<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 1999
REGISTRATION NO. 333-62785
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GLOBAL MARKETS ACCESS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
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>
CUMBERLAND HOUSE CT CORPORATION SYSTEM
1 VICTORIA STREET 1633 BROADWAY
HAMILTON, HM AX, BERMUDA NEW YORK, NEW YORK 10019
(441) 492-9702 (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
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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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE(3)
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<S> <C> <C> <C> <C>
Common Shares....................... 23,305,500 $15.00 $349,582,500 $102,122
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(1) Includes 3,000,000 Common Shares that may be sold pursuant to the
Underwriters' over-allotment options.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The Registrant has previously paid $92,166 of the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL 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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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains three forms of prospectus: one to be
used in connection with an underwritten 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 "Alternate Page for the International Prospectus" and "Alternate 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 MARCH 1, 1999
PROSPECTUS
20,000,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
------------------------
All of the 20,000,000 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Global Markets Access Ltd. ("GMA").
Of the 20,000,000 Common Shares offered hereby, 17,000,000 Common Shares are
being offered for sale initially in the United States and Canada by the U.S.
Underwriters (the "U.S. Offering") and 3,000,000 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 "GMAL."
In connection with the formation of GMA and the establishment of a core
group of strategic investors, The PMI Group, Inc., High Ridge Capital Partners
Limited Partnership, Rolaco Holding S.A., Third Avenue Value Fund and Third
Avenue Small-Cap Value Fund (collectively, the "Strategic Investors") have
severally agreed to purchase for investment directly from GMA an aggregate of
3,900,706 Common Shares and Class B Warrants to purchase an aggregate of 550,000
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 $55.0 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 U.S. 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 $50.0 million.
GMA is also offering by a separate prospectus up to 305,500 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 $4.3 million. GMA has also contracted to
sell 90,000 Common Shares directly to certain individuals involved in the
formation of the Company at a purchase price of $14.10 per share, for an
aggregate purchase price of approximately $1.3 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, GMA's directors and officers and
certain other individuals involved in the formation of the Company are expected
to own collectively approximately 17.7% 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 for The PMI Group, Inc. 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 10 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.
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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 $5,050,000. 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
2,550,000 and 450,000 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
March , 1999.
------------------------
Joint Lead Managers and Joint Bookrunners
MERRILL LYNCH & CO. PRUDENTIAL SECURITIES
------------------------
BEAR, STEARNS & CO. INC.
ING BARING FURMAN SELZ LLC
SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
March , 1999
<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
<PAGE> 5
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
GMA and its wholly-owned subsidiaries, Global Markets Guaranty Ltd. and GMG
Marketing Ltd., through which GMA expects to conduct substantially all of its
operations, were each 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
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, included elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to the "Company" mean Global
Markets Access Ltd. ("GMA"), together with its wholly-owned subsidiaries, Global
Markets Guaranty Ltd. (the "Operating Company") and GMG Marketing Ltd. (the
"Marketing 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 Marketing Company was
incorporated in November 1998 in Bermuda and also does not have any operating
history. The Operating Company was licensed in Bermuda on August 28, 1998 as a
Class 3 insurer, which authorizes it to write, among other things, financial
guaranty insurance and reinsurance. See "Glossary of Selected Financial Guaranty
Insurance and Reinsurance 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 insurance and reinsurance on financial
obligations, principally asset-backed and municipal securities, that are rated
"BB" or higher or that are unrated and have in the Company's opinion an
equivalent credit quality. The Company will seek to provide direct financial
guaranty insurance outside of the United States and financial guaranty
reinsurance on a worldwide basis. 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.
According to Asset-Backed Alert, worldwide issuances of asset-backed
securities grew from approximately $291.7 billion during 1997 to approximately
$346.7 billion during 1998, representing an increase of approximately 18.9%. In
addition, Asset-Backed Alert reported that during 1998, approximately 20.6% of
asset-backed securities issued in public offerings were insured. According to
Securities Data Co., the issuance of municipal securities in the United States
grew from approximately $220.7 billion during 1997 to approximately $285.9
billion during 1998, representing an increase of approximately 29.5%. In
addition, Securities Data Co. reported that during 1998, approximately 50.8% of
municipal securities issued in public offerings were insured.
The Company expects to raise gross proceeds of $360.6 million and to have
an equity capitalization of approximately $333.0 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 the Company as a
competitive financial guaranty insurer and reinsurer. As a newly formed entity,
the Company's capital is presently unencumbered by such issues as 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,
Standard & Poor's Ratings Services ("Standard & Poor's") has assigned the
Operating Company a preliminary financial strength rating of "A", and Duff &
Phelps Credit Rating Co. ("Duff & Phelps") and Fitch IBCA, Inc. ("Fitch IBCA")
have each assigned the Operating Company a preliminary claims-paying ability
rating of "A+". The ratings are subject to the Company raising gross proceeds of
at least $350.0 million in the Offerings and the Direct Sales and to the initial
capitalization of the Operating Company exceeding $320.0 million upon
consummation of the Offerings and the Direct Sales.
4
<PAGE> 7
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 insurance and reinsurance
in the United States. ACA Financial Guaranty Corporation ("ACA"), 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. The Company believes that "A" rated financial guaranty
insurance can, in many cases, 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 such as
letters of credit. In addition, the Company believes that "A" rated
financial guaranty insurance may be particularly attractive to issuers that
have previously had limited access to the financial markets and to holders
of financial obligations subject to risk-based capital requirements. The
Operating Company has entered into three reinsurance treaties with ACA that
will become effective upon consummation of the Offerings. Management
believes that the treaties pursuant to which the Operating Company provides
reinsurance to ACA will provide ACA with additional insurance capacity and
will permit ACA to develop further the market for "A" rated financial
guaranty insurance in the United States. See "-- Reinsurance Treaties with
ACA." The Company will also seek to reinsure obligations in circumstances
where the holders of such obligations, including financial institutions and
insurance companies, desire third-party credit enhancement for regulatory
or accounting purposes. The Company will seek to enter into similar
reinsurance arrangements with higher rated third-party credit enhancement
providers based in the United States.
- - Provide Credit Enhancement for Transactions Structured Outside the United
States
The Company believes that financial guaranty insurance has been
underutilized in transactions structured outside the United States,
particularly with respect to asset-backed securities, as issuers of such
financial obligations have instead principally relied on banks and other
financial institutions offering letters of credit and other guarantees for
credit enhancement. As a consequence, the Company believes that an
opportunity exists to provide "A" rated financial guaranty insurance as an
innovative and cost-effective alternative to existing forms of credit
enhancement for such transactions. Initially, an important international
focus for the Company will be to insure financial transactions involving
assets held by trusts or similar special purpose vehicles domiciled in
jurisdictions such as Bermuda, the Cayman Islands and the Island of Jersey.
Such assets are expected typically to originate in the United States or
certain European Union countries and be transferred to such off-shore
jurisdictions in connection with the structuring of such transactions. The
Company will also seek outside the United States to insure and reinsure
obligations in circumstances where the holders of such obligations,
including financial institutions and insurance companies, desire
third-party credit enhancement for regulatory and accounting purposes. The
Company will seek to capitalize on the relationships its management team
has developed with investment banks, commercial banks and other financial
services firms to generate referrals for issuing financial guaranty
insurance and reinsurance. The Company has also established the Marketing
Company to act solely as a marketing agent for the Company. The Marketing
Company will operate a branch office in London, which is a center for
banking and other financial service activities. The Company is not
currently licensed as a financial guaranty insurer or reinsurer in any
jurisdiction other than Bermuda, which will limit its ability to provide
financial guaranty insurance or reinsurance with respect to certain
transactions. 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
5
<PAGE> 8
engage in additional financial guaranty insurance related activities. See
"Risk Factors -- Regulation; Restrictions on Insurance and Reinsurance
Operations."
- - Utilize a Disciplined Underwriting Approach
The Company's underwriting strategy is to insure and reinsure financial
obligations which are expected to make full and timely payment of principal
and interest. Nevertheless, because the Company will be insuring and
reinsuring obligations rated "BB" or higher 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. Over time, the Company will seek to diversify the risks it
insures and reinsures by type of obligor, type of pledged assets,
geographic origination point 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 if higher than expected losses arise in certain
segments of the Company's business. The Company will also seek a private or
"shadow" rating evaluation from one or more nationally recognized rating
agencies on all unrated financial obligations that the Company insures 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
insurance, reinsurance and capital markets professionals to implement its
business strategy. The Company's President 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 a 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. (now part of ACE Limited)
and Executive Risk Inc. Mary Jane Robertson, Managing Principal, Chief
Financial Officer and Treasurer of the Company, has over 21 years
experience in the insurance industry. From 1993 to 1997, Ms. Robertson was
the Chief Financial Officer and a Senior Vice President of Capsure Holdings
Corp. (now part of CNA Surety Corp.), an insurance company focusing
principally on the surety and fidelity insurance business. From 1986 to
1996, Ms. Robertson also served as the Chief Financial Officer and an
Executive Vice President of United Capitol Insurance Company, a
property/casualty insurance company. Matthew J. Cooleen, Managing
Principal, Structured Products of the Company, has over 12 years experience
in the structured finance sector of the financial services industry. From
1997 to 1999, Mr. Cooleen worked at MBIA-Ambac International, a joint
venture between MBIA Insurance Corp. and Ambac Assurance Corporation, where
he was most recently a Managing Director in the International Structured
Finance Department. At MBIA-Ambac International, Mr. Cooleen focused on the
development of the global structured finance and asset-backed financial
guaranty market. From 1995 to 1997, he was a Vice President and Group Head
of the Global Securitization Group of Paribas Capital Markets, where he
founded the Global Securitization/Structured Finance Department. From 1991
to 1995, Mr. Cooleen was a Vice President in the Asset Backed Finance
Department of ING Barings. Bruce W. Bantz, Managing Principal, Marketing
and Business Development of GMA and the Marketing Company, has over 22
years experience in the investment and commercial banking industries,
specializing in structured finance and asset securitization. From 1997 to
1998, Mr. Bantz was a Director and Global Head of Asset-Backed Finance of
Dresdner Kleinwort Benson, the 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, the investment banking division
of NatWest Group PLC. James G. Jachym, Managing Principal, Credit of the
Company, has over 20 years of experience with capital markets and
commercial paper credits. From 1996 to 1999, Mr. Jachym was a Vice
President of BT Alex.Brown Incorporated, where he was responsible for
rating agency matters pertaining to such firm's clients. From 1979 to 1996,
he was employed by Lehman Brothers Inc., where he was a Senior
6
<PAGE> 9
Vice President and was responsible for review and commitment of all
asset-backed commercial paper programs. Lionel J. Marsland-Shaw, Managing
Principal, Risk Management of the Company, has over 28 years experience in
the credit analysis sector of the financial services industry. From 1995 to
1998, Mr. Marsland-Shaw served as General Manager and Chief Executive
Officer of Capital Intelligence, a credit rating and analysis company
specializing in emerging markets. From 1993 to 1995, Mr. Marsland-Shaw was
Director and Head of the London office of Standard & Poor's and was
responsible for its ratings business in the United Kingdom, Ireland and the
Netherlands. In addition, 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 with 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
insurance and reinsurance markets.
The Company's principal executive office is located at Cumberland House, 1
Victoria Street, Hamilton, HM AX, Bermuda, and its telephone number is (441)
492-9702.
REINSURANCE TREATIES WITH ACA
The Operating Company has entered into three reinsurance treaties with ACA,
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
Operating Company is required to provide, and ACA is required to purchase,
reinsurance on a fixed percentage of the risks associated with financial
guaranty insurance policies issued by ACA covering new issues of financial
obligations with a rating of "BB" or higher. The other two treaties are
facultative treaties under which the Operating Company and ACA are each
obligated to offer the other the opportunity to reinsure each financial
obligation the other insures on a direct or assumed basis. These facultative
treaties also set forth the principal terms under which the Operating Company
and ACA may purchase such reinsurance from the other on a case-by-case basis.
The Operating Company expects that pursuant to the facultative treaty under
which it provides reinsurance to ACA, the Operating Company may reinsure a
greater percentage of certain new issues of financial obligations insured by ACA
than the percentage specified under the quota share treaty. In addition, the
Operating Company expects that pursuant to such facultative treaty, it may
reinsure through one or more bulk reinsurance transactions certain risks insured
by ACA before the consummation of the Offerings as well as, on an ongoing basis,
certain risks insured by ACA with respect to obligations trading in the
secondary market, neither of which are covered by the quota share treaty.
Management anticipates that at least in the early stages of its business
development, the premiums the Operating Company receives under the treaties with
ACA will account for a substantial portion of the Company's total premium
income.
ACA commenced operations as an "A" rated financial guaranty insurer in
October 1997 and, to the Company's knowledge, is currently the only "A" rated
financial guaranty insurer operating in the United States. ACA is a
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 December 31, 1998, ACA
wrote financial guaranty insurance covering approximately 145 different
underlying credits representing approximately $2.2 billion in aggregate
principal amount for direct and assumed premiums written during that period
totaling approximately $35.7 million. A majority of the financial guaranty
insurance written by ACA has covered municipal
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obligations and obligations issued by other tax-exempt organizations, although
ACA has also insured asset-backed and corporate securities as well as other
financial obligations.
SPONSORS AND STRATEGIC INVESTORS
The Company has been established through the sponsorship of ACA and its
affiliate American Capital Access Service Corporation ("ACA Service") and
Inter-Atlantic Securities Corporation ("Inter-Atlantic" and, together with ACA
and ACA Service, the "Sponsors"). ACA Service 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 and Life Re (Holdings), Ltd., the first publicly traded
Bermuda-based reinsurance company focusing principally on writing annuity and
life reinsurance. Inter-Atlantic has provided certain services to the Company in
connection with the Offerings, the sales to the Strategic Investors and the
development of the Company's operations, and ACA Service has acted as a
consultant 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 The PMI Group, Inc.
("PMI"), High Ridge Capital Partners Limited Partnership ("High Ridge"), Rolaco
Holding S.A. ("Rolaco"), Third Avenue Value Fund and Third Avenue Small-Cap
Value Fund (Third Avenue Value Fund and Third Avenue Small-Cap Value Fund are
hereinafter referred to as the "Third Avenue Funds" and, together with PMI, High
Ridge and Rolaco, the "Strategic Investors") for the purchase for investment
directly from the Company of an aggregate of 3,900,706 Common Shares and Class B
Warrants to purchase an aggregate of 550,000 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 $55.0 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 the Joint
Lead Managers and Joint Bookrunners of the U.S. Offering on behalf of the
Underwriters and, in certain cases, 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 carefully the 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................... 20,000,000 shares
Common Shares Offered in the
Direct Sales(1)............... 4,296,206 shares
Common Shares to be
Outstanding after the
Offerings and the Direct
Sales(2).................... 24,296,206 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 $277.0 million
and $60.5 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................. GMAL
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(1) Unless otherwise noted, this Prospectus assumes that, upon consummation of
the Offerings, the sale of 3,900,706 Common Shares and Class B Warrants to
purchase 550,000 Common Shares to the Strategic Investors has been completed
and the 395,500 Common Shares offered by the Company to its directors and
officers and certain other individuals involved in the formation of the
Company have been purchased. Such directors, officers and other 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 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 to be outstanding
after the Offerings and the Direct Sales excludes the 12,000 Common Shares
currently held by the Purpose Trust, 3,053,184 Common Shares issuable upon
the exercise of outstanding Class A Warrants, 550,000 Common Shares issuable
upon the exercise of Class B Warrants to be included in the Direct Sales,
1,148,645 Common Shares issuable upon the exercise of options to be granted
prior to or upon consummation of the Offerings and 100,000 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, 27,296,206 Common Shares are expected to be
outstanding, the number of Common Shares issuable upon the exercise of
outstanding Class A Warrants will increase to 3,413,184 Common Shares and
the number of Common Shares issuable upon the exercise of options to be
granted prior to or upon consummation of the Offerings will increase to
1,313,645 Common Shares. The number of Common Shares issuable upon the
exercise of the Class B Warrants and the number of Common Shares reserved
for future issuance pursuant to the Stock Option Plan 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 consider carefully 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 insurance and reinsurance 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 incorporated
in August 1998 and neither has any operating history. The Marketing Company was
incorporated in November 1998 and also does not have 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
insurance and reinsurance market depends on, among other things, (i) the demand
(which is largely undeveloped) for "A" rated financial guaranty insurance and
reinsurance 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 insurance and reinsurance policies it
writes. Because the market for "A" rated financial guaranty insurance is in the
early stages of development, there can be no assurance that the demand for such
insurance will be sufficient to support the Company's planned level of
operations or that the Company will be able to capture a sufficient portion of
such market.
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, one of the Company's Sponsors, pursuant to the
reinsurance treaties between the Operating Company and ACA. To the Company's
knowledge, ACA is currently 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 the Operating Company 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, the Operating Company
may incur a greater level of losses than it anticipates under its reinsurance
treaties with ACA. ACA is also subject to certain limitations when doing
business with non-admitted reinsurers such as the Operating Company. Certain
states may limit the aggregate amount of reinsurance ACA may cede to the
Operating Company and to all non-admitted reinsurers in the aggregate,
regardless of the type or amount of security posted by the Operating Company and
any such other non-admitted reinsurers. Furthermore, the rating agencies that
have issued a financial strength or claims-paying ability rating on ACA may
limit the aggregate amount of reinsurance ACA
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may cede to any one reinsurer, including the Operating Company. There can be no
assurances that these limitations will not have a material adverse effect on the
Company. The reinsurance treaties between the Operating Company and ACA may be
terminated upon the happening of certain events, and the facultative treaties
between the Operating Company and ACA are terminable on 90 days' notice. If the
Operating Company's reinsurance treaties with ACA were to be terminated for any
reason, the Company would be adversely affected. See "Business -- Reinsurance
Treaties with ACA."
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 insurance. Due to the
limited number of companies providing financial guaranty insurance, reinsurance
or other forms of third-party credit enhancement, management expects initially
to target a 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 potential clients, the Company would be adversely affected.
REGULATION; RESTRICTIONS ON INSURANCE AND REINSURANCE OPERATIONS.
Bermuda. The Operating Company 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, limit transfers of ownership of its capital shares; and provide for
certain periodic examinations of the Operating Company and its financial
condition. The Operating Company has received from the Bermuda Minister of
Finance an exemption from the minimum solvency requirement until the
consummation of the Offerings, when the Operating Company will meet such
requirements. The Bermuda statutes and regulations may also restrict the ability
of the Operating Company to write insurance and reinsurance policies and
distribute funds to GMA. Generally, the Bermuda 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. See "Business -- Regulation -- Bermuda."
United States. Neither GMA nor its subsidiaries are currently licensed as
a financial guaranty insurer or reinsurer in any jurisdiction in the United
States. The insurance laws of each state in the United States regulate the sale
of insurance within its 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 in the United States
where an insurer is not admitted to do business is prohibited. The sale of
reinsurance, however, is generally permitted within each state of the United
States and the District of Columbia by non-admitted reinsurers, provided that
certain requirements are satisfied, such as the need to obtain necessary
approvals from certain state insurance regulators in connection with a
particular reinsurance transaction and/or the need for the insurer to satisfy
applicable credit for reinsurance requirements.
The Operating Company has adopted Operating Guidelines pursuant to which it
intends to conduct its reinsurance business in the United States in a manner
that will comply with the requirements applicable to non-admitted reinsurers and
to conduct its insurance business with persons located in the United States in a
manner that will not subject the Operating Company to the insurance licensing
laws of any jurisdiction in the United States. There can be no assurance,
however, that challenges to the Operating Company's reinsurance and insurance
activities in the United States will not be raised in the future or that the
restrictions on the Operating Company's activities associated with its status as
a non-admitted reinsurer and its lack of any insurance licenses in the United
States will not place the Company at a competitive disadvantage or otherwise
adversely affect the Company. In addition, changes in the Company's business
strategy or in the applicable insurance laws in the United States may lead
management to conclude that the Operating Company should seek to become an
admitted reinsurer in, or to obtain insurance licenses from, one or more
jurisdictions in the United States. If such a conclusion were to be reached,
there can be no assurance that the Operating Company would be able to become an
admitted reinsurer or be able to obtain such licenses. Furthermore, the process
of obtaining such status or licenses is often costly and may take a long time,
which could adversely affect the Company and its objective of being a low-cost
insurance and reinsurance provider.
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Because many jurisdictions in the United States do not permit insurance
companies to take credit on their statutory financial statements for reinsurance
obtained from unlicensed or non-admitted reinsurers unless appropriate security
measures are in place, it is anticipated that the Operating Company's
reinsurance clients, including ACA, will require it to post a letter of credit
or enter into other security arrangements. If the Operating 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 letter of credit
facility or otherwise to secure its obligations to its reinsurance clients,
which would adversely affect the Company. The Operating Company does not
currently have a letter of credit facility established and if the Operating
Company is unable to obtain such a facility on commercially acceptable terms or
is unable to arrange for other types of security, the Operating Company's
ability to operate its reinsurance business may be severely limited.
The Operating Company's quota share and facultative treaties with ACA
require the Operating Company to take all steps necessary in order to permit ACA
to receive credit for such reinsurance in all applicable jurisdictions. The
Operating Company expects typically to post a letter of credit or other security
to enable ACA to obtain full credit for the reinsurance provided under the
treaties. If the Operating Company is unable to satisfy any requirement needed
in order for ACA to receive credit for the Operating Company's reinsurance, ACA
would have the right to terminate its reinsurance treaties with the Operating
Company, which would adversely affect the Company.
Outside the United States -- Insurance. Initially, an important
international focus for the Company will be to insure financial transactions
involving assets held by trusts or similar special purpose vehicles domiciled in
jurisdictions such as Bermuda, the Cayman Islands and the Island of Jersey. Such
assets are expected typically to originate in the United States and certain
European Union countries and be transferred to such off-shore jurisdictions in
connection with the structuring of such transactions. The Operating Company has
obtained the necessary licenses under Bermuda law to provide financial guaranty
insurance to certain special purpose vehicles located in Bermuda. The Company
believes that no insurance licenses are required under the laws of the Cayman
Islands to provide financial guaranty insurance to such entities located in the
Cayman Islands, provided that the Operating Company conducts the negotiation,
conclusion and execution of insurance contracts, administers insurance policies,
and solicits insurance business in respect of persons ordinarily resident or
property ordinarily based in the Cayman Islands, from outside the Cayman
Islands. Similarly, the Company believes that the Operating Company is permitted
under the laws of the Island of Jersey to provide financial guaranty insurance
to such entities located in the Island of Jersey without obtaining an insurance
permit, subject to certain restrictions, principally that the Operating Company
conduct marketing, negotiating, underwriting, contract execution, policy
administration and claims handling activities entirely outside the Island of
Jersey. In addition, in connection with these types of transactions, the
Operating Company, as a result of being licensed in Bermuda only, will
investigate risks and conduct post-closing surveillance activities from Bermuda,
rather than from the Cayman Islands, the Island of Jersey or the jurisdiction
from which the assets underlying such transactions originated, such as the
United States and certain European Union countries. The Operating Company
expects to perform its underwriting analysis on such transactions in Bermuda and
to obtain the information needed to conduct such analysis from the proposed
insured, persons acting as agent for the proposed insured and other third
parties. The Operating Company also expects to provide financial guaranty
insurance to financial institutions and insurance companies outside the United
States seeking to manage their regulatory risk-based capital requirements, where
it may do so without obtaining insurance licenses in jurisdictions other than
Bermuda.
The Company has adopted Operating Guidelines pursuant to which it intends
to operate its international insurance business in a manner that will comply
with applicable legal requirements and to conduct such insurance business in a
manner that will not subject it to the insurance licensing laws of any
jurisdiction other than Bermuda. There can be no assurance, however, that
challenges to the Operating Company's insurance activities in such jurisdictions
will not be raised or that the restrictions on the Operating Company's
activities associated with its lack of any insurance licenses in such
jurisdictions will not place the Company at a competitive disadvantage or
otherwise adversely affect the Company. In addition, changes in the Company's
business strategy, including a decision to target other jurisdictions that are
used as domiciles for structuring asset-backed transactions, or changes in
applicable insurance laws in the Cayman Islands, the Island of Jersey,
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the United States or certain European Union countries may lead management to
conclude that the Operating Company should seek insurance licenses in
jurisdictions other than Bermuda. If such a conclusion were to be reached, there
can be no assurance that the Operating Company would be able to obtain such
licenses. Furthermore, the process of obtaining such licenses is often costly
and may take a long time, which could adversely affect the Company and its
objective of being a low-cost insurance provider.
The Company believes that the securities issued by trusts and other special
purpose vehicles that purchase financial guaranty insurance from the Operating
Company will likely be sold in many jurisdictions, principally including the
United States and the United Kingdom. In part because the Operating Company will
issue its financial guaranty insurance policies to such trusts and other special
purpose vehicles, the Company does not believe that the ownership of the
securities issued by such entities by an investor residing in a particular
jurisdiction would require the Operating Company to obtain an insurance license
in such jurisdiction. The Company has adopted Operating Guidelines pursuant to
which it intends to issue its financial guaranty insurance policies to such
trusts and other special purpose vehicles that issue securities in the United
States in a manner that will not subject the Operating Company to the insurance
licensing laws of any jurisdiction in the United States. These Operating
Guidelines provide that in such cases, among other things, (i) the Operating
Company will negotiate, issue and deliver its financial guaranty policy to an
insured located outside the United States; (ii) the Operating Company will
investigate risks and conduct post-closing surveillance from outside the United
States; (iii) the Operating Company will not solicit, advertise or otherwise
sell its policies in the United States; (iv) under the terms of the securities
that are subject to the financial guaranty insurance, principal and interest
will be due and payable to a trustee located outside the United States; and (v)
no policy, certificate of insurance, rider, endorsement or other evidence of
insurance will be delivered by the Operating Company to any securityholder,
excluding an issuer or trustee when not acting in the capacity of a
securityholder. The Operating Company has also adopted Operating Guidelines
pursuant to which it intends to issue its financial guaranty insurance policies
to trusts and other special purpose vehicles that issue securities in the United
Kingdom in a manner that will not subject the Operating Company to the insurance
licensing laws of the United Kingdom. These Operating Guidelines provide, among
other things, that the Operating Company will make underwriting decisions and
issue all policies exclusively from outside the United Kingdom and not otherwise
effect or carry out any contracts of insurance in the United Kingdom.
Because securities insured by the Operating Company may be held in many
jurisdictions, there can be no assurance that challenges will not be made by
regulatory authorities or others in a particular jurisdiction, including the
United States or the United Kingdom, where securities insured by the Operating
Company are held seeking to require the Operating Company to obtain an insurance
license in such jurisdiction. If any such challenge were to be successfully
asserted, there can be no assurance that the Operating Company would be able to
obtain the required licenses. Furthermore, the process of obtaining any such
license may be costly and may take a long time, which could adversely affect the
Company and its objective of being a low-cost insurance provider.
Outside the United States -- Reinsurance. The Company also expects to seek
reinsurance opportunities in Bermuda and certain European Union countries. The
Operating Company has obtained the necessary licenses under Bermuda law to
provide financial guaranty reinsurance to certain insurers domiciled in Bermuda,
and it intends to conduct its reinsurance business in the European Union in a
manner that will not subject the Operating Company to insurance licensing laws
in any European Union country. There can be no assurance, however, that
challenges to the Operating Company's reinsurance activities in European Union
countries will not be raised in the future or that the restrictions on the
Operating Company's reinsurance activities in European Union countries
associated with its lack of any insurance licenses in such countries will not
place the Company at a competitive disadvantage. In addition, changes in the
Company's business strategy or applicable insurance laws in particular European
Union countries may lead management to conclude that the Operating Company
should seek insurance licenses in one or more European Union countries. If such
a conclusion were to be reached, there can be no assurance that the Operating
Company would be able to obtain such licenses. Furthermore, the process of
obtaining such licenses is often costly and may take a long time, which could
adversely affect the Company and its objective of being a low-cost reinsurance
provider.
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Marketing Company. Neither GMA nor its subsidiaries are licensed as an
insurer in the United Kingdom. The insurance laws of the United Kingdom prohibit
the carrying on of insurance and reinsurance business in the United Kingdom by
any person other than an authorized or exempt insurer or reinsurer. The Company
believes that the Operating Company and the Marketing Company will not need to
be licensed as insurers in the United Kingdom, so long as the Operating Company
exclusively makes underwriting decisions and issues all policies from outside
the United Kingdom and does not otherwise effect or carry out any contracts of
insurance in the United Kingdom. In light of this, the Operating Company and the
Marketing Company have adopted Operating Guidelines that provide, among other
things, that the activities of the Marketing Company will be principally limited
to maintaining an office in the United Kingdom, meeting with prospective parties
to financial guaranty transactions and assisting them in originating proposals
to be presented to the Operating Company in Bermuda for its review and further
action; that the Operating Company will perform credit reviews, make
underwriting decisions, issue policies, collect premiums, settle claims and
perform all other policy servicing activities, including due diligence and
post-closing credit surveillance, outside the United Kingdom and will not carry
on any insurance-related activities in the United Kingdom; and that the
Marketing Company will not have, and will not hold itself out as having, the
authority to bind the Operating Company and will not participate in any
underwriting decisions, execute policies, collect premiums, settle claims or
otherwise effect or carry out insurance contracts in the United Kingdom. There
can be no assurance, however, that challenges to the activities of the Operating
Company and the Marketing Company in the United Kingdom will not be raised in
the future or that the restrictions on the activities of the Operating Company
and the Marketing Company in the United Kingdom associated with their lack of
any insurance licenses will not place the Company at a competitive disadvantage
or otherwise adversely affect the Company.
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, the United Kingdom 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 to a greater extent than currently
regulated. In addition, in the United Kingdom there is an initiative to
consolidate the regulation of insurance, banking and other financial services
into a system supervised by a single regulator, the Financial Services
Authority. This initiative may subject certain types of insurance, including
financial guaranty insurance, or certain insurance-related activities, such as
the proposed activities of the Marketing Company, to more extensive regulation.
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.
The Operating Guidelines to be employed by the Company were developed
following consultation with counsel in certain jurisdictions in which the
Company expects to conduct its insurance and reinsurance business, in which the
securities issued by trusts and other special purpose vehicles that have
purchased insurance from the Operating Company are principally expected to be
issued, and from which the assets backing such securities are principally
expected to originate, in each case as noted above. However, in light of the
absence of controlling legal precedent with respect to many of the regulatory
issues noted above and the broad discretion accorded insurance regulators in
many jurisdictions in the administration of insurance laws, there can be no
assurance that if the Company conducts its business in accordance with such
Operating Guidelines, a court or insurance regulator would not interpret and
apply applicable insurance laws so as to require GMA, the Operating Company or
the Marketing Company to obtain an insurance license in a particular
jurisdiction. Any such action by a court or regulator would adversely affect the
Company. The insurance laws of most jurisdictions provide for civil and criminal
penalties for conducting an insurance business without the required licenses. In
addition, the insurance laws of some jurisdictions provide that insurance
policies entered into by an insurer conducting an insurance business without
required licenses will be unenforceable and that the insurer must return any
premiums received for such policies.
FINANCIAL RATINGS. 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
Standard & Poor's and a preliminary claims-paying ability rating of "A+" by each
of Duff & Phelps and Fitch IBCA. The ratings are subject to the Company raising
gross proceeds of at least $350.0 million in the
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Offerings and the Direct Sales and to the initial capitalization of the
Operating Company exceeding $320.0 million upon consummation of the Offerings
and the Direct Sales. These ratings are used by potential purchasers of
financial guaranty insurance and reinsurance as a 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 largely depend on the rating of the insurer. The
Operating Company's principal competitors are all more highly rated than the
Operating Company, which, in some respects, will put the Operating 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 after a 90-day
period, 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
insurance or reinsurance policies and, consequently, would 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.
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, President and Chief
Executive Officer of the Company, Mary Jane Robertson, Managing Principal, Chief
Financial Officer and Treasurer of the Company, Matthew J. Cooleen, Managing
Principal, Structured Products of the Company, Bruce W. Bantz, Managing
Principal, Marketing and Business Development of GMA and the Marketing Company,
James G. Jachym, Managing Principal, Credit of the Company or Lionel J.
Marsland-Shaw, Managing Principal, Risk Management 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 insurance and
reinsurance policies it writes, it will need to hire and retain additional
personnel with underwriting and credit analysis expertise. The Company currently
has only six employees, consisting of the individuals named above. The loss of
the services of such individuals, or the inability of the Company to hire and
retain other talented personnel, could delay or prevent the Company from fully
implementing its business strategy 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. Cooleen and Jachym have not yet applied for work permits. In
addition, the Company will need to obtain work permits for any other
non-Bermudian individuals it hires. 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 that such work permits will be issued prior to the
consummation of the Offerings or thereafter. 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 insuring and reinsuring financial
obligations that have a credit quality of "BB" or higher 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 10% to 25% of its insurance portfolio will
consist of financial obligations that at the time the Company
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insures such obligations are rated "BB" or are unrated and have in the Company's
opinion an equivalent credit quality. Such obligations are considered below
investment grade and are subject to a greater risk of default than obligations
that are rated investment grade. There can be no assurance that material losses
will not occur on the insurance risks underwritten by the Company.
The Company's success will depend on its ability to assess accurately the
risks associated with the financial obligations it insures or reinsures. With
respect to automatic treaty reinsurance, such as the quota share treaty with
ACA, the Company's underwriting and credit analysis will focus on the
underwriting policies, procedures and expertise possessed by the ceding company
(such as ACA), rather than the risks associated with particular obligations
covered under the treaty. See "-- Reliance on ACA." If the Company fails to
assess accurately the risks it assumes, the Company may fail to establish
appropriate premium rates, its reserves may 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 insures or reinsures. 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.
ADEQUACY OF LOSS RESERVES. The financial guarantees to be issued by the
Company will insure or reinsure 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 ("LAE") reserves to cover losses that may be reasonably
estimated on the obligations insured by the Operating Company. The reserves for
losses and LAE at any balance sheet date will reflect the Company's estimate of
identified ("case basis") and unidentified ("unallocated") losses on the
obligations it has insured through such date. The establishment of an
appropriate level of loss reserves is an inherently uncertain process, made even
more so by the undeveloped nature of the "A" rated financial guaranty insurance
and reinsurance market, and there can be no assurance that claims made against
the Company will not exceed the Company's loss reserves. A significant event,
including a natural disaster or political instability, 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. Such losses could also 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 currently 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 issuances of financial obligations and,
consequently, a decreased demand for financial guaranty insurance and
reinsurance. 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. A general economic
downturn or a downturn in the debt markets could also adversely affect the
market 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. 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 third-party
credit enhancement providers by rating agencies and regulatory authorities,
which limitations are subject to change.
The market for financial guaranty insurance and reinsurance outside the
United States 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 include confiscatory taxation, nationalization of assets, establishment
of exchange controls, political or social
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instability and fluctuation in foreign exchange rates. Each of these could
adversely affect the Company's performance in the financial guaranty insurance
and reinsurance market outside the United States. Instability of a country's
currency or political situation or a natural or other disaster could result in
widespread defaults on issues insured or reinsured by the Company in the country
experiencing such instability or backed by assets originating in such country,
which would adversely affect the Company. The Company's ability to enter the
market for financial guaranty insurance and reinsurance outside the United
States will be restricted in certain jurisdictions due to the Company's lack of
a license to write financial guaranty insurance in any jurisdiction other than
Bermuda. See "-- Regulation; Restrictions on Insurance and Reinsurance
Operations."
CONFIDENCE IN THE FINANCIAL GUARANTY INDUSTRY. Because the financial
guaranty industry is composed of a relatively small number of companies, if any
single major financial guaranty insurer were to 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 market for financial guaranty insurance and
reinsurance is dominated by a small number of companies that have greater
financial resources and are more established than the Company. A number of large
banks and other financial institutions, which also have greater financial
resources and are more established than the Company, also provide various forms
of third-party credit enhancement, such as letters of credit. 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 insurance or reinsurance 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. In addition, 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 within any state in the United
States, the District of Columbia, Puerto Rico, Guam and the Virgin Islands 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
methods of credit enhancement that do not employ third-parties, such as
over-collateralization of a structured finance transaction. 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."
INVESTMENT RISKS. 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 subject to appropriate liquidity and capital
preservation considerations, diversification of risk and regulatory, rating
agency and credit agreement constraints (if any), as applicable. 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., The
Prudential Investment Corporation and Merrill Lynch Asset Management, L.P.
(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
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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."
The Investment Guidelines restrict the Operating Company from investing in
securities for which it has written financial guaranty insurance or reinsurance
and limit its investments in securities not insured or reinsured by the
Operating Company, but issued by issuers of securities the Operating Company has
insured or reinsured, to 5% of the Operating Company's total investment
portfolio. The Investment Guidelines also provide for the following procedures
that are intended to limit the Operating Company's exposure to concentrations of
risk: (a) investments in an industry sector are limited to 20% of the Operating
Company's total investment portfolio, with the exception of the United States
government and its agencies; (b) investments in a single issuer are limited to
5% of the Operating Company's total investment portfolio, with the exception of
the United States government and its agencies; and (c) investments in non-United
States dollar denominated securities are limited to 10% of the Operating
Company's total investment portfolio. There can be no assurance that such
limitations in the Investment Guidelines will sufficiently insulate the
Operating Company's investment portfolio from adverse developments affecting
particular issuers, sectors or industries. See "Business -- Investment
Strategy."
INCOME TAX RISKS
United States Taxation of GMA, the Operating Company and the Marketing
Company. GMA, the Operating Company and the Marketing Company are Bermuda
corporations and do not intend to file United States tax returns. GMA, the
Operating Company and the Marketing 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 insurance and reinsurance premiums) 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, the Operating Company and/or the Marketing Company is engaged in a trade or
business in the United States. If GMA, the Operating Company or the Marketing
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
would be a material adverse affect on the Company. See "Certain Tax
Considerations -- Taxation of GMA, the Operating Company and the Marketing
Company -- United States."
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 should also 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 such shareholder's gross income for
United States federal income tax purposes the shareholder's pro-rata share of
the CFC's "subpart F income," even if the subpart F income has not been
distributed. For these purposes, any United States person who owns directly or
indirectly 10% or more of the voting stock of a foreign corporation will be
considered to be a "United States shareholder." In general, a foreign insurance
company such as the Operating Company is treated as a CFC only if such "United
States shareholders" collectively own more than
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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. It is anticipated
that PMI will be a "United States shareholder" of GMA and its subsidiaries due
to PMI's right to designate for nomination two of GMA's twelve board members.
However, 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 PMI will be permitted to own or to exercise 10% or more of the total
combined voting power of GMA, shareholders of GMA other than PMI 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 assert a
contrary position. See "Certain Tax Considerations -- Taxation of Shareholders
- -- United States Taxation."
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 the shareholder's 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" (as defined for purposes of the RPII provision) to United States
shareholders of the insurance or reinsurance company issuing such policies. The
Operating Company will not knowingly enter into any insurance or reinsurance
arrangements in which the direct or indirect insureds are, or are so related to,
owners of Common Shares, except that the Operating Company may enter into
reinsurance arrangements with PMI. See "Business -- Sponsors and Strategic
Investors." If the Operating Company does enter into reinsurance arrangements
with PMI, PMI will be treated, based on its right to designate for nomination
two of GMA's twelve board members, as owning approximately 16.7% of the voting
power of the stock of the Operating Company for purposes of the RPII provisions.
Nonetheless, GMA believes it is 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. Moreover, the Operating Guidelines adopted by the Company's Board
of Directors limit the portion of the Operating Company's gross insurance income
attributable to insurance contracts with PMI in any taxable year to no more than
5% or, if the Board of Directors determines that there is no material risk that
any GMA shareholder will recognize RPII in any taxable year, to no more than
10%. Accordingly, GMA believes it is highly unlikely that RPII for any taxable
year, determined on a gross basis, will be greater than or equal to 20% of the
Operating Company's gross insurance income for that year. However, there can be
no assurances regarding either of these thresholds, particularly because the
Operating Company's direct or indirect insureds may be deemed 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 -- Taxation of Shareholders -- United
States Taxation."
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 stock, 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
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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 -- Taxation of Shareholders -- United States
Taxation."
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, 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 -- Taxation of Shareholders -- United States
Taxation."
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,
the Operating Company and the Marketing 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 such tax would not be applicable to GMA, the Operating
Company, the Marketing Company or to any of their operations or the shares,
debentures or other obligations of GMA, the Operating Company or the Marketing
Company until March 2016. There can be no assurance that after such date GMA,
the Operating Company or the Marketing Company would not be subject to any such
tax.
United Kingdom Taxes. Under current United Kingdom law, the measure of
corporate taxation resulting from the activities of the Marketing Company in the
United Kingdom would likely be the portion of the profits of the Marketing
Company attributable on an assumed arm's-length basis to its London branch
activities. Such profit would be measured in practice by comparison with the
compensation that the Marketing Company would need to pay to an independent
entity providing the same services as the Marketing Company's office in the
United Kingdom. The Marketing Company will seek to enter into an agreement with
the United Kingdom Inland Revenue under which an agreed profit margin will be
attributed to the Marketing Company's office in the United Kingdom under a
stated formula for purposes of calculating the amount of tax owed in the United
Kingdom by the Marketing Company. No assurance can be given that such an
agreement will be reached and, if reached, any such agreement would be
cancellable upon reasonable notice by the Marketing Company or United Kingdom
Inland Revenue. No assurance can be given that any such agreement will not be
cancelled by United Kingdom Inland Revenue. The United Kingdom also imposes an
insurance premium tax of 4% on insurance and reinsurance premiums paid with
respect to risks located in the United Kingdom. There can be no assurance that
certain financial guaranty insurance and reinsurance policies issued by the
Operating Company will not be subject to such tax.
Other Taxes. GMA, the Operating Company and the Marketing Company plan to
operate in such a manner that they will not generally be subject to any material
taxes in jurisdictions other than those noted above, except for withholding
taxes on certain kinds of investment income and excise or similar premium taxes
as described above. It is possible, however, that the Operating Company or the
Marketing Company may be held to be doing business in one or more jurisdictions
and therefore subject to tax on the profits of such business beyond that
contemplated above.
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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 PMI (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 insurance or reinsurance 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 PMI (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 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)
may deliver a notice to the transferee to 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
PMI (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. GMA's Bye-Laws
restrict PMI from owning shares of GMA that would represent more than sixteen
and two-thirds percent (16 2/3%) of the total combined voting
21
<PAGE> 24
rights attached to all of GMA's outstanding capital 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
insuring and reinsuring 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 up to 10% 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 hedged or is not sufficiently hedged, which in
turn would adversely affect the Company. The Company will make determinations as
to whether to hedge its foreign currency exposure on a case-by-case basis,
although the Company does not expect typically to hedge against such foreign
currency exposure. If the Company does hedge its foreign currency exposure, 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. 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 fail to perform.
SHARES ELIGIBLE FOR FUTURE SALE. Upon consummation of the Offerings and
the Direct Sales, GMA expects to have outstanding 24,296,206 Common Shares,
Class A Warrants to purchase an aggregate of 3,053,184 Common Shares, Class B
Warrants to purchase an aggregate of 550,000 Common Shares and options to
purchase an aggregate of 1,148,645 Common Shares. If the Underwriters'
over-allotment options are exercised in full, 27,296,206 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
3,413,184 Common Shares and the number of Common Shares issuable upon the
exercise of outstanding options will increase to an aggregate of 1,313,645
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 pursuant to the
separate prospectus 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. The Common Shares to be sold to
the Strategic Investors, the Common Shares the Company has contracted to sell to
certain individuals involved in the formation of the Company 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 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
exercisability of such rights without the prior written consent of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch & Co.") and
Prudential Securities Incorporated ("Prudential Securities") 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, the holders of the Class A Warrants and
certain individuals involved in the formation of the Company have executed
agreements (the "lock-up agreements") under which they have agreed that they
will not, without the prior written consent of
22
<PAGE> 25
Merrill Lynch & Co. and Prudential Securities on behalf of the Underwriters and,
in the case of certain transfers by the Strategic Investors, without the prior
written consent of 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 so long as such
options are not exercisable until one year from the date of this Prospectus.
Merrill Lynch & Co., Prudential Securities 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 or certain individuals involved in the formation of the
Company or the Common Shares underlying 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."
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. 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 insured or reinsured 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 credit enhancement market outside of the United States may subject
the Company to additional Year 2000 risk as foreign entities have in general not
addressed Year 2000 compliance issues as comprehensively as their United States
counterparts. The Company will continue to monitor developments relating to this
issue, including the development of additional contingency plans to supplement
its current contingency plan, which provides for 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 and the Marketing Company. Over time, dividends and
other permitted payments from the Operating Company are expected to be GMA's
principal 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
23
<PAGE> 26
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, and
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,
the Operating Company and the Marketing Company are each 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."
NO PRIOR PUBLIC MARKET FOR THE COMMON SHARES. 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 $1.29 per share in the net
tangible book value of their Common Shares from the initial public offering
price. See "Dilution."
24
<PAGE> 27
USE OF PROCEEDS
The net proceeds from the sale of the 20,000,000 Common Shares in the
Offerings are estimated to be approximately $277.0 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 $60.5 million. The purpose of the Offerings and the Direct Sales
is to enable the Company to implement its business plan to provide financial
guaranty insurance and reinsurance. 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.
25
<PAGE> 28
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 31, 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; 24,296,206 shares outstanding as
adjusted for the Offerings and the Direct
Sales)(a)....................................... 12 12 24,296
Additional paid-in capital........................ 108 (4,942)(b) 313,338
Notes receivable from Common Share sales.......... -- -- (2,569)(e)
Accumulated deficit............................... (848) (2,048)(c) (2,048)
----- ------- --------
Total shareholders' equity (deficit)......... (728) (6,978) 333,017
----- ------- --------
Total capitalization.............................. $(728) $(6,978) $333,017
===== ======= ========
</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 3,053,184 Common Shares issuable upon the exercise of
outstanding Class A Warrants, 550,000 Common Shares issuable upon the
exercise of the Class B Warrants to be included in the Direct Sales,
1,148,645 Common Shares issuable upon the exercise of options to be granted
prior to or upon consummation of the Offerings and 100,000 Common Shares
reserved for future issuance pursuant to the Stock Option Plan. If the
Underwriters' over-allotment options are exercised in full, 27,296,206
Common Shares are expected to be outstanding, the number of Common Shares
issuable upon the exercise of outstanding Class A Warrants will increase to
3,413,184 Common Shares and the number of Common Shares issuable upon the
exercise of options to be granted prior to or upon consummation of the
Offerings will increase to 1,313,645 Common Shares. The number of Common
Shares issuable upon the exercise of the Class B Warrants and the number of
Common Shares reserved for future issuance pursuant to the Stock Option Plan
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 $3.0 million
to Inter-Atlantic for certain advisory services related directly to the
Offerings and the sales to the Strategic Investors; and approximately $2.1
million for estimated out-of-pocket expenses consisting of legal, accounting
and printing expenses as well as filing fees and other costs related
directly to the Offerings and the sales to the Strategic Investors.
(c) Reflects amounts payable upon consummation of the Offerings of $600,000 to
Inter-Atlantic for certain advisory services related to the development of
the Company's operations and approximately $1.4 million for estimated
out-of-pocket expenses consisting of recruiting, personnel and other
expenses related to the Company's operations.
(d) Reflects 24,296,206 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.
(e) Reflects loans made to management to finance in part intended purchases by
management of Common Shares as part of the Direct Sales.
26
<PAGE> 29
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. In addition, GMA will not increase any quarterly cash dividend
unless the rating agencies that have issued a rating on the Operating Company
confirm that such increase will not adversely affect the Operating Company's
ratings. See "Management's Discussion and Analysis of Financial Condition and
Plan of Operations -- Liquidity and Capital Resources" and
"Business -- Regulation -- Bermuda."
27
<PAGE> 30
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 $333.0 million,
or approximately $13.71 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 $1.29 per share, without
taking into account any Common Shares issuable upon the exercise of the Class A
Warrants, Class B Warrants and options. As of December 31, 1998, the net
tangible book value per outstanding Common Share before giving effect to the
Offerings and the Direct Sales was $(60.65). 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> <C>
Initial public offering price............................... $15.00
Net tangible book value per outstanding share as of
December 31, 1998 before giving effect to the Offerings
and the Direct Sales................................... $(60.65)
Increase in net tangible book value per outstanding share
attributable to the sale of the Common Shares in the
Offerings and the Direct Sales......................... 74.36
-------
Pro forma net tangible book value per outstanding share upon
completion of the Offerings and the Direct Sales(1)....... 13.71
------
Dilution to new investors in the Offerings.................. $ 1.29
======
</TABLE>
- ---------------
(1) Does not include 3,053,184 Common Shares issuable upon the exercise of
outstanding Class A Warrants (3,413,184 Common Shares if the Underwriters'
over-allotment options are exercised in full), 550,000 Common Shares
issuable upon the exercise of Class B Warrants to be included in the Direct
Sales, 1,148,645 Common Shares issuable upon the exercise of options
expected to be granted prior to or upon consummation of the Offerings
(1,313,645 Common Shares if the Underwriters' over-allotment options are
exercised in full) and 100,000 Common Shares reserved for future issuance
under the Stock Option Plan. The number of Common Shares issuable upon the
exercise of the Class B Warrants and the number of Common Shares reserved
for future issuance under the Stock Option Plan 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."
28
<PAGE> 31
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........................ 4,296,206 17.68% $ 60,576,505(a) 16.80% $14.10(b)
Offerings........................... 20,000,000 82.32 300,000,000 83.20 $15.00
---------- ------ ------------ ------
Total..................... 24,296,206 100.00% $360,576,505 100.00% $14.84
========== ====== ============ ======
</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.
