alphabetic system used by major rating
agencies to categorize the creditworthiness of
an issuer of a specific obligation. A credit
rating of BBB- or Baa3 or better is considered
an investment grade rating, meaning the
securities have been analyzed and are regarded
as having adequate capacity to provide timely
payment of debt service. A credit below BBB- or
Baa3 is considered a speculative grade rating,
meaning there is a greater vulnerability to
default.
Duff & Phelps Credit Rating
Co. insurance claims-paying
ability ratings............. Duff & Phelps Credit Rating Co. insurance
claims-paying ability ratings provide a summary
opinion of an insurance company's ability to
meet its claim obligations. Duff & Phelps
Credit Rat-
83
<PAGE> 86
ing Co. insurance claims-paying ability ratings
range from "AAA" to "DD." An "A" rating is
assigned by Duff & Phelps Credit Rating Co. to
companies which, in its opinion, have high
claims-paying ability, average protection
factors and a variability to risk over time due
to economic and/or underwriting conditions.
Duff & Phelps Credit Rating
Co. long-term ratings......... Duff & Phelps Credit Rating Co. long-term
ratings provide a summary opinion of an
issuer's long-term fundamental quality. Duff &
Phelps Credit Rating Co. long-term ratings
range from "AAA" to "DD." An "A" rating is
assigned by Duff & Phelps Credit Rating Co. to
issues which, in its opinion, have average but
adequate protection factors. However, risk
factors are more variable and greater in
periods of economic stress. A "BBB" rating is
assigned by Duff & Phelps Credit Rating Co. to
issues which, in its opinion, have
below-average protection factors that are
considered sufficient for prudent investment.
However, there is considerable variability in
risk during economic cycles. A "BB" rating is
assigned by Duff & Phelps Credit Rating Co. to
issues which, in its opinion, are below
investment grade but are deemed likely to meet
obligations when due. However, present or
prospective financial protection factors
fluctuate according to industry conditions or
company fortunes.
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 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.
Financial guaranty............ The promise to make payments to the holders of
a debt, loan or other similar financial
instrument in the event the borrower or
underlying obligor fails to do so.
Fitch IBCA international
insurance claims-paying
ability rating.............. Fitch IBCA international insurance
claims-paying ability ratings provide an
assessment of an insurance company's financial
strength and, therefore, its ability to pay
policy claims under the terms indicated. Fitch
IBCA international insurance claims-paying
ability ratings range from "AAA" to "D." Fitch
IBCA assigns an "A" rating to insurers that
have a strong capacity to meet policyholder
obligations and provide policyholder benefits.
The impact of adverse business and economic
factors on such insurers' claims-paying
abilities is expected to be small.
Fitch IBCA international
long-term credit ratings...... Fitch IBCA credit ratings are an opinion on the
ability of an entity or of a securities issue
to meet financial commitments, such as
interest, preferred dividends, or repayments of
principal, on a timely basis. Fitch IBCA's
international long-term credit ratings range
from "AAA" to "D." Fitch IBCA assigns an "A"
rating to denote a low expectation of credit
risk and that the capacity for timely payment
of financial commitments is considered strong.
Fitch IBCA assigns a "BBB" rating to indicate
that there is
84
<PAGE> 87
currently a low expectation of credit risk and
that although the capacity for timely payment
of financial commitments is considered
adequate, adverse changes in circumstances and
in economic conditions are more likely to
impair this capacity than the capacity of
higher-rated entities or issues. Fitch IBCA
assigns a "BB" rating to indicate that there is
a possibility of credit risk developing,
particularly as the result of adverse economic
change over time; however, business or
financial alternatives may be available to
allow financial commitments to be met.
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.
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 ceding insurer from
its liability with respect to its obligations
to the insured.
Insurance in force or
exposure...................... Principal outstanding and interest to be paid
over the remaining life of a given obligation
in respect of obligations insured and reinsured
by the Company, net of refunded debt
obligations, retrocessions, redemptions and
repayments.
Issuer........................ A municipality or corporation or other entity
that is the obligor on a debt issuance to the
capital markets.
Leverage ratio................ The ratio of insurance in force to qualified
statutory capital.
Loss ratio.................... The quotient derived by dividing losses and
loss adjustment expenses incurred by net
premiums earned on a GAAP basis.
Monoline financial guaranty
insurer....................... An insurer that only writes financial guaranty
insurance. The term "monoline financial
guaranty insurer" traditionally referred to a
writer of municipal bond insurance, but
currently includes, as well, insurers of
asset-backed securities.
Net premiums written.......... Total premiums for insurance written and
reinsurance assumed during a given period less
total premiums for insurance and reinsurance
ceded to others during such period.
Primary insurer............... An insurance company that contracts with a
customer (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 proportional
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).
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<PAGE> 88
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 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 above a predetermined
limit.
Retrocessional reinsurance;
Retrocessionaire............ An arrangement under which a reinsurer cedes to
another reinsurer (the "retrocessionaire") all
or a portion of the insurance risks reinsured
by the first reinsurer. Retrocessional
reinsurance generally does not legally
discharge the ceding reinsurer from its
liability with respect to its obligations to
the original ceding company.
Standard & Poor's insurer
financial strength rating..... Standard & Poor's insurer financial strength
rating is an opinion concerning the financial
security characteristics of an insurance
organization with respect to its ability to pay
under its insurance policies and contracts in
accordance with their terms. Standard & Poor's
insurer financial strength ratings range from
"AAA" to "CC." Standard & Poor's has assigned
an "A" rating to ACA. Such rating is assigned
to insurers that in its opinion have strong
financial security characteristics, but are
somewhat more likely to be affected by adverse
business conditions than are insurers with
higher ratings.
Standard & Poor's long-term
issuer credit rating.......... Standard & Poor's long-term issuer credit
rating is an opinion of an obligor's overall
financial capacity to pay its financial
obligations. Standard & Poor's long-term issuer
credit ratings range from "AAA" to "CC."
Standard & Poor's assigns an "A" rating to
obligors that have a strong capacity to meet
financial commitments, but are somewhat more
susceptible to the adverse effects of changes
in circumstances and economic conditions than
higher-rated obligors. It assigns a "BBB"
rating to obligors that have an adequate
capacity to meet financial commitments, but
adverse economic conditions or changing
circumstances are more likely to lead to a
weakened capacity of the obligors to meet
financial commitments. It assigns a "BB" rating
to obligors that face major ongoing
uncertainties and exposure to adverse business,
financial, or economic conditions, but are less
vulnerable in the near term than other
low-rated obligors.
Statutory capital and
surplus....................... The sum of capital and surplus required by
statute or regulation.
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<PAGE> 89
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
capital and 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 insurance contract term.
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<PAGE> 90
INDEX TO CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet as of August 28, 1998............ F-3
Notes to Consolidated Balance Sheet......................... F-4
</TABLE>
F-1
<PAGE> 91
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Global Markets Access Ltd. (formerly GCA Ltd.)
We have audited the accompanying consolidated balance sheet of Global
Markets Access Ltd. (formerly GCA Ltd.) as at August 28, 1998. 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 August 28,
1998 in conformity with United States generally accepted accounting principles.
KPMG PEAT MARWICK
Chartered Accountants
Hamilton, Bermuda
August 28, 1998, except for Note 8,
which is as of September 2, 1998
F-2
<PAGE> 92
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
CONSOLIDATED BALANCE SHEET
AUGUST 28, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA(A)
------------
<S> <C> <C>
ASSETS
Cash........................................................ $120,000 $ 120,000
-------- -----------
Total Assets...................................... $120,000 $ 120,000
======== ===========
LIABILITIES (NOTE 3)
Accounts payable............................................ $ -- $ 5,650,000
======== ===========
Total Liabilities................................. $ $ 5,650,000
======== ===========
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 outstanding).................... 12,000 12,000
Additional paid-in capital.................................. 108,000 (5,042,000)(b)
Accumulated deficit......................................... -- $ (500,000)(c)
-------- -----------
Total stockholders' equity........................ $120,000 $(5,530,000)
======== ===========
Total liabilities and stockholders' equity.................. $120,000 $ 120,000
======== ===========
</TABLE>
- ---------------
(a) A pro forma balance sheet has been presented for information purposes only
and does not form part of the audited consolidated balance sheet. The pro
forma gives effect to the amounts payable to Inter-Atlantic Securities
Corporation ("Inter-Atlantic") and other expenses associated with the
proposed initial public offering of the Company's common shares (the
"Offering") and the proposed private placement of the Company's common
shares to certain institutional investors (the "Strategic Investors") that
will be paid out of the proceeds of such offerings, as if they had taken
place on August 28, 1998. The pro forma does not give effect to the proceeds
that would be received from the Offering and the sales to the Strategic
Investors.
(b) Reflects amounts payable upon consummation of the Offering of $3.9 million
to Inter-Atlantic for certain advisory services related to the Offering and
the sales to the Strategic Investors; and $1.25 million for estimated
out-of-pocket expenses consisting of legal, accounting and printing expenses
as well as filing fees and other costs related to the Offering and the sales
to the Strategic Investors.
(c) Reflects estimated expenses incurred by the Company in connection with its
operations in the period subsequent to August 28, 1998, including expenses
incurred by Inter-Atlantic on the Company's behalf for which Inter-Atlantic
is entitled to be reimbursed by the Company upon consummation of the
Offering.
The accompanying notes are an integral part of this consolidated balance sheet.
F-3
<PAGE> 93
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
NOTES TO CONSOLIDATED BALANCE SHEET
1. ORGANIZATION
Global Markets Access Ltd. (formerly GCA Ltd.) ("GMA") was incorporated on
August 7, 1998 under the laws of Bermuda to provide financial guaranty
reinsurance and insurance. GMA will operate through a wholly-owned subsidiary,
Global Markets Guaranty Ltd. (formerly Global Capital Access, Ltd.) (the
"Operating Company" and, together with GMA, the "Company"). The Operating
Company has applied for a license under the insurance laws of Bermuda. The
Company's initial capitalization of $120,000, as reflected on the Balance Sheet,
was provided by American Capital Access Holdings, L.L.C., Risk Capital
Reinsurance Company ("Risk Capital"), The Trident Partnership, L.P. ("Trident"),
Donald J. Matthews, Michael P. Esposito, Jr., Frederick S. Hammer, Robert M.
Lichten, Andrew S. Lerner and William S. Ogden, Jr. (collectively, the "Class A
Warrant Holders") (see notes 3 and 4) and the Global Purpose Trust (the "Purpose
Trust"), which was lent $12,000 by Insurance Consulting Services Limited
("ICS"). See note 3. The Company's fiscal year end is December 31.
During the period from its inception date to the balance sheet date, the
Company did not incur any income or expenses that are required to be reported in
a statement of income or a statement of cash flows under United States generally
accepted accounting principles. Therefore, consolidated statements of income and
cash flows have not been presented.
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 Revenue Recognition
Gross and ceded premiums are earned in proportion to the amount of risk
outstanding over the expected period of coverage. Deferred premium revenue and
prepaid reinsurance premiums represent the portion of premium that is applicable
to coverage of risk to be provided in the future on policies in force. When an
insured or reinsured issue is retired or defeased prior to the end of the
expected period of coverage, the remaining deferred premium revenue and prepaid
reinsurance premium, less any amount credited to a refunding issue insured by
the Company, are recognized.
(b) Losses and Loss Adjustment Expenses
A case basis reserve for unpaid losses and loss adjustment expenses is
recorded at the present value of the estimated loss when, in management's
opinion, the likelihood of a future loss is probable and determinable at the
balance sheet date. The estimated loss on a transaction is discounted using
then-current risk-free rates.
The Company intends to establish a general reserve by applying a loss
factor to total exposure on insured obligations. The loss factor used for this
purpose will be determined based upon a variety of criteria established by the
Company. The general reserve is available to be applied against future additions
or accretions to existing case basis reserves or to new case basis reserves to
be established in the future.
Management of the Company periodically evaluates its estimates for losses
and loss adjustment expenses and establishes reserves that management believes
are adequate to cover the ultimate net cost of claims. The reserves are
necessarily based on estimates, and there can be no assurance that the ultimate
liability will not differ from such estimates. The Company will, on an ongoing
basis, monitor these reserves and may
F-4
<PAGE> 94
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
periodically adjust such reserves based on the Company's actual loss experience,
its future mix of business and future economic conditions.
(c) Deferred Acquisition Costs
Deferred acquisition costs comprise those expenses that vary with and are
primarily related to the production of business, including commissions paid on
reinsurance assumed, compensation and related costs of underwriting and
marketing personnel, certain rating agency fees, premium and excise taxes and
certain other underwriting expenses, reduced by ceding commission income on
premiums ceded to reinsurers. Deferred acquisition costs and the cost of
acquired business are amortized over the period in which the related premiums
are earned. Recoverability of deferred acquisition costs is determined by
considering anticipated losses and loss adjustment expenses.
(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
using the specific identification method. Changes in fair values of securities
carried at fair value are reflected directly in shareholders' equity.
(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 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 expensed as incurred.
Certain equity offering costs incurred in connection with the Company's
planned initial public offering (the "Offering"), including certain amounts
payable for investment banking and financial advisory services, will be deducted
from the gross proceeds of the Offering.
(g) Stock Compensation Plans
Under the Company's Initial Stock Option Plan (the "Stock Option Plan"),
awards are granted to eligible employees, directors and consultants of the
Company in the form of incentive stock options ("ISO's"), where they qualify
under the Internal Revenue Code, or non-qualified stock options ("NQSO's"). The
Company follows the intrinsic value based method of accounting for stock based
compensation as prescribed by APB Opinion No. 25, "Accounting for Stock Issued
to Employees." In accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company will provide pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting had been
applied.
F-5
<PAGE> 95
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
(h) 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 basic 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
The Company has entered into an agreement with Inter-Atlantic whereby
Inter-Atlantic has agreed to provide certain services in connection with the
Offering and sales to a core group of strategic investors (the "Strategic
Investors"), 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 deems appropriate. Certain
officers and directors of the Company are also beneficial owners, directors or
officers of Inter-Atlantic and/or its affiliates.
The Company will reimburse Inter-Atlantic for expenses incurred in
connection with the Offering provided that the Offering is successfully
consummated prior to March 31, 1999. Pursuant to such Agreement, the Company has
agreed to pay Inter-Atlantic a fee of $3.9 million upon consummation of the
Offering. If the Offering is not successfully consummated prior to March 31,
1999, such fees are not payable and no expense reimbursement is required.
In connection with its initial capitalization, the Company issued Class A
Warrants to the Class A Warrant Holders to purchase an aggregate number of
common shares equal to 13.5% of the sum of (i) the common shares outstanding
immediately following the consummation of the Offering (including any concurrent
private placements (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 Offering other than the Class A Warrants, any Class B Warrants and any
options granted by the Company under its Stock Option Plan.
On August 27, 1998, Messrs. Esposito, Lichten, Hammer and Lerner subscribed
to purchase from the Company an aggregate of 115,000 common shares at a purchase
price of $14.10 per share. The purchases of the common shares are subject to a
number of conditions precedent customary in transactions of this nature,
including the accuracy of the parties' respective representations and warranties
and compliance with the parties' respective covenants set forth in the purchase
agreements. The purchases are also subject to the condition that an initial
public offering of not less than 14,000,000 common shares of the Company shall
have been consummated.
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.
F-6
<PAGE> 96
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
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 an aggregate number of
common shares equal to 13.5% of the sum of (i) the common shares outstanding
immediately following the consummation of the Offering (including any 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 Offering other than the Class A
Warrants, any Class B Warrants and any options granted by the Company under its
Stock Option Plan. The consideration paid for these warrants of $108,000 has
been recorded as additional paid in capital. The exercise price of the warrants
is equal to the initial public offering price per share, subject to customary
anti-dilution adjustments for certain future events, including stock splits and
the issuance of common shares at a price below the exercise price or the market
price of the common shares at the time of such issuance. The Class A Warrants
become exercisable over three years commencing on the first anniversary of the
consummation of the Offering. The Class A Warrants will expire on September 30,
2008.
5. STOCK PLANS
Stock Option Plan
The Board of Directors has adopted the Stock Option Plan under which it may
grant, subject to certain restrictions, ISO's and NQSO's. The aggregate number
of common shares for which options may be granted under the Stock Option Plan is
limited to the lessor of (i) 5.5% of the common shares outstanding immediately
following the consummation of the Offering and any Direct Sales or (ii)
2,000,000 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 and to set the date of grant and other terms of the
options granted under the Stock Option Plan.
The minimum exercise price of the ISO's will be equal to the fair market
value, as defined in the Stock Option Plan, of the Company's 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.
Subject to the consummation of the Offering, options will be granted to the
Chief Executive Officer and other senior executives and directors of the Company
to purchase common shares. The exercise price of such options will be equal to
the public offering price per share.
Pursuant to the Stock Option Plan, Mr. H. Russell Fraser will receive
options to acquire 100,000 common shares; Mr. Charles A. Davis will receive
options to acquire 75,000 Common Shares; Messrs. Hammer and Lichten will receive
options to acquire 33,333 common shares; the director to be designated by Risk
Capital will receive options to acquire 25,000 Common Shares; and other
non-employee directors (excluding Mr. Collis) will receive options to acquire
15,000 common shares, in each case upon the later of (i) the date he or she
becomes an eligible non-employee director or (ii) the date the Offering is
consummated. The options shall have an exercise price equal to the fair market
value of the common shares on the date the options are granted, except for any
options granted upon consummation of the Offering, which will have an exercise
price equal to the initial public offering price per share, and shall be
exercisable in three
F-7
<PAGE> 97
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
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. Such options shall have an exercise
price equal to the fair market value of the 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 Offering. If any such options are
granted prior to the first anniversary of the consummation of the Offering, they
will not become exercisable until such anniversary. The Stock Option Plan
defines "fair market value" as: (i) the quoted closing price, if there is a
market for the Company's Common Shares on a registered securities exchange or in
an over the counter market, on the date of grant; (ii) the weighted average of
the quoted closing prices on the nearest date before and the nearest date after
the date of grant, if there are no sales on the date of grant but there are
sales on dates within a reasonable period both before and after the date of
grant; (iii) the mean between the bid and asked prices, as reported by the
National Quotation Bureau on the date of grant, if actual sales are not
available during a reasonable period beginning before and ending after the date
of grant; or (iv) another method that is authorized by the United States
Internal Revenue Code of 1986, as amended, and has been adopted by the
Compensation Committee of the Board of Directors.
In addition, directors shall receive cash of $20,000 per annum plus $1,000
per board or committee meeting attended. The non-employee Deputy Chairman of the
Board and non-employee Committee Chairmen shall receive an additional $1,000 per
annum.
6. TAXATION
Under current Bermuda law neither GMA nor the Operating Company is required
to pay any taxes in Bermuda on either income or capital gains. GMA and the
Operating Company have each applied for 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 GMA, the Operating
Company or to any of their operations or the shares, debentures or other
obligations of GMA or the Operating Company until March 2016.
GMA and the Operating Company plan to operate in such a manner that they
will not generally be subject to tax in other jurisdictions except for
withholding taxes on certain kinds of investment income, excise taxes and other
taxes attributable to marketing activities in certain jurisdictions. It is
possible, however, that the Operating Company may be held to be doing business
in one or more foreign jurisdictions and therefore subject to tax on the profits
of such business.
7. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
Under The Bermuda Insurance Act, 1978, and related regulations, the
Operating Company will be required to maintain certain levels of solvency and
liquidity. The minimum statutory capital and surplus required is $1,000,000;
however, the Company has applied to the Registrar of Companies to grant the
Company an exception to this requirement until the consummation of the Offering.
GMA's ability to pay dividends depends on the ability of the Operating
Company to pay dividends to GMA. While GMA itself is not subject to any
significant legal prohibitions on the payment of dividends, the Operating
Company will be subject to Bermuda regulatory constraints which affect its
ability to pay dividends to GMA. The Operating Company will be prohibited from
declaring or paying a dividend if such payment would reduce its statutory
surplus below $1,000,000.
F-8
<PAGE> 98
GLOBAL MARKETS ACCESS LTD.
(FORMERLY GCA LTD.)
NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)
8. SUBSEQUENT EVENTS
On September 2, 1998, the Company entered into a letter of intent with Risk
Capital and Trident for the purchase of common shares and Class B Warrants as
part of the Direct Sales. Pursuant to such letter of intent, Risk Capital has
agreed to purchase 1,063,829 common shares and Class B Warrants to purchase an
additional 125,000 common shares for an aggregate price of approximately $15.0
million, and Trident has agreed to purchase 3,191,489 common shares and Class B
Warrants to purchase an additional 375,000 common shares for an aggregate
purchase price of approximately $45.0 million.
The issuance of the common shares and Class B Warrants to Risk Capital and
Trident will be subject to a number of conditions precedent customary in
transactions of this nature, and a number of other conditions as set out in the
letter of intent. Furthermore, such issuances are subject to the condition that
the Company will receive net proceeds of at least $150.0 million from the
Offering when it is consummated.
F-9
<PAGE> 99
- ---------------------------------------------------------
- ---------------------------------------------------------
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............................ 21
Capitalization............................. 22
Dividend Policy............................ 23
Dilution................................... 24
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 25
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 27
Business................................... 32
Overview of the Financial Guaranty
Industry................................. 46
Management................................. 48
Principal Stockholders..................... 56
Certain Relationships and Related Party
Transactions............................. 58
Description of Capital Stock............... 61
Shares Eligible for Future Sale............ 68
Direct Sales............................... 70
Certain Tax Considerations................. 72
Underwriting............................... 79
Legal Matters.............................. 81
Experts.................................... 82
Additional Information..................... 82
Glossary of Selected Financial Guaranty
Reinsurance and Insurance Terms.......... 83
Index to Consolidated Balance Sheet........ F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
16,750,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
Joint Lead Managers
and Joint Bookrunners
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
, 1998
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 100
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 INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION -- DATED OCTOBER 30, 1998
PROSPECTUS
16,750,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
------------------------
All of the 16,750,000 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Global Markets Access Ltd. ("GMA").
Of the 16,750,000 Common Shares offered hereby, Common Shares are
being offered for sale initially outside the United States and Canada by the
International Managers (the "International Offering") and Common
Shares are being offered for sale initially in a concurrent offering in the
United States and Canada by the U.S. Underwriters (the "U.S. Offering," and
together with the International Offering, the "Offerings"). The initial public
offering price and underwriting discount per Common Share will be identical for
both Offerings. The initial public offering price will be $15.00 per Common
Share. See "Underwriting." Prior to the Offerings, GMA has not conducted any
business and there has been no public market for the Common Shares.
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 "GMALF."
In connection with the formation of GMA and the establishment of a core
group of strategic investors, Risk Capital Reinsurance Company, The Trident
Partnership, L.P. and (collectively, the "Strategic Investors")
have severally agreed to purchase for investment directly from GCA an aggregate
of 7,092,197 Common Shares and Class B Warrants to purchase an aggregate of
700,000 Common Shares. Such purchases will be consummated immediately prior to
the consummation of the Offerings for an aggregate purchase price for the Common
Shares and the Class B Warrants of approximately $100.0 million. The aggregate
purchase price to be paid by each Strategic Investor is based on a price of
$14.10 for (i) one Common Share and (ii) the right to purchase a specified
fraction of a Common Share under the Class B Warrants. The exercise price for
the Class B Warrants will be $15.00 per share. The closing of the International
Offering made hereby is conditioned upon the closing of sales by GMA to the
Strategic Investors of Common Shares and related Class B Warrants with an
aggregate purchase price of at least $ million.
GMA is also offering by a separate prospectus up to 100,000 Common Shares
directly to certain of its directors and officers 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 Common
Shares are purchased of approximately $1.4 million. GMA has also contracted to
sell 115,000 Common Shares directly to certain persons involved in the Formation
of the Company at a purchase price of $14.10 per share, for an aggregate
purchase price of approximately $1.6 million. All such purchases by GMA's
directors and officers are expected to be consummated simultaneously with the
consummation of the Offerings and, together with the purchases by the Strategic
Investors, are referred to in this Prospectus as the "Direct Sales." Upon
consummation of the Offerings and the Direct Sales, the Strategic Investors and
GMA's directors and officers are expected to own collectively approximately
30.0% of the outstanding Common Shares. See "Direct Sales."
The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which (except with respect to The Trident
Partnership, L.P. and as otherwise described herein) generally prevent transfers
to holders beneficially owning 10% or more of the Common Shares, require
divestiture of Common Shares to reduce the beneficial ownership of any holder to
less than 10% of the Common Shares and reduce the voting power of any holder
beneficially owning 10% or more of the Common Shares to less than 10% of the
total voting power of GMA's capital stock. See "Description of Capital Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO GMA(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share............................ $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3).................................... $ $ $ (4)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) GMA has agreed to indemnify the several International Managers and the U.S.
Underwriters (collectively, the "Underwriters") against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting certain advisory fees and other expenses related to the
Offerings payable by GMA estimated to be $ . See "Use of Proceeds."
(3) GMA has granted the International Managers and the U.S. Underwriters,
exercisable within 30 days after the date hereof, options to purchase up to
and additional Common Shares, respectively, solely to
cover over-allotments, if any. If such options are exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to GMA will be $ , $ and $ , respectively. See
"Underwriting."
(4) Assuming completion of all the Direct Sales, the total Proceeds to GMA will
be $ . If the Underwriters' over-allotment options described above
are exercised in full, the total Proceeds to GMA including the Direct Sales
will be $ . See "Direct Sales."
------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offers and to reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York on or about
, 1998.
