<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 7, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GEMINI RE HOLDINGS LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 6719 NOT APPLICABLE
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL IDENTIFICATION NO.)
CLASSIFICATION CODE
NUMBER)
REID HALL CT CORPORATION SYSTEM
3 REID STREET 1633 BROADWAY
HAMILTON HM 11 BERMUDA NEW YORK, NEW YORK 10019
(441) 295-4484 (212) 664-1666
(ADDRESS, INCLUDING ZIP CODE, AND (NAME, ADDRESS, INCLUDING ZIP CODE,
TELEPHONE NUMBER, AND TELEPHONE
INCLUDING AREA CODE, OF REGISTRANT'S NUMBER, INCLUDING AREA CODE, OF AGENT
PRINCIPAL EXECUTIVE OFFICES) FOR SERVICE)
---------------
COPIES TO:
RICHARD WARREN SHEPRO, LISA J. MARSHALL, ESQ. PETER J. GORDON, ESQ.
ESQ. CONYERS DILL & PEARMAN SIMPSON THACHER &
CAROL S. RIVERS, ESQ. CLARENDON HOUSE BARTLETT
MAYER, BROWN & PLATT 2 CHURCH STREET, P.O. BOX 425 LEXINGTON AVENUE
190 SOUTH LASALLE STREET HM666 NEW YORK, NEW YORK 10017
CHICAGO, ILLINOIS 60603- HAMILTON, HM CX, BERMUDA (212) 455-2000
3441 (441) 295-1422
(312) 782-0600
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APPROXIMATE DATE OF COMMENCEMENT OF THE 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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<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
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<S> <C> <C>
Common Shares, par value $1.00 per share............ $400,000,000 $111,200
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
EXPLANATORY NOTE
This Registration Statement contains three forms of prospectus: one to be
used in connection with an offering of the Common Shares in the United States
and Canada (the "U.S. Prospectus"), a second to be used in connection with a
concurrent offering of the Common Shares outside the United States and Canada
(the "International Prospectus") and a third to be used in connection with a
concurrent direct offering of the Common Shares by the Company to its directors
and officers (the "Director and Officer Prospectus"). The three prospectuses
are identical in all respects except for the front cover page, the Section
entitled "Underwriting" ("Plan of Distribution" in the Director and Officer
Prospectus) and the back cover page. Pages included in the International
Prospectus and the Director and Officer Prospectus and not in the U.S.
Prospectus are marked "Alternative Page for the International Prospectus" and
"Alternative Page for the Director and Officer Prospectus," respectively.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE +
+AMENDED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION +
+STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE +
+STATE SECURITIES COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE +
+WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
PROSPECTUS
SHARES
GEMINI RE HOLDINGS LTD.
COMMON SHARES
-----------
This is Gemini Re Holdings Ltd.'s initial public offering of Common Shares.
The U.S. underwriters will offer Common Shares in the United
States and Canada and the international managers will offer
Common Shares outside the United States and Canada. This is a firm commitment
underwriting.
We expect the public offering price to be $15.00 per share. Currently, no
public market exists for the Common Shares. After pricing the offerings, we
expect that the Common Shares will trade on the Nasdaq National Market under
the symbol " ."
The Company is also offering by a separate prospectus up to
Common Shares directly to certain of its directors and officers at a price per
share equal to the initial public offering price, less the per share
underwriting discount. Those sales will be consummated simultaneously with the
public offerings.
INVESTING IN THE COMMON SHARES INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE 10 OF THIS PROSPECTUS.
-----------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public Offering Price.............................. $ $
Underwriting Discount.............................. $ $
Proceeds, before expenses, to the Company.......... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional
Common Shares at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an aggregate of an
additional Common Shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We expect that the Common Shares will be ready for delivery in New York,
New York on or about , 1999.
-----------
MERRILL LYNCH & CO.
CHASE SECURITIES
INC.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements............................................... 2
Enforcement of Civil Liabilities Under United States Federal Securities
Laws.................................................................... 4
Summary.................................................................. 5
Risk Factors............................................................. 10
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Unaudited Pro Forma Balance Sheet........................................ 21
Management's Discussion and Analysis of Financial Condition and Plan of
Operations.............................................................. 22
Business................................................................. 25
Management............................................................... 42
Principal Shareholders................................................... 47
Certain Transactions..................................................... 47
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 54
Direct Sales............................................................. 55
Certain Tax Considerations............................................... 56
Underwriting............................................................. 65
Legal Matters............................................................ 69
Experts.................................................................. 69
Additional Information................................................... 69
Glossary of Selected Reinsurance and Insurance Terms..................... 71
Index to Balance Sheet................................................... F-1
</TABLE>
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FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have used the
words "may," "will," "expect," "anticipate," "continue," "estimate," "project,"
"plan," "intend" and similar expressions in this prospectus to identify
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections. Forward-looking statements are
subject to risks and uncertainties and 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 those described under the headings "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Plan of Operations." We
undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
-----------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition and
prospects may have changed since that date.
-----------------
We have obtained consent for the issue and transfer of the Common Shares
from the Bermuda Monetary Authority as required by The Exchange Control Act
1972 of Bermuda and related regulations. In addition, we have delivered a copy
of this prospectus to the Registrar of Companies in Bermuda for filing pursuant
to The Companies Act 1981 of Bermuda. However, the Bermuda Monetary Authority
and
2
<PAGE>
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 in this prospectus.
-----------------
Amounts in this prospectus are expressed in U.S. dollars and the
financial statements contained in this prospectus have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP").
-----------------
These securities have not been approved or disapproved by the
Commissioner of Insurance for the State of North Carolina, nor has the
Commissioner of Insurance ruled upon the accuracy or the adequacy of this
document. The buyer in North Carolina understands that neither the Company nor
its subsidiaries are licensed in North Carolina pursuant to Chapter 58 of the
North Carolina general statutes nor could they meet the basic admissions
requirements imposed by such chapter at the present time.
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING THE PURCHASE OF COMMON SHARES TO COVER SYNDICATE SHORT POSITIONS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
3
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
Gemini Re Holdings Ltd (the "Company") and Gemini Re Ltd., a wholly-owned
subsidiary of the Company through which the Company expects to conduct
substantially all of its operations ("Gemini Re"), are both organized pursuant
to the laws of Bermuda. In addition, certain of our directors and officers, as
well as certain of the experts named in this prospectus, reside outside the
United States, and all or a substantial portion of our assets and their assets
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 those persons or to recover against us or those 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, we may be served with process in the United States with respect to
actions against us arising out of or in connection with violations of United
States federal securities laws relating to offers and sales of Common Shares by
serving CT Corporation System, 1633 Broadway, New York, New York 10019, our
United States agent irrevocably appointed for that purpose.
We have been advised by Conyers Dill & Pearman, our Bermuda counsel, that
there is doubt as to whether the courts of Bermuda would enforce (1) judgments
of United States courts obtained in actions against us or our directors and
officers, as well as the experts named in this prospectus, who reside outside
the United States predicated upon the civil liability provisions of the United
States federal securities laws or (2) original actions brought in Bermuda
against us or those persons predicated solely upon United States federal
securities laws. We also have 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.
4
<PAGE>
SUMMARY
This summary may not contain all the information that may be important to
you. You should read the entire prospectus, including the financial data and
related notes, before investing in the Common Shares. The terms "the Company,"
"us" and "we" as used in this prospectus refer to Gemini Re Holdings Ltd. and
its wholly-owned subsidiary, Gemini Re, as a combined entity, except where it
is clear that such term means only the parent company.
The Company and Gemini Re were recently organized in Bermuda to provide
multi-line reinsurance and insurance on a worldwide basis. We will adopt an
innovative business strategy involving a balanced and coordinated approach to
insurance underwriting and investing. We will engage in large, highly
structured transactions in addition to traditional reinsurance and insurance
transactions. We will principally target long-duration risks, including
traditional life and annuity, workers' compensation, medical malpractice and
disability reinsurance, as well as structured settlements. We intend to balance
the underwriting of long-duration risks with an investment approach that we
anticipate will produce superior compound returns over the term of the
underwriting liabilities. We will seek to develop a select client base
principally comprised of primary life and property and casualty insurance and
reinsurance companies as well as large multinational corporations.
We believe that we can realize significant competitive advantages by
building a business with the following key features:
. A high level of capitalization to support our global reinsurance and
insurance operations
. A business strategy that matches profitable long-tailed liability
underwriting with long-term investments to produce superior
shareholder returns
. A unique arrangement that aligns the compensation of the investment
manager with the long-term interests of management and shareholders
. A sophisticated proprietary risk management approach that allocates
capital to both underwriting and investment transactions
. The ability to provide custom designed, highly-structured
reinsurance and insurance products that combine underwriting,
financial and investment expertise
. Incorporation in Bermuda, a regulatory environment that permits
creative product development and flexible investment strategies
Our business strategy responds to a number of industry trends that we
believe will continue to increase the demand for traditional and sophisticated
reinsurance and insurance products, including:
. Price sensitivity among purchasers of reinsurance and insurance
. Restructuring in the insurance industry, including consolidation and
demutualization
. Stringent reserve and capital requirements of regulators and rating
agencies
. Convergence of the insurance and capital markets
We will seek to earn a high rate of total return on our capital by
investing in a combination of fixed income securities and highly-liquid managed
funds. We have retained Union Spring Asset Management, Inc. ("Union Spring"),
an affiliate of Willowbridge Associates Inc. ("Willowbridge"), to manage our
investment portfolio. Union Spring and Willowbridge have over $1.2 billion in
combined assets under management. At least % of our investment portfolio
initially will be invested in fixed income securities with a minimum average
credit quality rating of AA2/AA. The remainder of our portfolio initially will
be invested in managed funds. Union Spring initially expects that substantially
all of the managed funds managed directly by it will be traded using three
Willowbridge trading programs--
5
<PAGE>
"XLIM," "VAT" and "Primary." These programs individually have yielded compound
annual returns (net of all fees and subject to certain assumptions discussed on
page 32) of approximately 32%, 31% and 25% since 1987, 1990 and 1993,
respectively. See "Business--Investment Strategy." These returns may not be
indicative of the returns yielded on our managed funds portfolio. See "Risk
Factors--Investment Risks." Our remaining managed funds portfolio initially
will be allocated among sub-managers to be selected by Union Spring and other
Willowbridge and Union Spring trading strategies.
Upon consummation of the offerings of Common Shares made by this
prospectus (the "Offerings") and the sales of Common Shares to certain
investors, directors and executive officers (the "Direct Sales"), we will have
an equity capitalization of approximately $ . We believe that this
level of capitalization will demonstrate a strong financial position consistent
with our strategy to write large blocks of business and a high level of
commitment to the insurance and reinsurance markets. We also believe that our
level of capitalization will enable us to compete for desirable business and
establish long-term relationships with a select group of primary insurers and
reinsurers. In addition, our significant capitalization will allow us to
implement our investment strategy while still providing our customers with a
high level of security. As a result of our capitalization and other factors, we
have been assigned a preliminary claims-paying ability rating of by
.
Our principal executive office is located at Reid Hall, 3 Reid Street,
Hamilton HM 11, Bermuda, and our telephone number is (441) 295-4484.
BUSINESS STRATEGY
Our business objective is to create a sophisticated, multi-line
reinsurance and insurance business that will enable us to achieve attractive
total rates of return for our shareholders through prudent underwriting of
insurance risks and careful management of our investment portfolio. Our
business strategy is comprised of the following principal components:
. Execute an Advanced Risk Management Strategy
We intend to methodically measure risk by allocating capital to each
underwriting transaction and each investment strategy based on our assessment
of the associated risks. We will target a minimum return on allocated
capital. We believe that this discipline will help ensure that we maximize
the use of capital by having a consistent measurement of risk against which
we can evaluate competing opportunities. We have designed systems that will
allow us to track the aggregate capital allocated to underwriting
transactions and investment strategies. We will use this system to determine
the total capital "at risk" at any time and to determine appropriate capital
retention policies.
. Use a Disciplined Underwriting Approach
We will capitalize on the experience of our Chief Executive Officer and our
senior underwriters, as well as selected third-party underwriting specialists
where appropriate, to underwrite business with attractive risk/return
profiles. We will use a highly analytical underwriting approach together with
innovative contract structuring to closely match underwriting liabilities
with investment opportunities. We will focus primarily on underwriting long-
duration risks for which our underwriters are able to develop loss payment
patterns. We believe that these loss payment patterns will enable us to
generate meaningful projections of the total cash flows of our insurance
portfolio. These projections will then be used to determine the liquidity and
return needs of our investment portfolio. Additionally, we have developed a
proprietary risk analysis and pricing model to facilitate pricing the risks
we assume on a transaction-by-transaction basis.
. Implement an Innovative Investment Strategy
We will implement an investment strategy designed to obtain superior returns
while diversifying risks by investing in a combination of fixed income
securities and highly-liquid managed funds. The managed funds portfolio will
be invested in a broad range of instruments, including equities, fixed income
securities, currencies, options, swaps, futures, commodities and other
financial instruments, that
6
<PAGE>
will be traded directly by Union Spring and through carefully selected sub-
managers. The fixed income portfolio will be invested in investment grade
securities that will be managed by one or more experienced sub-managers
selected by Union Spring and approved by the Investment Committee of our
Board of Directors (the "Board of Directors"). We believe that the nature of
the risks we intend to underwrite combined with the use of our aggregation
model will allow us to develop a model of our cash flow requirements over
time. We will use this model as a tool to help allocate our investment
portfolio between managed funds and fixed income investments.
. Align our Interests with Our Investment Manager
We have retained Union Spring to manage our investment portfolio. Philip L.
Yang, our Deputy Chairman of the Board of Directors, also is the sole
stockholder, director and chairman of Union Spring and the sole stockholder,
director and president of Willowbridge. Mr. Yang is the principal designer of
the Willowbridge and Union Spring trading strategies and has full
responsibility for the trading activities of Union Spring. In order to align
Union Spring's interests as closely as possible with our long-term interests,
Union Spring has agreed to receive its managed funds incentive fees in Common
Shares payable for up to ten years after the fees are earned. Union Spring
also has agreed to pay all sub-manager fees out of its own funds. Subject to
securing adequate financing, Union Spring also will assume any "netting"
risk, which arises when incentive fees are payable to profitable sub-managers
for any quarter in which no incentive fee is payable by us to Union Spring on
our managed funds portfolio as a whole.
. Capitalize on Skill and Experience of Management
We have assembled a senior management team of experienced reinsurance and
insurance professionals to implement our business strategy. Our Chief
Executive Officer and President, David A. Brown, worked for six years for
Centre Solutions (formerly Centre Re), a subsidiary of Zurich Insurance
Group, most recently as its Chief Executive Officer and President, and for
ten years prior to that time advised the insurance and reinsurance industries
in Bermuda with the accounting firm of Ernst & Young, most recently as a
partner. Our Chief Financial Officer and Treasurer, E. Grant Gibbons, was the
Bermuda Minister of Finance until November 1998. His responsibilities
included the oversight of the insurance and financial services industries.
. Maintain Low Cost Structure
We believe that the price of reinsurance and insurance is a primary
determinant used by purchasers in selecting an underwriter. Consequently, a
key component of our business strategy is to maintain a low cost structure.
We expect to limit the number of employees initially to approximately 15 and
to minimize our administrative costs by writing a limited number of large,
highly-structured risks. We also expect to benefit from a favorable
regulatory environment in Bermuda. We believe that the combination of these
factors and our innovative investment strategy will permit us to price our
reinsurance and insurance products lower than most of our competitors.
. Opportunistically Consider Acquisitions
We intend to opportunistically consider acquisitions of run-off business and
operating companies. We will focus on acquisitions of long-tailed risks where
we can obtain higher returns through the deployment of our underwriting and
investment strategies. Acquisitions will be made where we believe they will
enable us to more quickly assemble a broad base of profitable insurance
business.
SPONSOR AND STRATEGIC INVESTORS
We have been established through the sponsorship of Plimpton & Co. (the
"Sponsor"), a private investment firm. The Sponsor has provided services to us
in connection with our formation, the Offerings and the Direct Sales. See
"Certain Transactions--Sponsor Relationships."
We have entered into agreements with , and
(collectively, the "Strategic Investors") for the purchase for investment
directly from us of an aggregate of
7
<PAGE>
Common Shares and warrants to purchase an aggregate of Common Shares.
These purchases will be completed simultaneously with the consummation of the
Offerings for an aggregate purchase price for the Common Shares and the
warrants of $ million. The aggregate purchase price to be paid by the
Strategic Investors is based on a price of $ for (1) one Common Share and
(2) the right to purchase approximately of a Common Share pursuant to
a warrant. The exercise price of the warrants will be $15.00 per share. See
"Description of Capital Stock--Warrants." Each of the Strategic Investors has
agreed not to offer, sell or otherwise transfer their Common Shares and
warrants for a period of one year from the date of this prospectus without our
prior written consent and the prior written consent of Merrill Lynch & Co., on
behalf of the U.S. Underwriters. See "Shares Eligible for Future Sale" and
"Direct Sales."
8
<PAGE>
THE OFFERINGS
<TABLE>
<C> <S>
Common Shares Offered in the
Offerings.................. shares
Direct Sales (1)............ shares
Common Shares to be
Outstanding after the
Offerings and the Direct
Sales (2).................. shares
Use of Proceeds from the
Offerings and the Direct The net proceeds of the Offerings and the Direct
Sales...................... Sales (after deducting underwriting discounts
and other expenses, including payments to the
Sponsor for fees and reimbursement for certain
expenses related to the Offerings and the sales
to the Strategic Investors) will be
approximately $ million and $ million,
respectively. Substantially all of the net
proceeds will be contributed to the capital and
surplus of Gemini Re to support its reinsurance
and insurance underwriting capacity. See "Use of
Proceeds."
Dividend Policy............. We intend to pay a quarterly cash dividend of
$ per Common Share following the end of the
first full fiscal quarter following the
consummation of the Offerings.
Proposed Nasdaq National
Market Symbol..............
</TABLE>
- -------
(1) Unless otherwise noted, this prospectus assumes that, upon consummation of
the Offerings, the sale of Common Shares and warrants to purchase an
aggregate of Common Shares to the Strategic Investors has been
completed and the Common Shares offered by the Company to its
directors and officers have been purchased. Such individuals, who have not
contracted with the Company to make such purchases, have indicated their
intention to purchase such Common Shares but are not obligated to do so.
(2) The Gemini Re Purpose Trust, a Bermuda trust (the "Purpose Trust"), owns
12,000 Common Shares, which constitutes all of the Common Shares currently
outstanding. Upon consummation of the Offerings, the Purpose Trust has
agreed to sell such Common Shares to us for an aggregate price of $12,000
and such Common Shares will be canceled. Common Shares to be outstanding
after the Offerings and the Direct Sales excludes the 12,000 Common Shares
currently held by the Purpose Trust, Common Shares issuable upon the
exercise of warrants, Common Shares issuable upon the exercise of
options to be granted to our directors and officers upon consummation of
the Offerings and Common Shares reserved for future issuance pursuant
to the Gemini Re 1998 Long Term Incentive Plan (the "Incentive Plan"). The
warrants and the options will not be immediately exercisable upon
consummation of the Offerings. If the Underwriters' over-allotment options
are exercised in full, Common Shares will be outstanding. See
"Management--Incentive Plan," "Description of Capital Stock--Warrants" and
"Direct Sales."
RISK FACTORS
We were formed in December 1998 and we have no operating or financial
history. Companies in their initial stages of development present substantial
business and financial risks and may suffer significant losses. In addition,
our business strategy has not been tested and may not succeed. You should
carefully consider the risk factors involved before you buy any Common Shares.
See "Risk Factors."
9
<PAGE>
RISK FACTORS
An investment in the Common Shares involves a high degree of risk. You
should carefully consider the following factors, in addition to the other
information set forth in this prospectus, before you buy any Common Shares.
START UP OPERATIONS
We were formed in December 1998 and we have no operating or financial
history. As a result, there is no historical information available to help you
evaluate our performance or an investment in the Common Shares. Companies 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.
We cannot assure you that we will be successful in accomplishing these
necessary tasks.
INVESTMENT RISKS
Risk management and the implementation of our investment strategy will be
crucial to our success. In particular, our ability to structure investments to
match anticipated liabilities under reinsurance and insurance policies has not
been tested. We cannot assure you that we will successfully match the structure
of our investments with our anticipated liabilities under reinsurance and
insurance policies. If our calculations with respect to these liabilities are
incorrect, or if we improperly structure our investments to match such
liabilities, we could be forced to liquidate investments at a significant loss.
Our investment guidelines (the "Investment Guidelines") permit up to %
of the portion of our investment portfolio to be invested in managed funds. The
managed funds will be invested in a broad range of instruments, including
equities, fixed income securities, currencies, options, swaps, futures,
commodities and other financial instruments, with a goal of achieving long-term
returns in excess of traditional fixed income portfolios. The risks associated
with these funds may be substantially greater than the risks associated with
fixed income investments. Consequently, the market price of these instruments
may be quite volatile, and the risk of loss is greater. See "Business--
Investment Strategy."
The success of our investment strategy also will be affected by general
economic conditions. These conditions may cause volatility in interest rates
and the price of securities and affect the extent and timing of investor
participation in the markets. Unexpected volatility or illiquidity in the
markets could have a material adverse effect on our business.
COMPETITION
The reinsurance and insurance industry is highly competitive. We will
compete with major reinsurers and insurers, many of which have substantially
greater financial, marketing and management resources than we do. Competition
in the types of business that we intend to underwrite is based on many factors,
including premium charges, the general reputation and perceived financial
strength of the reinsurer or insurer, relationships with reinsurance and
insurance intermediaries, other terms and conditions of products offered,
ratings assigned by independent rating agencies, speed of claims payment and
reputation and experience in the particular line of reinsurance or insurance to
be written. We have no experience in competing against such other companies,
and we cannot assure you that we will be able to compete successfully. Our
failure to compete effectively would have a material adverse effect on our
business. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
We will be substantially dependent on the efforts of David A. Brown, our
Chief Executive Officer and President, and E. Grant Gibbons, our Chief
Financial Officer and Treasurer, to implement our
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business strategy. Messrs. Brown and Gibbons have each entered into an
employment contract with us for a term expiring three years after the
consummation of the Offerings. See "Management--Employment Agreements." We also
intend to obtain a key-man life insurance policy covering Mr. Brown. The loss
of the services of these individuals, or our inability to hire and retain other
talented personnel, could delay or prevent us from fully implementing our
business strategy and could have a material adverse effect on our business.
Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may
not engage in any gainful occupation in Bermuda without an appropriate
governmental work permit. Such a work permit may be granted or extended upon
showing that, after proper public advertisement, no Bermudian (or spouse of a
Bermudian) is available who meets the minimum standards for the advertised
position. Mr. Brown, our Chief Executive Officer and President, has applied for
a work permit. Although we are not aware of any reason why this work permit or
other required permits would not be granted or extended, we cannot assure you
that these work permits will be granted or extended if granted. The failure of
these work permits to be granted or extended could have a material adverse
effect on our business.