29
<PAGE> 32
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following unaudited pro forma consolidated balance sheet is based on
the historical audited consolidated balance sheet of the Company as of December
31, 1998, and gives effect to the amounts payable upon consummation of the
Offerings and to the receipt of the estimated net proceeds of the Offerings and
the Direct Sales as if they were consummated on December 31, 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 financial statements and notes
thereto contained elsewhere in this Prospectus and the other information
contained herein.
PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AS ADJUSTED FOR THE
RECEIPT OF THE
AS ADJUSTED FOR AMOUNTS ESTIMATED NET
PAYABLE UPON PROCEEDS OF THE
HISTORICAL CONSUMMATION OFFERINGS AND THE
INFORMATION OF THE OFFERINGS DIRECT SALES
----------- ----------------------- -------------------
<S> <C> <C> <C>
ASSETS
Cash..................................... $ 122,256 $ 122,256 $335,065,005(d)
Deferred equity offering costs........... 1,355,000 -- --
----------- ----------- ------------
Total assets................... $ 1,477,256 $ 122,256 $335,065,005
=========== =========== ============
LIABILITIES
Accounts payable and accrued expenses.... $ 2,205,000 $ 7,100,000(a) $ 2,047,744(e)
----------- ----------- ------------
Total liabilities.............. 2,205,000 7,100,000 2,047,744
----------- ----------- ------------
SHAREHOLDERS' 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; 24,296,206 shares
outstanding as adjusted for the receipt
of the estimated net proceeds of the
Offerings and the Direct Sales)........ 12,000 12,000 24,296,206(f)
Additional paid-in capital............... 108,000 (4,942,000)(b) 313,338,299(g)
Notes receivable from Common Share
sales.................................. -- -- (2,569,500)(h)
------------
Accumulated deficit...................... (847,744) (2,047,744)(c) (2,047,744)
----------- ----------- ------------
Total shareholders' equity
(deficit).................... (727,744) (6,977,744) 333,017,261
----------- ----------- ------------
Total liabilities and shareholders'
equity................................. $ 1,477,256 $ 122,256 $335,065,005
=========== =========== ============
</TABLE>
- ---------------
(a) Reflects amounts payable upon consummation of the Offerings of $3.6 million
to Inter-Atlantic for certain advisory services related to the Offerings,
the sales to the Strategic Investors and the development of the Company's
operations; and approximately $3.5 million for estimated out-of-pocket
expenses consisting of recruiting, personnel, legal, accounting and printing
expenses as well as filing fees and other costs related to the Offerings,
the sales to the Strategic Investors and the development of the Company's
operations. Of such fees and expenses, the Company has allocated
approximately $5.1 million as costs related directly to the Offerings and
the sales to the Strategic Investors, and approximately $2.0 million as
operating expenses. Inter-Atlantic has contracted with ACA Service, to
provide consulting services to
30
<PAGE> 33
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 upon
consummation of the Offerings.
(b) Reflects the estimated costs associated with the Offerings and the sales to
the Strategic Investors described in footnote (a).
(c) Reflects the estimated operating expenses described in 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 footnote
(a).
(e) Reflects payment of the estimated costs associated with the Offerings and
the sales to the Strategic Investors described in footnote (a).
(f) Reflects 24,296,206 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 footnote (a).
(h) Reflects loans to management to finance in part intended purchases by
management of Common Shares as part of the Direct Sales.
31
<PAGE> 34
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 to provide "A" rated financial guaranty insurance and reinsurance upon
consummation of the Offerings and neither has any operating history. The
Marketing Company was incorporated in November 1998 in Bermuda and also does not
have any operating history. The Operating Company was licensed in Bermuda on
August 28, 1998 as a Class 3 insurer, which authorizes it to write, among other
things, financial guaranty insurance and reinsurance. 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.
For the period from August 28, 1998 to December 31, 1998, the Company
incurred costs of $850,000, which consisted primarily of costs related to the
organization of the Company and operating expenses including recruiting and
personnel, as well as professional and other fees. During such period, the
Company received interest income of $2,256, which consisted of interest earned
on the Company's cash on deposit. Through December 31, 1998, the Company
recorded a net loss of $847,744, which also represented the Company's
accumulated deficit at the end of such period. At December 31, 1998, the Company
had $122,256 cash on deposit.
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. In addition, GMA will not
increase any quarterly cash dividend or initiate a share repurchase program
unless the rating agencies that have issued a financial strength or
claims-paying ability rating on the Operating Company confirm that such action
will not adversely affect the Operating Company's ratings. 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, structuring fees 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
three to five years. Should the Company's growth so
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warrant, the Company may seek to enter into an excess of loss reinsurance
facility with a company rated "A" or higher in order to provide the Operating
Company with additional insurance and reinsurance capacity. There can be no
assurance that such a facility will be available to the Company at such time on
commercially acceptable terms.
The Company's underwriting strategy is to insure and reinsure financial
obligations which are expected to make full and timely payment of principal and
interest. Nevertheless, because the Company will be insuring and reinsuring
financial obligations that have a credit quality rated "BB" or higher 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, its
reserves may be inadequate to cover losses and, consequently, the Company would
be adversely affected. The financial guarantees to be issued by the Company will
insure or reinsure 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 ("LAE") reserves to cover losses that may be reasonably
estimated on the obligations insured by the Operating Company. The reserves for
losses and LAE at any balance sheet date will reflect the Company's estimate of
identified ("case basis") and unidentified ("unallocated") losses on the
obligations it has insured through such date. The establishment of an
appropriate level of loss reserves is an inherently uncertain process, made even
more so by the undeveloped nature of the "A" rated financial guaranty insurance
and reinsurance market, and there can be no assurance that claims made against
the Company will not exceed the Company's loss reserves. A significant event,
including a natural disaster or political instability, 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. Such losses could also impair the Operating
Company's ability to maintain its financial strength and claims-paying ability
ratings or to pay dividends to GMA. See "Business -- Reserves."
The Operating Company is a registered Bermuda insurance company and is
subject to regulation and supervision in Bermuda. Neither GMA nor its
subsidiaries are currently licensed as a financial guaranty insurer or reinsurer
in any jurisdiction in the United States. The insurance laws of each state in
the United States regulate the sale of insurance within their jurisdiction by
insurers, such as the Operating Company, which are not admitted to do business
within such jurisdiction. Because many jurisdictions in the United States do not
permit insurance companies to take credit on their statutory financial
statements for reinsurance obtained from unlicensed or non-admitted insurers
unless appropriate security measures are in place, it is anticipated that the
Operating Company's reinsurance clients will require it to post a letter of
credit or enter into other security arrangements. In the event that the
Operating 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 reinsurance clients, which
would adversely affect the Company. The Operating Company does not currently
have a letter of credit facility established and if the Operating 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 Operating Company's
ability to operate its business may be severely limited. The Operating Company's
quota share and facultative treaties with ACA contain a requirement that the
Operating Company must take all steps necessary in order to permit ACA to
receive credit for such reinsurance in all applicable jurisdictions.
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
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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 insured or reinsured 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 credit enhancement market outside of the United States may subject
the Company to additional Year 2000 risk as foreign entities have in general not
addressed Year 2000 compliance issues as comprehensively as their United States
counterparts. The Company will continue to monitor developments relating to this
issue, including the development of additional contingency plans to supplement
its current contingency plan, which provides for 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.
Pursuant to an agreement between Inter-Atlantic and the Company,
Inter-Atlantic has agreed to provide certain services in connection with the
Offerings, the sales to the Strategic Investors and the development of the
Company's operations, including assistance in preparing the registration
statement for the Common Shares, selecting underwriters in connection with the
Offerings, identifying and negotiating with potential strategic investors 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 $3.6
million upon consummation of the Offerings. Inter-Atlantic has in turn
contracted with ACA Service 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 upon consummation of the Offerings. The Company is also
obligated upon consummation of the Offerings to reimburse Inter-Atlantic for
reasonable expenses it incurs in connection with performing services under its
agreement with the Company. Such expense reimbursements will not include the fee
Inter-Atlantic is obligated to pay ACA Service, but will include expenses
incurred by ACA Service in connection with performing services under its
agreement with Inter-Atlantic for which Inter-Atlantic is obligated to reimburse
ACA Service. Upon consummation of the Offerings, certain of these incurred but
not currently payable expenses may be paid directly by the Company rather than
paid to Inter-Atlantic as reimbursement. At December 31, 1998, Inter-Atlantic
had incurred expenses on the Company's behalf in connection with the development
of the Company's operations of approximately $850,000 and expenses in connection
with the Offerings and the sales to the Strategic Investors of approximately
$1.4 million, including reimbursements it owed to ACA Service. 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 $3.5 million, of which approximately $1.4 million is estimated to
relate to expenses in connection with the development of the Company's
operations and approximately $2.1 million is estimated to relate to expenses in
connection with the Offerings and the sales to the Strategic Investors,
including reimbursements Inter-Atlantic will owe to ACA Service.
The Company has retained Insurance Consulting Services Limited ("ICS"), a
Bermuda corporation licensed as an insurance broker, 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. ICS is in its initial stages
of development and has a limited operating history or experience providing risk
management and other related financial services. ICS is owned by certain persons
affiliated with Inter-Atlantic, including Frederick S. Hammer and Robert M.
Lichten, who are directors of the Company. See "Certain Relationships and
Related Party Transactions."
PLAN OF OPERATION
The Company's plan of operation for 1999 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
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dividends. By the end of 1999, the Company anticipates that it will hire
approximately twelve additional employees, which would bring the total number of
employees to approximately 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 insurance and reinsurance for the next three to five years and that, at
a minimum, the Company believes that it will not be necessary during the twelve
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. 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 insuring and reinsuring
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 up
to 10% 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 hedged or is
not sufficiently hedged, which in turn would adversely affect the Company. The
Company will make determinations as to whether to hedge its foreign currency
exposure on a case-by-case basis, although the Company does not expect typically
to hedge against such foreign currency exposure. If the Company does hedge its
foreign currency exposure, 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. 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, the Operating Company and the Marketing 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 such tax would not be
applicable to GMA, the Operating Company, the Marketing Company or to any of
their operations or shares, debentures or other obligations of GMA, the
Operating Company or the Marketing Company until March 2016. There can be no
assurance that after such date GMA, the Operating Company or the Marketing
Company would not be subject to any such tax. See "Certain Tax
Considerations -- Taxation of GMA, the Operating Company and the Marketing
Company -- Bermuda."
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Because GMA, the Operating Company and the Marketing Company are not
expected to conduct business in the United States, and because they expect to
qualify for the benefits of the tax convention between the United States and
Bermuda, it is not expected that they will be subject to United States federal
income taxes or any other United States 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 is currently 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 -- Taxation of GMA, the Operating Company and the Marketing
Company -- United States."
Under current United Kingdom law, the measure of corporate taxation
resulting from the activities of the Marketing Company in the United Kingdom
would likely be the portion of the profits of the Marketing Company attributable
on an assumed arm's-length basis to its London branch activities. Such profit
would be measured in practice by comparison with the compensation that the
Marketing Company would need to pay to an independent entity providing the same
services as the Marketing Company's office in the United Kingdom. The Marketing
Company will seek to enter into an agreement with the United Kingdom Inland
Revenue under which an agreed profit margin will be attributed to the Marketing
Company's office in the United Kingdom under a stated formula for purposes of
calculating the amount of tax owed in the United Kingdom by the Marketing
Company. No assurance can be given that such an agreement will be reached and,
if reached, any such agreement would be cancellable upon reasonable notice by
the Marketing Company or United Kingdom Inland Revenue. No assurance can be
given that any such agreement will not be cancelled by United Kingdom Inland
Revenue. The United Kingdom also imposes an insurance premium tax of 4% on
insurance and reinsurance premiums paid with respect to risks located in the
United Kingdom. There can be no assurance that certain financial guaranty
insurance and reinsurance policies issued by the Operating Company will not be
subject to such tax.
GMA, the Operating Company and the Marketing Company plan to operate in
such a manner that they will not generally be subject to any material taxes in
jurisdictions other than those noted above, except for withholding taxes on
certain kinds of investment income and excise or similar premium taxes as
described above. It is possible, however, that the Operating Company or the
Marketing 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.
IMPACT OF INFLATION
The effects of inflation will be 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
included 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 its 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 that it may 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.
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BUSINESS
GMA and the Operating Company were both recently organized in Bermuda to
provide "A" rated financial guaranty insurance and reinsurance on financial
obligations, principally asset-backed and municipal securities, that are rated
"BB" or higher or that are unrated and have in the Company's opinion an
equivalent credit quality. The Company will seek to provide direct financial
guaranty insurance outside of the United States and financial guaranty
reinsurance on a worldwide basis. 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.
According to Asset-Backed Alert, worldwide issuances of asset-backed
securities grew from approximately $291.7 billion during 1997 to approximately
$346.7 billion during 1998, representing an increase of approximately 18.9%. In
addition, Asset-Backed Alert reported that during 1998, approximately 20.6% of
asset-backed securities issued in public offerings were insured. According to
Securities Data Co., the issuance of municipal securities in the United States
grew from approximately $220.7 billion during 1997 to approximately $285.9
billion during 1998, representing an increase of approximately 29.5%. In
addition, Securities Data Co. reported that during 1998, approximately 50.8% of
municipal securities issued in public offerings were insured.
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 financial obligation, and
is typically unconditional, irrevocable and, except in certain cases for
non-payment of premiums, non-cancellable. Financial guaranty insurance is often
offered as a credit enhancement to asset-backed securities and municipal bonds
and can be provided on an entire issue of securities at the time of original
issuance or to holders of all or a portion of an issue of uninsured obligations
at any time following issuance. 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. In addition,
financial institutions subject to regulatory risk-based capital requirements may
increase their levels of available capital through insuring financial
obligations held by them. 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 raise gross proceeds of $360.6 million and to have
an equity capitalization of approximately $333.0 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 the Company as a
competitive financial guaranty insurer and reinsurer. As a newly formed entity,
the Company's capital is presently unencumbered by such issues as 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,
Standard & Poor's has assigned the Operating Company a preliminary financial
strength rating of "A", and Duff & Phelps and Fitch IBCA have each assigned the
Operating Company a preliminary claims-paying ability rating of "A+". The
ratings are subject to the Company raising gross proceeds of at least $350.0
million in the Offerings and the Direct Sales and to the initial capitalization
of the Operating Company exceeding $320.0 million upon consummation of the
Offerings and the Direct Sales.
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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 insurance and reinsurance
in the United States. ACA, 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. The Company
believes that "A" rated financial guaranty insurance can, in many cases,
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 such as letters of credit. In addition, the
Company believes that "A" rated financial guaranty insurance may be
particularly attractive to issuers that have previously had limited access
to the financial markets and to holders of financial obligations subject to
risk-based capital requirements. The Operating Company has entered into
three reinsurance treaties with ACA that will become effective upon
consummation of the Offering. Management believes that the treaties
pursuant to which the Operating Company provides reinsurance to ACA will
provide ACA with additional insurance capacity and will permit ACA to
develop further the market for "A" rated financial guaranty insurance in
the United States. See "-- Reinsurance Treaties with ACA." The Company will
also seek to reinsure obligations in circumstances where the holders of
such obligations, including financial institutions and insurance companies,
desire third-party credit enhancement for regulatory or accounting
purposes. The Company will also seek to enter into similar reinsurance
arrangements with higher rated third-party credit enhancement providers
based in the United States.
- - Provide Credit Enhancement for Transactions Structured Outside the United
States
The Company believes that financial guaranty insurance has been
underutilized in transactions structured outside the United States,
particularly with respect to asset-backed securities, as issuers of such
financial obligations have instead principally relied on banks and other
financial institutions offering letters of credit and other guarantees for
credit enhancement. As a consequence, the Company believes that an
opportunity exists to provide "A" rated financial guaranty insurance as an
innovative and cost-effective alternative to existing forms of credit
enhancement for such transactions. Initially, an important international
focus for the Company will be to insure financial transactions involving
assets held by trusts or similar special purpose vehicles domiciled in
jurisdictions such as Bermuda, the Cayman Islands and the Island of Jersey.
Such assets are expected typically to originate in the United States or
certain European Union countries and be transferred to such off-shore
jurisdictions in connection with the structuring of such transactions. The
Company will also seek outside the United States to insure and reinsure
obligations in circumstances where the holders of such obligations,
including financial institutions and insurance companies, desire
third-party credit enhancement for regulatory and accounting purposes. The
Company will seek to capitalize on the relationships its management team
has developed with investment banks, commercial banks and other financial
services firms to generate referrals for issuing financial guaranty
insurance and reinsurance. The Company has also established the Marketing
Company to act solely as a marketing agent for the Company. The Marketing
Company will operate a branch office in London, which is a center for
banking and other financial service activities. The Company is not
currently licensed as a financial guaranty insurer or reinsurer in any
jurisdiction other than Bermuda, which will limit its ability to provide
financial guaranty insurance or reinsurance with respect to certain
transactions. 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 financial
guaranty insurance related activities. See "Risk Factors -- Regulation;
Restrictions on Insurance and Reinsurance Operations."
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- - Utilize a Disciplined Underwriting Approach
The Company's underwriting strategy is to insure and reinsure financial
obligations which are expected to make full and timely payment of principal
and interest. Nevertheless, because the Company will be insuring and
reinsuring obligations rated "BB" or higher 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. Over time, the Company will seek to diversify the risks it
insures and reinsures by type of obligor, type of pledged assets,
geographic origination point 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 if higher than expected losses arise in certain
segments of the Company's business. The Company will also seek a private or
"shadow" rating evaluation from one or more nationally recognized rating
agencies on all unrated financial obligations that the Company insures 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
insurance, reinsurance and capital markets insurance professionals to
implement its business strategy. The Company's President 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 a 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. (now part of
ACE Limited) and Executive Risk Inc. Mary Jane Robertson, Managing
Principal, Chief Financial Officer and Treasurer of the Company, has over
21 years experience in the insurance industry. From 1993 to 1997, Ms.
Robertson was the Chief Financial Officer and a Senior Vice President of
Capsure Holdings Corp. (now part of CNA Surety Corp.), an insurance company
focusing principally on the surety and fidelity insurance business. From
1986 to 1996, Ms. Robertson also served as the Chief Financial Officer and
an Executive Vice President of United Capitol Insurance Company, a
property/casualty insurance company. Matthew J. Cooleen, Managing
Principal, Structured Products of the Company, has over 12 years experience
in the structured finance sector of the financial services industry. From
1997 to 1999, Mr. Cooleen worked at MBIA-Ambac International, a joint
venture between MBIA Insurance Corp. and Ambac Assurance Corporation, where
he was most recently a Managing Director in the International Structured
Finance Department. At MBIA-Ambac International, Mr. Cooleen focused on the
development of the global structured finance and asset-backed financial
guaranty market. From 1995 to 1997, he was a Vice President and Group Head
of the Global Securitization Group of Paribas Capital Markets, where he
founded the Global Securitization/Structured Finance Department. From 1991
to 1995, Mr. Cooleen was a Vice President in the Asset Backed Finance
Department of ING Barings. Bruce W. Bantz, Managing Principal, Marketing
and Business Development of GMA and the Marketing Company, has over 22
years experience in the investment and commercial banking industries,
specializing in structured finance and asset securitization. From 1997 to
1998, Mr. Bantz was a Director and Global Head of Asset-Backed Finance of
Dresdner Kleinwort Benson, the 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, the investment banking division
of NatWest Group PLC. James G. Jachym, Managing Principal, Credit of the
Company, has over 20 years of experience with capital markets and
commercial paper credits. From 1996 to 1999, Mr. Jachym was a Vice
President of BT Alex.Brown Incorporated, where he was responsible for
rating agency matters pertaining to such firm's clients. From 1979 to 1996,
he was employed by Lehman Brothers Inc., where he was a Senior Vice
President and was responsible for review and commitment of all asset-backed
commercial paper programs. Lionel J. Marsland-Shaw, Managing Principal,
Risk Management of the Company, has over
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28 years experience in the credit analysis sector of the financial services
industry. From 1995 to 1998, Mr. Marsland-Shaw served as General Manager
and Chief Executive Officer of Capital Intelligence, a credit rating and
analysis company specializing in emerging markets. From 1993 to 1995, Mr.
Marsland-Shaw was Director and Head of the London office of Standard &
Poor's and was responsible for its ratings business in the United Kingdom,
Ireland and the Netherlands. In addition, 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 with 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
insurance and reinsurance markets.
SPONSORS AND STRATEGIC INVESTORS
The Company has been established through the sponsorship of ACA and its
affiliate ACA Service and Inter-Atlantic. ACA Service 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 and Life Re (Holdings), Ltd., the first
publicly traded Bermuda-based reinsurance company focusing principally on
writing annuity and life reinsurance. Inter-Atlantic has provided certain
services to the Company in connection with the Offerings, the sales to the
Strategic Investors and the development of the Company's operations, and ACA
Service has acted as a consultant 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 PMI, High Ridge, Rolaco,
Third Avenue Value Fund and Third Avenue Small-Cap Value Fund for the purchase
for investment directly from the Company of an aggregate of 3,900,706 Common
Shares and Class B Warrants to purchase an aggregate of 550,000 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 $55.0 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 on behalf of the Underwriters and,
in certain cases, the prior written consent of the Company. See "Shares Eligible
for Future Sale" and "Direct Sales."
PMI is a provider of private mortgage insurance and other products for the
United States home mortgage industry. The Company has agreed with PMI, subject
to the Company's Operating Guidelines, to use reasonable efforts following the
consummation of the Offerings and the Direct Sales to explore mutually
beneficial business relationships, including through offering to PMI the
opportunity to assume reinsurance from, or cede reinsurance to, the Operating
Company and to participate in reinsurance transactions between the Operating
Company and third parties and by exploring opportunities for joint marketing
arrangements and mutual referrals of business.
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REINSURANCE TREATIES WITH ACA
The following description of the reinsurance treaties between the Operating
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 Operating Company has entered into three reinsurance treaties with ACA,
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
Operating Company is required to provide, and ACA is required to purchase,
reinsurance on a fixed percentage of the risks associated with financial
guaranty insurance policies issued by ACA covering new issues of financial
obligations with a rating of "BB" or higher. The other two treaties are
facultative treaties under which the Operating Company and ACA are each
obligated to offer the other the opportunity to reinsure each financial
obligation the other insures on a direct or assumed basis. These facultative
treaties also set forth the principal terms under which the Operating Company
and ACA may purchase such reinsurance from the other on a case-by-case basis.
The Operating Company expects that pursuant to the facultative treaty under
which it provides reinsurance to ACA, the Operating Company may reinsure a
greater percentage of certain new issues of financial obligations insured by ACA
than the percentage specified under the quota share treaty. In addition, the
Operating Company expects that pursuant to such facultative treaty, it may
reinsure through one or more bulk reinsurance transactions certain risks insured
by ACA before the consummation of the Offerings as well as, on an ongoing basis,
certain risks insured by ACA with respect to obligations trading in the
secondary market, neither of which are covered by the quota share treaty.
Management anticipates that at least in the early stages of its business
development, the premiums the Operating Company receives under the treaties with
ACA will account for a substantial portion of the Company's total premium
income. ACA currently has no meaningful source of reinsurance similar to that to
be provided by the Operating Company upon consummation of the Offerings.
Quota-Share Reinsurance Treaty
Under a quota-share reinsurance treaty, dated as of November 25, 1998 and
effective upon the consummation of the Offerings, between ACA as reinsured and
the Operating Company as reinsurer, ACA has agreed to cede and the Operating
Company has agreed to accept as reinsurance a pro rata share of the insurance
contracts and policies, surety bonds, indemnity contracts, financial guaranty
policies, binders, endorsements and other evidences of insurance actually
written or assumed by ACA during the term of the agreement. The business
reinsured by the Operating Company under the quota share treaty is limited to
insurance covering new issues of financial obligations with a rating of "BB" or
better and with respect to which the total premiums payable to ACA are estimated
to equal at least $100,000 during the calendar year in which the policy or
policies covering such risks are issued.
ACA will pay the Operating Company as premiums an amount equal to 22.5% of
all premiums actually received in respect of policies written during the term of
the agreement (the "Ceded Premium"), less a ceding commission equal to 35.0% of
the Ceded Premium. The premium for financial guarantee insurance is typically
payable by the issuer of the obligation either in full at the policy's
inception, as is generally the case with municipal debt obligations, or in
periodic installments, as is generally the case with asset-backed securities.
The Operating Company's share of premiums actually received by ACA in each month
is payable to the Operating Company in full 15 days following the close of each
month. For example, if ACA collects premiums in full at the time a municipal
debt obligation is originally issued, the Operating Company will be paid its pro
rata share of such full premium within 15 days of the end of the month in which
ACA collects such premium. Similarly, if ACA periodically collects premiums
during the term an asset-backed security is outstanding, the Operating Company
will be paid its pro rata share of such periodic premium payments within 15 days
of the end of each month in which ACA collect such premiums.
Reinsurers pay ceding commissions to primary insurers principally to
reimburse them for insurance policy acquisition costs. The Operating Company and
ACA negotiated the 35% ceding commission to be paid in connection with the quota
share treaty by considering, among other factors, the historical policy
acquisition
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cost ratio of ACA available at the time the treaty was negotiated. From January
1, 1998 to September 30, 1998, the policy acquisition cost ratio on a GAAP basis
of ACA as a percentage of its gross written premiums was 34.9%. In addition,
according to Best's Aggregates & Averages -- Property-Casualty, 1997 Edition,
ceding commissions as a percent of ceded premiums in the aggregate for 1996
ranged from 23.7% to 39.2% for all reporting financial guaranty companies and
averaged 36.0% for all reporting credit insurance companies. The Operating
Company believes that the ceding commission it negotiated with ACA is comparable
to the ceding commission it would have to pay to an unrelated third-party
insurer that had a cost structure comparable to ACA's. Under the quota-share
treaty, the Operating Company is not permitted to write direct financial
guaranty insurance within any state in the United States, the District of
Columbia, Puerto Rico, Guam and the Virgin Islands so long as such treaty
remains in effect.
Any risks not covered by the quota-share treaty may be ceded under the
master facultative treaty between the Operating Company and ACA as described
below. The Operating Company will have no obligation to accept any share of a
transaction or increase in the limits of liability thereunder to the extent such
acceptance would cause the Operating Company to exceed any applicable single- or
aggregate-risk limit established by law or by a nationally recognized rating
organization that has issued a rating on the Operating Company. In addition, the
Operating Company is required to take all steps necessary to enable ACA to
obtain full credit for the reinsurance provided under the quota share treaty,
provided, however, that the Operating Company will not be required to engage in
any activity that would require the Operating Company to operate a trade or
business or obtain any license or certification within the United States. The
Operating Company expects to post a letter of credit or other security to enable
ACA to obtain full credit for the reinsurance provided under the quota share
treaty.
The quota-share treaty expires on December 31, 1999 but will be
automatically renewed for successive one-year terms, unless the Operating
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 Operating
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. Subject to other rights and remedies provided
in the treaty, the business reinsured will also become fixed on the day that any
of the following events occurs: (i) either ACA or the Operating 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 90 days; (ii) either ACA or the Operating
Company becomes insolvent or has a final order of liquidation, rehabilitation,
conservatorship or receivership entered against it; (iii) the Operating 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 Operating Company is in breach under the quota share treaty and such
breach is not cured within 60 days of notice to the breaching party by the other
party; (v) there is a change of control of either ACA or its parent, American
Capital Access Holdings, Inc.; (vi) ACA fails to pay the premiums owed to the
Operating Company and such failure is not remedied within ten business days of
notice thereof; or (vii) ACA reinsures, sells, assigns, transfers or conveys,
directly or indirectly, some or all the business reinsured under the quota share
treaty to another person or entity. In the event of termination, the Operating
Company will remain liable for the reinsurance liabilities ceded under the quota
share treaty until the earlier of (i) the date of settlement, natural expiration
or cancellation of such liabilities or (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 Operating Company under the
quota-share treaty (provided that such December 31 falls in the year 2003 or
later). The Operating Company's liability under the quota share treaty will
terminate on such cut-off date, if any, and the Operating Company will return
all unearned premiums to ACA within 30 business days less the ceding commission
applicable thereto.
Master Facultative Reinsurance Treaties
The Operating Company has entered into two master facultative reinsurance
agreements. The first, pursuant to which the Operating Company reinsures certain
risks of ACA, is effective upon consummation of
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the Offerings. The second, pursuant to which ACA may reinsure certain risks of
the Operating Company, is also effective upon consummation of the Offerings.
Under these agreements, the Operating Company or ACA (as the case may be) as
reinsured will cede and the reinsurer will accept as reinsurance such share of
any risk insured by the reinsured as may be specified and agreed upon by the
parties from time to time. The reinsured under each master facultative treaty
will present to the reinsurer each of the risks the reinsured 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.
Each reinsured will pay the reinsurer its share of the premium related to
each particular risk reinsured after first deducting a ceding commission and
other costs allowed by the reinsurer, as such premium and ceding commission are
agreed between the parties. The parties may also modify any of the terms,
conditions or coverage set forth in the related master facultative treaty. In
addition, each reinsurer will take all steps necessary to enable the reinsured
to obtain full credit for the reinsurance provided to it under the relevant
master facultative treaty, provided, however, that the Operating Company will
not be required to engage in any activity that would require it to operate a
trade or business or obtain any license or certification within the United
States. The Operating Company expects to post a letter of credit or other
security to enable ACA to obtain full credit for the reinsurance provided under
the relevant master facultative treaty.
Each master facultative treaty may be canceled at any time by mutual
consent of the parties or by either party by giving at least 90 days' prior
written notice. In either such event, 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. Such agreements may also be
canceled at the discretion (in the case of the Operating 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: (i) the performance of such agreement is
prohibited or rendered impossible by any applicable law or regulation; (ii) such
reinsured fails to receive all or substantially all financial credit for the
reinsurance provided by such agreement in all applicable jurisdictions; (iii)
the state insurance regulator in the applicable jurisdiction directs such
reinsured to cancel its participation in such agreement; (iv) the reinsurer (a)
becomes insolvent, (b) fails to maintain the minimum capital and surplus
requirements required by the laws of its domicile, (c) is the subject of a
voluntary or involuntary filing of a petition in bankruptcy, (d) goes into
liquidation or rehabilitation, (e) has a receiver appointed, (f) allows its
surplus to policyholders to decline by 25% or more during any twelve-month
period as reported in any financial statement, (g) 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; (v)
the reinsurer (a) is acquired or undergoes a change of control, 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 cure in a timely
manner a breach of any of its respective covenants as set forth in the master
facultative treaty; or (vi) the reinsurer 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 90 days. Termination will be effective upon the reinsurer's receipt of
written notice thereof, except that termination in the case of clause (v) will
be effective 60 days after the reinsurer's receipt of written notice thereof.
ACA FINANCIAL GUARANTY CORPORATION
ACA commenced operations as an "A" rated financial guaranty insurer in
October 1997 and, to the Company's knowledge, is currently the only "A" rated
financial guaranty insurer operating in the United States. ACA is a
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
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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 a group of senior executives having extensive experience
in financial guaranty insurance, credit analysis and related areas, including H.
Russell Fraser, a director of the Company, and Donald J. Matthews, the President
and Chief Executive Officer of the Company. 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 December 31, 1998, ACA wrote financial guaranty
insurance covering approximately 145 different underlying credits representing
approximately $2.2 billion in aggregate principal amount for direct and assumed
premiums written during that period totaling approximately $35.7 million. A
majority of the financial guaranty insurance written by ACA has covered
municipal obligations and obligations issued by other tax-exempt organizations,
although ACA has also insured asset-backed and corporate securities as well as
other financial obligations. ACA's insured portfolio of municipal and other
tax-exempt securities as of December 31, 1998 consisted solely of financial
obligations of obligors located in the United States, Puerto Rico and the Virgin
Islands, and the portfolio was diversified across different states within the
United States. As of December 31, 1998, approximately 13% of the principal
amount insured in ACA's portfolio of municipal and other tax-exempt securities
net of amounts ceded to reinsurers was located in California, 11% was located in
New York, 10% was located in Florida, 7% was located in Pennsylvania, 6% was
located in Colorado, and less than 5% was located in each of 31 other
jurisdictions. Also as of December 31, 1998, net of amounts ceded to reinsurers,
approximately 33% of ACA's insured portfolio consisted of obligations issued by
obligors in the health care sector, approximately 21% consisted of obligations
issued by state and local municipal obligors, approximately 18% consisted of
asset-backed securities, approximately 8% consisted of obligations issued by
obligors in the education sector, approximately 6% consisted of obligations
issued by obligors in the long-term care sector, approximately 4% consisted of
corporate obligations, and approximately 3% consisted of obligations issued by
obligors in the transportation sector, constituting in the aggregate
approximately 93% of ACA's insured portfolio. Because ACA has only recently
commenced operations, the composition and diversification of its insured
portfolio is expected to change, and may change significantly, as its business
matures. There can be no assurance as to the future composition of ACA's insured
portfolio. As of December 31, 1998, ACA had admitted assets of $139.0 million,
total liabilities of $38.8 million, and total surplus as regards policyholders
of $100.2 million, as determined in accordance with statutory accounting
practices prescribed or permitted by the Maryland Insurance Administration.
The initial gross capital raised in October 1997 by American Capital Access
Holdings, L.LC., the ultimate parent of ACA, 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. Of the initial capital raised, $116.7
million was contributed to ACA. ACA has a soft capital facility with Zurich
Reinsurance (North America) Inc. with an aggregate limit of $50.0 million. ACA
also has reinsurance capacity in the form of an excess of loss facility with
Capital Credit Reinsurance Company Ltd. with an aggregate limit of $75.0
million. The reinsurance treaties between the Operating Company and ACA are
different from ACA's soft capital and excess of loss facilities in that the
Operating Company will be assuming a specified percentage of particular risks
insured by ACA. Consequently, the Company believes that the reinsurance provided
by the Operating Company will provide ACA with additional individual risk and
sector risk capacity, which the soft capital and excess of loss facilities do
not provide. ACA currently has no meaningful source of reinsurance similar to
that to be provided by the Operating Company upon consummation of the Offerings.
To evaluate the credit risk 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
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Counsel, is designed to utilize fully 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 has advised the Company that its
policy is to adhere 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. Standard & Poor's 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 insure and reinsure financial
obligations which are expected to make full and timely payment of principal and
interest. The Company will not insure or reinsure any risk without an evaluation
of what it deems to be all pertinent risk and credit factors, with the exception
that, in the case of risks to be reinsured pursuant to an automatic treaty, such
as the quota share treaty between the Company and ACA, the Company will, in lieu
of an individual risk assessment, evaluate the underwriting guidelines and
credit analysis ability of the ceding company for compatibility with the
Company's underwriting guidelines and standards. As the Company's insurance
portfolio develops, the Company expects that 10% to 25% 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. The Company will over time seek to
diversify the risks it insures and reinsures by type of obligor, type of pledged
assets, geographic origination point of the 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 if higher than expected losses arise in certain segments of the
Company's business.
The Company has hired James G. Jachym to act as its Managing Principal,
Credit and Lionel J. Marsland-Shaw to act as its Managing Principal, Risk
Management. All risks insured by the Company will be approved by its management
Credit Committee, which consists of Messrs. Jachym and Marsland-Shaw as well as
the Company's Chief Executive Officer and Chief Financial Officer. The Company
has developed underwriting guidelines based on requirements of the rating
agencies that have assigned preliminary financial strength and claims-paying
ability ratings to the Operating Company with the objective of controlling the
risks of the financial guaranty insurance and reinsurance policies written as
well as to determine appropriate pricing levels. Any deviation from the
Company's underwriting guidelines, as they may be amended from time to time,
will require the approval of the Company's Board of Directors or the
Underwriting Committee of the Board, as will the approval of certain categories
of contracts which may be established from time to time by the Company's Board
of Directors or the Underwriting Committee of the Board. The Company expects to
review regularly its underwriting guidelines in light of changing industry
conditions, market developments and changes in technology. The Company reserves
the right at all times to amend, modify or supplement its underwriting
guidelines in response to such factors or for other reasons.
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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 will also
seek a private or "shadow" rating evaluation from one or more nationally
recognized rating agencies on all unrated financial obligations that the Company
insures on a direct basis.
The Company will monitor each transaction on an ongoing basis. The
responsibility for monitoring completed transactions will rest primarily with
the Company's Managing Principal, Risk Management. If the Company's Managing
Principal, Risk Management identifies a transaction that is not performing
according to the Company's expectations, or an external event occurs which has
or may have an adverse effect on the transaction, his responsibilities include
recommending corrective action, if any, or special monitoring to the management
Credit Committee.
RESERVES
The Company's policy is to provide for loss and loss adjustment expense
("LAE") reserves to cover losses that may be reasonably estimated on the
obligations insured by the Operating Company. The reserves for losses and LAE at
any balance sheet date will reflect the Company's estimate of identified ("case
basis") and unidentified ("unallocated") losses on the obligations it has
insured through such date.
When a default occurs or is believed to be 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. Upon the establishment of a case
basis reserve, a corresponding reduction will be made in the unallocated
reserve. To the extent that case basis reserves, for any period, exceed the
available unallocated reserve, the excess will be charged against the Company's
earnings. The unallocated reserve will be calculated by applying a loss factor
to the net outstanding exposure of the Company's insured portfolio. This loss
factor will be a measure of reasonably estimable insured losses that have been
incurred as of the balance sheet date, will be established after consultation
with independent actuaries and will be based on historical industry loss
experience, the inherent risk characteristics of the Company's insured
portfolio, the loss experience of insurers ceding risks to the Company and, over
time, the Company's actual loss and LAE experience.
The Company's loss and LAE reserves will necessarily be based upon
estimates and as such are inherently uncertain, particularly given the
undeveloped nature of the "A" rated financial guaranty reinsurance and insurance
market. There can be no assurance that claims made against the Company and
related settlement costs will not exceed the Company's loss and LAE 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 (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 event, including a
natural disaster or political instability, 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. Such losses could also 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.
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SALES AND MARKETING
The Company expects that the relationships developed by its experienced
management team with domestic and international firms 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. Senior management of the Company
intends to take an active part in the sale and promotion of the Company's
products.
The Company has established the Marketing Company to act solely as a
marketing agent for the Company. The Marketing Company will operate a branch
office in London, which is a center for banking and other financial service
activities. The Marketing Company will not have, nor will it be held out as
having, authority to bind the Company in any transactions, and its activities
will be limited to identifying opportunities for the Company and assisting in
preliminary negotiations to the point where suitable terms may be presented to
the Operating Company in Bermuda for further action.
COMPETITION
The traditional financial guaranty insurance and reinsurance industry is
highly competitive. The market for financial guaranty insurance and reinsurance
is dominated by a small number of companies, including MBIA Insurance
Corporation, Financial Security Assurance, Inc., Ambac Assurance Corporation,
Financial Guaranty Insurance Co., Capital Reinsurance Co. and Enhance
Reinsurance Co. These companies have greater financial resources and are more
established than the Company. A number of large banks and other financial
institutions, which also have greater financial resources and are more
established than the Company, also provide various forms of third-party credit
enhancement, such as letters of credit. 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 insurance or reinsurance 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 within any state in the United States, the District of Columbia,
Puerto Rico, Guam and the Virgin Islands 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
methods of credit enhancement that do not employ third-parties, such as
over-collateralization of a structured finance transaction. There can be no
assurance that the Company's strategy will permit it to compete effectively with
these alternative methods of credit enhancement.
In part because of the Company's expected capitalization following the
Offerings and the Direct Sales, Standard & Poor's has assigned the Operating
Company a preliminary financial strength rating of "A", and Duff & Phelps and
Fitch IBCA have each assigned the Operating Company a preliminary claims-paying
ability rating of "A+". The ratings are subject to the Company raising gross
proceeds of at least $350.0 million in the Offerings and the Direct Sales and to
the initial capitalization of the Operating Company exceeding $320.0 million
upon consummation of the Offerings and the Direct Sales. These ratings are used
by potential purchasers of financial guaranty insurance and reinsurance as a
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
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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 largely depend on the rating of the insurer. The Operating
Company's principal competitors are all more highly rated than the Operating
Company, which, in some respects, will put the Operating 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 subject to appropriate liquidity and capital
preservation considerations, diversification of risk and regulatory, rating
agency and credit agreement constraints (if any), as applicable. 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 restrict the Operating Company from investing in
securities for which it has written financial guaranty insurance or reinsurance
and limit its investments in securities not insured or reinsured by the
Operating Company, but issued by issuers of securities the Operating Company has
insured or reinsured, to 5% of the Operating Company's total investment
portfolio. The Investment Guidelines also provide for the following procedures
that are intended to limit the Operating Company's exposure to concentrations of
risk: (a) investments in an industry sector are limited to 20% of the Operating
Company's total investment portfolio, with the exception of the United States
government and its agencies; (b) investments in a single issuer are limited to
5% of the Operating Company's total investment portfolio, with the exception of
the United States government and its agencies; and (c) investments in non-United
States dollar denominated securities are limited to 10% of the Operating
Company's total investment portfolio.
The Investment Guidelines provide that the Operating Company may purchase,
among other things, securities issued by the United States government and its
agencies, securities issued by foreign governments if rated "A" or better by at
least one major rating agency, asset-backed securities, mortgage-backed
securities and corporate debt securities (including convertible debt
securities).
Furthermore, the Investment Guidelines prohibit investments in (i) common
equity securities; (ii) direct real estate; (iii) oil and gas limited
partnerships; (iv) commodities; (v) emerging market obligations; (vi) securities
unrated by major rating agencies; (vii) payment-in-kind corporate securities;
(viii) venture capital investments, including private equity or its equivalent,
and (ix) United States investments consisting of (a) partnership interests, (b)
residual interests in real estate mortgage investment conduits, (c) any "pass
through" certificates, 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 United States tax,
(h) any tangible property, (i) any debt obligation or preferred stock 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. In
addition, the Investment Guidelines prohibit the Operating Company from entering
into the following types of transactions in the United States: (i) swap
agreements other than interest rate swaps or the equivalent used as hedges; and
(ii) loans.
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
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credit risk through industry and issuer diversification and asset allocation.
The Operating Company will seek to manage interest rate risk by structuring the
duration of its investment portfolio to support the cash requirements of the
operations of the Operating Company and the satisfaction of longer term
liabilities of the Operating Company. 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.
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. 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"), The
Prudential Investment Corporation ("Prudential Investment") and Merrill Lynch
Asset Management, L.P. ("Merrill Lynch Asset Management"), which are anticipated
to manage initially approximately 50%, 25% and 25%, respectively, of the
Operating Company's investment portfolio. 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 is a global investment management firm. According to information
supplied by Alliance, as of December 31, 1998, Alliance had aggregate fixed
income assets under management of approximately $111 billion, including
approximately $31 billion of assets managed for insurance companies. The
agreement with Alliance may be terminated by either party upon 30 days' prior
written notice. Alliance is entitled to receive a fee for its services at an
annual rate between 0.25% and 0.15% of the value of the assets it manages on
behalf of the Operating Company. The exact fee rate charged by Alliance is
dependent upon the amount of assets it manages on behalf of the Operating
Company.
Prudential Investment is a global investment management firm and is a
subsidiary of The Prudential Insurance Company of America. According to
information supplied by Prudential Investment, as of December 31, 1998,
Prudential Investment had approximately $183 billion of assets under management
(excluding certain private equity and other funds), of which $75 billion was
comprised of fixed income securities. The agreement with Prudential Investment
may be terminated by the Operating Company without advance notice and by
Prudential Investment upon 30 days' prior written notice. Prudential Investment
is entitled to receive a fee for its services at an annual rate of 0.175% of the
value of the first $100 million in assets it manages on behalf of the Operating
Company and 0.10% of the value of any additional assets it manages on behalf of
the Operating Company.
Merrill Lynch Asset Management is a global investment management firm and
is a subsidiary of Merrill Lynch & Co., Inc. According to information supplied
by Merrill Lynch Asset Management, as of December 31, 1998 it had approximately
$501 billion of assets under management, of which $255 billion is comprised of
fixed income securities. The agreement with Merrill Lynch Asset Management may
be terminated by the Operating Company without advance notice and by Merrill
Lynch Asset Management upon five days' prior written notice. Merrill Lynch Asset
Management is entitled to receive a fee for its services at an annual rate
between 0.125% and 0.10% of the value of the assets it manages on behalf of the
Operating Company. The exact fee rate charged by Merrill Lynch Asset Management
is dependent upon the amount of assets it manages on behalf of the Operating
Company.
THIRD-PARTY SERVICE PROVIDERS
The Company has entered into an agreement with Marsh & McLennan Management
Services (Bermuda) Limited ("Marsh & McLennan Services") to provide certain
management, administrative and
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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) maintenance of bank accounts, and (iv)
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 Services 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 Services with regard to
certain liabilities to which Marsh & McLennan Services 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 hire
employees to perform some of the functions that will initially be provided by
Marsh & McLennan Services. Management believes that the contractual relationship
with Marsh & McLennan Services will provide the Company with the flexibility
needed to add such additional employees in an orderly fashion.
The Company has retained ICS, a Bermuda corporation licensed as an
insurance broker, 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. ICS is in its initial stages of development and
has a limited operating history or experience providing risk management and
other related financial services. ICS is owned by certain persons affiliated
with Inter-Atlantic, including Frederick S. Hammer and Robert M. Lichten, who
are directors of the Company. See "Certain Relationships and Related Party
Transactions."
PROPERTY
The Company has subleased its principal offices in Hamilton, Bermuda on a
month-to-month basis from Annuity and Life Reassurance, Ltd., a Bermuda
reinsurance company. The subleased office space consists of four offices and
three workstations. The Company has agreed to pay BD$5,200 plus utilities in
rent for the first month of the sublease. Thereafter, the sublease requires the
Company to pay BD$4,500 plus utilities in rent each month. Certain directors and
officers of the Company are also directors or officers of Annuity and Life
Reassurance, Ltd. See "Certain Relationships and Related Party Transactions."
LEGAL PROCEEDINGS
The Company has been threatened with litigation by an individual the
Company interviewed for a senior management position. The individual has claimed
that he left his position with his prior employer in reliance upon an offer to
be hired by the Company, which he claims to have accepted, and that he was
dismissed by the Company in a manner inconsistent with the terms of his
employment. The Company's position is that, among other things, the offer was
conditioned upon the individual being approved by certain proposed strategic
investors in the Company, which approval was not obtained. As a consequence, the
Company believes the alleged employment arrangement was never consummated. The
proposed terms of the employment arrangement discussed with such individual
included an annual salary of $300,000, an annual bonus of $300,000, options to
purchase 300,000 Common Shares, a monthly housing allowance of $10,000 (subject
to adjustment) and a signing bonus of $625,000 payable upon consummation of the
Offerings as compensation for a contractually guaranteed bonus such individual
allegedly would have received had he not left his position with his former
employer. The proposed employment arrangement would have been for three years,
and was subject to termination at any time prior to the consummation of the
Offerings upon 30 days' prior written notice. The individual has also threatened
to assert other claims against the Company that, if brought, could involve
claims for punitive damages. In light of the current status of this matter, the
Company cannot predict its ultimate resolution, including whether litigation
concerning this matter will be commenced.
The Company has no pending litigation. The Company anticipates that it may
become subject to litigation and arbitration in the ordinary course of its
business.
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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 may 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 insurance and reinsurance 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, in the opinion of the Minister after consultation with the
Insurance Advisory Committee, the failure of the insurer to carry 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 different 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.
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
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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 Christopher Harris 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.
The Operating Company is registered as a Class 3 insurer under the
Insurance Act 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 from declaring or paying any dividends
during the next financial year, without the approval of the Minister); (iii) is
prohibited from reducing by 15% or more its total statutory capital, as set out
in its previous year's financial statements without the approval of the
Minister; and (iv) if it appears to the Minister that there is a risk of the
insurer becoming insolvent or that the insurer 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. The Operating Company has
received from the Bermuda Minister of Finance an exception from the minimum
solvency margin requirement until the consummation of the Offerings, when the
Operating Company will meet such requirement.
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 at not less than 75% of the amount
of its relevant liabilities. Relevant assets include cash and time deposits,
quoted investments, unquoted bonds and debentures, first liens on real estate,
investment income due and accrued, accounts and premiums receivable and
reinsurance balances receivable. There are certain categories of assets which,
unless specifically permitted by the Minister, do not 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.
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, the Company's
President and Chief Executive Officer, is the principal representative of the
Operating Company. An insurer
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may not terminate the appointment of its principal representative without a
reason acceptable to the Minister, 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 its subsidiaries have been
designated as non-resident for exchange control purposes by the Bermuda Monetary
Authority, whose permission has been obtained for the issue and transfer of the
Common Shares. 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 issuance 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 its subsidiaries 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 as required for their business and held by 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, except
for (a) reinsuring any risks undertaken by any company incorporated in Bermuda
and permitted to engage in the insurance and reinsurance business or (b)
providing financial guaranty insurance to any exempted undertaking in Bermuda
under the license granted to the Operating Company by the Minister on December
17, 1998.
United States
Neither GMA nor its subsidiaries are currently licensed as a financial
guaranty insurer or reinsurer in any jurisdiction in the United States. The
insurance laws of each state in the United States regulate the sale of insurance
within its 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 in the United States where an insurer is
not admitted to do business is prohibited. The sale of reinsurance, however, is
generally permitted within each state of the United States and the District of
Columbia by non-admitted reinsurers, provided that certain requirements are
satisfied, such as the need to obtain necessary approvals from certain state
insurance regulators in connection with a particular reinsurance transaction
and/or the need for the insurer to satisfy applicable credit for reinsurance
requirements.