------------------------
Joint Lead Managers and Joint Bookrunners
MERRILL LYNCH INTERNATIONAL PRUDENTIAL-BACHE SECURITIES
------------------------
, 1998
<PAGE> 101
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
UNDERWRITING
Merrill Lynch International; Prudential-Bache Securities (U.K.) Inc.; and
are acting as lead managers (the "Lead Managers") of
each of the underwriters named below (the "International Managers"). Subject to
the terms and conditions contained in the international underwriting agreement
(the "International Underwriting Agreement") among GMA and the International
Managers and concurrently with the sale of Common Shares to the U.S.
Underwriters (as defined below), GMA has agreed to sell to the International
Managers, and each of the International Managers severally and not jointly has
agreed to purchase from GMA, the number of Common Shares set forth opposite its
name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
- --------------------- ---------
<S> <C>
Merrill Lynch International.................................
Prudential-Bache Securities (U.K.) Inc......................
-------------
Total.............................................
=============
</TABLE>
GMA has also entered into a United States underwriting agreement (the "U.S.
Underwriting Agreement" and, together with the International Underwriting
Agreement, the "Underwriting Agreements") with certain underwriters (the "U.S.
Underwriters" and, together with the International Managers, the "Underwriters")
for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch");
Prudential Securities Incorporated; and are acting as
representatives (the "U.S. Representatives"). Subject to the terms and
conditions set forth in the U.S. Underwriting Agreement, and concurrently with
the sale of Common Shares to the International Managers, the Company
has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters severally
have agreed to purchase from the Company, an aggregate of Common
Shares. The initial public offering price per share and the total underwriting
discount per Common Share are identical under the International Underwriting
Agreement and U.S. Underwriting Agreement.
In the International Underwriting Agreement and the U.S. Underwriting
Agreement , the several International Managers and the several U.S.
Underwriters, respectively, have agreed, subject to the terms and conditions set
forth therein, to purchase all of the Common Shares being sold pursuant to such
Underwriting Agreement if any of the Common Shares being sold pursuant to such
Underwriting Agreements are purchased. In certain circumstances under the
Underwriting Agreements, the commitments of non-defaulting Underwriters may be
increased. The closings with respect to the sale of Common Shares to be
purchased by the International Managers and the U.S. Underwriters are
conditioned upon one another and upon the closing of sales to the Strategic
Investors of Common Shares and related Class B Warrants with an aggregate
purchase price of at least $ million.
The Lead Managers have advised GMA that the International Managers propose
initially to offer the Common Shares to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a concession not in excess of $ per Common
Share. The International Managers may allow, and such dealers reallow, a
discount not in excess of $ per Common Share on sales to certain other
dealers. After the initial public offering, the public offering price,
concession and discount may be changed.
GMA has granted an option to the International Managers, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional Common Shares at the initial public offering price set
forth on the cover page of this Prospectus, less the underwriting discount. The
International
<PAGE> 102
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
Managers may exercise this option solely to cover over-allotments, if any, made
on the sale of Common Shares offered hereby. To the extent that the
International Managers exercise this option, each International Manager will be
obligated, subject to certain conditions, to purchase a number of additional
Common Shares proportionate to such International Manager's initial amount
reflected in the foregoing table. GMA has also granted an option to the U.S.
Underwriters, exercisable for 30 days after the date of this Prospectus, to
purchase up to an aggregate of additional Common Shares to cover
over-allotments, if any, on terms similar to those granted to the International
Managers.
At the request of the Company, the U.S. Underwriters have reserved for
sale, at the initial public offering price, up to % of the shares offered
hereby to be sold to certain directors, officers, employees and related persons
of GMA. The number of Common Shares available for sale to the general public
will be reduced to the extent such persons purchase such reserved shares. Any
reserved shares which are not orally confirmed for purchase within one day of
the pricing of the Offerings will be offered by the Underwriters to the general
public on the same terms as the other shares offered by this Prospectus.
GMA, its directors and officers, the holders of the Class A Warrants and
the Strategic Investors have executed lock-up 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 Merrill Lynch and Prudential
Securities Incorporated on behalf of the Underwriters and, in addition, in the
case of the Strategic Investors, GMA, offer, sell, offer to sell, contract to
sell, transfer, assign, pledge, hypothecate, grant any option to purchase, or
otherwise sell or dispose (or announce any offer, sale, offer to sell, contract
of sale, transfer, assignment, pledge, hypothecation, grant of any option to
purchase or other sale or disposition) of any Common Shares or other capital
stock of GMA or any other securities convertible into, or exercisable or
exchangeable for, any Common Shares or other capital stock of GMA for a period
of one year after the date of this Prospectus or, in the case of the Strategic
Investors, for a period of nine months after the date of this Prospectus. Such
agreements do not prevent GMA 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. Merrill Lynch, Prudential Securities Incorporated and, in the case
of the Strategic Investors, GMA 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. GMA also has agreed not to accelerate the
exercisability 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 consent of Merrill Lynch and Prudential Securities Incorporated on
behalf of the Underwriters.
The International Managers and U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the Intersyndicate Agreement, the
International Managers and the U.S. Underwriters are permitted to sell Common
Shares to each other for purposes of resale at the initial public offering
price, less an amount not greater than the selling concession. Under the terms
of the Intersyndicate Agreement, the International Managers and any dealer to
whom they sell Common Shares will not offer to sell or sell Common Shares to
U.S. persons or to Canadian persons or to persons they believe intend to resell
to U.S. or Canadian persons and the U.S. Underwriters and any dealer to whom
they sell Common Shares will not offer to sell or sell Common Shares to persons
who are non-U.S. or non-Canadian persons or to persons they believe intend to
resell to persons who are non-U.S. or non-Canadian persons, except in the case
of transactions pursuant to the Intersyndicate Agreement.
Prior to the Offerings, there has been no public market for the Common
Shares. The initial public offering price was determined by GMA and the Lead
Managers and the U.S. Representatives as an appropriate per share price in light
of the Company's desired capitalization. There can be no assurance that an
active trading market will develop for the Common Shares or that the Common
Shares will trade in the public market subsequent to the Offerings at or above
the initial public offering price.
<PAGE> 103
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
GMA has agreed to indemnify the Underwriters against certain liabilities,
including certain liabilities under the Securities Act, or to contribute to
payments the International Managers and U.S. Underwriters may be required to
make in respect thereof.
Each of the International Managers has represented and agreed that (a) it
has not offered or sold and, prior to that date six months after the date of
this Prospectus, it will not offer or sell any Common Shares to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or agent)
for the purposes of their businesses or otherwise in circumstances which do not
constitute and will not constitute an offer to the public in the United Kingdom
within the meaning of the Public Offers of Securities Regulations 1995, (b) it
has complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the Common
Shares in, from or otherwise involving the United Kingdom and (c) it has only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by it in connection with the issue or sale of Common Shares to
a person who is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1996, as amended, or is
a person to whom the document may otherwise lawfully be issued or passed on.
Until the distribution of the Common Shares is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Shares. As an
exception to these rules, the U.S. Representatives are permitted to engage in
certain transactions that stabilize the price of the Common Shares. Such
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of the Common Shares.
If the Underwriters create a short position in the Common Shares in
connection with the Offerings, i.e., if they sell more Common Shares than are
set forth on the cover pages of this Prospectus, the Lead Managers and U.S.
Representatives, respectively, may reduce that short position by purchasing
Common Shares in the open market. The Lead Managers and U.S. Representatives,
respectively, may also elect to reduce any short position by exercising all or
part of the over-allotment options described above.
The Lead Managers and U.S. Representatives, respectively, may also impose a
penalty bid on certain Underwriters and selling group members. This means that
if the Lead Managers or the U.S. Representatives purchase Common Shares in the
open market to reduce the Underwriters' short position or to stabilize the price
of the Common Shares, they may reclaim the amount of the selling concession from
the Underwriters and selling group members who sold those shares as part of the
Offerings.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Shares to the extent that
it were to discourage resale of the Common Shares.
Neither GMA nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
GMA nor any of the Underwriters makes any representation that the Lead Managers
or the U.S. Representatives will engage in such transactions or that such
transactions, once commenced, will not be discontinued without notice.
The International Managers and the U.S. Underwriters have informed GMA that
they do not intend to confirm sales of the Common Shares offered hereby to any
accounts over which they exercise discretionary authority.
No action has been or will be taken in any jurisdiction (except in the
United States) that would permit a public offering of the Common Shares or the
possession, circulation or distribution of this Prospectus or any other material
relating to the Company or Common Shares in any jurisdiction where action for
that purpose is required. Accordingly, the Common Shares may not be offered or
sold, directly or indirectly, and neither this Prospectus nor any other offering
material or advertisements in connection with the Common Shares may be
<PAGE> 104
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
distributed or published, in or from any country or jurisdiction except in
compliance with any applicable rules and regulations of any such country or
jurisdiction.
Purchasers of the Common Shares offered hereby may be required to pay stamp
taxes and other charges in accordance with the laws and practices of the country
of purchase in addition to the offering price set forth on the cover page
hereof.
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, one of
the Joint Lead Managers, and The Prudential Investment Corporation are wholly
owned subsidiaries of The Prudential Insurance Company of America.
<PAGE> 105
[ALTERNATE PAGE FOR THE INTERNATIONAL 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 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............................ 21
Capitalization............................. 22
Dividend Policy............................ 23
Dilution................................... 24
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 25
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 27
Business................................... 32
Overview of the Financial Guaranty
Industry................................. 46
Management................................. 48
Principal Stockholders..................... 56
Certain Relationships and Related Party
Transactions............................. 58
Description of Capital Stock............... 61
Shares Eligible for Future Sale............ 68
Direct Sales............................... 70
Certain Tax Considerations................. 72
Underwriting............................... 79
Legal Matters.............................. 81
Experts.................................... 82
Additional Information..................... 82
Glossary of Selected Financial Guaranty
Reinsurance and Insurance Terms.......... 83
Index to Consolidated Balance Sheet........ F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
16,750,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
Joint Lead Managers
and Joint Bookrunners
MERRILL LYNCH INTERNATIONAL
PRUDENTIAL-BACHE SECURITIES
, 1998
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 106
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 OCTOBER 30, 1998
PROSPECTUS
100,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
------------------------
All of the 100,000 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Global Markets Access Ltd. ("GMA").
GMA is offering such Common Shares directly to certain of its directors and
officers at a price per share equal to the initial public offering price per
Common Share in the Offerings (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 approximately $1.4 million. GMA is also
offering by separate prospectuses up to Common Shares in an offering
in the United States and Canada (the "U.S. Offering") and up to Common
Shares outside the United States and Canada (the "International Offering" and
together with the U.S. Offering, the "Offerings"). This Prospectus is identical
to the prospectus used in connection with the U.S. Offering (the "U.S.
Prospectus") and the prospectus used in connection with the International
Offering (the "International Prospectus") except for the front and back cover
pages and except that the section captioned "Plan of Distribution" in this
Prospectus is replaced with the section captioned "Underwriting" in the U.S.
Prospectus and the International Prospectus. The offering made hereby will be
consummated simultaneously with the consummation of the Offerings. Prior to the
Offerings, GMA has not conducted any business and there has been no public
market for the Common Shares.
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 "GMALF."
In connection with the formation of GMA and the establishment of a core
group of strategic investors, Risk Capital Reinsurance Company, The Trident
Partnership, L.P. and (collectively, the "Strategic Investors")
have severally agreed to purchase for investment directly from GMA an aggregate
of 7,092,197 Common Shares and Class B Warrants to purchase an aggregate of
700,000 Common Shares. Such purchases will be consummated immediately prior to
the consummation of the Offerings for an aggregate purchase price for the Common
Shares and the Class B Warrants of approximately $100.0 million. The aggregate
purchase price to be paid by each Strategic Investor is based on a price of
$14.10 for (i) one Common Share and (ii) the right to purchase a specified
fraction of a Common Share under the Class B Warrants. The exercise price for
the Class B Warrants will be $15.00 per share. GMA has also contracted to sell
115,000 Common Shares directly to certain persons involved in the formation of
the Company at a price of $14.10 per Common Share, for an aggregate purchase
price of approximately $1.6 million. All such purchases are expected to be be
consummated simultaneously with the consummation of the Offerings. The purchases
by such persons involved in the formation of the Company, 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."
The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which (except with respect to The Trident
Partnership, L.P. and as otherwise described herein) generally prevent transfers
to holders beneficially owning 10% or more of the Common Shares, require
divestiture of Common Shares to reduce the beneficial ownership of any holder to
less than 10% of the Common Shares and reduce the voting power of any holder
beneficially owning 10% or more of the Common Shares to less than 10% of the
total voting power of GMA's capital stock. See "Description of Capital Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF 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> 107
[ALTERNATE PAGE FOR THE DIRECT SALES PROSPECTUS]
PLAN OF DISTRIBUTION
The Company is offering directly the Common Shares offered hereby to
certain of its directors and officers at a per share price equal to the initial
public offering price per Common Share in the Offerings, less the per share
underwriting discounts and commissions. Such sales are to be consummated
simultaneously with the Offerings.
<PAGE> 108
[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............................ 21
Capitalization............................. 22
Dividend Policy............................ 23
Dilution................................... 24
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 25
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 27
Business................................... 32
Overview of Financial Guaranty Industry.... 46
Management................................. 48
Principal Stockholders..................... 56
Certain Relationships and Related Party
Transactions............................. 58
Description of Capital Stock............... 61
Shares Eligible for Future Sale............ 68
Direct Sales............................... 70
Certain Tax Considerations................. 72
Legal Matters.............................. 81
Experts.................................... 82
Additional Information..................... 82
Glossary of Selected Financial Guaranty
Reinsurance and Insurance Terms.......... 83
Index to Consolidated Balance Sheet........ F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
100,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
, 1998
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 109
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 the issuance and distribution of the Common Shares being
registered hereby. 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>
Advisory Fee................................................ $3,900,000
Quotation Fees -- The Nasdaq National Market................ 95,000
Filing Fee -- Securities and Exchange Commission............ 85,680
Filing Fee -- National Association of Securities Dealers,
Inc. ..................................................... 29,544
Fees and Expenses of Counsel................................ *
Printing Expenses........................................... *
Reimbursement of other expenses to Inter-Atlantic Securities
Corporation............................................... *
Fees and Expenses of Accountants............................ *
Blue Sky Fees and Expenses.................................. *
Miscellaneous Expenses...................................... *
----------
Total............................................. *
==========
</TABLE>
- ---------------
* To be provided 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 or 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.
Reference is made to the form of U.S. Underwriting Agreement and
International Underwriting Agreement to be filed as Exhibits 1.1 and 1.2,
respectively, 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 10.3 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> 110
Reference is made to the Registration Rights Agreements to be filed as
Exhibits 10.5 and 10.7 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 August 18, 1998, the Registrant sold 12,000 Common Shares to
the Global 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 August 25, 1998, the Registrant sold Class A Warrants for an
aggregate price of $54,000 to Donald J. Matthews, Michael P. Esposito, Jr.,
Frederick S. Hammer, Robert M. Lichten, Andrew S. Lerner and William S.
Ogden, Jr. to purchase up to an aggregate number of Common Shares equal to
6.75% of the sum of (i) the Common Shares outstanding immediately following
the consummation of the Offering (including the Direct Sales but excluding
any shares held by the Global 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 August 25, 1998, the Registrant sold Class A Warrants for an
aggregate price of $42,000 to American Capital Access Holdings, L.L.C. to
purchase up to an aggregate number of Common Shares equal to 5.25% of the
sum of (i) the Common Shares outstanding immediately following the
consummation of the Offering (including the Direct Sales but excluding any
shares held by the Global 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.
(d) On August 25, 1998, the Registrant sold Class A Warrants for an
aggregate price of $12,000 to Risk Capital Reinsurance Company and The
Trident Partnership, L.P. to purchase up to an aggregate number of Common
Shares equal to 1.50% of the sum of (i) the Common Shares outstanding
immediately following the consummation of the Offering (including the
Direct Sales but excluding any shares held by the Global 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.
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
- -------- -----------------------
<C> <S>
1.1* Form of U.S. Underwriting Agreement.
1.2* Form of International Underwriting Agreement.
3.1** Memorandum of Association.
3.2** Bye-Laws.
4.1* Specimen Common Share Certificate.
4.2** Form of Class A Warrant.
</TABLE>
II-2
<PAGE> 111
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
4.3* Form of Class B Warrant.
5.1** Opinion of Conyers Dill & Pearman.
8.1** Opinion of Conyers Dill & Pearman (included in Exhibit 5.1).
8.2** Opinion of Drinker Biddle & Reath LLP.
10.1* Employment Agreement, dated as of September 1, 1998, between
Donald J. Matthews and the Registrant and the Operating
Company.
10.2** Global Markets Access Ltd. Initial Stock Option Plan.
10.3** Agreement, dated as of August 28, 1998, between
Inter-Atlantic Securities Corporation and the Registrant and
the Operating Company.
10.4*** Form of Class A Warrant Purchase Agreement.
10.5*** Registration Rights Agreement, dated as of August 25, 1998,
between the Registrant and the holders of the Class A
Warrants.
10.6* Form of Securities Purchase Agreement to be entered into by
Risk Capital Reinsurance Company and the Registrant, The
Trident Partnership, L.P. and the Registrant, and
and the Registrant.
10.7* Form of Registration Rights Agreement to be entered into
between Risk Capital Reinsurance Company and the Registrant,
The Trident Partnership, L.P. and the Registrant, and
and the Registrant.
10.8* Quota Share Reinsurance Treaty, dated as of August , 1998,
between ACA Financial Guaranty Corporation and the Operating
Company.
10.9* Master Facultative Reinsurance Treaty, dated as of August
, 1998, between ACA Financial Guaranty Corporation and the
Operating Company.
10.10* Master Facultative Reinsurance Treaty, dated as of August
, 1998, between the Operating Company and ACA Financial
Guaranty Corporation.
10.11* Employment Agreement, dated as of September 1, 1998, between
Bruce W. Bantz and the Registrant and the Operating Company.
10.12* Employment Agreement, dated as of September 1, 1998, between
Mary Jane Robertson and the Registrant and the Operating
Company.
10.13** Form of Common Share Purchase Agreement.
10.14* Agreement, dated as of October , 1998, between Insurance
Consulting Services Limited and the Registrant and the
Operating Company.
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.
24.1**** Power of Attorney of Robert M. Lichten, Charles G. Collis,
Frederick S. Hammer, William M. Goldstein and Donald J.
Puglisi.
99.1*** Form F-N.
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
*** Previously filed.
**** Included on signature page to the Company's Registration Statement on Form
S-1 (333-62785) previously filed with the Securities and Exchange
Commission on September 2, 1998.
II-3
<PAGE> 112
(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
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 Securities 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 Securities 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, 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, each post-effective 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> 113
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 30th day of October, 1998.
GLOBAL MARKETS ACCESS LTD.
By:/s/ DONALD J. MATTHEWS
------------------------------------
Donald J. Matthews
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DONALD J. MATTHEWS Chairman of the Board and Chief October 30, 1998
- ------------------------------------- Executive Officer (Principal
Donald J. Matthews Executive Officer)
/s/ MARY JANE ROBERTSON Chief Financial Officer and Treasurer October 30, 1998
- ------------------------------------- (Principal Financial and Accounting
Mary Jane Robertson Officer)
* Deputy Chairman of the Board October 30, 1998
- -------------------------------------
Robert M. Lichten
* Director and Secretary October 30, 1998
- -------------------------------------
Charles G. Collis
* Director October 30, 1998
- -------------------------------------
Charles A. Davis
Director October 30, 1998
- -------------------------------------
H. Russell Fraser
* Director October 30, 1998
- -------------------------------------
Frederick S. Hammer
* Director October 30, 1998
- -------------------------------------
William M. Goldstein
Director October 30, 1998
- -------------------------------------
Paul T. Walker
* Authorized Representative in the October 30, 1998
- ------------------------------------- United States
Donald J. Puglisi
</TABLE>
II-5
<PAGE> 114
* Donald J. Matthews, 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 Registration
Statement on behalf of each of the persons noted above, in the capacities
indicated, and does hereby sign and execute this Registration Statement on his
own behalf, in the capacities indicated.
/s/ DONALD J. MATTHEWS
-------------------------------------
Donald J. Matthews
II-6
<PAGE> 115
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 * Form of Underwriting Agreement.
1.2 * Form of International Underwriting Agreement.
3.1 ** Memorandum of Association.
3.2 ** Bye-Laws.
4.1 * Specimen Common Share Certificate.
4.2 ** Form of Class A Warrant.
4.3 * Form of Class B Warrant.
5.1 ** Opinion of Conyers Dill & Pearman.
8.1 ** Opinion of Conyers Dill & Pearman (included in Exhibit 5.1).
8.2 ** Opinion of Drinker Biddle & Reath LLP.
10.1 * Employment Agreement, dated as of September 1, 1998, between
Donald J. Matthews and the Registrant and the Operating
Company.
10.2 ** Global Markets Access Ltd. Initial Stock Option Plan.
10.3 ** Agreement, dated as of August 28, 1998, between
Inter-Atlantic Securities Corporation and the Registrant and
the Operating Company.
10.4 *** Form of Class A Warrant Purchase Agreement.
10.5 *** Registration Rights Agreement, dated as of August 25, 1998,
between the Registrant and the holders of the Class A
Warrants.
10.6 * Form of Securities Purchase Agreement to be entered into by
Risk Capital Reinsurance Company and the Registrant, The
Trident Partnership, L.P. and the Registrant, and
and the Registrant.
10.7 * Form of Registration Rights Agreement to be entered into
between Risk Capital Reinsurance Company and the Registrant,
The Trident Partnership, L.P. and the Registrant, and
and the Registrant.
10.8 * Quota Share Reinsurance Treaty, dated as of August , 1998,
between ACA Financial Guaranty Corporation and the Operating
Company.
10.9 * Master Facultative Reinsurance Treaty, dated as of August
, 1998, between ACA Financial Guaranty Corporation and the
Operating Company.
10.10 * Master Facultative Reinsurance Treaty, dated as of August
, 1998, between the Operating Company and ACA Financial
Guaranty Corporation.
10.11 * Employment Agreement, dated as of September 1, 1998, between
Bruce W. Bantz and the Registrant and the Operating Company.
10.12 * Employment Agreement, dated as of September 1, 1998, between
Mary Jane Robertson and the Registrant and the Operating
Company.
10.13 ** Form of Common Share Purchase Agreement.
10.14 * Agreement, dated as of October , 1998, between Insurance
Consulting Services Limited and the Registrant and the
Operating Company.
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.
24.1 **** Powers of Attorney of Robert M. Lichten, Charles G. Collis,
Frederick S. Hammer, William M. Goldstein and Donald J.
Puglisi.
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
99.1 *** Form F-N.
</TABLE>
- ---------------
* To be filed by amendment.
** Filed herewith.
*** Previously filed.
**** Included on signature page to the Company's Registration Statement on Form
S-1 (333-62785) previously filed with the Securities and Exchange
Commission on September 2, 1998.
<PAGE> 1
Exhibit 3.1
[SEAL]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(Section 7(1) and (2))
MEMORANDUM OF ASSOCIATION
OF
GCA Ltd.
(hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(Yes/No) SUBSCRIBED
Nicolas G. Trollope Clarendon House Yes British One
2 Church Street
Hamilton HM 11
Bermuda
C.F. Alexander Cooper " Yes British One
John C.R. Collis " Yes British One
do hereby respectively agree to take such number of shares of the Company as may
be allotted to us respectively by the provisional directors of the Company, not
exceeding the number of shares for which we have respectively subscribed, and to
satisfy such calls as may be made by the directors, provisional directors or
promoters of the Company in respect of the shares allotted to us respectively.
<PAGE> 2
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situated in Bermuda not exceeding in
all, including the following parcels -
N/A
5. The authorised share capital of the Company is US$12,000 divided into
shares of US$0.01 each. The minimum subscribed share capital of the
Company is US$12,000.
6. The objects for which the Company is formed and incorporated are -
1. to act and to perform all the functions of a holding company in all
its branches and to co-ordinate the policy and administration of any
subsidiary company or companies wherever incorporated or carrying on
business or of any group of companies of which the Company or any
subsidiary company is a member or which are in any manner controlled
directly or indirectly by the Company;
2. as set in paragraphs (b) to (n) and (p) to (u) inclusive of the Second
Schedule to The Companies Act 1981.
7. Powers of the Company
1. The Company shall, pursuant to Section 42 of the Companies Act 1981,
have the power to issue preference shares which are, at the option of
the holder, liable to be redeemed.
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof -
/s/ Illegible /s/ Illegible
- ----------------------------------- -----------------------------------
/s/ Illegible /s/ Illegible
- ----------------------------------- -----------------------------------
/s/ Illegible /s/ Illegible
- ----------------------------------- -----------------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 3rd day of July, 1998.
<PAGE> 1
Exhibit 3.2
B Y E - L A W S
OF
GLOBAL MARKETS ACCESS LTD.
[Adopted by resolution of the Members on October 28, 1998.]