RELIANCE ON UNION SPRING
We have entered into an investment management agreement with Union Spring
to manage our investment portfolio. Union Spring will in turn allocate a
portion of our investment portfolio to other investment managers. Each
investment manager will have discretionary authority over the portion of our
investment portfolio allocated to it. As a result, the performance of our
investment portfolio will depend to a great extent on the ability of the
investment managers to select and manage appropriate investments. We cannot
assure you that the investment managers will be successful in meeting our
investment objectives. The failure of Union Spring or the other investment
managers to perform adequately could have a material adverse effect on our
business. In addition, the success of Union Spring is dependent on the efforts
of Philip L. Yang. The loss of the services of Mr. Yang would have a material
adverse effect on Union Spring and could have a material adverse effect on our
business. See "Business--Investment Strategy" and "Business--Investment
Managers."
VOLATILITY OF OPERATING RESULTS
Our operating results may fluctuate significantly from period to period
during the initial years of our operations. These fluctuations may result from
a variety of factors, including the volume of reinsurance and insurance
policies written, returns on our investment portfolio and initial operating
expenses. In particular, we expect to write policies and make investments that
will achieve long-term returns. As a result, our short-term results of
operations may not be indicative of our long-term prospects.
FINANCIAL RATINGS
Financial ratings are used by insurers and reinsurance and insurance
intermediaries as an important means of assessing the financial strength and
quality of reinsurers. In addition, the rating of a company purchasing
reinsurance may be adversely affected by an unfavorable rating or the lack of a
rating of its reinsurer. We are seeking financial ratings from one or more
rating agencies. We expect that our ratings will be contingent upon us raising
gross proceeds of at least $ million in the Offerings. Our failure to
receive a final rating from a rating agency would have a material adverse
effect on our business. Furthermore, we cannot assure you that after receiving
a final rating one or more of the rating agencies will not downgrade or
withdraw its rating of us in the future. A downgrade or withdrawal of any of
our ratings could severely limit or prevent us from writing any new reinsurance
or insurance policies and, consequently, could have a material adverse effect
on our business. See "Business--Financial Ratings."
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MARKET FOR REINSURANCE AND INSURANCE
We expect initially to write a substantial amount of life and annuity
reinsurance. The market for many life insurance and annuity products in the
United States is based in large part on the favorable tax treatment such
products receive relative to certain other investment alternatives. Any
material change in such tax treatment, including the imposition of a "flat tax"
or a national sales tax in lieu of the current federal income tax structure in
the United States, could have an adverse effect on the market for such
products. Furthermore, a general economic downturn or a downturn in the equity
and other capital markets could adversely affect the market for many life
insurance and annuity products. If the market for life insurance or annuities
were adversely affected, it would likely depress the demand for reinsurance of
life insurance or annuities, which could have a material adverse effect on our
business. In addition, the market for annuity reinsurance products is currently
not well developed and we cannot assure you that such a market will develop in
the future.
We also expect to write property and casualty reinsurance and insurance.
The property and casualty reinsurance industry has historically been highly
cyclical. Demand for property and casualty reinsurance is influenced
significantly by underwriting results of primary property and casualty insurers
and prevailing general economic and market conditions, which are outside of our
control. The supply of reinsurance is related to prevailing reinsurance prices
and reinsurer levels of capital that fluctuate in response to changes in rates
of return on investments, the frequency and severity of losses and prevailing
general economic and market conditions, which are outside of our control. We
cannot assure you that premium rates for property and casualty reinsurance or
insurance will remain at current levels or will increase.
TAX RISKS
The Company and Gemini Re are Bermuda corporations. We believe that
neither the Company nor Gemini Re will be required to pay U.S. corporate income
tax (other than withholding tax on certain U.S. source income) because we will
continue to operate our business in a manner that will cause us not to be
engaged in the conduct of a trade or business within the U.S. However, because
(1) there are no definitive standards provided by the Internal Revenue Code of
1986, as amended (the "Code"), existing or proposed regulations under the Code
or judicial precedent and (2) the determination is inherently factual, we
cannot assure you that the U.S. Internal Revenue Service ("IRS") could not
successfully contend that the Company or Gemini Re is engaged in such a trade
or business. If the IRS did so contend, the Company and Gemini Re would (unless
exempted from tax by the U.S.-Bermuda income tax treaty (the "Bermuda Treaty"))
be subject to U.S. corporate income tax on that portion of its net income
treated as effectively connected with a U.S. trade or business, as well as the
U.S. branch profits tax. Even if the IRS did contend successfully that Gemini
Re was engaged in a U.S. trade or business, if Gemini Re were entitled to
benefits under the Bermuda Treaty, the Bermuda Treaty would preclude the U.S.
from taxing Gemini Re on its business income except to the extent that such
income were attributable to a permanent establishment maintained by Gemini Re
in the U.S. Although we believe that Gemini Re does not have a permanent
establishment in the U.S., we cannot assure you that if Gemini Re were entitled
to the Bermuda Treaty benefits, the IRS would not successfully contend that
Gemini Re has such an establishment and therefore is subject to taxation.
If the Company were considered to be engaged in a U.S. trade or business
and/or if Gemini Re were considered to be engaged in a U.S. trade or business
through a permanent establishment located therein (or if it were considered not
entitled to the benefits of the permanent establishment clause of the Bermuda
Treaty and Gemini Re were considered to be engaged in the conduct of a U.S.
trade or business), then the Company and/or Gemini Re would be subject to U.S.
income tax plus an additional 30% branch profits tax. If the Company and/or
Gemini Re becomes subject to U.S. income tax, our net income would be
materially adversely affected.
Gemini Re will be subject to an excise tax on reinsurance and insurance
premiums paid with respect to risks located in the United States. In addition,
Gemini Re may be subject to withholding tax on
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certain investment income from United States sources. We cannot assure you that
such taxes will not be increased or that other taxes will not be imposed on
Gemini Re's business.
Generally, the U.S. shareholders of the Company will not be subject to
any U.S. tax until they receive a distribution from the Company or dispose of
their Common Shares. However, special provisions of the Code may apply to U.S.
citizens, residents, domestic corporations, partnerships, estates or trusts,
who through their ownership of Common Shares, directly, indirectly or by
attribution, own 10% or more of the total combined voting power of all classes
of capital stock of the Company and/or Gemini Re. Under those provisions, such
a holder of Common Shares may be required to include in its income its pro rata
share of the Company's subpart F income as earned, even if not distributed. All
of the Company's income is expected to be subpart F income. Such shareholders
that are taxed currently on their pro rata share of the Company's subpart F
income will not be taxed on dividends actually distributed by the Company that
are allocable to such income. The Company has attempted to avoid being
considered a "controlled foreign corporation" under the Code by requiring in
the Bye-Laws prior approval of the Board of Directors for any issuance or
transfer of shares that results in (1) any shareholder (other than a registered
investment company under the U.S. Investment Company Act of 1940, as amended
(an "Investment Company")) beneficially owning more than 5.0% of the
outstanding capital stock of the Company, (2) any shareholder holding
"Controlled Shares" (defined as all shares that a person is deemed to own
directly, indirectly or by attribution within the meaning of Section 958 of the
Code) in excess of 9.9% of the outstanding capital stock of the Company or (3)
any adverse tax, regulatory or legal consequences to the Company, any of our
subsidiaries or any of our shareholders. The Bye-Laws provide that any such
transfer without the prior approval of the Board of Directors shall not be
registered in the share register of the Company and shall be void and of no
effect. The Bye-Laws also provide that if the Board of Directors in its
absolute discretion determines that (1) any shareholder (other than an
Investment Company) beneficially owns more that 5.0% of the outstanding capital
stock of the Company, (2) any shareholder holds Controlled Shares in excess of
9.9% of the outstanding capital stock of the Company or (3) share ownership by
any shareholder may result in adverse tax, regulatory or legal consequences to
the Company, any of our subsidiaries or any other shareholder, then the Company
will have the option, but not the obligation, to repurchase all or any part of
the shares held by such shareholder to the extent the Board of Directors
determines it is necessary or advisable to avoid or cure any adverse or
potential adverse consequences. The price to be paid for any Common Shares so
repurchased will be the fair market value of such shares.
In addition, the Bye-Laws generally provide that any person holding
directly, or by attribution, or otherwise beneficially owning, voting shares
carrying 10% or more of the total voting rights attached to all of the
outstanding capital stock of the Company, will have the voting rights attached
to its voting shares reduced so that it may not exercise more than
approximately 9.9% of such total voting rights. Because of the attribution
provisions of the Code and the rules of the Securities and Exchange Commission
(the "Commission") regarding determination of beneficial ownership, this
requirement may have the effect of reducing the voting rights of a shareholder
whether or not such shareholder directly holds of record 10% or more of the
voting shares of the Company. Further, the Board of Directors has 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 a notice for such information or submitting incomplete or
inaccurate information gives the Board of Directors discretion to disregard all
votes attached to such shareholder's Common Shares. See "Description of Capital
Stock--Common Shares." Because of the foregoing provisions, the Company
believes that neither the Company nor Gemini Re should be a "controlled foreign
corporation" under the general rules described above.
Certain special subpart F provisions of the Code could apply to U.S.
persons who either directly or indirectly through their ownership of Common
Shares own any shares of Gemini Re if (1) 25% or more of the value or voting
power of the capital stock of Gemini Re is owned directly, indirectly or by
attribution by U.S. persons that own such stock directly or indirectly through
foreign entities, as will be the case; and (2) (A) 20% or more of either the
voting power or the value of the capital stock of Gemini Re is owned directly
or indirectly through entities by U.S. persons insured or reinsured by Gemini
Re or by persons related to them and (B) Gemini Re has gross related person
insurance income ("RPII") equal
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to 20% or more of its gross insurance income. RPII is income (investment income
and premium income) from the direct or indirect insurance or reinsurance of (x)
the risk of any U.S. person who owns Common Shares (directly or indirectly
through foreign entities) or (y) the risk of a person related to such a U.S.
person. We currently anticipate that less than 20% of the gross insurance
income of Gemini Re for any taxable year will constitute RPII. However, we
cannot assure you that the IRS will not assert that 20% or more of Gemini Re's
gross insurance income is RPII or that a taxpayer will be able to meet its
burden of proving otherwise.
Generally, a U.S. shareholder will realize capital gain or loss on the
sale or exchange of Common Shares. However, it is possible that the IRS could
contend that Section 1248 of the Code applies to such sale and, as a result,
the amount of any gain equal to the allocable untaxed earnings and profits of
the Company or Gemini Re will be taxed as a dividend. For individuals, this
would mean taxation of such amount at the rates applicable to ordinary income
rather than the lower rates applicable to long-term capital gains. Although we
cannot assure you otherwise, our United States counsel is of the opinion that
Section 1248 of the Code should not apply to the disposition of Common Shares
by a U.S. shareholder who holds less than 10% of the Common Shares.
The Organization for Economic Cooperation and Development and the
European Union are considering measures to limit harmful tax competition. These
measures are largely directed at counteracting the effects of tax havens and
preferential tax regimes. If these measures are adopted by a substantial number
of member countries and if Bermuda is considered to be engaged in harmful tax
competition, it could have a material adverse effect on our business.
BERMUDA TAX RISKS
The Company and Gemini Re have each received an assurance from the
Bermuda Minister of Finance under The Exempted Undertakings Tax Protection Act
1966 of Bermuda to the effect that if there is enacted in Bermuda any
legislation imposing tax computed on profits or income, or computed on any
capital asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, then the imposition of any such tax shall not be applicable to
the Company, Gemini Re or to any of their operations or the shares, debentures
or other obligations of the Company or Gemini Re until March 28, 2016. We
cannot assure you that after such date the Company or Gemini Re would not be
subject to any such tax.
REGULATORY RISKS
Gemini Re is a registered Bermuda insurance company and is subject to
regulation and supervision in Bermuda. Generally, Bermudian statutes and
regulations applicable to Gemini Re are less restrictive than those that would
be applicable to Gemini Re were it subject to the insurance laws of any state
in the United States. Among other things, Bermudian statutes and regulations
require Gemini Re to maintain minimum levels of capital and surplus; prescribe
solvency standards that it must meet; limit transfers of ownership of its
capital shares; and provide for the performance of certain periodic
examinations of Gemini Re and its financial condition. These statutes and
regulations may, in effect, restrict the ability of Gemini Re to write
reinsurance or insurance policies and distribute funds to the Company. See
"Business--Regulation--Bermuda."
Neither the Company nor Gemini Re is licensed or admitted as an insurer
or reinsurer in any jurisdiction except Bermuda. The insurance laws of each
state in the United States and of many other jurisdictions regulate the sale of
insurance and reinsurance within their jurisdiction by insurers, such as Gemini
Re, which are not licensed or admitted to do business within such jurisdiction.
With some exceptions, the sale of insurance within a jurisdiction where the
insurer is not licensed or admitted to do business is prohibited. However, in
most jurisdictions within the United States, we can and expect to issue
reinsurance contracts without obtaining an insurance certificate of authority.
Furthermore, in most jurisdictions outside the United States, we can and expect
to issue insurance policies through our
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Bermuda office either directly or through intermediaries, such as brokers and
consultants. We do not intend to maintain an office, and do not expect our
personnel to solicit, advertise, settle claims or conduct any other activities
that may constitute the transaction of the business of insurance, in any
jurisdiction in which we are not licensed or otherwise authorized to engage in
such activities. However, the definition of such activities in some
jurisdictions is ambiguous and susceptible to judicial interpretation. As a
result, we cannot assure you that inquiries or challenges to our insurance
activities in such jurisdictions will not be raised in the future or that
regulatory status or restrictions on our activities resulting therefrom will
not adversely affect our business.
We may be at a competitive disadvantage in jurisdictions where we are not
licensed or do not enjoy an exemption from licensing relative to our
competitors that are so licensed or exempt from licensing. As our business
develops, we will monitor the need to obtain licenses in jurisdictions other
than Bermuda in order to comply with applicable law or to be able to engage in
additional insurance-related activities. Development of the insurance laws
themselves in certain jurisdictions may cause us to determine that we need to
be licensed to continue our insurance-related activities in such jurisdictions.
If we determine that any such licenses should be obtained, we cannot assure you
that we will be able to obtain such licenses. Furthermore, the process of
obtaining such licenses is often costly and may take a long time.
Many jurisdictions do not permit insurance companies to take credit for
reinsurance obtained from unlicensed or non-admitted insurers on their
statutory financial statements without appropriate security. We expect that our
reinsurance clients will typically require us to post a letter of credit or
other collateral. We expect to receive commitments from one or more commercial
banks to provide standby letter of credit facilities. These commitments will be
subject to several conditions, including the negotiation of definitive
documentation. If we are unable to obtain letter of credit facilities from such
banks or from other lenders on commercially acceptable terms or unable to
arrange for other types of security, our ability to operate our business will
be severely limited. See "Business--Regulation--United States and Other."
Recently, the insurance and reinsurance regulatory framework has become
subject to increased scrutiny in many jurisdictions, including in the United
States and in various states within the United States. In the past, there have
been congressional and other initiatives in the United States regarding
increased supervision and regulation of the insurance industry, including
proposals to supervise and regulate reinsurers domiciled outside the United
States ("alien reinsurers"). If we were to become subject to any insurance laws
of the United States or any state thereof or of any other jurisdiction at any
time in the future, we cannot assure you that we would be in compliance with
such laws or that coming into compliance with such laws would not have a
material adverse effect on our business.
HOLDING COMPANY STRUCTURE
The Company is a holding company and will not conduct reinsurance or
insurance operations of its own. The Company, at least initially, will have no
significant operations or assets other than its ownership of the capital stock
of Gemini Re. Dividends and other permitted payments from Gemini Re are
expected to be the Company's sole source of funds to pay expenses and
dividends, if any. The payment of dividends by Gemini Re to the Company is
limited under Bermuda law and regulations, including Bermuda insurance law.
Under the Insurance Act 1978 of Bermuda, as amended, and related regulations
(the "Insurance Act"), Gemini Re must maintain certain minimum solvency levels
and is prohibited from declaring or paying dividends that would result in non-
compliance with such requirement. In addition, under the Bermuda Companies Act
1981, the Company and Gemini Re may only declare or pay a dividend if, among
other matters, there are reasonable grounds for believing that they are, or
would after the payment be, able to pay their respective liabilities as they
become due. Accordingly, we cannot assure you 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."
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LIMITATIONS ON TRANSFERS
Under the Bye-Laws, any transfer of shares that results in (1) any
shareholder (other than an Investment Company) beneficially owning more than
5.0% of the outstanding capital stock of the Company, (2) any shareholder
holding Controlled Shares in excess of 9.9% of the outstanding capital stock of
the Company or (3) any adverse tax, regulatory or legal consequences to the
Company, any of our subsidiaries or any of our shareholders, requires the prior
approval of the Board of Directors. The Bye-Laws provide that any such transfer
without prior approval of the Board of Directors shall not be registered in the
share register of the Company and shall be void and of no effect. The Bye-Laws
also provide that if the Board of Directors in its absolute discretion
determines that (1) any shareholder (other than an Investment Company) owns
more than 5.0% of the outstanding capital stock of the Company, (2) any
shareholder holds Controlled Shares in excess of 9.9% of the outstanding
capital stock of the Company or (3) share ownership by any shareholder may
result in adverse tax, regulatory or legal consequences to the Company, any of
its subsidiaries or any other shareholder, then the Company will have the
option, but not the obligation, to repurchase all or any part of the shares
held by such shareholder to the extent the Board of Directors determines it is
necessary or advisable to avoid or cure any adverse or potential adverse
consequences. The price to be paid for any Common Shares so repurchased will be
the fair market value of such shares. See "Description of Capital Stock--Common
Shares."
FOREIGN CURRENCY FLUCTUATIONS
Our functional currency is the United States dollar. However, we expect
to write a significant portion of our business and receive premiums in
currencies other than United States dollars. Furthermore, we expect to maintain
a portion of our investment portfolio in investments denominated in currencies
other than United States dollars. Consequently we may experience exchange
losses to the extent our foreign currency exposure is not properly managed or
otherwise hedged. Our failure to properly manage or hedge our foreign currency
exposure could have a material adverse effect on our business. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations--Currency."
YEAR 2000 RISKS
Many existing computer systems use only two digits to identify a year in
the date field. These systems, if not corrected, could fail or create erroneous
results by or at the year 2000. This "Year 2000" issue is believed to affect
virtually all companies and organizations, including the Company. Because we
expect to purchase computer hardware and software that is new, we believe that
our exposure with respect to our own computer systems to Year 2000-related
problems will not be significant. However, we will be exposed to the risk that
our third-party service providers and reinsurance and insurance clients may be
exposed to Year 2000-related problems. We intend to assess whether our third-
party service providers are, or on a timely basis will be, Year 2000 compliant.
We have received assurances from Union Spring and its affiliates that their
computer systems are expected to be Year 2000 compliant on a timely basis. We
intend to seek similar assurances from our reinsurance and insurance clients.
We cannot assure you, however, that our operations will not experience material
disruptions due to the failure of our third-party service providers or
reinsurance or insurance clients to become fully Year 2000 compliant in a
timely manner or that such failure will not otherwise have a material adverse
effect on our business. If our plans with respect to our Year 2000 readiness
fail to protect our operations from disruptions, we have no contingency plan
other than to replace existing third-party service providers which are not Year
2000 compliant with comparable third-party service providers which are Year
2000 compliant. In addition, we may be exposed to liabilities under reinsurance
and insurance policies for losses incurred in connection with Year 2000 issues.
These liabilities could be significant and could have a material adverse effect
on the Company.
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RISK OF DILUTION
Purchasers of Common Shares in the Offerings will experience immediate
and substantial dilution of $ per share in the net tangible book value of
their Common Shares, based on an assumed initial public offering price of
$15.00 per Common Share. See "Dilution."
NO PRIOR PUBLIC MARKET
Prior to the Offerings there has been no public market for the Common
Shares. We cannot assure you that an active trading market for the Common
Shares will develop or be sustained following the consummation of the
Offerings. The initial public offering price for the Common Shares 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.
We cannot assure you that the market price of the Common Shares will not
decline from the initial public offering price.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings and the Direct Sales, the Company will
have Common Shares outstanding, warrants to purchase an aggregate of
Common Shares and options to purchase an aggregate of Common
Shares. The warrants and the options will not be immediately exercisable upon
consummation of the Offerings. If the Underwriters' over-allotment options are
exercised in full, Common Shares will be outstanding. See
"Management--Incentive Plan," "Description of Capital Stock--Warrants" and
"Direct Sales." Except as disclosed in "Description of Capital Stock--Common
Shares--Restrictions on Transfer" and as discussed below with respect to the
lock-up agreements, the Common Shares sold in the Offerings and any Common
Shares sold in the Direct Sales to the Company's directors and officers will be
freely transferable without restriction or further registration under the
Securities Act, except for any of those Common Shares owned by an "affiliate"
of the Company within the meaning of Rule 144 under the Securities Act (which
sales will be subject to volume limitations and certain other restrictions).
The Common Shares to be sold to the Strategic Investors in the Direct Sales,
the Common Shares underlying the warrants and the options and the Common Shares
issued to Union Spring 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 except pursuant to an exemption from registration. The
Strategic Investors and Union Spring have been granted rights to require the
Company to register the Common Shares purchased by the Strategic Investors in
the Direct Sales, the Common Shares underlying the warrants and the Common
Shares issued to Union Spring under the investment management agreement,
respectively, which rights are not exercisable before the first anniversary of
the consummation of the Offerings. The Company has agreed not to permit the
acceleration of the exercisability of such rights without the prior written
consent of Merrill Lynch & Co., on behalf of the Underwriters. The Company
intends to register the resale of the Common Shares underlying the outstanding
options promptly following the first anniversary of the consummation of the
Offerings.
The Company, its directors and officers and the Strategic Investors have
executed agreements (the "lock-up agreements") under which they have agreed
that they will not, directly or indirectly, without the prior written consent
of Merrill Lynch & Co., on behalf of the Underwriters, and, in addition, in the
case of the Strategic Investors, the Company, offer, sell or otherwise transfer
or encumber (or agree to or announce any such transaction) 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. Such
agreements do not prevent the Company from granting options under the Incentive
Plan so long as such options are not exercisable until one year from the date
of this prospectus. Merrill Lynch & Co. may in its discretion at any time and
without notice release all or any portion of the securities subject to such
lock-up agreements (except that, in the case of the Strategic Investors,
Merrill Lynch must act jointly with the Company). See "Underwriting."
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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, 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
us to sell our equity securities in the future at a time and at a price that we
deem appropriate. See "Shares Eligible for Future Sale."
FOREIGN CORPORATION, SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS
We are organized pursuant to the laws of Bermuda. In addition, certain of
our directors and officers, as well as certain of the experts named in this
prospectus, reside outside the United States, and all or a substantial portion
of our assets and their assets are or may be located in jurisdictions outside
the United States. We have irrevocably appointed an agent in the City of New
York to receive service of process with respect to actions against us arising
out of or in connection with violations of United States federal securities
laws relating to offers and sales of Common Shares in the Offerings.
Nevertheless, it may be difficult for investors to effect service of process
within the United States upon those persons or to recover against them or us 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."
USE OF PROCEEDS
The net proceeds from the sale of the Common Shares in the
Offerings are estimated to be approximately $ million (after deducting
underwriting discounts and other estimated expenses, including payments to the
Sponsor for fees and the reimbursement of certain expenses related to the
Offerings and the sales to the Strategic Investors). See "Certain
Transactions--Sponsor Relationships." The net proceeds from the Direct Sales
are estimated to be approximately $ million. Substantially all of the net
proceeds of the Offerings and the Direct Sales will be contributed to the
capital and surplus of Gemini Re to support its reinsurance and insurance
underwriting capacity and will be invested in accordance with its investment
guidelines. See "Business--Investment Strategy." Until so invested, such
proceeds will be invested in short-term, investment grade, interest-bearing
securities.