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The Operating Company has adopted Operating Guidelines pursuant to which it
intends to conduct its reinsurance business in the United States in a manner
that will comply with the requirements applicable to non-admitted reinsurers and
to conduct its insurance business with persons located in the United States in a
manner that will not subject the Operating Company to the insurance licensing
laws of any jurisdiction in the United States. There can be no assurance,
however, that challenges to the Operating Company's reinsurance and insurance
activities in the United States will not be raised in the future or that the
restrictions on the Operating Company's activities associated with its status as
a non-admitted reinsurer and its lack of any insurance licenses in the United
States will not place the Company at a competitive disadvantage or otherwise
adversely affect the Company. In addition, changes in the Company's business
strategy or in the applicable insurance laws in the United States may lead
management to conclude that the Operating Company should seek to become an
admitted reinsurer in, or to obtain insurance licenses from, one or more
jurisdictions in the United States. If such a conclusion were to be reached,
there can be no assurance that the Operating Company would be able to become an
admitted reinsurer or be able to obtain such licenses. Furthermore, the process
of obtaining such status or licenses is often costly and may take a long time,
which could adversely affect the Company and its objective of being a low-cost
insurance and reinsurance provider.
Because many jurisdictions in the United States do not permit insurance
companies to take credit on their statutory financial statements for reinsurance
obtained from unlicensed or non-admitted reinsurers unless appropriate security
measures are in place, it is anticipated that the Operating Company's
reinsurance clients, including ACA, will require it to post a letter of credit
or enter into other security arrangements. If the Operating 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 letter of credit
facility or otherwise to secure its obligations to its reinsurance clients,
which would adversely affect the Company. The Operating Company does not
currently have a letter of credit facility established and if the Operating
Company is unable to obtain such a facility on commercially acceptable terms or
is unable to arrange for other types of security, the Operating Company's
ability to operate its reinsurance business may be severely limited.
The Operating Company's quota share and facultative treaties with ACA
require the Operating Company to take all steps necessary in order to permit ACA
to receive credit for such reinsurance in all applicable jurisdictions. The
Operating Company expects typically to post a letter of credit or other security
to enable ACA to obtain full credit for the reinsurance provided under the
treaties. If the Operating Company is unable to satisfy any requirement needed
in order for ACA to receive credit for the Operating Company's reinsurance, ACA
would have the right to terminate its reinsurance treaties with the Operating
Company, which would adversely affect the Company.
Outside the United States -- Insurance
Initially, an important international focus for the Company will be to
insure financial transactions involving assets held by trusts or similar special
purpose vehicles domiciled in jurisdictions such as Bermuda, the Cayman Islands
and the Island of Jersey. Such assets are expected typically to originate in the
United States and certain European Union countries and be transferred to such
off-shore jurisdictions in connection with the structuring of such transactions.
The Operating Company has obtained the necessary licenses under Bermuda law to
provide financial guaranty insurance to certain special purpose vehicles located
in Bermuda. The Company believes that no insurance licenses are required under
the laws of the Cayman Islands to provide financial guaranty insurance to such
entities located in the Cayman Islands, provided that the Operating Company
conducts the negotiation, conclusion and execution of insurance contracts,
administers insurance policies, and solicits insurance business in respect of
persons ordinarily resident or property ordinarily based in the Cayman Islands,
from outside the Cayman Islands. Similarly, the Company believes that the
Operating Company is permitted under the laws of the Island of Jersey to provide
financial guaranty insurance to such entities located in the Island of Jersey
without obtaining an insurance permit, subject to certain restrictions,
principally including that the Operating Company conduct marketing, negotiating,
underwriting, contract execution, policy administration and claims handling
activities entirely outside the Island of Jersey. In addition, in connection
with these types of transactions, the Operating Company, as a
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result of being licensed in Bermuda only, will investigate risks and conduct
post-closing surveillance activities from Bermuda, rather than from the Cayman
Islands, the Island of Jersey, or the jurisdiction from which the assets
underlying such transactions originated, such as the United States and certain
European Union countries. The Operating Company expects to perform its
underwriting analysis on such transactions in Bermuda and to obtain the
information needed to conduct such analysis from the proposed insured, persons
acting as agent for the proposed insured and other third parties. The Operating
Company also expects to provide financial guaranty insurance to financial
institutions and insurance companies outside the United States seeking to manage
their regulatory risked-based capital requirements, where it may do so without
obtaining insurance licenses in jurisdictions other than Bermuda.
The Company has adopted Operating Guidelines pursuant to which it intends
to operate its international insurance business in a manner that will comply
with applicable legal requirements and to conduct such insurance business in a
manner that will not subject it to the insurance licensing laws of any
jurisdiction other than Bermuda. There can be no assurance, however, that
challenges to the Operating Company's insurance activities in such jurisdictions
will not be raised or that the restrictions on the Operating Company's
activities associated with its lack of any insurance licenses in such
jurisdictions will not place the Company at a competitive disadvantage or
otherwise adversely affect the Company. In addition, changes in the Company's
business strategy, including a decision to target other jurisdictions that are
used as domiciles for structuring asset-backed transactions, or changes in
applicable insurance laws in the Cayman Islands, the Island of Jersey, the
United States or certain European Union countries may lead management to
conclude that the Operating Company should seek insurance licenses in
jurisdictions other than Bermuda. If such a conclusion were to be reached, there
can be no assurance that the Operating Company would be able to obtain such
licenses. Furthermore, the process of obtaining such licenses is often costly
and may take a long time, which could adversely affect the Company and its
objective of being a low-cost insurance provider.
The Company believes that the securities issued by trusts and other special
purpose vehicles that purchase financial guaranty insurance from the Operating
Company will likely be sold in many jurisdictions, principally including the
United States and the United Kingdom. In part because the Operating Company will
issue its financial guaranty insurance policies to such trusts and other special
purpose vehicles, the Company does not believe that the ownership of the
securities issued by such entities by an investor residing in a particular
jurisdiction would require the Operating Company to obtain an insurance license
in such jurisdiction. The Company has adopted Operating Guidelines pursuant to
which it intends to issue its financial guaranty insurance policies to such
trusts and other special purpose vehicles that issue securities in the United
States in a manner that will not subject the Operating Company to the insurance
licensing laws of any jurisdiction in the United States. These Operating
Guidelines provide that in such cases, among other things, (i) the Operating
Company will negotiate, issue and deliver its financial guaranty policy to an
insured located outside the United States; (ii) the Operating Company will
investigate risks and conduct post-closing surveillance from outside the United
States; (iii) the Operating Company will not solicit, advertise or otherwise
sell its policies in the United States; (iv) under the terms of the securities
that are subject to the financial guaranty insurance, principal and interest
will be due and payable to a trustee located outside the United States; and (v)
no policy, certificate of insurance, rider, endorsement or other evidence of
insurance will be delivered by the Operating Company to any securityholder,
excluding an issuer or trustee when not acting in the capacity of a
securityholder. The Operating Company has also adopted Operating Guidelines
pursuant to which it intends to issue its financial guaranty insurance policies
to trusts and other special purpose vehicles that issue securities in the United
Kingdom in a manner that will not subject the Operating Company to the insurance
licensing laws of the United Kingdom. These Operating Guidelines provide, among
other things, that the Operating Company will make underwriting decisions and
issue all policies exclusively from outside the United Kingdom and not otherwise
effect or carry out any contracts of insurance in the United Kingdom.
Because securities insured by the Operating Company may be held in many
jurisdictions, there can be no assurance that challenges will not be made by
regulatory authorities or others in a particular jurisdiction, including the
United States or the United Kingdom, where securities insured by the Operating
Company are held seeking to require the Operating Company to obtain an insurance
license in such jurisdiction. If any such
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challenge were to be successfully asserted, there can be no assurance that the
Operating Company would be able to obtain the required licenses. Furthermore,
the process of obtaining any such license may be costly and may take a long
time, which could adversely affect the Company and its objective of being a
low-cost insurance provider.
Outside the United States -- Reinsurance
The Company also expects to seek reinsurance opportunities in Bermuda and
certain European Union countries. The Operating Company has obtained the
necessary licenses under Bermuda law to provide financial guaranty reinsurance
to certain insurers domiciled in Bermuda, and it intends to conduct its
reinsurance business in the European Union in a manner that will not subject the
Operating Company to insurance licensing laws in any European Union country.
There can be no assurance, however, that challenges to the Operating Company's
reinsurance activities in European Union countries will not be raised in the
future or that the restrictions on the Operating Company's reinsurance
activities in European Union countries associated with its lack of any insurance
licenses in such countries will not place the Company at a competitive
disadvantage. In addition, changes in the Company's business strategy or
applicable insurance laws in particular European Union countries may lead
management to conclude that the Operating Company should seek insurance licenses
in one or more European Union countries. If such a conclusion were to be
reached, there can be no assurance that the Operating Company would be able to
obtain such licenses. Furthermore, the process of obtaining such licenses is
often costly and may take a long time, which could adversely affect the Company
and its objective of being a low-cost reinsurance provider.
Marketing Company
Neither GMA nor its subsidiaries are licensed as an insurer in the United
Kingdom. The insurance laws of the United Kingdom prohibit the carrying on of
insurance and reinsurance business in the United Kingdom by any person other
than an authorized or exempt insurer or reinsurer. The Company believes that the
Operating Company and the Marketing Company will not need to be licensed as
insurers in the United Kingdom, so long as the Operating Company exclusively
makes underwriting decisions and issues all policies from outside the United
Kingdom and does not otherwise effect or carry out any contracts of insurance in
the United Kingdom. In light of this, the Operating Company and the Marketing
Company have adopted Operating Guidelines that provide, among other things, that
the activities of the Marketing Company will be principally limited to
maintaining an office in the United Kingdom, meeting with prospective parties to
financial guaranty transactions and assisting them in originating proposals to
be presented to the Operating Company in Bermuda for its review and further
action; that the Operating Company will perform credit reviews, make
underwriting decisions, issue policies, collect premiums, settle claims and
perform all other policy servicing activities, including due diligence and
post-closing credit surveillance, outside the United Kingdom and will not carry
on any insurance-related activities in the United Kingdom; and that the
Marketing Company will not have, and will not hold itself out as having, the
authority to bind the Operating Company and will not participate in any
underwriting decisions, execute policies, collect premiums, settle claims or
otherwise effect or carry out insurance contracts in the United Kingdom. There
can be no assurance, however, that challenges to the activities of the Operating
Company and the Marketing Company in the United Kingdom will not be raised in
the future or that the restrictions on the activities of the Operating Company
and the Marketing Company in the United Kingdom associated with their lack of
any insurance licenses will not place the Company at a competitive disadvantage
or otherwise adversely affect the Company.
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, the United Kingdom 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 to a greater extent than currently
regulated. In addition, in the United Kingdom there is an initiative to
consolidate the regulation of insurance,
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banking and other financial services into a system supervised by a single
regulator, the Financial Services Authority. This initiative may subject certain
types of insurance, including financial guaranty insurance, or certain
insurance-related activities, such as the proposed activities of the Marketing
Company, to more extensive regulation. 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.
The Operating Guidelines to be employed by the Company were developed
following consultation with counsel in certain jurisdictions in which the
Company expects to conduct its insurance and reinsurance business, in which the
securities issued by trusts and other special purpose vehicles that have
purchased insurance from the Operating Company are principally expected to be
issued, and from which the assets backing such securities are principally
expected to originate, in each case as noted above. However, in light of the
absence of controlling legal precedent with respect to many of the regulatory
issues noted above and the broad discretion accorded insurance regulators in
many jurisdictions in the administration of insurance laws, there can be no
assurance that if the Company conducts its business in accordance with such
Operating Guidelines, a court or insurance regulator would not interpret and
apply applicable insurance laws so as to require GMA, the Operating Company or
the Marketing Company to obtain an insurance license in a particular
jurisdiction. Any such action by a court or regulator would adversely affect the
Company. The insurance laws of most jurisdictions provide for civil and criminal
penalties for conducting an insurance business without the required licenses. In
addition, the insurance laws of some jurisdictions provide that insurance
policies entered into by an insurer conducting an insurance business without
required licenses will be unenforceable and that the insurer must return any
premiums received for such policies.
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OVERVIEW OF THE FINANCIAL GUARANTY INSURANCE AND REINSURANCE 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 financial obligation, and
is typically unconditional, irrevocable and, except in certain cases for
non-payment of premiums, non-cancellable. Financial guaranty insurance is
principally offered as a credit enhancement to asset-backed securities and
municipal bonds and can be provided on an entire issue of securities at the time
of original issuance or to holders of all or a portion of an issue of uninsured
obligations at any time following issuance. If an issuer defaults under an
insured financial obligation, the insurer is obligated to pay the principal of
and interest on the obligation based on the original payment schedule and the
holder cannot accelerate the balance if the insurer makes such payments on a
timely basis. The insurer then has recourse against the issuer and/or any
related collateral for any amount paid under the policy.
Financial guaranty insurance provides benefits for both issuers and
investors. 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. In addition, financial institutions and insurance
companies subject to regulatory risk-based capital requirements may increase
their levels of available capital through insuring financial obligations held by
them.
The premium for financial guaranty insurance is typically non-refundable
and is payable by the issuer of the obligation either in periodic installments,
as is generally the case with asset-backed securities, or in full at the
policy's inception, as is generally the case with municipal debt obligations.
For financial reporting and statutory accounting purposes, insurers and
reinsurers recognize periodic installment premiums in the period that the
insurer receives them and recognize premiums that are paid at a policy's
inception over the term of the related insured obligation. 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, the issuer's 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.
Asset-Backed Securities Market
Asset-backed securities are a form of structured financing distinguishable
from more traditional debt financing. In traditional debt financing, the issuer
of the debt retains ownership of its assets and the obligation to repay its
liabilities, even where collateral has been pledged to secure such liabilities.
Further, in a traditional debt financing, a bankruptcy or insolvency of the
issuer can delay scheduled payments to the debt holders even if the debt is
fully collateralized. Therefore, the creditworthiness of a traditional debt
financing is linked to that of the issuer of the debt in addition to any
collateral pledged. In contrast, an asset-backed security is generally issued by
a special purpose entity organized to hold a specific pool of assets that have
an ascertainable cash flow or market value and to issue the securities that are
secured by the assets or payable from the cash flow derived from the assets. The
special purpose entity created to issue asset-backed securities is typically
intended to be isolated from any bankruptcy of the entity providing the assets.
Because the assets supporting the asset-backed securities are intended to be
insulated from the credit risk of the company that originated or originally
acquired the assets, such asset-backed securities are rated independently from
the rating assigned to the company itself.
Most asset-backed securities are supported by diverse pools of fixed-income
financial assets and their related collateral, such as single- and multi-family
residential mortgage loans, home equity loans, time-share loans, automobile
loans, credit card receivables, student loans, commercial loans, equipment
leases, aircraft leases, trade receivables and export finance receivables. There
are also asset-backed securities supported by one or a few assets, such as
public utility mortgage bonds, project finance loans and capital equipment
loans.
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Asset-backed securities involve both asset risk and structural risk. Asset
risk relates to the amount and quality of asset coverage. In general, the amount
and quality of asset coverage is based on the historical cash flow performance
and projected future cash flow performance of the assets. Asset-backed
securities are often over-collateralized or secured by another form of credit
enhancement to protect against adverse asset performance. The ability of the
servicer of the assets to service properly and collect the cash flows generated
by the underlying assets can also be a factor in determining future asset
performance. Structural risk relates to the extent to which the transaction
structure protects the interests of investors. Asset-backed securities are
usually designed to protect investors from the bankruptcy or insolvency of the
entity that originated the underlying assets as well as from the bankruptcy or
insolvency of the servicer of those assets. In addition, because the cash flow
generated by the underlying assets is the primary source for the repayment of
the asset-backed obligations, the securities are structured to account for the
tax status of the issuing entity and the tax characterization of the
asset-backed obligations that are issued.
Both the United States and international securitization markets have
expanded recently, as measured both by the aggregate principal amount of
asset-backed obligations issued and the diversity of securitized assets.
According to Asset-Backed Alert, worldwide issuances of asset-backed securities
grew from approximately $291.7 billion during 1997 to approximately $346.7
billion during 1998, representing an increase of approximately 18.9%. In
addition, Asset-Backed Alert reported that during 1998, 20.6% of asset-backed
securities issued in public offerings were insured. While home mortgages and
home equity loans, credit card receivables and auto loans have historically
constituted the largest percentage of assets that support asset-backed
securities, the diversity of asset-backed obligations available to investors has
continued to expand as corporations, financial institutions and state and local
governments have sought to access the capital markets by securitizing their
respective assets and utilizing the techniques of structured finance.
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 (for example, counties, cities, towns and
villages, utility districts, public universities, hospitals and public housing
and transportation authorities) and other public and quasi-public entities
(including non-United States sovereigns and subdivisions thereof). Types of
insured municipal bonds include: general obligations, special tax and assessment
transactions, development districts, utilities (electric, water, sewer and gas),
housing (single and multi-family), transportation (airports, ports and mass
transit), toll facilities (highways, tunnels, parking facilities and bridges),
education (private and certain public universities and 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, in the case of most revenue bonds, by the issuer's
ability to impose and collect fees and charges for public services or specific
projects. Outside the United States, similar transactions center on obligations
involving infrastructure and infrastructure maintenance.
The United States municipal bond market has expanded recently, as measured
by the aggregate principal amount of municipal securities issued. According to
Securities Data Co., the issuance of municipal securities in the United States
grew from approximately $220.7 billion during 1997 to approximately $285.9
billion during 1998, representing an increase of approximately 29.5%. In
addition, Securities Data Co. reported that during the same time period,
approximately 50.8% of municipal securities issued in public offerings were
insured.
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 that the ceding company has underwritten in
exchange for a premium. Such arrangements are standard industry practice for
primary insurers. The reinsurer may pay a
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ceding commission to the cedent to compensate it for the costs of producing and
underwriting the insured risk. Reinsurers may also purchase reinsurance under
retrocessional agreements to cover all or a portion of their own exposure for
similar reasons as the primary insurer purchases reinsurance. Reinsurance does
not typically relieve the ceding company of its obligation to the insured party
if a reinsurer fails to perform.
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 that the ceding company has underwritten during the term of the treaty,
although the reinsurance risk extends for the term of the respective underlying
obligations. Facultative reinsurance is the reinsurance of all or part of one or
more insurance policies or specific risks, which is subject to separate
negotiation for each reinsurance placement. This option allows the reinsurer to
accept or reject individual submissions by a ceding company for reasons such as
credit risk, sector risk or country risk. Automatic treaty and facultative
reinsurance are typically written on either a proportional or non-proportional
basis. In proportional relationships, such as a quota share treaty, the ceding
company and the reinsurer share premiums, losses and expenses net of any ceding
commission of a single risk or group of risks at an agreed percentage.
Non-proportional reinsurance relationships are typically on an excess-of-loss
basis, which provides coverage to a ceding company up to a certain dollar limit
to the extent that its losses exceed a certain amount.
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, establish
minimum capital requirements on financial guaranty insurance companies, which
limit the aggregate insurance amount that the insurer may write and the maximum
single-risk size that it may insure. Reinsurance enables the primary insurer to
write policies in amounts larger than the risks it is willing to retain for its
own account and allows the primary insurer to increase its capacity to write new
business by effectively reducing its gross liability on an aggregate and single-
risk basis. In addition, primary insurers manage the risk of their insured
portfolios based on internal underwriting criteria and portfolio management
guidelines. Reinsurance can be instrumental in enabling primary insurers to
achieve portfolio management goals.
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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.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH GMA
- ---- --- -----------------
<S> <C> <C>
Donald J. Matthews................... 65 President, Chief Executive Officer and Director
Mary Jane Robertson.................. 45 Managing Principal, Chief Financial Officer and
Treasurer
Matthew J. Cooleen................... 33 Managing Principal, Structured Products
Bruce W. Bantz....................... 49 Managing Principal, Marketing and Business
Development
James G. Jachym...................... 53 Managing Principal, Credit
Lionel J. Marsland-Shaw.............. 46 Managing Principal, Risk Management
Robert M. Lichten.................... 58 Chairman of the Board and Director
Frederick S. Hammer.................. 62 Deputy Chairman of the Board and Director
Lawrence S. Doyle.................... 55 Director
H. Russell Fraser.................... 57 Director
William M. Goldstein................. 63 Director
Curtis R. Jensen..................... 36 Director
Willis T. King, Jr. ................. 54 Director
Claude J. Seaman..................... 52 Director
Bradley M. Shuster................... 44 Director
Paul T. Walker....................... 63 Director
James J. Zech........................ 41 Director
</TABLE>
Donald J. Matthews was elected Chief Executive Officer and a director of
GMA and the Operating Company upon their formation and was elected President of
GMA and the Operating Company on November 24, 1998. 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. (now part of ACE Limited) 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, Chief Financial Officer and
Treasurer of GMA and the Operating Company on October 15, 1998. From 1993 to
1997, Ms. Robertson was the Chief Financial Officer and a Senior Vice President
of Capsure Holdings Corp. (now part of CNA Surety Corp.), an insurance company
focusing principally on the surety and fidelity insurance business. From 1986 to
1996, Ms. Robertson also 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.
Matthew J. Cooleen became Managing Principal, Structured Products of GMA
and the Operating Company on February 19, 1999. From 1997 to 1999, Mr. Cooleen
worked at MBIA-Ambac International, a joint venture between MBIA Insurance Corp.
and Ambac Assurance Corporation, where he was most recently a Managing Director
in the International Structured Finance Department. At MBIA-Ambac International,
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Mr. Cooleen focused on the development of the global structured finance and
asset-backed financial guaranty market. From 1995 to 1997, he was a Vice
President and Group Head of the Global Securitization Group of Paribas Capital
Markets, an international investment and commercial bank, where he founded the
Global Securitization/Structured Finance Department. From 1991 to 1995, Mr.
Cooleen was a Vice President in the Asset Backed Department of ING Barings, an
international investment and commercial bank. Prior thereto, Mr. Cooleen served
as a Senior Associate in the Structured Finance Consulting Group of Arthur
Andersen, from 1987 to 1991.
Bruce W. Bantz became Managing Principal, Marketing and Business
Development of GMA and the Marketing Company on September 1, 1998. Mr. Bantz was
a Director and the Global Head of Asset-Backed Finance of Dresdner Kleinwort
Benson, the 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, the 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 asset-backed commercial paper
conduit.
James G. Jachym became Managing Principal, Credit of GMA and the Operating
Company on February 24, 1999. From 1996 to 1999, Mr. Jachym was a Vice President
of BT Alex.Brown Incorporated, where he was responsible for rating agency
matters pertaining to such firm's clients. From 1979 to 1996, he was employed by
Lehman Brothers Inc., where from 1985 to 1996 he was a Senior Vice President and
was responsible for review and commitment of all asset-backed commercial paper
programs.
Lionel J. Marsland-Shaw became Managing Principal, Risk Management of GMA
and the Operating Company on November 1, 1998. From 1995 to 1998, Mr.
Marsland-Shaw served as General Manager and Chief Executive Officer of Capital
Intelligence, a credit rating and analysis company specializing in emerging
markets. From 1993 to 1995, Mr. Marsland-Shaw was Director and Head of the
London office of Standard & Poor's Ratings Services and was responsible for its
ratings business in the United Kingdom, Ireland and the Netherlands. Prior
thereto, Mr. Marsland-Shaw headed Standard & Poor's European Structured Finance
and Securitization Analytic Group. Prior to joining Standard & Poor's in 1987,
he served as a Manager, Portfolio Administration and Deputy Credit Manager of
Manufacturers Hanover Finance Limited from 1984 to 1987.
Robert M. Lichten was elected a director of GMA and the Operating Company
upon their formation and was elected non-executive Chairman of the Board of GMA
and the Operating Company on November 25, 1998. Mr. Lichten has been Co-Chairman
of Inter-Atlantic Capital Partners, Inc. since 1998. He previously served as
Vice Chairman of Inter-Atlantic Capital Partners, Inc. from 1994 to 1998. 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.
Frederick S. Hammer was elected a director of GMA and the Operating Company
upon their formation and was elected non-executive Deputy Chairman of the Board
of GMA and the Operating Company on November 25, 1998. Mr. Hammer has been
Co-Chairman of Inter-Atlantic Capital Partners, Inc. since 1998. He previously
served as Vice Chairman of Inter-Atlantic Capital Partners, Inc. from 1994 to
1998. 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 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.
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Lawrence S. Doyle was elected a director of GMA and the Operating Company
on November 25, 1998. Mr. Doyle has been the Chief Executive Officer, President
and a director of Annuity and Life Re (Holdings), Ltd., a Bermuda-based
reinsurance company, since December 1997. Mr. Doyle served as an Executive Vice
President of EXEL Limited, a Bermuda-based insurance company, in 1997. Mr. Doyle
was the President and Chief Executive Officer of GCR Holdings Limited, a
Bermuda-based reinsurer specializing in catastrophe risk, and its subsidiary
Global Capital Reinsurance Limited from 1993 until their acquisition by EXEL
Limited in 1997. Prior thereto, Mr. Doyle was Senior Vice President of the
Hartford Insurance Group in charge of international operations, where he was
employed for 27 years, the last six of which he was also the President of
Hartford Fire International.
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, Inc.). 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 1989.
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.
Curtis R. Jensen was elected a director of GMA and the Operating Company on
November 25, 1998. Mr. Jensen has been a senior analyst for Third Avenue Value
Fund since 1995 and Co-Portfolio Manager of Third Avenue Small-Cap Value Fund
since 1997. Prior thereto, Mr. Jensen was a student at the Yale University
School of Management, from which he received a Masters, Business Administration.
Mr. Jensen served as Director of Operations of Ciao Bella Gelato Company, a food
manufacturer, from 1990 to 1993. He is a director of Repap Enterprises
Incorporated, a Canadian paper producer. Mr. Jensen is serving as a director of
GMA as the nominee of the Third Avenue Funds.
Willis T. King, Jr. was elected a director of GMA and the Operating Company
on November 25, 1998. Mr. King has been Vice Chairman of Guy Carpenter &
Company, Inc., the reinsurance brokerage subsidiary of Marsh & McLennan
Companies, Inc., since its merger with Johnson & Higgins, an international
insurance intermediary and employee benefits consulting firm, in 1997. He served
as a director of Johnson & Higgins from 1987 to 1997 and Chief Executive Officer
of its reinsurance brokerage subsidiary, Willcox Incorporated Reinsurance
Intermediaries, from 1985 to 1997. He is the non-executive Chairman of the Board
of Homeowners' Holdings, Inc. and its insurance company subsidiary, First
Protective Insurance Company. Mr. King is also a Director of SCPIE Holdings,
Inc.
Claude J. Seaman was elected a director of GMA and the Operating Company on
February 26, 1999. Mr. Seaman has been a Group Executive Vice President,
Strategic Investments of PMI since 1999. From 1994 to 1999, Mr. Seaman served as
an Executive Vice President for Insurance Operations of PMI. Mr. Seaman is
serving as a director of GMA as a nominee of PMI.
Bradley M. Shuster was elected a director of GMA and the Operating Company
on February 26, 1999. Mr. Shuster has been Executive Vice President in charge of
Corporate Development of PMI since 1998. Prior thereto, he served as the
Treasurer and Chief Investment Officer of PMI from 1995 to 1998. Mr. Shuster was
an audit partner with the accounting firm of Deloitte & Touche LLP from 1988 to
1995. Mr. Shuster is serving as a director of GMA as a nominee of PMI.
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
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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.
James L. Zech was elected a director of GMA and the Operating Company on
February 26, 1999. Since 1995, Mr. Zech has been President of High Ridge
Capital, LLC, an investment advisory firm that manages High Ridge Capital
Partners Limited Partnership, a private equity fund that invests in insurance
companies and related service businesses. He served as a Managing Director in
the Corporate Finance division of S.G. Warburg & Co., Inc. from 1992 to 1995.
Mr. Zech is a director of the Seibels Bruce Group, Inc. Mr. Zech is serving as a
director of GMA as the nominee of High Ridge.
PROVISIONS GOVERNING THE BOARD OF DIRECTORS
Number and Terms of Directors
GMA's Bye-Laws provide that the Board of Directors is divided into three
classes. The first class, whose initial term expires at the first annual meeting
of GMA's shareholders following completion of the Offerings, is comprised of
Messrs. Doyle, Hammer, Jensen and King; 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. Fraser, Goldstein, Shuster and Zech;
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, Lichten, Seaman 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 seven members (Messrs. Lichten
(Chairman), Fraser, Goldstein, Hammer, Matthews, Shuster and Walker).
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 five members (Messrs. Shuster
(Chairman), Hammer, Jensen, Lichten and Zech).
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 (Messrs. Goldstein (Chairman), Doyle, Fraser
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 and recommends to
the Board persons to be nominated as directors and to fill committee
assignments. The Compensation Committee presently consists of three members
(Messrs. Hammer (Chairman), Goldstein and King).
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 five members (Messrs. Walker
(Chairman), Doyle, King, Lichten and Seaman).
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Compensation of Directors
Directors who are employees of the Company will not be paid any fees or
additional compensation for services as members of the Company's Board of
Directors or any committee thereof. Non-employee directors will receive cash in
the amount of $20,000 per annum and $1,000 per board or committee meeting
attended. The non-employee Chairman and Deputy Chairman of the Board and
non-employee Committee Chairmen will receive an additional $1,000 per annum. Mr.
Fraser will receive options to acquire 100,000 Common Shares and other
non-employee directors will each 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. Robert M. Lichten, the
non-employee Chairman of the Board, will also be granted options to purchase a
number of Common Shares equal to the number of Common Shares remaining under the
Stock Option Plan after all of the other directors and officers of the Company
(including Mr. Matthews) who are entitled to receive options upon consummation
of the Offerings and the Direct Sales have been granted such options, minus
100,000 Common Shares. If the Underwriters' over-allotment options are not
exercised, Mr. Lichten will not receive any additional options. If the
Underwriters' over-allotment options are exercised in full, Mr. Lichten will
receive options to purchase 113,645 Common Shares. 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. Such options may be
assigned by the directors without the consent of GMA. 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 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 executive 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, except that (i) Mr. Matthews, the Company's President and Chief
Executive Officer, previously served as a director of ACA, of which Mr. Fraser,
a director of the Company, is an executive officer, and (ii) Mr. Matthews serves
on the Compensation Committee of Annuity and Life Re (Holdings), Ltd., of which
Mr. Doyle, a director of the Company, is the President and Chief Executive
Officer.
Mr. Goldstein has expressed his non-binding intention to purchase 10,000
Common Shares directly from the Company as part of the Direct Sales for an
aggregate purchase price of $141,000. Mr. King has expressed his non-binding
intention to purchase 15,000 Common Shares directly from the Company as part of
the Direct Sales for an aggregate purchase price of $211,500. Mr. Hammer has
expressed his non-binding intention to purchase 12,500 Common Shares directly
from the Company as part of the Direct Sales for an aggregate purchase price of
$176,250. Mr. Hammer also purchased from the Company for $11,007 a Class A
Warrant to purchase an aggregate number of Common Shares equal to 1.37592% 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 also purchased from a third party a Class A Warrant to purchase 32,500
Common Shares. Mr. Hammer has transferred a portion of his Class A Warrants to
certain trusts that have been established for the benefit of certain family
members. Mr. Hammer is also an owner and officer of Inter-
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Atlantic Capital Partners, Inc., the parent corporation of Inter-Atlantic, and
he is a shareholder of ICS. See "Certain Relationships and Related Party
Transactions."
EXECUTIVE COMPENSATION
Messrs. Bantz and Marsland-Shaw and Ms. Robertson have entered into
consulting agreements with ACA Service pursuant to which they were paid $75,000,
$22,000 and $30,000, respectively, during the fiscal year ended December 31,
1998. Such amounts, together with any additional amounts paid under such
consulting agreements prior to the consummation of the Offerings, will be
deducted from the unpaid salaries owed by the Company to such officers pursuant
to the terms of their respective employment agreements. Such consulting
agreements will be terminated prior to or upon consummation of the Offerings.
The Company did not pay any compensation to its officers during the fiscal year
ended December 31, 1998 but has agreed to reimburse ACA Service for payments
made by ACA Service to Messrs. Bantz and Marsland-Shaw and Ms. Robertson
pursuant to the consulting 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 President 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 written 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 September 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$13,000. 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, 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 the Company and will receive a
monthly travel and housing allowance of BD$10,000. 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.
GMA, the Operating Company and Mr. Cooleen have entered into an Employment
Agreement under which Mr. Cooleen has agreed to serve as Managing Principal,
Structured Products, 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. Cooleen is entitled to receive an
annual salary of BD$300,000 as of March 1, 1999. Upon consummation of the
Offerings, Mr. Cooleen will be eligible to participate in all employee benefit
programs maintained by the Company and will receive a monthly travel and housing
allowance of BD$10,000. Mr. Cooleen'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
and a one-time cash bonus of BD$300,000, payable within twelve months after the
consummation of the Offerings.
GMA, the Marketing 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 Marketing 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
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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 September 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.
GMA, the Operating Company and Mr. Jachym have entered into an Employment
Agreement under which Mr. Jachym has agreed to serve as Managing Principal,
Credit, 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. Jachym is entitled to receive an annual salary of
BD$300,000 as of March 1, 1999. Upon consummation of the Offerings, Mr. Jachym
will be eligible to participate in all employee benefit programs maintained by
the Company and will receive a monthly travel and housing allowance of
BD$10,000. Mr. Jachym'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.
GMA, the Operating Company and Mr. Marsland-Shaw have entered into an
Employment Agreement under which Mr. Marsland-Shaw has agreed to serve as
Principal, Risk Management, 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. Marsland-Shaw is entitled to receive
an annual salary of BD$180,000 as of November 1, 1998. Upon consummation of the
Offerings, Mr. Marsland-Shaw will be eligible to participate in all employee
benefit programs maintained by the Company and will receive a monthly travel and
housing allowance of BD$6,000. Mr. Marsland-Shaw'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, Cooleen, Bantz, Jachym and
Marsland-Shaw 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 the lesser of: (i) 2.0% of the Company's Common Shares
outstanding immediately following the consummation of the Offerings and the
Direct Sales; (ii) the number of Common Shares remaining under the Stock Option
Plan after all of the other directors and officers of the Company who as of
February 26, 1999 are entitled to receive options upon consummation of the
Offerings and the Direct Sales have been granted such options (except the
additional options granted to Mr. Lichten as the Chairman of the Board), minus
100,000 Common Shares; or (iii) 500,000 Common Shares. Messrs. Cooleen, Bantz
and Jachym and Ms. Robertson will each receive options to purchase 100,000
Common Shares. Mr. Marsland-Shaw will receive options to purchase 50,000 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 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 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 an 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
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salary as of the date of termination plus an amount equal to any excise taxes
payable 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.
Each Employment Agreement also provides that no officer 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 the officer's 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. Each Employment Agreement
also provides that the officers 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 Global Markets Access Ltd. Initial Stock Option Plan was most recently
amended by the Company's Board of Directors on February 26, 1999 and was
subsequently approved, as amended, by a vote of the shareholder of the Company
on February 26, 1999. The Stock Option Plan is intended to attract and retain
selected key employees, non-employee 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 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
minus 87,646 Common Shares or (ii) 2,000,000 Common Shares. No option may be
granted under the Stock Option Plan after October 28, 2008, although options
outstanding on that date may extend beyond that date. Because of the limited
number of Common Shares available for future stock option grants under the Stock
Option Plan, the Company anticipates that it may seek shareholder approval to
increase the number of Common Shares for which options may be granted under the
Stock Option Plan at the Company's first meeting of shareholders.
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
February 26, 1999,
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there were six employees of the Company eligible to receive ISOs and seventeen
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 the employment or service of an employee or consultant with GMA (or a
Related Corporation) is terminated prior to the expiration date fixed for his or
her option for any reason other than death or disability, 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 to such other extent permitted by the Compensation Committee, at any time
prior to the earlier of the expiration date of such option or 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 the service of a non-employee director with GMA is terminated prior to
the expiration dated fixed for his or her option for any reason other than
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 at any time prior to the earlier of
the expiration date of such option or three months after the date of such
termination of service as a non-employee director. If the service of a non-
employee director with GMA is terminated prior to the expiration date fixed for
his or her option for cause, such option will terminate immediately.
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 or his or her representative 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 non-employee 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
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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, 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 an option agreement containing provisions consistent with the Stock
Option Plan and such other provisions as the Compensation Committee deems
appropriate. Except with respect to the initial option grants to GMA's
non-employee directors and except as may be provided in an option agreement with
regard to other 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 sale 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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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 EMPLOYEES SHARE DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Donald J. Matthews(1)...... 448,645 49.92% $15.00 (3) $4,232,260 $10,725,377
Mary Jane Robertson........ 100,000 11.13% $15.00 (3) $ 943,342 $ 2,390,614
Matthew J. Cooleen......... 100,000 11.13% $15.00 (3) $ 943,342 $ 2,390,614
Bruce W. Bantz............. 100,000 11.13% $15.00 (3) $ 943,342 $ 2,390,614
James G. Jachym............ 100,000 11.13% $15.00 (3) $ 943,342 $ 2,390,614
Lionel J. Marsland-Shaw.... 50,000 5.56% $15.00 (3) $ 471,671 $ 1,195,307
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment options are exercised in full, the
number of Common Shares underlying Mr. Matthews' options will increase to
500,000 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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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). The directors and officers of GMA listed below 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 PMI Group, Inc.(2)...................................... 2,127,659 8.76%
High Ridge Capital Partners Limited Partnership(3).......... 709,219 2.92%
Third Avenue Value Fund(4)(5)............................... 322,109 1.33%
Third Avenue Small-Cap Value Fund(4)(6)..................... 32,500 *
Donald J. Matthews(7)....................................... 70,000 *
Mary Jane Robertson(8)...................................... 50,000 *
Matthew J. Cooleen(8)....................................... 45,000 *
Bruce W. Bantz(8)........................................... 30,000 *
James G. Jachym(8).......................................... 30,000 *
Lionel J. Marsland-Shaw(9).................................. 20,000 *
Willis T. King, Jr.(10)..................................... 15,000 *
Robert M. Lichten(11)....................................... 15,000 *
Frederick S. Hammer(12)..................................... 12,500 *
William M. Goldstein(10).................................... 10,000 *
Lawrence S. Doyle(10)....................................... 5,000 *
H. Russell Fraser(8)........................................ 2,000 *
Paul T. Walker(10).......................................... 1,000 *
Curtis R. Jensen(10)........................................ -- --
Claude J. Seaman(10)........................................ -- --
Bradley M. Shuster(10)...................................... -- --
James J. Zech(10)........................................... -- --
All directors and executive officers as a group (seventeen
persons).................................................. 305,500 1.26%
</TABLE>
- ---------------
* Less than 1%.
(1) The address for The PMI Group, Inc. is 601 Montgomery Street, San
Francisco, California 94111; the address for High Ridge Capital Partners
Limited Partnership is 20 Liberty Street, Chester, Connecticut 06412; and
the address for Third Avenue Value Fund and Third Avenue Small-Cap Value
Fund is 767 Third Avenue, New York, New York 10017. The address for each
other beneficial owner is c/o Global Markets Access Ltd., Cumberland
House, 1 Victoria Street, Hamilton, HM AX, Bermuda.
(2) Does not include 300,000 Common Shares issuable upon the exercise of Class
B Warrants which are not currently exercisable. For so long as PMI owns at
least 1,000,000 Common Shares, the Company has agreed to nominate for
election as a director of GMA two persons selected by PMI and for so long
as PMI owns at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of GMA one person selected by PMI. In
exchange for such right and for so long as any person selected by PMI is a
director (and during any period after such person's designation but before
his or her election), PMI will not vote or permit any of the Common Shares
beneficially owned by it to be voted for the election of any director of
GMA, other than the nominee(s) designated by PMI.
(3) Does not include 100,000 Common Shares issuable upon the exercise of Class
B Warrants which are not currently exercisable. For so long as High Ridge
owns at least 500,000 Common Shares, the Company has agreed to nominate
for election as a director of GMA one person selected by High Ridge. In
exchange for such right and for so long as any person selected by High
Ridge is a director (and during any period after such person's designation
but before his or her election), High Ridge will not vote or permit any of
the Common Shares beneficially owned by it to be voted for the election of
any director of GMA, other than the nominee designated by High Ridge.
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<PAGE> 75
(4) The Third Avenue Value Fund and the Third Avenue Small-Cap Value Fund are
each a series of the Third Avenue Trust, which may be deemed to own
beneficially such Common Shares. For so long as Third Avenue Value Fund
and Third Avenue Small-Cap Value Fund collectively own at least 250,000
Common Shares, the Company has agreed to nominate for election as a
director of GMA one person jointly selected by Third Avenue Value Fund and
Third Avenue Small-Cap Value Fund. In exchange for such right and for so
long as any person selected by Third Avenue Value Fund and Third Avenue
Small-Cap Value Fund is a director (and during any period after such
person's designation but before his or her election) Third Avenue Value
Fund and Third Avenue Small-Cap Value Fund will not vote or permit any of
the Common Shares beneficially owned by them to be voted for the election
of any director of GMA, other than the nominee designated by Third Avenue
Value Fund and Third Avenue Small-Cap Value Fund.
(5) Does not include 45,417 Common Shares issuable upon the exercise of Class
B Warrants which are not currently exercisable.
(6) Does not include 4,583 Common Shares issuable upon the exercise of Class B
Warrants which are not currently exercisable.
(7) Does not include 189,443 Common Shares (234,443 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
448,645 Common Shares (500,000 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
175,000 Common Shares issuable upon the exercise of Class A Warrants
initially acquired by Mr. Matthews and subsequently transferred to a trust
for the benefit of his family, 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."
(8) Does not include 100,000 Common Shares issuable upon the exercise of
options which are not currently exercisable.
(9) Does not include 50,000 Common Shares issuable upon the exercise of
options which are not currently exercisable.
(10) Does not include 15,000 Common Shares issuable upon the exercise of
options which are not currently exercisable.
(11) Does not include 266,798 Common Shares (308,076 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
15,000 Common Shares (128,645 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
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 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."
(12) Does not include 266,798 Common Shares (308,076 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
15,000 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."
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> 76
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The following descriptions summarize certain relationships and the terms of
certain agreements to which the Company is a party. 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, the sales to the Strategic Investors
and the development of the Company's operations, including assistance in
preparing the registration statement for the Common Shares, selecting
underwriters in connection with the Offerings, identifying and negotiating with
potential strategic investors and such other services as the Company or
Inter-Atlantic deems appropriate. Pursuant to this agreement, the Company has
agreed to pay Inter-Atlantic a fee of $3.6 million upon consummation of the
Offerings. The Company and Inter-Atlantic negotiated the $3.6 million fee at a
level of approximately 1.0% of the total gross proceeds raised by the Company
upon consummation of the Offerings and the Direct Sales. The Company believes
the fee is reasonable in light of the contingent nature of the fee and the
amount of work performed by Inter-Atlantic. In addition, the Company believes
the fee is comparable to the fee it otherwise would have paid to an unrelated
third-party service provider. Because Inter-Atlantic employs only eight people
and has limited resources, it has in turn contracted with ACA Service 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 upon
consummation of the Offerings. The Company is also obligated upon consummation
of the Offerings to reimburse Inter-Atlantic for reasonable 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, but will include expenses incurred by ACA Service
in connection with performing services under their agreements with
Inter-Atlantic for which Inter-Atlantic is obligated to reimburse them. Upon
consummation of the Offerings, certain of these incurred but not currently
payable expenses may be paid directly by the Company rather than paid to
Inter-Atlantic as reimbursement. At December 31, 1998, Inter-Atlantic had
incurred expenses on the Company's behalf in connection with the development of
the Company's operations of approximately $850,000 and expenses in connection
with the Offerings and the sales to the Strategic Investors of approximately
$1.4 million, including reimbursements owed to ACA Service. 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 $3.5 million of which approximately $1.4 million is estimated to
relate to expenses in connection with the Company's operations and approximately
$2.1 million is estimated to relate to expenses in connection with the Offerings
and the sales to the Strategic Investors, including expense reimbursements it
will owe to ACA Service.
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.), and two institutional investors purchased for $42,000, $12,000,
$11,007, $11,007, $6,300, $11,007, $2,679, $3,000 and $9,000, respectively,
Class A Warrants to purchase up to an aggregate number of Common Shares equal to
5.25%, 1.5%, 1.37593%, 1.37593%, 0.7875%, 1.37593%, 0.3347%, 0.375% and 1.125%,
respectively, 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 "Class A Determination
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<PAGE> 77
Amount"). Subsequently, one institutional investor surrendered its Class A
Warrant to the Company and the other institutional investor transferred a
portion of its Class A Warrant to Messrs. Esposito, Hammer, Lerner and Lichten,
and then surrendered the balance to the Company The net result of these
transactions is that there remains outstanding Class A Warrants to purchase a
number of Common Shares equal to 12.0% of the Class A Determination Amount plus
137,646 Common Shares, of which ACA Holdings acquired a Class A Warrant for
5.25% of the Class A Determination Amount, Donald J. Matthews acquired a Class A
Warrant for 1.50% of the Class A Determination Amount, Michael P. Esposito, Jr.
acquired Class A Warrants for 1.37593% of the Class A Determination Amount plus
47,499 Common Shares, Frederick S. Hammer acquired Class A Warrants for 1.37593%
of the Class A Determination Amount plus 32,500 Common Shares, Robert M. Lichten
acquired Class A Warrants for 1.37593% of the Class A Determination Amount plus
32,500 Common Shares, Andrew S. Lerner acquired Class A Warrants for 0.7875% of
the Class A Determination Amount plus 25,147 Common Shares, and William S.
Ogden, Jr. acquired a Class A Warrant for 0.3347% of the Class A Determination
Amount. Messrs. Esposito, Hammer, Lichten and Matthews 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 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 licensed as an
insurance broker, 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 in its initial stages of development and has a limited
operating history or experience providing risk management and other related
financial services. ICS is owned by Messrs. Esposito, Hammer, Lerner and
Lichten, each of whom is affiliated with Inter-Atlantic. Mr. Lichten is the
non-executive Chairman of the Board of GMA and the Operating Company. Mr. Hammer
is the non-executive Deputy Chairman of the Board of GMA and the Operating
Company.
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 and on terms no less
favorable to the Company than could be obtained from unaffiliated third parties.
OTHER ACA RELATIONSHIPS
Donald J. Matthews, the President and Chief Executive Officer and a
director of the Company, owns an option to purchase 0.49505% of ACA Holdings,
the parent corporation of ACA. H. Russell Fraser, a director of the Company, is
the Chairman of the Board and Chief Executive Officer of ACA and ACA Holdings.
The Operating Company has entered into three reinsurance treaties with ACA, 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
Operating Company is required to provide, and ACA is required to purchase,
reinsurance on a fixed percentage of the risks associated with financial
guaranty insurance policies issued by ACA covering new issues of financial
obligations with a rating of "BB" or higher. The second and third treaties are
facultative treaties under which the Operating Company and ACA are each
obligated to offer the other the opportunity to reinsure each financial
obligation the other insures on a direct basis. Such facultative treaties also
set forth the basic terms under which the Operating Company and ACA may purchase
such reinsurance from the other on a case-by-case basis. See
"Business -- Reinsurance Treaties with ACA."
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<PAGE> 78
The Company believes that each of the reinsurance treaties with ACA
described above was entered into on an arm's-length basis 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 and Lerner subscribed to purchase from
the Company an aggregate of 90,000 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
PMI has agreed to purchase Common Shares and Class B Warrants to purchase
Common Shares as part of the Direct Sales. See "Direct Sales." Claude J. Seaman,
a director of the Company, currently serves as a Group Executive Vice President,
Strategic Investments of PMI, and Bradley M. Shuster, a director of the Company,
currently serves as Executive Vice President in charge of Corporate Development
of PMI.
High Ridge has agreed to purchase Common Shares and Class B Warrants to
purchase Common Shares as part of the Direct Sales. See "Direct Sales." James L.
Zech, a director of the Company, is President of High Ridge Capital, LLC, an
investment advisory firm that manages High Ridge.
The Third Avenue Funds have agreed to purchase Common Shares and Class B
Warrants to purchase Common Shares as part of the Direct Sales. See "Direct
Sales." Curtis R. Jensen, a director of the Company, currently serves as a
senior analyst of Third Avenue Value Fund and as Co-Portfolio Manager of Third
Avenue Small-Cap Value Fund.
In connection with the Direct Sales to PMI, High Ridge and the Third Avenue
Funds, the Company has agreed to nominate for election as a director of GMA two
persons selected by PMI, one person selected by High Ridge and one person
selected by the Third Avenue Funds. PMI will have such right for so long as it
owns 1,000,000 Common Shares, and will have the right to designate one nominee
for election as a director of GMA for so long as it owns 500,000 Common Shares.
High Ridge will have such right for so long as it owns 500,000 Common Shares.
The Third Avenue Funds will have such right for so long as they collectively own
250,000 Common Shares. In exchange for such right, and, for so long as any
person selected by PMI, High Ridge and the Third Avenue Funds, respectively, is
a director (and during any period after such person's designation but before his
or her election), each Strategic Investor has agreed to not vote or permit any
of the Common Shares beneficially owned by it to be voted for the election of
any director of GMA, other than the nominee(s) selected by it. Each such
Strategic Investor is permitted to assign its right to select one or more
persons to be nominated for election as a director of GMA only upon the prior
written consent of the Company, which may not be unreasonably withheld. Claude
J. Seaman and Bradley M. Shuster are serving as directors of GMA as the nominees
of PMI, James L. Zech is serving as a director of GMA as the nominee of High
Ridge, and Curtis R. Jensen is serving as a director of GMA as the nominee of
the Third Avenue Funds.