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
1. Interpretation...........................................................................................1
2. Board of Directors.......................................................................................4
3. Management of the Company................................................................................4
4. Power to appoint chief executive officer.................................................................4
5. Power to appoint manager.................................................................................5
6. Power to authorize specific actions......................................................................5
7. Power to appoint attorney................................................................................5
8. Power to appoint and dismiss employees...................................................................5
9. Power to borrow and charge property......................................................................5
10. Power to purchase shares of the Company..................................................................5
11. Election of Directors....................................................................................6
12. Defects in appointment of Directors......................................................................6
13. Alternate Directors......................................................................................6
14. Removal of Directors.....................................................................................7
15. Vacancies on the Board...................................................................................7
16. Notice of meetings of the Board..........................................................................7
17. Quorum at meetings of the Board..........................................................................8
18. Meetings of the Board....................................................................................8
19. Unanimous written resolutions............................................................................8
20. Contracts and disclosure of Directors' interests.........................................................8
21. Remuneration of Directors................................................................................9
22. Other interests of Directors.............................................................................9
23. Power to delegate to a committee.........................................................................9
24. Officers of the Company..................................................................................9
25. Appointment of Officers..................................................................................9
26. Remuneration of Officers.................................................................................9
27. Duties of Officers......................................................................................10
28. Chairman of meetings....................................................................................10
29. Register of Directors and Officers......................................................................10
30. Obligations of Board to keep minutes....................................................................10
31. Indemnification of Directors and Officers of the Company................................................10
32. Waiver of claim by Member...............................................................................11
33. Notice of annual general meeting........................................................................11
34. Notice of special general meeting.......................................................................11
35. Accidental omission of notice of general meeting........................................................11
36. Meeting called on requisition of Members................................................................12
37. Short notice............................................................................................12
38. Postponement of Meetings................................................................................12
39. Quorum For General Meeting..............................................................................12
40. Adjournment of meetings.................................................................................12
41. Attendance at meetings..................................................................................12
42. Written resolutions.....................................................................................12
43. Attendance of Directors.................................................................................13
44. Voting at meetings......................................................................................13
45. Voting on show of hands.................................................................................13
46. Decision of chairman....................................................................................13
47. Demand for a poll.......................................................................................14
48. Seniority of joint holders voting.......................................................................14
49. Instrument of proxy.....................................................................................14
50. Representation of corporations at meetings..............................................................15
51. Rights of shares........................................................................................15
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
52. Limitation on voting rights of Controlled Shares........................................................16
53. Power to issue shares...................................................................................17
54. Variation of rights and alteration of share capital.....................................................17
55. Registered holder of shares.............................................................................18
56. Death of a joint holder.................................................................................18
57. Share certificates......................................................................................18
58. Calls on shares.........................................................................................18
59. Contents of Register of Members.........................................................................19
60. Inspection of Register of Members.......................................................................19
61. Reserved................................................................................................19
62. Instrument of transfer..................................................................................19
63. Restriction on transfer.................................................................................19
64. Transfers by joint holders..............................................................................21
65. Lien on Shares..........................................................................................21
66. Registration on bankruptcy..............................................................................21
67. Declaration of dividends by the Board...................................................................22
68. Other distributions.....................................................................................22
69. Reserve fund............................................................................................22
70. Deduction of amounts due to the Company.................................................................22
71. Unclaimed dividends.....................................................................................22
72. Interest on dividend....................................................................................22
73. Issue of bonus shares...................................................................................22
74. Records of account......................................................................................23
75. Financial year end......................................................................................23
76. Financial statements....................................................................................23
77. Appointment of Auditor..................................................................................23
78. Remuneration of Auditor.................................................................................23
79. Vacation of office of Auditor...........................................................................23
80. Access to books of the Company..........................................................................23
81. Report of the Auditor...................................................................................24
82. Record dates............................................................................................24
83. Notices to Members of the Company.......................................................................24
84. Notices to joint Members................................................................................24
85. Service and delivery of notice..........................................................................24
86. The Seal................................................................................................25
87. Manner in which seal is to be affixed...................................................................25
88. Determination to wind up Company........................................................................25
89. Winding-up/distribution by liquidator...................................................................25
90. Alteration of Bye-laws..................................................................................25
</TABLE>
-ii-
<PAGE> 4
B Y E - L A W S
OF
GLOBAL MARKETS ACCESS LTD.
INTERPRETATION
1. INTERPRETATION
(1) In these Bye-laws the following words and expressions shall, where
not inconsistent with the context, have the following meanings respectively:
(a) "Act" means the Companies Act 1981 of Bermuda as amended
from time to time;
(b) "Affiliate" has the meaning ascribed thereto in Rule 144
promulgated under the Securities Act;
(c) "Alternate Director" means an alternate Director;
(d) "Auditor" includes any individual or partnership;
(e) "Board" means the Board of Directors appointed or elected
pursuant to these Bye-laws and acting by resolution in
accordance with the Act and these Bye-laws or the
Directors present at a meeting of Directors at which there
is a quorum;
(f) "Business Day" means any day, other than a Saturday, a
Sunday or any day on which banks in Hamilton, Bermuda or
The City of New York, United States are authorized or
obligated by law or executive order to close;
(g) "Code" means the United States Internal Revenue Code of
1986, as amended from time to time, or any federal statute
from time to time in effect that has replaced such
statute, and any reference in these Bye-laws to a
provision of the Code or a rule or regulation promulgated
thereunder means such provision, rule or regulation as
amended from time to time or any provision of a federal
law, or any federal rule or regulation, from time to time
in effect that has replaced such provision, rule or
regulation;
(h) "Common Shares" means the common shares, par value
U.S.$1.00 per share, of the Company and includes a
fraction of a Common Share;
(i) "Company" means the company for which these Bye-laws are
approved and confirmed;
(j) "Controlled Shares" of any Person means all Common 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 owned, directly or indirectly, within
the meaning of Section 13(d)(3) of the Exchange Act
and the rules and regulations thereunder;
(k) "Debenture" means debenture stock, mortgages, bonds and
any other such debt securities of the Company whether
constituting a charge on the assets of the Company or not;
<PAGE> 5
(l) "Director" means a director of the Company and shall
include an Alternate Director;
(m) "Dividend" includes a bonus or capitalization issue of
shares;
(n) "Exchange Act" means the United States Securities Exchange
Act of 1934, as amended from time to time, or any federal
statute from time to time in effect that has replaced such
statute, and any reference in these Bye-laws to a
provision of the Exchange Act or a rule or regulation
promulgated thereunder means such provision, rule or
regulation as amended from time to time or any provision
of a federal law, or any federal rule or regulation, from
time to time in effect that has replaced such provision,
rule or regulation;
(o) "Fair Market Value" means, with respect to a repurchase of
any shares of the Company in accordance with these
Bye-laws, (i) if such shares are listed on a securities
exchange (or quoted in a securities quotation system), the
average closing sale price of such shares on such exchange
(or in such quotation system), or, if such shares are
listed on (or quoted in) more than one exchange (or
quotation system), the average closing sale price of the
shares on the principal securities exchange (or quotation
system) on which such shares are then traded, or, if such
shares are not then listed on a securities exchange (or
quotation system) but are traded in the over-the-counter
market, the average of the latest bid and asked quotations
for such shares in such market, in each case for the last
five trading days immediately preceding the day on which
notice of the repurchase of such shares is sent pursuant
to these Bye-laws or (ii) if no such closing sales prices
or quotations are available because such shares are not
publicly traded or otherwise, the fair value of such
shares as determined by one independent nationally
recognized investment banking firm chosen by the Company
and reasonably satisfactory to the Member whose shares are
to be so repurchased by the Company, provided that the
calculation of the Fair Market Value of the shares made by
such appointed investment banking firm (i) shall not
include any discount relating to the absence of a public
trading market for, or any transfer restrictions on, such
shares, and (ii) such calculation shall be final and the
fees and expenses stemming from such calculation shall be
borne by the Company or its assignee, as the case may be;
(p) "Formula" has the meaning ascribed thereto in Bye-law 52;
(q) "General meeting" means a meeting of the Members of the
Company;
(r) "Member" means the person registered in the Register of
Members as the holder of shares in the Company and, when
two or more persons are so registered as joint holders of
shares, means the person whose name stands first in the
Register of Members as one of such joint holders or all of
such persons as the context so requires;
(s) "Notice" means written notice as further defined in these
Bye-laws unless otherwise specifically stated;
(t) "Officer" means any person appointed by the Board to hold
an office in the Company;
(u) "Person" means any individual, company, corporation, firm,
partnership, trust or any other business, entity or
person, whether or not recognized as constituting a
separate legal entity;
(v) "Preferred Shares" means the preferred shares, of the
Company and includes a fraction of a Preferred Share;
(w) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in Bye-law 29;
-2-
<PAGE> 6
(x) "Register of Members" means the Register of Members
referred to in Bye-law 59;
(y) "Secretary" means the person appointed to perform any or
all the duties of secretary of the Company and includes
any deputy or assistant secretary;
(z) "Securities Act" means the United States Securities Act of
1933, as amended from time to time, or any federal statute
from time to time in effect which has replaced such
statute, and any reference in these Bye-laws to a
provision of the Securities Act or a rule or regulation
promulgated thereunder means such provision, rule or
regulation as amended from time to time or any provision
of a federal law, or any federal rule or regulation, from
time to time in effect that has replaced such provision,
rule or regulation;
(aa) "Share" means a share of any class of shares in the
capital of the Company (including, where the context so
admits, Common Shares) and includes a fraction of a share;
(bb) "Subsidiary", with respect to any Person, means a company,
more than fifty percent (50%) (or, in the case of a wholly
owned subsidiary, one hundred percent (100%)) of the
outstanding Voting Shares of which are owned, directly or
indirectly, by such Person or by one or more other
subsidiaries of such Person, or any such Person and one or
more other subsidiaries;
(cc) "10% Shareholder" means a Person who owns, in the
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 Common Shares of the
Company representing ten percent (10%) or more of the
total combined voting rights attaching to the issued
Common Shares and the issued shares of any other class or
classes of shares of the Company;
(dd) "Trident" means The Trident Partnership, L.P.
(ee) "Unadjusted Basis", when used with respect to the
aggregate voting rights held by any Member, refers to the
determination of such rights without reference to the
provisions relating to the adjustment of voting rights
contained in Bye-law 52;
(ff) "United States" means the United States of America and
dependent territories or any part thereof;
(gg) "United States 25% Shareholder" means a United States
Person who owns, directly or by application of the
attribution and constructive ownership rules of Sections
958(a) and 958(b) of the Code, issued shares representing
either (i) more than twenty-five percent (25%) of the
total combined voting rights attaching to the issued
Common Shares and the issued shares of any other class or
classes of shares of the Company or (ii) more than
twenty-five percent (25%) of the total combined value of
the issued Common Shares and any other issued shares of
the Company, in each case determined pursuant to Section
957 of the Code;
(hh) "United States Person" means (i) an individual who is a
citizen or resident of the United States, (ii) a
corporation or partnership that is, as to the United
States, a domestic corporation or partnership and (iii) an
estate or trust that is subject to United States Federal
income tax on its income regardless of its source; and
(ii) "Voting Share" of any Person means any share in such
Person conferring voting rights on the holder thereof
(other than such voting rights as would exist solely in
relation to a proposal to alter or vary the rights
attaching to such shares solely upon the future occurrence
of a contingency or voting rights attaching solely by
virtue of the provisions of the Act).
-3-
<PAGE> 7
(2) In these Bye-laws, where not inconsistent with the context:
(a) words denoting the plural number include the singular
number and vice versa;
(b) words denoting the masculine gender include the feminine
gender;
(c) words importing persons include companies, associations or
bodies of persons whether corporate or not
(d) the word:
(i) "may" shall be construed as permissive;
(ii) "shall" shall be construed as imperative; and
(e) unless otherwise provided herein words or expressions
defined in the Act shall bear the same meaning in these
Bye-laws.
(3) Expressions referring to writing or written shall, unless the
contrary intention appears, include facsimile, printing, lithography,
photography and other modes of representing words in a visible form.
(4) Headings used in these Bye-laws are for convenience only and are
not to be used or relied upon in the construction hereof.
BOARD OF DIRECTORS
2. BOARD OF DIRECTORS
The business of the Company shall be managed and conducted by the
Board.
3. MANAGEMENT OF THE COMPANY
(1) In managing the business of the Company, the Board may exercise all
such powers of the Company as are not, by statute or by these Bye-laws, required
to be exercised by the Company in general meeting subject, nevertheless, to
these Bye-laws, the provisions of any statute, and to such regulations as may be
prescribed by the Company in general meeting.
(2) No regulation or alteration to these Bye-laws made by the Company
in general meeting shall invalidate any prior act of the Board which would have
been valid if that regulation or alteration had not been made.
(3) The Board may procure that the Company pays to Members or third
parties all expenses incurred in promoting and incorporating the Company.
4. POWER TO APPOINT CHIEF EXECUTIVE OFFICER
The Board may from time to time appoint one or more Persons to the
office of chief executive officer of the Company who shall, subject to the
control of the Board, supervise and administer all of the general business and
affairs of the Company.
-4-
<PAGE> 8
5. POWER TO APPOINT MANAGER
The Board may appoint a Person to act as manager of the Company's day
to day business, who may but need not be its chief executive officer, and may
entrust to and confer upon such manager such powers and duties as it deems
appropriate for the transaction or conduct of such business.
6. POWER TO AUTHORIZE SPECIFIC ACTIONS
The Board may from time to time and at any time authorise any
Director, Officer or other Person or body of Persons to act on behalf of the
Company for any specific purpose and in connection therewith to execute any
agreement, document or instrument on behalf of the Company.
7. POWER TO APPOINT ATTORNEY
The Board may from time to time and at any time by power of attorney
appoint any company, firm, Person or body of Persons, whether nominated directly
or indirectly by the Board, to be an attorney of the Company for such purposes
and with such powers, authorities and discretions (not exceeding those vested in
or exercisable by the Board) and for such period and subject to such conditions
as they may think fit and any such power of attorney may contain such provisions
for the protection and convenience of persons dealing with any such attorney as
the Board may think fit and may also authorise any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the attorney.
Such attorney may, if so authorised under the seal of the Company, execute any
deed or instrument under their personal seal with the same effect as the
affixation of the seal of the Company.
8. POWER TO APPOINT AND DISMISS EMPLOYEES
The Board may appoint, suspend or remove any officer, manager,
secretary, clerk, agent or employee of the Company and may fix their
remuneration and determine their duties.
9. POWER TO BORROW AND CHARGE PROPERTY
The Board may exercise all the powers of the Company to borrow money
and to mortgage or charge its undertaking, property and uncalled capital, or any
part thereof, and may issue debentures, debenture stock and other securities
whether outright or as security for any debt, liability or obligation of the
Company or any third party.
10. POWER TO PURCHASE SHARES OF THE COMPANY
(1) Exercise of Power to Repurchase Shares of the Company
The Board may exercise all the powers of the Company to purchase all
or any part of its own shares pursuant to Sections 42 and 42A of the Act or to
discontinue the Company to a named country or jurisdiction outside Bermuda
pursuant to Section 132G of the Act.
(2) Unilateral Repurchase Right
Subject to Section 42A of the Act, if the Board in its absolute and
unfettered discretion, on behalf of the Company, determines that share ownership
by any Member may result in adverse tax, regulatory or legal consequences to the
Company, any of its subsidiaries or any of the Members, the Company will have
the option, but not the obligation, to repurchase all or part of the shares held
by such Member (to the extent the Board, in the reasonable exercise of its
discretion, determines it is necessary to avoid or cure such adverse
consequences) for immediately available funds in an amount equal to the Fair
Market Value of such shares on the date the Company sends the Repurchase Notice
referred to below (the "Repurchase Price"); provided, that the Board will use
reasonable efforts to exercise this option equally among similarly situated
Members (to the extent possible under the circumstances). In that event, the
Company will also be entitled to assign its repurchase right to a third party or
parties including one or more of the other Members, with the consent of such
assignee. Each Member shall be bound by the determination by the
-5-
<PAGE> 9
Company to repurchase or assign its right to repurchase such Member's shares
and, if so required by the Company, shall sell the number of shares that the
Company requires it to sell.
In the event that the Company or its assignee(s) determines to
repurchase any such shares, the Company shall provide each Member concerned with
written notice of such determination (a "Repurchase Notice") at least seven (7)
calendar days prior to such repurchase or such shorter period as each such
Member may authorize, specifying the date on which any such shares are to be
repurchased and the Repurchase Price. The Company may revoke the Repurchase
Notice at any time before it (or its assignee(s)) pays for the shares. Neither
the Company nor its assignee(s) shall be obliged to give general notice to the
Members of any intention to purchase or the conclusion of any purchase of
shares. Payment of the Repurchase Price by the Company or its assignee(s) shall
be by wire transfer or certified check and made at a closing to be held no less
than seven (7) calendar days after receipt of the Repurchase Notice by the
Member.
(3) Restrictions on repurchases
If the Company redeems or purchases shares pursuant to this Bye-law
10, it shall do so only in a manner the Board believes would not result, upon
consummation of such redemption or purchase, in the number of total Controlled
Shares of any Person, as a percentage of the shares of the Company, increasing
to ten percent (10%) or any higher percentage on an Unadjusted Basis.
11. ELECTION OF DIRECTORS
(1) The Board shall consist of a maximum of fourteen (14) Directors,
unless otherwise set by the Members, each having one vote, who shall be elected,
except in the case of casual vacancy, by the Members in the manner set forth in
paragraph (2) of this Bye-law 11 at the annual general meeting or any special
general meeting called for the purpose and who shall hold office for the term
set forth in paragraph (3) of this Bye-law 11.
(2) No person other than a Director retiring at the meeting shall,
unless recommended by the Directors for election, be eligible for election as a
Director at any general meeting unless not less than 120 days before the date
appointed for the meeting there shall have been lodged at the Company notice in
writing signed by Members holding 5% of the outstanding shares entitled to vote
at the meeting for which such notice is given of his intention to propose such
person for election and also notice in writing signed by the person to be
proposed of his willingness to be elected.
(3) The Board shall be divided into three classes of directors, each
class to have approximately the same number of directors as determined by the
Board. The initial term of the first class of directors shall expire at the
first annual meeting of the Company's shareholders following the completion of
the initial public offering of the Company's Common Shares. The initial term of
the second class of directors shall expire at the second annual meeting
following the completion of the initial public offering of the Company's Common
Shares. The initial term of the third class of directors shall expire at the
third annual meeting following the completion of the initial public offering of
the Company's Common Shares. Following their initial terms, all classes of
directors shall be elected to three-year terms.
12. DEFECTS IN APPOINTMENT OF DIRECTORS
All acts done bona fide by any meeting of the Board or by a committee
of the Board or by any person acting as a Director shall, notwithstanding that
it be afterwards discovered that there was some defect in the appointment of any
Director or person acting as aforesaid, or that they or any of them were
disqualified, be as valid as if every person had been duly appointed and was
qualified to be a Director.
13. ALTERNATE DIRECTORS
(1) Each Director may appoint an Alternate Director and such
appointment shall become effective upon the Secretary receiving written notice
of such appointment. Any person so appointed shall have all the rights and
powers of the Director or Directors for whom such person is appointed in the
alternate, provided that such
-6-
<PAGE> 10
person shall not be counted more than once in determining whether or not a
quorum is present. Any director may, upon notice to the Secretary, remove or
replace his or her alternate with or without cause.
(2) An Alternate Director shall be entitled to receive notice of all
meetings of the Board and to attend and vote at any such meeting at which a
Director for whom such Alternate Director was appointed in the alternative is
not personally present and generally to perform at such meeting all the
functions of such Director for whom such Alternate Director was appointed.
(3) An Alternate Director shall cease to be such if the Director for
whom such Alternate Director was appointed ceases for any reason to be a
Director but may be re-appointed by the Board as alternate to the person
appointed to fill the vacancy in accordance with these Bye-laws.
14. REMOVAL OF DIRECTORS
(1) Subject to any provision to the contrary in these Bye-laws, the
Members may, at any special general meeting convened for that purpose and held
in accordance with these Bye-laws, remove any Director provided that the notice
of any such meeting convened for the purpose of removing a Director shall
contain a statement of the intention so to do and be served on such Director not
less than 14 days before the meeting and at such meeting such Director shall be
entitled to be heard on the motion for such Director's removal.
(2) A vacancy on the Board created by the removal of a Director under
the provisions of subparagraph (1) of this Bye-law may be filled by the Members
at the meeting at which such Director is removed. A Director so appointed shall
hold office until the next annual general meeting or until such Director's
successor is elected or appointed or such Director's office is otherwise vacated
and, in the absence of such election or appointment, the Board may fill any such
vacancy in accordance with Bye-law 15.
15. VACANCIES ON THE BOARD
(1) The Board shall have the power from time to time and at any time to
appoint any person as a Director to fill a vacancy on the Board occurring as the
result of the death, disability, disqualification or resignation of any Director
or if such Director's office is otherwise vacated. A Director so appointed by
the Board shall hold office until the next succeeding annual general meeting, at
which the Members vote on the election of such Director for the balance of the
term of such vacant Board position, or until such Director's successor is
elected or appointed or such Director's office is otherwise vacated.
(2) The Board may act notwithstanding any vacancy in its number but, if
and so long as its number is reduced below the number fixed by these Bye-laws,
or such greater number as may have been determined by the Members, as the quorum
necessary for the transaction of business at meetings of the Board, the
continuing Directors or Director may act only for the purpose of (i) summoning a
general meeting of the Company or (ii) preserving the assets of the Company.
(3) The office of Director shall be vacated if the Director:
(a) is removed from office pursuant to these Bye-laws or is
prohibited from being a Director by law;
(b) is or becomes bankrupt or makes any arrangement or
composition with his creditors generally;
(c) is or becomes of unsound mind or dies;
(d) resigns his or her office by notice in writing to the Company.
16. NOTICE OF MEETINGS OF THE BOARD
(1) The Chairman or Deputy Chairman, or any two (2) Directors may, and the
Secretary on the requisition of the Chairman or Deputy Chairman, or any two (2)
Directors shall, at any time summon a meeting of
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the Board by at least three (3) Business Days' notice to each Director and
Alternate Director, unless such Director or Alternate Director consents to
shorter notice.
(2) Notice of a meeting of the Board shall specify the general nature
of the business to be considered at such meeting and shall be deemed to be duly
given to a Director if it is given to such Director in person or otherwise
communicated or sent to such Director by registered mail, courier service,
cable, telex, telecopier, facsimile or other mode of representing words in a
legible and non-transitory form at such Director's last known address or any
other address given by such Director to the Company for this purpose. If such
notice is sent by next-day courier, cable, telex, telecopier or facsimile, it
shall be deemed to have been given the Business Day following the sending
thereof and, if by registered mail, three (3) Business Days following the
sending thereof.
(3) Meetings of the Directors may be held within or outside of Bermuda.
17. QUORUM AT MEETINGS OF THE BOARD
The quorum necessary for the transaction of business at a meeting of
the Board shall be a majority of the Directors then in office, present in person
or represented by proxy.
18. MEETINGS OF THE BOARD
(1) The Board may meet for the transaction of business, adjourn and
otherwise regulate its meetings as it sees fit.
(2) Directors may participate in any meeting of the Board by means of
such telephone, electronic or other communication facilities as permit all
persons participating in the meeting to communicate with each
other simultaneously and instantaneously, and participation in such a meeting
shall constitute presence in person at such meeting.
(3) A resolution put to the vote at a duly constituted meeting of the
Board at which a quorum is present and acting throughout shall be carried by the
affirmative votes of a majority of the votes cast and in the case of an equality
of votes, the resolution shall fail.
19. UNANIMOUS WRITTEN RESOLUTIONS
A resolution in writing signed by all the Directors which may be in
counterparts, shall be as valid as if it had been passed at a meeting of the
Board duly called and constituted, such resolution to be effective on the date
on which the last Director signs the resolution. For the purposes of this
Bye-law only, "Director" shall not include an Alternate Director.
20. CONTRACTS AND DISCLOSURE OF DIRECTORS' INTERESTS
(1) Any Director, or any Director's firm, partner or any company with
whom any Director is associated, may act in a professional capacity for the
Company and such Director or such Director's firm, partner or such company shall
be entitled to remuneration for professional services as if such Director were
not a Director, provided that nothing herein contained shall authorise a
Director or Director's firm, partner or such company to act as Auditor of the
Company.
(2) A Director who is directly or indirectly interested in a contract
or proposed contract or arrangement with the Company shall declare the nature of
such interest as required by the Act.
(3) Following a declaration being made pursuant to this Bye-law, and
unless disqualified by the chairman of the relevant Board meeting, a Director
may vote in respect of any contract or proposed contract or arrangement in which
such Director is interested and may be counted in the quorum at such meeting.
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21. REMUNERATION OF DIRECTORS
(1) The remuneration, (if any) of the Directors shall be determined by
the Board of Directors of the Company and shall be deemed to accrue from day to
day. The Directors may also be paid all travel, hotel and other expenses
properly incurred by them in attending and returning from meetings of the Board,
any committee appointed by the Board, general meetings of the Company, or in
connection with the business of the Company or their duties as Directors
generally.
(2) A Director may hold any other office or place of profit under the
Company (other than the office of Auditor) in conjunction with his office of
Director for such period and on such terms as to remuneration and otherwise as
the Directors may determine.
22. OTHER INTERESTS OF DIRECTORS
A Director may be or become a director or other officer of or
otherwise interested in any company promoted by the Company or in which the
Company may be interested as member or otherwise, and no such Director shall be
accountable to the Company for any remuneration or other benefits received by
him as a director or officer of, or from his interest in, such other company.
The Board may also cause the voting power conferred by the shares in any other
company held or owned by the Company to be exercised in such manner in all
respects as the Board thinks fit, including the exercise thereof in favour of
any resolution appointing the Directors or any of them to be directors or
officers of such other company, or voting or providing for the payment of
remuneration to the directors or officers of such other company.
COMMITTEES
23. POWER TO DELEGATE TO A COMMITTEE
Subject to the Act, the Board may delegate any of its powers to a
committee appointed by the Board which may consist partly or entirely of
non-Directors, and every such committee shall conform to such directions as the
Board shall impose on them.
OFFICERS
24. OFFICERS OF THE COMPANY
The Officers of the Company shall consist of a Chief Executive
Officer, a Chairman, a Deputy Chairman, a Secretary and such additional Officers
as the Board may from time to time determine all of whom shall be deemed to be
Officers for the purposes of these Bye-laws.