DIVIDEND POLICY
The Company is a newly formed corporation and has not declared or paid
any cash dividends on its Common Shares. The Board of Directors intends to
declare and pay out of current and retained earnings a quarterly cash dividend
of $ per Common Share following the end of the first full fiscal quarter
following the consummation of the Offerings. It will be the Company's policy to
retain all earnings in excess of such quarterly dividends to support the growth
of its business. If the Company's current and retained earnings do not support
the payment of such quarterly dividends, future dividends may be reduced or
eliminated. If the Company makes a payment to shareholders in excess of its
current and retained earnings, such payment would be treated as a return of
capital to holders of the Common Shares. The declaration and payment of
dividends by the Company will be at the discretion of the Board of Directors
and will depend upon the Company's results of operations and cash flows, the
financial position and capital requirements of Gemini Re, general business
conditions, legal, tax, regulatory and any contractual restrictions on the
payment of dividends and other factors the Board of Directors deems relevant.
The Company's ability to pay dividends depends on the ability of Gemini Re to
pay dividends to the Company. While the Company is not itself subject to any
significant legal prohibitions on the payment of dividends on its Common
Shares, Gemini Re is subject to Bermuda regulatory constraints which affect its
ability to pay dividends to the Company. Accordingly, there is no assurance
that dividends on the Common Shares will be declared or paid in the future. See
"Risk Factors--Holding Company Structure," "Management's Discussion and
Analysis of Financial Condition and Plan of Operations--Liquidity and Capital
Resources" and "Business--Regulation."
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of December 16, 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
UPON CONSUMMATION THE OFFERINGS AND THE
ACTUAL OF THE OFFERINGS DIRECT SALES(D)
------ ----------------- ---------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Common Shares, par value $1.00
per share (75,000,000 shares
authorized; 12,000 shares
outstanding; shares
outstanding as adjusted for the
Offerings and the Direct Sales)
(a)............................ 12
Additional paid-in capital...... -- (b)
Accumulated deficit............. -- (c)
--- -------- --------
Total shareholders' equity.. $12 $ $
--- -------- --------
Total capitalization............ $12 $ $
=== ======== ========
</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 the Company for
an aggregate price of $12,000 and such Common Shares will be canceled.
Common Shares outstanding excludes Common Shares issuable upon
the exercise of warrants, Common Shares issuable upon the
exercise of options to be granted to directors and officers of the Company
upon consummation of the Offerings and Common Shares reserved for
future issuance pursuant to the Incentive Plan. The warrants and the
options will not be immediately exercisable upon consummation of the
Offerings. If the Underwriters' over-allotment options are exercised in
full, Common Shares will be outstanding. See "Management--Incentive
Plan," "Description of Capital Stock--Warrants" and "Direct Sales."
(b) Reflects amounts payable upon consummation of the Offerings of $
million to the Sponsor for fees and the reimbursement of out-of-pocket
expenses consisting of legal, accounting and printing expenses as well as
filing fees and other costs related to the Offerings and the sales to the
Strategic Investors. See "Certain Transactions--Sponsor Relationships."
(c) Reflects estimated expenses incurred by the Company in connection with its
operations in the period subsequent to December 16, 1998, including
expenses incurred by the Sponsor on the Company's behalf for which the
Sponsor is entitled to be reimbursed by the Company upon consummation of
the Offerings. See "Certain Transactions--Sponsor Relationships."
(d) Reflects 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.
19
<PAGE>
DILUTION
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 other estimated expenses, including payments to the Sponsor for
fees and the reimbursement of certain expenses related to the Offerings and the
sales to the Strategic Investors) will be approximately $ million, or
approximately $ 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 $ per share, without taking into
account any Common Shares issuable upon the exercise of warrants and options.
Pro forma "net tangible book value" per outstanding share represents
shareholders' equity divided by the number of outstanding Common Shares,
including the Common Shares issued in the Offerings and the Direct Sales. The
following table illustrates this per share dilution:
<TABLE>
<S> <C>
Initial public offering price.......................................... $15.00
Pro forma net tangible book value per outstanding share upon completion
of the Offerings and the Direct Sales(1)..............................
------
Dilution to new investors in the Offerings............................. $
======
</TABLE>
- --------
(1) Does not include Common Shares issuable upon the exercise of
outstanding warrants, Common Shares issuable upon the exercise of
options to be granted to directors and officers of the Company upon
consummation of the Offerings and Common Shares reserved for future
issuance under the Incentive Plan. The warrants and the options will not be
immediately exercisable upon consummation of the Offerings. The exercise of
the 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--Incentive Plan," "Description of Capital
Stock--Warrants" and "Direct Sales."
The following table summarizes the number of Common Shares issued by the
Company, the total consideration paid and the average price per share paid in
the Offerings and the Direct Sales:
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
--------------- ----------------- PRICE PER
AMOUNT PERCENT AMOUNT PERCENT SHARE
------- ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Offerings......................... $ (a) $15.00
Direct Sales...................... (b)
------- --- ------ ---
Total......................... 100% $ 100%
======= === ====== ===
</TABLE>
- --------
(a) Includes amounts paid in the aggregate for Common Shares and 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 warrants.
20
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
We have based the following unaudited pro forma balance sheet on the
historical balance sheet of the Company as of December 16, 1998, and have given
effect to the amounts payable upon consummation of the Offerings and to the
receipt of the net proceeds of the Offerings and the Direct Sales as if they
had been consummated on December 16, 1998. We have prepared the unaudited pro
forma balance sheet based on assumptions we believe are reasonable. We present
the unaudited pro forma balance sheet for informational purposes only. It does
not purport to be indicative of the balance sheet data as of any future date.
You should read the unaudited pro forma balance sheet in conjunction with our
historical balance sheet and the notes thereto and other information contained
in this prospectus. As we had no operations on or prior to December 16, 1998,
we are not presenting pro forma statements of income and comprehensive income
and cash flows.
PRO FORMA BALANCE SHEET
DECEMBER 16, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AS ADJUSTED FOR
AS ADJUSTED FOR THE RECEIPT OF
AMOUNTS PAYABLE THE NET PROCEEDS OF
HISTORICAL UPON CONSUMMATION THE OFFERINGS
INFORMATION OF THE OFFERINGS AND THE DIRECT SALES
----------- ----------------- --------------------
<S> <C> <C> <C>
Cash........................ $ 12,000 $ $
Deferred equity offering
costs...................... $380,000
-------- ----------- -----------
Total assets............ $392,000 $ $
======== =========== ===========
Accounts payable and accrued
expenses................... $380,000 $ (a) $
-------- ----------- -----------
Common Shares, par value
$1.00 per share (75,000,000
shares authorized; 12,000
shares outstanding;
shares
outstanding as adjusted for
receipt of the net proceeds
of Offerings and the Direct
Sales)..................... $ 12,000
-------- ----------- -----------
Total liabilities and common
shares..................... $392,000 $ $
======== =========== ===========
</TABLE>
- --------
(a) Reflects amounts payable upon consummation of the Offerings of $
million to the Sponsor for fees and the reimbursement of out-of-pocket
expenses, incurred subsequent to December 16, 1998, consisting of legal,
accounting and printing expenses as well as filing fees and other costs
related to the Offerings and the sales to the Strategic Investors. Also
reflects $ of estimated expenses incurred by us in connection with
our operations in the period subsequent to December 16, 1998, including
expenses incurred by the Sponsor on our behalf for which the Sponsor is
entitled to be reimbursed by us upon consummation of the Offerings. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations--Liquidity and Capital Resources" and "Certain Transactions--
Sponsor Relationships."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
The Company and Gemini Re were both incorporated in December 1998 in
Bermuda and neither has any operating history. Gemini Re was licensed in
Bermuda in January 1999 as a long-term insurer and as a Class 3 insurer, which
license authorizes it to write reinsurance and insurance on life, annuity,
disability, accident, workers' compensation, medical malpractice and other
insurance-related risks. Gemini Re is not currently licensed or admitted as an
insurer in any jurisdiction other than Bermuda. The Company's fiscal year ends
on December 31 and its financial statements are prepared in accordance with
GAAP.
LIQUIDITY AND CAPITAL RESOURCES
The Company will rely primarily on cash dividends and other permissible
payments from Gemini Re to pay its operating expenses and dividends, if any.
The Board of Directors intends to declare and pay out of current and retained
earnings a quarterly cash dividend of $ per Common Share following the
end of the first full fiscal quarter following the consummation of the
Offerings. It will be the Company's policy to retain all earnings in excess of
such quarterly dividends to support the growth of its business. If the
Company's current and retained earnings do not support the payment of such
quarterly dividends, future dividends may be reduced or eliminated. If the
Company makes a payment to shareholders in excess of its current and retained
earnings, such payment would be treated as a return of capital to holders of
the Common Shares. The declaration and payment of dividends by the Company will
be at the discretion of the Board of Directors and will depend upon the
Company's results of operations and cash flows, the financial position and
capital requirements of Gemini Re, general business conditions, legal, tax,
regulatory and any contractual restrictions on the payment of dividends and
other factors the Board of Directors deems relevant. The Company's ability to
pay dividends depends on the ability of Gemini Re to pay dividends to the
Company. While the Company is not itself subject to any significant legal
prohibitions on the payment of dividends on its Common Shares, Gemini Re is
subject to Bermuda regulatory constraints which affect its ability to pay
dividends to the Company. Accordingly, we cannot assure you that dividends on
the Common Shares will be declared or paid in the future. See "Dividend Policy"
and "Business--Regulation--Bermuda."
The principal sources of funds for Gemini Re's operations are initially
expected to be the net proceeds of the Offerings and the Direct Sales (after
deducting underwriting discounts and other expenses, including payments to the
Sponsor for fees and reimbursement of certain expenses related to the Offerings
and the sales to the Strategic Investors), premiums, fees and net investment
income, as well as maturities and sales of invested assets. A substantial
portion of the Company's investment portfolio will be invested in highly-liquid
assets. The Company also may establish a line of credit that could be drawn on
from time to time to enhance liquidity. The purpose of the line of credit would
be to provide working capital to avoid the possibility of an untimely
liquidation of invested assets. These funds are expected to be used primarily
to pay policy benefits, claims, operating expenses (including personnel
expenses), commissions, the cost of acquiring new computer equipment and
software and developing proprietary software systems and, subject to Bermuda
law, to make dividend payments to the Company. The balance of the net proceeds
will be invested in accordance with the Company's investment guidelines. The
Company does not currently have any material commitments for any capital
expenditures over the next twelve months. The Company believes that the net
proceeds of the Offerings and the Direct Sales will be sufficient to fund its
planned growth and operating activities for the next several years.
Gemini Re, through which the Company expects to conduct substantially all
of its operations, is a registered Bermuda insurance company. Neither the
Company nor Gemini Re is currently licensed or admitted as an insurer or
reinsurer in any jurisdiction other than Bermuda. The insurance laws of each
state in the United States and of many other jurisdictions regulate the sale of
insurance and reinsurance within their jurisdiction by insurers, such as Gemini
Re, which are not licensed or admitted to do
22
<PAGE>
business within such jurisdiction. Because many jurisdictions do not permit
insurance companies to take credit for reinsurance obtained from unlicensed or
non-admitted insurers on their statutory financial statements unless
appropriate security mechanisms are in place, it is anticipated that the
Company's reinsurance clients will typically require it to post a letter of
credit or other collateral. In the event that the Company should default under
any such 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 which otherwise
secure its obligations to its reinsureds. The Company expects to receive
commitments from one or more commercial banks to provide standby letter of
credit facilities. These commitments will be subject to several conditions,
including the negotiation of definitive documentation. If the Company is unable
to obtain letter of credit facilities from such banks or from other lenders on
commercially acceptable terms, the Company's ability to operate its business
will be severely limited. See "Risk Factors--Regulatory Risks."
Pursuant to an agreement between the Sponsor and the Company, the Sponsor
has agreed to provide certain services in connection with the Offerings and the
sales to the Strategic Investors, including assistance in preparing a
registration statement for the Common Shares, retaining underwriters in
connection with the Offerings and such other services as the Company or the
Sponsor deems appropriate. Pursuant to such Agreement, the Company is obligated
upon consummation of the Offerings to pay a fee to the Sponsor of $ and
to reimburse the Sponsor for expenses it incurs in connection with performing
services under its agreement with the Company. At , 1999, the Sponsor
had incurred expenses of approximately $ . Upon consummation of the
Offerings, expenses incurred by the Sponsor, on the Company's behalf, currently
are estimated to be approximately $ .
YEAR 2000
Because the Company expects to purchase computer hardware and software
that is new, 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 and its reinsurance and insurance clients may be exposed to Year
2000-related problems. The Company intends to assess whether its third-party
service providers are, or on a timely basis will be, Year 2000 compliant. The
Company has received assurances from Union Spring and its affiliates that their
computer systems are expected to be Year 2000 compliant on a timely basis. The
Company intends to seek similar assurances from its reinsurance and insurance
clients. We cannot assure you, however, that the Company's operations will not
experience material disruptions due to the failure of the Company's third-party
service providers or reinsurance and insurance clients to become fully Year
2000 compliant in a timely manner or that such failure will not otherwise have
an adverse effect on the Company. If the Company's plans with respect to its
Year 2000 readiness fail to protect its operations from disruptions, the
Company has no contingency plan other than the replacement of existing third-
party service providers which are not Year 2000 compliant with comparable
third-party service providers which are Year 2000 compliant. In addition, the
Company may be exposed to liabilities under reinsurance and insurance policies
for losses incurred in connection with Year 2000 issues. These liabilities
could be significant and could have a material adverse effect on the Company.
CURRENCY
The Company's functional currency is the United States dollar. However,
because the Company's business strategy includes reinsuring and insuring
financial obligations issued outside the United States, the Company expects to
write a significant portion of its business and receive premiums in currencies
other than United States dollars. Furthermore, Gemini Re expects to maintain a
portion of its investment portfolio in investments denominated in currencies
other than United States dollars. Consequently, the Company may experience
exchange losses to the extent its foreign currency exposure is not properly
managed or otherwise hedged. 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 the contract is
entered into. Foreign currency
23
<PAGE>
exchange contracts will not eliminate fluctuations in the value of the
Company's assets and liabilities denominated in foreign currencies but rather
allow the Company to establish a rate of exchange for a future point in time.
The Company, in consultation with Union Spring, will make determinations as to
whether to hedge its foreign currency exposure on a case-by-case basis. Given
the contingent and long-term nature of the Company's expected foreign currency
exposure, it may not be feasible in all instances to hedge effectively such
exposure. If the Company does seek to hedge its foreign currency exposure
through the use of forward foreign currency exchange contracts or currency
swaps, it will be subject to the risk that the counterparties to such
arrangements will fail to perform.
TAXATION
Bermuda does not currently impose a corporate level tax on the profits or
income of the Company. The Company and Gemini Re have each received an
assurance from the Bermuda Minister of Finance under The Exempted Undertakings
Tax Protection Act 1966 of Bermuda to the effect that if there is enacted in
Bermuda any legislation imposing tax computed on profits or income, or computed
on any capital asset, gain or appreciation, or any tax in the nature of estate
duty or inheritance tax, then the imposition of any such tax shall not be
applicable to the Company, Gemini Re or to any of their operations or shares,
debentures or other obligations of the Company or Gemini Re until March 28,
2016. We cannot assure you that after such date the Company or Gemini Re would
not be subject to any such tax. See "Certain Tax Considerations--Taxation of
the Company and Gemini Re--Bermuda."
Because the Company and Gemini Re are not expected to conduct business in
the United States, and because Gemini Re expects to qualify for the benefits of
the Bermuda Treaty, we do not expect the Company or Gemini Re to be subject to
United States federal income taxes or any other corporate level tax. The United
States currently imposes an excise tax on insurance and reinsurance premiums
paid to foreign insurers or reinsurers with respect to risks located in the
United States. The rates of tax applicable to premiums to be paid to Gemini Re
are 4% for direct casualty insurance and indemnity bonds or 1% for reinsurance
premiums and direct insurance of life, sickness and accident policies and
annuity contracts. In addition, the Company may be subject to withholding tax
on certain investment income from United States sources. We cannot assure you
that such taxes will not be increased or that other taxes will not be imposed
on the Company's business. See "Certain Tax Considerations."
The Company and Gemini Re plan to operate in such a manner that they will
not generally be subject to tax in other jurisdictions except for withholding
taxes on certain kinds of investment income, excise taxes as described above
and other taxes attributable to marketing activities in certain jurisdictions.
It is possible, however, that Gemini Re 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. See "Risk Factors--Tax Risks."
IMPACT OF INFLATION
The effects of inflation will be implicitly considered in pricing the
Company's products and estimating the Company's loss reserves. The actual
effects of inflation on the results of the Company cannot be accurately known
until claims are ultimately settled.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments and hedging activities. This statement
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
The statement's definition of what constitutes a derivative is complex and
pulls within its scope many financial instruments not previously considered
derivative instruments. The statement also sets forth the criteria for
determining whether a derivative may be specifically designated as a hedge of a
particular exposure. SFAS No. 133 requires adoption no later
24
<PAGE>
than fiscal quarters of fiscal years beginning after June 15, 1999. The Company
does not believe that the adoption of this statement will have a material
impact on the Company.
BUSINESS
THE COMPANY
The Company and Gemini Re were recently organized in Bermuda to provide
multi-line reinsurance and insurance on a worldwide basis. We will adopt an
innovative business strategy involving a balanced and coordinated approach to
insurance underwriting and investing. We will engage in large, highly
structured transactions in addition to traditional reinsurance and insurance
transactions. We will principally target long-duration risks, including
traditional life and annuity, workers' compensation, medical malpractice and
disability reinsurance, as well as structured settlements. We intend to balance
the underwriting of long-duration risks with an investment approach that we
anticipate will produce superior compound returns over the term of the
underwriting liabilities. We will seek to develop a select client base
principally comprised of primary life and property and casualty insurance and
reinsurance companies as well as large multinational corporations.
We believe that we can realize significant competitive advantages can be
realized by building a business with the following key features:
. A high level of capitalization to support our global reinsurance
and insurance operations
. A business strategy that matches profitable long-tailed liability
underwriting with long-term investments to produce superior
shareholder returns
. A unique arrangement that aligns the compensation of the investment
manager with the long-term interests of management and shareholders
. A sophisticated proprietary risk management approach that allocates
capital to both underwriting and investment transactions
. The ability to provide custom designed, highly-structured
reinsurance and insurance products that combine underwriting,
financial and investment expertise
. Incorporation in Bermuda, a regulatory environment that permits
creative product development and flexible investment strategies
We will seek to earn a high rate of total return on our capital by
investing in a combination of fixed income securities and highly-liquid managed
funds. We have retained Union Spring, an affiliate of Willowbridge, to manage
our investment portfolio. Union Spring and Willowbridge have over $1.2 billion
in combined assets under management. At least % of our investment portfolio
initially will be invested in fixed income securities with a minimum average
credit quality rating of AA2/AA. The remainder of our portfolio initially will
be invested in managed funds. Union Spring initially expects that substantially
all of the managed funds portfolio managed directly by it will be traded using
three Willowbridge trading programs--"XLIM," "VAT" and "Primary." These
programs individually have yielded compound annual returns (net of all fees and
subject to certain assumptions discussed on page 32) of approximately 32%, 31%
and 25% since 1987, 1990 and 1993, respectively. See "--Investment Strategy."
These returns may not be indicative of the returns yielded on our managed funds
portfolio. See "Risk Factors--Investment Risks." Our remaining managed funds
portfolio initially will be allocated among sub-managers to be selected by
Union Spring and other Willowbridge and Union Spring trading strategies.
Upon consummation of the Offerings and the Direct Sales, we will have
an equity capitalization of approximately $ . We believe that this
level of capitalization will demonstrate a strong financial position consistent
with our strategy to write large blocks of business and a high level of
commitment to the insurance and reinsurance markets. We also believe that our
level of capitalization will enable us to compete for desirable business and
establish long-term relationships with a select group of primary insurers and
reinsurers. In addition, our significant capitalization will allow us to
implement our investment strategy while still providing our customers with a
high level of security. As a result of
25
<PAGE>
our capitalization and other factors, we have been assigned a preliminary
claims-paying ability rating of by .
BUSINESS STRATEGY
Our business objective is to create a sophisticated, multi-line
reinsurance and insurance business that will enable us to achieve attractive
total rates of return for our shareholders through prudent underwriting of
insurance risks and careful management of our investment portfolio. Our
business strategy is comprised of the following principal components:
. Execute an Advanced Risk Management Strategy
We intend to methodically measure risk by allocating capital to each
underwriting transaction and each investment strategy based on our assessment
of the associated risks. We will target a minimum return on allocated
capital. We believe that this discipline will help ensure that we maximize
the use of capital by having a consistent measurement of risk against which
we can evaluate competing opportunities. We have designed systems that will
allow us to track the aggregate capital allocated to underwriting
transactions and investment strategies. We will use this system to determine
the total capital "at risk" at any time and to determine appropriate capital
retention policies.
. Use a Disciplined Underwriting Approach
We will capitalize on the experience of our Chief Executive Officer and our
senior underwriters, as well as selected third-party underwriting specialists
where appropriate, to underwrite business with attractive risk/return
profiles. We will use a highly analytical underwriting approach together with
innovative contract structuring to closely match underwriting liabilities
with investment opportunities. We will focus primarily on underwriting long-
duration risks for which our underwriters are able to develop loss payment
patterns. We believe that these loss payment patterns will enable us to
generate meaningful projections of the total cash flows of our insurance
portfolio. These projections will then be used to determine the liquidity and
return needs of our investment portfolio. Additionally, we have developed a
proprietary risk analysis and pricing model to facilitate pricing the risks
we assume on a transaction-by-transaction basis.
. Implement an Innovative Investment Strategy
We will implement an investment strategy designed to obtain superior returns
while diversifying risks by investing in a combination of fixed income
securities and highly-liquid managed funds. The managed funds portfolio will
be invested in a broad range of instruments, including equities, fixed income
securities, currencies, options, swaps, futures, commodities and other
financial instruments, that will be traded directly by Union Spring and
through carefully selected sub-managers. The fixed income portfolio will be
invested in investment grade securities that will be managed by one or more
experienced sub-managers selected by Union Spring and approved by the
Investment Committee of the Board of Directors. We believe that the nature of
the risks we intend to underwrite combined with the use of our aggregation
model will allow us to develop a model of our cash flow requirements over
time. We will use this model as a tool to help allocate our investment
portfolio between managed funds and fixed income investments.
. Align our Interests with Our Investment Manager
We have retained Union Spring to manage our investment portfolio. Philip L.
Yang, our Deputy Chairman of the Board of Directors, also is the sole
stockholder, director and chairman of Union Spring and the sole stockholder,
director and president of Willowbridge. Mr. Yang is the principal designer of
the Willowbridge and Union Spring trading systems and has full responsibility
for the trading activities of Union Spring. In order to align Union Spring's
interests as closely as possible with our long-term interests, Union Spring
has agreed to receive its managed funds incentive fees in Common Shares
payable for up to ten years after the fees are earned. Union Spring also has
agreed to pay all sub-manager fees out of its own funds. Subject to securing
adequate financing, Union Spring also will assume any "netting" risk, which
arises when incentive fees are payable to profitable sub-managers for any
quarter in which no incentive fee is payable by us to Union Spring on our
managed funds portfolio as a whole.