MANAGEMENT RELATIONSHIPS
The Company's executive officers, Messrs. Matthews, Cooleen, Bantz, Jachym
and Marsland-Shaw and Ms. Robertson, have expressed their non-binding intention
to purchase approximately $987,000, $634,500, $423,000, $423,000, $282,000 and
$705,000 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, Cooleen, Bantz, Jachym
and Marsland-Shaw and Ms. Robertson are expected to purchase would be 70,000,
45,000, 30,000, 30,000, 20,000, and 50,000 Common Shares, respectively, and,
collectively, such purchases are expected to total 245,000 Common Shares.
Similarly, certain directors of the Company have expressed their intention to
purchase an aggregate of 60,500 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
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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, Cooleen, Bantz, Jachym and Marsland-Shaw and Ms. Robertson
in the amounts of $740,250, $454,500, $317,250, $317,250, $211,500 and $528,750,
respectively, to partially finance such purchases in the event such purchases
are completed. Such loans will bear interest at 6.0% per annum and must be
repaid within five years of the consummation of the Direct Sales, except that
$246,750 of the loan made to Mr. Matthews, $137,250 of the loan made to Mr.
Cooleen, $105,750 of the loan made to Mr. Bantz, $105,750 of the loan made to
Mr. Jachym, $70,500 of the loan made to Mr. Marsland-Shaw and $176,250 of the
loan made to Ms. Robertson must be repaid within 14 months of the consummation
of the Direct Sales. Any such purchases will be completed simultaneously with
the consummation of the Offerings and the other Direct Sales.
OTHER RELATIONSHIPS
The Company has subleased its principal offices in Hamilton, Bermuda on a
month-to-month basis from Annuity and Life Reassurance, Ltd. The subleased
office space consists of four offices and three workstations. The Company has
agreed to pay BD$5,200 plus utilities in rent for the first month of the
sublease. Thereafter, the sublease requires the Company to pay BD$4,500 plus
utilities in rent each month. Lawrence S. Doyle, a director of the Company, is
the Chief Executive Officer, President and a director of Annuity and Life
Reassurance, Ltd., and its parent company, Annuity and Life Re (Holdings), Ltd.
Robert M. Lichten, the non-executive Chairman of the Board of the Company, is
the non-executive Deputy Chairman of the Board of Annuity and Life Re
(Holdings), Ltd. and Annuity and Life Reassurance, Ltd. Frederick S. Hammer, the
non-executive Deputy Chairman of the Board of the Company, is the non-executive
Chairman of the Board of Annuity and Life Re (Holdings), Ltd. and Annuity and
Life Reassurance Ltd. Donald J. Matthews, the President and Chief Executive
Officer of the Company, is a director of Annuity and Life Re (Holdings), Ltd.
and Annuity and Life Reassurance, Ltd. The Company believes the sublease was
entered into on an arm's length basis and on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties.
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. Copies 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 24,296,206
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 3,053,184 Common Shares will be
issuable upon the exercise of outstanding Class A Warrants, an aggregate of
550,000 Common Shares will be issuable upon the exercise of Class B Warrants to
be included in the Direct Sales and an aggregate of 1,148,645 Common Shares will
be issuable upon the exercise of options to be granted upon consummation of the
Offerings, in each case, subject to adjustment as provided therein. If the
Underwriters' over-allotment options are exercised in full, 27,296,206 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
3,413,184 Common Shares and the number of Common Shares issuable upon the
exercise of options to be granted upon consummation of the Offerings will
increase to an aggregate of 1,313,645 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 PMI 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 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 the 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
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"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 and the rules and regulations thereunder,
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
PMI 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 PMI to
10% or more of a class of GMA's shares. GMA's Bye-Laws restrict PMI from owning
shares of GMA that would represent more than sixteen and two-thirds percent
(16 2/3%) of the total combined voting rights attached to all of GMA's
outstanding capital 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 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 PMI (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
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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, has 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 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.
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WARRANTS
Class A Warrants. 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.), and two institutional investors purchased
for $42,000, $12,000, $11,007, $11,007, $6,300, $11,007, $2,679, $3,000 and
$9,000, respectively, Class A Warrants to purchase up to an aggregate number of
Common Shares equal to 5.25%, 1.5%, 1.37593%, 1.37593%, 0.7875%, 1.37593%,
0.3347%, 0.375% and 1.125%, respectively, 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 "Class A Determination Amount").
Subsequently, one institutional investor surrendered its Class A Warrant to the
Company and the other institutional investor transferred a portion of its Class
A Warrant to Messrs. Esposito, Hammer, Lerner and Lichten, and then surrendered
the balance to the Company. The net result of these transactions is that there
remains outstanding Class A Warrants to purchase a number of Common Shares equal
to 12.0% of the Class A Determination Amount plus 137,646 Common Shares, of
which ACA Holdings acquired a Class A Warrant for 5.25% of the Class A
Determination Amount, Donald J. Matthews acquired a Class A Warrant for 1.50% of
the Class A Determination Amount, Michael P. Esposito, Jr. acquired Class A
Warrants for 1.37593% of the Class A Determination Amount plus 47,499 Common
Shares, Frederick S. Hammer acquired Class A Warrants for 1.37593% of the Class
A Determination Amount plus 32,500 Common Shares, Robert M. Lichten acquired
Class A Warrants for 1.37593% of the Class A Determination Amount plus 32,500
Common Shares, Andrew S. Lerner acquired Class A Warrants for 0.7875% of the
Class A Determination Amount plus 25,147 Common Shares, and William S Ogden, Jr.
acquired a Class A Warrant for 0.3347% of the Class A Determination Amount. 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 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 550,000 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
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Prudential Securities 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 are expected to be 1,148,645
Common Shares issuable upon the exercise of outstanding options and 100,000
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
1,313,645 Common Shares and the number of Common Shares reserved for future
issuance pursuant to the Stock Option Plan will not change. See
"Management -- Stock Option Plan."
The Company intends to file with the Commission a registration statement on
Form S-8 covering the sale 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 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 (after the initial
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.
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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 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
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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.
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 24,296,206 Common Shares, Class A Warrants to purchase an
aggregate of 3,053,184 Common Shares, Class B Warrants to purchase an aggregate
of 550,000 Common Shares and options to purchase an aggregate of 1,148,645
Common Shares. If the Underwriters' over-allotment options are exercised in
full, 27,296,206 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 3,413,184 Common Shares and the number of Common
Shares issuable upon the exercise of outstanding options will increase to an
aggregate of 1,313,645 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 pursuant to a separate prospectus 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. The Common Shares to be sold to the Strategic
Investors in the Direct Sales, the Common Shares the Company has contracted to
sell to certain persons involved in the formation of the Company 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, the holders of
the Class A Warrants and certain persons involved in the formation of the
Company 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 on behalf of the Underwriters and, in the
case of the Strategic Investors, the prior written consent of 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 certain transfers by 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 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 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
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the Offerings and before the tenth anniversary thereof, holders of 5% 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 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 and their permitted transferees each
have the right on up to two occasions 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, such holder gives written notice to the Company requesting such
registration. Holders of Class B Warrants and the Common Shares sold to the
Strategic Investors in the Direct Sales and their permitted transferees 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, such
holder gives written notice to the Company requesting such registration. In
addition, if the Company proposes, other than pursuant to the two methods
mentioned immediately above, to file a registration statement under the
Securities Act to register any of its Common Shares for public sale under the
Securities Act (including pursuant to requests of the holders of Class A
Warrants, other Class B Warrants or other Common Shares sold to 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.
The registration rights agreement entered into by the Company in connection
with the Class A Warrants 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.
Each of the registration rights agreements entered into by the Company in
connection with the sales to the Strategic Investors provides that at any time
when a registration statement covering Common Shares sold to the Strategic
Investors in the Direct Sales and the Common Shares underlying the warrants is
effective, if the Company determines after a good faith inquiry that a sale of
such Common Shares would require disclosure of non-public material information,
the disclosure of which would have a material adverse effect on the Company,
sales of such Common Shares will be suspended until the earlier of (i) 20 days
after the Company makes notification of its good faith determination or (ii)
such time as the Company makes notification that the material information has
been disclosed to the public, or ceases to be material or that sales pursuant to
the registration statement can resume. The Company may not commence such a
suspension period within 90 days after the end of a prior period. In addition,
the Company will have the right on no more than two occasions in any 365-day
period to defer the filing or effectiveness of a Registration Statement relating
to any registration requested by the Strategic Investors (or their permitted
transferees) relating to an underwritten public offering for a reasonable period
of time not to exceed (1) 180 days if the Company is, at
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such time, working on an underwritten public offering of its securities for the
account of the Company and is advised by its managing underwriter that such
offering would in its opinion be materially adversely affected by such filing;
or (2) 60 days if the Company in good faith determines that any such filing
would (A) materially impede, delay or interfere with any proposed financing,
offer or sale of securities, acquisition, corporate reorganization or other
significant transaction involving the Company or (B) require the disclosure of
material non-public information, the disclosure of which would materially and
adversely affect the Company.
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 sale 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. Because of the limited
number of Common Shares available for future stock option grants under the Stock
Option Plan, the Company anticipates that it may seek shareholder approval to
increase the number of Common Shares for which options may be granted under the
Stock Option Plan at the Company's first meeting of shareholders.
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 or certain persons involved in the formation of the Company
or the Common Shares underlying 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.
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. PMI has agreed to purchase 2,127,659 Common Shares and Class B
Warrants to purchase an additional 300,000 Common Shares for an aggregate
purchase price of approximately $30.0 million. High Ridge and Rolaco have each
agreed to purchase 709,219 Common Shares and Class B Warrants to purchase an
additional 100,000 Common Shares for an aggregate purchase price of
approximately $10.0 million. The Third Avenue Value Fund and the Third Avenue
Small-Cap Value Fund have agreed to purchase 322,109 Common Shares and 32,500
Common Shares, respectively, and Class B Warrants to purchase an additional
45,417 Common Shares and an additional 4,583 Common Shares, respectively, for
aggregate purchase prices of approximately $4.5 million and $458,250,
respectively. 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
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 $300.0 million from the Offerings when they are consummated.
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In connection with the Direct Sales to PMI, High Ridge and the Third Avenue
Funds, the Company has agreed to nominate for election as a director of GMA two
persons selected by PMI, one person selected by High Ridge and one person
selected by the Third Avenue Funds. PMI will have such right for so long as it
owns 1,000,000 Common Shares, and will have the right to designate one nominee
for election as a director of GMA for so long as it owns 500,000 Common Shares.
High Ridge will have such right for so long as it owns 500,000 Common Shares.
The Third Avenue Funds will have such right for so long as they collectively own
250,000 Common Shares. In exchange for such right, and, for so long as any
person selected by PMI, High Ridge or the Third Avenue Funds, respectively, is a
director (and during any period after such person's designation but before his
or her election), each Strategic Investor has agreed to not vote or permit any
of the Common Shares beneficially owned by it to be voted for the election of
any director of GMA, other than the nominee(s) selected by it. Each such
Strategic Investor is permitted to assign its right to select one or more
persons to be nominated for election as a director of GMA only upon the prior
written consent of the Company, which may not be unreasonably withheld. Claude
J. Seaman and Bradley M. Shuster are serving as directors of GMA as the nominees
of PMI, James L. Zech is serving as a director of GMA as the nominee of High
Ridge, and Curtis R. Jensen is currently serving as a director of GMA as the
nominee of the Third Avenue Funds.
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 on behalf of the Underwriters. See "Shares Eligible for
Future Sales" and "Underwriting."
In addition to the sales being made to the Strategic Investors, the Company
is offering by a separate prospectus up to 305,500 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 $4.3 million. All such purchases
are expected to be consummated simultaneously with the consummation of the
Offerings.
GMA has also contracted to sell 90,000 Common Shares directly to certain
individuals involved in the formation of the Company at a purchase price of
$14.10 per share, for an aggregate purchase price of approximately $1.3 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 on behalf of the
Underwriters and, in the case of certain transfers by 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 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.
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CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of GMA, the Operating Company and the
Marketing 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 GMA, THE OPERATING COMPANY AND THE MARKETING COMPANY
Bermuda
Under current Bermuda law, there is no income tax or capital gains tax
payable by GMA, the Operating Company and the Marketing Company. GMA, the
Operating Company and the Marketing 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 such tax would not be applicable to GMA, the Operating
Company or the Marketing Company or to any of their operations or the shares,
debentures or other obligations of GMA, the Operating Company or the Marketing
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, the Operating Company and
the Marketing 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, the Operating Company or the Marketing Company. GMA, the Operating Company
and the Marketing Company, under current rates, will pay annual Bermuda
government fees of approximately $15,900, $3,460 and $1,695, respectively, and
the Operating Company will pay annual insurance fees of approximately $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, the
Operating Company and the Marketing 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 and the
Marketing 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
and/or the Marketing 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%
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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 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 is currently 4%.
United Kingdom
Under current United Kingdom law, the measure of corporate taxation
resulting from the activities of the Marketing Company in the United Kingdom
would likely be the portion of the profits of the Marketing Company attributable
on an assumed arm's-length basis to its London branch activities. Such profit
would be measured in practice by comparison with the compensation that the
Marketing Company would need to pay to an independent entity providing the same
services as its office in the United Kingdom. The Marketing Company will seek to
enter into an agreement with the United Kingdom Inland Revenue under which an
agreed profit margin will be attributed to its office in the United Kingdom
under a stated formula for purposes of calculating the amount of tax owed in the
United Kingdom by the Marketing Company. No assurance can be given that such an
agreement will be reached and, if reached, any such agreement would be
cancellable upon reasonable notice by the Marketing Company or United Kingdom
Inland Revenue. The United Kingdom also imposes an insurance premium tax of 4%
on insurance and reinsurance premiums paid with respect to risks located in the
United Kingdom. There can be no assurance that certain financial guaranty
insurance and reinsurance that the Operating Company writes will not be subject
to such tax.
Other Countries
GMA, the Operating Company and the Marketing Company plan to operate in
such a manner that they will not generally be subject to any material taxes in
jurisdictions other than those noted above, except for withholding taxes on
certain kinds of investment income and excise or other similar premium taxes as
described above. It is possible, however, that the Operating Company or the
Marketing Company may be held to be doing business in one or more jurisdictions
and therefore subject to tax on the profits of such business beyond that
contemplated above.
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TAXATION OF SHAREHOLDERS
Bermuda Taxation
Currently, there is no Bermuda withholding tax on dividends paid by GMA or
its subsidiaries.
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 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. It is anticipated that PMI will
be a "United States shareholder" of GMA and its subsidiaries, due to PMI's right
to designate for nomination two of GMA's twelve board members. However, 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 PMI is
permitted to hold 10% or more of the total combined voting power of GMA,
shareholders of GMA other than PMI 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
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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 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.
The Operating Company will not knowingly enter into any insurance or
reinsurance arrangements in which the direct or indirect insureds are, or are
"related" (as defined for purposes of the RPII provisions) to, owners of Common
Shares, except that the Operating Company may enter into reinsurance
arrangements with PMI. See "Business -- Sponsors and Strategic Investors." If
the Operating Company does enter into reinsurance arrangements with PMI, PMI
will be treated, based on its right to designate for nomination two of GMA's
twelve Board members, as owning approximately 16.7% of the voting power of the
stock of the Operating Company for purposes of the RPII provisions. Nonetheless,
GMA believes it is 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) above will apply. Moreover, the Operating
Guidelines adopted by the Company's Board of Directors limit the portion of the
Operating Company's gross insurance income attributable to insurance contracts
with PMI in any taxable year to no more than 5% or, if the Board of Directors
determines that there is no material risk that any GMA shareholder will
recognize RPII in any taxable year, to no more than 10%. Accordingly, GMA
believes it is highly unlikely that RPII for any taxable year, determined on a
gross basis, will be greater than or equal to 20% of the Operating Company's
gross insurance income for that year. If this belief is correct, exception (ii)
above will apply. On the assumption that GMA's beliefs as stated in this
paragraph are correct, in the opinion of Drinker Biddle & Reath LLP, United
States persons who own stock of
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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 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
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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 acquire 5% 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 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).
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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 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
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<PAGE> 98
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; Prudential Securities
Incorporated; Bear, Stearns & Co. Inc.; ING Baring Furman Selz LLC; Salomon
Smith Barney Inc.; and Warburg Dillon Read LLC 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. purchase
agreement (the "U.S. Purchase 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..........................
Bear, Stearns & Co. Inc. ...................................
ING Baring Furman Selz LLC..................................
Salomon Smith Barney Inc....................................
Warburg Dillon Read LLC.....................................
----------
Total.......................................... 17,000,000
==========
</TABLE>
GMA has also entered into an international purchase agreement (the
"International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase 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.; Bear, Stearns International Limited;
Baring Brothers Limited, as agent for ING Bank N.V.; Salomon Brothers
International Limited; and UBS AG, acting through its division Warburg Dillon
Read, are acting as lead managers (the "Lead Managers"). Subject to the terms
and conditions set forth in the International Purchase Agreement, and
concurrently with the sale of 17,000,000 Common Shares to the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, GMA has agreed to sell to the
International Managers, and the International Managers severally have agreed to
purchase from GMA, an aggregate of 3,000,000 Common Shares. The initial public
offering price per share and the total underwriting discount per Common Share
are identical under the U.S. Purchase Agreement and the International Purchase
Agreement.
In the U.S. Purchase Agreement and the International Purchase 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
Purchase Agreement if any of the Common Shares being sold pursuant to such
Purchase Agreements are purchased. In certain circumstances under the Purchase
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 $50.0
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 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 2,550,000
additional Common Shares at the initial public offering price set forth on the
cover page of this Prospectus, less the underwriting discounts and commissions.
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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 450,000 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 5% 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 & Co. and
Prudential Securities on behalf of the Underwriters and, in addition, in the
case of certain transfers by the Strategic Investors, the prior written consent
of 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 so long as such options are not exercisable until one year
from the date of this Prospectus. Merrill Lynch & Co., Prudential Securities
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 &
Co. and Prudential Securities 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 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 Operating Company has entered into an investment advisory agreement
with Merrill Lynch Asset Management, L.P., as one of the Investment Managers.
See "Business -- Investment Managers." Merrill
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<PAGE> 101
Lynch & Co., one of the Joint Lead Managers and Joint Bookrunners, and Merrill
Lynch Asset Management, L.P. are wholly owned subsidiaries of Merrill Lynch &
Co., Inc.
The Operating 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, one of the Joint
Lead Managers and Joint Bookrunners, and The Prudential Investment Corporation
are wholly owned subsidiaries of The Prudential Insurance Company of America.
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
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
the Company 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.
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LEGAL MATTERS
The validity of the Common Shares under Bermuda law will be passed upon for
the Company by Conyers Dill & Pearman, Hamilton, Bermuda. Certain matters as to
United States law in connection with the 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 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. 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 financial statements of the Company as of December 31,
1998 and August 28, 1998, and for the period from August 28, 1998 (date of
inception) to December 31, 1998, included in this Prospectus and in the
Registration Statement have 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.
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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.
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GLOSSARY OF SELECTED FINANCIAL GUARANTY
INSURANCE AND REINSURANCE 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 intended to
service the interest and principal payments on
the asset-backed debt obligation.
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.
Cedent; Ceding company........ See "Reinsurance; Reinsurer."
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 Rating 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 issue'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
102
<PAGE> 105
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.
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, or agreed to, 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 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.
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.
103
<PAGE> 106
Issuer........................ A municipality or corporation or other entity
that is the obligor on a debt or other security
issued in the capital markets.
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).
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 discounted present
value of the estimated 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." An "A" rating is assigned by
Standard & Poor's to insurers which, 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.
104
<PAGE> 107
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.
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.
Unearned premiums............. Premiums written but not yet earned, as they
are attributable to the unexpired portion of
the related insurance contract term.
105
<PAGE> 108
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of August 28 and December 31,
1998...................................................... F-3
Consolidated Statement of Operations and Accumulated Deficit
for the Period from August 28, 1998 (date of inception) to
December 31, 1998......................................... F-4
Consolidated Statement of Cash Flows for the Period from
August 28, 1998 (date of inception) to December 31,
1998...................................................... F-5
Notes to Consolidated Financial Statements.................. F-6
</TABLE>
F-1
<PAGE> 109
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Global Markets Access Ltd. (formerly GCA Ltd.)
We have audited the accompanying consolidated balance sheets of Global
Markets Access Ltd. (formerly GCA Ltd.) and subsidiaries as of December 31, 1998
and August 28, 1998 and the related consolidated statements of operations and
accumulated deficit and cash flows for the period from August 28, 1998 (date of
inception) to December 31, 1998. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Global
Markets Access Ltd. (formerly GCA Ltd.) and subsidiaries as of December 31, 1998
and August 28, 1998 and the results of their operations and their cash flows for
the period from August 28, 1998 (date of inception) to December 31, 1998, in
conformity with United States generally accepted accounting principles.
/s/ KPMG Peat Marwick
Chartered Accountants
Hamilton, Bermuda
February 26, 1999
F-2
<PAGE> 110
GLOBAL MARKETS ACCESS LTD.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
AUGUST 28, DECEMBER 31,
1998 1998
---------- ------------
<S> <C> <C>
ASSETS
Cash........................................................ $ 120,000 $ 122,256
Deferred equity offering costs.............................. -- 1,355,000
--------------- ---------
Total assets...................................... $ 120,000 $1,477,256
=============== =========
LIABILITIES
Accounts payable and accrued expenses....................... $ -- $2,205,000
--------------- ---------
Total liabilities................................. -- 2,205,000
--------------- ---------
SHAREHOLDERS' 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)................................ 12,000 12,000
Additional paid-in capital.................................. 108,000 108,000
Accumulated deficit......................................... -- (847,744)
--------------- ---------
Total shareholders' equity (deficit).............. 120,000 (727,744)
--------------- ---------
Total liabilities and shareholders' equity.................. $ 120,000 $1,477,256
=============== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 111
GLOBAL MARKETS ACCESS LTD.
CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE PERIOD FROM AUGUST 28, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
REVENUES
Interest.................................................... $ 2,256
EXPENSES
Recruiting and personnel.................................... 530,000
Professional and other fees................................. 257,000
Other....................................................... 63,000
-----------------
850,000
-----------------
Net loss for the period and accumulated deficit as of
December 31, 1998......................................... $ (847,744)
=================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 112
GLOBAL MARKETS ACCESS LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM AUGUST 28, 1998 (DATE OF INCEPTION) TO DECEMBER 31, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<CAPTION>
PERIOD ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................... $ (847,744)
Adjustments to reconcile net loss to cash provided by
operating activities:
Change in:
Deferred equity offering costs.................... (1,355,000)
Accounts payable and accrued expenses............. 2,205,000
----------
Cash provided by operating activities....................... 2,256
Cash at beginning of period................................. 120,000
----------
Cash at end of period....................................... $ 122,256
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 113
GLOBAL MARKETS ACCESS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 its wholly-owned
subsidiaries, Global Markets Guaranty Ltd. (formerly Global Capital Access,
Ltd.) (the "Operating Company") and GMG Marketing Ltd. (the "Marketing Company"
and together with GMA and the Operating Company, the "Company"). The Operating
Company received a certificate of registration as a Class 3 insurer under the
insurance laws of Bermuda effective August 28, 1998. The Company's fiscal year
end is December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in
accordance with United States generally accepted accounting principles which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the period. 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
The reserves for losses and loss adjustment expenses ("LAE") reflect the
Company's estimate of identified ("case basis") and unidentified ("unallocated")
losses on the obligations it has insured to the balance sheet date.
A case basis reserve for unpaid losses and LAE is recorded at the present
value of 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. Upon the establishment of a case basis reserve a corresponding reduction
will be made in the unallocated reserve.
The unallocated reserve is calculated by applying a loss factor to the net
outstanding exposure on the Company's insured portfolio. Such loss factor is a
measure of reasonably estimable insured losses that have been incurred as of the
balance sheet date, and is based on the historical industry loss experience, the
inherent risk characteristics of the Company's portfolio, the loss experience of
the ceding companies, and, over time, the Company's actual loss and LAE
experience.
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
necessary based on estimates, and there can be no assurance that the ultimate
liability will not
F-6
<PAGE> 114
GLOBAL MARKETS ACCESS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
differ from such estimates. The Company will, on an ongoing basis, monitor these
reserves and may 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-7
<PAGE> 115
GLOBAL MARKETS ACCESS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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
Company's U.S. and international initial public offerings (the "Offerings"), the
sales to a core group of strategic investors (the "Strategic Investors") and the
development of the Company's operations, including assistance in preparing a
registration statement for the common shares, selecting underwriters in
connection with the Offerings, identifying and negotiating with potential
strategic investors 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.
Pursuant to such agreement, the Company has agreed to pay Inter-Atlantic a
fee of $3.6 million upon consummation of the Offerings. The Company and
Inter-Atlantic negotiated the $3.6 million fee at a level of approximately 1.0%
of the total gross proceeds to be raised by the Company upon consummation of the
Offerings and the Direct Sales. The Company believes the fee is reasonable and
customary in light of the contingent nature of the fee and the size of the sales
to Strategic Investors. In addition, the Company believes the fee is comparable
to the fee it otherwise would have paid to an unrelated third-party service
provider.
The Company has retained Insurance Consulting Services Limited ("ICS"), a
Bermuda corporation licensed as an insurance broker, 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. ICS is in its initial stages
of development and has a limited operating history and limited experience
providing risk management and other related financial services. ICS is owned by
certain persons affiliated with Inter-Atlantic, including Frederick S. Hammer
and Robert M. Lichten who are also directors of the Company.
4. SHAREHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 50,000,000 preferred shares of par value
$1.00 each. At the balance sheet date there were no preferred shares issued or
outstanding.
Common Stock
The Company is authorized to issue 100,000,000 common shares of par value
$1.00 each. At the balance sheet date 12,000 common shares were outstanding, all
of which were held by the Global Purpose Trust (the "Purpose Trust"), a Bermuda
trust which was loaned $12,000 by ICS to acquire such shares.
F-8
<PAGE> 116
GLOBAL MARKETS ACCESS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Warrants
In connection with its initial capitalization, the Company has issued Class
A Warrants 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 Offerings (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
"Class A Determination Amount"). The Class A Warrants were issued to American
Capital Access Holdings, L.L.C., Donald J. Matthews, Michael P. Esposito, Jr.,
Frederick S. Hammer, Robert M. Lichten, Andrew S. Lerner, William S. Ogden and
certain other founding investors. 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 Offerings. 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 Offerings and any Direct Sales minus 87,646
common shares 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 Offerings, options will be granted to
the Chief Executive Officer and other senior executives and directors of the
Company to purchase common shares. Pursuant to the Stock Option Plan, Mr. H.
Russell Fraser will receive options to acquire 100,000 common shares; and other
non-employee directors will each 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 Offerings are consummated.
The options will 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 Offerings, which will have an exercise price
equal to the initial public offering price per share, and shall be exercisable
in three equal installments commencing with the first anniversary of the grant
date. Robert M. Lichten, the non-employee Chairman of the Board, will also be
granted options to purchase a number of common shares equal to the number of
common shares remaining under the Stock Option Plan after all of the other
directors and officers of the Company who are entitled to receive options upon
consummation of the Offerings and the Direct Sales have been granted such
options, minus 100,000 common shares. In addition, subject to certain
conditions, each non-employee director shall be granted an option to purchase
2,000 common shares at each
F-9
<PAGE> 117
GLOBAL MARKETS ACCESS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
successive annual general meeting after the consummation of the Offerings. Such
options will have an exercise price equal to the fair market value of the common
shares on the date the options are granted and will be immediately exercisable
if granted after the first anniversary of the consummation of the Offerings. If
any such options are granted prior to the first anniversary of the consummation
of the Offerings, 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 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 will receive cash of $20,000 per annum plus $1,000
per board or committee meeting attended. The non-employee Chairman of the Board,
non-employee Deputy Chairman of the Board and non-employee Committee Chairmen
will receive an additional $1,000 per annum.
6. CONTINGENT LIABILITY
The Company has been threatened with litigation by an individual the
Company interviewed for a senior management position. The individual has claimed
that he left his position with his prior employer in reliance upon an offer to
be hired by the Company, which he claims to have accepted, and that he was
dismissed by the Company in a manner inconsistent with the terms of his
employment. The Company's position is that, among other things, the offer was
conditional upon the individual being approved by certain proposed investors,
and such approval was not obtained. As a consequence, the Company believes the
employment arrangement was never consummated and, on that basis, among others,
the Company has not recorded any provision for potential loss.
7. TAXATION
Under current Bermuda law neither GMA, the Operating Company nor the
Marketing Company is required to pay any taxes in Bermuda on either income or
capital gains. GMA, the Operating Company and the Marketing 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 will not
be applicable to GMA, the Operating Company or the Marketing Company or to any
of their operations or the shares, debentures or other obligations of GMA, the
Operating Company or the Marketing Company until March 2016.
GMA, the Operating Company and the Marketing 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
and/or the Marketing 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.
F-10
<PAGE> 118
GLOBAL MARKETS ACCESS LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. 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 received from the Registrar of Companies an exception
to this requirement until the consummation of the Offerings.
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.
9. SUBSEQUENT EVENTS
On February 26, 1999, the Company entered into Securities Purchase
Agreements with five investors (the "Strategic Investors") under which the
Strategic Investors agreed to purchase an aggregate of 3,900,706 common shares
and Class B Warrants to purchase an aggregate of 550,000 common shares for an
aggregate purchase price of $55 million. The closing of these sales to the
Strategic Investors is contingent on the completion of the Offerings and is
subject to other customary closing conditions. The Company has agreed to use its
best efforts to cause to be nominated to its Board of Directors certain
individuals designated by certain of such Strategic Investors, so long as such
Strategic Investors hold certain levels of common shares. The Class B Warrants
are exercisable in equal amounts over a three year period commencing one year
after the closing of the sales to the Strategic Investors at an initial exercise
price of $15.00 per share, subject to adjustment for certain dilutive events.
The Class B Warrants expire ten years after issuance. Certain transfer
restrictions apply to the common shares purchased by the Strategic Investors or
issuable upon the exercise of the Class B Warrants.
On February 26, 1999, a Class A Warrant previously issued by the Company to
a third party was surrendered to the Company and was cancelled. On the same
date, a second Class A Warrant previously issued by the Company to a third party
was assigned in part to Messrs. Esposito, Lichter, Hammer and Lerner
(exercisable for 47,499, 32,500, 32,500, and 25,147 common shares,
respectively), and the balance was surrendered to the Company and was cancelled.
The net result of these transactions is that there remains outstanding Class A
Warrants to purchase a number of common shares equal to 12% of the Class A
Determination Amount plus 137,646.
F-11
<PAGE> 119
- ---------------------------------------------------------
- ---------------------------------------------------------
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 APRIL , 1999, 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............................... 10
Use of Proceeds............................ 25
Capitalization............................. 26
Dividend Policy............................ 27
Dilution................................... 28
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 30
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 32
Business................................... 37
Overview of the Financial Guaranty
Insurance and Reinsurance Industry....... 58
Management................................. 61
Principal Stockholders..................... 72
Certain Relationships and Related Party
Transactions............................. 74
Description of Capital Stock............... 78
Shares Eligible for Future Sale............ 85
Direct Sales............................... 87
Certain Tax Considerations................. 89
Underwriting............................... 97
Legal Matters.............................. 100
Experts.................................... 100
Additional Information..................... 101
Glossary of Selected Financial Guaranty
Reinsurance and Insurance Terms.......... 102
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
20,000,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
Joint Lead Managers
and Joint Bookrunners
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES
------------------------
BEAR, STEARNS & CO. INC.
ING BARING FURMAN SELZ LLC
SALOMON SMITH BARNEY
WARBURG DILLON READ LLC
March , 1999
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 120
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 MARCH 1, 1999
PROSPECTUS
20,000,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
------------------------
All of the 20,000,000 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Global Markets Access Ltd. ("GMA").
Of the 20,000,000 Common Shares offered hereby, 3,000,000 Common Shares are
being offered for sale initially outside the United States and Canada by the
International Managers (the "International Offering") and 17,000,000 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 "GMAL."
In connection with the formation of GMA and the establishment of a core
group of strategic investors, The PMI Group, Inc., High Ridge Capital Partners
Limited Partnership, Rolaco Holding S.A., Third Avenue Value Fund and Third
Avenue Small-Cap Value Fund (collectively, the "Strategic Investors") have
severally agreed to purchase for investment directly from GMA an aggregate of
3,900,706 Common Shares and Class B Warrants to purchase an aggregate of 550,000
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 $55.0 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 $50.0 million.
GMA is also offering by a separate prospectus up to 305,500 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 $4.3 million. GMA has also contracted to
sell 90,000 Common Shares directly to certain individuals involved in the
formation of the Company at a purchase price of $14.10 per share, for an
aggregate purchase price of approximately $1.3 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, GMA's directors and officers and
certain other individuals involved in the formation of the Company are expected
to own collectively approximately 17.7% 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 for The PMI Group, Inc. 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 10 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 $5,050,000. See "Use of Proceeds."
(3) GMA has granted the International Managers and the U.S. Underwriters
options, exercisable within 30 days after the date hereof, to purchase up to
450,000 and 2,550,000 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
March , 1999.
------------------------
Joint Lead Managers and Joint Bookrunners
MERRILL LYNCH INTERNATIONAL PRUDENTIAL-BACHE SECURITIES
------------------------
BEAR, STEARNS INTERNATIONAL LIMITED
ING BARINGS
SALOMON SMITH BARNEY INTERNATIONAL
WARBURG DILLON READ
March , 1999
<PAGE> 121
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
UNDERWRITING
Merrill Lynch International; Prudential-Bache Securities (U.K.) Inc.; Bear,
Stearns International Limited; Baring Brothers Limited, as agent for ING Bank
N.V.; Salomon Brothers International Limited; and UBS AG, acting through its
division Warburg Dillon Read, 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 purchase agreement
(the "International Purchase 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......................
Bear, Stearns International Limited.........................
Baring Brothers Limited, as agent for ING Bank N.V..........
Salomon Brothers International Limited......................
UBS AG, acting through its division Warburg Dillon Read.....
-------------
Total............................................. 3,000,000
=============
</TABLE>
GMA has also entered into a United States purchase agreement (the "U.S.
Purchase Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain underwriters (the "U.S. Underwriters" and,
together with the International Managers, the "Underwriters") for whom Merrill
Lynch, Pierce, Fenner & Smith Incorporated; Prudential Securities Incorporated;
Bear, Stearns & Co. Inc.; ING Baring Furman Selz LLC; Salomon Smith Barney Inc.;
and Warburg Dillon Read LLC are acting as representatives (the "U.S.
Representatives"). Subject to the terms and conditions set forth in the U.S.
Purchase Agreement, and concurrently with the sale of 3,000,000 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 17,000,000 Common Shares. The initial public
offering price per share and the total underwriting discount per Common Share
are identical under the International Purchase Agreement and U.S. Purchase
Agreement.
In the International Purchase Agreement and the U.S. Purchase 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
Purchase Agreement if any of the Common Shares being sold pursuant to such
Purchase Agreements are purchased. In certain circumstances under the Purchase
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
$50.0 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
450,000 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 International 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 2,550,000
additional Common Shares to cover over-allotments, if any, on terms similar to
those granted to the International Managers.
97
<PAGE> 122
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
At the request of GMA, the U.S. Underwriters have reserved for sale, at the
initial public offering price, up to 5% 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 U.S. 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 & Co. and
Prudential Securities on behalf of the Underwriters and, in addition, in the
case of certain transfers by the Strategic Investors, the prior written consent
of 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 so long as such options are not exercisable until one year
from the date of this Prospectus. Merrill Lynch & Co., Prudential Securities
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 & Co. and
Prudential Securities 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.
The Operating Company has entered into an investment advisory agreement
with Merrill Lynch Asset Management, L.P., as one of the Investment Managers.
See "Business -- Investment Mangers." Merrill Lynch International, one of the
Joint Lead Managers and Joint Bookrunners, and Merrill Lynch Asset Management,
L.P. are direct or indirect wholly owned subsidiaries of Merrill Lynch & Co.,
Inc.
The Operating Company has entered into an investment advisory agreement
with The Prudential Investment Corporation, as one of the Investment Managers.
See "Business -- Investment Managers." Prudential-Bache Securities (U.K.) Inc.,
one of the Joint Lead Managers and Joint Bookrunners, and The Prudential
Investment Corporation are wholly owned subsidiaries of The Prudential Insurance
Company of America.
98
<PAGE> 123
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
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.
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 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
the Company 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
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.
99
<PAGE> 124
[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 APRIL , 1999, 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............................... 10
Use of Proceeds............................ 25
Capitalization............................. 26
Dividend Policy............................ 27
Dilution................................... 28
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 30
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 32
Business................................... 37
Overview of the Financial Guaranty
Insurance and Reinsurance Industry....... 58
Management................................. 61
Principal Stockholders..................... 72
Certain Relationships and Related Party
Transactions............................. 74
Description of Capital Stock............... 78
Shares Eligible for Future Sale............ 85
Direct Sales............................... 87
Certain Tax Considerations................. 89
Underwriting............................... 97
Legal Matters.............................. 100
Experts.................................... 100
Additional Information..................... 101
Glossary of Selected Financial Guaranty
Reinsurance and Insurance Terms.......... 102
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
20,000,000 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
Joint Lead Managers
and Joint Bookrunners
MERRILL LYNCH INTERNATIONAL
PRUDENTIAL-BACHE SECURITIES
------------------------
BEAR, STEARNS INTERNATIONAL LIMITED
ING BARINGS
SALOMON SMITH BARNEY INTERNATIONAL
WARBURG DILLON READ
March , 1999
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 125
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
[ALTERNATE PAGE FOR THE DIRECT SALES PROSPECTUS]
SUBJECT TO COMPLETION -- DATED MARCH 1, 1999
PROSPECTUS
305,500 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
------------------------
All of the 305,500 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
share in the Offerings (as defined below), less the per share underwriting
discounts and commissions, for an aggregate purchase price if all such Common
Shares are purchased of approximately $4.3 million. GMA is also offering by
separate prospectuses up to 17,000,000 Common Shares in an offering in the
United States and Canada (the "U.S. Offering") and up to 3,000,000 Common Shares
in an offering 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 "GMAL."
In connection with the formation of GMA and the establishment of a core
group of strategic investors, The PMI Group, Inc., High Ridge Capital Partners
Limited Partnership, Rolaco Holding S.A., Third Avenue Value Fund and Third
Avenue Small-Cap Value Fund (collectively, the "Strategic Investors") have
severally agreed to purchase for investment directly from GMA an aggregate of
3,900,706 Common Shares and Class B Warrants to purchase an aggregate of 550,000
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 $55.0 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
90,000 Common Shares directly to certain individuals involved in the formation
of the Company at a price of $14.10 per Common Share, for an aggregate purchase
price of approximately $1.3 million. All such purchases are expected to be
consummated simultaneously with the consummation of the Offerings. The purchases
by such individuals involved in the formation of the Company and 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 for The PMI Group, Inc. 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 10 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.
March , 1999
<PAGE> 126
[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.
97
<PAGE> 127
[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 APRIL , 1999, 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............................... 10
Use of Proceeds............................ 25
Capitalization............................. 26
Dividend Policy............................ 27
Dilution................................... 28
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 30
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 32
Business................................... 37
Overview of Financial Guaranty Insurance
and Reinsurance Industry................. 58
Management................................. 61
Principal Stockholders..................... 72
Certain Relationships and Related Party
Transactions............................. 74
Description of Capital Stock............... 78
Shares Eligible for Future Sale............ 85
Direct Sales............................... 87
Certain Tax Considerations................. 89
Plan of Distribution....................... 97
Legal Matters.............................. 98
Experts.................................... 98
Additional Information..................... 99
Glossary of Selected Financial Guaranty
Reinsurance and Insurance Terms.......... 100
Index to Consolidated Financial
Statements............................... F-1
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
305,500 SHARES
GLOBAL MARKETS ACCESS LTD.
COMMON SHARES
-----------------------
PROSPECTUS
-----------------------
March , 1999
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 128
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 advisory
fee and 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................................................ $3,000,000
Fees and Expenses of Counsel (not including Blue Sky)....... 886,600
Printing Expenses........................................... 500,000
Reimbursement of other expenses to Inter-Atlantic Securities
Corporation............................................... 215,700
Fees and Expenses of Accountants............................ 105,000
Filing Fee -- Securities and Exchange Commission............ 102,122
Quotation Fees -- The Nasdaq National Market................ 95,000
Filing Fee -- National Association of Securities Dealers,
Inc. ..................................................... 30,500
Blue Sky Fees and Expenses.................................. 2,000
Miscellaneous Expenses...................................... 113,078
----------
Total............................................. 5,050,000
==========
</TABLE>
- ---------------
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.
The Registrant has obtained a Directors' and Officers' and Company
Reimbursement Policy bound by J&H Marsh & McLennan Inc. with Underwriters at
Lloyd's London that provides liability insurance for the Registrant's directors
and officers.
Reference is made to the form of U.S. Purchase Agreement and the form of
International Purchase 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 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> 129
Reference is made to the Registration Rights Agreements 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.
Reference is made to the Letter Agreement to be filed as Exhibit 10.25
hereto for provisions providing that American Capital Access Holdings, L.L.C.
and ACA Financial Guaranty Corporation are obligated to indemnify the Registrant
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 Offerings 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 Offerings (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 Offerings, 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 Offerings (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 Offerings, 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 two institutional investors 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
Offerings (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 Offerings, except for the Class A Warrants, the Class B
Warrants and any options granted by the Company under its Initial Stock
Option Plan.
(e) On February 26, 1999, the Registrant contracted to sell 2,127,659
Common Shares and Class B Warrants to purchase an additional 300,000 Common
Shares to The PMI Group, Inc. for an aggregate price of $30.0 million.
(f) On February 26, 1999, the Registrant contracted to sell 709,219
Common Shares and Class B Warrants to purchase an additional 100,000 Common
Shares to High Ridge Capital Partners Limited Partnership for an aggregate
price of $10.0 million.
(g) On February 26, 1999, the Registrant contracted to sell 709,219
Common Shares and Class B Warrants to purchase an additional 100,000 Common
Shares to Rolaco Holding S.A. for an aggregate price of $10.0 million.
(h) On February 26, 1999, the Registrant contracted to sell 322,109
Common Shares and Class B Warrants to purchase an additional 45,417 Common
Shares to Third Avenue Value Fund for an aggregate price of $4.5 million.
II-2
<PAGE> 130
(i) On February 26, 1999, the Registrant contracted to sell 32,500
Common Shares and Class B Warrants to purchase an additional 4,583 Common
Shares to Third Avenue Small Cap Value Fund for an aggregate price of
$458,250.
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. Purchase Agreement.
1.2* Form of International Purchase Agreement.
1.3* Letter Agreement, dated as of March , 1999, among American
Capital Access Holdings, L.L.C. and ACA Financial Guaranty
Corporation, and the U.S. Representatives of the U.S.
Underwriters.
1.4* Letter Agreement, dated as of March , 1999, among American
Capital Access Holdings, L.L.C. and ACA Financial Guaranty
Corporation, and the Lead Managers of the International
Managers.
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** Amended and Restated Employment Agreement, dated as of
February 26, 1999, between Donald J. Matthews and the
Registrant and the Operating Company.
10.2** Global Markets Access Ltd. Initial Stock Option Plan.
10.3** Amended and Restated Agreement, dated as of February 26,
1999, 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 entered into by The
PMI Group, Inc. and the Registrant, High Ridge Capital
Partners Limited Partnership and the Registrant, Rolaco
Holding S.A. and the Registrant, Third Avenue Value Fund and
the Registrant, and Third Avenue Small-Cap Value Fund and
the Registrant.
10.7** Form of Registration Rights Agreement to be entered into
between, The PMI Group, Inc. and the Registrant, High Ridge
Capital Partners Limited Partnership and the Registrant,
Rolaco Holding S.A. and the Registrant, Third Avenue Value
Fund and the Registrant, and Third Avenue Small-Cap Value
Fund and the Registrant.
10.8*** Quota Share Reinsurance Treaty, dated as of November 25,
1998, between ACA Financial Guaranty Corporation and the
Operating Company.
10.9*** Master Facultative Reinsurance Treaty, dated as of November
25, 1998, between ACA Financial Guaranty Corporation and the
Operating Company.
</TABLE>
II-3
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------- -----------------------
<C> <S>
10.10*** Master Facultative Reinsurance Treaty, dated as of November
25, 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 Marketing Company.
10.12*** Employment Agreement, dated as of October 15, 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 November 1, 1998, between Insurance
Consulting Services Limited and the Registrant and the
Operating Company.
10.15*** Employment Agreement, dated as of October 15, 1998, between
Lionel J. Marsland-Shaw and the Registrant and the Operating
Company.
10.16*** Sublease Agreement, dated as of November 24, 1998, between
Annuity and Life Reassurance, Ltd. and the Registrant.
10.17** Employment Agreement, dated as of February 19, 1999, between
Matthew J. Cooleen, the Registrant and the Operating
Company.
10.18** Employment Agreement, dated as of February 24, 1999, between
James G. Jachym, the Registrant and the Operating Company.
10.19*** Discretionary Investment Advisory Agreement, dated as of
November 25, 1998, between Alliance Capital Management L.P.
and the Operating Company.
10.20*** Investment Management Agreement, dated as of November 25,
1998, between The Prudential Investment Corporation and the
Operating Company.
10.21** Letter Agreement, dated as of February 26, 1999, between The
PMI Group, Inc. and the Registrant.
10.22** Letter Agreement, dated as of February 26, 1999, between
High Ridge Capital Partners Limited Partnership and the
Registrant.
10.23** Letter Agreement, dated as of February 26, 1999, between
Third Avenue Value Fund and Third Avenue Small-Cap Value
Fund and the Registrant.
10.24** Investment Advisory Contract, dated as of February 24, 1999,
between Merrill Lynch Asset Management, L.P. and the
Operating Company.
10.25* Letter Agreement, dated as of March , 1999, among the
Registrant, American Capital Access Holdings, L.L.C. and ACA
Financial Guaranty Corporation.
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.
24.2*** Powers of Attorney of Lawrence S. Doyle, Curtis R. Jensen,
Willis T. King, Jr. and Paul T. Walker.
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-4
<PAGE> 132
(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-5
<PAGE> 133
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 1st day of March, 1999.
GLOBAL MARKETS ACCESS LTD.
By:/s/ DONALD J. MATTHEWS
------------------------------------
Donald J. Matthews
President 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 President, Chief Executive Officer and March 1, 1999
- --------------------------------------------- Director (Principal Executive Officer)
Donald J. Matthews
/s/ MARY JANE ROBERTSON Chief Financial Officer and Treasurer March 1, 1999
- --------------------------------------------- (Principal Financial and Accounting
Mary Jane Robertson Officer)
* Chairman of the Board March 1, 1999
- ---------------------------------------------
Robert M. Lichten
* Deputy Chairman of the Board March 1, 1999
- ---------------------------------------------
Frederick S. Hammer
* Director March 1, 1999
- ---------------------------------------------
Lawrence S. Doyle
Director March 1, 1999
- ---------------------------------------------
H. Russell Fraser
* Director March 1, 1999
- ---------------------------------------------
William M. Goldstein
* Director March 1, 1999
- ---------------------------------------------
Curtis R. Jensen
* Director March 1, 1999
- ---------------------------------------------
Willis T. King, Jr.
Director March 1, 1999
- ---------------------------------------------
Claude J. Seaman
Director March 1, 1999
- ---------------------------------------------
Bradley M. Shuster
</TABLE>
II-6
<PAGE> 134
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Director March 1, 1999
- ---------------------------------------------
Paul T. Walker
Director March 1, 1999
- ---------------------------------------------
James J. Zech
* Authorized Representative in the March 1, 1999
- --------------------------------------------- United States
Donald J. Puglisi
</TABLE>
* 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 Amendment
No. 1 of this Registration Statement or as an exhibit to Amendment No. 2 of
this Registration Statement, 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-7
<PAGE> 135
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 * Form of U.S. Purchase Agreement.
1.2 * Form of International Purchase Agreement.
1.3 * Letter Agreement, dated as of March , 1999, among American
Capital Access Holdings, L.L.C. and ACA Financial Guaranty
Corporation, and the U.S. Representatives of the U.S.
Underwriters.
1.4 * Letter Agreement, dated as of March , 1999, among American
Capital Access Holdings, L.L.C. and ACA Financial Guaranty
Corporation, and the Lead Managers of the International
Managers.
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 ** Amended and Restated Employment Agreement, dated as of
February 26, 1999, between Donald J. Matthews and the
Registrant and the Operating Company.
10.2 ** Global Markets Access Ltd. Initial Stock Option Plan.
10.3 ** Amended and Restated Agreement, dated as of February 26,
1999, 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 entered into by The
PMI Group, Inc. and the Registrant, High Ridge Capital
Partners Limited Partnership and the Registrant, Rolaco
Holding S.A. and the Registrant, Third Avenue Value Fund and
the Registrant, and Third Avenue Small-Cap Value Fund and
the Registrant.
10.7 ** Form of Registration Rights Agreement to be entered into
between The PMI Group, Inc. and the Registrant, High Ridge
Capital Partners Limited Partnership and the Registrant,
Rolaco Holding S.A. and the Registrant, Third Avenue Value
Fund and the Registrant, and Third Avenue Small-Cap Value
Fund and the Registrant.