25. APPOINTMENT OF OFFICERS
(1) The Board shall, as soon as possible after each annual general
meeting elect one of its number to be Chairman of the Company and another of its
number to be Deputy Chairman.
(2) The Secretary, the Chief Executive Officer and any additional
Officers shall be appointed by the Board from time to time.
26. REMUNERATION OF OFFICERS
The Officers shall receive such remuneration as the Board may from
time to time determine.
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27. DUTIES OF OFFICERS
The Officers shall have such powers and perform such duties in the
management, business and affairs of the Company as may be delegated to them by
the Board from time to time.
28. CHAIRMAN OF MEETINGS
The Chairman shall act as chairman at all meetings of the Members and
of the Board at which such person is present. In his absence the Deputy
Chairman, if present, shall act as chairman and in the absence of both of them a
chairman shall be appointed or elected by those present at the meeting and
entitled to vote.
29. REGISTER OF DIRECTORS AND OFFICERS
(1) The Board shall cause to be kept in one or more books at its
registered office a Register of Directors and Officers and shall enter therein
the following particulars with respect to each Director and the Chairman, Deputy
Chairman, provided each such person is a Director, and the Chief Executive
Officer and Secretary, that is to say:
(a) first name and surname; and
(b) address.
(2) The Board shall, within the period of fourteen days from the
occurrence of
(a) any change among its Directors and in the Chairman,
Deputy Chairman, Chief Executive Officer or
Secretary; or
(b) any change in the particulars contained in the
Register of Directors and Officers, cause to be
entered on the Register of Directors and Officers the
particulars of such change and the date on which such
change occurred.
(3) The Register of Directors and Officers shall be open to inspection
at the office of the Company on every Business Day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
Business Day be allowed for such inspection.
MINUTES
30. OBLIGATIONS OF BOARD TO KEEP MINUTES
The Board shall cause minutes to be duly entered in books provided for
the purpose:-
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting
of the Board and of any committee appointed by the
Board; and
(c) of all resolutions and proceedings of general
meetings of the Members, meetings of the Board,
meetings of managers and meetings of committees
appointed by the Board.
INDEMNITY
31. INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE COMPANY
(a) The Directors, Secretary and other Officers for the time being
of the Company and the liquidator or trustees (if any) for the
time being acting in relation to any of the affairs of the
Company and every one of them, and their heirs, executors and
administrators, shall be indemnified and secured harmless out
of the assets of the Company from and against all actions,
costs, charges, losses,
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damages and expenses which they or any of them, their heirs,
executors or administrators, shall or may incur or sustain by
or by reason of any act done, concurred in or omitted in or
about the execution of their duty, or supposed duty, or in
their respective offices or trusts, including without
limitation any acts taken with regard to subsidiaries of the
Company, and none of them shall be answerable for the acts,
receipts, neglects or defaults of the others of them or for
joining in any receipts for the sake of conformity, or for the
acts of or the solvency or honesty of any bankers or other
persons with whom any moneys or effects belonging to the
Company shall or may be lodged or deposited for safe custody,
or for insufficiency or deficiency of any security upon which
any moneys of or belonging to the Company shall be placed out
on or invested, or for any other loss, misfortune or damage
which may happen in the execution of their respective offices
or trusts, or in relation thereto, PROVIDED THAT this
indemnity shall not extend to any matter in respect of any
fraud or dishonesty which may attach to any of said persons.
(b) Any person claiming indemnification within the scope of
Bye-law 31(a) shall be entitled to advances from the Company
for payment of the expenses of defending actions against such
person in the manner and to the full extent permissible under
Bermuda law, provided that should he be found guilty of a
criminal or other offence for which he cannot by law be
indemnified he shall reimburse the Company the funds advanced.
(c) On the request of any person requesting indemnification under
Bye-law 31(a), the Board or a committee thereof shall
determine whether such indemnification is permissible or such
determination shall be made by independent legal counsel if
the Board or committee so directs or if the Board or committee
is not empowered by statute to make such determination.
(d) No amendment or repeal of any provision of this Bye-law 31
shall alter, to the detriment of such person, the right of
such person to the advancement of expenses or indemnification
related to a claim based on an act or failure to act which
took place prior to such amendment, repeal or termination.
32. WAIVER OF CLAIM BY MEMBER
Each Member agrees to waive any claim or right of action such Member
might have, whether individually or by or in the right of the Company, 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 duties with or for the Company, PROVIDED THAT such waiver
shall not extend to any matter in respect of any fraud or dishonesty which may
attach to such Director or Officer.
MEETINGS
33. NOTICE OF ANNUAL GENERAL MEETING
The annual general meeting of the Company shall be held in each year
at such time and place as the Chairman or any two Directors or any Director and
the Secretary or the Board shall appoint. At least ten days' written notice of
such meeting shall be given to each Member stating the date, place and time at
which the meeting is to be held, that the election of Directors will take place
thereat, and as far as practicable, the other business to be conducted at the
meeting.
34. NOTICE OF SPECIAL GENERAL MEETING
The Chairman or any two Directors or any Director and the Secretary or
the Board may convene a special general meeting of the Company whenever in their
judgment such a meeting is necessary, upon not less than ten days' written
notice which shall state the time, place and the general nature of the business
to be considered at the meeting.
35. ACCIDENTAL OMISSION OF NOTICE OF GENERAL MEETING
The accidental omission to give notice of a general meeting to, or the
non-receipt of notice of a general
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meeting by, any person entitled to receive notice shall not invalidate the
proceedings at that meeting.
36. MEETING CALLED ON REQUISITION OF MEMBERS
Notwithstanding anything herein, the Board shall, on the requisition
of Members holding at the date of the deposit of the requisition not less than
one-tenth of such of the paid-up share capital of the Company as at the date of
the deposit carries the right to vote at general meetings of the Company,
forthwith proceed to convene a special general meeting of the Company and the
provisions of section 74 of the Act shall apply.
37. SHORT NOTICE
A general meeting of the Company shall, notwithstanding that it is
called by shorter notice than that specified in these Bye-laws, be deemed to
have been properly called if it is so agreed by (i) all the Members entitled to
attend and vote thereat in the case of an annual general meeting; and (ii) by a
majority in number of the Members having the right to attend and vote at the
meeting, being a majority together holding not less than 95% in nominal value of
the shares giving a right to attend and vote thereat in the case of a special
general meeting.
38. POSTPONEMENT OF MEETINGS
The Board may postpone any general meeting called in accordance with
the provisions of these Bye-laws (other than a meeting requisitioned under
Bye-law 36) provided that notice of postponement is given to each Member before
the time for such meeting. Fresh notice of the date, time and place for the
postponed meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
39. QUORUM FOR GENERAL MEETING
At any general meeting of the Company two or more persons present in
person and representing in person or by proxy in excess of 50% (on an Unadjusted
Basis) of the total issued and outstanding Common Shares throughout the meeting
shall form a quorum for the transaction of business; provided, that if the
Company shall at any time have only one Member, one Member present in person or
by proxy shall constitute a quorum. If within half an hour from the time
appointed for the meeting a quorum is not present, the meeting shall stand
adjourned to the same day two (2) weeks later, at the same time and place or to
such other day, time or place as the Chairman (if there be one) or failing him
the Deputy Chairman or any Director in attendance may determine. Unless the
meeting is adjourned to a specific date and time, fresh notice of the date, time
and place for the adjourned meeting shall be given to each Member in accordance
with the provisions of these Bye-laws.
40. ADJOURNMENT OF MEETINGS
The chairman of a general meeting may, with or without the consent of
the Members at any general meeting at which a quorum is present (and shall if so
directed), adjourn the meeting. Unless the meeting is adjourned to a specific
date and time, fresh notice of the date, time and place for the resumption of
the adjourned meeting shall be given to each Member in accordance with the
provisions of these Bye-laws.
41. ATTENDANCE AT MEETINGS
Unless the Board determines otherwise, Members may participate in any
general meeting by means of such telephone, electronic or other communication
facilities as permit all persons participating in the meeting to communicate
with each other simultaneously and instantaneously, and participation in such a
meeting shall constitute presence in person at such meeting.
42. WRITTEN RESOLUTIONS
(1) Subject to subparagraph (6), anything which may be done by
resolution of the Company in general meeting or by resolution of a meeting of
any class of the Members of the Company, may, without a meeting
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<PAGE> 16
and without any previous notice being required, be done by resolution in writing
signed by, or, in the case of a Member that is a corporation whether or not a
company within the meaning of the Act, on behalf of, all the Members who at the
date of the resolution would be entitled to attend the meeting and vote on the
resolution.
(2) A resolution in writing may be signed by, or, in the case of a
Member that is a corporation whether or not a company within the meaning of the
Act, on behalf of, all the Members, or any class thereof, in as many
counterparts as may be necessary.
(3) For the purposes of this Bye-law, the date of the resolution is the
date when the resolution is signed by, or, in the case of a Member that is a
corporation whether or not a company within the meaning of the Act, on behalf
of, the last Member to sign and any reference in any Bye-law to the date of
passing of a resolution is, in relation to a resolution made in accordance with
this Bye-law, a reference to such date.
(4) A resolution in writing made in accordance with this Bye-law is as
valid as if it had been passed by the Company in general meeting or by a meeting
of the relevant class of Members, as the case may be, and any reference in any
Bye-law to a meeting at which a resolution is passed or to Members voting in
favour of a resolution shall be construed accordingly.
(5) A resolution in writing made in accordance with this Bye-law shall
constitute minutes for the purposes of sections 81 and 82 of the Act.
(6) This Bye-law shall not apply to:
(a) a resolution passed pursuant to section 89(5) of the Act; or
(b) a resolution passed for the purpose of removing a
Director before the expiration of his term of office
under these Bye-laws.
43. ATTENDANCE OF DIRECTORS
The Directors of the Company shall be entitled to receive notice of
and to attend and be heard at any general meeting.
44. VOTING AT MEETINGS
Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting, including
but not limited to the approval of an amalgamation pursuant to Section 104 of
the Act, shall be decided by the affirmative votes of a majority of the votes
cast in accordance with the provisions of these Bye-laws and in the case of an
equality of votes the resolution shall fail.
45. VOTING ON SHOW OF HANDS
At any general meeting a resolution put to the vote of the meeting
shall, in the first instance, be voted upon by a show of hands and, subject to
any rights or restrictions for the time being lawfully attached to any class of
shares and subject to the provisions of these Bye-laws, every Member present in
person and every person holding a valid proxy at such meeting shall be entitled
to one vote and shall cast such vote by raising his or her hand.
46. DECISION OF CHAIRMAN
At any general meeting a declaration by the chairman of the meeting
that a question proposed for consideration has, on a show of hands, been
carried, or carried unanimously, or by a particular majority, or lost, or an
entry to that effect in a book containing the minutes of the proceedings of the
Company shall, subject to the provisions of these Bye-laws, be conclusive
evidence of that fact.
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47. DEMAND FOR A POLL
(1) Notwithstanding the provisions of the immediately preceding two
Bye-laws, at any general meeting of the Company, in respect of any question
proposed for the consideration of the Members (whether before or on the
declaration of the result of a show of hands as provided for in these Bye-laws),
a poll may be demanded by any of the following persons:
(a) the chairman of such meeting; or
(b) at least two Members present in person or represented by
proxy; or
(c) any Member or Members present in person or
represented by proxy and holding between them not
less than one-tenth of the total voting rights of all
the Members having the right to vote at such meeting;
or
(d) any Member or Members present in person or
represented by proxy holding Common Shares on which
an aggregate sum has been paid up equal to not less
than one-tenth of the total sum paid up on all Common
Shares.
(2) Where, in accordance with the provisions of paragraph (1) of this
Bye-law, a poll is demanded, subject to any rights or restrictions for the time
being lawfully attached to any class of shares, including any limitation on the
voting power of any Controlled Shares pursuant to Bye-law 52, every Person
present at such meeting shall have one vote for each share of which such Person
is the holder or for which such person holds a proxy and such vote shall be
counted in the manner set out in paragraph (4) of this Bye-law or in the case of
a general meeting at which one or more Members are present by telephone in such
manner as the chairman of the meeting may direct and the result of such poll
shall be deemed to be the resolution of the meeting at which the poll was
demanded and shall replace any previous resolution upon the same matter which
has been the subject of a show of hands.
(3) A poll demanded in accordance with the provisions of paragraph (1)
of this Bye-law, for the purpose of electing a chairman or on a question of
adjournment, shall be taken forthwith and a poll demanded on any other question
shall be taken in such manner and at such time and place as the chairman may
direct and any business other than that upon which a poll has been demanded may
be proceeded with pending the taking of the poll.
(4) Where a vote is taken by poll each person present and entitled to
vote shall be furnished with a ballot paper on which such person shall record
his or her vote in such manner as shall be determined at the meeting having
regard to the nature of the question on which the vote is taken, and each ballot
paper shall be signed or initialled or otherwise marked so as to identify the
voter and the registered holder in the case of a proxy. At the conclusion of the
poll the ballot papers shall be examined and counted by a committee of not less
than two Members or proxy holders appointed by the chairman for the purpose and
the result of the poll shall be declared by the chairman.
48. SENIORITY OF JOINT HOLDERS VOTING
In the case of joint holders the vote of the senior who tenders a
vote, whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and for this purpose seniority shall be
determined by the order in which the names stand in the Register of Members.
49. INSTRUMENT OF PROXY
The instrument appointing a proxy shall be in writing in the form, or
as near thereto as circumstances admit, a Form "A" in the Schedule hereto, under
the hand of the appointor or of his attorney duly authorised in writing, or if
the appointor is a corporation, either under its seal, or under the hand of a
duly authorised officer or attorney. The decision of the chairman of any general
meeting as to the validity of any instrument of proxy shall be final.
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50. REPRESENTATION OF CORPORATIONS AT MEETINGS
A corporation which is a Member may by written instrument authorise
such person as it thinks fit to act as its representative at any meeting of the
Members and the person so authorised shall be entitled to exercise the same
powers on behalf of the corporation which such person represents as that
corporation could exercise if it were an individual Member. Notwithstanding the
foregoing, the chairman of the meeting may accept such assurances as he or she
thinks fit as to the right of any person to attend and vote at general meetings
on behalf of a corporation which is a Member.
SHARE CAPITAL AND SHARES
51. RIGHTS OF SHARES
(1) The share capital of the Company shall initially be divided into
two classes of shares consisting of (i) 100,000,000 Common Shares and (ii)
50,000,000 Preferred Shares.
(2) The holders of Common Shares shall, subject to the provisions of
these Bye-laws:
(a) be entitled to one vote per Common Share or, in the
case of Controlled Shares, if applicable, a fraction
of a vote per Controlled Share as determined pursuant
to Bye-law 52;
(b) be entitled to such dividends as the Board may from
time to time declare;
(c) in the event of a liquidation, winding-up or
dissolution of the Company, whether voluntary or
involuntary or for the purpose of a reorganisation or
otherwise or upon any distribution of capital, be
entitled to share equally and ratably in the assets
of the Company, if any, remaining after the payment
of all debts and liabilities of the Company and the
liquidation preference of any outstanding Preferred
Shares; and
(d) generally be entitled to enjoy all of the rights
attaching to shares.
(3) The Board is authorised, subject to limitations prescribed by law,
to issue the Preferred Shares in series, to establish from time to time the
number of Preferred Shares to be included in each such series, and to fix the
designation, powers, preferences and rights to the Preferred Shares of each such
series and the qualifications, limitations or restrictions thereof. The terms of
any series of Preferred Shares shall be set forth in a Certificate of
Designation in the minutes of the Board.
The authority of the Board with respect to each series of Preferred
Shares shall include, but not be limited to, determination of the following:
(a) the number of Preferred Shares constituting that
series and the distinctive designation of that
series;
(b) the rate of dividend, and whether (and if so, on what
terms and conditions) dividends shall be cumulative
(and if so, whether unpaid dividends shall compound
or accrue interest) or shall be payable in preference
or in any other relation to the dividends payable on
any other class or classes of shares or any other
series of the Preferred Shares;
(c) whether that series shall have voting rights in
addition to the voting rights provided by law and, if
so, the terms and extent of such voting rights,
provided that if the Preferred Shares shall have
voting rights, such Preferred Shares shall be
included in the number of Controlled Shares held by
any Person;
(d) the par value of the Preferred Shares;
(e) whether the Preferred Shares may be redeemed and, if
so, the terms and conditions on which they may be
redeemed (including, without limitation, the dates
upon or after which they may be redeemed and the
price or prices at which they may be redeemed, which
price or prices may be different in different
circumstances or at different redemption dates);
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(f) whether the Preferred Shares shall be issued with the
privilege of conversion or exchange and, if so, the
terms and conditions of such conversion or exchange
(including, without limitation the price or prices or
the rate or rates of conversion or exchange or any
terms for adjustment thereof);
(g) the amounts, if any, payable upon the Preferred
Shares in the event of voluntary liquidation,
dissolution or winding up of the Company in
preference of shares of any other class or series and
whether the Preferred Shares shall be entitled to
participate generally in distributions on the Common
Shares under such circumstances;
(h) the amounts, if any, payable upon the Preferred
Shares in the event of involuntary liquidation,
dissolution or winding up of the Company in
preference of shares of any other class or series and
whether the Preferred Shares shall be entitled to
participate generally in distributions on the Common
Shares under such circumstances;
(i) sinking fund provisions, if any, for the redemption
or purchase of the Preferred Shares (the term
"sinking fund" being understood to include any
similar fund, however designated); and
(j) any other relative rights, preferences, limitations
and powers of that series.
52. LIMITATION ON VOTING RIGHTS OF CONTROLLED SHARES
(1) Subject to any rights or restrictions for the time being attached
to any class or classes of shares, on a poll at a general meeting every Member
of record present in person or by proxy shall have one vote for each Common
Share and such voting rights, if any, for each Preferred Share registered in his
name in the register; provided, however, that, subject to the following
provisions of this Bye-law 52, if and for so long as the number of issued
Controlled Shares of any Person other than Trident would constitute ten percent
(10%) or more of the total combined voting rights attaching to the issued shares
of the Company (calculated after giving effect to any prior reduction in voting
rights attaching to Controlled Shares of other Persons as provided in this
Bye-law 52), each such issued Controlled Share, regardless of the identity of
the registered holder thereof, shall confer only a fraction of a vote as
determined by the following formula (the "Formula"):
(T - C) Divided By (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 Member,
adjusted to take into account any prior reduction taken
with respect to any other Member pursuant to Bye-law
52(4) as at the same date;
"C" is the number of issued Controlled Shares attributable to such
Person.
(2) The Directors may, by notice in writing, require any Member to
provide within not less than ten (10) Business Days, complete and accurate
information to the registered office or such other place as the Directors may
designate in respect of any or all of the following matters:
(a) the number of shares in which such Member is legally or
beneficially interested;
(b) the Persons who are beneficially interested in shares
in respect of which such Member is the registered
holder;
(c) the relationship, association or affiliation of such
Member with any other Member or Person whether by
means of common control or ownership or otherwise; or
(d) any other facts or matters which the Directors may
consider relevant to the determination of the number
of Controlled Shares attributable to any Person.
(3) If any Member does not respond to any notice given pursuant to
Bye-law 52(2) above within the time specified therein or the Directors shall
have reason to believe that any information provided in relation thereto is
incomplete or inaccurate, the Directors may determine that the votes attaching
to any Common Shares registered
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in the name of such Member shall be disregarded for all purposes until such time
as a response (or additional response) to such notice reasonably satisfactory to
the Directors has been received as specified therein.
(4) The Formula shall be applied successively as many times as may be
necessary to ensure that no Person other than Trident shall be a 10% Shareholder
at any time. For the purposes of determining the votes exercisable by Members as
at any date, the Formula shall be applied to the shares of each Member in
declining order based on the respective numbers of total Controlled Shares
attributable to each Member. Thus, the Formula will be applied first to the
votes of shares held by the Member to whom the largest number of total
Controlled Shares is attributable and thereafter sequentially with respect to
the Member 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 Common Shares as of such date, as reduced by the
application of the Formula to any issued Common Shares of any Member with a
larger number of total Controlled Shares as of such date.
(5) Notwithstanding the provisions of paragraphs (1) and (2) of this
Bye-law 52 above, having applied the provisions thereof as best as they consider
reasonably practicable, the Directors may make such final adjustments to the
aggregate number of votes attaching to the Controlled Shares of any Member that
they consider fair and reasonable in all the circumstances to ensure that no
Person other than Trident shall be a 10% Shareholder at any time.
(6) Notwithstanding anything in these Bye-laws, this bye-law shall not
apply for so long as the Company shall have only one Member.
53. POWER TO ISSUE SHARES
(1) Subject to the provisions of these Bye-laws and to any rights
attaching to issued shares of the Company, the unissued shares of the Company
(whether forming part of the original share capital or any increased share
capital) shall be at the disposal of the Board, which may issue, offer, allot,
exchange or otherwise dispose of shares or options, warrants or other rights to
purchase shares or securities convertible into or exchangeable for shares
(including any employee benefit plan providing for the issuance of shares or
options or rights in respect thereof), at such times, for such consideration and
on such terms and conditions as it may determine (including, without limitation,
such preferred or other special rights or restrictions with respect to dividend,
voting, liquidation or other rights of the shares as may be determined by the
Board).
(2) Notwithstanding the foregoing provisions of this Bye-law, the
Company shall not issue any shares in a manner that the Board believes would
cause, by reason of such issuance, the total Controlled Shares of any Person
other than Trident to equal or exceed ten percent (10%) of the issued shares of
the Company.
Notwithstanding the foregoing provisions of this Bye-law, the
restrictions of this Bye-law 53(2) shall not apply to any issuance of shares to
a person acting as an underwriter in the ordinary course of its business,
purchasing such shares pursuant to a purchase agreement to which the Company is
a party, for resale.
(3) The Board shall, in connection with the issue of any share, have
the power to pay such commission and brokerage as may be permitted by law.
(4) The Company shall not give, whether directly or indirectly, whether
by means of loan, guarantee, provision of security or otherwise, any financial
assistance for the purpose of or in connection with a purchase or subscription
made or to be made by any person of or for any shares in the Company, but
nothing in this Bye-law shall prohibit transactions permitted pursuant to
Sections 39A, 39B, and 39C of the Act.
54. VARIATION OF RIGHTS AND ALTERATION OF SHARE CAPITAL
(1) While the share capital is divided into different classes of shares,
the rights attached to any class (unless otherwise provided by the terms of
issue of the shares of that class) may, whether or not the Company is being
wound-up, be varied with the consent in writing of the holders of three-fourths
of the issued shares of that
-17-
<PAGE> 21
class or with the sanction of a resolution passed by a majority of the votes
cast at a separate general meeting of the holders of the shares of the class in
accordance with Section 47(7) of the Act. The rights conferred upon the holders
of the shares of any class issued with preferred or other rights shall not,
unless otherwise expressly provided by the terms of issue of the shares of that
class, be deemed to be varied by the creation or issue of further shares ranking
pari passu therewith.
(2) The Company may from time to time by resolution of the Members
change the currency denomination of, increase, alter or reduce its share capital
in accordance with the provisions of Sections 45 and 46 of the Act. Where, on
any alteration of share capital, fractions of shares or some other difficulty
would arise, the Board may deal with or resolve the same in such manner as it
thinks fit including, without limiting the generality of the foregoing, the
issue to Members, as appropriate, of fractions of shares and/or arranging for
the sale or transfer of the fractions of shares of Members.
55. REGISTERED HOLDER OF SHARES
(1) The Company shall be entitled to treat the registered holder of any
share as the absolute owner thereof and accordingly shall not be bound to
recognise any equitable or other claim to, or interest in, such share on the
part of any other person.
(2) Any dividend, interest or other moneys payable in cash in respect
of shares may be paid by cheque or draft sent through the post directed to the
Member at such Member's address in the Register of Members or, in the case of
joint holders, to such address of the holder first named in the Register of
Members, or to such person and to such address as the holder or joint holders
may in writing direct. If two or more persons are registered as joint holders of
any shares any one can give an effectual receipt for any dividend paid in
respect of such shares.
56. DEATH OF A JOINT HOLDER
Where two or more persons are registered as joint holders of a share
or shares then in the event of the death of any joint holder or holders the
remaining joint holder or holders shall be absolutely entitled to the said share
or shares and the Company shall recognise no claim in respect of the estate of
any joint holder except in the case of the last survivor of such joint holders.
57. SHARE CERTIFICATES
(1) Every Member shall be entitled to a certificate under the seal of
the Company (or a facsimile thereof) specifying the number and, where
appropriate, the class of shares held by such Member and whether the same are
fully paid up and, if not, how much has been paid thereon. The Board may by
resolution determine, either generally or in a particular case, that any or all
signatures on certificates may be printed thereon or affixed by mechanical
means.
(2) The Company shall be under no obligation to complete and deliver a
share certificate unless specifically called upon to do so by the person to whom
such shares have been allotted.
(3) If any such certificate shall be proved to the satisfaction of the
Board to have been worn out, lost, mislaid or destroyed the Board may cause a
new certificate to be issued and request an indemnity for the lost certificate
if they see fit.
58. CALLS ON SHARES
The Board may from time to time make such calls as it thinks fit upon
the Members in respect of any monies unpaid on the shares allotted to or held by
such Members.
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<PAGE> 22
REGISTER OF MEMBERS
59. CONTENTS OF REGISTER OF MEMBERS
The Board shall cause to be kept in one or more books a Register of
Members and shall enter therein the following particulars:
(a) the name and address of each Member, the number and, where
appropriate, the class of shares held by such Member and the
amount paid or agreed to be considered as paid on such shares;
(b) the date on which each person was entered in the Register of
Members;
(c) the date on which any person ceased to be a Member for one
year after such person so ceased; and
(d) the country where such Member is resident.