26
<PAGE>
. Capitalize on Skill and Experience of Management
We have assembled a senior management team of experienced reinsurance and
insurance professionals to implement our business strategy. Our Chief
Executive Officer and President, David A. Brown, worked for six years for
Centre Solutions (formerly Centre Re), a subsidiary of Zurich Insurance
Group, most recently as its Chief Executive Officer and President, and for
ten years prior to that time advised the insurance and reinsurance industries
in Bermuda with the accounting firm of Ernst & Young, most recently as a
partner. Our Chief Financial Officer and Treasurer, E. Grant Gibbons, was the
Bermuda Minister of Finance until November 1998. His responsibilities
included the oversight of the insurance and financial services industries.
. Maintain Low Cost Structure
We believe that the price of reinsurance and insurance is a primary
determinant used by purchasers in selecting an underwriter. Consequently, a
key component of our business strategy is to maintain a low cost structure.
We expect to limit the number of employees initially to approximately 15 and
to minimize our administrative costs by writing a limited number of large,
highly-structured risks. We also expect to benefit from a favorable
regulatory environment in Bermuda. We believe that the combination of these
factors and our innovative investment strategy will permit us to price our
reinsurance and insurance products lower than most of our competitors.
. Opportunistically Consider Acquisitions
We intend to opportunistically consider acquisitions of run-off business and
operating companies. We will focus on acquisitions of long-tailed risks where
we can obtain higher returns through the deployment of our underwriting and
investment strategies. Acquisitions will be made where we believe they will
enable us to more quickly assemble a broad base of profitable insurance
business.
INDUSTRY TRENDS
Our business strategy responds to a number of industry trends that we
believe will continue to increase the demand for traditional and sophisticated
reinsurance and insurance products.
We believe that the price of reinsurance and insurance is a primary
determinant used by purchasers in selecting an underwriter. We also believe
that increasing price sensitivity among purchasers will increase demand for
cost effective products. We expect to capitalize on this trend by maintaining a
low cost structure and maximizing investment returns to provide pricing
benefits to customers.
In recent years, the insurance industry has undergone substantial
changes. There has been tremendous consolidation in the industry and we expect
that there will be continuing consolidation in the future. This trend is likely
to increase demand for reinsurance as acquirers seek to restructure combined
entities, focus on core markets and achieve better leveraging of existing
capital to improve financial performance. Furthermore, several mutual life
insurers have begun to "demutualize" or have announced plans to do so over the
next several years. Demutualization is a process through which mutual insurance
companies, the equity of which is owned by policyholders, convert to stock
companies, the equity of which is owned by shareholders. As part of the
demutualization process, mutual life insurers are subject to close examination
by regulatory authorities and by the investing public as they generally will be
required to publicly report financial results on a periodic basis. We believe
that, as public companies, these life insurers often will be under pressure to
generate higher levels of earnings by accelerating the reporting of the results
of profitable blocks of business through reinsurance. Moreover, we believe that
mergers and acquisitions involving demutualized life insurers may lead to an
increased demand for life and annuity reinsurance to help finance transactions.
In addition, insurance regulators and rating agencies have recently begun
to increase the required reserves and capital standards for certain types of
insurance. We believe that this trend towards higher risk-based capital and
reserve requirements will continue in the future, which will increase the
demand for reinsurance as insurers seek ways to improve their capital
positions.
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The increasing convergence of the insurance and capital markets has the
potential to revolutionalize the way the insurance industry organizes itself,
pursues its business, establishes its rates and capitalizes itself. This is
largely due to deregulation, increased competition from other financial
intermediaries, commoditization of certain insurance products and integration
of roles within the financial services industry. Examples of this convergence
include securitization of underwriting risk and alternative distribution
channels. We believe that we can capitalize on this trend by offering clients
custom designed, highly-structured reinsurance and insurance products that
combine underwriting, financial and investment expertise.
THE REINSURANCE BUSINESS
Reinsurance is an arrangement whereby one or more insurance companies,
the "reinsurer," agrees to indemnify another insurance company, the "ceding
company," for all or part of the insurance risks underwritten by the ceding
company. Reinsurance can provide certain basic benefits to the ceding company:
it reduces net liability on individual risks, thereby enabling the ceding
company to underwrite more business than its own resources can support; it
provides catastrophe protection to lessen the impact of large or multiple
losses; it stabilizes results by leveling fluctuations in the ceding company's
loss ratio; and it helps the ceding company maintain acceptable surplus and
reserve ratios.
There are two major classes of reinsurance: treaty reinsurance and
facultative reinsurance. Treaty reinsurance is a contractual arrangement that
provides for the automatic reinsuring of a type or category of risk
underwritten by the ceding company. Facultative reinsurance is the reinsurance
of individual risks whereby the reinsurer separately rates and underwrites each
risk rather than agreeing to reinsure all or a portion of a class of risk.
Facultative reinsurance is normally purchased to cover risks not covered by
treaty reinsurance or for individual risks covered by reinsurance treaties that
are in need of capacity beyond that provided by such treaties.
A ceding company's reinsurance program may involve pro rata and excess-
of-loss reinsurance on both a treaty and facultative basis. Under pro rata
reinsurance (also referred to as proportional), the ceding company and the
reinsurer share the premiums as well as the losses and expenses in an agreed
proportion. Under excess-of-loss reinsurance, the reinsurer agrees to reimburse
the ceding company for all losses in excess of a predetermined amount up to a
predetermined limit. Premiums paid by the ceding company to the reinsurer for
excess-of-loss coverage are generally not proportional to the premiums that the
ceding company receives because the reinsurer does not assume a proportionate
risk. In pro rata reinsurance, the reinsurer generally pays the ceding company
a ceding commission. Generally, the ceding commission is based on the ceding
company's cost of obtaining the business being reinsured (i.e., brokers' and
agents' commissions, local taxes, settlement costs and administrative
expenses). There is usually no ceding commission on excess-of-loss reinsurance
and, therefore, the pricing mechanism used by reinsurers is a rate applicable
to premiums of the individual policy or policies subject to the reinsurance
agreement.
Property insurance protects the insured against financial loss arising
out of the loss of property or its use caused by an insured peril. Casualty
insurance protects the insured against financial loss arising out of its
obligation to others for loss or damage to their person or property. Property
and casualty reinsurance protects the ceding company against loss to the extent
of the reinsurance coverage provided. A greater degree of unpredictability is
generally associated with casualty risks and catastrophe-exposed property
risks, and there tends to be a greater delay in the reporting and settlement of
casualty reinsurance claims, due to the nature of casualty risks and their
greater potential for litigation.
INSURANCE PRODUCTS TO BE WRITTEN
We intend to reinsure or write business in "long-tailed" lines in which
our underwriting and investment strategies provide a competitive advantage.
Long-tailed lines refers to reinsurance and insurance businesses in which the
payment of claims and claims-related expenses occurs over a long period of
time. We intend to write reinsurance on both a pro rata and excess of loss
basis, and to assume
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risk by engaging in loss portfolio assumptions, whereby a block of incurred but
unpaid claims is assumed from another insurer or reinsurer. We expect to
underwrite a variety of different risks and do not intend to limit our exposure
to any particular lines of reinsurance or insurance. We initially expect to
target the following lines of businesses:
. Life and Annuity Reinsurance
We expect to enter into reinsurance agreements policies with respect to
individual and group life insurance products, including term life insurance,
universal life insurance, variable life insurance and whole life insurance, and
individual and group annuity products, including fixed annuities, variable
annuities, equity-linked annuities and guaranteed investment contracts. The
risks underwritten by us may include mortality and investment risks and, to a
lesser extent, early surrender and lapse risks. Generally, most life
reinsurance is written on a yearly renewable term basis, where the predominant
risk is the mortality of the insured. However, most other types of fixed
annuity and life reinsurance typically involve a certain level of investment
risk, with the reinsurer often reinsuring a stated percentage of the ceding
company's investment risk. We expect to write reinsurance both on a direct and
brokered basis with primary life insurers and annuity issuers as well as
reinsurers.
According to a recent survey by Munich American Reinsurance Company,
United States life reinsurance in force increased by 26.9% in 1997 to $2.17
trillion. According to A.M. Best Company, life insurance premiums ceded
increased 49% in 1997 compared to 1996. We believe that life and annuity
reinsurance present attractive opportunities because of the large potential
size of the market and because the industry trends of consolidation,
demutualization and competition will increase demand in this market.
. Workers' Compensation
Workers' compensation is a system regulated by the state governments that
provides medical, disability and lost-wage benefits to employees who are
injured in work-related accidents. According to A.M. Best, the U.S. market for
workers' compensation insurance produced over $26 billion in direct premiums
written in 1997, representing approximately 9.4% of the total United States
property and casualty insurance market. Regional and national workers'
compensation writers have increasingly looked to reinsurance in the past
several years to support their internal capital requirements. We believe that
there will continue to be significant opportunities to write or acquire large
blocks of business as workers' compensation writers face continued dramatic
changes in their business.
. Medical Malpractice
Medical malpractice insurance provides an indemnity to physicians and
their employers for losses related to patient damages arising from medical
advice rendered or procedures performed. The U.S. market for medical
malpractice insurance, according to A.M. Best, produced nearly $6 billion in
1997 in direct premiums written. The market is highly fragmented with the top
10 United States writers controlling only 44% of the market. Twenty-nine
companies have at least 1% of the domestic market. The Company believes that
the level of competition within the medical malpractice business will provide
ample opportunity for its large, highly structured products.
. Disability Insurance
Disability insurance provides protection against loss of income due to
disability. The primary market for disability insurance includes both
individual and group products. In the United States, in-force premium totals
approximately $12.1 billion according to LIMRA International Inc. The Company
believes that disability insurance has the potential to be a rapid-growth
product globally in the future. A study by UNUM Corporation indicates that the
current global private market penetration rate for disability products is only
29%. The Company believes that rapid growth of this product globally could
result in significant demand for reinsurance to help finance such growth.
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. Structured Settlements
Structured settlements refers to a series of cash payments made at
regular intervals to settle claims arising out of workers' compensation claims,
medical malpractice claims, lawsuits or other cases in which an injured party
is indemnified for a period of time or for life. According to A.M. Best
Company, the structured settlement industry in the United States is estimated
to generate approximately $5 billion in sales annually. Although the structured
settlement business has experienced low growth in recent years, we believe that
our business model will allow us to compete effectively for market share.
INVESTMENT STRATEGY
We will seek to earn a high rate of risk-adjusted total return on our
capital by investing in a combination of fixed income securities and highly-
liquid managed funds. We will maintain adequate liquidity to fund operations
and to protect against unexpected events and will diversify our managed funds
portfolio to limit volatility. At the same time, we will endeavor to achieve
significantly higher rates of return than insurance companies that follow a
traditional investment strategy. These higher returns will allow us to price
our products competitively and maximize shareholder returns.
We believe that the nature of the business we intend to write combined
with the use of our aggregation model will allow us to develop a model of our
cash flow requirements over time. We will use this model (together with
reasonable margins to allow for variance from the predictions) as a tool to
help allocate our investment portfolio between managed funds and fixed income
investments. Studies of the historical returns of fixed income, equity and
managed fund investments have led us to believe that a combination of managed
fund and fixed income investments may produce highly attractive returns while
limiting volatility and downside risk. The Investment Guidelines provide that
no more than % of our investment portfolio can be allocated to managed funds.
We believe that we will enjoy the greatest probability of success in
investing by using the services of outside top-rated portfolio managers, rather
than attempting to build our own in-house investment management team.
Accordingly, we have entered into an investment management agreement (the
"Investment Management Agreement") with Union Spring, pursuant to which Union
Spring will be responsible for managing our investment portfolio. Union Spring
will manage a portion of our portfolio directly and will allocate the remainder
to various fund managers (the "Sub-Managers"). The Investment Guidelines
provide that at least 25% of the investment portfolio will be allocated to
Union Spring, that at least % of the managed funds portfolio will be
allocated to Sub-Managers and that all of the fixed income portfolio will be
allocated to a Sub-Manager selected by Union Spring and approved by the
Investment Committee of the Board of Directors. Union Spring will from time to
time enter into hedging transactions (overlay strategies) supported by the
assets of the managed fund portfolio that will be designed to lower the overall
investment portfolio risk and avoid undue concentration of investment exposure.
Union Spring and the Sub-Managers will have broad discretionary authority
to manage the Company's investment portfolio, subject to the Investment
Guidelines, the terms of the Investment Management Agreement and any agreements
between Union Spring and the Sub-Managers. The Investment Committee will
periodically review the Investment Guidelines in light of prevailing market
conditions and may amend them from time to time as it deems appropriate. The
Investment Committee will also periodically review the Company's investment
portfolio and the performance of Union Spring and the Sub-Managers.
Fixed Income Portfolio
The fixed income portfolio will provide liquidity for our day-to-day
operations as well as a significant "buffer" for cash needs that are greater
than anticipated. We anticipate that we will be able to satisfy our short-term
cash needs from these fixed income investments, thereby reducing the
probability that we will need to liquidate a portion of our managed funds
portfolio.
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The Investment Guidelines allow investments to be made in all publicly
traded U.S. Treasury and U.S. agency securities, agency and non-agency
mortgage-backed securities, asset-backed securities, corporate debt and
preferred stock obligations, securities issued by G7 governments, cash and cash
equivalent instruments (including repurchase agreements), A1/P1 commercial
paper, time deposits and offshore money market funds. Under the Investment
Guidelines, no security may be purchased for the fixed income portfolio unless
it has a minimum rating of A3/A- or its equivalent from at least one nationally
recognized rating agency. In addition, a minimum weighted average credit
quality rating of AA2/AA or its equivalent must be maintained for the fixed
income portfolio as a whole.
The Investment Guidelines have established maximum exposure levels, which
limit the percentage of the fixed income portfolio that may be invested in
certain types of securities or with certain issuers. With respect to types of
securities, there is no limit on investments in U.S. government securities, a
20% limit on investments in mortgage-backed securities, a 15% limit on
investments in asset-backed securities and a 15% limit on investments in
corporate debt and preferred stock obligations. With respect to types of
issuers, there is no limit on investments in U.S. Treasury securities, a 25%
limit on investments in the securities of any single U.S. agency and a 5% limit
on investments in the securities of any other issuer.
The fixed income portfolio will be exposed to two primary sources of
investment risk: 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. We will seek to
manage credit risk through industry and issuer diversification. We will seek to
manage interest rate risk by monitoring the duration of our investment
portfolio relative to current market conditions.
Managed Funds Portfolio
The managed funds portfolio may include a broad range of instruments,
including equities, fixed income securities, currencies, options, swaps,
futures, commodities and other financial instruments. These instruments will be
traded using a variety of programs developed by Philip L. Yang and the Sub-
Managers and will not be limited to any particular type of instruments or
strategies. Union Spring initially expects that substantially all of the
managed funds portfolio managed directly by it will be traded using the
following trading programs:
XLIM Trading Approach. The XLIM trading approach is a discretionary
system where trading decisions are based primarily on the analysis of
Philip L. Yang. XLIM trades are selected from a wide variety of futures
contracts, forwards, swaps, spot and options in the financial instruments,
currencies, precious and base metals and agricultural commodities markets
in the United States and internationally. Mr. Yang's approach to trading
involves identifying market opportunities and then executing specific
trades to exploit such opportunities. Trading decisions are primarily based
on fundamental as well as technical market analysis. Fundamental analysis
involves the evaluation of factors external to the markets that affect the
price of a contract or currency in order to predict prices. Fundamental
factors which influence the price of contracts and currencies include
changing money supply and demand relationships; the trade, fiscal, monetary
and exchange control programs and policies of various governments; national
and international political and economic events; and changes in interest
rates. Technical analysis is not based on the evaluation of fundamental
factors but instead on the theory that a study of the markets themselves
will provide a means of anticipating price changes. Technical analysis
generally includes a study of actual daily, weekly and monthly price
fluctuations and volume variations and changes in open interest using
charts and, possibly, computers for analysis of these items. Equally
important, Mr. Yang supplements fundamental and technical analyses with
anecdotal information about specific market opportunities obtained through
dealer and financial networks established and developed over many years.
Mr. Yang emphasizes only a small number of core positions at any time,
selecting those for which he believes the reward-to-risk ratio is the most
favorable and for which he believes he has an advantage over conventional
market expectations. Approximately 15% to 40% of the assets under
management pursuant to the XLIM trading approach normally will be committed
as margin for trading. Although the instruments traded using this
investment program are inherently leveraged, the
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leverage is not further increased through borrowing. Since 1988, the XLIM
trading approach has yielded an annual compound return (net of all fees and
assuming fees were paid on proprietary funds) of approximately 32%.
VAT Investment Program. The VAT investment program equally allocates
funds among the Vulcan, Argo and Titan proprietary trading systems to trade
futures, forward, spot and option contracts in the currency and financial
markets. Approximately 15% to 40% of the assets under management pursuant
to the VAT investment program normally will be committed as margin for
trading. Although the instruments traded using this investment program are
inherently leveraged, the leverage is not further increased through
borrowing. Although the Vulcan, Argo and Titan trading systems had each
been trading prior to 1990, the VAT investment program began trading in the
currency and financial markets using a combination of these three trading
systems in November 1997. Since 1990, the VAT trading program has yielded
an annual compound return (net of all fees and assuming the extraction of
the currency and financial instrument performance of the Vulcan, Argo and
Titan trading systems since 1990) of approximately 31%.
The Vulcan trading system is a computerized technical trading
system that commenced trading in 1988. Vulcan uses a systematic
technical charting system, which makes trading decisions based on
concepts of pattern recognition, support/resistance levels and counter-
trend liquidations. It is not a trend-following system, but does ride a
trend when the opportunity arises. Vulcan attempts to capture price
moves in a time horizon of ten days to two weeks.
The Argo trading system is a computerized technical trading
system that commenced trading in 1988. Argo essentially incorporates
Vulcan's concepts of pattern recognition, support/resistance levels and
counter-trend liquidations. Argo has a relatively longer time horizon
than Vulcan and attempts to capture longer-term price moves. Positions
will generally be held from 20 to 30 trading days.
The Titan trading system is a computerized technical trend-
following system coupled with a mechanism for adding to, or subtracting
from, the initial position on a counter-trend or retracement basis. The
Titan trading system commenced trading in 1988. Unlike Vulcan, Titan
applies various technical factors in an effort to monitor the overall
market environment to recognize major trends. Titan generally will hold
a position for 15 days, based on an average of the number of days the
initial base position would be held combined with the number of days
any additional positions would be held.
Primary Investment Program. The Primary investment program permits
Willowbridge to select one or more of its trading strategies to use for a
given market based on its periodic evaluation of market conditions and to
reallocate among the strategies. Typically, changes in strategies used for
particular markets are made infrequently. Assets are currently traded using
all or a portion of the Vulcan, Argo, Titan and Siren systems. Siren is a
computerized technical trading system that commenced trading in 1991. Siren
uses real time price information to organize data into charts composed of
market profiles, which are then used to determine patterns that often
signal the reversal of a major trend bias. Approximately 15% to 40% of the
assets under management pursuant to the Primary investment program normally
will be committed as margin for trading. Although the instruments traded
using this investment program are inherently leveraged, the leverage is not
further increased through borrowing. Since 1993, the Primary trading
program has yielded an annual compound return (net of all fees) of
approximately 25%.
The managed funds portfolio will be exposed to several risks. The low
margin deposits normally required in commodity interest trading may result in a
high degree of leverage, which could result in substantial losses. The
exchanges on which many futures are traded have the right to suspend or limit
trading, which could impair the liquidity of certain investments. Many of the
instruments may be traded in markets in which performance is the responsibility
only of the individual counter-party and not of an exchange or clearinghouse.
In these cases, there is the risk of the inability of, or refusal by, the
counter-party to perform with respect to such contracts. In addition, trading
on foreign exchanges is not regulated by the United States Commodity Futures
Trading Commission (the "CFTC") and may be subject to regulations that offer
different or diminished protection in comparison to domestic exchanges.
Portions of
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the managed funds portfolio that are invested in equities or fixed income
securities will be subject to additional risks. See "Risk Factors--Investment
Risks."
INVESTMENT MANAGERS
The Investment Committee has selected Union Spring to manage the
Company's investment portfolio. Union Spring is a Delaware corporation,
organized in February 1996, with principal offices at 101 Morgan Lane, Suite
180, Plainsboro, New Jersey 08536. Union Spring is registered as a commodity
trading advisor ("CTA") and a commodity pool operator ("CPO") with the CFTC and
is a member of the United States National Futures Association (the "NFA").
Union Spring has approximately $330 million in assets under management. Philip
L. Yang, who is the founder, sole stockholder, director and chairman of Union
Spring, is the principal designer of the Willowbridge and Union Spring trading
strategies and has full responsibility for the trading activities of Union
Spring.
Union Spring is an affiliate of Willowbridge, which is one of the largest
managed futures firms in the United States with approximately $890 million in
assets under management (including proprietary funds). Mr. Yang has been the
sole stockholder, director and president of Willowbridge since September 1992.
He also held these positions from the time he formed Willowbridge in January
1988 through September 1989. From 1983 through August 1988 and from October
1989 through August 1992, Mr. Yang was a Senior Vice President at Caxton
Corporation, a commodity trading advisory firm. Union Spring has its own
internal research department, which works in conjunction with Willowbridge
personnel, including Mr. Yang and his team. See "Management--Directors and
Executive Officers."
Union Spring will be responsible for the day-to-day management of our
investment portfolio. The investments made by Union Spring and the Sub-Managers
on our behalf are generally intended to be liquid in nature. Accordingly, Union
Spring will be required to provide us at the end of each day with (1) mark-to-
market pricing information, which will enable us to monitor our investment
positions closely and to liquidate funds when needed for investment or
operating needs, (2) information on trading positions so we can monitor our
overall exposure across all funds in which our assets are invested and (3)
detailed and timely reports of the disposition of our investments. Union Spring
will attempt to obtain comparable information from those Sub-Managers handling
separate accounts for the Company.
Union Spring will select Sub-Managers based on a rigorous and ongoing
review of trading style and past and present performance. As a requirement for
investing in any fund, Union Spring will obtain full disclosure of trading
history and results, information on trading approach and techniques, and open
and continuous access to fund managers and staff. Selection will involve both
quantitative and qualitative analysis of the correlation of fund returns with
each other and with relevant bond indices. We believe that this approach will
help optimize the risk/return profile of the entire portfolio.
The Investment Guidelines contain numerous parameters intended to insure
the quality of trading conducted by Sub-Managers handling separate managed
accounts for the Company. These parameters include: permitting trading only in
contracts that provide us with sufficient liquidity; limiting the establishment
of positions in contracts requiring margin in excess of 30% of the allocated
net asset value of the account; establishing guidelines for closing out,
offsetting and rolling-over trades; limiting the investment by any Sub-Manager
in any particular commodity to % of all open interest in that commodity
interest and contract month; specifying particular exchanges in which assets
can be traded and types of contracts that can be traded on the selected
exchanges; requiring prior approval of Union Spring before changes in key
people or trading style; limiting the amount of our assets invested with any
particular Sub-Manager to 50% of that Sub-Manager's total assets under
management; and limiting the borrowings secured by the allocated assets to four
times their value.