10.8 *** Quota Share Reinsurance Treaty, dated as of November 25,
1998, between ACA Financial Guaranty Corporation and the
Operating Company.
10.9 *** Master Facultative Reinsurance Treaty, dated as of November
25, 1998, between ACA Financial Guaranty Corporation and the
Operating Company.
10.10 *** Master Facultative Reinsurance Treaty, dated as of November
25, 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 Marketing Company.
10.12 *** Employment Agreement, dated as of October 15, 1998, between
Mary Jane Robertson and the Registrant and the Operating
Company.
10.13 *** Form of Common Share Purchase Agreement.
</TABLE>
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.14 *** Agreement, dated as of November 1, 1998, between Insurance
Consulting Services Limited and the Registrant and the
Operating Company.
10.15 *** Employment Agreement, dated as of October 15, 1998, between
Lionel J. Marsland-Shaw and the Registrant and the Operating
Company.
10.16 *** Sublease Agreement, dated as of November 24, 1998, between
Annuity and Life Reassurance, Ltd. and the Registrant.
10.17 ** Employment Agreement, dated as of February 19, 1999, between
Matthew J. Cooleen, the Registrant and the Operating
Company.
10.18 ** Employment Agreement, dated as of February 24, 1999, between
James G. Jachym, the Registrant and the Operating Company.
10.19 *** Discretionary Investment Advisory Agreement, dated as of
November 25, 1998, between Alliance Capital Management L.P.
and the Operating Company.
10.20 *** Investment Management Agreement, dated as of November 25,
1998, between The Prudential Investment Corporation and the
Operating Company.
10.21 ** Letter Agreement, dated as of February 26, 1999, between The
PMI Group, Inc. and the Registrant.
10.22 ** Letter Agreement, dated as of February 26, 1999, between
High Ridge Capital Partners Limited Partnership and the
Registrant.
10.23 ** Letter Agreement, dated as of February 26, 1999, between
Third Avenue Value Fund and Third Avenue Small-Cap Value
Fund and the Registrant.
10.24 ** Investment Advisory Contract, dated as of February 24, 1999,
between Merrill Lynch Asset Management, L.P. and the
Operating Company.
10.25 * Letter Agreement, dated as of March , 1999, among the
Registrant, American Capital Access Holdings, L.L.C. and ACA
Financial Guaranty Corporation.
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.
24.2 *** Powers of Attorney of Lawrence S. Doyle, Curtis R. Jensen,
Willis T. King, Jr. and Paul T. Walker.
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> 3
FORM NO.7a Registration No. 25312
[BERMUDA LOGO]
BERMUDA
CERTIFICATE OF DEPOSIT OF
MEMORANDUM OF INCREASE OF SHARE CAPITAL
THIS IS TO CERTIFY that a Memorandum of Increase of Share Capital
of
GCA LTD.
was delivered to the Registrar of Companies on the 11th day of September, 1998
in accordance with section 45(3) of the Companies Act 1981 ("the Act").
Given under my hand this 15th
day of September, 1998
/s/ Illegible
----------------------
for Registrar of Companies
Capital prior to increase: US$12,000.00
Amount of increase: US$149,988,000.00
Present Capital: US$150,000,000.00
<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
and Amended by Resolution of the Members on February 26, 1999.]
<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) "PMI" means The PMI Group, Inc. and its subsidiaries and
other entities controlled directly or indirectly by it;
(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.
(4) With the exception of PMI, no shareholder of the Company shall be
permitted to select directors of the Company if such selection would cause such
shareholder to own or be deemed to own ten percent or more of the total combined
voting rights attaching to the issued shares of the Company.
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
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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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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 PMI 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 PMI 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 PMI 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.
(7) Notwithstanding anything in these Bye-laws, PMI shall not own
shares of the Company that would represent more than sixteen and two-thirds
percent (16-2/3%) of the total combined voting rights attaching to the issued
shares of the Company.
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 PMI to equal or exceed ten percent (10%) of the issued shares of the
Company, or, in the case of PMI, would cause PMI's total Controlled Shares to
exceed sixteen and two-thirds percent (16-2/3%) 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
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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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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 PMI to ten percent (10%) or any higher percentage of the
shares of the Company on an Unadjusted Basis, or, in the case of PMI, would
cause PMI's total Controlled Shares to increase to sixteen and two-thirds
percent (16-2/3%) 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 PMI to ten percent (10%) or any higher percentage of the
shares of the Company on an Unadjusted Basis, or, in the case of PMI, would
cause PMI's total Controlled Shares to increase to sixteen and two-thirds
percent (16-2/3%) 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
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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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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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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.
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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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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.
-25-
<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%
William S. Ogden, Jr. 0.33470%
</TABLE>
In addition, Messrs. Esposito, Hammer, Lichten and Lerner have acquired Class A
Warrants for 47,499, 32,500, 32,500 and 25,147 Common Shares, respectively.
<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
<PAGE> 3
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
- 2 -
<PAGE> 4
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
- 3 -
<PAGE> 5
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
- 4 -
<PAGE> 6
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
- 5 -
<PAGE> 7
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
- 6 -
<PAGE> 8
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
- 7 -
<PAGE> 9
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
- 8 -
<PAGE> 10
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.
- 9 -
<PAGE> 11
(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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<PAGE> 12
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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<PAGE> 13
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
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<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.
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<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: ____________________________
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<PAGE> 16
Rider A
PURCHASE AGREEMENT
Date: __________________________
TO:
The undersigned, pursuant to the provisions set forth in the
attached Warrant, hereby agrees to purchase _________________ Common Shares
covered by such Warrant, and makes payment herewith in full therefor at the
price per share provided by this Warrant.
Signature: ____________________
Address: _______________________
* * * *
ASSIGNMENT
For Value Received, ________________________________ hereby
sells, assigns and transfers all of the rights of the undersigned under the
within Warrant, with respect to the number of Common Shares covered by such
Warrant, to:
NAME OF ASSIGNEE ADDRESS NO. OF SHARES
Dated: _________________________ Signature: ______________________________
Address: ________________________________
<PAGE> 1
Exhibit 4.3
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAW, AND THEY MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED
OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND THE
OTHER RESTRICTIONS ON TRANSFER SET FORTH HEREIN.
Date: March __, 1999
CLASS B
WARRANT TO PURCHASE COMMON SHARES OF
GLOBAL MARKETS ACCESS LTD.
Void after 5:00 P.M. (United States Eastern Time),
March __, 2009, as provided herein.
THIS CERTIFIES that, for value received, _______________ (the "Warrant
Holder"), or registered assigns, is entitled to purchase from Global Markets
Access Ltd. (the "Company"), a Bermuda corporation, upon the satisfaction of the
conditions stated herein and during the period (subject to Section 2 hereof)
from and after March __, 2000 to 5:00 p.m. (United States Eastern Time) on March
__, 2009, __________ fully paid and nonassessable common shares, par value
US$1.00 per share (the "Common Shares"), subject to adjustment as provided
herein, at a per share purchase price equal to $15.00, subject to adjustment as
provided herein; provided, however, that if on March __, 2009, the Company is
then required to effect, pursuant to an effective request therefor under the
Registration Rights Agreement (as defined herein), or is in the process of
effecting, a registration under the Securities Act of 1933, as amended (the
"1933 Act") for a public offering in which Warrant Shares (as defined herein)
are entitled to be included as provided in the Registration Rights Agreement, or
if the Company is in default of any such obligations to register the sale of
such shares, the right to exercise this Warrant shall continue until 5:00 p.m.
(United States Eastern Time) on the 30th day following the date on which such
registration shall have become effective or on the 30th day following the date
all such defaults shall have been cured, whichever is the later date.
<PAGE> 2
1. Definitions. For the purpose of this Warrant:
(a) "Capital Stock" shall mean the Company's Common Shares and any
other shares of any class, or series within a class, whether now or hereafter
authorized, which has the right to participate in the distribution of earnings
or assets of the Company without limit as to amount or percentage.
(b) "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 original Warrant to purchase Common
Shares of the Company issued by the Company pursuant hereto and any and all
Warrants which are issued in exchange or substitution for any outstanding
Warrant pursuant to the terms of the Warrant.
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<PAGE> 3
(f) "Warrant Price" shall mean the price per share at which Common
Shares of the Company are purchasable hereunder, which shall initially be
$15.00, 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 initial public
offering of the Company's Common Shares (the "IPO");
(iv) Common Shares issuable upon the exercise of options and
warrants which are outstanding on the date hereof; and
(v) Options to purchase Common Shares granted by the Company
as an incentive for performance to the Company's officers, directors, employees
and consultants after the date hereof, the Common Shares issuable upon the
exercise of such options, and the Common Shares awarded to such persons as share
grants by the Company as incentive for performance after the date hereof.
(i) "Registration Rights Agreement" shall mean the agreement so
entitled, dated March __, 1999, between the Company and the Warrant Holder
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) March __, 2000 for up to one-third of the number of Warrant Shares
provided for on page 1 hereof, (ii) March __, 2001 for up to an additional
one-third of the number of Warrant Shares provided for on page 1 hereof, and
(iii) March __, 2002 for up to an additional one-third of the number of Warrant
Shares provided for on page 1 hereof, in each case subject to adjustment as
provided in Section 6. Subject to the foregoing, this Warrant may be exercised
at any time or from time to time in whole or in part (but not as to fractional
shares) prior to 5:00 p.m. United States Eastern Time on March __, 2009 (subject
to extension as provided above), at which time this Warrant and all of the
Warrant Holder's rights hereunder shall terminate, except as expressly provided
herein. Notwithstanding the foregoing, upon a Change in Control of the Company
(as
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<PAGE> 4
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 Company shall effect the sale, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company.
(b) This Warrant may be exercised at the time(s) or upon the occurrence
of the event(s) specified in Subsection 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
Cumberland House, 1 Victoria Street, Hamilton, HM AX, Bermuda, or such other
location which shall at that time be the principal office of the Company and of
which the Company shall have notified the Warrant Holder in writing (the
"Principal Office"), or at the office of its stock transfer agent, and upon
payment to the Company of the Warrant Price for the Warrant Shares to be
purchased upon such exercise. The person entitled to the Warrant Shares so
purchased shall be treated for all purposes as the holder of such shares as of
the close of business on the date of exercise and certificates for the shares so
purchased shall be delivered to the person so entitled within a reasonable time,
not exceeding ten (10) days, after such exercise. Certificates representing the
Warrant Shares issued upon exercise of this Warrant shall bear a legend
referring to the restrictions on transfer set forth herein. Unless this Warrant
has expired, a new Warrant of like tenor and for such number of Common Shares as
the holder of this Warrant shall direct, representing in the aggregate the right
to purchase the number of Common Shares with respect to which this Warrant shall
not have been exercised, shall also be issued to the holder of this Warrant
within such time.
(c) The Warrant Price shall be payable (i) in cash or cash equivalents,
(ii) by delivery of Common Shares (valued at the Market Price) and/or (iii) by
electing instead to receive upon such exercise the "Net Number" of Common
Shares, determined in accordance with the following formula:
Net Number = (A x B) - (A x C)
-----------------
B
For purposes of the foregoing formula:
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<PAGE> 5
A = the total number of Warrant Shares with respect to which this Warrant is
then being exercised.
B = the Market Price of the Common Shares on the date immediately preceding the
date of the notice of exercise.
C = the Warrant Price then in effect at the time of exercise.
3. Exchange. This Warrant is exchangeable, upon its surrender by the
Warrant Holder to the Company at its Principal Office, or to the Company's stock
transfer agent at its office, for new Warrants of like tenor registered in the
Warrant Holder's name and representing in the aggregate the right to purchase
the same number of Common Shares purchasable hereunder, each of such new
Warrants to represent the right to subscribe for and purchase such number of
Common Shares as shall be designated by the Warrant Holder at the time of such
surrender.
4. Transfer. Subject to restrictions on transfer set forth in Section
11, this Warrant is transferable, in whole or in part, by the holder thereof at
the Principal Office of the Company or at the office of its stock transfer
agent, in person or by duly authorized attorney, upon presentation of this
Warrant properly endorsed for transfer, the Assignment attached hereto as Rider
A duly executed, and funds sufficient to pay any transfer tax (the "Transfer
Documents"). Within a reasonable time after receiving the Transfer Documents,
not exceeding ten (10) days, the Company shall execute and deliver a new Warrant
in the name of the assignee named in the Assignment and this Warrant shall be
cancelled. Each holder of this Warrant, by holding it, agrees that this Warrant,
when endorsed in blank, may be deemed negotiable, and that, when this Warrant
shall have been so endorsed, the holder of this Warrant may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner of
this Warrant for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer of this Warrant on the books of
the Company, any notice to the contrary notwithstanding.
5. Certain Covenants of the Company. The Company covenants and agrees
that all Common Shares which may be issued upon the exercise of this Warrant,
will, upon issuance, be duly and validly issued, fully paid and nonassessable
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue upon exercise of
the purchase rights evidenced by this Warrant, a sufficient number of Common
Shares to provide for the exercise of the rights represented by this Warrant.
The Company will, at the time of each exercise of this Warrant, upon request of
the holder thereof, acknowledge in writing its continuing obligation to afford
such holder all rights (including, without limitation, any rights to
registration under the Registration Rights Agreement) to which such holder shall
be entitled after the exercise hereof in accordance with the terms hereof, but
the failure to make any such request, or the failure of the Company to give such
acknowledgement shall not affect the continuing obligations of the Company in
respect of such rights.
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<PAGE> 6
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. If the holders of the Common Shares may make elections as to the kind or
amount of stock, securities, money and other property receivable upon such
consolidation or merger, then, for the purpose of this Section 6(a), the kind
and amount of stock, securities, money and other property receivable upon such
consolidation or merger shall be deemed to be the choice specified by the
Warrant Holder, which choice shall be specified by the Warrant Holder not later
than the earlier of (A) 30 days after Warrant Holder is provided with a final
version of all information required by law or regulation to be furnished to
holders of Common Shares concerning such choice, or if no such information is
required, 30 days after the Company notified the Warrant Holder of all material
facts concerning such choice and (B) the last time at which holders of Common
Shares are permitted to make their elections known to the Company. If the
Warrant Holder fails to specify a choice, the Warrant Holder's choice shall be
deemed to be the choice made by a plurality of holders of Common Shares not
affiliated with the Company or the other party to the merger or consolidation.
Notwithstanding the foregoing, in the case of any transaction which pursuant to
this Section 6(a) would result in the execution and delivery by the Company of a
new Warrant to the Warrant Holder, and in which the holders of Common Shares are
entitled only to receive money or other property exclusive of securities, then
in lieu of such new Warrant being exercisable as provided above, the Warrant
Holder shall have the right, at its sole option, to require the Company to
purchase this Warrant (without prior exercise by the Warrant Holder) at its fair
value as of the day before such transaction became publicly known, as determined
by an unaffiliated internationally recognized accounting firm or investment bank
selected by the Warrant Holder and reasonably acceptable to the Company. Any
purchase and sale of the Warrant pursuant to the immediately preceding sentence
shall be consummated as provided in
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<PAGE> 7
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 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
(upon the consummation of such repurchase) 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
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<PAGE> 8
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 (upon such issuance) 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
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
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<PAGE> 9
securities, and (ii) the aggregate consideration for such maximum number of
Additional Shares of Capital Stock shall be deemed to be the minimum
consideration received by the Company for the issuance of such Additional Shares
of Capital Stock pursuant to the terms of such convertible securities. No
adjustment of the Warrant Price shall be made under this subsection upon the
issuance of any convertible securities which are issued pursuant to the exercise
of any warrants or other subscription or purchase rights therefor, if any such
adjustment shall previously have been made upon the issuance of such warrants or
other rights pursuant to subsection 6(e) hereof.
(g) Adjustment of Number of Shares. Upon each adjustment in
the Warrant Price pursuant to any provision of this Section 6, the number of
Common Shares purchasable hereunder at the Warrant Price shall be adjusted, to
the nearest one hundredth of a whole share, to the product obtained by
multiplying such number of Common Shares purchasable immediately prior to such
adjustment in the Warrant Price by a fraction, the numerator of which shall be
the Warrant Price immediately prior to such adjustment and the denominator of
which shall be the Warrant Price immediately thereafter.
(h) Other Provisions Applicable to Adjustments Under this
Section. The following provisions will be applicable to the making of
adjustments in the Warrant Price hereinabove provided in this Section 6:
(i) Computation of Consideration. To the extent that
any Additional Shares of Capital Stock or any convertible securities or any
warrants, options or other rights to subscribe for or purchase any Additional
Shares of Capital Stock or any convertible securities shall be issued for a cash
consideration, the consideration received by the Company therefor shall be
deemed to be the amount of the cash received by the Company therefor, or, if
such Additional Shares of Capital Stock or convertible securities are offered by
the Company for subscription, the subscription price, or, if such Additional
Shares of Capital Stock or convertible securities are sold to underwriters or
dealers for public offering without a subscription offering, or through
underwriters or dealers for public offering without a subscription offering, the
initial public offering price, in any such case disregarding any amounts paid or
incurred by the Company for and in the underwriting of, or otherwise in
connection with the issue thereof. To the extent that such issuance shall be for
a consideration other than cash, then, except as herein otherwise expressly
provided, the amount of such consideration shall be deemed to be the fair value
of such consideration at the time of such issuance as determined in good faith
by the Company's Board of Directors. The consideration for 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,
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<PAGE> 10
options or warrants, the issuance of which convertible securities, rights,
options or warrants effected an adjustment in the Warrant Price, if any such
convertible securities shall not have been converted or exchanged, or if any
such rights, options or warrants shall not have been exercised, the number of
shares of Capital Stock deemed to be issued and outstanding by reason of the
fact that they were issuable upon conversion or exchange of any such convertible
securities or upon exercise of any such rights, options, or warrants shall no
longer be computed as set forth above, and the Warrant Price shall forthwith be
readjusted and thereafter be the price which it would have been (but reflecting
any other adjustments in the Warrant Price made pursuant to the provisions of
this Section 6 after the issuance of such convertible securities, rights,
options or warrants) had the adjustment of the Warrant Price made upon the
issuance or sale of such convertible securities or issuance of rights, options
or warrants been made on the basis of the issuance only of the number of
Additional Shares of Capital Stock actually issued upon conversion or exchange
of such convertible securities, or upon the exercise of such rights, options or
warrants, and thereupon only the number of Additional Shares of Capital Stock
actually so issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as in subsection (h)(i)
hereof) shall be deemed to have been received by the Company.
(iii) Treasury Shares. The number of shares of
Capital Stock at any time outstanding shall not include any shares thereof then
directly or indirectly owned or held by or for the account of the Company or any
subsidiary of the Company.
(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 decreased 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, provided, however, that if such an adjustment would
reduce such Warrant Price below the par value of the Warrant Shares, the Company
shall use its reasonable efforts to cause there to be made such amendment to its
Memorandum of Association or such other action as may be necessary to permit
such adjustment to be made to the Warrant Price.
(vi) No Impairment. The Company will not, by
amendment of its constitutive documents or through any consolidation, merger,
reorganization, transfer of assets, dissolution, securities issuance or any
other action, avoid or seek to avoid the observance or performance of the terms
of this Warrant, or to deprive the holder hereof of the intended benefits
hereof, and will at all times in good faith take such actions (or refrain
therefrom) as shall be necessary or appropriate to effect the intended purposes
and benefits of this Warrant. Without limiting the generality of the foregoing,
the Company will not permit the par value of the Warrant Shares to exceed the
Warrant Price. The Company will not amend any material term of
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<PAGE> 11
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 Chief Executive Officer or 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 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.
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<PAGE> 12
11. Securities Laws Representations and Warranties; Transfer to Comply
with Securities Laws.
(a) The Warrant Holder, by acceptance of this Warrant,
acknowledges that the transfer of this Warrant and the Warrant Shares is subject
to the provisions of the Securities Purchase Agreement, dated March __, 1999,
between the Company and the initial purchaser of the Warrants.
(b) The certificate representing any Warrant Shares acquired
upon exercise of this Warrant, and any Common Shares or other securities issued
in respect of such Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall be stamped or
otherwise imprinted with the following legend (unless such a legend is no longer
required under the 1933 Act):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE SOLD EXCEPT IN A TRANSACTION WHICH IS
EXEMPT UNDER SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT. IN ADDITION, THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER AS SET FORTH IN A
WARRANT OF THE COMPANY DATED MARCH __, 1999."
(c) The Company shall not be required to register the transfer
of this Warrant or any Warrant Shares on the books of the Company unless the
Company shall have been provided with an opinion of counsel satisfactory to it
or no-action letters from the Securities and Exchange Commission and the
appropriate state regulatory agencies prior to such transfer to the effect that
registration under the 1933 Act and any applicable state securities law is not
required in connection with the transaction resulting in such transfer;
provided, however, that no such opinion of counsel or no-action letter shall be
necessary in order to effectuate a transfer in accordance with the provisions of
Rule 144(k) promulgated under the 1933 Act. Each Warrant or certificate for
Warrant Shares issued upon any transfer as above provided shall bear the
restrictive legend set forth in Subsection 11(b) above, except that such
restrictive legend shall not be required if the opinion of counsel satisfactory
to the Company or no-action letters referred to above are to the further effect
that such legend is not required in order to establish compliance with the
provisions of the 1933 Act and any applicable state securities law, or if the
transfer is made in accordance with the provisions of Rule 144(k) under the 1933
Act. The cost of obtaining any legal opinion or no-action letter required under
this Section shall be borne by the Warrant Holder.
12. Survival. The provisions of Section 11 shall survive any
expiration, cancellation or exercise of this Warrant.
13. Headings. The descriptive headings of the several sections of this
Warrant are inserted for convenience only and do not constitute a part of this
Warrant.
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<PAGE> 13
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.
GLOBAL MARKETS ACCESS LTD.
By:_________________________________________
Donald J. Matthews
Chief Executive Officer
Attest:__________________________________
ACCEPTED, ACKNOWLEDGED
AND AGREED
[ENTITY]
By:__________________________________
Name:
Title:
Attest:______________________________
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<PAGE> 14
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: _________________________
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<PAGE> 1
Exhibit 8.2
Opinion
February 26, 1999
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." In consenting to such filing and to
such references to our firm, we have not certified any part of the Registration
Statement, and our consent does not establish that we 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 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made in Hamilton, Bermuda and is dated as of
February 26, 1999, by and between Global Markets Access Ltd., a Bermuda
corporation (the "Company"), Global Markets Guaranty Ltd., a wholly-owned
subsidiary of the Company organized under the laws of Bermuda to provide
financial guaranty insurance and reinsurance (the "Operating Company"), and
Donald J. Matthews (the "Employee").
W I T N E S S E T H
WHEREAS, the Company is contemplating an initial public offering
and/or a private placement of its common shares (the "IPO"); and
WHEREAS, the Company and the Operating Company desire that the
Employee serve as President and Chief Executive Officer of the Company and the
Operating Company and the Employee is willing to serve in such capacities.
WHEREAS, the Company, the Operating Company and the Employee desire
to amend and restate in its entirety the Employment Agreement dated as of
September 1, 1998 by and between the Company, the Operating Company and the
Employee;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree as
follows:
Section 1. Employment.
Effective as of September 1, 1998, the Company and the Operating
Company will employ the Employee and the Employee will perform services for the
Company and the Operating Company on the terms and conditions set forth in this
Agreement and for the period ("Term of Employment") specified in Section 3
hereof.
Section 2. Duties.
The Employee, during the Term of Employment, shall serve the Company
as its President and Chief Executive Officer. The Employee shall also serve as
President and Chief Executive Officer of the Operating Company. The Employee
shall be based at the Operating Company's headquarters in Bermuda, other than
for periodic travel in the ordinary course of business. The Employee shall have
such duties and responsibilities as are assigned to him by the Boards of
Directors of the Company and the Operating Company commensurate with his
positions with the Company and the Operating Company, and shall perform such
duties and responsibilities in each case in such a manner that neither the
Company nor the Operating Company would be deemed to be conducting a trade or
business in the United States for purposes of the United States Internal Revenue
Code of 1986, as amended.
The Employee shall perform his duties hereunder faithfully and to
the best of his abilities and in furtherance of the business of the Company and
the Operating Company, and shall devote his full business time, energy,
attention and skill to the business of the Company and
<PAGE> 2
the Operating Company and to the promotion of their interests except as
otherwise agreed by the Company and the Operating Company.
The Employee warrants and represents that he is free to enter into
this Agreement and is not restricted by any prior or existing agreement and the
Company and the Operating Company may rely on such representation in entering
into this Agreement.
Section 3. Term of Employment.
The initial Term of Employment under this Agreement shall be the
period commencing on September 1, 1998 and ending on the third anniversary of
the IPO. At the end of the initial Term of Employment, and on each anniversary
thereof, the Term of Employment shall automatically be extended for one
additional year, unless the Company and the Operating Company, collectively, or
the Employee shall have given at least three months in advance written notice to
the other that it does not wish to extend this Agreement.
Section 4. Salary.
Commencing on September 1, 1998, the Employee shall receive, as
compensation for his duties and obligations to the Company and the Operating
Company, a salary at the annual rate of BD$360,000, payable by the Operating
Company in Bermuda in substantially equal installments in accordance with the
Operating Company's payroll practice; however, no salary shall become payable to
the Employee until consummation of the IPO. During the Term of Employment, all
salary or consulting payments paid to the Employee by ACA Financial Guaranty
Corporation or Inter-Atlantic Securities Corporation or their affiliates shall
be credited against salary due to the Employee under this Employment Agreement.
It is agreed between the parties that the Company shall review the Employee's
base annual salary annually and in light of such review may, in the discretion
of the Board of Directors of the Company, increase such base annual salary
taking into account any change in the Employee's responsibilities, increases in
the cost of living, performance by the Employee and other pertinent factors.
Section 5. Bonus.
During the Term of Employment, the Employee shall, subject to and
effective upon the consummation of the IPO, participate in the Company's
Incentive Compensation Plan, the terms of such Plan to be determined by the
Compensation Committee for approval by the Company's Board of Directors, and
shall be eligible for an annual cash bonus based on performance targets as
determined in accordance with the terms of any such plan.
Section 6. Options.
(a) Initial Options. The Company shall grant to the Employee,
subject to and effective as of the consummation of the IPO, options (the
"Initial Options") to purchase at a price per share equal to the price per share
in the IPO, a number of shares equal to the lesser of: (i) 2.0% of the Company's
Common Shares outstanding immediately following the consummation of the IPO; or
(ii) the number of Common Shares remaining under the Company's Initial Stock
Option Plan after all of the other directors and officers of the Company who as
of February 26, 1999 are entitled to receive options upon consummation of the
IPO have been granted such options (except the options granted to the Chairman
of the Board of the Company in excess of the options to purchase 15,000 Common
Shares granted to the Chairman pursuant to his Board membership), minus 100,000
Common Shares, or (iii) 500,000 Common Shares. Thirty three and one-thirds
percent (33 1/3%) of the Initial Options shall become exercisable on the first
anniversary of the IPO, 33 1/3% of the Initial Options shall
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<PAGE> 3
become exercisable on the second anniversary of the IPO, and an additional 33
1/3% of the Initial Options shall become exercisable on the third anniversary
thereof. The terms of the Initial Options shall be governed by the terms of the
Company's Initial Stock Option Plan.
(b) Other Options. During the Term of Employment, the Employee
shall, subject to the consummation of the IPO, be eligible to be granted options
(in addition to the Initial Options) to purchase Common Shares at such price and
subject to such terms as provided by the Company's Initial Stock Option Plan, in
the sole discretion of the Board of Directors of the Company.
Section 7. Employee Benefits.
During the Term of Employment, the Employee shall, effective upon
the consummation of the IPO, be entitled to participate in all employee benefit
programs of the Company and the Operating Company, as such programs may be in
effect from time to time, including without limitation, pension and other
retirement plans, profit sharing plans, group life insurance, accidental death
and dismemberment insurance, hospitalization, surgical and major medical
coverage, sick leave (including salary continuation arrangements), long term
disability, holidays and vacations.
Section 8. Business Expenses.
All reasonable travel and other expenses incidental to the rendering
of services by the Employee hereunder shall be paid by the Operating Company and
if expenses are paid in the first instance by the Employee, the Operating
Company will reimburse him therefor upon presentation of proper invoices;
subject in each case to compliance with the Operating Company's reimbursement
policies and procedures.
Section 9. Housing and Travel Expenses.
During the Term of Employment, the Operating Company shall,
effective upon consummation of the IPO, provide to the Employee the sum of
BD$13,000 monthly as an allowance to cover the expenses of housing in Bermuda
and for his personal travel to and from Bermuda.
Section 10. Vacations and Sick Leave.
During the Term of Employment, the Employee shall be entitled to
reasonable vacation and reasonable sick leave each year, in accordance with
policies of the Company and the Operating Company, as determined by their
respective Boards of Directors, provided, however, that the Employee shall be
entitled to a minimum of four weeks vacation per year.
Section 11. Termination.
(a) In the event of Serious Cause, as defined below, the Company and
the Operating Company may terminate the Employee's employment and the Term of
Employment
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<PAGE> 4
hereunder immediately upon written notice of such termination stating the
Serious Cause upon which the Company and the Operating Company are basing such
termination.
"Serious Cause" shall mean (i) the willful and continued failure by
the Employee to perform substantially his duties hereunder, other than by
reasons of health, for a period of more than 30 days after demand for
substantial performance has been delivered by the Company and the Operating
Company that identifies the manner in which the Company and the Operating
Company believe the Employee has not performed his duties, (ii) the Employee
shall have been indicted by any federal, state or local authority in any
jurisdiction for, or shall have pleaded guilty or nolo contendere to, an act
constituting a felony, (iii) the Employee shall have habitually abused any
substance (such as narcotics or alcohol), or (iv) the Employee shall have (A)
engaged in acts of fraud, material dishonesty or gross misconduct in connection
with the business of the Company and the Operating Company or (B) committed a
material breach of this Agreement.
(b) The Employee may terminate his employment and the Term of
Employment hereunder in the event of Good Reason, as defined below, upon 30
days' prior written notice of such termination stating the Good Reason upon
which the Employee is basing such termination.
"Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) the demotion of the Employee, (iii) a material reduction
of the Employee's duties hereunder, or (iv) a material breach of this Agreement
by the Company and the Operating Company.
(c) In the event of termination of the Employee's employment and the
Term of Employment hereunder by the Company and the Operating Company for
Serious Cause or by the Employee without Good Reason, the Employee shall forfeit
all bonus amounts for the then current fiscal year, and the Company and
Operating Company shall be liable to the Employee only for (i) any accrued but
unpaid salary, (ii) any accrued but unpaid bonus from a prior fiscal year, and
(iii) reimbursement of business expenses incurred prior to the date of
termination.
(d) In the event of the death, retirement or disability of the
Employee, the Employee's employment and Term of Employment hereunder shall be
terminated as of the date of such death, retirement or disability and the
Operating Company shall pay the Employee, or the Employee's estate or legal
representative, as appropriate, (i) any accrued but unpaid salary, (ii) any
earned but unpaid bonus from a prior fiscal year, (iii) reimbursement of
business expenses incurred prior to the date of termination, (iv) travel and
housing allowances under Section 9 for six months after the date of termination,
and (v) reasonable relocation expenses from Bermuda to the United States. The
date of the Employee's disability shall be deemed to be the last day of the
sixth month period of time during which the Employee has been unable to carry
out his position as provided below.
"Disability" shall mean the Employee's inability, for reasons of
health, to carry out the functions of his position for a total of 6 months
during any 12 month period of this Agreement. "Retirement" shall mean retirement
from employment upon attaining age 70 or such earlier age agreed to by the
Company and the Operating Company.
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<PAGE> 5
In addition, in the event of the Employee's death, retirement or
disability, if the Company's Common Shares are not then publicly traded, the
Company shall, after giving written notice to the Employee, the Employee's
estate or legal representative, whichever is appropriate, have the right to
require the sale to the Company of any or all of the Common Shares of the
Company owned by the Employee within six (6) months of death, retirement or
disability; and the Employee, the Employee's estate or legal representative,
whichever is appropriate, shall have the right, after giving written notice to
the Company, to sell any or all of the Employee's Common Shares to the Company
within twelve (12) months after death or within six (6) months after retirement
or disability. The rights provided for in this paragraph shall be exercised by
serving written notice of the intention to buy or sell, as the case may be, to
the other party. The price at which any such transfer shall be effected shall be
equal to the appraised value of the Common Shares, in each case measured as of
the date of termination. The appraised value formula of evaluation will be
agreed upon by June 1, 1999 if the Company is not then publicly traded. Payment
for either such transaction shall occur no later than sixty (60) days after
effective notice is given pursuant to Section 20 of this Agreement, or, if
later, no more than thirty (30) days after the appraised value is finally
determined.
(e) If the Company and the Operating Company should terminate the
Employee's employment and the Term of Employment hereunder without Serious
Cause or if the Employee should terminate his employment and the Term of
Employment hereunder for Good Reason, the Operating Company shall continue to
pay the Employee his base salary for a period of 18 months from such
termination. In addition, the Employee shall be entitled to (i) any accrued but
unpaid salary, (ii) any earned but unpaid bonus from a prior fiscal year, (iii)
reimbursement of business expenses incurred prior to the date of termination,
(iv) travel and housing allowances under Section 9 for twelve months after the
date of termination, and (v) reasonable relocation expenses from Bermuda to the
United States.
(f) In the event of the liquidation of the Company or the Operating
Company or in the event that the Board of Directors elects to discontinue
permanently operating the Company or the Operating Company, the Employee's
employment and the Term of Employment hereunder shall be terminated as of the
date of such liquidation or discontinuance, and the Operating Company shall pay
the Employee within 30 days of the day liquidation or discontinuance is
determined (i) any accrued but unpaid salary, (ii) any earned but unpaid bonus
from a prior fiscal year, (iii) unreimbursed business expenses incurred prior to
the date of termination, (iv) travel and housing allowances under Section 9 for
two months after the date of termination, and (v) reasonable relocation expenses
from Bermuda to the United States. In addition, the Employee shall be entitled
to receive one year's base salary from the date on which the Employee's
employment is terminated.
(g) Notwithstanding any other provision of this Agreement, until the
IPO is consummated, either the Employee or the Company may terminate the
Employee's employment and the Term of Employment hereunder upon 30 days' written
notice to the other, in which event the Company shall be liable to the Employee
only for reimbursement of business expenses incurred prior to the date of
termination.
Section 12. Change of Control.
(a) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then
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<PAGE> 6
exercisable shall become exercisable (and be deemed to be vested) on the date on
which a Change of Control (as defined below) of the Company occurs. In addition,
restricted Common Shares granted under any other of the Company's share option
plans shall immediately vest upon a Change of Control of the Company.
(b) If (i) the employment of the Employee is terminated by the
Company (or any successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Company (or successor thereto) for Good Reason,
in each case within the period commencing on the date that a Change of Control
is formally proposed to the Company's Board of Directors and ending on the first
anniversary of the date on which such Change of Control occurs, then the
Employee shall be entitled to receive (in lieu of the benefits described in
Section 11): (1) any accrued but unpaid salary, (2) a lump sum payment equal to
two times such Employee's annual base salary as of the date of termination, (3)
any accrued but unpaid bonus from a prior fiscal year, (4) reimbursement of
business expenses incurred prior to the date of termination, (5) travel and
housing allowances under Section 9 for one year following the date of
termination, (6) reasonable relocation expenses from Bermuda to the United
States, together with (7) a gross up of any excise taxes payable by the Employee
by reason of such payments occurring in connection with a Change of Control.
The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.
(c) A "Change of Control" of the Company shall be deemed to have
occurred if, following consummation of the IPO (i) any "person" as such term is
defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), excluding the Company or
any of its subsidiaries, a trustee or any fiduciary holding securities under an
employee benefit plan of the Company or any of its subsidiaries, an underwriter
temporarily holding securities pursuant to an offering of such securities or a
corporation owned, directly or indirectly, by shareholders of the Company in
substantially the same proportion as their ownership of the Company, is or
becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 40% or
more of the combined voting power of the Company's then outstanding securities
("Voting Securities"); (ii) during any period of not more than two years,
individuals who constitute the Board of Directors of the Company (the "Board")
as of the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (iii) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors at such time or whose election or nomination
for election was previously so approved, cease for any reason to constitute a
majority thereof; (iii) the shareholders of the Company approve a merger,
consolidation or reorganization or a court of competent jurisdiction approves a
scheme of arrangement of the Company, other than a merger, consolidation,
reorganization or scheme of arrangement which would result in the Voting
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 40% of the combined voting power of
the Voting Securities of the Company or such
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<PAGE> 7
surviving entity outstanding immediately after such merger, consolidation,
reorganization or scheme of arrangement; or (iv) the shareholders of the Company
approve a plan of complete liquidation of the Company or any agreement for the
sale of substantially all of the Company's assets.
(d) The provisions of this Section 12 shall only apply following the
consummation of an IPO.
Section 13. Agreement Not to Compete.
(a) The Employee hereby covenants and agrees that at no time during
the Term of Employment nor for a period of one year immediately following the
termination of the Employee's employment for any reason, will he for himself or
on behalf of any other person, partnership, company or corporation, directly or
indirectly, acquire any financial or beneficial interest in (except as provided
in the next sentence), provide consulting or other services to, be employed by,
or own, manage, operate or control any entity engaged in the financial guaranty
insurance or reinsurance business similar to the business engaged in by the
Company or the Operating Company at the time of such termination of employment.
Notwithstanding the preceding sentence, the Employee shall not be prohibited
from owning less than one (1%) percent of any publicly traded corporation,
whether or not such corporation is in competition with the Company or the
Operating Company.
(b) The Employee hereby covenants and agrees that, at all times
during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee shall not directly or indirectly
employ or seek to employ any person or entity employed at that time by the
Company or any of its subsidiaries, or otherwise encourage or entice such person
or entity to leave such employment.
(c) This Section 13 shall be null and void if the Board of Directors
elects to discontinue permanently the Company's operations or if the IPO has not
been consummated by March 31, 1999.
Section 14. Confidential Information.
The Employee agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to the Company or any affiliate
of the Company, including, without limitation, customer lists, client lists,
trade secrets, business plans, financial models, pricing policies and other
business affairs of the Company and any affiliate of the Company learned by him
from the Company or any such affiliate or otherwise before or after the date of
this Agreement, and not to disclose any such confidential matter to anyone
outside the Company or any of its affiliates, whether during or after his period
of service with the Company, except as may be required in the course of a legal
or governmental proceeding. Upon request by the Company, the Employee agrees to
deliver promptly to the Company upon termination of his services for the
Company, or at any time thereafter as the Company may request, all Company or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer files in any media and other documents (and all copies thereof)
relating to the Company's or any affiliate's
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<PAGE> 8
business and all property of the Company or any affiliate associated therewith,
which he may then possess or have under his control.
Section 15. Remedy.
(a) Should the Employee engage in or perform, either directly or
indirectly, any of the acts prohibited by Sections 13 or 14 hereof, it is agreed
that the Company shall be entitled to full injunctive relief, to be issued by
any competent court of equity, enjoining and restraining the Employee and each
and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The foregoing
remedy available to the Company shall not be deemed to limit or prevent the
exercise by the Company of any or all further rights and remedies which may be
available to the Company hereunder or at law or in equity.
(b) The Employee acknowledges and agrees that the covenants
contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof. If any provision hereof is
determined to be invalid or unenforceable by a court of competent jurisdiction,
the Employee shall negotiate in good faith to provide the Company with
protection as nearly equivalent to that found to be invalid or unenforceable and
if any such provision shall be so determined to be invalid or unenforceable by
reason of the duration or geographical scope of the covenants contained therein,
such duration or geographical scope, or both, shall be considered to be reduced
to a duration or geographical scope to the extent necessary to cure such
invalidity.
Section 16. Indemnification.
The Company and the Operating Company will indemnify the Employee
(and his legal representatives or other successors) to the fullest extent
permitted by the laws of the Islands of Bermuda and in accordance with the terms
of the Company's and the Operating Company's respective Bye-Laws, and the
Employee shall be entitled to the protection of any insurance policies the
Company or the Operating Company may elect to maintain generally for the benefit
of their directors and officers, against all costs, charges and expenses
whatsoever incurred or sustained by the Employee or his legal representatives in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director or officer of the Company or the Operating Company.
Section 17. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit of the
Employee, his heirs, executors, administrators and beneficiaries, and the
Company, the Operating Company and their successors and assigns.
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<PAGE> 9
Section 18. Governing Law.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the Islands of Bermuda, without reference to rules
relating to conflicts of law.
Section 19. Entire Agreement.
This Agreement constitutes the full and complete understanding and
agreement of the parties and supersedes all prior understandings and agreements
as to employment of the Employee. This Agreement cannot be amended, changed,
modified or terminated without the written consent of the parties hereto.
Section 20. Waiver of Breach.
The waiver by either party of a breach of any term of this Agreement
shall not operate nor be construed as a waiver of any subsequent breach thereof.
Section 21. Notices.
Any notice, report, request or other communication given under this
Agreement shall be written and shall be effective upon delivery when delivered
personally, by Federal Express or by fax.
Unless otherwise notified by any of the parties, notices shall be
sent to the parties as follows:
To Employee: Donald J. Matthews
----------------
----------------
----------------
----------------
To the
Company: Global Markets Access Ltd.
Cumberland House
1 Victoria Street
Hamilton, HM AX, Bermuda
Section 22. Severability.
If any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
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<PAGE> 10
Section 23. Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as on the day and year first above written.
By: /s/ Donald J. Matthews
--------------------------------------
Donald J. Matthews
GLOBAL MARKETS ACCESS LTD.
By: /s/ Robert M. Lichten
--------------------------------------
Robert M. Lichten
Chairman
GLOBAL MARKETS GUARANTY LTD.
By: /s/ Robert M. Lichten
--------------------------------------
Robert M. Lichten
Chairman
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<PAGE> 1
Exhibit 10.2
GLOBAL MARKETS ACCESS LTD.
INITIAL STOCK OPTION PLAN
(As amended and restated on February 26, 1999)
<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).
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<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 minus 87,646
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
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<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
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<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.
(2) CAUSE. If an Optionee's employment or service with
the Company (and Related Corporations) is terminated by the
Company (or a Related Corporation) prior to the expiration
date fixed for his or a her Option for Cause (as described
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.
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
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<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.
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<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.
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<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;
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<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.
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<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;
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<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.
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<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
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<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
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<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 26th day of February, 1999.
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 Common Shares
Robert M. Lichten A. 15,000 Common Shares
B. The number of Common Shares,
if any, remaining under the
Plan after all of the other
directors and officers of
the Company (including the
Chief Executive Officer of
the Company) who are
entitled to receive options
upon consummation of the
company's initial public
offering of its Common
Shares have been granted
such options, minus 100,000
Common Shares.
</TABLE>
<PAGE> 1
Exhibit 10.3
AMENDED AND RESTATED AGREEMENT
This AMENDED AND RESTATED AGREEMENT is made as of February 26, 1999,
by and among INTER-ATLANTIC SECURITIES CORPORATION, a Delaware corporation
("Inter-Atlantic"), Global Markets Access Ltd. a Bermuda corporation (the
"Company"), and Global Markets Guaranty Ltd., a Bermuda corporation (the
"Operating Company").
BACKGROUND
The Company and the Operating Company were incorporated in August
1998, and neither has an operating history. The Company 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 the Company and
the Operating Company in connection with the proposed initial public offering
and any concurrent private placements of common shares of the Company (the
"Offering"), subject to the terms of this Agreement.
The Company and the Operating Company desire to engage
Inter-Atlantic in connection with the Offering, subject to the terms of this
Agreement.
The Company, the Operating Company and Inter-Atlantic desire to
amend and restate in its entirety the Agreement dated as of August 28, 1998 by
and among the Company, the Operating Company and Inter-Atlantic.
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) The Company 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 the Company'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
the Company or the Operating Company from time to time:
(1) assist the Company in preparing or causing to be prepared a
registration statement registering the Offering under the United States
Securities Act of 1933, as amended, and all applicable state and federal
securities laws;
(2) assist the Company in retaining such underwriters (the
"Underwriters") as may be necessary or desirable in connection with the
Offering;
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(3) assist the Company in identifying potential investors in and
negotiating the terms of any private placements;
(4) incur in the name of the Company 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 the Company 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, the Company and the
Operating Company shall, in addition to the other amounts payable hereunder, pay
Inter-Atlantic a fee equal to US$3,600,000 by wire transfer pursuant to
instructions previously given to the Company and the Operating Company for that
purpose. Unless otherwise extended by mutual agreement among Inter-Atlantic and
the Company 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 the Company and the
Operating Company to Inter-Atlantic pursuant to this Section 2(a).
(b) Expense Reimbursements.
(1) The Company 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, the Company 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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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. The
Company 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 the
Company 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) The Company 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
the Company 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 the Company
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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(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 the Company:
Global Markets Access Ltd.
Cumberland House
1 Victoria Street
Hamilton, HM AX, Bermuda
Attn.: Donald J. Matthews, Chief Executive Officer
To the Operating Company:
Global Markets Guaranty Ltd.
Cumberland House
1 Victoria Street
Hamilton, HM AX, Bermuda
Attn.: Donald J. Matthews, Chief Executive Officer
(b) Assignment and Benefit. This Agreement or any rights hereunder may not
be assigned by the Company or the Operating Company, nor may the Company 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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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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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
GLOBAL MARKETS ACCESS LTD.
By: /s/ Donald J. Matthews
___________________________________
Name: Donald J. Matthews
Title: Chief Executive Officer
GLOBAL MARKETS GUARANTY LTD.
By: /s/ Donald J. Matthews
___________________________________
Name: Donald J. Matthews
Title: Chief Executive Officer
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EXHIBIT 10.6
SECURITIES PURCHASE AGREEMENT
GLOBAL Markets Access LTD.
February 26, 1999
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TABLE OF CONTENTS
<TABLE>
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SECTION 1. AUTHORIZATION OF SECURITIES.................................................................... 1
SECTION 2. PURCHASE AND SALE OF SECURITIES................................................................ 1
2.1. Issuance of Securities......................................................................... 1
2.2. Closing of Issuance............................................................................ 2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................. 2
3.1. Corporate Organization......................................................................... 2
3.2. Subsidiaries................................................................................... 2
3.3. Capitalization................................................................................. 3
3.4. Corporate Proceedings, etc..................................................................... 3
3.5. Consents and Approvals......................................................................... 4
3.6. Absence of Defaults, Conflicts, etc............................................................ 4
3.7. Financial Statements........................................................................... 4
3.8. Absence of Certain Developments................................................................ 4
3.9. Compliance with Law............................................................................ 5
3.10. Litigation..................................................................................... 5
3.11. Material Contracts............................................................................. 5
3.12. Absence of Undisclosed Liabilities............................................................. 6
3.13. Employees...................................................................................... 6
3.14. Tax Matters.................................................................................... 6
3.15. Employee Benefit Plans......................................................................... 7
3.16. Patents, Licenses, etc......................................................................... 7
3.17. Insurance...................................................................................... 8
3.18. Transactions with Related Parties.............................................................. 8
3.19. Private Offering............................................................................... 8
3.20. Brokerage...................................................................................... 8
3.21. Illegal or Unauthorized Payments; Political Contributions...................................... 9
3.22. Material Facts................................................................................. 9
3.23. Foreign Assets Control Regulations, etc........................................................ 9
3.24. Registration Statement......................................................................... 9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR................................................ 10
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES........................................................... 10
5.1. Resale of Securities.......................................................................... 10
5.2. Covenants Pending Closing..................................................................... 11
5.3. Further Assurance............................................................................. 11
SECTION 6. INVESTOR'S CLOSING CONDITIONS................................................................. 11
6.1. Representations and Warranties................................................................ 12
6.2. Compliance with Agreement..................................................................... 12
6.3. Officer's Certificate......................................................................... 12
6.4. Delivery of Shares and Warrants............................................................... 12
6.5. Injunction.................................................................................... 12
6.6. Counsel's Opinions............................................................................ 12
6.7. Consummation of Public Offering............................................................... 12
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6.8. Purchase by Other Investors................................................................... 13
6.9. Registration Rights Agreement................................................................. 13
6.10. Process Agent................................................................................. 13
6.11. Proceedings................................................................................... 13
6.12. Rating........................................................................................ 13
SECTION 7. COMPANY CLOSING CONDITIONS.................................................................... 14
7.1. Representations and Warranties................................................................ 14
7.2. Compliance with Agreement..................................................................... 14
7.3. Injunction.................................................................................... 14
7.4. Consummation of Public Offering and Other Sales............................................... 14
SECTION 8. LIMITATION ON DISPOSITION..................................................................... 14
SECTION 9. COVENANTS..................................................................................... 15
9.1. Financial and Business Information............................................................ 15
9.2. Inspection.................................................................................... 16
9.3. Keeping of Books.............................................................................. 16
9.4. Lost, etc. Certificates; Exchange............................................................. 16
9.5. Review of Documents........................................................................... 17
9.6. Confidential Information...................................................................... 17
9.7. Use of Proceeds............................................................................... 17
9.8. Ownership of Common Shares by ACA............................................................. 17
SECTION 10. INTERPRETATION OF THIS AGREEMENT.............................................................. 17
10.1. Terms Defined................................................................................. 17
10.2. Directly or Indirectly........................................................................ 19
10.3. SECTION Headings.............................................................................. 19
SECTION 11. MISCELLANEOUS................................................................................. 19
11.1. Notices....................................................................................... 19
11.2. Expenses and Taxes............................................................................ 20
11.3. Reproduction of Documents..................................................................... 20
11.4. Termination and Survival...................................................................... 21
11.5. Successors and Assigns........................................................................ 21
11.6. Entire Agreement; Amendment and Waiver........................................................ 21
11.7. Severability.................................................................................. 21
11.8. Governing Law; Submission to Jurisdiction..................................................... 21
11.9. Counterparts.................................................................................. 22
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Schedules
Schedule 2.1 Investors
Schedule 3.1(a)(1) Memorandum
Schedule 3.1(a)(2) Bye-Laws
Schedule 3.1(b) Contemplated Business
Schedule 3.3 Capitalization
Schedule 3.7 Financial Statements
Schedule 3.8 Certain Developments
Schedule 3.10 Litigation
Schedule 3.11 Material Contracts
Schedule 3.12 Undisclosed Liabilities
Schedule 3.13(a) Work Permits
Schedule 3.13(b) Employees
Schedule 3.15 Employee Benefit Arrangements
Schedule 3.18 Transactions with Related Parties
Schedule 6.6(a) Opinion of Conyers Dill & Pearman
Schedule 6.6(b) Opinion of Drinker Biddle & Reath LLP
Exhibits
EXHIBIT A Class B Warrant
EXHIBIT B Registration Rights Agreement
EXHIBIT C Lock-up Provisions
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GLOBAL MARKETS ACCESS LTD.