60. INSPECTION OF REGISTER OF MEMBERS
The Register of Members shall be open to inspection at the registered
office of the Company on every Business Day, subject to such reasonable
restrictions as the Board may impose, so that not less than two hours in each
business day be allowed for inspection. The Register of Members may, after
notice has been given by advertisement in an appointed newspaper to that effect,
be closed for any time or times not exceeding in the whole thirty days in each
year.
61. RESERVED
TRANSFER OF SHARES
62. INSTRUMENT OF TRANSFER
(1) An instrument of transfer shall be in the form or as near thereto
as circumstances admit of Form "B" in the Schedule hereto or in such other
common form as the Board or any transfer agent appointed from time to time
accepts. Such instrument of transfer shall be signed by or on behalf of the
transferor and transferee provided that, in the case of a fully paid share, the
Board may accept the instrument signed by or on behalf of the transferor alone.
The transferor shall be deemed to remain the holder of such share until the same
has been transferred to the transferee in the Register of Members.
(2) The Board may refuse to recognise any instrument of transfer unless
it is accompanied by the certificate in respect of the shares to which it
relates and by such other evidence as the Board may reasonably require to show
the right of the transferor to make the transfer.
63. RESTRICTION ON TRANSFER
(1) Subject to the Act, this Bye-law 63 and such other of the
restrictions contained in these Bye-laws and elsewhere as may be applicable, and
except, in the case of any shares other than the Common Shares, as may otherwise
be provided by the terms of issuance thereof, any Member may sell, assign,
transfer or otherwise dispose of shares of the Company at the time owned by it
and, upon receipt of a duly executed form of transfer in writing, the Directors
shall procure the timely registration of the same. If the Directors refuse to
register a transfer for any reason they shall notify the proposed transferor and
transferee within thirty days of such refusal.
(2) Except with respect to transfers of the Company's shares executed
on the Nasdaq National Market, the Directors shall decline to register a
transfer of shares if the Directors have reason to believe that the effect of
such transfer would be to increase the number of total Controlled Shares of any
Person other than Trident to ten percent (10%) or any higher percentage of the
shares of the Company on an Unadjusted Basis.
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<PAGE> 23
(3) Except with respect to transfers of the Company's shares executed
on the Nasdaq National Market, the Directors may, in their absolute and
unfettered discretion, decline to register the transfer of any shares if the
Directors have reason to believe (i) that such transfer may expose the Company,
any subsidiary thereof, any Member 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 blue sky or other United States state securities laws or under the
laws of any other jurisdiction is required and such registration has not been
duly effected (provided, however, that in this case (ii) the Directors shall be
entitled to request and rely on an opinion of counsel to the transferor or the
transferee, in form and substance satisfactory to the Directors, that no such
approval or consent is required and no such violation would occur, and the
Directors shall not be obligated to register any transfer absent the receipt of
such an opinion).
(4) Without limiting the foregoing, the Board shall decline to approve
or register a transfer of shares unless all applicable consents, authorisations,
permissions or approvals of any governmental body or agency in Bermuda, the
United States or any other applicable jurisdiction required to be obtained prior
to such transfer shall have been obtained.
(5) The registration of transfers may be suspended at such time and for
such periods as the Directors may from time to time determine; PROVIDED that
such registration shall not be suspended for more than forty-five days in any
period of three hundred and sixty five (365) consecutive days.
(6) The Directors may require any Member, or any Person proposing to
acquire shares of the Company, to certify or otherwise provide information in
writing as to such matters as the Directors may request for the purpose of
giving effect to Bye-laws 10(2), 10(3), 53(2), 63(2) and 63(3), including as to
such Person's status as a United States Person, its Controlled Shares and other
matters of the kind contemplated by Bye-law 52(2). Such request shall be made by
written notice and the certification or other information requested shall be
provided to such place and within such period (not less than ten (10) Business
Days after such notice is given unless the Directors and such Member or proposed
acquiror otherwise agree) as the Directors may designate in such request. If any
Member or proposed acquiror does not respond to any such request by the
Directors as requested, or if the Directors have reason to believe that any
certification or other information provided pursuant to any such request is
inaccurate or incomplete, the Directors may decline to register any transfer or
to effect any issuance or purchase of shares to which such request relates.
(7) With respect to a transfer of the Company's shares executed on the
Nasdaq National Market, if the Directors have reason to believe that the effect
of such transfer would be to increase the total number of Controlled Shares of
any Person other than Trident to ten percent (10%) or any higher percentage of
the shares of the Company on an Unadjusted Basis, the Directors may, in their
absolute and unfettered discretion, within ten business days of learning of such
transfer, cause a notice to be delivered to such Person demanding that such
Person surrender to an agent designated by the Directors certificates
representing the shares and any dividends or distributions that the Person has
received as a result of owning the shares. Such a Person who has resold the
shares before receiving such notice will be required to transfer to the agent
the proceeds of the sale, to the extent such proceeds exceed the amount that the
transferee paid for the shares, together with any dividends or distributions
that the transferee received from the Company. As soon as practicable after
receiving the shares and any dividends or distributions that the transferee
received, the agent will use its best efforts to sell such shares and any
non-cash dividends or distributions in an arm's-length transaction on the Nasdaq
National Market. After applying the proceeds from such sale toward reimbursing
the transferee for the price paid for the shares, the agent will pay any
remaining proceeds and any cash dividends and distributions to organizations
described in Section 501(c)(3) of the United States Internal Revenue Code of
1986, as amended, that the Directors designate. The proceeds of any such sale by
the Agent or the surrender of dividends or distributions will not inure to the
benefit of the Company or the agent, but such amounts may be used to reimburse
expenses incurred by the agent in performing its duties.
(8) With respect to a transfer of the Company's shares executed on the
Nasdaq National Market, if the Directors have reason to believe that such
transfer may expose the Company, any subsidiary thereof, any Member or any
Person ceding insurance to the Company or any such subsidiary to adverse tax or
regulatory treatment in any jurisdiction, the Directors may, in their absolute
and unfettered discretion, within ten business days of learning of such
-20-
<PAGE> 24
transfer, cause a notice to be delivered to such person demanding that such
Person surrender to an agent designated by the directors certificates
representing the shares and any dividends or distributions that the Person has
received as a result of owning the shares. A Person who has resold the shares
before receiving such notice will be required to transfer to the agent the
proceeds of the sale, to the extent such proceeds exceed the amount that the
Person paid for the shares, together with any dividends or distributions that
the Person received from the Company. As soon as practicable after receiving the
shares and any dividends or distributions that the Person received, the agent
will use its best efforts to sell such shares and any non-cash dividends or
distributions in an arm's-length transaction on the Nasdaq National Market.
After applying the proceeds from such sale toward reimbursing the Person for the
price paid for the shares, the agent will pay any remaining proceeds and any
cash dividends and distributions to organizations described in Section 501(c)(3)
of the United States Internal Revenue Code of 1986, as amended, that the
Directors designate. The proceeds of any such sale by the agent or the surrender
of dividends or distributions will not inure to the benefit of the Company or
the agent, but such amounts may be used to reimburse expenses incurred by the
agent in performing its duties.
64. TRANSFERS BY JOINT HOLDERS
The joint holders of any share or shares may transfer such share or
shares to one or more of such joint holders, and the surviving holder or holders
of any share or shares previously held by them jointly with a deceased Member
may transfer any such share or shares to the executors or administrators of such
deceased Member.
65. LIEN ON SHARES
(1) The Company shall have a first and paramount lien and charge on all
shares (whether fully paid-up or not) registered in the name of a Member
(whether solely or jointly with others) for all debts, liabilities or
engagements to or with the Company (whether presently payable or not) by such
Member or his estate, either alone or jointly with any other Person, whether a
Member or not, but the Directors may at any time declare any share to be wholly
or in part exempt from the provisions of this Bye-law. The registration of a
transfer of any such share shall operate as a waiver of the Company's lien (if
any) thereon. The Company's lien (if any) on a share shall extend to all
dividends or other monies payable in respect thereof.
(2) The Company may sell, in such manner as the Directors think fit,
any shares on which the Company has a lien, but no sale shall be made unless a
sum in respect of which the lien exists is then presently payable, nor until the
expiration of fourteen days after a notice in writing stating and demanding
payment of such part of the amount in respect of which the lien exists as is
presently payable, has been given to the relevant Member, or the Person, of
which the Company has notice, entitled thereto by reason of such Member's death
or bankruptcy. Effective upon such sale, any certificate representing such
shares prior to such sale shall become null and void, whether or not it was
actually delivered to the Company.
(3) To give effect to any such sale the Directors may authorize some
Person to transfer the shares sold to the purchaser thereof. The purchaser shall
be registered as the holder of the shares comprised in any such transfer, and he
shall not be bound to see to the application of the purchase money, nor shall
his title to the shares be affected by any irregularity or invalidity in the
proceedings in reference to the sale.
(4) The proceeds of such sale shall be received by the Company and
applied in payment of such part of the amount in respect of which the lien
exists as is presently payable and the residue, if any, shall (subject to a like
lien for sums not presently payable as existed upon the shares before the sale)
be paid to the Person entitled to the shares at the date of the sale.
TRANSMISSION OF SHARES
66. REGISTRATION ON BANKRUPTCY
Any person becoming entitled to a share in consequence of the
bankruptcy of any Member may be registered as a Member upon such evidence as the
Board may deem sufficient or may elect to nominate some person to be
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<PAGE> 25
registered as a transferee of such share, and in such case the person becoming
entitled shall execute in favour of such nominee an instrument of transfer in
the form, or as near thereto as circumstances admit, of Form "B" in the Schedule
hereto or in such other common form as the Board or any transfer agent appointed
from time to time accepts. On the presentation thereof to the Board, accompanied
by such evidence as the Board may require to prove the title of the transferor,
the transferee shall be registered as a Member but the Board shall, in either
case, have the same right to decline or suspend registration as it would have
had in the case of a transfer of the share by that Member before such Member's
bankruptcy.
DIVIDENDS AND OTHER DISTRIBUTIONS
67. DECLARATION OF DIVIDENDS BY THE BOARD
Subject to any rights or restrictions at the time lawfully attached to
any class of shares and subject to these Bye-laws, the Board may, in accordance
with Section 54 of the Act, declare a dividend to be paid to the Members, in
proportion to the number of shares held by them, and such dividend may be paid
in cash or wholly or partly in specie in which case the Board may fix the value
for distribution in specie of any assets.
68. OTHER DISTRIBUTIONS
The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the Company.
69. RESERVE FUND
The Board may from time to time before declaring a dividend set aside,
out of the surplus or profits of the Company, such sum as it thinks proper as a
reserve fund to be used to meet contingencies or for equalising dividends or for
any other special purpose.
70. DEDUCTION OF AMOUNTS DUE TO THE COMPANY
The Board may deduct from the dividends or distributions payable to any
Member all monies due from such Member to the Company on account of calls or
otherwise.
71. UNCLAIMED DIVIDENDS
Any dividend unclaimed for a period of six (6) years from the date of
declaration of such dividend shall be forfeited and shall revert to the Company
and the payment by the Board of any unclaimed dividend, interest or other sum
payable on or in respect of the share into a separate account shall not
constitute the Company a trustee in respect thereof.
72. INTEREST ON DIVIDEND
No dividend or distribution shall bear interest against the Company.
73. ISSUE OF BONUS SHARES
Subject to Bye-law 53(2), the Board may resolve to capitalise any part
of the amount for the time being standing to the credit of any of the Company's
share premium or other reserve accounts or to the credit of the profit and loss
account or otherwise available for distribution by applying such sum in paying
up unissued shares to be allotted as fully paid bonus shares pro rata to the
Members.
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<PAGE> 26
ACCOUNTS AND FINANCIAL STATEMENTS
74. RECORDS OF ACCOUNT
The Board shall cause to be kept proper records of account with respect
to all transactions of the Company and in particular with respect to:
(a) all sums of money received and expended by the
Company and the matters in respect of which the
receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) the assets and liabilities of the Company.
Such records of account shall be kept at the registered office of the
Company or, subject to Section 83 (2) of the Act, at such other place as the
Board thinks fit and shall be available for inspection by the Directors during
normal business hours.
75. FINANCIAL YEAR END
The financial year end of the Company may be determined by resolution
of the Board and failing such resolution shall be 31st December in each year.
76. FINANCIAL STATEMENTS
Subject to any rights to waive laying of accounts pursuant to Section
88 of the Act, financial statements as required by the Act shall be laid before
the Members in general meeting.
AUDIT
77. APPOINTMENT OF AUDITOR
Subject to Section 88 of the Act, at the annual general meeting or at a
subsequent special general meeting in each year, an independent representative
of the Members shall be appointed by them as Auditor of the accounts of the
Company. Such Auditor may be a Member but no Director, Officer or employee of
the Company shall, during his or her continuance in office, be eligible to act
as an Auditor of the Company.
78. REMUNERATION OF AUDITOR
The remuneration of the Auditor shall be fixed by the Company in
general meeting or in such manner as the Members may determine.
79. VACATION OF OFFICE OF AUDITOR
If the office of Auditor becomes vacant by the resignation or death of
the Auditor, or by the Auditor becoming incapable of acting by reason of illness
or other disability at a time when the Auditor's services are required, the
Board shall, as soon as practicable, convene a special general meeting to fill
the vacancy thereby created.
80. ACCESS TO BOOKS OF THE COMPANY
The Auditor shall at all reasonable times have access to all books kept
by the Company and to all accounts and vouchers relating thereto, and the
Auditor may call on the Directors or Officers of the Company for any information
in their possession relating to the books or affairs of the Company.
-23-
<PAGE> 27
81. REPORT OF THE AUDITOR
(1) Subject to any rights to waive laying of accounts or appointment of
an Auditor pursuant to Section 88 of the Act, the accounts of the Company shall
be audited at least once in every year.
(2) The financial statements provided for by these Bye-laws shall be
audited by the Auditor in accordance with generally accepted auditing standards.
The Auditor shall make a written report thereon in accordance with generally
accepted auditing standards and the report of the Auditor shall be submitted to
the Members in general meeting.
(3) The generally accepted auditing standards referred to in paragraph
(2) of this Bye-law shall be those of the United States of America and the
financial statements and the report of the Auditor shall disclose this fact.
82. RECORD DATES
Notwithstanding any other provision of these Bye-laws the Company or
the Directors may fix any date as the date for:
(a) determining the Members entitled to receive any
dividend, distribution, allotment or issue and such
record date may be on, or at any time not more than
30 days before or after, any date on which such
dividend, distribution, allotment or issue is
declared, paid or made;
(b) determining the Members entitled to receive notice of
and to vote at any general meeting of the Company.
NOTICES
83. NOTICES TO MEMBERS OF THE COMPANY
A notice may be given by the Company to any member either by delivering
it to such Member in person or by sending it to such Member's address in the
Register of Members or to such other address given for the purpose. For the
purposes of this Bye-law, a notice may be sent by mail, courier service, cable,
telex, telecopier, facsimile or other mode of representing words in a legible
and non-transitory form.
84. NOTICES TO JOINT MEMBERS
Any notice required to be given to a Member shall, with respect to any
shares held jointly by two or more persons, be given to whichever of such
persons is named first in the Register of Members and notice so given shall be
sufficient notice to all the holders of such shares.
85. SERVICE AND DELIVERY OF NOTICE
Any notice shall be deemed to have been served at the time when the
same would be delivered in the ordinary course of transmission and, in proving
such service, it shall be sufficient to prove that the notice was properly
addressed and prepaid, if posted, and the time when it was posted, delivered to
the courier or to the cable company or transmitted by telex, facsimile or other
method as the case may be.
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<PAGE> 28
SEAL OF THE COMPANY
86. THE SEAL
The seal of the Company shall be in such form as the Board may from
time to time determine. The Board may adopt one or more duplicate seals for use
outside Bermuda.
87. MANNER IN WHICH SEAL IS TO BE AFFIXED
The seal of the Company shall not be affixed to any instrument except
attested by the signature of a Director and the Secretary or any two Directors,
or some other person appointed by the Board for the purpose, provided that any
Director, or Officer, may affix the seal of the Company attested by such
Director or Officer's signature only to any authenticated copies of these
Bye-laws, the incorporating documents of the Company, the minutes of any
meetings or any other documents required to be authenticated by such Director or
Officer.
88. DETERMINATION TO WIND UP COMPANY
The Company may be wound up voluntarily by resolution of the Members.
WINDING-UP
89. WINDING-UP/DISTRIBUTION BY LIQUIDATOR
If the Company shall be wound up the liquidator may, with the sanction
of a resolution of the Members, divide amongst the Members in specie or in kind
the whole or any part of the assets of the Company (whether they shall consist
of property of the same kind or not) and may, for such purpose, set such value
as he or she deems fair upon any property to be divided as aforesaid and may
determine how such division shall be carried out as between the Members or
different classes of Members. The liquidator may, with the like sanction, vest
the whole or any part of such assets in trustees upon such trusts for the
benefit of the Members as the liquidator shall think fit, but so that no Member
shall be compelled to accept any shares or other securities or assets whereon
there is any liability.
ALTERATION OF BYE-LAWS
90. ALTERATION OF BYE-LAWS
No Bye-law shall be rescinded, altered or amended and no new Bye-law
shall be made until the same has been approved by a resolution of the Board and
by a resolution of the Members.
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<PAGE> 29
SCHEDULE - FORM A (BYE-LAW 49)
PROXY
I/We
of
the holder(s) of share(s) in the above-named company hereby appoint
________________________ or failing him/her _______________________________ or
failing him/her ____________________________ as my/our proxy to vote on my/our
behalf at the general meeting of the Company to be held on the day of , 19 , and
at any adjournment thereof.
Dated this day of , 19
*GIVEN under the seal of the Company
*Signed by the above-named
Witness
*Delete as applicable.
<PAGE> 30
SCHEDULE - FORM B
(BYE-LAW 62)
TRANSFER OF A SHARE OR SHARES
FOR VALUE RECEIVED ............................ [amount]
............................................... [transferor]
hereby sell assign and transfer unto........... [transferee]
of............................................. [address]
............................................... [number of shares]
shares of ..................................... [name of Company]
Dated ....................
...........................
(Transferor)
In the presence of:
..........................
(Witness)
............................
(Transferree)
In the presence of:
..........................
(Witness)
<PAGE> 1
Exhibit 4.2
Class A Warrants have been purchased by the following individuals and entities
in substantially the form attached hereto for a number of Common Shares equal
to the percentage set forth next to each name below 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 Global Purpose Trust) and (ii) the Common Shares issuable upon exercise or
conversion of any security outstanding immediately following the consummation
of the Offering other than the Class A Warrants, the Class B Warrants and any
options granted by the Company pursuant to its Initial Stock Option Plan:
<TABLE>
<CAPTION>
NAME APPLICABLE PERCENTAGE
- -------------------------------------- ---------------------
<S> <C>
Donald J. Matthews 1.50000%
Michael P. Esposito, Jr. 1.37593%
Frederick S. Hammer 1.37593%
Robert M. Lichten 1.37593%
Andrew S. Lerner 0.78750%
American Capital Access Holdings, L.L.C. 5.25000%
Risk Capital Reinsurance Company 1.12500%
William S. Ogden, Jr. 0.33470%
The Trident Partnership, L.P. 0.37500%
</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: August 25, 1998
CLASS A WARRANT
TO PURCHASE COMMON SHARES OF
GCA LTD.
Void after 5:00 P.M. (Bermuda Time),
September 30, 2008, as provided herein.
THIS CERTIFIES that, for value received, _____________ (the
"Warrant Holder"), or registered assigns, is entitled to purchase from GCA 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
the first anniversary of the consummation of the Company's initial public
offering (the "IPO") of its common shares, par value $1.00 per share (the
"Common Shares"), to 5:00 p.m. (Bemuda Time) on September 30, 2008, a number of
fully paid and nonassessable Common Shares equal to ___% of the sum of (i) the
Common Shares outstanding immediately following the consummation of the
Company's IPO (including all Common Shares issued and sold by the Company upon
exercise of any overallotment option granted to the underwriters of the IPO and
all Common Shares issued and sold by the Company in any private placement
consummated prior to or simultaneously with the IPO, but excluding any shares
held by the Global Purpose Trust) and (ii) the Common Shares issuable upon
exercise or conversion of any security outstanding immediately following the
consummation of the IPO, except for all Class A Warrants, Class B Warrants and
any options granted by the Company pursuant to its Initial Stock Option Plan,
subject to adjustment as provided herein, at a per share purchase price equal to
the sales price to the public of a Common Share in the IPO. The Company
acknowledges receipt from the initial Warrant Holder of ______ ($ )______ 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
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has the right to participate in the distribution of earnings
or assets of the Company without limit as to amount or
percentage.
(b) "Extraordinary Cash Dividend" shall mean, with respect to any
consecutive 12-month period, the amount, if any, by which the
aggregate amount of all cash and non-cash dividends or
distributions on any Capital Stock occurring in such 12-month
period (or, if such Capital Stock was not outstanding at the
commencement of such 12-month period, occurring in such
shorter period during which such Capital Stock was
outstanding) exceeds on a per share basis 5% of the average of
the daily Market Prices per share of such Capital Stock over
such 12-month period (or such shorter period during which such
Capital Stock was outstanding); provided that, for purposes of
the foregoing definition, the amount of cash and non-cash
dividends paid on a per share basis will be appropriately
adjusted to reflect the occurrence during such period of any
stock dividend or distribution of shares of capital stock of
the Company or any subdivision, split, combination or
reclassification of shares of such Capital Stock.
(c) "Market Price" shall mean, per Common Share on any date
specified herein: (i) the closing price per share of the
Common Shares on such date published in The Wall Street
Journal or, if no such closing price on such date is published
in The Wall Street Journal, the average of the closing bid and
asked prices on such date, as officially reported on the
principal national securities exchange on which the Common
Shares are then listed or admitted to trading; or (ii) if the
Common Shares are not then listed or admitted to trading on
any national securities exchange but are designated as a
national market system security by the NASD, the last trading
price of the Common Shares on such date; or (iii) if there
shall have been no trading on such date or if the Common
Shares are not so designated, the average of the reported
closing bid and asked prices of the Common Shares on such date
as shown by the Nasdaq National Market or other
over-the-counter market and reported by any member firm of the
New York Stock Exchange selected by the Company; or (iv) if
none of (i), (ii) or (iii) is applicable, a market price per
share determined in such reasonable manner as may be
prescribed by the Company's Board of Directors.
(d) "Pro Rata Repurchase" shall mean any purchase of Common Shares
by the Company or by any of its subsidiaries whether for cash,
shares of Capital Stock of the Company, other securities of
the Company, evidences of indebtedness of the Company or any
other person or any other property (including, without
limitation, shares of capital stock, other securities or
evidences of indebtedness of a subsidiary of the Company), or
any combination thereof, which purchase is subject to Section
13(e) of the Securities Exchange Act of 1934, as amended, or
is made pursuant to an offer made available to all holders of
Common Shares.
(e) "Warrants" shall mean the Class A Warrants to purchase Common
Shares of the Company issued by the Company pursuant to the
Class A Warrant Purchase Agreements and any and all Warrants
which are issued in exchange or substitution
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for any outstanding Class A Warrant pursuant to the terms of
the Class A Warrant.
(f) "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.
(g) "Warrant Shares" shall mean the Common Shares purchasable upon
exercise of Warrants.
(h) "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 IPO and any
concurrent private placement by the Company and
Common Shares issuable upon the exercise of warrants
issued in such concurrent private placement;
(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.
(i) "Registration Rights Agreement" shall mean the agreement so
entitled, dated August 25, 1998, between the Company and the
Warrant Holder and the other holders of Class A Warrants
providing for the registration of the Warrant Shares in
certain events.
(j) "Base Price" shall mean the greater of (x) the Warrant Price,
as adjusted from time to time as provided herein, or (y) the
Market Price as of 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) the first anniversary of the consummation of
the IPO for up to one-third of the
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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 shares) prior to 5:00 p.m. United
States Eastern Time on September 30, 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, P.O. Box HM1262, 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
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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 the restrictive legend
set forth in Section 11 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 (including the Warrant Shares to be
surrendered) by a fraction, the numerator of which is the Warrant Price
and the denominator of which is the Market Price 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 Market Price
of the Common Shares.
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. 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, funds sufficient to pay any transfer
tax and an opinion of counsel satisfactory to the Company or no-action letters
from the Securities and Exchange Commission and any 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 (the "Transfer Documents"); 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 issued upon any transfer as
above provided shall bear the restrictive legend set forth in Section 11, except
that such restrictive legend shall not be required if the opinion of counsel
satisfactory to the Company or the 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.
Within a reasonable time after receiving the Transfer Documents, not
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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.
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 of 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.
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
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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.
(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, Distributions and Repurchases. 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. Pay or make an
Extraordinary Cash Dividend or 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
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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 or cash 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 dividend or
distribution, or if no such record is taken, as of
the date of such dividend or distribution, and an
appropriate provision therefor shall be made a part
of any such dividend or distribution; or
(iii) Pro Rata Repurchases. In case the Company or any
subsidiary thereof shall, make a Pro Rata Repurchase,
the Warrant Price shall be adjusted by dividing the
Warrant Price in effect immediately prior to such
action by a fraction (which in no event shall be less
than one), the numerator of which shall be the
product of (A) the number of Common Shares
outstanding immediately before such Pro Rata
Repurchase minus the number of Common Shares
repurchased in such Pro Rata Repurchase and (B) the
Market Price as of the day immediately preceding the
first public announcement by the Company of the
intent to effect such Pro Rata Repurchase, and the
denominator of which shall be (A) the product of (x)
the number of Common Shares outstanding immediately
before such Pro Rata Repurchase and (y) the Market
Price as of the day immediately preceding the first
public announcement by the Company of the intent to
effect such Pro Rata Repurchase minus (B) the
aggregate purchase price of the Pro Rata Repurchase.