The Investment Management Agreement provides for Gemini Re to pay Union
Spring the following fees:
. With respect to the fixed income portfolio, Union Spring will
receive a quarterly management fee equal to % of the value of
the fixed income portfolio ( % per annum).
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. With respect to the managed funds portfolio, Union Spring will
receive both a monthly management fee and a quarterly incentive
fee.
. The monthly management fee will be equal to 0.16667% of the
value of the managed funds portfolio (2% per annum).
. The quarterly incentive fee will be equal to 25% of any New
Trading Profit (as defined below) on the managed funds
portfolio. New Trading Profit means the sum of (A) the net of
any profits or losses realized on all trades closed out during
a period plus (B) the net of any unrealized profits or losses
on open positions as of the end of such period (after deduction
for accrued brokerage commissions); minus (i) the net of any
unrealized profits or losses on open positions as of the end of
the preceding period (after deduction for accrued brokerage
commissions) and (ii) other ordinary and customary fees
incurred in executing trades during such period. Termination of
the Investment Management Agreement will be treated as if the
date of termination were the end of an incentive fee
calculation period for purposes of calculating the incentive
fee due to Union Spring. Withdrawals of assets from the managed
funds portfolio will result in a proportional pay-out of any
accrued incentive fees.
Union Spring has agreed to pay all Sub-Manager fees out of its own funds.
Subject to securing adequate financing, Union Spring also will assume any
"netting" risk, which arises when incentive fees are payable to profitable Sub-
Managers for any quarter in which no incentive fee is payable by us to Union
Spring on our managed funds portfolio as a whole. We believe that shifting this
risk to Union Spring gives us a significant competitive advantage.
In order to align Union Spring's interests as closely as possible with
the long-term interests of the Company, Union Spring has agreed that its
quarterly incentive fee will be paid in Common Shares (valued at the then
current market price). These Common Shares will be owed but not issued to Union
Spring for up to ten years after they are earned. Mr. Yang and his affiliate
also are expected to purchase Common Shares and warrants to purchase Common
Shares for an aggregate purchase price of $ million as part of the Direct
Sales. Mr. Yang and his affiliate have agreed not to offer, sell, offer to
sell, contract to sell, assign, pledge, hypothecate, grant any option to
purchase, or otherwise transfer or dispose of (or announce any offer, sale,
offer to sell, contract of sale, assignment, pledge, hypothecation, grant of
any option to purchase, or other transfer or disposition of) these Common
Shares for a period of one year after the date of this prospectus. See "Certain
Transactions--Asset Manager Relationships," "Shares Eligible For Future Sale"
and "Direct Sales."
The term of the Investment Management Agreement extends through December
31, and will be automatically renewed for additional -year terms unless
either Gemini Re or Union Spring gives the other party written notice no later
than six months prior to the expiration of the term. In addition, either party
may terminate the Investment Management Agreement immediately in the event that
the assets of the investment portfolio have decreased in value as of the end of
any business day by 25% or more from the start of the last incentive fee
calculation period.
MARKETING
Our marketing strategy is to focus on developing relationships globally
with a core group of clients with whom we will attempt to develop long-standing
relationships. These companies primarily will be primary life insurance and
property and casualty insurance companies that will from time to time cede
large blocks of business to us. We also intend to target large multinational
corporations that can benefit from our highly-structured products. We believe
that diversity in our sources of business reduces the potential adverse effect
arising from the termination of any one of our business relationships.
We intend to develop a core group of clients by marketing through both
the direct and broker markets, as well as non-traditional marketing channels.
On a direct basis, we will capitalize on
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management and board relationships in the insurance industry, as well as
Strategic Investor relationships, to gain access to business. Strategic
Investors may from time to time enter into reinsurance arrangements with the
Company. We also plan to use the professional intermediary market as a source
of business. Professional intermediaries, also called reinsurance "brokers,"
structure reinsurance and insurance contracts and then place the associated
risks with reinsurers and insurers. We expect that existing relationships of
management and the Strategic Investors will provide new business prospects for
broker market business. Finally, we plan to develop distribution sources
outside of the traditional direct and broker markets and believe that
significant business can be obtained through relationships with banks,
securities brokers and professional services firms.
UNDERWRITING
We expect to underwrite primarily large, highly-structured transactions
to a select group of clients. We will use an experienced Chief Executive
Officer and senior underwriters to underwrite business with attractive
risk/return profiles. We also will use selected third-party underwriting
specialists to assist in underwriting where appropriate.
We will use a highly analytical underwriting approach together with
innovative contract structuring to closely match underwriting liabilities with
investment opportunities. We will focus primarily on underwriting long-duration
risks for which our underwriters are able to develop loss payment patterns. We
will closely track the correlation and interaction of all new risks assumed
with existing insurance risks. We believe that these loss payment patterns will
enable us to generate meaningful projections of the total cash flows of our
insurance portfolio. These projections will then be used to determine the
liquidity and return needs of our investment portfolio.
We have developed a proprietary risk analysis and pricing model to
facilitate pricing the risks we assume on a transaction-by-transaction basis.
The model can be adapted to different types of underwriting risks assumed and
will factor in the effects of the various features that we may incorporate into
contracts. The model develops a range of outcomes for each contract over many
thousands of simulations. The distribution of these outcomes is used to
allocate capital to the transaction, determine its expected return and thereby
assist us in assessing its attractiveness. We will assess transactions based on
the economic value they are estimated to add. This may result in the
consummation of transactions that produce neutral or adverse results on a
short-term, GAAP accounting basis but result in a gain over time. See "Risk
Factors--Volatility of Operating Results."
For each transaction that is completed, the pricing model is retained and
converted to a reserving model. The model is then used to update the reserves
required for each contract as new information is received and allows management
to track, on a transaction by transaction basis, the quality of underwriting
decisions. These reserving models also provide input to the portfolio
aggregation model, which is used to estimate the total exposure of the our
capital at any given time.
The management of risk on an aggregate basis is a critical aspect of
insurance company management. We will use a portfolio aggregation model, which
will combine the range of outcomes of each individual contract that we write.
Using statistical simulation techniques, this model will generate an expected
profile of our overall insurance liabilities together with estimates of the
range of variation from the expected profile. As the number of contracts
written and outstanding grows, the results of the aggregation model should
become increasingly accurate in predicting our liability profile. We intend to
use this model for a number of purposes, including
. To monitor the overall exposure of our capital at risk
. To estimate the risk adjusted capital adequacy that will be
assessed by independent rating agencies for the purpose of
assigning and maintaining our financial ratings
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. To assess the attractiveness of potential transactions by running
them against the overall portfolio to determine the net economic
benefit compared to the change in overall capital at risk
. To project our liquidity and return needs over time and to use
this information in determining the optimum asset allocation among
the various investment strategies available to us
RETROCESSIONAL ARRANGEMENTS
We have no plans to enter into an aggregate retrocessional agreement.
However, from time to time as deemed appropriate, we may enter into facultative
agreements or other risk-sharing agreements with other reinsurance companies.
RESERVES
In accordance with Bermuda insurance regulations, we will establish and
carry as liabilities actuarially determined reserves calculated to meet our
future obligations. Future policy benefits and policy claims are expected to
comprise the majority of our financial obligations and reserves therefor will
be maintained on both a Bermuda regulatory and GAAP basis. Future policy
benefits will be based upon our best estimates of the frequency and severity of
claims and the timing of claims payments, with appropriate provision for
adverse deviation and other factors. The liabilities for future policy benefits
established with respect to individual risks or classes of business may be
greater or less than those established by ceding companies due to the use of
different assumptions. Our reserves will be computed at amounts that, with
additions from premiums to be received and with interest on such reserves
compounded annually at certain assumed rates, are expected to be sufficient to
meet our policy obligations. Reserves may include unearned premiums, premium
deposits, claims reported but not yet paid, claims incurred but not reported
and claims in the process of settlement.
ADMINISTRATION
We anticipate providing most of our own management and administrative
services, including claims administration. As a result of our marketing and
underwriting strategies, which focus on large, highly-structured transactions,
the claims function is expected to be less labor-intensive compared to other,
more traditional reinsurance companies. Consequently, our underwriters will
perform traditional claims tasks such as monitoring claims and reserving. We
may, however, hire third-party claims specialists from time to time to assist
the underwriters and coordinate reserving practices and other claims-paying
procedures if we write business that is highly specialized.
COMPETITION
The reinsurance and insurance industry is highly competitive. Reinsurance
and insurance companies compete on the basis of many factors, including premium
charges, the general reputation and perceived financial strength of the
companies, other terms and conditions of the products offered, ratings assigned
by independent rating agencies, speed of claims payment and reputation and
experience in the particular risk to be underwritten. We are not aware of any
reinsurer or insurer with the same business strategy as us. Nevertheless, we
expect to compete directly with numerous other life and annuity and property
and casualty companies as well as other Bermuda reinsurers. Most of these
competitors are well established, have significant operating histories and
strong claims paying ability ratings, and have developed long-standing client
relationships. We have no experience in competing with such other companies and
we cannot assure you that we will be able to compete successfully. See "Risk
Factors--Competition."
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RATINGS
Financial ratings are used by primary insurers and reinsurance
intermediaries as an important means of assessing the financial strength and
quality of reinsurers. A ceding company's own rating may be adversely affected
by an unfavorable rating or the lack of a rating of its reinsurer. We are
seeking financial ratings from one or more rating agencies. We expect that our
rating will be contingent upon our raising gross proceeds of at least $
million in the Offerings. Each rating that we receive will represent only the
respective rating agency's opinion of our ability to meet our obligations to
our policyholders and will not be directed at investors in the Common Shares.
PROPERTY
We currently occupy office space in Hamilton, Bermuda on a month-to-month
basis. We expect to relocate to other offices in Hamilton in the near future.
LEGAL PROCEEDINGS
We are not currently involved in any litigation or arbitration. We
anticipate that we will be subject to litigation and arbitration in the
ordinary course of business.
REGULATION
Bermuda
The Insurance Act 1978, as amended, and Related Regulations. As a holding
company, the Company is not subject to Bermuda insurance regulations. The
Insurance Act, which regulates the insurance business of Gemini Re, provides
that no person shall carry on an insurance business in or from within Bermuda
unless registered as an insurer under the Insurance Act by the Minister of
Finance (the "Minister"). Under the Insurance Act, insurance business includes
reinsurance business. 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 from time to time.
An Insurance Advisory Committee appointed by the Minister advises the
Minister on matters connected with the discharge of the Minister's functions
and sub-committees thereof supervise and review the law and practice of
insurance in Bermuda, including reviews of accounting and administrative
procedures. The day-to-day supervision of insurers is the responsibility of the
Registrar of Companies (the "Registrar").
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 Gemini
Re has been incorporated to carry on both long-term and general business, it
has been registered as both a long-term insurer and a Class 3 insurer in
Bermuda and will be regulated as such under the Insurance Act.
Long-term Business Fund. An insurer carrying on long-term business is
required to keep its accounts in respect of its long-term business separate
from any accounts kept in respect of any other
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business and all receipts of its long-term business form part of its long-term
business fund. No payment may be made directly or indirectly from an insurer's
long-term business fund for any purpose other than a purpose related to the
insurer's long-term business, except insofar as such payment can be made out of
any surplus certified by the insurer's approved actuary to be available for
distribution otherwise than to policyholders. No insurer carrying on long-term
business may declare or pay a dividend to any person other than a policyholder
unless the value of the assets in its long-term business fund (as certified by
the insurer's approved actuary) exceeds the liabilities of the insurer's long-
term business (as certified by the insurer's approved actuary) by an amount
equal to the dividend plus the $250,000 minimum solvency margin prescribed by
the Insurance Act, and the amount of any such dividend may not exceed the
aggregate of (1) that excess and (2) any other funds properly available for
payment of dividends, such as funds arising out of business of the insurer
other than long-term business. See "Risk Factors--Holding Company Structure."
Cancellation of Insurer's Registration. An insurer's registration may be
cancelled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or if, in the opinion of the Minister after consultation with the
Insurance Advisory Committee, the insurer has not been carrying on business in
accordance with sound insurance principles.
Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, which,
in the case of Gemini Re, 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. Gemini Re's independent auditor is Ernst & Young.
Approved Actuary. Gemini Re, as a registered long-term insurer, is
required to submit an annual actuary's certificate when filing its Statutory
Financial Return. The actuary's certificate shall state whether or not, in the
opinion of the insurer's approved actuary, the aggregate amount of the
liabilities of the insurer in relation to long-term business as at the end of
the relevant year exceeded the aggregate amount of those liabilities as shown
in the insurer's statutory balance sheet. The actuary, who will normally be a
qualified life actuary, must be approved by the Minister. Gemini Re's approved
actuary is .
Loss Reserve Specialist. As a registered Class 3 insurer, Gemini Re is
required to submit an opinion of its approved loss reserve specialist with its
Statutory Financial Return in respect of its loss and loss expense provisions.
The loss reserve specialist, who will normally be a qualified casualty actuary,
must be approved by the Minister. Gemini Re's approved loss reserve specialist
is .
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, an income statement, a statement of capital
and surplus and notes thereto). The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The Statutory Financial Statements are not prepared in accordance
with United States GAAP and are distinct from the financial statements prepared
for presentation to the insurer's shareholders under the Companies Act 1981 of
Bermuda (the "Companies Act"), which financial statements may be prepared in
accordance with United States GAAP. Gemini Re, as a long-term insurer and a
general business insurer, is required to submit the annual Statutory Financial
Statements as part of the annual Statutory Financial Return. The Statutory
Financial Statements and the Statutory Financial Return do not form part of the
public records maintained by the Registrar.
Annual Statutory Financial Return. Gemini Re 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 for Gemini Re includes, among other matters, a
report of the approved independent auditor on the Statutory Financial
Statements of the insurer,
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solvency certificates, the Statutory Financial Statements themselves, a
certificate of the approved actuary and the opinion of the loss reserve
specialist. The solvency certificates must be signed by the principal
representative and at least two directors of the insurer who are required to
certify, among other matters, whether the minimum solvency margin has been met
and whether the insurer has complied with conditions attached to its
certificate of registration. 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.
Minimum Solvency Margin. The Insurance Act provides that the value of the
long-term business assets of an insurer carrying on long-term business must
exceed the amount of its long-term business liabilities by at least $250,000.
The Insurance Act also provides that the value of the general business
assets of a Class 3 insurer must exceed the amount of its general business
liabilities by at least the prescribed minimum solvency margin. Gemini Re, as a
Class 3 insurer, (1) is required to maintain a minimum solvency margin equal to
the greatest of: (A) $1,000,000, (B) 20% of net premiums written up to
$6,000,000 plus 15% of net premiums written over $6,000,000, and (C) 15% of
loss reserves; (2) is prohibited from declaring or paying any dividends during
any financial year it is in breach of its minimum solvency margin or minimum
liquidity ratio or if the declaration or payment of such dividends would cause
it to fail to meet such margin or ratio (if it fails to meet its minimum
solvency margin or minimum liquidity ratio on the last day of any financial
year, the insurer will be prohibited, without the approval of the Minister,
from declaring or paying any dividends during the next financial year); (3) is
prohibited, without the approval of the Minister, from reducing by 15% or more
its total statutory capital, as set out in its previous year's financial
statements; and (4) if it appears to the Minister that there is a risk of the
insurer becoming insolvent or that it is in breach of the Insurance Act or any
conditions imposed upon its registration, the Minister may, in addition to the
restrictions specified above, direct the insurer not to declare or pay any
dividends or any other distributions or may restrict it from making such
payments to such extent as the Minister may think fit.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity
ratio for general business insurers. An insurer engaged in general business is
required to maintain the value of its relevant assets of not less than 75% of
the amount of its relevant liabilities. Relevant assets include cash and time
deposits, quoted investments, unquoted bonds and debentures, first liens on
real estate, investment income due and accrued, account and premiums receivable
and reinsurance balances receivable. There are certain categories of assets
which, unless specifically permitted by the Minister, do not 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 (1) not to take on any new insurance business, (2) not to
vary any insurance contract if the effect would be to increase the insurer's
liabilities, (3) not to make certain investments, (4) to realize certain
investments, (5) to maintain, or transfer to the custody of a specified bank,
certain assets, (6) not to declare or pay any dividends or other distributions
or to restrict the making of such payments and/or (7) to limit its premium
income.
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<PAGE>
Principal Representative. 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 Gemini
Re is at the Company's principal executive offices in Reid Hall, 3 Reid Street,
Hamilton, HM 11, Bermuda, and is the principal representative of
Gemini Re. Without a reason acceptable to the Minister, an insurer may not
terminate the appointment of its principal representative, and the principal
representative may not cease to act as such, unless 30 days' notice in writing
to the Minister is given of the intention to do so. It is the duty of the
principal representative, within 30 days of reaching the view that there is a
likelihood of the insurer for which the principal representative acts becoming
insolvent or that a reportable "event" has, to the principal representative's
knowledge, occurred or is believed to have occurred, to make a report in
writing to the Minister setting out all the particulars of the case that are
available to the principal representative. Examples of such a reportable
"event" include failure by the insurer to comply substantially with a condition
imposed upon the insurer by the Minister relating to a solvency margin or a
liquidity or other ratio.
Certain Bermuda Law Considerations. The Company and Gemini Re have been
designated as non-resident for exchange control purposes by the Bermuda
Monetary Authority whose permission for the issue and transfer of the Common
Shares has been obtained subject to the following conditions:
. This designation allows the
Company and Gemini Re to engage in transactions, or to pay dividends to non-
residents of Bermuda who are holders of the Common Shares, in currencies other
than the Bermuda Dollar.
The transfer of the Common Shares between persons regarded as non-
resident in Bermuda for exchange control purposes and the issue of the Common
Shares after the completion of the Offerings to such persons may be effected
without specific consent under the Exchange Control Act 1972 and regulations
thereunder. Issues and transfers of the Common Shares to any person regarded as
resident in Bermuda for exchange control purposes requires specific prior
approval under the Exchange Control Act 1972. The common shares of Gemini Re
cannot be transferred without the consent of the Bermuda Monetary Authority.
The issue and transfer of any preferred shares will require the prior approval
of the Bermuda Monetary Authority.
In accordance with Bermuda law, share certificates are issued only in the
names of corporations or individuals. In the case of an applicant acting in a
special capacity (for example, as an executor or trustee), certificates may, at
the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, the Company
is not bound to investigate or incur any responsibility in respect of the
proper administration of any such estate or trust. The Company will take no
notice of any trust applicable to any of its Common Shares whether or not it
had notice of such trust.
As "exempted companies," the Company and Gemini Re 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 (1) the acquisition or holding of land in
Bermuda (except that required for their business and held by way of lease or
tenancy for terms of not more than 50 years) without the express authorization
of the Bermuda legislature, (2) the taking of mortgages on land in Bermuda to
secure an amount in excess of $50,000 without the consent of the Minister, (3)
the acquisition of any bonds or debentures secured by any land in Bermuda,
other than certain types of Bermuda government securities or (4) the carrying
on of business of any kind in Bermuda, except in furtherance of their business
carried on outside Bermuda. While Gemini Re is permitted to reinsure risks
undertaken by any company incorporated in Bermuda and permitted to engage in
the insurance and reinsurance business, generally it is not permitted without a
special license granted by the Minister to insure Bermuda domestic risks or
risks of persons of, in or based in Bermuda.
Both the Company and Gemini Re will be required to comply with the
provisions of the Companies Act regulating the payment of dividends and making
distributions from contributed surplus. Pursuant to the Companies Act, a
company shall not declare or pay a dividend, or make a distribution out of
contributed surplus, if there are reasonable grounds for believing that: (1)
the company is, or would
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after the payment be, unable to pay its liabilities as they become due; or (2)
the realizable value of the company's assets would thereby be less than the
aggregate of its liabilities and its issued share capital and share premium
accounts.
Exempted companies, such as the Company and Gemini Re, must comply with
Bermuda resident representation provisions under the Companies Act. We do not
believe that such compliance will result in any material expense to us.
Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may
not engage in any gainful occupation in Bermuda without an appropriate
governmental work permit. Such a work permit may be granted or extended upon
showing that, after proper public advertisement, no Bermudian (or spouse of a
Bermudian) is available who meets the minimum standards for the advertised
position. Mr. Brown, our Chief Executive Officer, has applied for a work
permit. Although we are not aware of any reason why this work permit or other
required permits would not be granted or extended, we cannot assure you that
these work permits will be granted or extended if granted. See "Risk Factors--
Dependence on Key Personnel."
United States and Other
Gemini Re is not licensed or admitted as an insurer in any jurisdiction
except Bermuda. The insurance laws of each state in the United States and of
many other jurisdictions regulate the sale of insurance and reinsurance within
their jurisdiction by insurers, such as Gemini Re, which are not licensed or
admitted to do business within such jurisdiction. With some exceptions, the
sale of insurance within a jurisdiction where an insurer is not licensed or
admitted to do business is prohibited. The Company expects to conduct its
business through its Bermuda office and does not intend to conduct any
activities which may constitute the transaction of the business of insurance in
any jurisdiction in which the Company is not licensed or otherwise authorized
to engage in such activities. However, the definition of such activities is in
some jurisdictions ambiguous and susceptible to judicial interpretation.
Accordingly, there can be no assurance that inquiries or challenges to the
Company's insurance activities in such jurisdictions will not be raised in the
future or that the Company's location, regulatory status or restrictions on its
activities resulting therefrom will not adversely affect the Company.
In addition to the regulatory requirements imposed by the jurisdictions
in which a reinsurer is licensed, a reinsurer's business operations are
affected by regulatory requirements governing "credit for reinsurance" in other
jurisdictions in which its ceding companies are located. In general, a ceding
company which obtains reinsurance from a reinsurer that is licensed, accredited
or approved by the jurisdiction in which the ceding company files statutory
financial statements is permitted to reflect in its statutory financial
statements a credit in an aggregate amount equal to the liability for unearned
premiums and loss reserves and loss expense reserves ceded to the reinsurer.
Many jurisdictions also permit ceding companies to take credit on their
statutory financial statements for reinsurance obtained from unlicensed or non-
admitted reinsurers if certain prescribed security arrangements are made.
Because Gemini Re is not licensed, accredited or approved in any jurisdiction
except Bermuda, Gemini Re expects that in certain instances its reinsurance
clients will require it to post a letter of credit or enter into other security
arrangements. We expect to receive commitments from one or more commercial
banks to provide standby letter of credit facilities. These commitments will be
subject to several conditions, including the negotiation of definitive
documentation. In the event that Gemini Re should default under a letter of
credit facility, it may be required to liquidate prematurely all or a
substantial portion of its investment portfolio and/or its other assets which
have been pledged as security for the facility or otherwise to secure its
obligations to its reinsureds, which would adversely affect the Company. If
Gemini Re is unable to obtain a letter of credit facility on commercially
acceptable terms or is unable to arrange for other types of security, its
ability to operate its business will be severely limited.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the names, ages and titles of the directors
and executive officers of the Company and Gemini Re.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY AND GEMINI RE
- ---- --- ---------------------------------------
<S> <C> <C>
David A. Brown.............. 41 Chief Executive Officer, President and Director
E. Grant Gibbons............ 46 Chief Financial Officer, Treasurer and Director
Conrad A. Plimpton.......... 55 Chairman of the Board of Directors
Philip L. Yang.............. 39 Deputy Chairman of the Board of Directors
John C. Plimpton............ 32 Director
John R. Zumbrunn............ 56 Director
</TABLE>
David A. Brown, has served as the Chief Executive Officer, President and
a director of the Company and Gemini Re since December 1998. From 1995 to 1998,
Mr. Brown served as President and Chief Executive Officer of Centre Solutions
Limited, a Bermuda-based insurance company and subsidiary of Zurich Insurance
Group, having previously served as Executive Vice President and Chairman of the
Operating Committee (1994-1995) and as Senior Vice President, Chief Accounting
Officer and Chief Administrative Officer for non-insurance operations (1993-
1995). From 1988 to 1993, Mr. Brown was a partner with the international
accounting firm, Ernst & Young (formerly Ernst & Whinney), having previously
served in the positions of supervisor, manager and senior manager from 1982 to
1988. At Ernst & Young, Mr. Brown specialized in insurance auditing and
consulting and was liquidator of numerous insurance companies. Prior to joining
Ernst & Young, Mr. Brown worked for Deloitte Haskins & Sells as a qualified
accountant (1981-1982) and an articled clerk (1977-1981). He is a Fellow of the
Institute of Chartered Accountants in England and Wales and a Member of the
Institute of Chartered Accountants in Bermuda.