SECURITIES PURCHASE AGREEMENT
Dated as of February 26, 1999
To the Investor executing
this Agreement on the
signature page hereof
Ladies and Gentlemen:
GLOBAL MARKETS ACCESS LTD., a Bermuda corporation (the "Company"),
hereby agrees with you (the "Investor") as follows:
SECTION 1. AUTHORIZATION OF SECURITIES
The Company has duly authorized the issuance, sale and delivery of its
common shares, par value US$1.00 per share (the "Common Shares") and its Class B
Warrants to purchase its Common Shares, the form of which is attached hereto as
Exhibit A (the "Class B Warrants").
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1. Issuance of Securities
Subject to the terms and conditions set forth in this Agreement and in
reliance upon the Company's and the Investor's representations set forth below,
on the Closing Date (as defined below) the Company shall sell to the Investor,
and the Investor shall purchase from the Company, the number of Common Shares
(the "Shares") and Class B Warrants (the "Warrants"), and at the aggregate cash
purchase price (the "Purchase Price"), set forth opposite its name on Schedule
2.1. Such sale and purchase shall be effected on the Closing Date by the Company
executing and delivering to the Investor, duly registered in its name (or that
of its nominee), a duly executed stock certificate and warrant certificate
evidencing the Shares and the Warrants being purchased by it, against delivery
by the Investor to the Company of the Purchase Price by wire transfer of
immediately available funds to such account as the Company shall designate, not
less than three Business Days prior to the Closing Date. The Company is entering
into securities purchase agreements (the "Other Agreements") substantially in
the form of this Agreement (including the Schedules and Exhibits hereto) with
the other investors listed on Schedule 2.1 ("Other Investors" and, collectively
with the Investor, the "Investors"). The Company's agreements with each of the
Investors are separate agreements, and the sales to each of the Investors are
separate sales.
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2.2. Closing of Issuance
The closing of such sale and purchase (the "Closing") shall take place
at 10:00 A.M., New York City time, on the IPO Closing Date (as defined below) or
such other date as the Investor and the Company agree in writing (the "Closing
Date"), at the offices of Cleary Gottlieb Steen & Hamilton, One Liberty Place,
New York, New York, or such other location as the Investor and the Company shall
mutually select.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
3.1. Corporate Organization
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of Bermuda. True and complete copies of the
Memorandum of Association, Bye-Laws and other constitutive documents as amended
through the date hereof (collectively, the "Organizational Documents") have been
attached as Schedule 3.1(a)(1) and Schedule 3.1(a)(2) respectively.
(b) The Company has all requisite power and authority and has all
necessary approvals, licenses, permits and authorization to own its properties
and to carry on its business as presently contemplated to be conducted as
described in Schedule 3.1(b). The Company has all requisite power and authority
to execute and deliver the Transaction Documents (as defined below), to perform
its obligations hereunder and thereunder and to consummate the Public Offering.
(c) The Company has filed all necessary documents to qualify to do
business as a foreign corporation in, and the Company is in good standing under
the laws of, each jurisdiction in which the conduct of the Company's business as
presently contemplated as described in Schedule 3.1(b) or the nature of the
property owned by it or proposed to be owned requires such qualification, except
where the failure to so qualify would not have a material adverse effect on the
business, properties, prospects, profits or condition (financial or otherwise)
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Effect").
3.2. Subsidiaries
Except for Global Markets Guaranty Ltd. (the "Operating Company") and
GMG Marketing Ltd. (the "Marketing Company"), the Company has no subsidiaries
and no interests or investments in any partnership, trust or other entity or
organization. Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its properties and to conduct its business as presently contemplated as
described in Schedule 3.1(b) and is duly registered, qualified and authorized to
transact business and is in good standing in each jurisdiction in which the
conduct of its business or the nature of its properties requires such
registration, qualification or authorization, except where the failure to be so
registered, qualified
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and authorized would not have a Material Adverse Effect; all of the issued and
outstanding capital stock of each subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable, and is owned of record and
beneficially by the Company free and clear of any mortgage, pledge, lien,
encumbrance, security interest, claim or equity.
3.3. Capitalization
(a) On the Closing Date (i) the authorized capital stock of the Company
will consist of 100,000,000 Common Shares, par value US$1.00 per share, and
50,000,000 preferred shares, par value US$1.00 per share, and (ii) the issued
and outstanding shares of capital stock of the Company will consist of Common
Shares which will be issued to, and, to the best knowledge of the Company, held
beneficially by the persons and in the amounts set forth in Schedule 3.3.
(b) All the outstanding shares of capital stock of the Company have
been duly and validly issued and are fully paid and non-assessable, and were
issued in accordance with the registration or qualification requirements of the
Securities Act (as defined below) and any other relevant securities laws or
pursuant to valid exemptions therefrom. The Company has authorized (or as of the
Closing Date will have authorized) the issuance, sale and delivery of the Shares
and Warrants in accordance with this Agreement and, subject to the issuance of
the Warrants, the Company has reserved (or as of the Closing Date will have
reserved) for issuance Common Shares initially issuable upon conversion of the
Warrants. Upon issuance, sale and delivery as contemplated by this Agreement,
the Shares will be duly authorized, validly issued, fully paid and
non-assessable shares of the Company, free of all preemptive or similar rights,
and entitled to the rights described in the Organizational Documents. Upon their
issuance in accordance with the terms of the Warrants, the Common Shares
issuable upon exercise of the Warrants will be duly authorized, validly issued,
fully paid and non-assessable Common Shares of the Company, free of all
preemptive or similar rights.
(c) Except for the rights which attach to the warrants, options and
convertible securities which are listed on Schedule 3.3 hereto and to the
Warrants referred to herein and in the Other Agreements, on the Closing Date
there will be no Common Shares or any other equity security of the Company
issuable upon conversion or exchange or exercise of any security of the Company
nor will there be any rights, options or warrants outstanding or other agreement
to acquire any Common Shares nor will the Company be contractually obligated to
purchase, redeem or otherwise acquire any of its outstanding shares. No
shareholder of the Company is entitled to any preemptive or similar rights to
subscribe for shares of capital stock of the Company.
3.4. Corporate Proceedings, etc.
The Company has duly authorized the execution, delivery, and
performance of the Transaction Documents and each of the transactions and
agreements contemplated hereby and thereby. No other corporate action (including
shareholder approval) is necessary to authorize such execution, delivery and
performance of the Transaction Documents, and upon such execution and delivery
each of the Transaction Documents shall constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms,
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except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights and general principles of equity.
3.5. Consents and Approvals
The execution and delivery by the Company of the Transaction Documents,
the performance by the Company of its obligations hereunder and thereunder, the
consummation by the Company of the transactions contemplated hereby and thereby
and the consummation of the Public Offering do not require the Company or any of
its subsidiaries to obtain any consent, approval or action of, or make any
filing with or give any notice to, any corporation, Person or firm or any
public, governmental or judicial authority (except for filings in connection
with the Public Offering, all of which shall have been duly made as of the
Closing Date).
3.6. Absence of Defaults, Conflicts, etc.
The execution and delivery of the Transaction Documents do not, and the
fulfillment of the terms hereof and thereof by the Company, and the issuance of
the Shares and Warrants (and the issuance of Common Shares issuable upon
exercise of the Warrants) will not, result in a breach of any of the terms,
conditions or provisions of, or constitute a default under, or permit the
acceleration of rights under or termination of, any Material Contract (as
defined in SECTION 3.11) or the Organizational Documents, or any order, rule or
regulation of any court or federal, state or foreign regulatory board or body or
administrative agency having jurisdiction over the Company or any of its
subsidiaries or over their respective properties or businesses. No event has
occurred and no condition exists which, upon notice or the passage of time (or
both), would constitute a default under any such Material Contract or in any
license, permit or authorization to which the Company or any subsidiary is a
party or by which any of them may be bound.
3.7. Financial Statements
The audited financial statements of the Company as at and for the
period ended December 31, 1998 set forth in Schedule 3.7 fairly present the
financial position and results of operations of the Company as at the date
thereof and for the period covered thereby. Such financial statements, including
the schedules and notes thereto, were prepared in accordance with GAAP.
3.8. Absence of Certain Developments
Since the date of the balance sheet included in Schedule 3.7 (the
"Balance Sheet"), except as described in Schedule 3.8, there has been no (i)
material adverse change in the condition, financial or otherwise, of the Company
and its subsidiaries taken as a whole or in their assets, liabilities,
properties, or business or prospects, (ii) declaration, setting aside or payment
of any dividend or other distribution with respect to the capital stock of the
Company, (iii) issuance of capital stock (other than pursuant to the exercise of
options, warrants, or convertible securities outstanding on the date hereof or
as contemplated by this Agreement and the Other Agreements) or options, warrants
or rights to acquire capital stock (other than the rights granted to the
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Investors hereunder and under the Company's Stock Option Plan and the Other
Agreements), (iv) material loss, destruction or damage to any property of the
Company or any subsidiary, whether or not insured, (v) acceleration or
prepayment of any indebtedness for borrowed money or the refunding of any such
indebtedness, (vi) labor trouble involving the Company or any subsidiary or any
material change in their personnel or the terms and conditions of employment,
(vii) waiver of any valuable right, (viii) loan or extension of credit to any
officer or employee of the Company or any subsidiary or (ix) acquisition or
disposition of any material assets (or any contract or arrangement therefor), or
any other material transaction by the Company or any subsidiary otherwise than
for fair value in the ordinary course of business.
3.9. Compliance with Law
(a) Neither the Company nor any of its subsidiaries is in material
violation of any laws, ordinances, governmental rules or regulations to which it
is subject, including without limitation laws or regulations relating to the
environment or to occupational health and safety, and no material expenditures
are or will be required in order to cause its currently contemplated operations
or properties to comply with any such law, ordinances, governmental rules or
regulations.
(b) The Company and its subsidiaries have all licenses, permits (other
than certain employee work permits), franchises or other governmental
authorizations necessary to the ownership of their property or to the conduct of
their respective businesses as presently contemplated as described in Schedule
3.1(b) (including, without limitation, such licenses and permissions in Bermuda
which are necessary to carry on the business of a financial guaranty insurer and
reinsurer), all to the extent necessary to avoid a Material Adverse Effect.
Neither the Company nor any subsidiary has finally been denied any application
for any such licenses, permits, franchises or other governmental authorizations
necessary to its business.
3.10. Litigation
Except as set forth in Schedule 3.10, there is no legal action, suit,
arbitration or other legal, administrative or other governmental investigation,
inquiry or proceeding (whether federal, state, local or foreign) pending or, to
the best of the Company's knowledge, threatened against or affecting the Company
or any subsidiary or any of their respective properties, assets or presently
contemplated businesses. Neither the Company nor any subsidiary is subject to
any order, writ, judgment, injunction, decree, determination or award of any
court or of any governmental agency or instrumentality (whether federal, state,
local or foreign).
3.11. Material Contracts
Schedule 3.11 sets forth a true and complete list of each material
contract, agreement, instrument, commitment and other arrangement to which the
Company or any subsidiary is a party or otherwise relating to or affecting any
of their respective assets, including without limitation: employment, severance
or consulting agreements; loan, credit or security agreements; joint venture
agreements and distribution agreements (each, a "Material Contract"). Each
Material Contract is valid, binding and enforceable against the Company or such
subsidiary and,
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to the Company's best knowledge, the other parties thereto, in accordance with
its terms, and in full force and effect on the date hereof.
3.12. Absence of Undisclosed Liabilities
Except as disclosed in Schedule 3.12, neither the Company nor any of
its subsidiaries has any debt, obligation or liability (whether accrued,
absolute, contingent, liquidated or otherwise, whether due or to become due,
whether or not known to the Company) arising out of any transaction entered into
at or prior to the Closing, or any act or omission at or prior to the Closing,
or any state of facts existing at or prior to the Closing, including taxes with
respect to or based upon the transactions or events occurring at or prior to the
Closing, and including, without limitation, unfunded past service liabilities
under any pension, profit sharing or similar plan, except current liabilities
incurred and obligations under agreements entered into, in the usual and
ordinary course of business, none of which (individually or in the aggregate)
would have a Material Adverse Effect.
3.13. Employees
(a) Except as set forth Schedule 3.13(a), the Company and its
subsidiaries are in compliance in all material respects with all laws regarding
employment, wages, hours, equal opportunity, collective bargaining and payment
of social security and other taxes (except that certain employees may be
required to obtain work permits under Bermuda law).
(b) Except as set forth on Schedule 3.13(b), the employment of all
Persons and officers employed by the Company or any of its subsidiaries is
terminable at will without any penalty or severance obligation of any kind on
the part of the employer. All sums due for employee compensation and benefits
and all vacation time owing to any employees of the Company or any of its
subsidiaries have been duly and adequately accrued on the accounting records of
the Company and its subsidiaries.
(c) To the best knowledge of the Company none of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with the use of such
employee's best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted.
(d) To the best knowledge of the Company no officer or key employee,
nor any group of key employees, intends to terminate their employment with the
Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing (other than temporary employees who are also
employees of Inter-Atlantic Capital Partners, Inc. or Conyers Dill & Pearman).
3.14. Tax Matters
There are no taxes due and payable by the Company or any of its
subsidiaries which have not been paid. The provisions for taxes on the audited
balance sheet described in Section 3.7 has
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been established in accordance with GAAP. The Company and its subsidiaries have
duly filed all tax returns required to have been filed by it. Neither the
Company nor any of its subsidiaries has been subject to a tax audit of any kind.
3.15. Employee Benefit Plans
The Company and its subsidiaries have no employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974)
covering former or current employees of the Company or any of its subsidiaries,
or under which the Company or any of its subsidiaries has any obligation or
liability. Schedule 3.15 lists all material plans, contracts, bonuses,
commissions, profit-sharing, savings, stock options, insurance, deferred
compensation, or other similar fringe or employee benefits covering former or
current employees of the Company or any of its subsidiaries or under which the
Company or any of its subsidiaries has any obligation or liability (each, a
"Benefit Arrangement"). True and complete copies of all Benefit Arrangements
have been provided or made available to the Investor prior to the date hereof.
The Benefit Arrangements are and have been administered in substantial
compliance with their terms and with the requirements of applicable law.
3.16. Patents, Licenses, etc.
The Company or one of its subsidiaries owns, free and clear of all
encumbrances, restrictions, liens, security interests and charges, and has good
and marketable title to, or holds adequate licenses or otherwise possesses all
such rights as are necessary to use all patents (and applications therefor),
patent disclosures, trademarks, service marks, trade names, copyrights (and
applications therefor), inventions, discoveries, processes, know-how,
scientific, technical, engineering and marketing data, computer software,
formulae and techniques used or proposed to be used, in or necessary for the
conduct of its business as now conducted or as proposed to be conducted
(collectively, "Intellectual Property").
Neither the Company nor any of its subsidiaries has received notice nor
otherwise has reason to know of any conflict or alleged conflict with the rights
of others pertaining to the Intellectual Property described in this Section
3.16. The Company's business, as presently conducted and as proposed to be
conducted, does not infringe upon or violate any patent rights or trade secrets
of others. The Company and its subsidiaries have the unrestricted right to use,
free and clear of any rights or claims of others, all trade secrets, processes,
customer lists and other rights incident to their respective businesses as now
conducted or as proposed to be conducted.
Neither the Company nor any of its subsidiaries is currently obligated
or under any existing liability to make royalty or other payments to any owner
of, licensor of, or other claimant to, any patent, trademark, service names,
trade names, copyrights, or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business as now conducted or as
proposed to be conducted, or otherwise. To the Company's best knowledge, no
employee of the Company or any of its subsidiaries has violated any employment
agreement or proprietary information agreement which he had with a previous
employer or any patent policy of such employer, or is a party to or threatened
by any litigation concerning any patents, trademarks, trade secrets, service
names, trade names, copyrights, licenses and the like.
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3.17. Insurance
The Company maintains (or as of the Closing Date will maintain)
directors and officers insurance (in customary form) in amounts in the aggregate
for all directors and officers of not less than $10,000,000.
3.18. Transactions with Related Parties
Except as disclosed on Schedule 3.18, neither the Company nor any
subsidiary is a party to any agreement with any of the Company's directors,
officers or shareholders (other than shareholders which become such as a result
of the Public Offering and other than the Investors) or any Affiliate (as
defined below) or family member of any of the foregoing under which it: (i)
leases any real or personal property (either to or from such Person), (ii)
licenses technology (either to or from such Person), (iii) is obligated to
purchase any tangible or intangible asset from or sell such asset to such
Person, (iv) purchases products or services from such Person or (v) has borrowed
money from or loaned money to such Person. Except as set forth in Schedule 3.18,
neither the Company nor any subsidiary employs as an employee or engages as a
consultant any family member of any of the Company's directors, officers or
shareholders. To the best knowledge of the Company, there exist no agreements
among shareholders of the Company to act in concert with respect to their voting
or holding of Company securities.
3.19. Private Offering
Neither the Company nor anyone acting on its behalf, directly or
indirectly, has sold or has offered any of the Shares or Warrants (or any
similar security) for sale to, or solicited offers to buy from, or otherwise
approached or negotiated with respect thereto with, any prospective purchaser,
other than the Investors and not more than 10 other institutional investors,
each of which was offered such securities for purposes of investment. Neither
the Company nor anyone acting on its behalf has offered or shall offer the
Shares or Warrants (or any similar security) for issue or sale to, or solicit
any offer to acquire any of the same from, anyone by means of any general
solicitation or advertising or otherwise, so as to bring the issuance and sale
of such Shares or Warrants or Common Shares issuable upon exercise of the
Warrants, or any part thereof, within the provisions of Section 5 of the
Securities Act or in violation of the provisions of any securities or Blue Sky
law of any applicable jurisdiction. Based in part upon the representations of
the Investors set forth in Section 4 hereof and of the Other Agreements, the
offer, issuance and sale of the Shares and the Warrants and the issuance of the
Common Shares issuable upon exercise of the Warrants are and will be exempt from
the registration and prospectus delivery requirements of the Securities Act, and
have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all other applicable securities laws.
3.20. Brokerage
There are no claims for brokerage commissions or finder's fees or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement
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made by or on behalf of the Company and the Company agrees to indemnify and hold
the Investor harmless against any costs (including, without limitation,
reasonable attorneys fees and disbursements for the defense of any such claims)
or damages incurred as a result of any such claim.
3.21. Illegal or Unauthorized Payments; Political Contributions
Neither the Company or any of its subsidiaries nor, to the best of the
Company's knowledge (after reasonable inquiry of its officers and directors),
any of the officers, directors, employees, agents or other representatives of
the Company or any of its subsidiaries or any other business entity or
enterprise with which the Company or any subsidiary is or has been affiliated or
associated, has, directly or indirectly, made or authorized any payment,
contribution or gift of money, property, or services, whether or not in
contravention of applicable law, (a) as a kickback or bribe to any Person or (b)
to any political organization, or the holder of or any aspirant to any elective
or appointive public office except for personal political contributions not
involving the direct or indirect use of funds of the Company or any of its
subsidiaries.
3.22. Material Facts
This Agreement, the schedules hereto and the other agreements,
documents, certificates or written statements furnished or to be furnished to
the Investor through the Closing Date by or on behalf of the Company in
connection with the transactions contemplated hereby taken as a whole, do not
and will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements contained therein or herein, in
light of the circumstances in which they were made, not misleading. There is no
fact which is known to the Company and which has not been disclosed herein or
otherwise by the Company to the Investor which may materially adversely affect
the business, properties, assets or condition, financial or otherwise, or
prospects of the Company and its subsidiaries taken as a whole.
3.23. Foreign Assets Control Regulations, etc.
Neither the sale of the Shares and Warrants by the Company hereunder
nor its use of the proceeds thereof will violate the Trading with the Enemy Act,
as amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto.
3.24. Registration Statement
The Registration Statement (Registration No. 333-62785) on Form S-1 of
the Company (as amended through Amendment No. 3 thereof, the "Registration
Statement") does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that with
respect to forward-looking statements contained in the Registration Statement
the Company represents only that such forward-looking statements were prepared
in good faith and that the Company reasonably believes there is a reasonable
basis for such forward-looking statements (subject to the risk factors disclosed
in the Registration Statement relating to such
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forward-looking statements), and since the date of the Registration Statement
there has been no change, or development involving a prospective change, that to
the knowledge of the Company would render unreasonable the assumptions on which
the forward-looking statements set forth in the Registration Statement are
based.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company as follows:
(a) It is acquiring the Shares and Warrants (and will acquire the
Common Shares issuable upon conversion of the Warrants) for its own account for
investment and not with a view towards the distribution thereof, nor with any
present intention of distributing the Shares or Warrants (or the Common Shares
acquired upon exercise of the Warrants), but subject, nevertheless, to any
requirement of law that the disposition of the Investor's property shall at all
times be within the Investor's control, and without prejudice to the Investor's
right at all times to sell or otherwise dispose of all or any part of such
securities under a registration under the Securities Act or under an exemption
from said registration available under the Securities Act to the extent
permitted by the Transaction Documents.
(b) It is a "qualified institutional buyer" within the meaning of Rule
144A under the Securities Act, or an "accredited investor" within the meaning of
Rule 501(a) under the Securities Act with total assets of at least $30 million
and has not been organized for the specific purpose of acquiring the Shares and
the Warrants.
(c) It has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of its investment
in the Company as contemplated by this Agreement, and is able to bear the
economic risk of such investment for an indefinite period of time. It has been
furnished access to such information and documents as it has requested and has
been afforded an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement and the purchase of the Shares and Warrants contemplated hereby.
(d) It has all requisite power and authority to execute this Agreement
and the Registration Rights Agreement, to perform its obligations hereunder and
thereunder and to acquire and hold the Shares and Warrants.
SECTION 5. ADDITIONAL COVENANTS OF THE PARTIES
5.1. Resale of Securities
(a) The Investor covenants that it will not sell or otherwise transfer
(and the Company shall not be required to register the transfer of) any Shares
or Warrants (or any Common Shares acquired upon exercise of the Warrants) except
pursuant to an effective registration under the Securities Act or in a transfer
effected under the provisions of Rule 144 under the Securities Act or in a
transaction which, in the opinion of counsel (which may be in-house counsel to
the Investor), qualifies as an exempt transaction under the Securities Act and
the rules and
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<PAGE> 15
regulations promulgated thereunder and any applicable state securities laws and
in a manner consistent with the Investor's representations and warranties set
forth in Section 4 and subject to the provisions of the Transaction Documents.
(b) The certificates evidencing the Shares and Warrants and Common
Shares issuable upon exercise of the Warrants will bear the following legend
reflecting the foregoing restrictions on the transfer of such securities:
"The securities evidenced hereby have not been registered under
the Securities Act of 1933, as amended (the "Act"), and may not be
transferred except pursuant to an effective registration under the
Act or in a transaction which, in the opinion of counsel,
qualifies as an exempt transaction under the Act and the rules and
regulations promulgated thereunder. The transfer of such
securities is also subject to certain limitations on transfer as
set forth in certain agreements between Global Markets Access Ltd.
(the "Company") and certain institutional investors in the
Company, copies of which are available upon request of the
Company."
5.2. Covenants Pending Closing
Pending the Closing the Company will not, without the Investor's prior
written consent, take any action which would result in any of the
representations or warranties contained in this Agreement not being true in all
material respects at and as of the time immediately after such action, or in any
of the covenants contained in this Agreement becoming incapable of performance
in all material respects. The Company will promptly advise the Investor in
writing of any action or event of which it becomes aware which has the effect of
making incorrect any of such representations or warranties in any material
respect or which has the effect of rendering any of such covenants incapable of
performance.
5.3. Further Assurance
Each of the parties shall execute such documents and other papers and
take such further actions as may be reasonably required or desirable to carry
out the provisions hereof and the transactions contemplated hereby. Each such
party shall use its reasonable efforts to fulfill or obtain the fulfillment of
the conditions to the Closing as promptly as practicable.
SECTION 6. INVESTOR'S CLOSING CONDITIONS
The obligation of the Investor to purchase and pay for the Shares and
Warrants on the Closing Date, as provided in Section 2 hereof, shall be subject
to the performance by the Company of its agreements theretofore to be performed
hereunder and to the satisfaction, prior thereto or concurrently therewith, of
the following further conditions:
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<PAGE> 16
6.1. Representations and Warranties
The representations and warranties of the Company contained in this
Agreement shall be true in all material respects on and as of the Closing Date
as though such warranties and representations were made at and as of such date,
except as otherwise affected by the transactions contemplated hereby.
6.2. Compliance with Agreement
The Company shall have performed and complied in all material respects
with all agreements, covenants and conditions contained in this Agreement which
are required to be performed or complied with by the Company prior to or on the
Closing Date.
6.3. Officer's Certificate
The Investor shall have received a certificate, dated the Closing Date,
signed by each of the Chief Executive Officer and the Chief Financial Officer of
the Company, certifying that the conditions specified in the foregoing Sections
6.1 and 6.2 hereof have been fulfilled.
6.4. Delivery of Shares and Warrants
The Company shall have delivered to the Investor the certificates
evidencing the Shares and Warrants being purchased by it hereunder as provided
in Section 2.1.
6.5. Injunction
There shall be no injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be consummated as
herein provided.
6.6. Counsel's Opinions
The Investor shall have received (x) from the Company's counsel
delivering opinions to the Underwriters in connection with the Public Offering
on the IPO Closing Date, copies of such opinions together with letters from such
counsel allowing the Investor to rely thereon, (y) opinions, dated the Closing
Date, from counsel for the Company substantially to the effect set forth in
Schedule 6.6(a) and Schedule 6.6(b), and (z) opinions, dated the Closing Date,
from counsel to the Company to the effect of Exhibits 8.1 and 8.2 to the
Registration Statement in form and substance reasonably satisfactory to the
Investor.
6.7. Consummation of Public Offering
The closing conditions contained in the underwriting agreement between the
Company and the Underwriters with respect to the Public Offering (the
"Underwriting Agreement"), other than the condition that the sales have been
made to the Investor and the Other Investors, shall have been satisfied or
waived, and the Investor shall have received a certificate (the "Underwriters
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<PAGE> 17
Certificate") from the Underwriters stating that, subject to the closing of the
sales to the Investor and the Other Investors, the Underwriters will close the
Public Offering and that the Company shall receive not less than $300 million in
gross proceeds (before underwriting discounts and commissions which shall not in
any event exceed 6%) from the Public Offering when it is consummated (the
"Public Offering Proceeds"). The Public Offering Proceeds shall exceed Other
Sale Proceeds by the ratio of at least 2.5 to 1.0. "Other Sale Proceeds" means
the net proceeds to the Company from the sale of the Shares and Warrants
hereunder and under the Other Agreements and all other sales of Common Shares
(except to the underwriters in the Public Offering) and securities convertible
into, or exchangeable or exercisable for, Common Shares (collectively, the
"Other Sales"). The initial public offering of the Common Shares sold in the
Public Offering shall not be less than $15.00 per Common Share. Except as
disclosed in the Registration Statement as amended by Amendment No. 3, the
Company agrees that on and prior to the Closing Date it will not make or agree
to make Other Sales on terms more favorable to the purchasers involved in such
Other Sales than the terms of the Agreement relating to the Shares and Warrants
unless such more favorable terms are also extended to the Investor.
6.8. Purchase by Other Investors
Each of the Other Investors shall have purchased the Shares and
Warrants to be purchased by it under the Other Agreements and the Company shall
have received payment of the Purchase Price under such Other Agreements.
6.9. Registration Rights Agreement
The Company shall have executed and delivered to the Investor the
Registration Rights Agreement, the form of which is attached as Exhibit B hereto
(the "Registration Rights Agreement").
6.10. Process Agent
The Investor shall have received a copy of the acceptance by CT
Corporation System of its appointment under the provisions of Section 11.8(d).
6.11. Proceedings
The Investor shall have received copies of all documents or other
evidence which it and its counsel may reasonably request in connection with the
transactions contemplated hereby and of all records of corporate proceedings in
connection therewith.
6.12. Rating
The Operating Company shall have satisfied all conditions to the
assignment by Standard & Poor's Ratings Service of a preliminary financial
strength rating of "A" and a preliminary claims-paying rating of "A+" by each of
Duff & Phelps Credit Rating Co. and Fitch IBCA, Inc., subject to the Company
raising gross proceeds of at least $350 million in the Public Offering and
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the Direct Sales (as defined in the Registration Statement) and to the initial
capitalization of the Operating Company exceeding $320 million.
SECTION 7. COMPANY CLOSING CONDITIONS
The obligation of the Company to issue and deliver the Shares and
Warrants on the Closing Date, as provided in Section 2 hereof, shall be subject
to the performance by the Investor of its agreements theretofore to be performed
hereunder and to the satisfaction, prior thereto or concurrently therewith, of
the following further conditions:
7.1. Representations and Warranties
The representations and warranties of the Investor contained in this
Agreement shall be true on and as of the Closing Date as though such warranties
and representations were made at and as of such date, except as otherwise
affected by the transactions contemplated hereby.
7.2. Compliance with Agreement
The Investor shall have performed and complied with all agreements,
covenants and conditions contained in this Agreement which are required to be
performed or complied with by it prior to or on the Closing Date.
7.3. Injunction
There shall be no injunction, writ, preliminary restraining order or
any order of any nature issued by a court of competent jurisdiction directing
that the transactions provided for herein or any of them not be consummated as
herein provided.
7.4. Consummation of Public Offering and Other Sales
The closing conditions contained in the Underwriting Agreement, other
than the condition that sales have been made to the Investor and Other
Investors, shall have been satisfied or waived, and the Company shall have
received the Underwriters Certificate.
SECTION 8. LIMITATION ON DISPOSITION
The Investor will not, without the consent of the Company, sell,
transfer or otherwise dispose of the Shares or Warrants for a period of nine
months after the Closing Date except (i) to one or more of its Affiliates, or
(ii) to any institutional investor purchasing all of the Shares and Warrants
then held by the Investor (or if not all such Shares and Warrants, Shares and/or
Warrants representing at least 500,000 Common Shares (assuming exercise of the
Warrants)); provided that any such transferee shall agree to be bound by the
provisions of this Section 8. The Investor will agree to execute a "lock-up"
agreement with the Underwriters in connection with the Public Offering in
customary form and as more particularly described in Exhibit C hereto.
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SECTION 9. COVENANTS
9.1. Financial and Business Information
From and after the date hereof, the Company shall deliver to each of
the Investors so long as such Investor owns beneficially (within the meaning of
Rule 13d-3 under the Exchange Act) any Shares or Warrants or Common Shares
issuable upon exercise of the Warrants:
(a) Quarterly Statements - as soon as practicable, and in any event
within 48 days after the close of each of the first three fiscal quarters of
each fiscal year of the Company in the case of quarterly statements, a
consolidated balance sheet, statement of income and statement of cash flows of
the Company and any subsidiaries as at the close of such quarter and covering
operations for such quarter, and the portion of the Company's fiscal year ending
on the last day of such quarter, all in reasonable detail and prepared in
accordance with GAAP, subject to audit and year-end adjustments, setting forth
in each case in comparative form the figures for the comparable period of the
previous fiscal year.
(b) Annual Statements - as soon as practicable after the end of each
fiscal year of the Company, and in any event within 93 days thereafter,
duplicate copies of:
(1) consolidated balance sheet of the Company and any subsidiaries at
the end of such year; and
(2) consolidated statements of income, stockholders' equity and cash
flows of the Company and any subsidiaries for such year, setting forth
in each case in comparative form the figures for the previous fiscal
year, all in reasonable detail and accompanied by an opinion thereon of
independent certified public accountants of recognized national
standing selected by the Company, which opinion shall state that such
financial statements fairly present the financial position of the
Company and any subsidiaries on a consolidated basis and have been
prepared in accordance with GAAP (except for changes in application in
which such accountants concur) and that the examination of such
accountants in connection with such financial statements has been made
in accordance with generally accepted auditing standards, and
accordingly included such tests of the accounting records and such
other auditing procedures as -were considered necessary in the
circumstances.
(c) Audit Reports - promptly upon receipt thereof, one copy of each
other financial report and internal control letter submitted to the Company or
any subsidiary by independent accountants in connection with any annual, interim
or special audit made by them of the books of the Company or any subsidiary.
(d) Other Reports - promptly upon their becoming available, one copy of
each financial statement, report, notice or proxy statement sent by the Company
to shareholders generally, of each financial statement, report, notice or proxy
statement filed by the Company or any of its subsidiaries with the SEC or any
successor agency, if applicable, of each regular or periodic report and any
registration statement, prospectus or written communication (other than
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transmittal letters) in respect thereof filed by the Company or any subsidiary
with, or received by such Person in connection therewith from, any domestic or
foreign securities exchange, the SEC or any successor agency or any foreign
regulatory authority performing functions similar to the SEC, of any press
release issued by the Company or any subsidiary, and of any material of any
nature whatsoever prepared by the SEC or any successor agency thereto or any
state blue sky or securities law commission which relates to or affects in any
way the Company or any subsidiary.
(e) Requested Information - with reasonable promptness, the Company
shall furnish each of the Investors with such other data and information as from
time to time may be reasonably requested.
9.2. Inspection
As long as an Investor owns beneficially (within the meaning of Rule
13d-3 under the Exchange Act) at least two percent (2%) of the outstanding
Common Shares, the Company shall permit such Investor, its nominee, assignee,
and its representative during normal business hours and upon reasonable advance
notice to visit and inspect any of the properties of the Company and its
subsidiaries, to examine all its books of account, records, reports and other
papers not contractually required of the Company to be confidential or secret,
to make copies and extracts therefrom, and to discuss its affairs, finances and
accounts with its officers, directors, key employees and independent public
accountants or any of them (and by this provision the Company authorizes said
accountants to discuss with such Investor, its nominees, assignees and
representatives the finances and affairs of the Company and any subsidiaries),
all at such reasonable times and as often as may be reasonably requested.
9.3. Keeping of Books
The Company will keep proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the assets
and business of the Company and its subsidiaries in accordance with GAAP.
9.4. Lost, etc. Certificates; Exchange
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any certificate evidencing any
Shares or Warrants (or Common Shares issuable upon exercise of the Warrants)
owned by the Investor, and (in the case of loss, theft or destruction) of an
unsecured indemnity satisfactory to it, and upon reimbursement to the Company of
all reasonable expenses incidental thereto, and upon surrender and cancellation
of such certificate, if mutilated, the Company will make and deliver in lieu of
such certificate a new certificate of like tenor and for the number of shares
evidenced by such certificate which remain outstanding. Such Investor's
agreement of indemnity shall constitute indemnity satisfactory to the Company
for purposes of this Section 9.4. Upon surrender of any certificate representing
any Shares (or Common Shares issuable upon exercise of the Warrants) for
exchange at the office of the Company, the Company at its expense will cause to
be issued in exchange therefor new certificates in such denomination or
denominations as may be requested for the same aggregate number of Shares,
Warrants or Common Shares, as the case may be, represented by the
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certificate so surrendered and registered as such holder may request. The
Company will also pay the cost of all deliveries of certificates for such
securities to the office of such Investor (including the cost of insurance
against loss or theft in an amount satisfactory to the holders) upon any
exchange provided for in this Section 9.4.
9.5. Review of Documents
The Investor shall have the right to review and approve all statements
or disclosures (in the Registration Statement or in press releases or elsewhere)
made by the Company in relation to the Investor's investment in and relationship
to the Company.
9.6. Confidential Information
The Investor acknowledges that certain of the information it may
receive or obtain as a consequence of its exercise of its rights under Sections
9.1 and 9.2 may be non-public and may obligate it not to trade in securities of
the Company which it may hold so long as such information is not publicly
disclosed by the Company. Such information will be utilized by the Investor to
analyze its investment in the Company, and for so long as such information is
not publicly known (other than as a result of disclosure by the Investor or its
Affiliates) the Investor shall keep such information confidential and will not
disclose or distribute such information except as required by law without the
Company's consent (other than to the Investor's Affiliates, representatives and
advisers who agree to be bound by this Section 9.6).
9.7. Use of Proceeds
The Company shall contribute to the capital and surplus of the
Operating Company, to support its financial guaranty business, substantially all
of the proceeds of the Public Offering, the sale of Shares hereunder and under
the Other Agreements (net of fees and expenses), which shall be at least $320
million.
9.8. Ownership of Common Shares by ACA
The Company represents and warrants that American Capital Access
Holdings, L.L.C. has agreed that neither it nor any of its Affiliates (excluding
its directors, officers, members or shareholders) shall purchase or own any
Common Shares of the Company during such time as it is a party to any
reinsurance treaty, contract or agreement with the Company. The Company shall
not waive or modify this agreement without the prior written consent of the
Investor.
SECTION 10. INTERPRETATION OF THIS AGREEMENT
10.1. Terms Defined
As used in this Agreement, the following terms have the respective
meanings set forth below or set forth in the Section hereof following such term:
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<PAGE> 22
Affiliate: means, with respect to any Person or entity, any other
Person or entity, directly or indirectly, controlling, controlled by or under
common control with such Person or entity.
Business Day: shall mean a day other than a Saturday, Sunday or other
day on which banks in New York, New York and Hamilton, Bermuda are not required
or authorized by law to close.
Closing: shall have the meaning set forth in Section 2.2.
Closing Date: shall have the meaning set forth in Section 2.2.
Common Shares: shall have the meaning set forth in Section 1.
Exchange Act: shall mean the Securities Exchange Act of 1934, as
amended.
GAAP: at any time shall mean United States generally accepted
accounting principles at the time in effect.
Intellectual Property: shall have the meaning set forth in Section
3.16.
Investor: shall mean the Person executing this Agreement on the
signature page hereof and its successors and assigns as the holder of Shares,
Warrants or Common Shares issuable upon exercise of the Warrants.
IPO Closing Date: shall mean the date of the consummation of the Public
Offering.
Material Adverse Effect: shall have the meaning set forth in Section
3.1(c).
Material Contract: shall have the meaning set forth in Section 3.11.
Other Agreements: shall have the meaning set forth in Section 2.1.
Organizational Documents: shall have the meaning set forth in Section
3.1(a).
Person: shall mean an individual, partnership, joint-stock company,
corporation, limited liability company, trust or unincorporated organization,
and a government or agency or political subdivision thereof.
Public Offering: shall mean the sale by the Company of its Common
Shares to the Underwriters as contemplated by the Registration Statement.
Registration Rights Agreement: shall have the meaning set forth in
Section 6.9.
Registration Statement: shall mean the Registration Statement filed by
the Company with the SEC on Form S-1 (No. 333-62785) on September 2, 1998, as
amended, in the form it becomes effective under the Securities Act.
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<PAGE> 23
SEC: shall mean the Securities and Exchange Commission.
Securities Act: shall mean the Securities Act of 1933, as amended.
Shares: shall have the meaning set forth in Section 2.1.
Subsidiary: shall mean a corporation of which a Person owns, directly
or indirectly, more than 50% of the Voting Stock.
Transaction Documents: shall mean this Agreement, the Other Agreements,
the Warrants and the Registration Rights Agreement.
Underwriters: shall mean the underwriters named in the Registration
Statement.
Voting Stock: shall mean securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
Warrants: shall have the meaning set forth in Section 2.1.
10.2. Directly or Indirectly
Where any provision in this Agreement refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
10.3. Section Headings
The headings of the sections and subsections of this Agreement are
inserted for convenience only and shall not be deemed to constitute a part
thereof.
SECTION 11. MISCELLANEOUS
11.1. Notices
(a) All communications under this Agreement shall be in writing and
shall be delivered by hand or facsimile or mailed by overnight courier or by
registered mail or certified mail, postage prepaid:
(1) if to the Investor, at: the address or facsimile number specified
in Schedule 2.1, or at such other address or facsimile number as the
Investor may have furnished the Company in writing, or
(2) if to the Company, at: Global Markets Access Ltd., Cumberland
House, 1 Victoria Street, Hamilton, HM AX, Bermuda, marked for the
attention of the Chief Executive
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<PAGE> 24
Officer, or at such other address or facsimile number as it may have
furnished the Investor in writing.
(b) Any notice so addressed shall be deemed to be given: if delivered
by hand or facsimile, on the date of such delivery; if mailed by courier, on the
first Business Day following the date of such mailing; and if mailed by
registered or certified mail, on the third Business Day after the date of such
mailing.
11.2. Expenses and Taxes
(a) Whether or not the issue and sale of the Shares and Warrants
contemplated hereby are consummated, the Company will pay all costs and expenses
(including attorneys' fees and disbursements of counsel) incurred by the
Investor in connection with such issue and sale and all costs and expenses
(including attorneys' fees and disbursements of counsel) incurred by the
Investor in connection with any amendments, waivers or consents under or in
respect of the Transaction Documents (whether or not such amendment, waiver or
consent becomes effective). In addition, the Company will pay the Investor the
costs and expenses (including attorneys' fees and disbursements) incurred by it
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under the Transaction Documents or in responding to any subpoena or
other legal process or informal investigative demand (which investigative demand
shall have been issued by a governmental agency or official) issued in
connection with the Transaction Documents or the Investor's investment in the
Company.
(b) The Company will pay, and save and hold the Investor harmless from,
any and all claims arising out of or relating to the transactions contemplated
by the Transaction Documents or the performance thereof and all liabilities
(including interest and penalties) with respect to, or resulting from any delay
or failure in paying, stamp and other taxes (other than income taxes), if any,
which may be payable or determined to be payable on the execution and delivery
or acquisition of the Shares or Warrants or the Common Shares issuable upon
exercise of the Warrants.
11.3. Reproduction of Documents
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by the Investors on the Closing Date (except
for certificates evidencing the Shares themselves), and (c) financial
statements, certificates and other information previously or hereafter furnished
to the Investors, may be reproduced by the Investors by any photographic,
photostatic, microfilm, micro-card, miniature photographic or other similar
process and the Investor may destroy any original document so reproduced. All
parties hereto agree and stipulate that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made by an Investor in the regular course of business) and that
any enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
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<PAGE> 25
11.4. Termination and Survival
Unless the Closing has occurred prior thereto, this Agreement and,
except as herein provided, all the rights of the parties hereto, shall terminate
April 30, 1999 (unless such date is extended by mutual written consent).
Notwithstanding the foregoing, Section 11.2 hereof shall survive the termination
of this Agreement. All warranties, representations, and covenants made by the
Investor and the Company herein or in any certificate or other instrument
delivered by the Investor or the Company under this Agreement shall be
considered to have been relied upon by the Company or the Investor, as the case
may be, regardless of any investigation made by the Investor and shall survive
all deliveries to the Investor of the Shares, or payment to the Company for such
Shares and Warrants, regardless of any investigation made by the Company or the
Investor, as the case may be, or on the Company's or the Investor's behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representation by the Company hereunder. The Investor shall not
be required to purchase Shares or Warrants from any Person other than the
Company.
11.5. Successors and Assigns
This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of each of the parties.
11.6. Entire Agreement; Amendment and Waiver
This Agreement and its Schedules and the agreements attached as
Exhibits hereto constitute the entire understandings of the parties hereto and
supersede all prior agreements or understandings with respect to the subject
matter hereof among such parties. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, with (and only with) the
written consent of the Company and the Investor.
11.7. Severability
In the event that any part or parts of this Agreement shall be held
illegal or unenforceable by any court or administrative body of competent
jurisdiction, such determination shall not affect the remaining provisions of
this Agreement which shall remain in full force and effect.
11.8. Governing Law; Submission to Jurisdiction
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts made and to be
performed entirely within such State.
(b) Each of the Company and the Investor (each a "Party") irrevocably
submits to the non-exclusive in personam jurisdiction of any New York State or
United States federal court sitting in the Borough of Manhattan, The City of New
York, over any suit, action or proceeding arising out of or relating to the
Transaction Documents. To the full extent it may effectively do so under
applicable law, each Party irrevocably waives and agrees not to assert, by way
of
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<PAGE> 26
motion, as a defense or otherwise, any claim that it is not subject to the in
personam jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or proceeding
brought in any such court and any claim that any such suit action or proceeding
brought in any such court has been brought in an inconvenient forum.
(c) Each Party agrees, to the full extent it may effectively do so under
applicable law, that a final judgment in any suit, action or proceeding of the
nature referred to in paragraph (b) of this Section 11.8 brought in any such
court shall be conclusive and binding upon such Party, subject to rights of
appeal and may be enforced in the courts of the United States or the State of
New York (or any other courts to the jurisdiction of which such Party is or may
be subject) by a suit upon such judgment.
(d) Each Party consents to process being served in any suit, action or
proceeding of the nature referred to in paragraph (b) of this Section 11.8 by
mailing a copy thereof by registered or certified mail, postage prepaid, return
receipt requested, to the address of such Party specified in Section 11.1 or at
such other address of which the other Party shall then have been notified
pursuant to said Section. Without limiting the foregoing, the Company hereby
appoints, in the case of any such suit, action or proceeding brought in the
courts of or in the State of New York, CT Corporation, 1633 Broadway, New York,
NY 10019, to receive, for it and on its behalf, service of process in the State
of New York with respect thereto. Each Party agrees that such service upon
receipt by it or its agent, as the case may be, (i) shall be deemed in every
respect effective service of process upon it in any such suit, action or
proceeding and (ii) shall, to the full extent permitted by applicable law, be
taken and held to be valid personal service upon and personal delivery to such
Party. Notices hereunder shall be conclusively presumed received as evidenced by
a delivery receipt furnished by the United States Postal Service or the Bermuda
Post or any reputable commercial delivery service.
(e) Nothing in this Section 11.8 shall affect the right of any Party to
serve process in any manner permitted by law, or limit any right that such Party
may have to bring proceedings against the other Party in the courts of any
appropriate jurisdiction or to enforce in any lawful manner a judgment obtained
in one jurisdiction in any other jurisdiction.
(f) Each Party waives trial by jury in any action brought on or with
respect to the Transaction Documents or any other document executed in
connection therewith.
11.9. Counterparts
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which together shall be considered
one and the same agreement.
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<PAGE> 27
If you are in agreement with the foregoing please so indicate by executing the
acceptance set forth below and return a copy of this Agreement to the Company,
whereupon this Agreement shall be a binding agreement between us.
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
--------------------------------
Name: Donald J. Matthews
Title: Chief Executive Officer
The foregoing Agreement is hereby accepted:
HIGH RIDGE CAPITAL PARTNERS
LIMITED PARTNERSHIP
By:/s/ Steven J. Tynan
--------------------------
Name:Steven J. Tynan
Title:Principal
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<PAGE> 28
If you are in agreement with the foregoing please so indicate by executing the
acceptance set forth below and return a copy of this Agreement to the Company,
whereupon this Agreement shall be a binding agreement between us.
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
-------------------------------
Name: Donald J. Matthews
Title: Chief Executive Officer
The foregoing Agreement is hereby accepted:
THE PMI GROUP, INC.
By:/s/ Claude J. Seaman
-------------------------
Name:Claude J. Seaman
Title:Group EVP
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<PAGE> 29
If you are in agreement with the foregoing please so indicate by executing the
acceptance set forth below and return a copy of this Agreement to the Company,
whereupon this Agreement shall be a binding agreement between us.
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
----------------------------------
Name: Donald J. Matthews
Title: Chief Executive Officer
The foregoing Agreement is hereby accepted:
ROLACO GROUP SERVICES, S.A.
By:/s/ Paul Jeanbart
----------------------------
Name:Paul Jeanbart
Title:Managing Director
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<PAGE> 30
If you are in agreement with the foregoing please so indicate by executing the
acceptance set forth below and return a copy of this Agreement to the Company,
whereupon this Agreement shall be a binding agreement between us.
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
------------------------------
Name: Donald J. Matthews
Title: Chief Executive Officer
The foregoing Agreement is hereby accepted:
THIRD AVENUE TRUST
on behalf of Third Avenue Value Fund
By:/s/ David Barse
----------------------------
Name:David Barse
Title:President
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<PAGE> 31
If you are in agreement with the foregoing please so indicate by executing the
acceptance set forth below and return a copy of this Agreement to the Company,
whereupon this Agreement shall be a binding agreement between us.
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
----------------------------
Name: Donald J. Matthews
Title: Chief Executive Officer
The foregoing Agreement is hereby accepted:
THIRD AVENUE TRUST
on behalf of Third Avenue Small-Cap Value Fund
By:/s/ David Barse
--------------------------
Name:David Barse
Title:President
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<PAGE> 1
Exhibit 10.7
STRATEGIC INVESTOR
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement dated March __, 1999, among Global
Markets Access Ltd., a Bermuda corporation (the "Company"), and [Purchaser] (the
"Initial Holder").