(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 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 (i) 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 (ii) 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
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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
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.
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(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 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
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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.
(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
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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.
The Company will not amend any material term of any
outstanding security convertible into, or exercisable
or exchangeable for, Common Shares unless it also
offers to make substantially the same amendment to
the terms hereof.
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
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 Market Price as of the date of 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
- 12 -
<PAGE> 14
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.
- 13 -
<PAGE> 15
11. Legend. 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 SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS. IN ADDITION, THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS
ON TRANSFER AS SET FORTH IN A WARRANT OF THE COMPANY DATED AUGUST 25,
1998."
12. 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.
GCA LTD.
By:_______________________________________________
Donald J. Matthews, Chief Executive Officer
Attest:__________________________________________
ACCEPTED, ACKNOWLEDGED
AND AGREED
By: ________________________________
[Name of Warrant Holder]
Attest: ____________________________
- 14 -
<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 5.1
[CONYERS DILL & PEARMAN LETTERHEAD]
October 30, 1998
Global Markets Access Ltd.
Victoria Hall
Victoria Street
Hamilton
Bermuda
Dear Sirs,
Re: Registration Statement on Form S-1
We have acted as special legal counsel to Global Markets Access Ltd.,
a Bermuda corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission of a Registration Statement
on Form S-1 No. 333-62785 and amendments and supplements thereto, under the
Securities Act of 1933, as amended (the "Registration Statement"), related to
the offering of 16,750,000 common shares (the "Common Shares") of Global
Markets Access Ltd., (the "Offering").
As such counsel, we have examined originals, or copies certified or otherwise
identified to our satisfaction, of the Registration Statements (but not any of
the schedules or exhibits attached thereto), the Memorandum of Association and
Bye-Laws of the Company as well as resolutions of the Company's Board of
Directors. We have also examined originals, or copies certified to our
satisfaction, of such corporate records of the Company and other instruments,
certificates of appropriate public officials and certificates of officers and
representatives of the Company and other
Continued -
<PAGE> 2
Global Markets Access Ltd.
October 30, 1998
Page 2
documents as we have deemed necessary as a basis for the opinions hereinafter
expressed. In such examination, we have assumed the authenticity of all
documents submitted to us as originals, the conformity with the originals of all
documents submitted to us as copies, the genuineness of all signatures and
the legal capacity of natural persons.
On the basis of the foregoing, we are of the opinion that:
1. The discussions set forth in the prospectus contained in the Registration
Statement under the headings "ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS", "BUSINESS - Regulation - Bermuda",
"CERTAIN TAX CONSIDERATIONS - Taxation of Holdings and the Operating
Company - Bermuda" and "CERTAIN TAX CONSIDERATIONS - Taxation of
Shareholders - Bermuda" accurately reflect our opinion as to such matters.
2. The authorised capital of the Company is US$150,000,000 divided into
150,000,000 shares of par value US$1.00 each. The issue of the Common
Shares pursuant to the Offering has been duly authorised and when the
Common Shares have been issued and paid for as contemplated in the
Registration Statement the Common Shares will be validly issued, fully paid
and non-assessable (meaning that no further sums are payable with respect
to the holding of such Common Shares now or in the future).
We are members of the Bar of Bermuda and we have made no investigation of and
express no opinion in relation to the laws of any jurisdiction other than
Bermuda. This opinion is to be governed by and construed in accordance with the
laws of Bermuda and is limited to and is given on the basis of the current law
and practice in Bermuda.
We consent to the filing of this opinion as an exhibit to the Registration
Statement. We also consent to the reference made to us under the captions
"Enforceability of Civil Liabilities" and "Certain Tax Considerations" in the
prospectus contained in the Registration Statement.
Your faithfully,
/s/ Conyers Dill & Pearman
CONYERS DILL & PEARMAN
<PAGE> 1
Exhibit 8.2
Opinion
October 30, 1998
Global Markets Access Ltd.
Victoria Hall, Victoria Street
P.O. Box HM1262
Hamilton, HM FX, Bermuda
RE: Global Markets Access Ltd.
Registration Statement on Form S-1
Gentlemen:
As your counsel, we have assisted in certain aspects of the preparation
and filing with the Securities and Exchange Commission (the "SEC"), under the
Securities Act of 1933, as amended (the "Act"), of the Registration Statement
on Form S-1 (No. 333-62785) (the "Registration Statement") of Global Markets
Access Ltd. (the "Company") and the Prospectus contained therein relating to
the proposed offering of 16,750,000 shares of the Company's Common Stock.
We have made such examinations as we have deemed relevant and necessary as
a basis for the opinion hereinafter expressed. In such examinations, we have
assumed the genuineness of all signatures and the authenticity of all documents
submitted to us as originals and the conformity to original documents of all
documents submitted to us as conformed or photostatic copies.
Based on and subject to the assumptions and limitations contained herein,
we are of the opinion that the statements as to United States Federal income
tax law set forth under the headings "Risk Factors -- United States Federal
Income Tax Risks" and "Certain Tax Considerations" in the Registration
Statement are accurate in all material respects. This opinion is based upon
provisions of the Internal Revenue Code of 1986, as amended, applicable
Treasury Department regulations in effect as of the date hereof, current
published administrative positions of the Internal Revenue Service contained in
revenue rulings and procedures, and judicial decisions.
This opinion represents our best legal judgment, but has no binding effect
or official status of any kind, and no assurance can be given that contrary
positions may not be taken by the Internal Revenue Service or a court
concerning the issues. As noted in the Prospectus, the statements therein as to
the Company's beliefs and conclusions as to the application of such tax law to
the Company and its operations represent the views of the Company's management
as to the application of such law and do not represent our legal opinion. We
also express no opinion as to any tax consequences under any foreign, state or
local laws. In issuing our opinion, we have relied solely upon existing
provisions of the Code, existing proposed regulations thereunder, and current
administrative positions and judicial decision. Such laws, regulations,
administrative positions and judicial decisions are subject to change at any
time. Also, future changes in Federal income tax laws and the interpretation
thereof can have retroactive effect. Any such changes could affect the validity
of the opinion set forth above.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm in the Prospectus
under the headings "Risk Factors -- United States Federal Income Tax Risks,"
"Certain Tax Considerations" and "Legal Matters." This does not constitute a
consent under Section 7 of the Act, and in consenting to such references to our
firm we have not certified any part of the Registration Statement and do not
otherwise come within the categories of persons whose consent is required under
Section 7 or under the rules and regulations of the SEC issued thereunder.
Very truly yours,
/s/ Drinker Biddle & Reath LLP
<PAGE> 1
Exhibit 10.2
GLOBAL MARKETS ACCESS LTD.
INITIAL STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
PAGE
PURPOSE .......................................................................1
SECTION 1 - Definitions.......................................................1
SECTION 2 - Administration....................................................4
SECTION 3 - Eligibility.......................................................4
SECTION 4 - Common Shares.....................................................4
SECTION 5 - Annual Limit......................................................5
SECTION 6 - Granting of Options to Key Employees and Consultants..............5
SECTION 7 - Terms and Conditions of Options to Key Employees and Consultants..6
SECTION 8 - Options for Non-Employee Directors...............................11
SECTION 9 - Option Agreements - Other Provisions.............................14
SECTION 10 - Capital Adjustments..............................................15
SECTION 11 - Amendment or Discontinuance of the Plan..........................15
SECTION 12 - Termination of Plan..............................................17
SECTION 13 - Shareholder Approval.............................................17
SECTION 14 - Miscellaneous....................................................17
SECTION 15 - Change in Control................................................18
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<PAGE> 3
GLOBAL MARKETS ACCESS LTD.
INITIAL STOCK OPTION PLAN
PURPOSE
This GLOBAL MARKETS ACCESS LTD. INITIAL STOCK OPTION PLAN is
intended to provide a means whereby Global Markets Access Ltd. may, through the
grant of Options to purchase Common Shares of the Company to Key Employees,
Non-Employee Directors, and Consultants attract and retain such individuals and
motivate them to exercise their best efforts on behalf of the Company and of any
Related Corporation.
SECTION 1 - DEFINITIONS
As used in the Plan the following words and terms shall have the
meaning hereinafter set forth unless the context clearly indicates otherwise:
(a) BOARD. The term "Board" shall mean the Board of Directors of the
Company.
(b) CODE. The term "Code" shall mean the Internal Revenue Code of
1986, as amended.
(c) COMMITTEE. The term "Committee" shall mean the Company's
Compensation Committee which shall consist of not less than two (2)
directors of the Company and who shall be appointed by, and shall serve at
the pleasure of, the Board. Each member of such Committee, while serving
as such, shall be deemed to be acting in his or her capacity as a director
of the Company. On and after the date the Company first registers equity
securities under Section 12 of the Exchange Act, it is intended that each
member of the Committee shall be a Rule 16b-3 Non-Employee Director.
Notwithstanding the foregoing, if the Committee does not consist solely of
two (2) or more Rule 16b-3 Non-Employee Directors, the full Board shall
serve as the Committee if it is intended that Options satisfy the advance
approval requirements of 17 CFR Section 240.16b-3.
(d) COMMON SHARES. The term "Common Shares" shall mean the common
shares of the Company, par value $1.00 per share.
(e) COMPANY. The term "Company" shall mean Global Markets Access
Ltd., a Bermuda corporation.
(f) CONSULTANT. The term "Consultant" shall mean a consultant or
advisor who is not an employee of the Company or a Related Corporation and
is not a Non-
<PAGE> 4
Employee Director, but may include directors, officers, employees and
partners of Inter-Atlantic Capital Partners, Inc. or its affiliates.
(g) EXCHANGE ACT. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended.
(h) FAIR MARKET VALUE. The term "Fair Market Value" shall mean the
fair market value of the optioned Common Shares arrived at by a good faith
determination of the Committee and shall be:
(1) The quoted closing price, if there is a market for the
Common Shares on a registered securities exchange or in an over the
counter market, on the date of grant;
(2) The weighted average of the quoted closing prices on the
nearest date before and the nearest date after the date of grant, if
there are no sales on the date of grant but there are sales on dates
within a reasonable period both before and after the date of grant;
(3) The mean between the bid and asked prices, as reported by
the National Quotation Bureau on the date of grant, if actual sales
are not available during a reasonable period beginning before and
ending after the date of grant; or
(4) Such other method of determining fair market value as
shall be authorized by the Code, or the rules or regulations
thereunder, and adopted by the Committee.
Where the fair market value of the optioned Common Shares is
determined under (2) above, the average of the quoted closing prices on
the nearest date before and the nearest date after the date of grant is to
be weighted inversely by the respective numbers of trading days between
the selling dates and the date of grant (i.e., the valuation date), in
accordance with Treas. Reg. Section 20.2031-2(b)(1).
(i) ISO. The term "ISO" shall mean an Option which, at the time such
Option is granted, qualifies as an incentive stock option within the
meaning of section 422 of the Code.
(j) KEY EMPLOYEE. The term "Key Employee" shall mean an officer or
and other key employee of the Company or of a Related Corporation.
(k) NON-EMPLOYEE DIRECTOR. The term "Non-Employee Director" shall
mean a director of the Company who is not an employee of the Company or a
Related Corporation.
(l) NQSO. The term "NQSO" shall mean an Option which is not an ISO,
and/or is designated as an NQSO in the Option Agreement.
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<PAGE> 5
(m) OPTION. The term "Option" shall mean any stock option granted to
a Key Employee, Non-Employee Director, or Consultant under Sections 7 and
8 hereof.
(n) OPTION AGREEMENT. The term "Option Agreement" shall mean a
written document evidencing the grant of an Option, as described in
Section 9.
(o) OPTIONEE. The term "Optionee" shall mean a Key Employee,
Non-Employee Director, or Consultant to whom an Option has been granted.
(p) PLAN. The term "Plan" shall mean the Global Markets Access Ltd.
Initial Stock Option Plan, as set forth herein and as amended from time to
time.
(q) RELATED CORPORATION. The term "Related Corporation" shall mean
either a corporate subsidiary of the Company, as defined in section 424(f)
of the Code, or the corporate parent of the Company, as defined in section
424(e) of the Code.
(r) RULE 16b-3 NON-EMPLOYEE DIRECTOR. The term "Rule 16b-3
Non-Employee Director" shall mean a director who:
(1) Is not currently an officer (as defined in 17
CFR Section 240.16a-1(f)) of, or otherwise currently employed by,
the Company or a parent or subsidiary of the Company within the
meaning of 17 CFR Section 240.16b-3(b)(3);
(2) Does not receive compensation, either directly or
indirectly, from the Company or a parent or subsidiary of the
Company within the meaning of 17 CFR Section 240.16b-3(b)(3) for
services rendered as a consultant or in any other capacity other
than as a director, except for an amount that does not exceed the
dollar amount for which disclosure would be required under 17
CFR Section 229.404(a);
(3) Does not possess an interest in any other transaction for
which disclosure would be required pursuant to 17 CFR Section
229.404(a); and
(4) Is not engaged in a business relationship for which
disclosure would be required pursuant to 17 CFR Section 229.404(b).
-3-
<PAGE> 6
SECTION 2 - ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have full authority, subject to the terms of the Plan, to select the Key
Employees and Consultants to be granted ISOs and/or NQSOs under the Plan, to
grant Options on behalf of the Company and to set the date of grant and the
other terms of such Options. Options granted to Non-Employee Directors shall be
granted pursuant to the formula set forth in Section 8(a) hereof.
The Committee may correct any defect, supply any omission and
reconcile any inconsistency in this Plan and in any Option granted hereunder in
the manner and to the extent it shall deem desirable. The Committee also shall
have the authority to establish such rules and regulations, not inconsistent
with the provisions of the Plan, for the proper administration of the Plan, and
to amend, modify or rescind any such rules and regulations, and to make such
determinations and interpretations under, or in connection with, the Plan, as it
deems necessary or advisable. All such rules, regulations, determinations and
interpretations shall be binding and conclusive upon the Company, its
shareholders and all employees, directors, and consultants, and upon their
respective legal representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Option granted under it.
SECTION 3 - ELIGIBILITY
Key Employees, Non-Employee Directors, and Consultants shall be
eligible to receive Options under the Plan. Key Employees shall be eligible to
receive ISOs and/or NQSOs. Non-Employee Directors and Consultants shall be
eligible to receive only NQSOs. More than one Option may be granted to a Key
Employee, Non-Employee Director, or Consultant under the Plan.
SECTION 4 - COMMON SHARES
Options may be granted under the Plan to purchase up to a maximum of
2,000,000 Common Shares, provided that, if prior to June 30, 1999 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) five and
one-half percent (5.5%) of the Common Shares of the Company outstanding
immediately following such initial public offering (including any shares issued
pursuant to the overallotment options granted to the underwriters of such
offering) and any concurrent private placement of Common Shares or (b) 2,000,000
Common Shares, and provided further that such maximum number of Common Shares
shall be subject to further adjustment as
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<PAGE> 7
provided in Section 10 hereof. Shares issuable under the Plan may be authorized
but unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.
If any Option granted under the Plan expires or otherwise terminates
for any reason whatever (including, without limitation, the Optionee's surrender
thereof) without having been exercised, the shares subject to the unexercised
portion of such Option shall continue to be available for the granting of
Options under the Plan as fully as if such shares had never been subject to an
Option.
SECTION 5 - ANNUAL LIMIT
(a) ISOs. The aggregate Fair Market Value (determined as of the date
the ISO is granted) of the Common Shares with respect to which ISOs are
exercisable for the first time by a Key Employee during any calendar year
(under this Plan and any other ISO plan of the Company or a Related
Corporation) shall not exceed one hundred thousand dollars ($100,000).
(b) OPTIONS OVER ANNUAL LIMIT. If an Option intended as an ISO is
granted to a Key Employee and such Option may not be treated in whole or
in part as an ISO pursuant to the limitation in subsection (a) above, such
Option shall be treated as an ISO to the extent it may be so treated under
such limitation and as an NQSO as to the remainder, but shall continue to
be subject to the provisions of the Plan that apply to ISOs. For purposes
of determining whether an ISO would cause such limitation to be exceeded,
the Key Employee's incentive stock options shall be taken into account in
the order granted.
(c) NQSOs. The annual limit set forth above for ISOs shall not apply
to NQSOs.
SECTION 6 - GRANTING OF OPTIONS TO KEY EMPLOYEES AND CONSULTANTS
From time to time until the expiration or earlier suspension or
discontinuance of the Plan, the Committee may, on behalf of the Company, grant
to Key Employees and Consultants under the Plan such Options as it determines
are warranted; provided, however, that grants of ISOs and NQSOs shall be
separate and not in tandem. The granting of an Option under the Plan shall not
be deemed either to entitle the Key Employee or Consultant to, or to disqualify
the Key Employee or Consultant from, any participation in any other grant of
Options under the Plan. In making any determination as to whether a Key Employee
or Consultant shall be granted an Option and as to the number of shares to be
covered by such Option, the Committee shall take into account the duties of the
Key Employee or Consultant, his or her present and potential contributions to
the success of the Company or a Related Corporation, and such other factors as
the Committee shall deem relevant in accomplishing the purposes of the Plan.
Moreover, the Committee may provide in the Option that
-5-
<PAGE> 8
said Option may be exercised only if certain conditions, as determined by the
Committee, are fulfilled.
SECTION 7 - TERMS AND CONDITIONS OF OPTIONS TO KEY EMPLOYEES AND CONSULTANTS
The Options granted pursuant to the Plan to Key Employees and
Consultants shall include expressly or by reference the following terms and
conditions, as well as such other provisions not inconsistent with the
provisions of this Plan and, for ISOs, the provisions of section 422(b) of the
Code, as the Committee shall deem desirable:
(a) NUMBER OF SHARES. A statement of the number of Common Shares to
which the Option pertains.
(b) PRICE. A statement of the Option exercise price, which shall be
determined and fixed by the Committee in its discretion but, in the case
of an ISO, shall not be less than the higher of one hundred percent (100%)
(one hundred ten percent (110%) in the case of more than ten percent (10%)
shareholders as discussed in Subsection (j) below) of the Fair Market
Value of the optioned Common Shares, or the par value thereof, on the date
the ISO is granted.
(c) TERM.
(1) ISOs. Subject to earlier termination as provided in
Subsections (e), (f) and (g) below and in Section 10 hereof, the
term of each ISO shall be not more than ten (10) years (five (5)
years in the case of more than ten percent (10%) shareholders as
discussed in (j) below) from the date of grant.
(2) NQSOs. Subject to earlier termination as provided in
Subsections (e), (f) and (g) below and in Section 10 hereof, the
term of each NQSO shall be not more than ten (10) years from the
date of grant.
(d) EXERCISE.
(1) GENERAL. Unless otherwise provided in the Option
Agreement, Options shall become exercisable in three (3) equal
annual installments, commencing with the first anniversary of the
grant date; provided that the Committee may accelerate the exercise
date of any outstanding Options, in its discretion, if it deems such
acceleration to be desirable.
Any Common Shares, the right to the purchase of which has
accrued under an Option, may be purchased at any time up to the
expiration or termination of the Option. Exercisable Options may be
exercised, in whole or in part, from time to time by giving written
notice of exercise to the Company at its principal office,
specifying the number of Common Shares to be purchased and
accompanied by payment in full of the aggregate Option exercise
price for such shares. Only full
<PAGE> 9
shares shall be issued under the Plan, and any fractional share
which might otherwise be issuable upon exercise of an Option granted
hereunder shall be forfeited.
(2) MANNER OF PAYMENT. The Option exercise price shall be
payable:
(A) In cash or its equivalent;
(B) If the Committee, in its discretion, so provides in
the Option Agreement (as hereinafter defined) or, in the case
of Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of exercise,
in whole or in part, in Common Shares previously acquired by
the Optionee, provided that the Committee, in its discretion,
may require (i) if such Common Shares were acquired through
the exercise of an ISO and are used to pay the Option exercise
price of an ISO, such shares have been held by the Optionee
for a period of not less than the holding period described in
section 422(a)(1) of the Code on the date of exercise, or (ii)
if such Common Shares were acquired through exercise of an
NQSO or of an option under a similar plan or through exercise
of an ISO and are used to pay the Option exercise price of an
NQSO, such shares have been held by the Optionee for a period
of more than six (6) months on the date of exercise;
(C) If the Committee, in its discretion, so provides in
the Option Agreement or, in the case of Options which are not
ISOs, if the Committee, in its discretion, so determines at or
prior to the time of exercise, in whole or in part, in Common
Shares newly acquired by the Optionee upon exercise of such
Option (which shall constitute a disqualifying disposition in
the case of an Option which is an ISO);
(D) If the Committee, in its discretion, so provides in
the Option Agreement or, in the case of Options which are not
ISOs, if the Committee, in its discretion, so determines at or
prior to the time of exercise, in any combination of (A), (B)
and/or (C) above; or
(E) If the Committee, in its discretion, so provides in
the Option Agreement or, in the case of Options which are not
ISOs, if the Committee, in its discretion, so determines at or
prior to the time of exercise, by permitting the Optionee to
deliver 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.
In the event such Option exercise price is paid, in whole or in
part, with Common Shares, the portion of the Option exercise price so paid
shall be equal to
-7-
<PAGE> 10
the Fair Market Value on the date of exercise of the Option of the Common
Shares surrendered in payment of such Option exercise price.
(e) TERMINATION OF EMPLOYMENT OR SERVICE.
(1) GENERAL. If an Optionee's employment or service with the
Company (and Related Corporations) is terminated by either party
prior to the expiration date fixed for his or her Option for any
reason other than death, disability, or Cause (as described in
paragraph (2) below), 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 to any greater
extent permitted by the Committee, by the Optionee at any time prior
to the earlier of:
(A) The expiration date fixed for such Option; or
(B) An accelerated termination date determined by the
Committee, in its discretion, except that, subject to Section
10 hereof, such accelerated termination date shall not be
earlier than the date of the Optionee's termination of
employment or service and, unless otherwise determined by the
Committee, in its discretion, shall not be later than three
(3) months after the date of such termination of employment.
If an Optionee's employment or service with the Company or a
Related Corporation terminates by reason of Cause prior to the
expiration date fixed for his or her Option, such Option shall
terminate immediately.
(2) CAUSE. For purposes of this Plan, unless otherwise defined
in an Optionee's employment or service contract with the Company or
a Related Corporation, "Cause" shall include insubordination, gross
incompetence or misconduct in the performance of, or gross neglect
of, Optionee's duties, willful violation of any express direction or
of any rule or regulation applicable to such Optionee, any act of
fraud or intentional misrepresentation, or embezzlement,
misappropriation, or conversion of assets or opportunities of the
Company or a Related Corporation.
(f) EXERCISE UPON DISABILITY OF OPTIONEE. If an Optionee shall become
disabled (within the meaning of section 22(e)(3) of the Code) during his
or her employment or service and, prior to the expiration date fixed for
his or her Option, his or her employment or service is terminated as a
consequence of such disability, 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 to any greater
extent permitted by the Committee, by the Optionee at any time prior to
the earlier of:
(1) The expiration date fixed for the Option; or
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<PAGE> 11
(2) An accelerated termination date determined by the
Committee, in its discretion, except that, subject to Section 10
hereof, such accelerated termination date shall not be earlier than
the date of termination of employment or service by reason of
disability and, unless otherwise determined by the Committee, in its
discretion, shall not be later than one (1) year after the date of
such termination of employment.
In the event of the Optionee's legal disability, such Option may be so
exercised by the Optionee's legal representative.
(g) EXERCISE UPON DEATH OF OPTIONEE. If an Optionee shall die during
his or her employment or service and prior to the expiration date fixed
for his or her Option, or if an Optionee whose employment or service is
terminated for any reason shall die following his or her termination of
employment or service, but prior to the earlier of:
(1) The expiration date fixed for such Option; or
(2) The expiration of the period determined under Subsections
(e) and (f) above, if applicable;
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
his or her death, or to any greater extent permitted by the Committee, by
the Optionee's estate, personal representative or beneficiary who acquired
the right to exercise such Option by bequest or inheritance or by reason
of the death of the Optionee, at any time prior to the earlier of:
(A) The expiration date specified in such Option (which
may be the expiration date determined under Subsections (e)
and (f) above, if applicable); or
(B) An accelerated termination date determined by the
Committee, in its discretion except that, subject to Section
10 hereof, such accelerated termination date shall not be
later than one (1) year after the date of death.
(h) NON-TRANSFERABILITY.
(1) ISOs. No ISO shall be assignable or transferable by a Key
Employee otherwise than by will or by the laws of descent and
distribution, and during the lifetime of the Key Employee, the ISO
shall be exercisable only by him or by his or her guardian or legal
representative. If the Key Employee is married at the time of
exercise and if the Key Employee so requests at the time of
exercise, the certificate or certificates shall be registered in the
name of the Key Employee and the Key Employee's spouse, jointly,
with right of survivorship.
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<PAGE> 12
(2) NQSOs. Except as otherwise provided in any Option
Agreement, no NQSO shall be assignable or transferable by the
Optionee otherwise than by will or by the laws of descent and
distribution, and during the lifetime of the Optionee, the NQSO
shall be exercisable only by him or by his or her guardian or legal
representative. If the Optionee is married at the time of exercise
and if the Optionee so requests at the time of exercise, the
certificate or certificates shall be registered in the name of the
Optionee and his or her spouse, jointly, with right of survivorship.
(i) RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights as a
shareholder with respect to any shares covered by his or her Option until
the issuance of a share certificate to him or her for such shares.