E. Grant Gibbons has served as the Chief Financial Officer, Treasurer and
a director of the Company and Gemini Re since December 1998. Dr. Gibbons, a
Member of Parliament in Bermuda, served as Minister of Finance in the Bermuda
Government from 1995 until 1998. He previously served as Minister of Management
and Technology from 1994 to 1995. From 1987 until 1994, Dr. Gibbons
participated in the management of a family business with interests in retail,
financial services and insurance, serving as Managing Director of Gibbons
Company and of Peniston Brown Ltd. From 1982 to 1987, Dr. Gibbons held a
variety of positions at E.R. Squibb & Sons, a multinational pharmaceutical
company, including positions in marketing and strategic planning, culminating
in the position of Director of Worldwide Licensing, where his responsibilities
included negotiations and contractual arrangements involved in acquisition of
new products. Dr. Gibbons holds a Sc.B. from Brown University, an M.A. in
philosophy, politics and economics from Oxford University, where he studied as
a Rhodes Scholar, and a Ph.D. in organic chemistry from Harvard University.
Conrad A. Plimpton has served as the Chairman of the Board of Directors
of the Company and Gemini Re since December 1998. Since 1979, Mr. Plimpton has
been a Managing Director of the Sponsor. He is a founding shareholder and
director of Troy Corporation, a supplier of biocides and other additives to the
paints and coatings industry, and a founding shareholder, director and Chairman
of Inolex Chemical Company, a chemicals supplier. From 1987 until 1998, he
served in various positions with HiRoss Holdings Ltd, a manufacturer of
computer and telecommunications cooling systems, and its successor, HiRoss
Holding AG. He was Chairman of the Board and a director of Exide Electronics
Group Inc., a supplier of power management systems for computers and other
electronic equipment, from its inception in 1982 until its sale to BTR plc in
1997 and was its Secretary from 1982 until 1991. From 1971 to 1974, he was an
associate and later a partner of Frontenac Company, a venture capital firm.
From 1969 to 1970, he was employed as an investment banker with Kuhn Loeb &
Co., an investment banking firm that later became Lehman Holdings Inc., and
from 1967 to 1969, he was employed as a consultant
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with McKinsey & Co., a management consulting firm. Mr. Plimpton holds a B.A.
from Harvard University in high energy experimental physics, an M.S. from the
University of Chicago in physical sciences and an M.B.A. from the University of
Chicago. Mr. Plimpton is the father of John C. Plimpton.
Philip L. Yang has served as the Deputy Chairman of the Board of
Directors of the Company and Gemini Re since December 1998. Mr. Yang has been
the sole shareholder, director and President of Willowbridge since 1992, and
also held those positions from the time he formed Willowbridge in 1988 through
1989. He is individually registered with the CFTC as a CTA and a CPO and is a
member of the NFA in such capacities. He is also a principal of Union Spring,
Doublewood, Inc. and Limerick Financial Corporation, entities registered as
CPOs and CTAs and NFA members affiliated with Willowbridge. From 1983 to 1988
and from 1989 to 1992, he was a Senior Vice President at Caxton Corporation, a
commodity trading advisory firm, serving initially as Director of Research and
later as Director of Commodity Trading. Mr. Yang holds a bachelor's degree with
honors from the University of California at Berkeley and a master's degree from
The Wharton School of the University of Pennsylvania.
John C. Plimpton has served as a director of the Company and Gemini Re
since December 1998. Since 1995, he has been Director of Investments at
Willowbridge, responsible for raising assets and for evaluating investment
opportunities in insurance and financial services for Willowbridge and its
affiliates, including Union Spring. From 1993 to 1995, Mr. Plimpton was owner
and President of Plimpton Financial Group, a life insurance business affiliated
with Massachusetts Mutual Life Insurance Company. He is a director of the
Sponsor. He is a shareholder and director of several privately held businesses,
including Inolex Chemical Company. He holds a B.A. in economics from the
University of Chicago and an M.B.A. in corporate finance and corporate
accounting from the William E. Simon School of Management at the University of
Rochester. He earned his Chartered Life Underwriter and Chartered Financial
Consultant designations from the American College. Mr. Plimpton is the son of
Conrad A. Plimpton.
John R. Zumbrunn has served as a director of the Company and Gemini Re
since December 1998. Since 1997, he has been President of Millstone Portfolio
Management, an affiliate of Willowbridge. Since 1985, Mr. Zumbrunn has served
as the Managing Director of Princeton Investment Technologies, a registered
investment advisor. From 1991 to 1994, he was Vice President, Director of
Research of Tricom U.S.A., Inc., a managed futures and alternative investments
fund. He has over 20 years of investment, trading and quantitative research
experience with Chemical Bank, The Prudential Insurance Company of America,
Salomon Brothers Inc and Commodities Corporation. Mr. Zumbrunn holds a Ph.D. in
mathematics from the University of California at Berkeley and an A.B. in
mathematics from Princeton University and has taught mathematics at Columbia
University and City University of New York.
PROVISIONS GOVERNING THE BOARD OF DIRECTORS
Number and Terms of Directors
Upon consummation of the Offerings, the Board of Directors is expected to
consist of members. The Bye-Laws provide that the Board of Directors will be
divided into three classes. The first class, whose initial term expires at the
first annual meeting of the Company's shareholders following the consummation
of the Offerings, is comprised of Messrs. ; the second
class, whose initial term expires at the second annual meeting of the Company's
shareholders following the consummation of the Offerings, is comprised of
Messrs. Gibbons, John Plimpton and Zumbrunn; and the third class, whose initial
term expires at the third annual meeting of the Company's shareholders
following the consummation of the Offerings, is comprised of Messrs. Brown,
Conrad Plimpton and Yang. 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 Underwriting, Investment, Audit,
Compensation and Nominating committees. Each committee reports to the Board of
Directors.
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Underwriting Committee. The Board of Directors has established an
Underwriting Committee to establish, review and monitor the Company's
underwriting policies, review underwriting decisions, monitor any appointed
underwriting services provider, advise the Board of Directors with respect to
actuarial and pricing services and otherwise monitor the risks insured by the
Company. The Underwriting Committee presently consists of Messrs. .
Investment Committee. The Board of Directors has established an
Investment Committee to establish, review and monitor Gemini Re's investment
policies and to review investment decisions and the performance of Union Spring
and the Sub-Managers. The Investment Committee consists of Messrs. Yang
(Chairman), Conrad Plimpton, Brown and Gibbons.
Audit Committee. The Board of Directors has established an Audit
Committee to review the Company's internal administrative and accounting
controls and to recommend to the Board of Directors the appointment of
independent auditors. The Audit Committee presently consists of Messrs.
.
Compensation Committee. The Board of Directors 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 of Directors with respect to such policies and procedures. The
Compensation Committee also administers the Incentive Plan and the Company's
other compensation plans. The Compensation Committee presently consists of
Messrs. Conrad Plimpton and Yang.
Nominating Committee. The Board of Directors has established a Nominating
Committee to propose to the shareholders and the Board of Directors a slate of
individuals to be director candidates in connection with elections of directors
or to fill vacancies. The Nominating Committee presently consists of Messrs.
.
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 Board of Directors or
any committee thereof. Non-employee directors will receive cash in the amount
of $ per annum and $ per Board of Directors or committee meeting
attended. The non-employee Chairman of the Board will receive an additional
$ per annum. Non-employee directors also will receive options to acquire
Common Shares, in each case upon the later of (1) their election to
the Board of Directors or (2) the consummation of the Offerings. All such
options become exercisable in three equal annual installments commencing on the
first anniversary of the date of grant and will have an exercise price equal to
the fair market value of the Common Shares on the date of grant, except for any
options granted upon consummation of the Offerings, which will have an exercise
price equal to the initial public offering price per share. On the date of each
annual meeting of the Company's shareholders, each non-employee director whose
term as a director has not ended as of the date of such annual meeting will
receive options to acquire 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 of Directors or committees thereof.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or was an officer or employee
of the Company, nor has any executive officer of the Company served as a
director or a member of the compensation committee of any other company, one of
whose executive officers serves as a member of the Board of Directors or
Compensation Committee.
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EXECUTIVE COMPENSATION
The Company did not pay any compensation to its executive officers during
the fiscal period ended December 31, 1998. Messrs. Brown and Gibbons will
receive compensation from the Company upon consummation of the Offerings
pursuant to the terms of their respective employment agreements.
EMPLOYMENT AGREEMENTS
The Company, Gemini Re and Mr. Brown have entered into an Employment
Agreement under which Mr. Brown has agreed to serve as Chief Executive Officer
and President of the Company and Gemini Re for an initial term ending on the
third anniversary of the consummation of the Offerings and for consecutive one-
year terms thereafter, subject to 90 days' advance notice by either party of a
decision not to renew the Employment Agreement. Pursuant to the terms of his
Employment Agreement, Mr. Brown is entitled to receive an annual salary of
$500,000 and will be eligible to participate in all employee benefit programs
maintained by the Company. Mr. Brown's Employment Agreement provides that he
will be eligible for an annual bonus based on performance targets to be
established by the Compensation Committee of the Board of Directors.
The Company, Gemini Re and Mr. Gibbons have entered into an Employment
Agreement under which Mr. Gibbons has agreed to serve as Chief Financial
Officer and Treasurer of the Company and Gemini Re for an initial term ending
on the third anniversary of the consummation of the Offerings and for
consecutive one-year terms thereafter, subject to 90 days' advance notice by
either party of a decision not to renew the Employment Agreement. Pursuant to
the terms of his Employment Agreement, Mr. Gibbons is entitled to receive an
annual salary of $350,000 and will be eligible to participate in all employee
benefit programs maintained by the company. Mr. Gibbons' Employment Agreement
provides that he will be eligible for an annual bonus based on performance
targets to be established by the Compensation Committee of the Board of
Directors.
The Employment Agreements of Messrs. Brown and Gibbons provide that each
of them will receive, subject to the consummation of the Offerings, options to
purchase Common Shares under the Incentive Plan. Mr. Brown will receive options
to purchase Common Shares equal to 5% of the Company's Common Shares
outstanding immediately following the consummation of the Offerings and the
Direct Sales. Mr. Gibbons will receive options to purchase 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.
INCENTIVE PLAN
The Company has adopted the Gemini Re 1998 Long Term Incentive Plan (the
"Incentive Plan"). The Incentive Plan authorizes the award of options to
purchase Common Shares, appreciation rights (the "SARs"), awards of Common
Shares (which may be subject to restrictions) and performance units. The number
of Common Shares that may be awarded under the Incentive Plan shall not exceed
Common Shares in the aggregate, no more than Common Shares may
be awarded to any one individual in any one-year period and the aggregate cash
payout with respect to awards under the Incentive Plan in any calendar year for
any one individual may not exceed $2.5 million. Common Shares issued under the
Incentive Plan may be authorized and unissued or treasury Common Shares. In the
event of certain transactions affecting the type or number of outstanding
Common Shares, the number of Common Shares subject to the Incentive Plan, the
number or type of shares subject to outstanding awards and the exercise price
thereof will be appropriately adjusted.
The Incentive Plan is administered by a committee of the Board of
Directors consisting of two or more non-employee directors appointed by the
Board of Directors (the "Committee"). The Board of Directors has designated the
Compensation Committee to act as the Committee. The Committee will
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determine which employees of the Company shall be eligible to receive awards
under the Incentive Plan, and the amount, price, timing and other terms and
conditions applicable to such awards.
Options awarded under the Incentive Plan may be either incentive stock
options that are intended to satisfy the requirements of Section 422 of the
Code, or nonqualified stock options that are not intended to satisfy Section
422 of the Code. SARs may be granted in tandem or otherwise in connection with
options or may be granted as free-standing awards. Exercise of an option will
result in the corresponding surrender of any tandem SAR. The exercise price of
an option or SAR may not be less than the fair market value of a share of
Common Shares on the date on which the option or SAR is granted. Options and
SARs will be exercisable in accordance with the terms established by the
Committee. Options and SARs will expire on the date determined by the
Committee, which shall not be later than the earliest to occur of (1) the tenth
anniversary of the grant date, (2) the first anniversary of the participant's
termination of employment by reason of death or disability, (3) the third
anniversary of the participant's termination of employment by reason of
retirement or (4) the three-month anniversary of the participant's termination
of employment for any other reason. If an SAR is issued in tandem with an
option, the expiration date for the SAR shall be the expiration date for the
related option. The Compensation Committee may, in its discretion, accelerate
the date on which an option may be exercised.
Under the Incentive Plan, the Committee may grant awards of Common Shares
to participants, which shall be subject to such conditions and restrictions, if
any, as the Committee may determine. During the period a stock award is subject
to restrictions or limitations, the Committee may award the participant
dividend rights with respect to such Common Shares.
The Committee may also award participants performance units, which
entitle the participant to receive value for the units at the end of a
performance period to the extent provided under the award. The number of units
and the performance measures and periods shall be established by the Committee
at the time any such award is made.
All awards under the Incentive Plan will accelerate and become fully
vested upon a change in control of the Company.
The Company intends to file with the Commission a registration statement
on Form S-8 covering the resale of the Common Shares issuable under the
Incentive Plan promptly following the first anniversary of the consummation of
the Offerings.
The following table sets forth information concerning options to be
granted by the Company to its executive officers under the Incentive Plan upon
consummation of the Offerings.
INITIAL OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF
COMMON SHARE PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------- ---------------------
NUMBER OF
COMMON
SHARES PERCENT OF EXERCISE
UNDERLYING OPTIONS PRICE
OPTIONS GRANTED TO PER EXPIRATION
NAME GRANTED(A) EMPLOYEES SHARE DATE(2) 5% 10%
- ---- ---------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David A. Brown.......... $15.00 2009
E. Grant Gibbons........ $15.00 2009
</TABLE>
- --------
(1) 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.
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<PAGE>
(2) The options vest ratably over a period of three years.
(3) The options expire on the tenth anniversary of the consummation of the
Offerings.
PRINCIPAL SHAREHOLDERS
The table below sets forth the expected beneficial ownership of Common
Shares, after giving effect to the Offerings and the Direct Sales, (1) by all
persons who are expected beneficially to own 5% or more of the Common Shares,
(2) by each director and executive officer of the Company and (3) by the
directors and executive officers of the Company as a group (assuming no
exercise of the Underwriters' over-allotment options). Certain directors and
officers of the Company 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) COMMON SHARES COMMON SHARES
---------------------------------------- ------------- -------------
<S> <C> <C>
David A. Brown....................................
E. Grant Gibbons..................................
Conrad A. Plimpton (2)............................
Philip L. Yang (3)................................
John C. Plimpton..................................
John R. Zumbrunn..................................
All directors and executive officers as a group (6
persons).........................................
</TABLE>
- --------
* Less than 1%
(1) 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 the
Company for an aggregate price of $12,000 and such Common Shares will be
cancelled.
(2) Includes Common Shares to be purchased by , an affiliate
of Mr. Plimpton, in the Direct Sales. See "Certain Transactions--Sponsor
Relationships."
(3) Includes Common Shares to be purchased by , an affiliate
of Mr. Yang, in the Direct Sales. See "Certain Transactions--Investment
Manager Relationships."
CERTAIN TRANSACTIONS
The following descriptions summarize certain relationships and the terms
of certain agreements of the Company. Because these descriptions are summaries,
they do not contain all of the information that may be important to you. We
have filed copies of these agreements as exhibits to the Registration Statement
of which this prospectus is a part.
SPONSOR RELATIONSHIPS
Mr. Conrad Plimpton, the Chairman of the Board of Directors, is a
Managing Director of the Sponsor, and Mr. John Plimpton, a director of the
Company and Gemini Re, is a director of the Sponsor. See "Management--Directors
and Executive Officers." Pursuant to an agreement between the Sponsor and the
Company, the Sponsor has agreed to provide certain services in connection with
the Offerings and the sales to the Strategic Investors, including assistance in
preparing a registration statement for the Common Shares, retaining
underwriters in connection with the Offerings and such other services as the
Company or the Sponsor deems appropriate. Pursuant to such Agreement, the
Company is obligated upon consummation of the Offerings to pay a fee to the
Sponsor of $ and reimburse the Sponsor for expenses it incurs in
connection with performing services under its agreement with the Company. At
, 1999, the Sponsor had incurred expenses of approximately
$ . Upon
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<PAGE>
consummation of the Offerings, expenses incurred by the Sponsor, on the
Company's behalf, are currently estimated to be approximately $ .
Mr. Conrad A. Plimpton and his affiliate have agreed to purchase Common
Shares and warrants to purchase Common Shares for an aggregate purchase price
of $1 million as part of the Direct Sales. See "Direct Sales."
The Sponsor has loaned $12,000 to the Purpose Trust, which will be repaid
upon consummation of the Offerings.
INVESTMENT MANAGER RELATIONSHIPS
Philip L. Yang, the Vice Chairman of the Board of Directors, is the sole
owner, director and chairman of Union Spring. See "Management--Directors and
Executive Officers." Gemini Re has entered into the Investment Management
Agreement with Union Spring, under which Union Spring will be responsible for
managing the Company's investment portfolio. Pursuant to such agreement, Union
Spring is entitled to receive certain management and incentive fees, a portion
of which is payable in Common Shares of the Company. See "Business--Investment
Managers."
Union Spring has been granted rights to require the Company to register
the Common Shares it receives under the Investment Management Agreement. See
"Shares Eligible for Future Sale."
Mr. Yang and his affiliate have agreed to purchase Common Shares and
warrants to purchase Common Shares for an aggregate purchase price of $
million as part of the Direct Sales. See "Direct Sales."
Mr. John Plimpton, a director of the Company, is a principal of
Willowbridge. See "Management--Directors and Executive Officers." Mr. Zumbrunn,
a director of the Company, is an officer of an affiliate of Willowbridge. See
"Management--Directors and Executive Officers."
MANAGEMENT RELATIONSHIPS
The Company's executive officers, Messrs. Brown and Gibbons have
expressed their non-binding intention to purchase Common Shares for an
aggregate purchase price of $22 million and $ , respectively, directly from
the Company as part of the Direct Sales. Similarly, certain directors of the
Company have expressed their intention to purchase an aggregate of
Common Shares directly from the Company as part of the Direct Sales. Because
the Common Shares sold to the officers and directors will not be sold through
the Underwriters as part of the Offerings, the purchase price per share will be
equal to the initial public offering price per share, less the per share
underwriting discounts and commissions. The Company intends to make loans to
Messrs. Brown and Gibbons in the amounts of $20 million and $ ,
respectively, to partially finance such purchases in the event such purchases
are completed. Such loans will be non-recourse, will bear interest at % per
annum and must be repaid within years of the consummation of the Direct
Sales. Any such purchases will be completed simultaneously with the
consummation of the Offerings and the other Direct Sales. See "Direct Sales."
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock summarizes
certain provisions of the Company's Memorandum of Association (the "Memorandum
of Association") and its Bye-Laws. Because this is a summary, it does not
contain all the information that may be important to you. We have filed copies
of the Memorandum of Association and the Bye-Laws as exhibits to the
Registration Statement of which this prospectus is a part.
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<PAGE>
GENERAL
The Company's authorized share capital consists of: (1) 75,000,000 Common
Shares, of which Common Shares will be outstanding upon consummation
of the Offerings and the Direct Sales and (2) 1,000,000 preferred shares, par
value $1.00 per share (the "Preferred Shares"), none of which will be
outstanding. In addition, an aggregate of Common Shares will be
issuable upon the exercise of outstanding warrants and an aggregate of
Common Shares will be issuable upon the exercise of options to be
granted to directors and officers of the Company upon consummation of the
Offerings. The warrants and the options will not be immediately exercisable
upon consummation of the Offerings. If the Underwriters' over-allotment options
are exercised in full, Common Shares will be outstanding. 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 the Company for an
aggregate price of $12,000, and such Common Shares will be cancelled.
COMMON SHARES
Holders of the Common Shares have no pre-emptive, redemption, conversion
or sinking fund rights. The quorum required for a general meeting of
shareholders is two or more persons present in person and representing in
person or by proxy more than 50% of the issued and outstanding Common Shares.
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.
In the event of a liquidation, dissolution or winding-up of the Company,
the holders of Common Shares are entitled to share equally and ratably in the
assets of the Company, if any remain after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
Preferred Shares.
Limitation on Voting Rights. If and for as long as the number of issued
Controlled Shares of any person would constitute 10% or more of the combined
voting power of the issued voting shares of the Company (after giving effect to
any prior reduction in voting power as described below), each such issued
Controlled Share, regardless of the identity of the registered holder thereof,
will confer only a fraction of a vote as determined by the following formula
(the "Formula"):
(T - C) / (9.1 X C)
Where: "T" is the aggregate number of votes conferred by all the issued shares
immediately prior to that application of the Formula with respect to any
particular shareholder, adjusted to take into account any prior
reduction taken with respect to any other shareholder pursuant to the
"sequencing provision" described below; and
"C" is the number of issued Controlled Shares attributable to such
person. "Controlled Shares" of any person refers to all Common Shares or
voting Preferred Shares owned by such person, whether (i) directly, (ii)
with respect to persons who are United States persons, by application of
the attribution and constructive ownership rules of Sections 958(a) and
958(b) of the Code or (iii) beneficially, directly or indirectly, within
the meaning of Section 13(d)(3) of the Exchange Act, and the rules and
regulations thereunder.
The Formula will be applied successively as many times as may be
necessary to ensure that no person (except as excluded from the application of
the Formula above) will be a Controlling Shareholder (as defined below) at any
time (the "sequencing provision"). For the purposes of determining the votes
exercisable by shareholders as of any date, the Formula will be applied to the
shares of each shareholder in declining order based on the respective numbers
of total Controlled Shares attributable to each shareholder. Thus, the Formula
will be applied first to the votes of shares held by the shareholder to
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<PAGE>
whom the largest number of total Controlled Shares is attributable and
thereafter sequentially with respect to the shareholder with the next largest
number of total Controlled Shares. In each case, calculations are made on the
basis of the aggregate number of votes conferred by the issued voting shares as
of such date, as reduced by the application of the Formula to any issued voting
shares of any shareholder with a larger number of total Controlled Shares as of
such date. "Controlling Shareholder" means a person who owns, in aggregate, (i)
directly, (ii) with respect to persons who are United States persons, by
application of the attribution and constructive ownership rules of Sections
958(a) and 958(b) of the Code or (iii) beneficially, directly or indirectly,
within the meaning of Section 13(d)(3) of the Exchange Act, issued voting
shares of the Company carrying 10% or more of the total combined voting rights
attaching to all issued shares.