The Company has issued its common shares, par value US$1.00 per share
(the "Common Shares"), and its Class B Warrants to purchase Common Shares (the
"Warrants") to the Initial Holder pursuant to the terms of that certain
Securities Purchase Agreement between the Company and the Initial Holder dated
as of February __, 1999 (the "Securities Purchase Agreement"). Pursuant to the
Securities Purchase Agreement, the Company has agreed to register such shares
for sale under the Securities Act of 1933, as amended, as more specifically
provided below.
NOW, THEREFORE, in consideration of the completion of the transactions
contemplated by the Securities Purchase Agreement and of the mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows,
intending to be legally bound.
Section 1. Definitions. As used in this Agreement, the following terms
have the following meanings:
"Business Day": any day on which the Company's Common Shares are
available for trading on the principal stock exchange or market upon which they
are traded.
"Closing Date": the date on which is consummated the transactions
contemplated by the Securities Purchase Agreement.
"Common Shares": the Company's Common Shares, par value US$1.00 per
share.
"Exchange Act": the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder, all as the same shall be in
effect at the relevant time.
"Holders": the Initial Holder and the permitted successors or assignees
of the Initial Holder, for so long as (and to the extent that) such Persons own
or have the right to acquire any Registrable Securities.
"Holder Agreements": this Agreement and any other Agreement between the
Company and one of the Other Investors which is substantially similar to this
Agreement.
"Other Investors": the Persons (other than the Company) which are
parties to Securities Purchase Agreements in substantially the form entered into
between the Company and the Initial Holder on February __, 1999.
"Person": an individual, a partnership (general or limited),
corporation, limited liability company, joint venture, business trust,
cooperative, association or other form of business
<PAGE> 2
organization, whether or not regarded as a legal entity under applicable law, a
trust (inter vivos or testamentary), an estate of a deceased, insane or
incompetent person, a quasi-governmental entity, a government or any agency,
authority, political subdivision or other instrumentality thereof, or any other
entity.
"Registrable Securities": (1) the Common Shares issued pursuant to the
terms of the Securities Purchase Agreement; (2) the Common Shares issued or
issuable pursuant to the Warrants issued pursuant to the terms of the Securities
Purchase Agreement; and (3) any additional Common Shares or other equity
securities of the Company issued or issuable in respect of such Common Shares
(or other equity securities issued in respect thereof) by way of a stock
dividend or stock split, in connection with a combination, exchange,
reorganization, recapitalization or reclassification of Company securities, or
pursuant to a merger, division, consolidation or other similar business
transaction or combination involving the Company; provided that as to any
particular Registrable Securities, such securities shall cease to constitute
Registrable Securities (a) when a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of thereunder, (b) when such securities
shall have been disposed of pursuant to Rule 144 (or any successor provision to
such Rule) under the Securities Act, or (c) when such securities shall have
ceased to be outstanding.
"Registration Expenses": all expenses incident to the Company's
performance of or compliance with the registration requirements set forth in
this Agreement including, without limitation, the following: (a) the fees,
disbursements and expenses of the Company's counsel, accountants and experts in
connection with the registration under the Securities Act of Registrable
Securities; (b) all expenses in connection with the preparation, printing and
filing of the registration statement, any preliminary prospectus or final
prospectus, any other offering document and amendments and supplements thereto,
and the mailing and delivering of copies thereof to underwriters and dealers, if
any; (c) the cost of printing or producing any agreement(s) among underwriters,
underwriting agreement(s) and blue sky or legal investment memoranda, any
selling agreements, and any other documents in connection with the offering,
sale or delivery of Registrable Securities to be disposed of; (d) the fees and
expenses incurred in connection with the listing of Registrable Securities on
each securities exchange on which Company securities of the same class are then
listed or with the Nasdaq National Market System; (e) the fees and expenses, not
to exceed $50,000, of a single counsel retained by any and all Persons
participating in a registration pursuant to a Holder Agreement; (f) any
underwriters' discounts or compensation, brokers' commissions or similar selling
expenses attributable to the sale of Registrable Securities; (g) any SEC or blue
sky registration or filing fees attributable to Registrable Securities or
transfer taxes applicable to Registrable Securities; (h) any other expenses in
connection with the qualification of Registrable Securities for offer and sale
under state securities laws, including the fees and disbursements of counsel for
the underwriters in connection with such qualification and in connection with
any blue sky and legal investment surveys; and (i) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of Registrable Securities to be disposed of.
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<PAGE> 3
"Registration Statement": a registration statement under the Securities
Act filed by the Company pursuant to this Agreement, including all amendments
thereto, all preliminary and final prospectuses included therein and all
exhibits thereto.
"SEC": the United States Securities and Exchange Commission, or such
other federal agency at the time having the principal responsibility for
administering the Securities Act.
"Securities Act": the Securities Act of 1933, as amended, and the rules
and regulations of the SEC thereunder, all as the same shall be in effect at the
relevant time.
"Warrant": the Class B Warrants of the Company.
Section 2. Underwritten Demand Registration.
(a) At any time on or after the first anniversary of the Closing Date,
and before the tenth anniversary of the Closing Date, the Holder or Holders of
thirty (30) percent or more of the Registrable Securities may (by written notice
delivered to the Company) require registration of all or any portion of such
Registrable Securities for sale in an underwritten public offering. In each such
case, such notice shall specify the number of Registrable Securities for which
such underwritten offering is to be made. Within ten Business Days after its
receipt of any such notice, the Company shall give written notice of such
request to all other Holders, and all such Holders shall have the right to have
any or all Registrable Securities owned by them included in the requested
underwritten offering as they shall specify in a written notice received by the
Company within ten Business Days after the Company's notice is given. Within ten
Business Days after the expiration of such ten Business Day period, the Company
shall notify all Holders requesting inclusion of Registrable Securities in the
proposed underwriting of (1) the aggregate number of Registrable Securities
proposed to be included by all Holders in the offering, and (2) the proposed
commencement date of the offering, which shall be a date not more than thirty
days after the Company gives such notice. The managing underwriter for such
offering shall be chosen by the Holders of a majority of the Registrable
Securities being included therein and shall be approved by the Company (such
approval not to be unreasonably withheld).
(b) If any request for a registration shall have been made pursuant to
subsection (a), the Company shall, at the request of the managing underwriter
for such offering, prepare and file a Registration Statement with the SEC as
promptly as reasonably practicable, but in any event within forty-five days
after the managing underwriter's request therefor.
(c) The Company shall not have any obligation to permit or participate
in more than two underwritten public offerings pursuant to this Section (not
including an offering canceled pursuant to Section 2(f) or otherwise), or to
file a Registration Statement pursuant to this Section with respect to less than
thirty (30) percent of the Registrable Securities.
(d) The Company shall have the right on no more than two occasions in
any 365-day period to defer the filing or effectiveness of a Registration
Statement relating to any registration requested under this Section for a
reasonable period of time not to exceed (1) 180 days if the Company is, at such
time, working on an underwritten public offering of its securities for the
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<PAGE> 4
account of the Company and is advised by its managing underwriter that such
offering would in its opinion be materially adversely affected by such filing;
or (2) 60 days if the Company in good faith determines that any such filing or
the offering of any Registrable Securities would (A) materially impede, delay or
interfere with any proposed financing, offer or sale of securities, acquisition,
corporate reorganization or other significant transaction involving the Company
or (B) require the disclosure of material non-public information, the disclosure
of which would materially and adversely affect the Company.
(e) The Company shall have no obligation to file a Registration
Statement pursuant to this Section earlier than 180 days after the effective
date of a prior registration statement of the Company covering an underwritten
public offering for the account of the Company the effective date of which is
after the first anniversary of the Closing Date if (1) the Company shall have
offered pursuant to Section 4 to include the Holders' Registrable Securities in
such Registration Statement; (2) the Holders shall not have elected to include
in such Registration Statement at least thirty (30) percent of the Registrable
Securities; and (3) no Registrable Securities requested to be included in such
registration statement shall have been excluded therefrom pursuant to Section
4(c).
(f) The Holders of a majority of Registrable Securities requested to be
included in any offering pursuant to this Section may elect by written notice to
the Company not to proceed with the offering, in which case the Company shall
not be obligated to proceed with such offering. In such event, Holders so
electing to cancel the offering shall, on a pro rata basis, pay all Registration
Expenses incurred by the Company in connection with such offering prior to
receipt of such notice.
(g) Neither the Company nor any other Person shall be entitled to
include any securities held by it in any underwritten offering pursuant to this
Section, except to the extent that, in the opinion of the managing underwriter,
the inclusion of such securities will not interfere with the orderly sale and
distribution of all of the Registrable Securities for which inclusion has been
requested and will not adversely affect the price of such Registrable
Securities.
(h) No registration of Registrable Securities under this Section shall
relieve the Company of its obligation to effect registrations of Registrable
Securities pursuant to Sections 3 and 4.
Section 3. Shelf Registrations.
(a) At any time on or after the first anniversary of the Closing Date,
and before the tenth anniversary of the Closing Date, the Holder or Holders of
thirty (30) percent or more of the Registrable Securities may (by written notice
to the Company) require registration of all or any portion of such Registrable
Securities for sale in open market transactions or negotiated block trades.
Within ten Business Days after its receipt of such notice, the Company shall
give written notice of such request to all other Holders, and all such Holders
shall have the right to have any or all Registrable Securities owned by them
included in the requested registration as they shall specify in a written notice
received by the Company within ten Business Days after the Company's notice is
given. Within ten Business Days after the expiration of such ten Business Day
period, the Company shall notify all Holders requesting inclusion of Registrable
Securities
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<PAGE> 5
in the requested registration of the aggregate number of Registrable Securities
proposed to be included by all Holders in this registration.
(b) If any request for registration shall have been made pursuant to
subsection (a) the Company shall prepare and file a Registration Statement with
the SEC as promptly as reasonably practicable, but in any event within 45 days
after the expiration of the ten Business Day period within which the Holders may
request inclusion in the registration.
(c) The Company shall have no obligation to file a Registration
Statement pursuant to this Section earlier than 180 days after the effective
date of any earlier Registration Statement filed pursuant to this Section.
(d) The Holders of a majority of Registrable Securities requested to be
included in any registration pursuant to this Section may elect by written
notice to the Company not to proceed with such registration, in which case the
Company will not be obligated to proceed therewith. In such event, Holders so
electing not to proceed with such registration shall, on a pro rata basis, pay
all Registration Expenses incurred by the Company in connection with such
offering prior to receipt of such notice.
(e) No registration of Registrable Securities under this Section shall
relieve the Company of its obligation to effect registrations of Registrable
Securities under Sections 2 and 4.
Section 4. Incidental Registration.
(a) From and after the first anniversary of the Closing Date, and
before the tenth anniversary of the Closing Date, if the Company proposes, other
than pursuant to Section 2 or 3 of this Agreement, to file a Registration
Statement under the Securities Act to register any of its Common Shares for
public sale under the Securities Act (whether proposed to be offered for sale by
the Company or by any other Person), other than on Form S-4 or Form S-8 or any
successor to such forms promulgated by the SEC, it will give prompt written
notice (which notice shall specify the intended method or methods of
disposition) to the Holders of its intention to do so, and upon the written
request of any Holder delivered to the Company within ten Business Days after
any such notice is given (which request shall specify the number of Registrable
Securities intended to be disposed of by such Holder), the Company will use
commercially reasonable efforts to include in such Registration Statement all
Registrable Securities which the Company has been so requested to register by
the Holders.
(b) If at any time prior to the effective date of any Registration
Statement described in subsection (a), the Company shall determine for any
reason not to proceed with such registration, the Company may, at its election,
give written notice of such determination to the Holders requesting registration
and thereupon the Company shall be relieved of its obligation to register such
Registrable Securities in connection with such registration.
(c) The Company will not be required to effect any registration of
Registrable Securities pursuant to this Section in connection with an offering
of securities solely for the account of the Company if the Company shall have
been advised in writing (with a copy to the Holders
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<PAGE> 6
requesting registration) by a nationally recognized investment banking firm
(which may be the managing underwriter for the offering) selected by the Company
that, in such firm's opinion, registration of Registrable Securities and of any
other securities requested to be included in such registration by Persons having
rights to include securities therein at that time may interfere with an orderly
sale and distribution of the securities being sold by the Company in such
offering or adversely affect the price of such securities; but if an offering of
less than all of the Registrable Securities requested to be registered by the
Holders and other securities requested to be included in such registration by
such other Persons would not, in the opinion of such firm, adversely affect the
distribution or price of the securities to be sold by the Company in the
offering, the aggregate number of Registrable Securities requested to be
included in such offering by the Holders shall be reduced pro rata in accordance
with the proportion that the number of shares proposed to be included in such
registration by each of the Holders bears to the number of shares proposed to be
included in such registration by the Holders and all other such Persons.
(d) The Company shall not be required to give notice of, or effect any
registration of Registrable Securities under this Section incidental to, the
registration of any of its securities in connection with mergers,
consolidations, acquisitions, exchange offers, subscription offers, dividend
reinvestment plans or stock options or other employee benefit or compensation
plans.
(e) No registration of Registrable Securities effected under this
Section shall relieve the Company of its obligations to effect registrations of
Registrable Securities pursuant to Sections 2 and 3.
Section 5. Holdbacks and Other Transfer Restrictions.
(a) No Holder shall, if requested by the managing underwriter in an
underwritten offering: (1) that includes such Holder's Registrable Securities,
effect (except as part of such underwritten registration) any public sale or
distribution of securities of the Company of the same class as the securities
included in such Registration Statement (or convertible into such class),
including a sale pursuant to Rule 144(k) under the Securities Act during the
ten-day period prior to, and during the 180-day period (or such shorter period
as may be applicable to the Company) beginning on the closing date of each
underwritten offering made pursuant to such Registration Statement, to the
extent timely notified in writing by the Company or the managing underwriter;
and (2) in the event of an offering for the account of the Company, to the
extent Holder does not elect (or is not permitted under Section 4(c)) to sell
such securities in connection with such offering, effect any public sale or
distribution of securities of the Company of the same class as the securities
included in such Registration Statement (or convertible into such class),
including a sale pursuant to Rule 144(k) under the Securities Act during the
shorter of (x) the period referred to in clause (1) and (y) the period of
initial distribution of the Company's securities in such offering and during the
period in which the underwriting syndicate, if any, participates in the
aftermarket. In any such case the Company shall require the managing underwriter
to notify the Company and the Company, in turn, shall notify all Holders of
Registrable Securities included in the offering promptly after such
participation ceases. If the Company or such managing underwriter so requests,
each Holder shall enter into an agreement reflecting such restrictions.
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(b) No Holder shall, during any period in which any of its Registrable
Securities are included in any effective Registration Statement, (1) effect any
stabilization transactions or engage in any stabilization activity in connection
with the Common Shares or other equity securities of the Company in
contravention of Regulation M under the Exchange Act; (2) permit any Affiliated
Purchaser (as that term is defined in Rule 100(b) of Regulation M under the
Exchange Act) to bid for or purchase for any account in which such Holder has a
beneficial interest, or attempt to induce any other person to purchase, any
Common Shares or Registrable Securities in contravention of Regulation M under
the Exchange Act; or (3) offer or agree to pay, directly or indirectly, to
anyone any compensation for soliciting another to purchase, or for purchasing
(other than for such Holder's own account), any securities of the Company on a
national securities exchange in contravention of Regulation M under the Exchange
Act.
(c) Each Holder shall, in the case of a registration including
Registrable Securities to be offered by it for sale through brokers'
transactions, furnish each broker through whom such Holder offers Registrable
Securities such number of copies of the prospectus as the broker may require and
otherwise comply with the prospectus delivery requirements under the Securities
Act.
Section 6. Registration Procedures. If and whenever the Company is
required by the provisions of this Agreement to effect a registration of
Registrable Securities:
(a) The Company will use commercially reasonable efforts to prepare and
file with the SEC, within the time periods specified herein, a Registration
Statement, which may be on Form S-3 or its equivalent to the extent available
(or on such other registration form available to the Company that permits the
greatest extent of incorporation by reference of materials filed by the Company,
under the Exchange Act), and will use commercially reasonable efforts to cause
such registration statement to become effective as promptly as practicable
thereafter and to remain effective under the Securities Act until (1) the
earlier of such time as all securities covered thereby have been disposed of
pursuant to such Registration Statement or 180 days after such Registration
Statement becomes effective, in the case of registrations pursuant to Section 2,
or (2) 90 days after such Registration Statement becomes effective, in the case
of registrations pursuant to Section 3, in every case as any such period may be
extended pursuant to subsection (h) or Section 8.
(b) The Company will prepare and file with the SEC such amendments,
post-effective amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
Registration Statement effective for such period of time required by subsection
(a), as such period may be extended pursuant to subsection (h) or Section 8.
(c) The Company will comply in all material respects with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the period during which
any such Registration Statement is required to be effective.
(d) The Company will furnish to any Holder and any underwriter of
Registrable Securities (1) such number of copies (including manually executed
and conformed copies) of
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such Registration Statement and of each amendment thereof and supplement thereto
(including all annexes, appendices, schedules and exhibits), (2) such number of
copies of the prospectus used in connection with such Registration Statement
(including each preliminary prospectus, any summary prospectus and the final
prospectus and including prospectus supplements), and (3) such number of copies
of other documents, in each case as the Holder or such underwriter may
reasonably request.
(e) The Company will use commercially reasonable efforts to register or
qualify all Registrable Securities covered by such Registration Statement under
the securities or "blue sky" laws of states of the United States and any other
jurisdiction as any Holder or any underwriter shall reasonably request, and do
any and all other acts and things which may be reasonably requested by such
Holder or such underwriter to consummate the offering and disposition of
Registrable Securities in such jurisdictions; but the Company shall not be
required to qualify generally to do business as a foreign corporation or as a
dealer in securities, subject itself to taxation, or consent to general service
of process in any jurisdiction wherein it is not then so qualified or subject.
(f) The Company will use, as soon as practicable after the
effectiveness of the Registration Statement, commercially reasonable efforts to
cause the Registrable Securities covered by such Registration Statement to be
registered with, or approved by, such other United States and Bermuda public,
governmental or regulatory authorities, if any, as may be required in connection
with the disposition of such Registrable Securities.
(g) The Company will use commercially reasonable efforts to list the
Registrable Securities covered by such Registration Statement on any securities
exchange (or if applicable, the Nasdaq National Market System) on which any
securities of the Company are then listed, if the listing of such Registrable
Securities is then permitted under the applicable rules of such exchange (or if
applicable, the Nasdaq National Market System).
(h) The Company will notify each Holder as promptly as practicable and,
if requested by any Holder, confirm such notification in writing, (1) when a
prospectus or any prospectus supplement has been filed with the SEC, and when a
Registration Statement or any post-effective amendment thereto has been filed
with and declared effective by the SEC, (2) of the issuance by the SEC of any
stop order or the coming to its knowledge of the initiation of any proceedings
for that purpose, (3) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose, (4) of the occurrence of any event which requires
the making of any changes to a Registration Statement or related prospectus so
that such documents will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading (and the Company shall promptly prepare and furnish to each
Holder a reasonable number of copies of a supplemented or amended prospectus
such that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading), and (5) of the Company's
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<PAGE> 9
determination that the filing of a post-effective amendment to a Registration
Statement shall be necessary or appropriate. Upon the receipt of any notice from
the Company of the occurrence of any event of the kind described in clause (4),
the Holders shall forthwith discontinue any offer and disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until all Holders shall have received copies of a supplemented or
amended prospectus which is no longer defective and, if so directed by the
Company, shall deliver to the Company all copies (other than permanent file
copies) of the defective prospectus covering such Registrable Securities which
are then in the Holders' possession. If the Company shall provide any notice of
the type referred to in the preceding sentence, the period during which the
Registration Statement is required by subsection (a) to be effective shall be
extended by the number of days from and including the date such notice is
provided, to and including the date when the Holders shall have received copies
of the corrected prospectus.
(i) The Company will enter into such agreements and take such other
appropriate actions as are customary and reasonably necessary to expedite or
facilitate the disposition of such Registrable Securities (including, without
limitation, making its management available to the extent reasonably requested
by the Holders to participate in marketing presentations to potential investors
in connection with any underwritten offering), and in that regard, will deliver
to the Holders such documents and certificates as may be reasonably requested by
the Holders of a majority of the Registrable Securities being sold or, as
applicable, the managing underwriters, to evidence the Company's compliance with
this Agreement, including, in the case of any underwritten offering, using
commercially reasonable efforts to cause its independent accountants to deliver
to the managing underwriters an accountants' comfort letter substantially
similar to that in scope delivered in an underwritten public offering and
covering audited and interim financial statements included in the registration
statement, or if such letter cannot be obtained through the exercise of
commercially reasonable efforts, cause its independent accountants to deliver to
the managing underwriters a comfort letter based on negotiated procedures
providing comfort with respect to the Company's financial statements included or
incorporated by reference in the registration statement at the highest level
permitted to be given by such accountants under the then applicable standards of
the American Institute of Certified Public Accountants with respect to such
Registration Statement.
Section 7. Underwriting.
(a) If requested by the underwriters for any underwritten offering of
Registrable Securities pursuant to a registration under Section 2, the Company
will enter into and perform its obligations under an underwriting agreement with
the underwriters for such offering, such agreement to contain such
representations and warranties by the Company and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions, including, without limitation, customary provisions
relating to indemnities and contribution and the provision of opinions of
counsel and accountants' comfort letters. If Registrable Securities are to be
distributed by such underwriters on behalf of any Holder, such Holder shall also
be a party to any such underwriting agreement.
(b) If any registration pursuant to Section 4 shall involve an
underwritten offering, the Company may require Registrable Securities requested
to be registered pursuant to Section 4 to
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<PAGE> 10
be included in such underwriting on the same terms and conditions as shall be
applicable to the securities being sold through underwriters under such
registration. In such case, each Holder requesting registration shall be a party
to any such underwriting agreement. Such agreement shall contain such
representations and warranties by the Holders requesting registration and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, including, without
limitation, provisions relating to indemnities and contribution (it being
understood that each Holder shall not be required to make any representation
concerning the Company or its business or to indemnify or contribute for any
liabilities, losses or expenses related to any omission or misstatements in any
registration statement or prospectus except to the extent based upon information
provided in writing by the Holder expressly for use therein).
(c) In any offering of Registrable Securities pursuant to a
registration hereunder, each Holder requesting registration shall also enter
into such additional or other agreements as may be customary in such
transactions, which agreements may contain, among other provisions, such
representations and warranties as the Company or the underwriters of such
offering may reasonably request (including, without limitation, those concerning
such Holder, its Registrable Securities, such Holder's intended plan of
distribution and any other information supplied by it to the Company for use in
such registration statement), and customary provisions relating to indemnities
and contribution (it being understood that each Holder shall not be required to
make any representation concerning the Company or its business or to indemnify
or contribute for any liabilities, losses or expenses related to any omission or
misstatements in any registration statement or prospectus except to the extent
based upon information provided in writing by the Holder expressly for use
therein).
Section 8. Information Blackout.
(a) At any time when a Registration Statement is effective, upon
written notice from the Company to the Holders that the Company has determined
in good faith that sale of Registrable Securities pursuant to the Registration
Statement would require disclosure of non-public material information, the
disclosure of which would have a material adverse effect on the Company, all
Holders shall suspend sales of Registrable Securities pursuant to such
Registration Statement until the earlier of (1) 20 days after the Company
notifies the Holders of such good faith determination, and (2) such time as the
Company notifies the Holders that such material information has been disclosed
to the public or has ceased to be material or that sales pursuant to such
Registration Statement may otherwise be resumed (the number of days from such
suspension of sales by the Holders until the day when such sales may be resumed
hereunder is hereinafter called a "Sales Blackout Period").
(b) The time period set forth in Section 6(a)(1) or (2) shall be
extended for a number of days equal to the number of days in the Sales Blackout
Period.
(c) No Sales Blackout Period shall be commenced by the Company within
90 days after the end of a Sales Blackout Period.
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Section 9. Rule 144. The Company shall take all actions reasonably
necessary to comply with the filing requirements described in Rule 144(c)(1)
under the Securities Act so as to enable the Holders to sell Registrable
Securities without registration under the Securities Act. Upon the written
request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with the filing requirements under such
Rule 144(c)(1).
Section 10. Preparation; Reasonable Investigation; Information. In
connection with the preparation and filing of each Registration Statement
registering Registrable Securities under the Securities Act, (a) the Company
will give the Holders and the underwriters, if any, and their respective counsel
and accountants, drafts of such registration statement for their review and
comment prior to filing and (during normal business hours and subject to such
reasonable limitations as the Company may impose to prevent disruption of its
business) such reasonable and customary access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the reasonable opinion of the Holders of a majority of
the Registrable Securities being registered and such underwriters or their
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act and (b) as a condition precedent to including any Registrable
Securities of any Holder in any such registration, the Company may require such
Holder to furnish the Company such information regarding such Holder and the
distribution of such securities as the Company may from time to time reasonably
request in writing or as shall be required by law or the SEC in connection with
any registration.
Section 11. Indemnification and Contribution.
(a) In the case of each offering of Registrable Securities made
pursuant to this Agreement, the Company shall, to the extent permitted by
applicable law, indemnify and hold harmless each Holder, its officers and
directors, each underwriter of Registrable Securities so offered and each
Person, if any, who controls any of the foregoing persons within the meaning of
the Securities Act ("Holder Indemnitees"), from and against any and all claims,
liabilities, losses, damages, expenses and judgments, joint or several, to which
they or any of them may become subject, including any amount paid in settlement
of any litigation commenced or threatened, and shall promptly reimburse them, as
and when incurred, for any legal or other expenses incurred by them in
connection with investigating any claims and defending any actions, insofar as
such losses, claims, damages, liabilities or actions shall arise out of, or
shall be based upon, any violation or alleged violation by the Company of the
Securities Act, any blue sky laws, securities laws or other applicable laws of
any state or country in which the Registrable Securities are offered, and
relating to action taken or action or inaction required of the Company in
connection with such offering, or shall arise out of, or shall be based upon,
any untrue statement or alleged
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<PAGE> 12
untrue statement of a material fact contained in the Registration Statement (or
in any preliminary or final prospectus included therein) relating to the
offering and sale of such Registrable Securities, or any amendment thereof or
supplement thereto, or in any document incorporated by reference therein, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading; but
the Company shall not be liable to any Holder Indemnitee in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement, or any omission
or alleged omission, if such statement or omission shall have been made in
reliance upon and in conformity with information furnished to the Company in
writing by or on behalf of such Holder specifically for use in the preparation
of the Registration Statement (or in any preliminary or final prospectus
included therein), or any amendment thereof or supplement thereto. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of any Holder and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any Holder Indemnitee.
(b) In the case of each offering of Registrable Securities made
pursuant to this Agreement, each Holder shall, to the extent permitted by
applicable law, indemnify and hold harmless the Company, its officers and
directors and each person, if any, who controls any of the foregoing within the
meaning of the Securities Act (the "Company Indemnitees"), from and against any
and all claims, liabilities, losses, damages, expenses and judgments, joint or
several, to which they or any of them may become subject, including any amount
paid in settlement of any litigation commenced or threatened, and shall promptly
reimburse them, as and when incurred, for any legal or other expenses incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of, or shall be based upon, any violation by such Holder of the Securities
Act, any blue sky laws, securities laws or other applicable laws of any state or
country in which the Registrable Securities are offered and relating to action
taken or action or inaction required of such Holder in connection with such
offering, or shall arise out of, or shall be based upon, any untrue statement of
a material fact contained in the Registration Statement (or in any preliminary
or final prospectus included therein) relating to the offering and sale of such
Registrable Securities or any amendment thereof or supplement thereto, or any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but in each case only
to the extent that such untrue statement is contained in, or such fact is
omitted from, information furnished in writing to the Company by or on behalf of
such Holder specifically for use in the preparation of such Registration
Statement (or in any preliminary or final prospectus included therein). Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of any Company Indemnitee. In no event shall the liability
of a Holder hereunder or under Section 11(d) be greater in amount than the
dollar amount of the net proceeds received by it upon the sale of Registrable
Securities pursuant to such offering. The foregoing indemnity is in addition to
any liability which such Holder may otherwise have to any Company Indemnitee.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 11, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing, but the failure to give such notice shall not
relieve the indemnifying party or parties from any liability which it or they
may have to the indemnified party. In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and
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disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred the fees and expenses of the counsel retained by the indemnified
party in the event (1) the indemnifying party and the indemnified party shall
have mutually agreed to the retention of such counsel or (2) the named parties
to any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them. The indemnifying party shall not, in connection with any
proceeding or related proceedings in the same jurisdiction, be liable for the
reasonable fees and expenses of more than one separate firm for all such
indemnified parties. Such firm shall be designated in writing by the Holders of
a majority of the Registrable Securities disposed under the applicable
Registration Statements in the case of Holder Indemnitees and by the Company in
the case of Company Indemnitees. The indemnifying party shall not be liable for
any settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgement for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested the indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by this Section, the
indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without the indemnifying party's written consent if (i) such
settlement is entered into more than thirty (30) days after receipt by the
indemnifying party of the aforesaid request, and (ii) the indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement. No indemnifying party shall, without the
consent of the indemnified party, which consent shall not be unreasonably
withheld, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation or which requires action other than the payment of
money by the indemnifying party.
(d) If the indemnification provided for in this Section 11 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) in respect of any losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) referred to therein, or if the
indemnified party failed to give the notice required under subsection (c) and
the indemnified party is actually prejudiced by such failure, then each
indemnifying party shall, to the extent permitted by applicable law, contribute
to the amount paid or payable by the indemnified party as a result of such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect not only both the
relative benefits received by such party (as compared to the benefits received
by all other parties) from the offering in respect of which indemnity is sought,
but also the relative fault of all parties in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by a party shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by it bear to the total amounts received by
each other party. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or
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<PAGE> 14
alleged omission to state a material fact relates to information supplied by the
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties agree
that it would not be just and equitable if contributions pursuant to this
subsection (d) were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Notwithstanding any other provision of this Section 11, the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an untrue statement
or alleged untrue statement of any material fact contained in any such
registration statement, preliminary prospectus, final prospectus or summary
prospectus contained therein or any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading in a
prospectus or prospectus supplement, if such untrue statement or omission is
completely corrected in an amendment or supplement to such prospectus or
prospectus supplement, the seller of the Registrable Securities has an
obligation under the Securities Act to deliver a prospectus or prospectus
supplement in connection with such sale of Registrable Securities and the seller
of Registrable Securities thereafter fails to deliver such prospectus or
prospectus supplement as so amended or supplemented prior to or concurrently
with the sale of Registrable Securities to the person asserting such loss,
claim, damage or liability after the Company has timely furnished such seller
with a sufficient number of copies of the same.
Section 12. Expenses. In connection with any registration under this
Agreement the Company shall pay, subject to the Company complying with the
provisions of the Bermuda Companies Act of 1981, all Registration Expenses (to
the extent not borne by underwriters or others), except as provided in Section
2(f) or 3(d), and each Holder shall pay its pro rata share of the items
described in clause (f) of the definition of "Registration Expenses" in Section
1.
Section 13. Additional Rights. If the Company at any time grants to any
other holders (other than employees or directors of the Company) of Common
Shares or securities convertible into Common Shares any rights to request the
Company to effect the registration under the Securities Act of any such
securities on terms more favorable to such holders than the terms set forth in
this Agreement, the terms of this Agreement shall be deemed amended or
supplemented to the extent necessary to provide the Holders with the same more
favorable terms. The Company shall not grant any other person rights to register
securities of the Company on terms which could restrict in any way the ability
of the Company fully to perform its obligations to the Holders pursuant to this
Agreement.
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Section 14. Notices. Except as otherwise provided below, whenever it is
provided in this Agreement that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon any
of the parties hereto, or whenever any of the parties hereto, wishes to provide
to or serve upon the other party any other communication with respect to this
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be delivered in person or sent
by telecopy, as follows: (a) if to a Holder, at the most current address given
by such Holder to the Company by means of a notice given in accordance with the
provisions of this Section 13, and with respect to all other holders is as set
forth in the register for the Registrable Securities; and (b) if to the Company,
initially at the Company's principal address and thereafter at such other
address, notice of which is given in accordance with the provisions of this
Section 13. The furnishing of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Every notice, demand,
request, consent, approval, declaration or other communication hereunder shall
be deemed to have been duly furnished or served on the party to which it is
addressed, in the case of delivery in person or by telecopy, on the date when
sent (with receipt personally acknowledged in the case of telecopied notice),
and in all other cases, five business days after it is sent. Failure or delay in
delivering copies of any notice, demand, request, consent, approval, declaration
or other communication to the persons designated above to receive copies shall
in no way adversely affect the effectiveness of such notice, demand, request,
consent, approval, declaration or other communication.
Section 15. Entire Agreement. This Agreement and the Securities
Purchase Agreement represent the entire agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersede any and
all prior oral and written agreements, arrangements and understandings among the
parties hereto with respect to such subject matter; and this Agreement can be
amended, supplemented or changed, and any provision hereof can be waived or a
departure from any provision hereof can be consented to, only by a written
instrument making specific reference to this Agreement signed by the Company and
the Holders of a majority of the Registrable Securities then outstanding, but if
by less than all Holders, then only to the extent such amendment, supplement or
change does not adversely affect the rights of any Holder which is not a party
thereto.
Section 16. Headings. The section headings contained in this Agreement
are for general reference purposes only and shall not affect in any manner the
meaning, interpretation or construction of the terms or other provisions of this
Agreement.
Section 17. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of New York applicable to
contracts to be made, executed, delivered and performed wholly within such state
and, in any case, without regard to the conflicts of law principles of such
state.
Section 18. Severability. If any provision of this Agreement shall be
held by any court of competent jurisdiction to be illegal, void or
unenforceable, such provision shall be of no force and effect, but the
illegality or unenforceability of such provision shall have no effect upon and
shall not impair the enforceability of any other provision of this Agreement.
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<PAGE> 16
Section 19. No Waiver. The failure of any party at any time or times to
require performance of any provision hereof shall not affect the right at a
later time to enforce the same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or warranty contained in
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
Section 20. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument. Not all
parties need sign the same counterpart. Delivery by facsimile of a signature
page to this Agreement shall have the same effect or delivery of an original
executed counterpart.
Section 21. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; but nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of applicable law. If any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registerable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such Holder
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement, including the restrictions on resale
set forth in this Agreement, and such Holder shall be entitled to receive the
benefits hereof.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the date first above written.
GLOBAL MARKETS ACCESS LTD.
By_______________________________________
Donald J. Matthews
Chief Executive Officer
[PURCHASER]
By_______________________________________
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<PAGE> 1
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made in Hamilton, Bermuda and is dated as of
February 19, 1999, by and between Global Markets Access Ltd., a Bermuda
corporation (the "Company"), Global Markets Guaranty Ltd., a wholly-owned
subsidiary of the Company organized under the laws of Bermuda to provide
financial guaranty insurance and reinsurance (the "Operating Company"), and
Matthew Cooleen (the "Employee").
W I T N E S S E T H
WHEREAS, the Company is contemplating an initial public
offering and/or a private placement of its common shares (the "IPO"); and
WHEREAS, the Company and the Operating Company desire that the
Employee serve as Managing Principal of the Company and the Operating Company
and the Employee is willing to serve in such capacities.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree as follows:
Section 1. Employment.
Effective as of February 19, 1999, the Company and the
Operating Company will employ the Employee and the Employee will perform
services for the Company and the Operating Company on the terms and conditions
set forth in this Agreement and for the period ("Term of Employment") specified
in Section 3 hereof.
Section 2. Duties.
The Employee, during the Term of Employment, shall serve the
Company as its Managing Principal. The Employee shall also serve as Managing
Principal of the Operating Company. The Employee shall be based at the Operating
Company's headquarters in Bermuda, other than for periodic travel in the
ordinary course of business. The Employee shall have such duties and
responsibilities as are assigned to him by the Boards of Directors of the
Company and the Operating Company commensurate with his positions with the
Company and the Operating Company, and shall perform such duties and
responsibilities in each case in such a manner that neither the Company nor the
Operating Company would be deemed to be conducting trade or business in the
United States for purposes of the United States Internal Revenue Code of 1986,
as amended.
The Employee shall perform his duties hereunder faithfully and
to the best of his abilities and in furtherance of the business of the Company
and the Operating Company, and shall devote his full business time, energy,
attention and skill to the business of the Company and the Operating Company and
to the promotion of its interests except as otherwise agreed by the Company and
the Operating Company.
<PAGE> 2
The Employee warrants and represents that he is free to enter
into this Agreement and is not restricted by any prior or existing agreement and
the Company and the Operating Company may rely on such representation in
entering into this Agreement.
Section 3. Term of Employment.
The initial Term of Employment under this Agreement shall be
the period commencing on February 19, 1999 and ending on the third anniversary
of the IPO. At the end of the initial Term of Employment, and on each
anniversary thereof, the Term of Employment shall automatically be extended for
one additional year, unless the Company and the Operating Company, collectively,
or the Employee shall have given at least three months advance written notice to
the other that it does not wish to extend this Agreement.
Section 4. Salary.
The Employee shall receive, as compensation for his duties and
obligations to the Company and the Operating Company, a salary at the annual
rate of BD$300,000, payable by the Operating Company in substantially equal
installments in accordance with the Operating Company's payroll practice;
however, no salary shall become payable to the Employee until consummation of
the IPO. During the Term of Employment, all salary or consulting payments paid
to the Employee by ACA Financial Guaranty Corporation or Inter-Atlantic
Securities Corporation or their affiliates shall be credited against salary due
to the Employee under this Employment Agreement. It is agreed between the
parties that the Company shall review the Employee's base annual salary annually
and in light of such review may, in the discretion of the Board of Directors of
the Company, increase such base annual salary taking into account any change in
the Employee's responsibilities, increases in the cost of living, performance by
the Employee and other pertinent factors.
Section 5. Bonus.
During the Term of Employment, the Employee shall, subject to
and effective upon the consummation of the IPO, participate in the Company's
Incentive Compensation Plan, the terms of such Plan to be determined by the
Compensation Committee for approval by the Company's Board of Directors, and
shall be eligible for an annual cash bonus based on performance targets as
determined in accordance with the terms of any such plan.
The Employee shall also, subject to the consummation of the
IPO, receive a one-time cash bonus of BD$300,000 (the "Initial Bonus"), payable
not later than the first anniversary of the consummation of the IPO; provided
that neither the Company nor the Operating Company shall be obligated to pay the
Initial Bonus to the Employee if the Employee's employment with the Company and
the Operating Company has been terminated by the Company and the Operating
Company for Serious Cause (as defined below) or if the Employee has terminated
his employment with the Company and the Operating Company without Good Reason
(as defined below).
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<PAGE> 3
Section 6. Options.
(a) Initial Options. The Company shall grant to the Employee,
subject to and effective as of the consummation of the IPO, options (the
"Initial Options") to purchase at a price per share equal to the price per share
in the IPO, 100,000 common shares of the Company (the "Common Shares"). Thirty
three and one-thirds percent (33 1/3%) of the Initial Options shall become
exercisable on the first anniversary of the IPO, 33 1/3% of the Initial Options
shall become exercisable on the second anniversary of the IPO, and an additional
33 1/3% of the Initial Options shall become exercisable on the third anniversary
thereof. The terms of the Initial Options shall be governed by the terms of the
Company's Initial Stock Option Plan.
(b) Other Options. During the Term of Employment, the Employee
shall, subject to the consummation of the IPO, be eligible to be granted options
(in addition to the Initial Options) to purchase Common Shares at such price and
subject to such terms as provided by the Company's Initial Stock Option Plan, in
the sole discretion of the Board of Directors of the Company.
Section 7. Employee Benefits.
During the Term of Employment, the Employee shall, effective
upon the consummation of the IPO, be entitled to participate in all employee
benefit programs of the Company and the Operating Company, as such programs may
be in effect from time to time, including without limitation, pension and other
retirement plans, profit sharing plans, group life insurance, accidental death
and dismemberment insurance, hospitalization, surgical and major medical
coverage, sick leave (including salary continuation arrangements), long term
disability, holidays and vacations.
Section 8. Business Expenses.
All reasonable travel and other expenses incidental to the
rendering of services by the Employee hereunder shall be paid by the Operating
Company and if expenses are paid in the first instance by the Employee, the
Operating Company will reimburse him therefor upon presentation of proper
invoices; subject in each case to compliance with the Operating Company's
reimbursement policies and procedures.
Section 9. Housing and Travel Expenses.
During the Term of Employment, the Operating Company shall,
effective upon consummation of the IPO, provide to the Employee the sum of
BD$10,000 monthly as an allowance to cover the expenses of housing in Bermuda
and for his personal travel to and from Bermuda.
Section 10. Vacations and Sick Leave.
During the Term of Employment, the Employee shall be entitled
to reasonable vacation and reasonable sick leave each year, in accordance with
policies of the Company and
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<PAGE> 4
the Operating Company, as determined by their respective Boards of Directors,
provided, however, that the Employee shall be entitled to a minimum of four
weeks vacation per year.
Section 11. Termination.
(a) In the event of Serious Cause, as defined below, the
Company and the Operating Company may terminate the Employee's employment and
the Term of Employment hereunder immediately upon written notice of such
termination stating the Serious Cause upon which the Company and the Operating
Company are basing such termination.
"Serious Cause" shall mean (i) the willful and continued
failure by the Employee to perform substantially his duties hereunder, other
than by reasons of health, for a period of more than 30 days after demand for
substantial performance has been delivered by the Company and the Operating
Company that identifies the manner in which the Company and the Operating
Company believe the Employee has not performed his duties, (ii) the Employee
shall have been indicted by any federal, state or local authority in any
jurisdiction for, or shall have pleaded guilty or nolo contendere to, an act
constituting a felony, (iii) the Employee shall have habitually abused any
substance (such as narcotics or alcohol), or (iv) the Employee shall have (A)
engaged in acts of fraud, material dishonesty or gross misconduct in connection
with the business of the Company and the Operating Company or (B) committed a
material breach of this Agreement.
(b) The Employee may terminate his employment and the Term of
Employment hereunder in the event of Good Reason, as defined below, upon 30
days' prior written notice of such termination stating the Good Reason upon
which the Employee is basing such termination.
"Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) the demotion of the Employee, (iii) a material reduction
of the Employee's duties hereunder, or (iv) a material breach of this Agreement
by the Company and the Operating Company.
(c) In the event of termination of the Employee's employment
and the Term of Employment hereunder by the Company and the Operating Company
for Serious Cause or by the Employee without Good Reason, the Employee shall
forfeit all bonus amounts for the then current fiscal year, and the Operating
Company shall be liable to the Employee only for (i) any accrued but unpaid
salary, (ii) any accrued but unpaid bonus from a prior fiscal year, and (iii)
reimbursement of business expenses incurred prior to the date of termination.
(d) In the event of the death, retirement or disability of the
Employee, the Employee's employment and Term of Employment hereunder shall be
terminated as of the date of such death, retirement or disability and the
Operating Company shall pay the Employee, or the Employee's estate or legal
representative, as appropriate, (i) any accrued but unpaid salary, (ii) any
earned but unpaid bonus from a prior fiscal year, (iii) reimbursement of
business expenses incurred prior to the date of termination, (iv) travel and
housing allowances under Section 9 for six months after the date of termination,
and (v) reasonable relocation expenses from Bermuda to the United States. The
date of the Employee's disability shall be deemed to be the last day of the
sixth month period of time during which the Employee has been unable to carry
out his position as provided below.
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<PAGE> 5
"Disability" shall mean the Employee's inability, for reasons
of health, to carry out the functions of his position for a total of 6 months
during any 12 month period of this Agreement. "Retirement" shall mean retirement
from employment upon attaining age 65 or such earlier age agreed to by the
Company and the Operating Company.
In addition, in the event of the Employee's death, retirement
or disability, if the Company's Common Shares are not then publicly traded, the
Company shall, after giving written notice to the Employee, the Employee's
estate or legal representative, whichever is appropriate, have the right to
require the sale to the Company of any or all of the Common Shares of the
Company owned by the Employee within six (6) months of death, retirement or
disability; and the Employee, the Employee's estate or legal representative,
whichever is appropriate, shall have the right to, after giving written notice
to the Company, sell any or all of the Employee's Common Shares to the Company
within twelve (12) months after death or within six (6) months after retirement
or disability. The rights provided for in this paragraph shall be exercised by
serving written notice of the intention to buy or sell, as the case may be, to
the other party. The price at which any such transfer shall be effected shall be
equal to the appraised value of the Common Shares, in each case measured as of
the date of termination. The appraised value formula of evaluation will be
agreed upon by June 1, 1999 if the Company is not then publicly traded. Payment
for either such transaction shall occur no later than sixty (60) days after
effective notice is given pursuant to Section 20 of this Agreement, or, if
later, no more than thirty (30) days after the appraised value is finally
determined.
(e) If the Company and the Operating Company should terminate
the Employee's employment and the Term of Employment hereunder without Serious
Cause or if the Employee should terminate his employment and the Term of
Employment hereunder for Good Reason, the Operating Company shall continue to
pay the Employee his base salary for a period of 18 months from such
termination. In addition, the Employee shall be entitled to (i) any accrued but
unpaid salary, (ii) any earned but unpaid bonus from a prior fiscal year, (iii)
reimbursement of business expenses incurred prior to the date of termination,
(iv) travel and housing allowances under Section 9 for six months after the date
of termination, and (v) reasonable relocation expenses from Bermuda to the
United States.
(f) In the event of the liquidation of the Company or the
Operating Company or in the event that the Board of Directors elects to
discontinue permanently operating the Company or the Operating Company, the
Employee's employment and the Term of Employment hereunder shall be terminated
as of the date of such liquidation or discontinuance, and the Operating Company
shall pay the Employee within 30 days of the day liquidation or discontinuance
is determined (i) any accrued but unpaid salary, (ii) any earned but unpaid
bonus from a prior fiscal year, (iii) unreimbursed business expenses incurred
prior to the date of termination, (iv) travel and housing allowances under
Section 9 for two months after the date of termination, and (v) reasonable
relocation expenses from Bermuda to the United States. In addition, the Employee
shall be entitled to receive one year's base salary from the date on which the
Employee's employment is terminated.
(g) Notwithstanding any other provision of this Agreement,
until the IPO is consummated, either the Employee or the Company may terminate
the Employee's employment
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<PAGE> 6
and the Term of Employment hereunder upon 30 days' written notice to the other,
in which event the Company shall be liable to the Employee only for
reimbursement of business expenses incurred prior to the date of termination.
Section 12. Change of Control.
(a) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then exercisable shall become exercisable (and be
deemed to be vested) on the date on which a Change of Control (as defined below)
of the Company occurs. In addition, restricted Common Shares granted under any
other of the Company's share option plans shall immediately vest upon a Change
of Control of the Company.
(b) If (i) the employment of the Employee is terminated by the
Company (or successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Company (or successor thereto) for Good Reason,
in each case within the period commencing on the date that a Change of Control
is formally proposed to the Company's Board of Directors and ending on the first
anniversary of the date on which such Change of Control occurs, then the
Employee shall be entitled to receive (in lieu of the benefits described in
Section 11): (1) any accrued but unpaid salary, (2) a lump sum payment equal to
two times such Employee's annual base salary as of the date of termination, (3)
any accrued but unpaid bonus from a prior fiscal year, (4) reimbursement of
business expenses incurred prior to the date of termination, (5) travel and
housing allowances under Section 9 for one year following the date of
termination, (6) reasonable relocation expenses from Bermuda to the United
States, together with (7) a gross up of any excise taxes payable by the Employee
by reason of such payments occurring in connection with a Change of Control.
The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.
(c) A "Change of Control" of the Company shall be deemed to
have occurred if, following consummation of the IPO (i) any "person" as such
term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), excluding the Company
or any of its subsidiaries, a trustee or any fiduciary holding securities under
an employee benefit plan of the Company or any of its subsidiaries, an
underwriter temporarily holding securities pursuant to an offering of such
securities or a corporation owned, directly or indirectly, by shareholders of
the Company in substantially the same proportion as their ownership of the
Company, is or becomes the "beneficial owner" (as defined in rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Company's then
outstanding securities ("Voting Securities"); (ii) during any period of not more
than two years, individuals who constitute the Board of Directors of the Company
(the "Board") as of the beginning of the period and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i) or (iii) of this
sentence) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at such time or
whose election or nomination for election was
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<PAGE> 7
previously so approved, cease for any reason to constitute a majority thereof;
(iii) the shareholders of the Company approve a merger, consolidation or
reorganization or a court of competent jurisdiction approves a scheme of
arrangement of the Company, other than a merger, consolidation, reorganization
or scheme of arrangement which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 40% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger, consolidation, reorganization or scheme of arrangement; or (iv) the
shareholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale of substantially all of the Company's
assets.
(d) The provisions of this Section 12 shall only apply
following the consummation of an IPO.
Section 13. Agreement Not to Compete.
(a) The Employee hereby covenants and agrees that at no time
during the Term of Employment nor for a period of one year immediately following
the termination of the Employee's employment for any reason, will he for himself
or on behalf of any other person, partnership, company or corporation, directly
or indirectly, acquire any financial or beneficial interest in (except as
provided in the next sentence), provide consulting or other services to, be
employed by, or own, manage, operate or control any entity engaged in the
financial guaranty insurance or reinsurance business similar to the business
engaged in by the Company or the Operating Company at the time of such
termination of employment. Notwithstanding the preceding sentence, the Employee
shall not be prohibited from owning less than one (1%) percent of any publicly
traded corporation, whether or not such corporation is in competition with the
Company or the Operating Company.