(j) TEN PERCENT SHAREHOLDER. If a Key Employee owns more than ten
percent (10%) of the total combined voting power of all shares of stock of
the Company or of a Related Corporation at the time an ISO is granted to
such Key Employee, the Option exercise price for the ISO shall be not less
than one hundred ten percent (110%) of the Fair Market Value of the
optioned Common Shares on the date the ISO is granted, and such ISO, by
its terms, shall not be exercisable after the expiration of five (5) years
from the date the ISO is granted. The conditions set forth in this
Subsection (j) shall not apply to NQSOs.
(k) LISTING AND REGISTRATION OF SHARES. Each Option shall be subject
to the requirement that, if at any time the Committee shall determine, in
its discretion, that the listing, registration or qualification of the
shares covered thereby upon any securities exchange or under any
applicable law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in connection with,
the granting of such Option or the purchase of shares thereunder, or that
action by the Company or by the Optionee should be taken in order to
obtain an exemption from any such requirement, no such Option may be
exercised, in whole or in part, unless and until such listing,
registration, qualification, consent, approval, or action shall have been
effected, obtained, or taken under conditions acceptable to the Committee.
Without limiting the generality of the foregoing, each Optionee or his or
her legal representative or beneficiary may also be required to give
satisfactory assurance that shares purchased upon exercise of an Option
are being purchased for investment and not with a view to distribution,
and certificates representing such shares may be legended accordingly.
(l) WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS. The
obligation of the Company to deliver Common Shares upon the exercise of
any Option shall be subject to applicable tax withholding requirements.
If the exercise of any Option is subject to the withholding
requirements of applicable tax laws, the Committee, in its discretion (and
subject to such withholding rules ("Withholding Rules") as shall be
adopted by the Committee), may permit the Optionee to satisfy the minimum
required withholding tax, in whole or in part, by electing to have the
Company withhold (or by returning to the Company) Common Shares, which
shares shall be valued, for this purpose, at their Fair Market Value on
the date of exercise of the Option
-10-
<PAGE> 13
(or if later, the date on which the Optionee recognizes ordinary income
with respect to such exercise). An election to use Common Shares to
satisfy tax withholding requirements must be made in compliance with and
subject to the Withholding Rules. The Committee may not withhold shares in
excess of the number necessary to satisfy the minimum tax withholding
requirements.
SECTION 8 - OPTIONS FOR NON-EMPLOYEE DIRECTORS
(a) GRANTING OF OPTIONS TO OUTSIDE DIRECTORS.
(1) Each Non-Employee Director listed on Schedule A hereto
shall be granted an NQSO to purchase the number of Common Shares set
forth opposite his name on Schedule A hereto on the date of the
Company's initial public offering of its Common Shares.
(2) With the exception of the Non-Employee Directors that
receive NQSOs pursuant to Section 8(a)(1), each person who becomes a
Non-Employee Director shall be granted an NQSO to purchase 15,000
Common Shares on the later of (A) the date he or she becomes a
Non-Employee Director and (B) the date of the Company's initial
public offering of its Common Shares.
(3) In addition, with respect to the Company's first annual
shareholder's meeting after June 30, 1999 and each subsequent annual
shareholder's meeting of the Company, each Non-Employee Director
whose term as a director has not ended as of the date of such annual
shareholder's meeting shall be granted an NQSO to purchase 2,000
Common Shares as of the day of such annual shareholder's meeting.
(b) TERMS AND CONDITIONS OF OPTIONS. Options granted to Non-Employee
Directors shall expressly specify that they are NQSOs. In addition, such
Options shall include expressly or by reference the following terms and
conditions, as well as such other provisions not inconsistent with the
provisions of this Plan:
(1) NUMBER OF SHARES. A statement of the number of Common
Shares to which the Option pertains.
(2) PRICE. A statement of the Option exercise price, which
shall be (A) the initial public offering price of the Common Shares
for Options granted on the date of the Company's initial public
offering of its Common Shares, or (B) one hundred percent (100%) of
the Fair Market Value of the optioned Common Shares on the date the
Option is granted for all other Options.
(3) TERM. Subject to earlier termination as provided in
Subsections (5), (6) and (7) below, the term of each Option granted
under this Section 8 shall be 10 years from the date of grant.
-11-
<PAGE> 14
(4) EXERCISE.
(A) GENERAL. Options granted under Sections 8(a)(1) and
8(a)(2) shall become exercisable in three (3) equal annual
installments, commencing with the first anniversary of the
grant date. Options granted under Section 8(a)(3) shall be
immediately exercisable as of the grant date, provided that if
such date is not at least one year after the date upon which
the Company's initial public offering of its Common Shares was
consummated, such Options shall become exercisable on the
first anniversary of the consummation of such initial public
offering. Any Common Shares, the right to the purchase of
which has accrued under an Option, may be purchased at any
time up to the expiration or termination of the Option.
Exercisable Options may be exercised, in whole or in part,
from time to time by giving written notice of exercise to the
Company at its principal office, specifying the number of
Common Shares to be purchased and accompanied by payment in
full of the aggregate Option exercise price for such shares.
Only full shares shall be issued under the Plan, and any
fractional share which might otherwise be issuable upon the
exercise of an Option granted hereunder shall be forfeited.
(B) MANNER OF PAYMENT. The Option exercise price shall
be payable:
(i) In cash or its equivalent;
(ii) Unless in the opinion of counsel to the
Company to do so may result in a possible violation of
law, in whole or in part through the transfer of Common
Shares previously acquired by the Non-Employee Director,
provided that if such Common Shares were acquired
through exercise of an NQSO or of an option under a
similar plan, such Common Shares so transferred shall
have been held by the Non-Employee Director for more
than six (6) months on the date of exercise;
(iii) Unless in the opinion of counsel to the
Company to do so may result in a possible violation of
law, in whole or in part, in Common Shares newly
acquired by the Non-Employee Director upon the exercise
of such Option; or
(iv) In any combination of (i), (ii), and/or (iii)
above.
In the event such Option exercise price is paid, in whole or
in part, with Common Shares, the portion of the Option exercise
price so paid shall equal the Fair Market Value on the date of
exercise of the Option of the Common Shares surrendered in payment
of such Option exercise price.
-12-
<PAGE> 15
(5) EXPIRATION OF TERM OR REMOVAL AS DIRECTOR. If a
Non-Employee Director's service as a director of the Company
terminates prior to the expiration date fixed for his or her Option
for any reason (such as, without limitation, failure to be
re-elected by the Company's shareholders) other than by disability,
death, or Cause (as described in Section 7(e)(2) above), such Option
may be exercised, to the extent of the number of Common Shares with
respect to which the Non-Employee Director could have exercised it
on the date of such termination, by the Non-Employee Director at any
time prior to the earlier of:
(A) The expiration date fixed for such Option; or
(B) Three (3) months after the date of such termination
of service as a director.
If a Non-Employee Director's service as a director of the
Company terminates by reason of Cause prior to the expiration date
fixed for his or her Option, such Option shall terminate
immediately.
(6) EXERCISE UPON DISABILITY OF NON-EMPLOYEE DIRECTOR. If a
Non-Employee Director shall become disabled (within the meaning of
section 22(e)(3) of the Code) during his or her term as a director
of the Company and, prior to the expiration date fixed for his or
her Option, his or her term as a director is terminated as a
consequence of such disability, such Option may be exercised, to the
extent of the number of Common Shares with respect to which the
Non-Employee Director could have exercised it on the date of such
termination, by the Non-Employee Director at any time prior to the
earlier of:
(A) The expiration date fixed for such Option; or
(B) One year after the date of such termination of
service as a director.
In the event of the Non-Employee Director's legal disability,
such Option may be so exercised by his or her legal representative.
(7) EXERCISE UPON DEATH OF NON-EMPLOYEE DIRECTOR. If a
Non-Employee Director shall die during his or her term as a director
of the Company and prior to the expiration date fixed for his or her
Option, or if a Non-Employee Director whose term as a director has
been terminated for any reason shall die following his or her
termination as a director, but prior to the earlier of:
(A) The expiration date fixed for such Option; or
(B) The expiration of the period determined under
Subsections (5) and (6) above, if applicable;
-13-
<PAGE> 16
such Option may be exercised, to the extent of the number of Common
Shares with respect to which the Non-Employee Director could have
exercised it on the date of his or her death, by the Non-Employee
Director's estate, personal representative or beneficiary who
acquired the right to exercise such Option by bequest or inheritance
or by reason of the death of the Non-Employee Director, at any time
prior to the earlier of:
(i) The expiration date specified in such Option
(which may be the expiration date determined under
Subsections (5) and (6) above, if applicable); or
(ii) One year after the date of death.
(8) RIGHTS AS A SHAREHOLDER. A Non-Employee Director shall
have no rights as a shareholder with respect to any shares covered
by his or her Option until the issuance of a share certificate to
him or her for such shares.
(9) LISTING AND REGISTRATION OF SHARES. Each Option shall be
subject to the requirement that, if at any time the Committee shall
determine, in its discretion, that the listing, registration or
qualification of the shares covered thereby upon any securities
exchange or under any applicable law, or the consent or approval of
any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such Option or
the purchase of shares thereunder, or that action by the Company or
by the Optionee should be taken in order to obtain an exemption from
any such requirement, no such Option may be exercised, in whole or
in part, unless and until such listing, registration, qualification,
consent, approval, or action shall have been effected, obtained, or
taken under conditions acceptable to the Committee. Without limiting
the generality of the foregoing, each Optionee or his or her legal
representative or beneficiary may also be required to give
satisfactory assurance that shares purchased upon exercise of an
Option are being purchased for investment and not with a view to
distribution, and certificates representing such shares may be
legended accordingly.
SECTION 9 - OPTION AGREEMENTS - OTHER PROVISIONS
Options granted under the Plan shall be evidenced by Option
Agreements in such form as the Committee shall, from time to time, approve,
which Option Agreements shall contain such provisions, not inconsistent with the
provisions of the Plan for NQSOs granted pursuant to the Plan, and such
conditions, not inconsistent with section 422(b) of the Code or the provisions
of the Plan for ISOs granted pursuant to the Plan, as the Committee shall deem
advisable, and which Option Agreements shall specify whether the Option is an
ISO or NQSO; provided, however, if the Option is not designated in the Option
Agreement as an ISO or NQSO, the Option shall constitute an ISO if it complies
with the terms of section 422 of the Code, and otherwise, it shall constitute an
NQSO. Each Optionee shall enter into, and be bound by, such Option Agreement.
-14-
<PAGE> 17
SECTION 10 - CAPITAL ADJUSTMENTS
The number of shares which may be issued under the Plan, and the
maximum number of shares with respect to which options may be granted during a
specified period to any Key Employee, Non-Employee Director, or Consultant under
the Plan, as stated in Section 4 hereof, and the number of shares issuable upon
exercise of outstanding Options under the Plan (as well as the Option exercise
price per share under such outstanding Options), shall, subject to the
provisions of section 424(a) of the Code, be adjusted to reflect any stock
dividend, stock split, share combination, or similar change in the
capitalization of the Company.
In the event of a corporate transaction (as that term is described
in section 424(a) of the Code and the Treasury Regulations issued thereunder as,
for example, a merger, consolidation, acquisition of property or stock,
separation, reorganization, or liquidation), each outstanding Option shall be
assumed by the surviving or successor corporation or by a parent or subsidiary
of such corporation if such corporation is the employer corporation (as provided
in section 424(a) of the Code and the regulations thereunder); provided,
however, that, in the event of a proposed corporate transaction, the Committee
may terminate all or a portion of the outstanding Options to Key Employees and
Consultants if it determines that such termination is in the best interests of
the Company. If the Committee decides to terminate outstanding Options, the
Committee shall give each Key Employee and Consultant holding an Option to be
terminated not less than seven (7) days' notice prior to any such termination by
reason of such a corporate transaction, and any such Option which is to be so
terminated may be exercised (if and only to the extent that it is then
exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 7 hereof the Committee, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Options granted to Key Employees and Consultants become exercisable.
The Committee also may, in its discretion, change the terms of any
outstanding Option to reflect any such corporate transaction, provided that, in
the case of ISOs, such change is excluded from the definition of a
"modification" under section 424(h) of the Code.
SECTION 11 - AMENDMENT OR DISCONTINUANCE OF THE PLAN
(a) GENERAL. The Board from time to time may suspend or discontinue
the Plan or amend it in any respect whatsoever, except that the following
amendments shall require shareholder approval (given in the manner set
forth in Section 11(b) below):
(1) With respect to ISOs, any amendment which would:
(A) Change the class of employees eligible to
participate in the Plan;
-15-
<PAGE> 18
(B) Except as permitted under Sections 4 and 10
hereof, increase the maximum number of Common
Shares with respect to which ISOs may be granted
under the Plan; or
(C) Extend the duration of the Plan under Section 12
hereof with respect to any ISOs granted hereunder;
and
(2) Any amendment which would require shareholder approval
under 17 CFR Section 240.16b-3 in order for the Plan to continue to
constitute a "formula plan" with respect to Options granted to
Non-Employee Directors, unless (i) the Plan is amended in a manner
that takes advantage of another method of complying with 17
CFR Section 240.16b-3 with respect to Options granted to Non-
Employee Directors, or (ii) compliance with 17 CFR Section 240.16b-3
is not intended.
Notwithstanding the foregoing, no such suspension, discontinuance or
amendment shall materially impair the rights of any holder of an
outstanding Option without the consent of such holder.
(b) SHAREHOLDER APPROVAL REQUIREMENTS. Shareholder approval must
meet the following requirements:
(1) The approval of shareholders must be by a majority of the
votes cast at a meeting duly held in accordance with the applicable
laws of Bermuda; and
(2) The approval of shareholders must comply with all
applicable provisions of the corporate charter, bye-laws, and
applicable law prescribing the method and degree of shareholder
approval required for the issuance of corporate stock or options. If
the applicable law does not prescribe a method and degree of
shareholder approval in such case, the approval of shareholders must
be effected:
(A) By a method and in a degree that would be treated as
adequate under applicable law of Bermuda in the case of an
action requiring shareholder approval (i.e., an action on
which shareholders would be entitled to vote if the action
were taken at a duly held shareholders' meeting); or
(B) By a majority of the votes cast at a duly held
shareholders' meeting at which a quorum representing a
majority of all outstanding voting stock is, either in person
or by proxy, present and voting on the Plan.
-16-
<PAGE> 19
SECTION 12 - TERMINATION OF PLAN
Unless earlier terminated as provided in the Plan, the Plan and all
authority granted hereunder shall terminate absolutely at 12:00 midnight on
October 28, 2008, which date is within ten (10) years after the date the Plan
was adopted by the Board (or the date the Plan was approved by the shareholders
of the Company, whichever is earlier), and no Options hereunder shall be granted
thereafter. Nothing contained in this Section 12, however, shall terminate or
affect the continued existence of rights created under Options issued hereunder
and outstanding on October 28, 2008, which by their terms extend beyond such
date.
SECTION 13 - SHAREHOLDER APPROVAL
This Plan shall become effective on October 28, 1998 (the date the
Plan was adopted by the Board); provided, however, that if the Plan is not
approved by the shareholders in the manner described in Section 11(b), within
twelve (12) months before or after said date, ISOs granted hereunder shall be
null and void and no additional ISOs shall be granted hereunder.
SECTION 14 - MISCELLANEOUS
(a) GOVERNING LAW. With respect to any ISOs granted pursuant to the
Plan and the Option Agreements thereunder, the Plan, such Option
Agreements and any ISOs granted pursuant thereto shall be governed by the
applicable Code provisions to the maximum extent possible. Otherwise, the
operation of, and the rights of Optionees under, the Plan, the Option
Agreements and any Options granted thereunder shall be governed by
applicable United States law and otherwise by the laws of Bermuda.
(b) RIGHTS. Neither the adoption of the Plan nor any action of the
Board or the Committee shall be deemed to give any individual any right to
be granted an Option, or any other right hereunder, unless and until the
Committee shall have granted such individual an Option, and then his or
her rights shall be only such as are provided by the Option Agreement.
Any Option under the Plan shall not entitle the holder thereof to
any rights as a shareholder of the Company prior to the exercise of such
Option and the issuance of the shares pursuant thereto. Further,
notwithstanding any provisions of the Plan or the Option Agreement with an
Optionee, the Company shall have the right, in its discretion, to retire a
Key Employee at any time pursuant to its retirement rules or otherwise to
terminate an Optionee's employment or service at any time for any reason
whatsoever.
(c) INDEMNIFICATION OF BOARD AND COMMITTEE. Without limiting any
other rights of indemnification which they may have from the Company and
any Related
-17-
<PAGE> 20
Corporation, the members of the Board and the members of the Committee
shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any claim, action, suit, or
proceeding to which they or any of them may be a party by reason of any
action taken or failure to act under, or in connection with, the Plan, or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in
any such action, suit, or proceeding, except a judgment based upon a
finding of willful misconduct or recklessness on their part. Upon the
making or institution of any such claim, action, suit, or proceeding, the
Board or Committee member shall notify the Company in writing, giving the
Company an opportunity, at its own expense, to handle and defend the same
before such Board or Committee member undertakes to handle it on his or
her own behalf.
(d) APPLICATION OF FUNDS. Any cash received in payment for Common
Shares upon exercise of an Option shall be added to the general funds of
the Company and shall be used for its corporate purposes. Any Common
Shares received in payment for Common Shares upon exercise of an Option
shall be cancelled.
(e) NO OBLIGATION TO EXERCISE OPTION. The granting of an Option
shall impose no obligation upon an Optionee to exercise such Option.
SECTION 15 - CHANGE IN CONTROL
(a) GENERAL. All outstanding Options shall become fully vested and
exercisable upon a Change in Control of the Company. In the event of a
Change in Control in which outstanding Options are not assumed by the
surviving entity, the Committee shall terminate all outstanding Options on
at least seven days' notice. Any such Option which is to be so terminated
may be exercised up to, and including the date immediately preceding such
termination. In any transaction to which both Section 10 and this Section
15 are applicable, only the provisions of this Section 15 shall apply.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of this Section
15, a "Change in Control" of the Company shall be deemed to have occurred
if:
(1) 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;
(2) 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
-18-
<PAGE> 21
constitute a majority of the board of directors of the Company or
any successor to the Company; or
(3) 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 initial public offering of the Common Shares.
(c) In the event of a Change in Control of the Company in which
holders of Common Shares are entitled only to receive money or other
property exclusive of securities, then in lieu of outstanding Options
being terminated or assumed by the Surviving Entity, each Optionee shall
have the right, at its sole option, to require the Company or such
surviving entity to purchase such Optionee's Options (without prior
exercise by Optionee) 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 Company or such surviving entity and reasonably acceptable to all
electing Optionees.
IN WITNESS WHEREOF, Global Markets Access Ltd. has caused these
presents to be duly executed, under seal, as of this 28th day of October, 1998.
GLOBAL MARKETS ACCESS LTD.
By: /s/ Donald J. Matthews
----------------------------------
Donald J. Matthews,
Chief Executive Officer
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<PAGE> 22
Schedule A
<TABLE>
<CAPTION>
Number of
Non-Employee Director Common Shares
- --------------------- -------------
<S> <C>
H. Russell Fraser 100,000
Charles A. Davis 15,000
Frederick S. Hammer 33,333
Robert M. Lichten 33,333
William M. Goldstein 15,000
</TABLE>
<PAGE> 1
Exhibit 10.3
AGREEMENT
This AGREEMENT is made as of August 28, 1998, by and among
INTER-ATLANTIC SECURITIES CORPORATION, a Delaware corporation
("Inter-Atlantic"), GCA Ltd. a Bermuda corporation ("GCA"), and Global Capital
Access, Ltd., a Bermuda corporation (the "Operating Company").
BACKGROUND
GCA and the Operating Company were incorporated in August 1998, and
neither has an operating history. GCA intends to engage in the business of
providing financial guaranty insurance and reinsurance and expects to conduct
substantially all of its operations through the Operating Company.
Inter-Atlantic is willing to provide assistance to GCA and the
Operating Company in connection with the proposed initial public offering and
any concurrent private placements of common shares of GCA (the "Offering"),
subject to the terms of this Agreement.
GCA and the Operating Company desire to engage Inter-Atlantic in
connection with the Offering, subject to the terms of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties hereto, intending
to be legally bound, hereby agree as follows:
SECTION 1. ENGAGEMENT OF INTER-ATLANTIC.
(a) GCA and the Operating Company hereby engage Inter-Atlantic to assist
with the Offering and certain other matters and in connection therewith, to
provide the services set forth in Section 1(b) of this Agreement, subject to the
supervision and direction of GCA's Board of Directors (the "Board").
Inter-Atlantic hereby accepts such engagement on the terms and conditions
hereinafter set forth.
(b) Inter-Atlantic shall perform or supervise the performance by others of
the following services in connection with the Offering, as may be requested by
GCA or the Operating Company from time to time:
(1) assist GCA in preparing or causing to be prepared a registration
statement registering the Offering under the Securities Act of 1933, as amended,
and all applicable state and federal securities laws;
(2) assist GCA in retaining such underwriters (the "Underwriters")
as may be necessary or desirable in connection with the Offering;
<PAGE> 2
(3) assist GCA in identifying potential investors in and negotiating
the terms of any private placements;
(4) incur in the name of GCA or the Operating Company, as agent, or
in the name of Inter-Atlantic, and pay, all reasonable costs and expenses
related to the Offering;
(5) assist GCA and the Operating Company in engaging such legal
counsel, independent auditors and other third parties as may be necessary or
desirable in connection with the foregoing;
(6) prepare regular reports to the Board describing the status of
the Offering; and
(7) upon Board authorization or as otherwise deemed appropriate by
Inter-Atlantic, perform additional services relating to any of the foregoing or
to the Offering.
SECTION 2. FEES AND EXPENSE REIMBURSEMENTS.
(a) Fee Payment. Upon the closing of the Offering, GCA and the Operating
Company shall, in addition to the other amounts payable hereunder, pay
Inter-Atlantic a fee equal to US$3,900,000 by wire transfer pursuant to
instructions previously given to GCA and the Operating Company for that purpose.
Unless otherwise extended by mutual agreement among Inter-Atlantic and GCA and
the Operating Company, in the event the closing of the Offering does not occur
by March 31, 1999, no fee shall be owed by GCA and the Operating Company to
Inter-Atlantic pursuant to this Section 2(a).
(b) Expense Reimbursements.
(1) GCA and the Operating Company shall reimburse Inter-Atlantic
for all reasonable costs and expenses incurred by Inter-Atlantic, whether
incurred before or after the date hereof, in connection with the performance of
the services contemplated by this Agreement, including, without limitation, fees
and disbursements paid in accordance with Section 1(b)(4) hereof to
third-parties retained by Inter-Atlantic (including out-of-pocket expenses that
may be incurred by American Capital Access Service Corporation or any other
consultant retained by Inter-Atlantic) to assist in the Offering, and fees
charged by third-parties in connection with any filing, notification, consent,
approval or authorization made or obtained by Inter-Atlantic in connection with
the Offering; provided that if the Offering has not been consummated by March
31, 1999, GCA and the Operating Company shall not be obligated to reimburse
Inter-Atlantic for any such costs or expenses incurred.
(2) With respect to costs and expenses incurred by Inter-Atlantic in
connection with the performance of the services contemplated by Section 1(b) of
this Agreement, Inter-Atlantic shall deliver to the Board an itemized statement
(the "Closing Statement") of such costs and expenses five business days prior to
the scheduled closing of the Offering. The Closing Statement should attach
copies of material invoices received by Inter-Atlantic with regard to such costs
and expenses. The Closing Statement shall include Inter-Atlantic's
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<PAGE> 3
reasonable estimate of all costs and expenses expected to be incurred after the
delivery of such statement and through to the closing of the Offering. GCA and
the Operating Company shall pay Inter-Atlantic the amount set forth on the
Closing Statement at the closing of the Offering.
(3) The Board shall promptly notify Inter-Atlantic of any objection
to the Closing Statement, and the parties shall negotiate in good faith to
resolve any such objection. If the parties fail to resolve such disputed matter
within ten business days after receipt by Inter-Atlantic of notice of the
Board's objection, then any such disputed matter may, at the election of either
party, be submitted to and resolved by KPMG Peat Marwick. The fees and expenses
of such accounting firm incurred in resolving the disputed matter shall be
equitably apportioned by such accounting firm based upon the extent to which GCA
and the Operating Company, on the one hand, or Inter-Atlantic, on the other
hand, are determined by such accounting firm to be the prevailing party.
(c) This Section 2 shall survive the termination of this Agreement.
SECTION 3. TERM.
This Agreement shall commence on the date hereof and shall expire on
the earlier of: (i) March 31, 1999 or (ii) the closing of the Offering.
SECTION 4. LIMITATION OF LIABILITY OF INTER-ATLANTIC.
The duties of Inter-Atlantic shall be confined to those expressly
set forth herein, and no implied duties are assumed by or may be asserted
against Inter-Atlantic hereunder. Inter-Atlantic shall not be liable for any
error of judgment or mistake of law or for any loss arising out of any act or
omission in carrying out its duties hereunder, except a loss resulting solely
from Inter-Atlantic's willful misfeasance or gross negligence.
SECTION 5. INDEMNITY.
(a) GCA and the Operating Company shall indemnify, defend and hold harmless
Inter-Atlantic and its officers, directors, shareholders, employees, agents,
representatives and affiliates ("Inter-Atlantic Indemnities") against and in
respect of any and all losses, costs, expenses (including, without limitation,
costs of investigation and defense and reasonable attorneys' fees), claims,
damages, obligations and liabilities (collectively, "Damages") arising out of,
based upon or otherwise in respect of the Offering or the operation by GCA and
the Operating Company of their businesses, or related to this Agreement or the
performance by Inter-Atlantic or any party retained by Inter-Atlantic thereof,
except to the extent that any such Damages result solely from the willful
misfeasance or gross negligence of one or more Inter-Atlantic Indemnities.