The Company is authorized 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 Company 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. The Bye-Laws contain several provisions
restricting the transferability of Common Shares. Any transfer of shares that
results in (1) any shareholder (other than an Investment Company) beneficially
owning more than 5.0% of the outstanding capital stock of the Company, (2) any
shareholder holding Controlled Shares in excess of 9.9% of the outstanding
capital stock of the Company or (3) any adverse tax, regulatory or legal
consequences to the Company, any of its subsidiaries or any of its
shareholders, requires the prior approval of the Board of Directors. The Bye-
Laws provide that any such transfer without prior approval of the Board of
Directors shall not be registered in the share register of the Company and
shall be void and of no effect. The Bye-Laws also provide that if the Board of
Directors in its absolute discretion determines that (1) any shareholder (other
than an Investment Company) beneficially owns more than 5.0% of the outstanding
capital stock of the Company, (2) any shareholder holds Controlled Shares in
excess of 9.9% of the outstanding capital stock of the Company or (3) share
ownership by any shareholder may result in adverse tax, regulatory or legal
consequences to the Company, any of its subsidiaries or any other shareholder,
then the Company will have the option, but not the obligation, to repurchase
all or any part of the Common Shares held by such shareholder to the extent the
Board of Directors determines it is necessary or advisable to avoid or cure any
adverse or potential adverse consequences. The price to be paid for such Common
Shares will be the fair market value of such shares.
The Company is authorized to request information from any holder or
prospective acquiror of Common Shares as necessary to give effect to the
transfer restrictions described above, and may decline to effect any such
transaction if complete and accurate information is not received as requested.
Conyers Dill & Pearman, Bermuda counsel to the Company, have advised the
Company that while the precise form of the restrictions on transfer contained
in the Bye-Laws is untested, as a matter of general principle, restrictions on
transfers are enforceable under Bermuda law and are not uncommon. A proposed
transferee will be permitted to dispose of any Common Shares purchased that
violate the restrictions and as to the transfer of which registration is
refused. The transferor of such Common Shares will be deemed to own such Common
Shares for dividend, voting and reporting purposes until a transfer of such
Common Shares has been registered on the Register of Members of the Company.
If the directors refuse to register a transfer for any reason, they must
notify the proposed transferor and transferee within 30 days of such refusal.
The Bye-Laws also provide that the Board may
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<PAGE>
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.
PREFERRED SHARES
Pursuant to the Bye-Laws and Bermuda law, the Board by resolution may
establish one or more series of Preferred Shares having such number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences, 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 the Company constitute a "controlled foreign corporation" for United
States federal income tax purposes. Such rights, preferences, powers and
limitations as may be established could have the effect of discouraging an
attempt to obtain control of the Company. The issuance of Preferred Shares
could also adversely affect the voting power of the holders of Common Shares,
deny shareholders the receipt of a premium on their Common Shares in the event
of a tender or other offer for the Common Shares and have a depressive effect
on the market price of the Common Shares. The Company has no present plan to
issue any Preferred Shares.
WARRANTS
Upon consummation of the Offerings and the Direct Sales, warrants to
purchase an aggregate of Common Shares will be outstanding. The
exercise price of the 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 warrants
or below the then current fair market value of the Common Shares. The warrants
become exercisable in three equal annual installments commencing on the first
anniversary of the consummation of the Direct Sales. In the event of a change
of control of the Company, the warrants then outstanding will become
immediately exercisable. The warrants will expire on the tenth anniversary of
the consummation of the Direct Sales.
The 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 offer, sell, offer to sell, contract to sell, assign, pledge, hypothecate,
grant any option to purchase, or otherwise transfer or dispose of (or announce
any offer, sale, offer to sell, contract of sale, assignment, pledge,
hypothecation, grant of any option to purchase, or other transfer or
disposition of) such Common Shares or the warrants for a one-year period from
the date of this prospectus without the prior written consent of Merrill Lynch
& Co., on behalf of the Underwriters, and the Company. See "Shares Eligible for
Future Sale," "Direct Sales" and "Underwriting."
OPTIONS
Upon consummation of the Offerings, there will be Common Shares
issuable upon the exercise of outstanding options and Common Shares
reserved for future issuance pursuant to the Incentive Plan. See "Management--
Incentive Plan."
The Company intends to file with the Commission a registration statement
on Form S-8 covering the resale of the Common Shares issuable upon exercise of
options issued under the Incentive 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 offer, sell or offer
to sell, contract to sell, assign, pledge, hypothecate, grant any option to
purchase, or otherwise transfer or dispose of (or announce any offer, sale,
offer to sell, contract of sale, assignment, pledge, hypothecation, grant of
any option to purchase, or other transfer or disposition of) such options for a
one-year period from the date of this prospectus without the prior written
consent of Merrill Lynch & Co., on behalf of the Underwriters. See "Shares
Eligible for Future Sale" and "Underwriting."
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<PAGE>
BYE-LAWS
The Bye-Laws provide for the corporate governance of the Company,
including the establishment of share rights, modification of such rights,
issuance of share certificates, the transfer of shares, alterations to capital,
the calling and conduct of general meetings, proxies, the appointment and
removal of directors, conduct and powers of directors, the payment of
dividends, the appointment of an auditor and the winding-up of the Company.
The Bye-Laws provide that the Board shall be elected annually and shall
consist of three approximately equal classes, each class to be elected to serve
for a three-year term. Shareholders may only remove a director prior to the
expiration of such director's term at a special meeting of shareholders at
which a majority of the votes cast thereon is cast in favor of such action. A
special meeting of shareholders may be convened by the Chairman or any two
directors or any director and the Secretary or the Board of Directors or on the
request of shareholders holding not less than 10% of the paid-up share capital
of the Company that carries the right to vote at general shareholders'
meetings.
The Bye-Laws provide that each director may appoint an alternate
director, who shall have the power to attend and vote at any meeting of the
Board at which such director is not personally present and generally to perform
at such meeting all the functions of such director. In addition, the Board may
delegate any of its powers to a committee appointed by the Board, which may
consist partly or entirely of non-directors.
TRANSFER AGENT
The Company's registrar and transfer agent for the Common Shares is
.
DIFFERENCES IN CORPORATE LAW
The Companies Act 1981 of Bermuda (the "Act"), which applies to the
Company, differs in certain material respects from laws generally applicable to
United States corporations and their shareholders. Set forth below is a summary
of certain significant provisions of the Act (including modifications adopted
pursuant to the Bye-Laws) applicable to the Company which differ in certain
respects from provisions of Delaware corporate law. Because the following
statements are summaries, they do not purport to deal with all aspects of
Bermuda law that may be relevant to the Company and its shareholders.
Interested Directors. Bermuda law and the Bye-Laws provide that any
transaction entered into by the Company in which a director has an interest is
not voidable by the Company nor can such director be liable to the Company for
any profit realized pursuant to such transaction provided the nature of the
interest is disclosed at the first opportunity at a meeting of directors, or in
writing to the directors. Under Delaware law such transaction would not be
voidable if (1) 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, (2) 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
majority of shares entitled to vote thereon or (3) 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 the Company's business purpose as set forth in the
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
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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 the Memorandum of Association or
the Bye-Laws. Furthermore, consideration would be given by the court to acts
that are alleged to constitute a fraud against the minority shareholders or
where an act requires the approval of a greater percentage of the Company's
shareholders than actually approved it. The winning party in such an action
generally would be able to recover a portion of attorneys' fees incurred in
connection with such action. The Bye-Laws provide that shareholders waive all
claims or rights of action that they might have, individually or in the right
of the Company, against any director or officer for any act or failure to act
in the performance of such director's or officer's duties, except with respect
to any fraud or dishonesty of such director or officer. Class actions and
derivative actions generally are available to stockholders under Delaware law
for, among other things, breach of fiduciary duty, corporate waste and actions
not taken in accordance with applicable law. In such actions, the court has
discretion to permit the winning party to recover attorneys' fees incurred in
connection with such action.
Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may
be guilty in relation to the Company other than in respect of his own fraud or
dishonesty. Under Delaware law, a corporation may indemnify a director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred in defense of an action, suit or proceeding by reason of such position
if (i) such director or officer acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and (ii), 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,
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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.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the Offerings and the Direct Sales, the Company will
have Common Shares outstanding, warrants to purchase an aggregate of
Common Shares and options to purchase an aggregate of
Common Shares. If the Underwriters' over-allotment options are exercised in
full, Common Shares are expected to be outstanding. The warrants and
options will not be exercisable immediately upon consummation of the Offerings.
See "Management--Incentive Plan," "Description of Capital Stock--Warrants" and
"Direct Sales." Except as disclosed in "Description of Capital Stock--
Restrictions on Transfer" and as discussed below with respect to the lock-up
agreements, the Common Shares sold in the Offerings and any Common Shares sold
in the Direct Sales to the Company's directors and officers will be freely
transferable without restriction or further registration under the Securities
Act, except for any of those Common Shares owned by an "affiliate" of the
Company within the meaning of Rule 144 under the Securities Act (which sales
will be subject to the volume limitations and certain other restrictions). The
Common Shares to be sold to the Strategic Investors in the Direct Sales, the
Common Shares underlying the warrants and the options and the Common Shares
issued to Union Spring 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 except pursuant to an exemption from registration.
The Company, its directors and officers and the Strategic Investors have
executed agreements (the "lock-up agreements") under which they have agreed
that they will not, directly or indirectly, without the prior written consent
of Merrill Lynch & Co., on behalf of the Underwriters, and, in the case of the
Strategic Investors, both Merrill Lynch, on behalf of the Underwriters, and the
Company, 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. Such agreements do not prevent the
Company from granting options under the Incentive Plan so long as such options
are not exercisable until one year from the date of this prospectus. Merrill
Lynch & Co. may, in its discretion (except that, in the case of the Strategic
Investors, Merrill Lynch & Co. must act jointly with the Company), at any time
and without notice, release all or any portion of the securities subject to
such lock-up agreements.
The Strategic Investors and Union Spring 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, the Common Shares
underlying the warrants and the Common Shares issued under the Investment
Management Agreement, respectively. The holders of the Common Shares and
warrants sold to the Strategic Investors in the Direct Sales each have the
right to require the registration under the Securities Act of all or a portion
of the Common Shares sold to the Strategic Investors in the Direct Sales or
underlying the warrants for sale in an underwritten public offering two times
if, at any time on or after
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the first anniversary of the consummation of the Direct Sales and before the
tenth anniversary thereof, holders of 30% or more of such Common Shares give
written notice to the Company requesting such registration. The Company has
agreed not to permit the acceleration of the vesting of such rights without the
prior written consent of Merrill Lynch & Co., on behalf of the Underwriters.
Union Spring has the right to require the registration under the Securities Act
of all or a portion of the Common Shares issued under the Investment Management
Agreement (so long as such amount is not less than Common Shares) for
sale in an underwritten public offering if, at any time after their issuance,
Union Spring gives written notice to the Company requesting such registration.
In addition, if the Company proposes to file a registration statement under the
Securities Act to register any of its Common Shares for public sale under the
Securities Act other than on Form S-4 or Form S-8 or in certain other
circumstances including mergers or acquisitions, the holders of the Common
Shares and warrants sold to the Strategic Investors in the Direct Sales and
Union Spring have the right to request the inclusion of all or a portion of the
Common Shares sold in the Direct Sales or underlying the warrants or the Common
Shares issued under the Investment Management Agreement in the registration
statement, and the Company is required to use commercially reasonable efforts
to include such Common Shares in the registration statement.
In connection with such registrations, the Company is required to bear
certain legal, accounting, printing, filing fee and other expenses, including
underwriters' discounts, 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 warrants
or the Common Shares underlying such warrants.
The Company also intends to file with the Commission a registration
statement on Form S-8 covering the resale of the Common Shares issuable upon
exercise of options issued under the Incentive Plan promptly following the
first anniversary of the consummation of the Offerings.
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, 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 that it deems appropriate.
DIRECT SALES
Concurrently with consummation of the Offerings, the Company will issue
to (1) Strategic Investors Common Shares and warrants to purchase
Common Shares in private placement transactions and (2) certain
directors and officers of the Company Common Shares that will be
registered pursuant to the Securities Act.
STRATEGIC INVESTORS
The Company has entered into a securities purchase agreement with each of
the Strategic Investors for the purchase of Common Shares and warrants as part
of the Direct Sales. An affiliate of Mr. Yang, , has agreed to
purchase Common Shares and warrants to purchase an additional
Common Shares for an aggregate purchase price of approximately $
million. An affiliate of Mr. Conrad Plimpton, , has agreed to purchase
Common Shares and warrants to purchase an additional
Common Shares for an aggregate purchase price of approximately $ million.
has agreed to purchase Common Shares and warrants
to purchase an additional Common Shares for an aggregate purchase
price of approximately $ million. The Company did not separately negotiate
a price for the Common Shares and the warrants issued to the Strategic
Investors. The aggregate purchase price to be paid by each Strategic Investor
is based on a price of $15.00 for (i) one Common Share and (ii) the right to
purchase a specified fraction of a Common Share under the warrants. The
warrants will be exercisable at $15.00 per share.
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The issuance of the Common Shares and warrants in the Direct Sales is
subject to a number of conditions precedent customary in transactions of this
nature, including the accuracy of the parties' respective representations and
warranties, delivery of legal opinions and compliance with the parties'
respective covenants set forth in the securities purchase agreements. In
addition, such issuances to the Strategic Investors are further subject to the
satisfaction or waiver of the closing conditions contained in the Underwriting
Agreement with respect to the Offerings other than the condition that the sales
in excess of $ million have been made to the Strategic Investors.
Furthermore, such issuances are subject to the condition that the Company will
receive net proceeds of not less than $ million from the Offerings when
they are consummated. All such purchases are expected to be consummated
simultaneously with the consummation of the Offerings.
DIRECTORS AND OFFICERS
In addition to the sales being made to the Strategic Investors, the
Company is offering by a separate prospectus up to 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, for an aggregate purchase price of approximately $ million.
Messrs. Conrad Plimpton, Yang, Brown and Gibbons have agreed to purchase ,
, and Common Shares, respectively. 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
Common Shares shall have been consummated. All such purchases are expected to
be consummated simultaneously with the consummation of the Offerings.
LOCK-UP AND REGISTRATION RIGHTS AGREEMENTS
Each of the Strategic Investors and each of the individuals that are
expected to purchase Common Shares as part of the Direct Sales has executed
lock-up agreements. In addition, 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 warrants
issued to them in the Direct Sales. See "Shares Eligible for Future Sales" and
"Underwriting."
CERTAIN TAX CONSIDERATIONS
The following summary of taxation of the Company, Gemini Re and the
Company's shareholders is based upon current law. The following discussion is a
summary of the principal Bermuda and U.S. federal income tax consequences of
the ownership and disposition of Common Shares. The summary does not purport to
be a complete analysis of all of the tax considerations that may be applicable
to a decision to acquire Common Shares and, unless explicitly noted to the
contrary, deals only with investors who are U.S. Persons (as defined below) who
will hold the Common Shares as "capital assets" within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended (the "Code"). The tax
treatment of any particular shareholder may vary depending on such
shareholder's particular tax situation or status. Consequently, each
prospective shareholder is urged to consult his or its own tax advisors as to
the particular tax consequences of the Offerings to such shareholder, including
the effect and applicability of federal, state, local and foreign income and
other tax laws. Legislative, judicial or administrative changes may be
forthcoming that could affect this summary.
As used herein, the term "U.S. Person" means a citizen or resident of the
United States; a corporation, partnership, or other entity created or organized
in the United States or under the laws of the United States or of any political
subdivision thereof; an estate whose income is includible in gross income for
United States Federal income tax purposes regardless of its source; or any
trust if, and only if, (i) a court within the United States is able to exercise
primary supervision over the administration of the trust and (ii) one or more
U.S. persons have the authority to control all substantial decisions of the
trust.
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A U.S. Person who holds Common Shares as "capital assets" within the meaning of
section 1221 of the Code will be referred to herein as a "U.S. Holder."
Statements made below as to Bermuda tax law are based on the opinion of
Conyers Dill & Pearman, Bermuda counsel to the Company as to such tax laws
(subject to the qualifications and assumptions set forth in such opinion).
Statements made below as to United States federal income tax law are based upon
the opinion of Mayer, Brown & Platt, United States counsel to the Company as to
such tax laws (subject to the qualifications and assumptions set forth in such
opinion). The statements as to the Company's beliefs and conclusions as to the
application of such tax laws to the Company represent the views of the
Company's management as to the application of such laws and do not represent
legal opinions of the Company or its counsel.
TAXATION OF THE COMPANY AND ITS SUBSIDIARIES
Bermuda
Under current Bermuda law, there is no income tax or capital gains tax
payable by the Company or Gemini Re. The Company and Gemini Re have received
from the Bermuda Minister of Finance an assurance under The Exempted
Undertakings Tax Protection Act, 1966 of Bermuda, to the effect that in the
event of there being enacted in Bermuda any legislation imposing tax computed
on profits or income, or computed on any capital asset, gain or appreciation,
or any tax in the nature of estate duty or inheritance tax, then the imposition
of any such tax shall not be applicable to the Company, to Gemini Re or to any
of their operations or their shares, debentures or other obligations, until
March 28, 2016. This assurance is subject to the proviso that it is not
construed so as to prevent the application of any tax or duty to such persons
as are ordinarily resident in Bermuda (the Company and Gemini Re are not so
currently affected) 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 any property leased to the Company or Gemini Re. The
Company and Gemini Re, under current rates, each pay annual Bermuda government
fees of BD$1,695 and BD$5,340, respectively, and Gemini Re currently pays
annual insurance fees of BD$2,500. It is anticipated that, based on current
rates and the consummation of the Offerings, the annual governmental fee
payable by the Company will be BD$26,500. In addition, all entities employing
individuals in Bermuda are required to pay a payroll tax and sundry other
taxes, directly or indirectly, to the Bermuda government.
United States
In general, under current U.S. tax rules and regulations, a foreign
corporation is subject to U.S. federal income tax on its taxable income that is
treated as effectively connected to its conduct of a trade or business within
the U.S. and to the U.S. branch profits tax on its effectively connected
earnings and profits (with certain adjustments) deemed repatriated out of the
United States. However, pursuant to most U.S. income tax treaties, a foreign
corporation is subject to the U.S. federal income tax on its business profits
only if it is engaged in the conduct of a trade or business in the U.S. through
a permanent establishment located therein. The U.S. has entered into a treaty
with Bermuda relating to the taxation of insurance enterprises (the "Bermuda
Treaty"). Pursuant to the Bermuda Treaty business profits earned by an
insurance company that is a resident of Bermuda may be taxed in the United
States only if such profits are attributable to the conduct of a trade or
business carried on through a permanent establishment in the United States.
However, an insurance enterprise resident in Bermuda will be entitled to the
benefits of the Bermuda Treaty only if (1) 50% or more of its equity is
beneficially owned, directly or indirectly, by Bermuda residents or U.S.
citizens or residents and (2) its income is not used in substantial part,
directly or indirectly, to make disproportionate distributions to, or to meet
certain liabilities to, persons who are not Bermuda residents or U.S. citizens
or residents (the "Bermuda Treaty Benefits Test"). For purposes of the Bermuda
Treaty, a permanent establishment generally is defined to include a branch,
office or other fixed place of business through which the business of the
enterprise is carried on, or an agent (other than an agent of independent
status acting in the ordinary course of its business) that has, and habitually
exercises in the U.S., authority to conclude contracts in the name of the
corporation.
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The Company believes, based on the advice of counsel and the activities
of the Company and Gemini Re with respect to the United States, that the
Company and Gemini Re should not be subject to U.S. federal net income tax
imposed on their business income. It is anticipated that the Company and Gemini
Re will operate in the future so as not to be engaged in the conduct of a trade
or business in the U.S. However, as there are no definitive standards provided
by the Code, regulations or court decisions as to those activities that
constitute being engaged in the conduct of a trade or business within the
United States, and as the determination is essentially factual in nature, there
can be no assurance that the IRS will not contend successfully that the Company
and/or Gemini Re is engaged in a trade or business in the United States. If the
Company and/or Gemini Re were deemed to be so engaged, that entity would be
subject to U.S. income tax, as well as the branch profits tax, on its income
which is treated as effectively connected with the conduct of that trade or
business unless the entity is entitled to relief under the permanent
establishment provision of the Bermuda Treaty, as discussed below.
It is uncertain whether Gemini Re will be entitled to relief under the
permanent establishment provisions of the Bermuda Treaty upon completion of the
Offerings or at any time thereafter as it cannot be predicted whether Gemini Re
would satisfy the Bermuda Treaty Benefits Test. No regulations interpreting the
Bermuda Treaty have been issued. However, as stated above, while there can be
no assurances, the Company believes that Gemini Re will not be engaged in the
conduct of a U.S. trade or business. Moreover, the Company does not believe
that Gemini Re will have a permanent establishment in the United States.
If the Company or Gemini Re is subject to U.S. federal income tax, that
entity would be taxed at regular corporate rates on all of its income that is
effectively connected with the conduct of its U.S. business (or, in the case of
Gemini Re, all of its income attributable to its U.S. permanent establishment
if Gemini Re is entitled to the benefits of the Bermuda Treaty). In addition,
the Company or Gemini Re would be subject to the branch profits tax. Such
income tax, if imposed, would be based on effectively connected income computed
in a manner generally analogous to that applied to the income of a domestic
corporation, except that a foreign corporation can anticipate an allowance of
deductions and credits only if it files a United States income tax return.
Penalties may be assessed for failure to file tax returns. The Company and
Gemini Re intend to file protective U.S. income tax returns on a timely basis
in order to preserve their right to claim tax deductions and credits if either
company subsequently is determined to be subject to U.S. tax on a net basis.
The highest marginal federal income tax rates currently are 35% for a
corporation's effectively connected income and 30% for the "branch profits"
tax. If Gemini Re were deemed to be engaged in business in the United States
but did not have a permanent establishment in the United States within the
meaning of the Bermuda Treaty and Gemini Re qualified for Bermuda Treaty
benefits, there is an argument that premium income of Gemini Re would be exempt
from U.S. tax but that its investment income effectively connected with its
U.S. business would be subject to U.S. tax on a net basis, and that the branch
profits tax may be applicable to that investment income.
Foreign corporations not engaged in a trade or business in the United
States, as well as foreign corporations engaged in the conduct of a U.S. trade
or business but only with respect to their income that is not effectively
connected with such trade or business, are nonetheless subject to U.S. income
tax on certain "fixed or determinable annual or periodical gains, profits and
income" (such as dividends and certain interest on investments) derived from
sources within the United States. Such tax generally is imposed at a rate of
30% on the gross income subject to the tax, but the rate may be reduced by
applicable treaties, and the tax is eliminated with respect to certain types of
U.S. source income, such as portfolio interest.
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 rates of tax applicable to premiums paid to Gemini Re
are 4% for direct casualty insurance and indemnity bonds or 1% for reinsurance
premiums and direct insurance of life, sickness and accident policies and
annuity contracts.
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TAXATION OF SHAREHOLDERS
Bermuda Taxation
Currently, there is no Bermuda withholding tax on dividends paid by the
Company.