(b) The Employee hereby covenants and agrees that, at all
times during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee shall not directly or indirectly
employ or seek to employ any person or entity employed at that time by the
Company or any of its subsidiaries, or otherwise encourage or entice such person
or entity to leave such employment.
(c) This Section 13 shall be null and void if the Board of
Directors elects to discontinue permanently the Company's operations or if the
IPO has not been consummated by March 31, 1999.
Section 14. Confidential Information.
The Employee agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to the Company or any affiliate
of the Company, including, without limitation, customer lists, client lists,
trade secrets, business plans, financial models, pricing policies and other
business affairs of the Company and any affiliate of the Company learned by him
from the Company or any such affiliate or otherwise before or after the date of
this Agreement, and not to disclose any such confidential matter to anyone
outside the Company
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<PAGE> 8
or any of its affiliates, whether during or after his period of service with the
Company, except as may be required in the course of a legal or governmental
proceeding. Upon request by the Company, the Employee agrees to deliver promptly
to the Company upon termination of his services for the Company, or at any time
thereafter as the Company may request, all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any media
and other documents (and all copies thereof) relating to the Company's or any
affiliate's business and all property of the Company or any affiliate associated
therewith, which he may then possess or have under his control.
Section 15. Remedy.
(a) Should the Employee engage in or perform, either directly
or indirectly, any of the acts prohibited by Sections 13 or 14 hereof, it is
agreed that the Company shall be entitled to full injunctive relief, to be
issued by any competent court of equity, enjoining and restraining the Employee
and each and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The foregoing
remedy available to the Company shall not be deemed to limit or prevent the
exercise by the Company of any or all further rights and remedies which may be
available to the Company hereunder or at law or in equity.
(b) The Employee acknowledges and agrees that the covenants
contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof. If any provision hereof is
determined to be invalid or unenforceable by a court of competent jurisdiction,
the Employee shall negotiate in good faith to provide the Company with
protection as nearly equivalent to that found to be invalid or unenforceable and
if any such provision shall be so determined to be invalid or unenforceable by
reason of the duration or geographical scope of the covenants contained therein,
such duration or geographical scope, or both, shall be considered to be reduced
to a duration or geographical scope to the extent necessary to cure such
invalidity.
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<PAGE> 9
Section 16. Indemnification.
The Company and the Operating Company will indemnify the
Employee (and his legal representatives or other successors) to the fullest
extent permitted by the laws of the Islands of Bermuda and in accordance with
the terms of the Company's and the Operating Company's respective Bye-Laws, and
the Employee shall be entitled to the protection of any insurance policies the
Company or the Operating Company may elect to maintain generally for the benefit
of their directors and officers, against all costs, charges and expenses
whatsoever incurred or sustained by the Employee or his legal representatives in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director or officer of the Company or the Operating Company.
Section 17. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the Employee, his heirs, executors, administrators and beneficiaries, and the
Company, the Operating Company and their successors and assigns.
Section 18. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the Islands of Bermuda, without reference to
rules relating to conflicts of law.
Section 19. Entire Agreement.
This Agreement constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements as to employment of the Employee. This Agreement cannot be amended,
changed, modified or terminated without the written consent of the parties
hereto.
Section 20. Waiver of Breach.
The waiver by either party of a breach of any term of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach thereof.
Section 21. Notices.
Any notice, report, request or other communication given under
this Agreement shall be written and shall be effective upon delivery when
delivered personally, by Federal Express or by fax.
Unless otherwise notified by any of the parties, notices shall
be sent to the parties as follows:
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<PAGE> 10
To Employee: Matthew Cooleen
81 Murray St.
NY, NY 10007
To the
Company: Global Markets Access Ltd.
Cumberland House
1 Victoria Street
Hamilton, HM AX, Bermuda
Section 22. Severability.
If any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
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<PAGE> 11
Section 23. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as on the day and year first above written.
By: /s/ Matthew Cooleen
---------------------------------
Matthew Cooleen
GLOBAL MARKETS ACCESS LTD.
By: /s/ Donald J. Matthews
---------------------------------
Donald J. Matthews
Chief Executive Officer
GLOBAL MARKETS GUARANTY LTD.
By: /s/ Donald J. Matthews
---------------------------------
Donald J. Matthews
Chief Executive Officer
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<PAGE> 1
Exhibit 10.18
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made in Hamilton, Bermuda and is dated as of
February 24, 1999, by and between Global Markets Access Ltd., a Bermuda
corporation (the "Company"), Global Markets Guaranty Ltd., a wholly-owned
subsidiary of the Company organized under the laws of Bermuda to provide
financial guaranty insurance and reinsurance (the "Operating Company"), and
James G. Jachym (the "Employee").
W I T N E S S E T H
WHEREAS, the Company is contemplating an initial public
offering and/or a private placement of its common shares (the "IPO"); and
WHEREAS, the Company and the Operating Company desire that the
Employee serve as Managing Principal of the Company and the Operating Company
and the Employee is willing to serve in such capacities.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the parties hereto
agree as follows:
Section 1. Employment.
Effective as of February 24, 1999, the Company and the
Operating Company will employ the Employee and the Employee will perform
services for the Company and the Operating Company on the terms and conditions
set forth in this Agreement and for the period ("Term of Employment") specified
in Section 3 hereof.
Section 2. Duties.
The Employee, during the Term of Employment, shall serve the
Company as its Managing Principal. The Employee shall also serve as Managing
Principal of the Operating Company. The Employee shall be based at the Operating
Company's headquarters in Bermuda, other than for periodic travel in the
ordinary course of business. The Employee shall have such duties and
responsibilities as are assigned to him by the Boards of Directors of the
Company and the Operating Company commensurate with his positions with the
Company and the Operating Company, and shall perform such duties and
responsibilities in each case in such a manner that neither the Company nor the
Operating Company would be deemed to be conducting trade or business in the
United States for purposes of the United States Internal Revenue Code of 1986,
as amended.
The Employee shall perform his duties hereunder faithfully and
to the best of his abilities and in furtherance of the business of the Company
and the Operating Company, and shall devote his full business time, energy,
attention and skill to the business of the Company and the Operating Company and
to the promotion of its interests except as otherwise agreed by the Company and
the Operating Company.
<PAGE> 2
The Employee warrants and represents that he is free to enter
into this Agreement and is not restricted by any prior or existing agreement and
the Company and the Operating Company may rely on such representation in
entering into this Agreement.
Section 3. Term of Employment.
The initial Term of Employment under this Agreement shall be
the period commencing on February 24, 1999 and ending on the third anniversary
of the IPO. At the end of the initial Term of Employment, and on each
anniversary thereof, the Term of Employment shall automatically be extended for
one additional year, unless the Company and the Operating Company, collectively,
or the Employee shall have given at least three months advance written notice to
the other that it does not wish to extend this Agreement.
Section 4. Salary.
The Employee shall receive, as compensation for his duties and
obligations to the Company and the Operating Company, a salary at the annual
rate of BD$300,000, payable by the Operating Company in substantially equal
installments in accordance with the Operating Company's payroll practice;
however, no salary shall become payable to the Employee until consummation of
the IPO. During the Term of Employment, all salary or consulting payments paid
to the Employee by ACA Financial Guaranty Corporation or Inter-Atlantic
Securities Corporation or their affiliates shall be credited against salary due
to the Employee under this Employment Agreement. It is agreed between the
parties that the Company shall review the Employee's base annual salary annually
and in light of such review may, in the discretion of the Board of Directors of
the Company, increase such base annual salary taking into account any change in
the Employee's responsibilities, increases in the cost of living, performance by
the Employee and other pertinent factors.
Section 5. Bonus.
During the Term of Employment, the Employee shall, subject to
and effective upon the consummation of the IPO, participate in the Company's
Incentive Compensation Plan, the terms of such Plan to be determined by the
Compensation Committee for approval by the Company's Board of Directors, and
shall be eligible for an annual cash bonus based on performance targets as
determined in accordance with the terms of any such plan.
Section 6. Options.
(a) Initial Options. The Company shall grant to the Employee,
subject to and effective as of the consummation of the IPO, options (the
"Initial Options") to purchase at a price per share equal to the price per share
in the IPO, 100,000 common shares of the Company (the "Common Shares"). Thirty
three and one-thirds percent (33 1/3%) of the Initial Options shall become
exercisable on the first anniversary of the IPO, 33 1/3% of the Initial Options
shall become exercisable on the second anniversary of the IPO, and an additional
33 1/3% of the Initial Options shall become exercisable on the third anniversary
thereof. The terms of the Initial Options shall be governed by the terms of the
Company's Initial Stock Option Plan.
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<PAGE> 3
(b) Other Options. During the Term of Employment, the Employee
shall, subject to the consummation of the IPO, be eligible to be granted options
(in addition to the Initial Options) to purchase Common Shares at such price and
subject to such terms as provided by the Company's Initial Stock Option Plan, in
the sole discretion of the Board of Directors of the Company.
Section 7. Employee Benefits.
During the Term of Employment, the Employee shall, effective
upon the consummation of the IPO, be entitled to participate in all employee
benefit programs of the Company and the Operating Company, as such programs may
be in effect from time to time, including without limitation, pension and other
retirement plans, profit sharing plans, group life insurance, accidental death
and dismemberment insurance, hospitalization, surgical and major medical
coverage, sick leave (including salary continuation arrangements), long term
disability, holidays and vacations.
Section 8. Business Expenses.
All reasonable travel and other expenses incidental to the
rendering of services by the Employee hereunder shall be paid by the Operating
Company and if expenses are paid in the first instance by the Employee, the
Operating Company will reimburse him therefor upon presentation of proper
invoices; subject in each case to compliance with the Operating Company's
reimbursement policies and procedures.
Section 9. Housing and Travel Expenses.
During the Term of Employment, the Operating Company shall,
effective upon consummation of the IPO, provide to the Employee the sum of
BD$10,000 monthly as an allowance to cover the expenses of housing in Bermuda
and for his personal travel to and from Bermuda.
Section 10. Vacations and Sick Leave.
During the Term of Employment, the Employee shall be entitled
to reasonable vacation and reasonable sick leave each year, in accordance with
policies of the Company and the Operating Company, as determined by their
respective Boards of Directors, provided, however, that the Employee shall be
entitled to a minimum of four weeks vacation per year.
Section 11. Termination.
(a) In the event of Serious Cause, as defined below, the
Company and the Operating Company may terminate the Employee's employment and
the Term of Employment hereunder immediately upon written notice of such
termination stating the Serious Cause upon which the Company and the Operating
Company are basing such termination.
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<PAGE> 4
"Serious Cause" shall mean (i) the willful and continued
failure by the Employee to perform substantially his duties hereunder, other
than by reasons of health, for a period of more than 30 days after demand for
substantial performance has been delivered by the Company and the Operating
Company that identifies the manner in which the Company and the Operating
Company believe the Employee has not performed his duties, (ii) the Employee
shall have been indicted by any federal, state or local authority in any
jurisdiction for, or shall have pleaded guilty or nolo contendere to, an act
constituting a felony, (iii) the Employee shall have habitually abused any
substance (such as narcotics or alcohol), or (iv) the Employee shall have (A)
engaged in acts of fraud, material dishonesty or gross misconduct in connection
with the business of the Company and the Operating Company or (B) committed a
material breach of this Agreement.
(b) The Employee may terminate his employment and the Term of
Employment hereunder in the event of Good Reason, as defined below, upon 30
days' prior written notice of such termination stating the Good Reason upon
which the Employee is basing such termination.
"Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) the demotion of the Employee, (iii) a material reduction
of the Employee's duties hereunder, or (iv) a material breach of this Agreement
by the Company and the Operating Company.
(c) In the event of termination of the Employee's employment
and the Term of Employment hereunder by the Company and the Operating Company
for Serious Cause or by the Employee without Good Reason, the Employee shall
forfeit all bonus amounts for the then current fiscal year, and the Operating
Company shall be liable to the Employee only for (i) any accrued but unpaid
salary, (ii) any accrued but unpaid bonus from a prior fiscal year, and (iii)
reimbursement of business expenses incurred prior to the date of termination.
(d) In the event of the death, retirement or disability of the
Employee, the Employee's employment and Term of Employment hereunder shall be
terminated as of the date of such death, retirement or disability and the
Operating Company shall pay the Employee, or the Employee's estate or legal
representative, as appropriate, (i) any accrued but unpaid salary, (ii) any
earned but unpaid bonus from a prior fiscal year, (iii) reimbursement of
business expenses incurred prior to the date of termination, (iv) travel and
housing allowances under Section 9 for six months after the date of termination,
and (v) reasonable relocation expenses from Bermuda to the United States. The
date of the Employee's disability shall be deemed to be the last day of the
sixth month period of time during which the Employee has been unable to carry
out his position as provided below.
"Disability" shall mean the Employee's inability, for reasons
of health, to carry out the functions of his position for a total of 6 months
during any 12 month period of this Agreement. "Retirement" shall mean retirement
from employment upon attaining age 65 or such earlier age agreed to by the
Company and the Operating Company.
In addition, in the event of the Employee's death, retirement
or disability, if the Company's Common Shares are not then publicly traded, the
Company shall, after giving written notice to the Employee, the Employee's
estate or legal representative, whichever is appropriate,
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<PAGE> 5
have the right to require the sale to the Company of any or all of the Common
Shares of the Company owned by the Employee within six (6) months of death,
retirement or disability; and the Employee, the Employee's estate or legal
representative, whichever is appropriate, shall have the right to, after giving
written notice to the Company, sell any or all of the Employee's Common Shares
to the Company within twelve (12) months after death or within six (6) months
after retirement or disability. The rights provided for in this paragraph shall
be exercised by serving written notice of the intention to buy or sell, as the
case may be, to the other party. The price at which any such transfer shall be
effected shall be equal to the appraised value of the Common Shares, in each
case measured as of the date of termination. The appraised value formula of
evaluation will be agreed upon by June 1, 1999 if the Company is not then
publicly traded. Payment for either such transaction shall occur no later than
sixty (60) days after effective notice is given pursuant to Section 20 of this
Agreement, or, if later, no more than thirty (30) days after the appraised value
is finally determined.
(e) If the Company and the Operating Company should terminate
the Employee's employment and the Term of Employment hereunder without Serious
Cause or if the Employee should terminate his employment and the Term of
Employment hereunder for Good Reason, the Operating Company shall continue to
pay the Employee his base salary for a period of 18 months from such
termination. In addition, the Employee shall be entitled to (i) any accrued but
unpaid salary, (ii) any earned but unpaid bonus from a prior fiscal year, (iii)
reimbursement of business expenses incurred prior to the date of termination,
(iv) travel and housing allowances under Section 9 for six months after the date
of termination, and (v) reasonable relocation expenses from Bermuda to the
United States.
(f) In the event of the liquidation of the Company or the
Operating Company or in the event that the Board of Directors elects to
discontinue permanently operating the Company or the Operating Company, the
Employee's employment and the Term of Employment hereunder shall be terminated
as of the date of such liquidation or discontinuance, and the Operating Company
shall pay the Employee within 30 days of the day liquidation or discontinuance
is determined (i) any accrued but unpaid salary, (ii) any earned but unpaid
bonus from a prior fiscal year, (iii) unreimbursed business expenses incurred
prior to the date of termination, (iv) travel and housing allowances under
Section 9 for two months after the date of termination, and (v) reasonable
relocation expenses from Bermuda to the United States. In addition, the Employee
shall be entitled to receive one year's base salary from the date on which the
Employee's employment is terminated.
(g) Notwithstanding any other provision of this Agreement,
until the IPO is consummated, either the Employee or the Company may terminate
the Employee's employment and the Term of Employment hereunder upon 30 days'
written notice to the other, in which event the Company shall be liable to the
Employee only for reimbursement of business expenses incurred prior to the date
of termination.
Section 12. Change of Control.
(a) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then exercisable shall become exercisable (and be
deemed to be vested) on the date on which a
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<PAGE> 6
Change of Control (as defined below) of the Company occurs. In addition,
restricted Common Shares granted under any other of the Company's share option
plans shall immediately vest upon a Change of Control of the Company.
(b) If (i) the employment of the Employee is terminated by the
Company (or successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Company (or successor thereto) for Good Reason,
in each case within the period commencing on the date that a Change of Control
is formally proposed to the Company's Board of Directors and ending on the first
anniversary of the date on which such Change of Control occurs, then the
Employee shall be entitled to receive within 30 days of such termination (in
lieu of the benefits described in Section 11): (1) any accrued but unpaid
salary, (2) a lump sum payment equal to two times such Employee's annual base
salary as of the date of termination, (3) any accrued but unpaid bonus from a
prior fiscal year, (4) reimbursement of business expenses incurred prior to the
date of termination, (5) travel and housing allowances under Section 9 for one
year following the date of termination, (6) reasonable relocation expenses from
Bermuda to the United States, together with (7) a gross up of any excise taxes
payable by the Employee by reason of such payments occurring in connection with
a Change of Control.
The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.
(c) A "Change of Control" of the Company shall be deemed to
have occurred if, following consummation of the IPO (i) any "person" as such
term is defined in Section 3(a)(9) and as used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"), excluding the Company
or any of its subsidiaries, a trustee or any fiduciary holding securities under
an employee benefit plan of the Company or any of its subsidiaries, an
underwriter temporarily holding securities pursuant to an offering of such
securities or a corporation owned, directly or indirectly, by shareholders of
the Company in substantially the same proportion as their ownership of the
Company, is or becomes the "beneficial owner" (as defined in rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the Company's then
outstanding securities ("Voting Securities"); (ii) during any period of not more
than two years, individuals who constitute the Board of Directors of the Company
(the "Board") as of the beginning of the period and any new director (other than
a director designated by a person who has entered into an agreement with the
Company to effect a transaction described in clause (i) or (iii) of this
sentence) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at such time or
whose election or nomination for election was previously so approved, cease for
any reason to constitute a majority thereof; (iii) the shareholders of the
Company approve a merger, consolidation or reorganization or a court of
competent jurisdiction approves a scheme of arrangement of the Company, other
than a merger, consolidation, reorganization or scheme of arrangement which
would result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into Voting Securities of the surviving entity) at least 40% of
the combined voting power of the Voting Securities of the Company or such
surviving entity outstanding immediately after such merger, consolidation,
reorganization or
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<PAGE> 7
scheme of arrangement; or (iv) the shareholders of the Company approve a plan of
complete liquidation of the Company or any agreement for the sale of
substantially all of the Company's assets.
(d) The provisions of this Section 12 shall only apply
following the consummation of an IPO.
Section 13. Agreement Not to Compete.
(a) The Employee hereby covenants and agrees that at no time
during the Term of Employment nor for a period of one year immediately following
the termination of the Employee's employment for any reason, will he for himself
or on behalf of any other person, partnership, company or corporation, directly
or indirectly, acquire any financial or beneficial interest in (except as
provided in the next sentence), provide consulting or other services to, be
employed by, or own, manage, operate or control any entity engaged in the
financial guaranty insurance or reinsurance business similar to the business
engaged in by the Company or the Operating Company at the time of such
termination of employment. Notwithstanding the preceding sentence, the Employee
shall not be prohibited from owning less than one (1%) percent of any publicly
traded corporation, whether or not such corporation is in competition with the
Company or the Operating Company.
(b) The Employee hereby covenants and agrees that, at all
times during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee shall not directly or indirectly
employ or seek to employ any person or entity employed at that time by the
Company or any of its subsidiaries, or otherwise encourage or entice such person
or entity to leave such employment.
(c) This Section 13 shall be null and void if the Board of
Directors elects to discontinue permanently the Company's operations or if the
IPO has not been consummated by March 31, 1999.
Section 14. Confidential Information.
The Employee agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to the Company or any affiliate
of the Company, including, without limitation, customer lists, client lists,
trade secrets, business plans, financial models, pricing policies and other
business affairs of the Company and any affiliate of the Company learned by him
from the Company or any such affiliate or otherwise before or after the date of
this Agreement, and not to disclose any such confidential matter to anyone
outside the Company or any of its affiliates, whether during or after his period
of service with the Company, except as may be required in the course of a legal
or governmental proceeding. Upon request by the Company, the Employee agrees to
deliver promptly to the Company upon termination of his services for the
Company, or at any time thereafter as the Company may request, all Company or
affiliate memoranda, notes, records, reports, manuals, drawings, designs,
computer files in any media and other documents (and all copies thereof)
relating to the Company's or any affiliate's business and all property of the
Company or any affiliate associated therewith, which he may then possess or have
under his control.
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<PAGE> 8
Section 15. Remedy.
(a) Should the Employee engage in or perform, either directly
or indirectly, any of the acts prohibited by Sections 13 or 14 hereof, it is
agreed that the Company shall be entitled to full injunctive relief, to be
issued by any competent court of equity, enjoining and restraining the Employee
and each and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The foregoing
remedy available to the Company shall not be deemed to limit or prevent the
exercise by the Company of any or all further rights and remedies which may be
available to the Company hereunder or at law or in equity.
(b) The Employee acknowledges and agrees that the covenants
contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof. If any provision hereof is
determined to be invalid or unenforceable by a court of competent jurisdiction,
the Employee shall negotiate in good faith to provide the Company with
protection as nearly equivalent to that found to be invalid or unenforceable and
if any such provision shall be so determined to be invalid or unenforceable by
reason of the duration or geographical scope of the covenants contained therein,
such duration or geographical scope, or both, shall be considered to be reduced
to a duration or geographical scope to the extent necessary to cure such
invalidity.
Section 16. Indemnification.
The Company and the Operating Company will indemnify the
Employee (and his legal representatives or other successors) to the fullest
extent permitted by the laws of the Islands of Bermuda and in accordance with
the terms of the Company's and the Operating Company's respective Bye-Laws, and
the Employee shall be entitled to the protection of any insurance policies the
Company or the Operating Company may elect to maintain generally for the benefit
of their directors and officers, against all costs, charges and expenses
whatsoever incurred or sustained by the Employee or his legal representatives in
connection with any action, suit or proceeding to which he (or his legal
representatives or other successors) may be made a party by reason of his being
or having been a director or officer of the Company or the Operating Company.
Section 17. Successors and Assigns.
This Agreement shall be binding upon and inure to the benefit
of the Employee, his heirs, executors, administrators and beneficiaries, and the
Company, the Operating Company and their successors and assigns.
Section 18. Governing Law.
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the Islands of Bermuda, without reference to
rules relating to conflicts of law.
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<PAGE> 9
Section 19. Entire Agreement.
This Agreement constitutes the full and complete understanding
and agreement of the parties and supersedes all prior understandings and
agreements as to employment of the Employee. This Agreement cannot be amended,
changed, modified or terminated without the written consent of the parties
hereto.
Section 20. Waiver of Breach.
The waiver by either party of a breach of any term of this
Agreement shall not operate nor be construed as a waiver of any subsequent
breach thereof.
Section 21. Notices.
Any notice, report, request or other communication given under
this Agreement shall be written and shall be effective upon delivery when
delivered personally, by Federal Express or by fax.
Unless otherwise notified by any of the parties, notices shall
be sent to the parties as follows:
To Employee: James G. Jachym
--------------------------
--------------------------
--------------------------
To the
Company: Global Markets Access Ltd.
Cumberland House
1 Victoria Street
Hamilton, HM AX, Bermuda
Section 22. Severability.
If any one or more of the provisions contained in this
Agreement shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
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<PAGE> 10
Section 23. Counterparts.
This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as on the day and year first above written.
By:/s/ James G. Jachym
--------------------------------
James G. Jachym
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
--------------------------------
Donald J. Matthews
Chief Executive Officer
GLOBAL MARKETS GUARANTY LTD.
By:/s/ Donald J. Matthews
--------------------------------
Donald J. Matthews
Chief Executive Officer
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<PAGE> 1
Exhibit 10.21
GLOBAL MARKETS ACCESS LTD.
February 26, 1999
The PMI Group, Inc.
601 Montgomery Street
San Francisco, California 94111
Re: Securities Purchase Agreement
Gentlemen:
Reference is made to the Securities Purchase Agreement dated
as of February 26, 1999 (the "Agreement"), between The PMI Group, Inc. (the
"Investor") and Global Markets Access Ltd. (the "Company"). All capitalized
terms used but not defined herein shall have the meanings ascribed to such terms
in the Agreement.
In connection with the Agreement, the Investor and the Company
hereby agree and acknowledge that, for so long as the Investor together with its
Affiliates beneficially own at least 1,000,000 Common Shares of the Company
(including for this purpose shares issuable pursuant to the Class B Warrants
held by the Investor and as adjusted for stock splits, reverse stock splits,
stock dividends and similar events), the Investor shall have the right to
designate two individuals for election to the board of directors of the Company,
and so long as the Investor together with its Affiliates beneficially own less
than 1,000,000 Common Shares, but at least 500,000 Common Shares, the Investor
shall have the right to designate one individual for election to the board of
directors. However, if the Investor at any time owns less than 1,000,000 shares,
it shall cause one such individual, and if less then 500,000 shares, both
individuals, to resign from the board of directors. Upon timely receipt by the
Company of the Investor's written exercise of such right, the Company shall, if
received on the date hereof, cause such individual elected as a director of the
Company and if received thereafter, shall cause such individual to be nominated
for election as a director of the Company at the next annual general meeting of
the Company. We advise you that pursuant to the foregoing the Company has today
elected Bradley M. Shuster and Claude J. Seaman to its board of directors to
serve as Class 2 and Class 3 directors, respectively. The fees and other
compensation paid to such directors in consideration of their services as such
shall not be less that that paid to other non-employee directors serving in
similar positions. In consideration of such right, and for so long as any person
selected by the Investor is a director (and during any period after
<PAGE> 2
The PMI Group, Inc.
February 26, 1999
Page 2
such person's designation by the Investor but before his or her election),
neither the Investor nor any of its Affiliates shall vote or permit any of the
shares of the Company beneficially owned by it to be voted for any other nominee
for election as a director of the Company.
The Company shall, subject to applicable law, use its best
efforts to cause all proxies solicited by management to be voted in favor of
such nominees (subject to any contrary instructions by the shareholder
delivering such proxy).
The Investor may assign its rights hereunder to any transferee
of the required minimum number of shares referred to above or agree to exercise
such right at the direction of any other person; provided that it has received
the prior written consent of the Company, such written consent not to be
unreasonably withheld; and further provided that under no circumstances shall
the Investor and all such transferees be entitled to designate more than two
directors. The Investor further agrees that it shall be reasonable for the
Company to withhold such prior written consent in situations including, but not
limited to, those in which the Investor agrees to assign their right or to act
at the direction of any person or entity directly or indirectly engaged in the
financial guaranty insurance or reinsurance business, or situations in which the
Investor agrees to assign its right or to act at the direction of any person or
entity where such assignment or act would result in any person owning, directly
or indirectly, or being considered to own, 10% or more of the total combined
voting power of all classes of stock of the Company under the "controlled
foreign corporation" rules of the United States Internal Revenue Code. As a
condition of any such assignment or
<PAGE> 3
The PMI Group, Inc.
February 26, 1999
Page 3
agreement to act at the direction of any other person, such assignee or other
person shall execute an agreement indicating its intention to be bound by the
terms of this letter.
Subject to the Company's Operating Guidelines, the Company shall, and
shall cause each of the Operating Company and the Marketing Company to, use
reasonable efforts following consummation of the purchase and sale under the
Agreement to explore mutually beneficial business relationships with the
Investor, including through offering to the Investor the opportunity to assume
reinsurance from, and cede reinsurance to, the Operating Company and to
participate in reinsurance transactions between the Operating Company and third
parties and by exploring opportunities with the Investor for joint marketing
arrangements and the mutual referral of business.
Very truly yours,
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
-------------------------------------
Donald J. Matthews
President and Chief Executive Officer
Acknowledged by:
/s/ Claude J. Seaman
- ---------------------
THE PMI GROUP, INC.
<PAGE> 1
Exhibit 10.22
GLOBAL MARKETS ACCESS LTD.
February 26, 1999
High Ridge Capital Partners Limited Partnership
20 Liberty Street
Chester, Connecticut 06412
Re: Securities Purchase Agreement
Gentlemen:
Reference is made to the Securities Purchase Agreement dated
as of February 26, 1999 (the "Agreement"), between High Ridge Capital Partners
Limited Partnership (the "Investor") and Global Markets Access Ltd. (the
"Company"). All capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Agreement.
In connection with the Agreement, the Investor and the Company
hereby agree and acknowledge that, for so long as the Investor together with its
Affiliates beneficially own at least 500,000 Common Shares of the Company
(including for this purpose shares issuable pursuant to the Class B Warrants
held by the Investor and as adjusted for stock splits, reverse stock splits,
stock dividends and similar events), the Investor shall have the right to
designate one individual for election to the board of directors of the Company.
However, if the Investor at any time owns less than the minimum number of shares
referred to in the preceding sentence, it shall cause such individual to resign
from the board of directors. Upon timely receipt by the Company of the
Investor's written exercise of such right, the Company shall, if received on the
date hereof, cause such individual to be elected as a director of the Company,
and if received thereafter, shall cause such individual to be nominated for
election as a director of the Company at the next annual general meeting of the
Company (provided no person previously selected by the Investor is a member of a
class of directors of the Company not standing for election at such meeting). We
advise you that pursuant to the foregoing the Company has today elected James
Zech to its board of directors, to serve as a Class 2 director. The fees and
other compensation paid to such director in consideration of his or her services
as such shall not be less that that paid to other non-employee directors serving
in similar positions. In consideration of such right, and for so long as any
person selected by the Investor is a director (and during any period after such
person's designation by the Investor but before his or her election), neither
the Investor nor any of its Affiliates shall vote or permit any of the shares of
the Company beneficially owned by it to be voted for any other nominee for
election as a director of the Company.
<PAGE> 2
High Ridge Capital Partners Limited Partnership
February 26, 1999
Page 2
The Company shall, subject to applicable law, use its best
efforts to cause all proxies solicited by management to be voted in favor of
such nominee (subject to any contrary instructions by the shareholder delivering
such proxy).
The Investor may assign its rights hereunder to any transferee
of the required minimum number of shares referred to above or agree to exercise
such right at the direction of any other person, provided that it has received
the prior written consent of the Company, such written consent not to be
unreasonably withheld. The Investor further agrees that it shall be reasonable
for the Company to withhold such prior written consent in situations including,
but not limited to, those in which the Investor agrees to assign their right or
to act at the direction of any person or entity directly or indirectly engaged
in the financial guaranty insurance or reinsurance business, or situations in
which the Investor agrees to assign its right or to act at the direction of any
person or entity where such assignment or act would result in any person owning,
directly or indirectly, or being considered to own, 10% or more of the total
combined voting power of all classes of stock of the Company under the
"controlled foreign corporation" rules of the United States Internal Revenue
Code. As a condition of any such assignment or agreement to act at the direction
of any other person, such assignee or other person shall execute an agreement
indicating its intention to be bound by the terms of this letter.
Very truly yours,
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
----------------------------------
Donald J. Matthews
President and Chief Executive Officer
Acknowledged by:
HIGH RIDGE CAPITAL PARTNERS LIMITED PARTNERSHIP
By: HRC General Partner Limited Partnership, its general partner
By: High Ridge Capital, LLC, its general partner
By:/s/ Steven J. Tynan
--------------------------------
Name:Steven J. Tynan
Title:Principal
<PAGE> 1
Exhibit 10.23
GLOBAL MARKETS ACCESS LTD.
February 26, 1999
Third Avenue Value Fund
Third Avenue Small-Cap Value Fund
767 Third Avenue
New York, NY 10017
Re: Securities Purchase Agreement
Gentlemen:
Reference is made to the Securities Purchase Agreements dated
as of February 26, 1999 (the "Agreements"), between Third Avenue Value Fund and
Third Avenue Small-Cap Value Fund (the "Investors") and Global Markets Access
Ltd. (the "Company"). All capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Agreements.
In connection with the Agreements, the Investors and the
Company hereby agree and acknowledge that, for so long as the Investors together
with their Affiliates beneficially own at least 250,000 Common Shares of the
Company (including for this purpose shares issuable pursuant to the Class B
Warrants held by the Investors and as adjusted for stock splits, reverse stock
splits, stock dividends and similar events), the Investors shall have the right
to designate one individual for election to the board of directors of the
Company. However, if the Investor at any time owns less than the minimum number
of shares referred to in the preceding sentence, it shall cause such individual
to resign from the board of directors. Upon timely receipt by the Company of the
Investors' written exercise of such right, the Company shall, if received on the
date hereof, cause such individual elected as a director of the Company and if
received thereafter shall cause such individual to be nominated for election as
a director of the Company at the next annual general meeting of the Company
(provided no person previously selected by the Investor is a member of a class
of directors of the Company not standing for election at such meeting). We
advise you that pursuant to the foregoing the Company has today elected Curtis
R. Jensen to its board of directors, to serve as a Class 1 director. The fees
and other compensation paid to such director in consideration of his or her
services as such shall not be less that that paid to other non-employee
directors serving in similar positions. In consideration of such right, and for
so long as any person selected by the Investors is a director (and during any
period after such person's designation by the Investors but before his or her
election), neither the Investors nor any of their Affiliates shall vote or
permit any of the shares of the Company beneficially owned by them to be voted
for any other nominee for election as a director of the Company.
<PAGE> 2
Third Avenue Value Fund
Third Avenue Small-Cap Value Fund
February 26, 1999
Page 2
The Company shall, subject to applicable law, use its best
efforts to cause all proxies solicited by management to be voted in favor of
such nominee (subject to any contrary instructions by the shareholder delivering
such proxy).
The Investors may assign their rights hereunder to any
transferee of the required minimum number of shares referred to above or agree
to exercise such right at the direction of any other person, provided that they
have received the prior written consent of the Company, such written consent not
to be unreasonably withheld. The Investors further agree that it shall be
reasonable for the Company to withhold such prior written consent in situations
including, but not limited to, those in which the Investors agree to assign
their rights or to act at the direction of any person or entity directly or
indirectly engaged in the financial guaranty insurance or reinsurance business,
or situations in which the Investors agree to assign their rights or to act at
the direction of any person or entity where such assignment or act would result
in any person owning, directly or indirectly, or being considered to own, 10% or
more of the total combined voting power of all classes of stock of the Company
under the "controlled foreign corporation" rules of the United States Internal
Revenue Code. As a condition of any such assignment or agreement to act at the
direction of any other person, such assignee or other person shall execute an
agreement indicating its intention to be bound by the terms of this letter.
Very truly yours,
GLOBAL MARKETS ACCESS LTD.
By:/s/ Donald J. Matthews
-----------------------------------
Donald J. Matthews
President and Chief Executive Officer
Acknowledged by:
THIRD AVENUE TRUST
On behalf of Third Avenue Value Fund
By:/s/ David Barse
-----------------------
Name:David Barse
Title:President
<PAGE> 3
Third Avenue Value Fund
Third Avenue Small-Cap Value Fund
February 26, 1999
Page 3
THIRD AVENUE TRUST
On behalf of Third Avenue Small-Cap Value Fund
By:/s/ David Barse
-----------------------------
Name:David Barse
Title:President
<PAGE> 1
Exhibit 10.24
Merrill Lynch Mercury Asset Management Discretionary Non-ERIS
INVESTMENT ADVISORY CONTRACT
We, Merrill Lynch Mercury Asset Management, a division of Merrill
Lynch Asset Management, L.P. (MLAM) agree to act as investment manager for
Global Markets Guaranty Ltd. as follows:
APPOINTMENT 1. We are appointed investment manager of your investment
portfolio (the "portfolio"), effective from the time we
accept this agreement.
INVESTMENTS 2. You hereby appoint us as your attorney-in-fact with full
power and authority to take action in your name to the
extent necessary or desirable to fulfill the purposes of
this Agreement, including, without limitation, (1) to
establish trading accounts on your behalf, (ii) to execute
and deliver such contracts and other documents on your
behalf as we, in our discretion, deem necessary or desirable
to establish such trading discounts or otherwise to effect
investments on your behalf authorized by this Agreement, and
(iii) to act, in our discretion, in your name to enforce
your rights and remedies under such contracts or documents.
PORTFOLIO 3. We will management Portfolio in compliance with the
TRANSACTIONS Investment Guidelines affixed hereto or as may be modified
by the written agreement of you and us (the "Investment
Guidelines"). We will submit to you monthly reports
appraising the portfolio at current market value.
4. You direct us to effect such transactions with or through
any investment firm that we select on your behalf,
including Merrill Lynch, Pierce, Fenner and Smith
Incorporated, Merrill Lynch Government Securities, Inc.,
Merrill Lynch Money Markets, Inc. or any other affiliate or
ours ("Merrill Lynch"). You authorize us to establish
accounts on your behalf as your attorney-in-fact in
accordance with these directions, and empower such
investment firms to follow our instructions. Investment
firms, including Merrill Lynch, may be compensated from
your Portfolio at their standard rates for effecting
transactions on your behalf. Your agree that we are not
obligated to negotiate such rates. You agree that we may
temporarily invest your cash in a money market fund which
employes us or an affiliate as its investment adviser only
with prior approval by you.
5. You agree that, if investment transactions are effected for
your with Merrill Lynch, it may act as principal, or as
agent for both sides of a transaction, in accordance with
the following. We may effect such transactions on your
behalf when we have determined that the price available
from Merrill Lynch is at least as favorable as the prices
available from two other investment firms with respect to
the type of investment involved. We will advise you in
writing immediately following the trade of the capacity in
which Merrill Lynch acted. You will be deemed to have
consented to such trade unless you advise us in writing by
9:00 AM, New York City time, on the next business day in
New York City following the advise of trade, that you have
not so consented. If you shall have advised us that you do
not so consent, we will dispose of the investment and you
will bear any losses that may result. You understand that
when Merrill Lynch acts as agent for both sides of a
transaction, it may be paid commissions from, and has
duties to, the opposing sides.
<PAGE> 2
Administration 6. We are a registered investment adviser under the
Investment Advisers Act of 1940. Merrill Lynch Asset
Management is a limited partnership. Merrill Lynch & Co.,
Inc. is the limited partner and Princeton Services, Inc.,
a wholly owned, indirect subsidiary of Merrill Lynch &
Co., Inc., is the general partner. We will undertake to
notify you of any change in the membership of our
partnership within a reasonable time of such change.
7. You acknowledge that you have received our disclosure
statement.
8. You agree to notify us prior to giving any instruction
to an investment firm or custodian regarding the
commitment, withdrawal or investment of the Portfolio. We
are under no duty to enter into any transaction with
respect to assets which are not readily available for
delivery.
9. You direct that investment firms with or through which we
effect transactions be instructed to transmit
simultaneously to the custodian of the Portfolio on your
behalf and to us all correspondence, including
confirmations and periodic statements. The custodian will
be directed to transmit to you all correspondence,
including confirmations and periodic statements, that it
receives from investment firms with respect to the
Portfolio.
10. Employees of our affiliates may receive credits or
compensation for introducing you to us and for
transactions effected on your behalf.
11. You reserve solely to yourself the right to vote proxies
for your investments and we are expressly precluded from
voting such proxies.
12. You acknowledge that our affiliates may have investment
banking relationships with publicly traded companies and
that employees of our affiliates may act as directors of
publicly traded companies, which at times may preclude
our effecting transactions on your behalf in securities
of such companies.
Representations 13. You are duly organized and validly existing under the
laws of the jurisdiction of your organization or
incorporation and, if relevant under such laws, in
good standing.
14. You have the power to execute and deliver this Agreement
and to perform your obligations under this Agreement, and
have taken all action necessary to authorize its
execution, delivery and performance.
15. You have the power to execute and deliver, through us as
your attorney-in-fact, each agreement which we may enter
into in connection with investments on your behalf
authorized by this Agreement, and to perform your
obligations under such agreement, and have taken all
necessary action to authorize such execution, delivery
and performance.
16. The persons executing this Agreement on your behalf have
been duly authorized to do so.
17. The execution, delivery and performance of this
Agreement, and each agreement we may execute and deliver
as your attorney-in-fact, do not violate or conflict with
any law, ordinance, charter, by-law or rule applicable to
you, any order or judgment of any court or agency of
government applicable to you or any of your assets, or by
which any
<PAGE> 3
of your assets are affected, or any contractual restriction
binding on or affecting you or any of your assets, or by
which any of your assets are affected.
18. Your obligations under this Agreement, and each agreement we
may execute and deliver as your attorney-in-fact,
constitutes or will constitute a legal, valid and binding
obligation, enforceable against you in accordance with their
terms (subject to applicable insolvency or similar laws
affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general
application).
19. All governmental and other consents that are required to
have been obtained by you in connection with this Agreement,
and each agreement we may execute and deliver as your
attorney-in-fact, have been so obtained and are in full
force and effect, and all conditions of any such consents
have been complied with.
20. You are entering into this Agreement as principal and no
other person has or will have an interest deriving from you
in any assets managed by us pursuant to this Agreement.
21. All information provided by you to us and which we are
authorized to provide to investment counterparties is, as of
the date of the information, true, accurate and complete in
every material respect.
22. You are not currently subject to any Default Event (as
defined under "Covenants").
23. All information provided by you to us with respect to your
tax status is accurate and true.
24. There is not pending or, to your knowledge, threatened
against you or any of your affiliates any action, suit or
proceeding at law or in equity or before any court,
tribunal, governmental body, agency or official or any
arbitrator that purports to draw into question, or is likely
to affect, the legality, validity or enforceability against
you of this Agreement, or any agreement we may execute and
deliver as your attorney-in-fact, or your ability to perform
your obligations under this Agreement or any such agreement.
25. You are entering into this Agreement, and have determined
the scope of our investment authority pursuant to this
Agreement, in reliance upon your own regulatory, tax and
accounting advice, and not upon any view expressed by us.
26. You represent that the Portfolio is not subject to the
Employee Retirement Income Security Act of 1974 ("ERISA") or
the Investment Company Act of 1940. You will be exclusively
responsible for compliance with the Commodity Exchange Act
and other law, except insofar as we do not comply with the
Investment Guidelines.
Covenants 27. You will notify us promptly upon becoming aware that any
representation made by you in this Agreement has become
inaccurate in any material respect.
28. You will notify us promptly upon becoming aware of any of
the following events:
(1) You (i) are dissolved, (ii) become insolvent or fail or
are unable or admit in writing your inability generally to
pay your debts as they become due; (iii) make a general
assignment, arrangement or composition with or for the
benefit of creditors; (iv) institute or have instituted
against you a proceeding seeking a judgment of insolvency or
bankruptcy or any other relief under any bankruptcy or
insolvency law or other similar law affecting creditors'
rights, or a petition is presented for your winding up or
liquidation and, in the case of any such proceeding or
petition instituted or presented
<PAGE> 4
against you, such proceeding or petition (A) results in a
judgment of insolvency or bankruptcy or the entry of relief
or the making of an order for your winding up or liquidation
or (B) is not dismissed, discharged, stayed or restrained in
each case within 30 days of the institution or presentation
thereof; (v) have a resolution passed for your winding up or
liquidation; (vi) seek or become subject to the appointment
of an administrator, receiver, trustee, custodian or other
similar official for you or for substantially all of your
assets (regardless of how brief such appointment may be, or
whether any obligations are promptly assumed by another
entity or whether any other event described in this clause
(vi) has occurred and is continuing); (vii) are involved in
any event which, under the applicable laws of any
jurisdiction, has an analogous effect to any of the
foregoing events; or (viii) take any action in furtherance
of, or indicating your consent to, approval of, or
acquiescence in, any of the foregoing acts (each a "Default
Event").
(2) You consolidate with, or merge into, or transfer all or
substantially all your assets to, another entity.
(3) The adoption of, or any change in, any applicable law,
or the promulgation of, or any change in, the interpretation
by any court, tribunal or regulatory authority, which would
make it unlawful to you to perform any absolute or
contingent obligation to make payment relating to any
investment which we are authorized to effect on your behalf
or to comply with any material provision of any agreement
relating to any such investment.
29. We will not be liable for the consequences of any investment
decision or related activities made or omitted within the
limitations specified earlier, except for loss incurred as a
result of our gross negligence or willful or reckless
misconduct. We will not be liable for loss incurred by any
other person or as a result of any person other than us,
whether or not our affiliate. These limitations of liability
also apply to our officers, employees and agents.
Notwithstanding the foregoing, nothing herein shall in any
way constitute a waiver or limitation of any rights which
you may have under the federal securities laws.
Arbitration 30. Jury Trial Waiver; Arbitration; Legal Fees. EACH PARTY
EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE TO A JURY WITH
RESPECT TO ANY DISPUTE, CONTROVERSY, CLAIM OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT. Any dispute,
controversy or claim arising out of or relating to this
Agreement which is not settled by the agreement of the
parties shall be settled by arbitration in accordance with
the commercial arbitration rules of the American Arbitration
Association then in effect before a panel of three
arbitrators in New York, New York or such other location as
the parties shall mutually agree. The parties agree that
such arbitration shall be the exclusive remedy hereunder.
Each party expressly waives any right it may have to a jury
trial or to seek redress in any other forum. Any arbitrator
acting hereunder shall be empowered to assess no remedy
other than payment of fees and out-of-pocket damages. Each
party shall bear its own expenses of arbitration, and shall
divide equally the expenses of the arbitrators and of a
transcript of any arbitration proceeding. Any decision and
award of the arbitrators shall be binding upon the parties,
and judgment thereon may be entered in the Supreme Court of
the State of New York or any other court having
jurisdiction. Notwithstanding the foregoing, this agreement
to arbitrate shall not prevail over any contrary
requirements mandated by applicable law, rule or regulation.
If either party institutes any action or proceeding,
including arbitration, to enforce this Agreement or for
damages by reason of any alleged breach of the Agreement or
for a declaration of rights hereunder, then the prevailing
party shall be entitled to receive from the other party all
of its costs and expenses, including reasonable attorney's
fees, incurred in connection with such action or proceeding.
<PAGE> 5
31. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
NEW YORK, EXCEPT AS MAY BE PREEMPTED BY UNITED
STATES FEDERAL LAW.
Custody 32. You have instructed us that Mellon Trust will act as
custodian of the Portfolio. We will never receive or
physically control the Portfolio.
33. We will not be responsible for making any tax credit
or similar claim or any legal filing on your behalf.
Fees 34. Our fees are calculated, and shall be paid, quarterly
in arrears based on the attached fee schedule as
determined in accordance with the valuation procedures
described therein.
Termination 35. This agreement shall remain in force until further
notice. You will be entitled to terminate this
agreement any time, effective from the time we receive
written notification or such other time as may be
mutually agreed upon, subject to the settlement of
transactions in progress. There will be no penalty
charge on termination. This agreement will also be
terminated on the fifth day after we send you notice in
writing of our intent to terminate this agreement or
such other time as may be mutually agreed upon, also
subject to the settlement of transactions in progress.
We may not assign this agreement without your prior
consent. As provided in Rule 202(a)(l)-l under the
Investment Advisers Act of 1940, a transaction which
does not result in a change of our actual management
or control will not be considered to be an assignment.
Confidentiality 36. All information provided to us by you or your custodian
shall be held confidential by us; provided, however,
as is necessary to carry out the purposes of this
agreement or as may be required by law, we shall be
permitted to disclose or communicate to a proper party
any information received from you or your custodian or
developed by us on your behalf under the terms of this
agreement.
GLOBAL MARKETS GUARANTY LTD
[SEAL]
Signed and Accepted
by /s/ Donald J. Matthews
-----------------------
Printed Name: Donald J. Matthews
Title: President & CEO
Signed and accepted, on February 24, 1999
on behalf of MERRILL LYNCH, MERCURY ASSET MANAGEMENT,
in PLAINSBORO, NEW JERSEY, U.S.A.
Signed and Accepted by /s/ Loraine C. Lucas
--------------------
Printed Name: Loraine C. Lucas
Title: Vice President
<PAGE> 6
Global Market Guaranty Ltd.
US. FIXED INCOME SECURITIES -- LIQUIDITY MANAGEMENT PORTFOLIO
ANNUAL FEE SCHEDULE
CHARGE
If Assets are under US $150 million 0.125% flat
If Assets are in excess US $150 million 0.10% flat
(no tiering of fees)
Fees are to be paid on a calendar quarter basis, in arrears
Check One:
You hereby authorize and instruct us, Merrill Lynch Mercury Asset
Management, to deduct our fee from the Portfolio. (The custodian may rely
V on a copy of this as evidence of your instruction.)
- -----
You hereby instruct us to bill you directly. Please select one of the
following payment methods:
- ----- Check
-----
Wire
-----
You may change these billing instructions at any time by sending us a letter.
Your instructions will be effected following our receipt of your letter.
Fees payable to us, Merrill Lynch Mercury Asset Management, will be
calculated in accordance with the above schedule, on the basis of the
average investable balance of assets under management during the period
with respect to which such fees are due. The average investable balance for
each one month period during the calendar quarter will be the market value
of the securities plus other assets less liabilities at the beginning of
each month plus or minus weighted client contributions/withdrawals during
such month. The sum of the monthly average investable balances is then
divided by the number of months in the period. This total average
investable balance is then multiplied by the number of days in the period
divided by the number of the days in the year with the above fee schedule
then to be applied. Fees will be pro rated for periods shorter than a
calender quarter. Fees are payable in US dollars either (1) upon receipt of
a bill from us or (2) if you have authorized us to do so, by deduction from
the Portfolio.
/s/ Donald J. Matthews 2/24/99
----------------------- -----------------
Client Signature Date
<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
February 26, 1999