(b) Inter-Atlantic shall indemnify, defend and hold harmless GCA and the
Operating Company and their officers, directors, shareholders, employees,
agents, representatives and affiliates against and in respect of any and all
Damages to the extent arising out of, based upon or otherwise in respect of
Inter-Atlantic's willful misfeasance or gross negligence in connection with
Inter-Atlantic's performance of this Agreement.
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<PAGE> 4
(c) This Section 5 shall survive the termination of this Agreement.
SECTION 6. MISCELLANEOUS.
(a) Notices. All notices, waivers and other communications under this
Agreement must be in writing and will be deemed to have been duly given (i) when
delivered by hand (with written confirmation of receipt), (ii) when sent by
telecopier (with written confirmation of successful transmission), provided that
a copy is mailed by certified or registered mail, postage prepaid, return
receipt requested or (iii) two business days following deposit thereof (with all
postage and other fees paid) with a nationally recognized overnight delivery
service, in each case to the appropriate addresses and telecopier numbers, as
applicable, set forth below (or to such other addresses and telecopier numbers
as a party may designate by notice to the other parties):
To Inter-Atlantic:
Inter-Atlantic Securities Corporation
712 Fifth Avenue
New York, NY 10019
Attn.: Andrew S. Lerner, Managing Director
To GCA:
GCA Ltd.
Victoria Hall, Victoria Street
P.O. Box HM 1262
Hamilton, HM FX, Bermuda
Attn.: Donald J. Matthews, Chairman of the Board
and Chief Executive Officer
To the Operating Company:
Global Capital Access, Ltd.
Victoria Hall, Victoria Street
P.O. Box HM 1262
Hamilton, HM FX, Bermuda
Attn.: Donald J. Matthews, Chairman of the Board
and Chief Executive Officer
(b) Assignment and Benefit. This Agreement or any rights hereunder may not
be assigned by GCA or the Operating Company, nor may GCA or the Operating
Company delegate any obligations hereunder, without the prior written consent of
Inter-Atlantic. Inter-Atlantic shall have the right to assign this Agreement or
any rights hereunder to Inter-Atlantic Capital Partners, Inc. and to the
successors and assigns of Inter-Atlantic Capital Partners, Inc. Subject to the
foregoing, this Agreement and the rights and obligations contained herein shall
inure to the
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<PAGE> 5
benefit of, and be binding upon, the parties hereto and each of their respective
successors and assigns. This Agreement shall not be construed as giving any
person, other than the parties hereto and their successors and assigns, any
legal or equitable right, remedy or claim under or in respect of this Agreement
or any of the provisions herein contained, this Agreement and all provisions and
conditions hereof being intended to be, and being, for the sole and exclusive
benefit of such parties, successors and assigns and for the benefit of no other
person or entity.
(c) Amendment and Waiver. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
Neither the failure nor any delay by any party in exercising any right, power or
privilege under this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. To the maximum
extent permitted by applicable law, no claim or right arising out of this
Agreement can be waived by a party, in whole or in part, except in a writing
signed by such party. The waiver by a party of any breach of any provision of
this Agreement shall not constitute or operate as a waiver of any other breach
of such provision or of any other provision hereof, nor shall any failure to
enforce any provision hereof operate as a waiver of such provision or of any
other provision hereof.
(d) Governing Law. This Agreement is made pursuant to, and shall be
construed and enforced in accordance with, the laws of the Islands of Bermuda,
without giving effect to otherwise applicable principles of conflicts of law.
(e) Severability. 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, and this Agreement shall be construed in all
respects as if such invalid or unenforceable provisions or parts were omitted.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original; and any person may
become a party hereto by executing a counterpart hereof, but all of such
counterparts together shall be deemed to be one and the same instrument. It
shall not be necessary in making proof of this Agreement or any counterpart
hereof to produce or account for any of the other counterparts.
(g) Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter of this Agreement
and supersedes all prior agreements and understandings with respect to the
subject matter hereof.
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<PAGE> 6
IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representatives to execute this Agreement, all as of the date first
above written.
INTER-ATLANTIC SECURITIES CORPORATION
By: /s/ Andrew S. Lerner
___________________________________
Name: Andrew S. Lerner
Title: Managing Director
GCA LTD.
By: /s/ Donald J. Matthews
___________________________________
Name: Donald J. Matthews
Title: Chief Executive Officer
GLOBAL CAPITAL ACCESS, LTD.
By: /s/ Donald J. Matthews
___________________________________
Name: Donald J. Matthews
Title: Chief Executive Officer
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<PAGE> 1
Exhibit 10.13
GCA LTD.
-------------------------------------------------------------
COMMON SHARE PURCHASE AGREEMENT
AUGUST 27, 1998
-------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE
1. PURCHASE AND SALE OF COMMON SHAREs ......................................1
1.1 Issuance of Common Shares ..........................................1
2. CLOSING DATE; DELIVERY ..................................................1
2.1 Closing ............................................................1
2.2 Delivery ...........................................................2
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY ...........................2
3.1 Organization .......................................................2
3.2 Capitalization .....................................................2
3.3 Authority ..........................................................2
3.4 Issuance of Shares .................................................2
3.5 No Conflict with Law or Documents ..................................2
3.6 Consents, Approvals and Private Offering ...........................3
3.7 Litigation .........................................................3
3.8 Conformity with Legal Requirements .................................3
3.9 No Brokers or Finders ..............................................3
3.10 Disclosures ........................................................3
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS ........................3
4.1 Legal Power ........................................................3
4.2 Due Execution ......................................................4
4.3 Investment Representations .........................................4
5. COVENANTS OF THE COMPANY ................................................6
5.1 Information ........................................................6
6. CONDITIONS TO CLOSING ...................................................6
6.1 Conditions to Obligations of the Purchaser .........................6
6.2 Conditions to Obligations of the Company ...........................7
7. MISCELLANEOUS ...........................................................8
7.1 Governing Law ......................................................8
7.2 Survival ...........................................................8
7.3 Successors and Assigns .............................................8
7.4 Entire Agreement ...................................................8
7.5 Separability .......................................................8
7.6 Amendment and Waiver ...............................................8
7.7 Notices ............................................................8
7.8 Fees and Expenses ..................................................9
7.9 Titles and Subtitles ...............................................9
7.10 Counterparts .......................................................9
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<PAGE> 3
GCA LTD.
COMMON SHARE PURCHASE AGREEMENT
This Common Share Purchase Agreement (this "Agreement") is made as of
August 27, 1998 by and among GCA Ltd., a Bermuda corporation (the "Company"),
and each of the purchasers who are signatories hereto (individually, a
"Purchaser" and collectively, the "Purchasers").
In consideration of the mutual promises, representations, warranties and
conditions set forth in this Agreement, the Company and each Purchaser
(severally and not jointly), intending to be legally bound, agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES.
1.1 Issuance of Common Shares.
(a) The Company has authorized the issuance and sale to the
Purchasers of its Common Shares, par value $1.00 per share (the "Common
Shares").
(b) In reliance upon each Purchaser's representations and warranties
contained in Section 4 hereof and subject to the terms and conditions set forth
herein, the Company hereby agrees to sell to each Purchaser the number of Common
Shares set forth below such Purchaser's signature on the signature page bearing
such Purchaser's name at the purchase price set forth on such signature page.
(c) In reliance upon the representations and warranties of the
Company contained in Section 3 hereof, and subject to the terms and conditions
set forth herein, each Purchaser hereby agrees to purchase the Common Shares set
forth on the signature page bearing such Purchaser's name. Each Purchaser shall
severally, and not jointly, be liable for only the purchase of the Common Shares
that appear on the signature page hereof that relates to such Purchaser.
(d) The Company's agreement with each of the Purchasers is a
separate agreement, and the sale of the Common Shares to each of the Purchasers
is a separate sale.
2. CLOSING DATE; DELIVERY.
2.1 Closing. The closing of the sale and purchase of the Common Shares
under this Agreement (the "Closing"), shall be held at 10:00 a.m. (Bermuda Time)
at the offices of the Company on the same date as the closing of the initial
public offering by the Company of its Common Shares (the "IPO"), or at such
other time or on such other date as the Purchasers and the Company may mutually
agree (the "Closing Date"). If the IPO shall not have occurred by December 31,
1998, any party may terminate its obligations hereunder.
<PAGE> 4
2.2 Delivery. At the Closing, subject to the terms and conditions hereof,
the Company shall deliver to each Purchaser Common Shares, registered in the
name of each Purchaser or its nominee, representing the Common Shares to be
purchased by each such Purchaser from the Company, dated as of the Closing Date,
against payment of the purchase price therefor by wire transfer, unless other
means of payment shall have been agreed upon by such Purchaser and the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to each Purchaser as of the
date hereof and as of the Closing Date as follows:
3.1 Organization. The Company is a corporation duly organized, validly
existing and in good standing under the laws of Bermuda. The Company has all
requisite power and authority to own and lease its properties and to conduct its
business as now conducted.
3.2 Capitalization. On the date of this Agreement, the authorized capital
stock of the Company consists of 100,000,000 Common Shares, and 50,000,000
Preferred Shares, par value $1.00 per share, of which 12,000 Common Shares and
no Preferred Shares are issued and outstanding. All of the issued and
outstanding Common Shares have been duly authorized, validly issued and are
fully paid and nonassessable.
3.3 Authority. The Company has all requisite power and authority to enter
into this Agreement, and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company and constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditor's rights from time
to time in effect and subject to general equity principles.
3.4 Issuance of Shares. The Common Shares, when issued against payment
therefor pursuant to the terms of this Agreement will be duly and validly
authorized and issued, fully paid and nonassessable, and shall have been issued
in compliance with all applicable laws.
3.5 No Conflict with Law or Documents. The execution, delivery and
consummation of this Agreement and the transactions contemplated hereby will not
(a) conflict with any provisions of the Memorandum of Association or Bylaws of
the Company; or (b) result in any violation of or default or loss of a benefit
under, or permit the acceleration of any obligation under (in each case, upon
the giving of notice, the passage of time, or both) any mortgage, indenture,
lease, agreement or other instrument, permit, franchise, license, judgment,
order, decree, law, ordinance, rule or regulation applicable to the Company.
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<PAGE> 5
3.6 Consents, Approvals and Private Offering. Except for any filings
required under applicable securities laws, all of which shall have been made as
of the Closing Date to the extent required as of such time, no consent,
approval, order or authorization of, or registration, declaration or filing
with, any governmental authority is required to be made or obtained by the
Company in connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
3.7 Litigation. There are no actions, suits, notices, hearings, inquiries,
proceedings or investigations pending or, to the Company's knowledge threatened,
against or affecting the Company that in the aggregate could reasonably be
anticipated to result in any material adverse effect on the Company. Neither the
Company nor, to the Company's knowledge, any of its officers or directors, is
subject to any order, writ, injunction or decree of any court or of any federal,
state, municipal or other domestic or foreign governmental department,
commission, board, bureau, agency or instrumentality.
3.8 Conformity with Legal Requirements. The operations of the Company as
now conducted are not in violation of, nor is the Company in default under, any
applicable law, statute, standard, ordinance, code, consent, registration,
order, rule, regulation, or judgement of any court, arbitrator, tribunal or
governmental authority (collectively, "Laws") presently in effect, except for
violations and defaults as do not and could not reasonably be expected to, in
the aggregate, have a material adverse effect on the Company.
3.9 No Brokers or Finders. No person has or will have, as a result of the
transactions contemplated by this Agreement, any right, interest or claim
against or upon the Company for any commission, fee or other compensation as a
finder or broker because of any act or omission by the Company.
3.10 Disclosures. Neither this Agreement, any Schedule nor any Exhibit to
this Agreement contains any untrue statement of material fact or omits to state
any material fact necessary to make the statements contained herein or therein
not misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby severally represents and warrants to, and
covenants with the Company as follows:
4.1 Legal Power. If such Purchaser is a corporation, partnership or trust,
it has the requisite corporate, partnership, trust or fiduciary power, as
appropriate, and is authorized, to enter into this Agreement to purchase the
Common Shares hereunder, and to carry out and perform its obligations under the
terms of this Agreement. If such Purchaser is an individual, it has full legal
right, power and authority to enter into this Agreement, to purchase the Common
Shares hereunder, and to carry out and perform its obligations under the terms
of this Agreement.
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<PAGE> 6
4.2 Due Execution. This Agreement has been duly authorized (and, if such
Purchaser is a corporation, partnership, trust or fiduciary, executed and
delivered) by such Purchaser, and, upon due execution and delivery by the
Company, will be valid and binding agreements of such Purchaser, enforceable
against such Purchaser in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws relating to
or affecting creditor's rights from time to time in effect and subject to
general equity principles.
4.3 Investment Representations. Each Purchaser acknowledges that:
(a) the availability of the exemption from registration under the
Act relied upon by the Company in issuing the Common Shares is dependent, in
part, upon the truth of the representations made herein;
(b) such Purchaser is thoroughly familiar with the proposed business
of the Company and has made all investigations thereof which such Purchaser
deems necessary or desirable;
(c) such Purchaser has such knowledge and experience in financial,
tax, and business matters in general, and investments and securities in
particular, as to enable such Purchaser to evaluate the merits and risks of an
investment in the Common Shares and to make an informed investment decision with
respect thereto;
(d) such Purchaser is familiar with the business, lack of past
performance, and prospects of the Company, including the risks associated
therewith;
(e) such Purchaser: (1) has had the opportunity to obtain all
information requested by him for any purpose related to this Agreement and the
transactions contemplated hereby; and (2) has had the opportunity to meet with
representatives of the Company and to have them answer any questions and provide
such additional information regarding the terms and conditions of the
transactions contemplated hereby and the business and prospects of the Company,
as deemed relevant by such Purchaser, all of which questions have been answered
and all of such requested information has been provided to the full satisfaction
of such Purchaser. Such Purchaser is aware that an investment in the Common
Shares is speculative and involves significant risks, including, among other
things, the risk of the loss of such Purchaser's entire investment in the Common
Shares;
(f) such Purchaser is an "accredited investor" as such term is
defined in Rule 501 of the Act and was not formed for the specific purpose of
acquiring the Common Shares. The definition of accredited investor appears as
Exhibit A to this Agreement;
(g) neither the Securities and Exchange Commission (the "SEC") nor
any state securities commission has approved the Common Shares to be received by
such Purchaser or passed upon or endorsed the merits of an investment therein or
confirmed the accuracy or adequacy of any information provided by the Company to
such Purchaser;
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<PAGE> 7
(h) the Common Shares are not registered under the Act or under any
applicable state securities law and must be held indefinitely unless they are
subsequently so registered or unless an exemption from such registration is
available;
(i) the Company is under no obligation to register the Common Shares
under any circumstances or to attempt to make available any exemption from
registration under the Act or any applicable state securities law, at such
Purchaser's expense or otherwise;
(j) such Purchaser recognizes that he must bear the substantial
economic risks of his investment in the Common Shares and that such Common
Shares may not be sold, transferred, hypothecated or otherwise disposed of
unless they are subsequently registered under the Act pursuant to the filing of
an effective registration statement and under applicable state securities laws
or exemption from such registration is available and there is provided to the
Company by such Purchaser an opinion of counsel satisfactory to the Company or
no-action letters from the SEC and any appropriate state regulatory agencies to
the effect that registration under the Act and any applicable state securities
law is not required in connection with the transaction. Each certificate
representing Common Shares will bear the following legend, or one similar
thereto, drawing attention to the restrictions on its transferability:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE SOLD, ASSIGNED,
PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS."
(k) if, at a time when registration is required, it is legally
permissible for the Purchaser to sell the Common Shares privately without
registration, the Common Shares so sold will be restricted in the hands of the
purchaser. In the event that there is a public market for the Common Shares at
that time, such purchaser may only be willing to pay a price less than the price
for unrestricted securities; and
(l) such Purchaser (1) is aware that any routine sales under Rule
144 of the SEC under the Act of the Common 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; and (2) is aware that Rule 144 is not
presently available for use by the Purchaser for resale of such Common Shares;
and
(m) such Purchaser's principal residence is set forth next to such
Purchaser's name on the signature page to this Agreement.
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<PAGE> 8
5. COVENANTS OF THE COMPANY
5.1 Information.
(a) If the Company becomes subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to Sections 13 or 15(d), the Company shall deliver to each
holder of Common Shares all annual, quarterly or other reports to the extent
furnished to its public security holders.
(b) If the Company is not subject to the requirements of Sections 13
or 15(d) of the Exchange Act, the Company shall cause to be furnished promptly
to each holder of Common Shares, so long as such holder owns at least 5,000
Common Shares, (i) as soon as available, and in any event within 150 days after
the end of each fiscal year of the Company, a consolidated balance sheet of the
Company and its consolidated subsidiaries, if any, as of the end of such fiscal
year and the related consolidated statements of income, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative form
the figures for the previous fiscal year, all prepared in accordance with
generally accepted accounting principles and reported on by independent
certified public accountants; and (ii) as soon as available, and in any event
within 45 days after the end of each of the first three fiscal quarters of each
fiscal year of the Company, a consolidated balance sheet of the Company and its
consolidated subsidiaries, if any, as of the end of such quarter and the related
consolidated statements of income and stockholder's equity (together with any
other quarterly financial statements being prepared by the Company at such
time), setting forth in each case in comparative form the figures for the
corresponding quarter and the corresponding portion of the Company's previous
fiscal year.
(c) At any reasonable time during normal business hours and from
time to time, the Company will permit any Purchaser who then owns at least 5,000
Common Shares, or any agent or representative of such Purchaser, to examine the
books and records and visit the properties of the Company and to discuss the
Company's affairs, finances and accounts with any of its officers or directors;
provided that any such Purchaser exercising its rights hereunder shall (i) use
all reasonable efforts to ensure that any such examination or visit results in a
minimum of disruption to the operations of the Company and (ii) agree in writing
to keep any and all proprietary information of the Company disclosed to such
Purchaser in the course of such examination or visit confidential and not use
such proprietary information for any purpose.
6. CONDITIONS TO CLOSING.
6.1 Conditions to Obligations of the Purchaser. Each Purchaser's
obligation to purchase the Common Shares at the Closing is subject to the
fulfillment, at or prior to the Closing, of all of the following conditions:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof shall
be true and
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<PAGE> 9
correct in all material respects and the Company shall have performed in all
material respects all obligations and conditions herein required to be performed
by it on or prior to the Closing Date.
(b) Qualifications, Legal Investment. All authorizations, approvals,
or permits, if any, of any applicable governmental authority or regulatory body
that are required in connection with the lawful sale and issuance of the Common
Shares pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing Date. No stop order or other order enjoining
the sale of the Common Shares shall have been issued and no proceedings for such
purpose shall be pending or, to the knowledge of the Company, threatened by the
SEC, or any commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale and
issuance of the Common Shares shall be legally permitted by all laws and
regulations to which each Purchaser and the Company are subject.
(c) Initial Public Offering. There shall have been consummated the
IPO of not less than 14,000,000 Common Shares.
6.2 Conditions to Obligations of the Company. The Company's obligation to
issue and sell the Common Shares at the Closing is subject to the fulfillment to
the Company's satisfaction, on or prior to the Closing, of the following
conditions:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by the Purchasers in Section 4 hereof
shall be true and correct in all material respects and the Purchasers shall have
performed all obligations and conditions herein required to be performed by them
on or prior to the Closing Date.
(b) Qualifications, Legal Investment. All authorizations, approvals,
or permits, if any, of any applicable governmental authority or regulatory body
that are required in connection with the lawful sale and issuance of the Common
Shares pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing Date. No stop order or other order enjoining
the sale of the Common Shares shall have been issued and no proceedings for such
purpose shall be pending or, to the knowledge of the Company, threatened by the
SEC, or any commissioner of corporations or similar officer of any state having
jurisdiction over this transaction.
(c) Lock-up Agreement. The Purchasers shall have entered into a
lock-up agreement in substantially the form attached as Exhibit D hereto.
(d) Initial Public Offering. There shall have been consummated the
IPO of not less than 14,000,000 Common Shares.
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<PAGE> 10
7. MISCELLANEOUS.
7.1 Governing Law. This Agreement shall be governed by and construed under
the laws of Bermuda without regard to principles of conflict of laws.
7.2 Survival. The representations and warranties made by the parties in
this Agreement shall survive the consummation of the transactions herein
contemplated until the expiration of the statute of limitations with respect to
claims arising under Section 10(b) of the Exchange Act.
7.3 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
7.4 Entire Agreement. This Agreement and the Exhibits and Schedules
hereto, and the other documents delivered pursuant hereto, constitute the full
and entire understanding and agreement among the parties with regard to the
subjects hereof and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants, or agreements except as
specifically set forth herein.
7.5 Separability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
7.6 Amendment and Waiver. Except as otherwise provided herein, any term of
this Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and the Purchaser. Any
amendment or waiver effected in accordance with this section shall be binding
upon each future holder of any security purchased under this Agreement
(including securities into which such securities have been converted) and the
Company.
7.7 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery, on the first business day following mailing by overnight
courier, delivery charges prepaid, or on the fifth day following mailing by
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company and the Purchaser at the respective addresses included
herein, or at such other address, notice of which is given in accordance with
the provisions of this Section 7.7.
-8-
<PAGE> 11
7.8 Fees and Expenses. The Company and the Purchasers shall bear their own
expenses and legal fees incurred on its behalf with respect to this Agreement
and the transactions contemplated hereby.
7.9 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.10 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 instrument.
-9-
<PAGE> 12
GCA LTD.
COMMON SHARE PURCHASE AGREEMENT
Frederick S. Hammer
- ------------------------------------ ----------------------------------------
Purchaser's Name-Please Print Nominee Name (if appropriate)
- ------------------------------------ ----------------------------------------
Social Security/Tax I.D. Number Telephone Number
520 Meadowbrook Circle Wayne, PA 19087
- ------------------------------------ ----------------------------------------
Address City, State and Zip Code
/s/ Frederick S. hammer August 27, 1998
- ------------------------------------ ----------------------------------------
Signature Date
Number of Aggregate
Common Shares Purchase Price
12,500 $176,250
- ------------------------ ----------
Enclose check payable to: GCA LTD. or
FUNDS SHOULD BE WIRED TO:
AGREED TO AND ACCEPTED:
GCA LTD.
By: /s/ Donald J. Matthews Date: August 27, 1998
------------------------------------------- -----------------
Donald J. Matthews, Chief Executive Officer
<PAGE> 13
GCA LTD.
COMMON SHARE PURCHASE AGREEMENT
Robert M. Lichten
- ------------------------------------ ----------------------------------------
Purchaser's Name-Please Print Nominee Name (if appropriate)
- ------------------------------------ ----------------------------------------
Social Security/Tax I.D. Number Telephone Number
31 Summit Road Port Washington, NY 11050
- ------------------------------------ ----------------------------------------
Address City, State and Zip Code
/s/ Robert M. Lichten August 27, 1998
- ------------------------------------ ----------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Number of Aggregate
Common Shares Purchase Price
12,500 $176,250
- ------------------------ ----------
Enclose check payable to: GCA LTD. or
FUNDS SHOULD BE WIRED TO:
- --------------------------------------------------------------------------------
AGREED TO AND ACCEPTED:
GCA LTD.
By: /s/ Donald J. Matthews Date: August 27, 1998
------------------------------------------- -----------------
Donald J. Matthews, Chief Executive Officer
<PAGE> 14
GCA LTD.
COMMON SHARE PURCHASE AGREEMENT
Michael P. Esposito, Jr.
- ------------------------------------ ----------------------------------------
Purchaser's Name-Please Print Nominee Name (if appropriate)
- ------------------------------------ ----------------------------------------
Social Security/Tax I.D. Number Telephone Number
550 Prospect Avenue Oradell, NJ 07649
- ------------------------------------ ----------------------------------------
Address City, State and Zip Code
/s/ Michael P. Esposito, Jr. August 27, 1998
- ------------------------------------ ----------------------------------------
Signature Date
Number of Aggregate
Common Shares Purchase Price
85,000 $1,198,500
- ------------------------ ----------
Enclose check payable to: GCA LTD. or
FUNDS SHOULD BE WIRED TO:
AGREED TO AND ACCEPTED:
GCA LTD.
By: /s/ Donald J. Matthews Date: August 27, 1998
------------------------------------------- -----------------
Donald J. Matthews, Chief Executive Officer
<PAGE> 15
GCA LTD.
COMMON SHARE PURCHASE AGREEMENT
Andrew S. Lerner
- ------------------------------------ ----------------------------------------
Purchaser's Name-Please Print Nominee Name (if appropriate)
- ------------------------------------ ----------------------------------------
Social Security/Tax I.D. Number Telephone Number
515 East 85th Street, Apt. 9E New York, NY 10028
- ------------------------------------ ----------------------------------------
Address City, State and Zip Code
/s/ Andrew S. Lerner August 27, 1998
- ------------------------------------ ----------------------------------------
Signature Date
Number of Aggregate
Common Shares Purchase Price
5,000 $ 70,500
- ------------------------ ----------
Enclose check payable to: GCA LTD. or
FUNDS SHOULD BE WIRED TO:
AGREED TO AND ACCEPTED:
GCA LTD.
By: /s/ Donald J. Matthews Date: August 27, 1998
------------------------------------------- ----------------
Donald J. Matthews, Chief Executive Officer
<PAGE> 1
Exhibit 23.3
The Board of Directors and Shareholders
Global Markets Access 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
October 30, 1998