United States Taxation of U.S. and Non-U.S. Shareholders
Taxation of Dividends. Subject to the discussion below relating to the
potential application of the "controlled foreign corporation" and "passive
foreign investment company" rules, cash distributions made with respect to
Common Shares will constitute dividends for U.S. federal income tax purposes to
the extent paid out of current or accumulated earnings and profits of the
Company. U.S. Holders generally will be subject to U.S. federal income tax on
the receipt of such dividends. Generally, such dividends will not be eligible
for the dividends received deduction. To the extent that a distribution exceeds
earnings and profits, it will be treated first as a return of the U.S. Holder's
basis to the extent thereof, and then as gain from the sale of a capital asset.
Possible Classification of the Company as a Controlled Foreign
Corporation. Under section 951(a) of the Code, each "U.S. 10% shareholder" (as
defined below) that, on the last day of the taxable year of which the foreign
corporation is a CFC, owns, directly or indirectly through a foreign entity,
shares of a foreign corporation that is a "controlled foreign corporation"
("CFC") for an uninterrupted period of 30 days or more during any taxable year
must include in its gross income for United States federal income tax purposes
its pro rata share of the CFC's "subpart F income" for such year, even if the
subpart F income is not distributed. In addition, the U.S. 10% shareholders of
a CFC may be deemed to receive taxable distributions to the extent the CFC
increases the amount of its earnings that are invested in certain specified
types of U.S. property. All of the Company's and Gemini Re's income is expected
to be subpart F income. "Subpart F income" includes, inter alia, (1) "foreign
personal holding company income," such as interest, dividends, and other types
of passive investment income and (2) "insurance income," which is defined to
include any income (including underwriting and investment income) that is
attributable to the issuing (or reinsuring) of any insurance or annuity
contract in connection with property in, liability arising out of activity in,
or in connection with the lives or health of residents of, a country other than
the country under the laws of which the CFC is created or organized, and which
(subject to certain modifications) would be taxed under the insurance company
provisions of the Code if such income were the income of a domestic insurance
company ("Subpart F Insurance Income"). However, Subpart F income does not
include (1) any income from sources within the U.S. which is effectively
connected with the conduct of a trade or business within the U.S. and not
exempted or subject to a reduced rate of tax by applicable treaty and (2)
certain income subject to high foreign taxes.
Under Code section 951(b), any U.S. 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 Code section 958(b), generally
applying to family members, partnerships, estates, trusts or 10% controlled
corporations) 10% or more of the total combined voting power of all classes of
stock of a foreign corporation such as Gemini Re will be considered to be a
"U.S. 10% shareholder." In general, a foreign corporation is treated as a CFC
only if its U.S. 10% shareholders collectively own more than 50% of the total
combined voting power or total value of the corporation's stock on any day (the
"50% Test"). However, for purposes only of taking into account Subpart F
Insurance Income, a foreign corporation such as Gemini Re will be treated as a
CFC if more than 25% of the total combined voting power or total value of its
stock is owned by U.S. 10% shareholders and certain other conditions that are
expected to be met apply.
In determining the U.S. 10% shareholders of Gemini Re, capital stock of
Gemini Re that is held indirectly by U.S. Persons through the Company or any
other non-U.S. entity is treated as held by United States Persons. A U.S.
Person will be treated as owning indirectly a proportion of the capital stock
of Gemini Re corresponding to the ratio that the Common Shares owned by such
person bears to the value
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of all the capital stock of the Company. The Bye-Laws require prior Board of
Directors approval for any issuance or transfer of shares that results in (1)
any shareholder (other than an Investment Company) beneficially owning more
than 5.0% of the outstanding capital stock of the Company, (2) any shareholder
holding generally, indirectly through foreign entities or constructively more
than 9.9% of the outstanding capital stock of the Company or (3) any adverse
tax, regulatory or legal consequences to the Company, any of its subsidiaries
or any other shareholder. The Bye-Laws also provide that if the Board of
Directors in its absolute discretion determines that share ownership by any
shareholder may result in (1) any shareholder (other than an Investment
Company) beneficially owns more than 5.0% of the outstanding capital stock of
the Company, (2) any shareholder holds Controlled Shares in excess of 9.9% of
the outstanding capital stock of the Company or (3) adverse tax, regulatory or
legal consequences to the Company, any of its subsidiaries or any other
shareholder, then the Company will have the option, but not the obligation, to
repurchase all or any part of the shares held by such shareholder to the extent
the Board of Directors determines it is necessary or advisable to avoid or cure
any adverse or potential adverse consequences. The price to be paid for such
Common Shares will be the fair market value of such shares. In addition, the
Bye-Laws generally provide that any person holding directly, or by attribution,
or otherwise beneficially owning voting shares carrying 10% or more of the
total voting rights attached to all of the outstanding capital stock of Gemini
Re, 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
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 Gemini Re. Further, the Board of Directors has 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 Board of
Directors discretion to disregard all votes attached to such shareholder's
Common Shares.
Because of the foregoing provisions, the Company believes that neither
the Company nor Gemini Re should be a CFC under the general rules described
above. However, there can be no assurance that the Company or Gemini Re will
not at some time become a CFC. Each prospective investor should consult its own
tax advisor to determine whether its ownership interest in the Company would
cause it to become a U.S. 10% shareholder of the Company, Gemini Re or of any
subsidiary which may be created by the Company or Gemini Re and to determine
the impact of such a classification of such investor.
RPII Companies. A different definition of "controlled foreign
corporation" is applicable in the case of a foreign corporation which earns
related person insurance income ("RPII"). RPII is defined in Code section
953(c)(2) as any "insurance income" (as defined above) attributable to policies
of insurance or reinsurance with respect to which the person (directly or
indirectly) insured is a "RPII shareholder" (as defined below) of the foreign
corporation or a "related person" to such a shareholder. For purposes only of
taking into account RPII, and subject to the exceptions described below, Gemini
Re will be treated as a CFC if its "RPII shareholders" collectively own,
directly, indirectly, or by attribution under Code Section 958(b), 25% or more
of the total combined voting power or value of such corporation's stock on any
day during a taxable year. If Gemini Re is a CFC for an uninterrupted period of
at least 30 days during any taxable year under the special RPII rules, a U.S.
Person who owns, directly or indirectly through foreign entities, shares of
Gemini Re on the last day of any such taxable year must include in its gross
income for United States Federal income tax purposes its allocable share of
RPII income of such corporation for the entire taxable year, subject to certain
modifications. For purposes of inclusion of Gemini Re's RPII in the income of
U.S. Persons who own Common Shares, unless an exception applies, the term "RPII
shareholder" includes all U.S. Persons who own, directly or indirectly through
foreign entities, any amount (rather than 10% or more) of the Common Shares.
Generally, the term "related person" for purposes of the RPII rules means
someone who controls or is controlled by the RPII shareholder or someone who is
controlled by the same person or persons which control the RPII 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.
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RPII Exceptions. The special RPII rules do not apply if direct and
indirect insureds and persons related to such insureds, whether or not U.S.
Persons, are treated at all times during the taxable year as owning, directly
or indirectly through foreign entities, less than 20% of the voting power and
less than 20% of the value of the stock of Gemini Re (the "RPII 20% Ownership
Exception"), or the RPII of Gemini Re, determined on a gross basis, is less
than 20% of such corporation's gross insurance income for such taxable year
(the "RPII 20% Gross Income Exception"), or if certain other exceptions apply.
Where no exception applies, each RPII shareholder of Gemini Re on the last day
of such corporation's taxable year will 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 all such RPII were distributed
proportionately only to such RPII shareholders at that date, but limited by
such corporation's current-year earnings and profits and reduced by the RPII
shareholder's share, if any, of prior-year deficits in earnings and profits.
Computation of RPII. In order to determine how much RPII Gemini Re has
earned in each taxable year, the Company intends to obtain and rely upon
information from its insureds to determine whether any of the insureds or
persons related to such insureds own Common Shares and are U.S. Persons. The
Company may not be able to determine whether any of the underlying insureds of
the insurance companies to which Gemini Re provides insurance or reinsurance
are RPII shareholders or related persons to such shareholders. Consequently,
the Company may not be able to determine accurately the gross amount of RPII
earned by Gemini Re in a given taxable year. Gemini Re will take reasonable
steps to secure such additional information relevant to determining the amount
of its insurance income that is RPII as it believes advisable, but there can be
no assurance that such information will be sufficient to enable Gemini Re to
establish clearly such amount. For any year in which the Company has determined
that gross RPII is 20% or more of Gemini Re's gross insurance income, the
Company may also seek information from its shareholders as to whether direct or
indirect owners of Common Shares at the end of the year are U.S. Persons so
that the RPII may be determined and apportioned among such persons. In any such
year, the Company will inform all shareholders of RPII per share and RPII
shareholders are obligated to file a return reporting such amounts. To the
extent the Company is unable to determine whether a direct or indirect owner of
Common Shares is a U.S. Person the Company may assume that such owner is not a
U.S. Person for the purpose of allocating RPII, thereby increasing the per
share RPII amount for all RPII shareholders.
Apportionment of RPII to RPII Shareholders. The amount of RPII includible
in the income of a RPII shareholder is based upon the net RPII income for the
year after deducting related expenses such as losses, loss reserves and
operating expenses. Every U.S. Person who owns, directly or indirectly through
foreign entities, Common Shares on the last day of any taxable year of Gemini
Re in which Gemini Re does not meet either the RPII 20% Ownership Exception or
the RPII 20% Gross Income Exception should expect that for such year it will be
required to include in gross income its share of such corporation's RPII for
the entire year, whether or not distributed, even though it may not have owned
the shares for the entire year. A U.S. Person who owns Common Shares during
such taxable year but not on the last day of the taxable year, which would
normally be December 31, is not required to include in gross income any part of
Gemini Re's RPII. The aggregate amount of RPII allocable to U.S. Holders of
Common Shares who are required to include RPII of Gemini Re in income for a
given taxable year normally is the amount of RPII which bears the same ratio to
the total RPII of such corporation for that taxable year as the amount of
earnings and profits which would be distributed indirectly through the Company
with respect to the Common Shares if all earnings and profits of such
corporation were distributed on the last day of that taxable year bears to the
total earnings and profits of such corporation for that taxable year which
would be distributed with respect to all shares of such corporation owned,
directly or indirectly through the Company, by U.S. Holders. If Gemini Re has
RPII and the Company makes a distribution of such RPII to a U.S. Holder with
respect to the Common Shares, such dividends will not be taxable to the extent
of any RPII that has been included in the gross income of such holders for the
taxable year in which the distribution was paid or for any prior year.
Basis Adjustments. A RPII shareholder's tax basis in its Common Shares
will be increased by the amount of any RPII that the shareholder includes in
income. The RPII shareholder's tax basis in its
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Common Shares will be reduced by the amount of such distributions that are
excluded from income. In general, a RPII shareholder will not be able to
exclude from income distributions with respect to RPII that a prior shareholder
included in income.
Information Reporting. Every U.S. Person who "controls" a foreign
corporation by owning directly or by attribution more than 50% of the total
combined voting power of all classes of stock entitled to vote, or more than
50% of the total value of shares of all classes of stock, of such corporation,
for an uninterrupted period of 30 days or more during a taxable year of that
foreign corporation, must file a Form 5471 with its U.S. income tax return.
However, the IRS has the authority to, and does require, any U.S. Person
treated as a U.S. 10% shareholder or RPII shareholder of a CFC that owns shares
directly or indirectly through a foreign entity to file a Form 5471. Thus, if
Gemini Re's gross RPII for a taxable year constitutes 20% or more of such
corporation's gross insurance income for such period, any U.S. Person treated
as owning any shares of Gemini Re directly or indirectly on the last day of
such taxable year is considered a RPII shareholder for purposes of the RPII
rules and will be required to file a Form 5471. In addition, U.S. Persons who
own more than 10% in value of the outstanding stock of the Company or Gemini Re
at any time during a taxable year are required in certain circumstances to file
Form 5471 even if neither corporation is a CFC. For any taxable year in which
the Company determines that Gemini Re's gross RPII constitutes 20% or more of
such corporation's gross insurance income, the Company intends to mail to all
shareholders of record, and will make available at the transfer agent with
respect to the Common Shares, Form 5471 (completed with Company information)
for attachment to the returns of shareholders. However, the Company's
determination of the amount of Gemini Re's gross RPII for a given taxable year
may not be accurate because of the Company's inability to gather the
information necessary to make such determination. See "Certain Tax
Considerations--Taxation of Shareholders--United States Taxation of U.S. and
Non-U.S. Shareholders--Computation of RPII." A tax-exempt organization that is
treated as a U.S. 10% shareholder or a RPII shareholder for any purpose under
subpart F will be required to file a Form 5471 in the circumstances described
above. Failure to file Form 5471 may result in penalties.
Tax-Exempt Shareholders. Code section 512(b)(17) requires a tax-exempt
entity owning, directly or indirectly through a foreign entity or
constructively under Code section 958(b) shares of the Company or Gemini Re, to
treat as unrelated business taxable income ("UBTI") within the meaning of Code
section 512 the portion of any deemed distribution to such shareholder of
Subpart F income under Code section 951(a) that is attributable to insurance
income which, if derived directly by such shareholder, would be treated as
UBTI. Exceptions are provided for income attributable to a policy of insurance
or reinsurance with respect to which the person (directly or indirectly)
insured is--(i) the tax-exempt shareholder, (ii) an affiliate of the tax-exempt
shareholder which itself is exempt from tax under Code section 501(a), or (iii)
a director or officer of, or an individual who (directly or indirectly)
performs services for, the tax-exempt shareholder or an exempt affiliate but
only if the insurance covers primarily risks associated with the performance of
services in connection with the tax-exempt shareholder or exempt affiliate.
Code section 512(b)(17) applies to amounts included in gross income in
any taxable year. If Gemini Re's gross RPII were to equal or exceed 20% of such
corporation's gross insurance income, or the Company or Gemini Re were
otherwise treated as a CFC (i.e., 25% is owned by U.S. 10% shareholders) for a
taxable year, tax-exempt entities owning stock in the Company would be required
to treat a portion of the Company's Subpart F income as UBTI. Prospective
investors that are tax-exempt entities are urged to consult their tax advisors
as to the potential impact of Code section 512(b)(17) and the UBTI provisions
of the Code.
Dispositions of Common Shares. Subject to the discussion elsewhere
relating to the potential application of the "controlled foreign corporation"
and "passive foreign investment company" rules, capital gain or loss realized
by a U.S. Holder on the sale, exchange or other disposition of Common Shares
will be includible in gross income as capital gain or loss in an amount equal
to the difference between such holder's basis in Common Shares and the amount
realized on the sale, exchange or other disposition. If a U.S. Holder's holding
period for the Common Shares is more than one year, any gain
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<PAGE>
will be subject to the U.S. federal income tax at a current maximum marginal
rate of 20% for individuals and 35% for corporations.
Code section 1248 provides that if a U.S. Person owns directly,
indirectly through foreign entities or constructively under Code section
958(b), 10% or more of the voting shares of a corporation that is 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 earnings and profits during the period that the
shareholder held the shares (with certain adjustments). Code section 953(c)(7)
generally provides that section 1248 also will apply to the sale or exchange of
shares by a RPII shareholder in a foreign corporation that earns RPII and is
characterized as a CFC under the RPII rules if the foreign corporation would be
taxed as an insurance company if it were a domestic corporation, regardless of
whether the shareholder is a U.S. 10% shareholder or whether such corporation
meets either the RPII 20% Ownership Exception or the RPII 20% Gross Income
Exception. Existing Treasury Department regulations do not specifically address
whether Code section 1248 would apply when a foreign corporation (such as the
Company) is not a CFC but the foreign corporation has an insurance company
subsidiary that is a CFC (such as Gemini Re) for purposes of requiring U.S.
shareholders to take into account RPII.
It is the opinion of the Company's United States counsel that Code
section 1248 should not apply to dispositions of Common Shares because the
Company will not have any U.S. 10% shareholders and the Company is not directly
engaged in the insurance business. There can be no assurance, however, that the
IRS will interpret proposed regulations under Code section 953 in this manner
or that the Treasury Department will not amend the proposed regulations under
Code section 953 or other regulations to provide that Code section 1248 will
apply to dispositions of shares in a corporation such as the Company which is
engaged in the insurance business indirectly through its subsidiaries.
Uncertainty as to Application of RPII. The RPII provisions of the Code
have never been interpreted by the courts. Regulations interpreting the RPII
provisions of the Code exist only in proposed form, having been proposed in
1991. It is not certain whether these regulations will be adopted in their
proposed form or what changes or clarifications might ultimately be made
thereto or whether any such changes, as well as any interpretation or
application of RPII by the IRS, the courts or otherwise, might have retroactive
effect. Accordingly, the meaning of the RPII provisions and the application
thereof to the Company and Gemini Re is uncertain. These provisions include the
grant of authority to the U.S. 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 any amounts of RPII inclusions reported by the Company to RPII
shareholders will not be subject to adjustment based upon subsequent IRS
examination. Each U.S. person who is considering an investment in Common Shares
should consult his tax advisor as to the effects of these uncertainties.
Foreign Tax Credit. Because it is anticipated that U.S. Persons will own
a majority of the Company's shares after the Offerings and because a
substantial part of Gemini Re's business includes the insurance of U.S. risks,
only a portion of the RPII and dividends paid by the Company (including any
gain from the sale of Common Shares that is treated as a dividend under Code
section 1248) will be treated as foreign source income for purposes of
computing a shareholder's U.S. foreign tax credit limitation. It is likely that
substantially all of the RPII and dividends that are foreign source income will
constitute either "passive" or "financial services" income for foreign tax
credit limitation purposes. Thus, it may not be possible for certain U.S.
Holders to utilize excess foreign tax credits to reduce U.S. tax on such
income.
Passive Foreign Investment Companies. Code sections 1291 through 1298
contain special rules applicable with respect to foreign corporations that are
"passive foreign investment companies" ("PFICs"). In general, a foreign
corporation will be a PFIC if 75% or more of its gross income constitutes
"passive income" (the "75% Income Test") or 50% or more of its assets produce,
or are
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held for the production of, passive income (the "50% Asset Test"). If the
Company were to be characterized as a PFIC, unless United States shareholders
make a "QEF election" or "mark to market" election (each as described below),
United States shareholders would be subject to a special tax and an interest
charge at the time of the sale of, or receipt of an "excess distribution" with
respect to, their shares, and a portion of any gain may be recharacterized as
ordinary income. 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 special tax
and interest charges are based on the value of the tax deferral of the taxes
that are deemed due during the period the United States shareholder owned the
shares, computed by assuming that the excess distribution or gain (in the case
of a sale) with respect to the shares was taxed in equal portions throughout
the holder's period of ownership at the highest marginal tax rate. The interest
charge is computed using the applicable rate imposed on underpayments of U.S.
Federal income tax for such period. In general, if a United States shareholder
owns stock in a foreign corporation during any taxable year in which such
corporation is a PFIC, the stock will generally be treated as stock in a PFIC
for all subsequent years.
The special PFIC tax rules described above will not apply to a United
States Holder if the United States Holder elects to have the Company treated as
a "qualified electing fund" (a "QEF election") and the Company provides certain
information to United States Holders. If the Company is treated as a PFIC, it
intends to notify United States Holders and to provide to United States Holders
such information as may be required to make such QEF election effective.
A United States Holder that makes a QEF election will be currently
taxable on its pro rata share of the Company's ordinary earnings and net
capital gain (at ordinary income and capital gains rates, respectively) for
each taxable year of the Company, regardless of whether or not distributions
were received. The United States Holder's basis in the Common Shares will be
increased to reflect taxed but undistributed income. Distributions of income
that had previously been taxed will result in a corresponding reduction of
basis in the Common Shares and will not be taxed again as a distribution to the
United States Holder.
Alternatively, a United States Holder of Common Shares in a PFIC that is
treated as "marketable stock" may make a mark to market election. An electing
United States Holder will not be subject to the PFIC rules described above.
Instead, in general, an electing United States Holder will include in each year
as ordinary income the excess, if any, of the fair market value of the Common
Shares at the end of the taxable year over its adjusted basis and will be
permitted an ordinary loss in respect of the excess, if any, of the adjusted
basis of the Common Shares over its fair market value at the end of the taxable
year (but only to the extent of the net amount previously included in income as
a result of the mark to market election). The electing United States Holder's
basis in the Common Shares will be adjusted to reflect any such income or loss
amounts. The mark to market election is only available with respect to stock
traded on certain United States exchanges and other exchanges designated by the
United States Treasury. It is anticipated that such election will be available
to United States Holders of Common Shares.
For the above purposes, "passive income" is defined to include income of
a kind that would be characterized as foreign personal holding company income
under Code section 954(c), and generally includes interest, dividends,
annuities and other investment income. The PFIC statutory provisions contain an
express exception for income "derived in the active conduct of an insurance
business by a corporation which is predominantly engaged in an insurance
business . . ." (the "Insurance Company Exception"). This exception is intended
to ensure that income derived by a bona fide insurance company is not treated
as passive income. Thus, to the extent such income is attributable to financial
reserves in excess of the reasonable needs of the insurance business, it may be
treated as passive income for purposes of the PFIC rules. The PFIC statutory
provisions also contain a look-through rule that states that, for purposes of
determining whether a foreign corporation is a PFIC, such foreign corporation
shall be treated as if it "received directly its proportionate share of the
income . . ." and as if it "held its proportionate share of the assets . . ."
of any other corporation in which it owns at least 25% of the value
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of the stock. It is anticipated that Gemini Re should be entitled to the
Insurance Company Exception and that it will not have financial reserves in
excess of the reasonable needs of its insurance business, and therefore that
none of Gemini Re's income or assets will be considered to be passive. Under
the look-through rule the Company would be deemed to own its proportionate
share of the assets and to have received its proportionate share of the income
of Gemini Re for purposes of the 75% Income and 50% Asset Tests, and therefore
the Company should not be considered a PFIC.
However, no final regulations interpreting the substantive PFIC
provisions have yet been issued. Therefore, substantial uncertainty exists with
respect to their application or their possible retroactivity. Each U.S. person
who is considering an investment in Common Shares should consult his tax
advisor as to the effects of these rules.
Other. Dividends paid by the Company to U.S. corporate shareholders will
not be eligible for the dividends received deduction provided by Code section
243.
Except as discussed below with respect to backup withholding, dividends
paid by the Company will not be subject to a U.S. withholding tax.
Information reporting to the IRS by paying agents and custodians located
in the U.S. will be required with respect to payments of dividends (if any) on
the Common Shares to holders of Common Shares or to paying agents or custodians
located in the United States. In addition, a holder of Common Shares may be
subject to backup withholding at the rate of 31% with respect to dividends paid
by such persons, unless such holder (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. The backup withholding tax is not
an additional tax and may be credited against a holder's regular Federal income
tax liability.
Sales of Common Shares through brokers by certain U.S. Persons also may
be subject to back-up withholding. Sales by corporations, certain tax-exempt
entities, individual retirement plans, REITs, certain financial institutions,
and other "exempt recipients" as defined in applicable Treasury regulations
currently are not subject to back-up withholding. Holders of Common Shares
should consult their own tax advisors regarding the possible applicability of
the back-up withholding provisions to sales of their Common Shares.
* * *
The foregoing discussion (including and subject to the matters and
qualifications set forth in such summary) is based upon current law and is for
general information only. The tax treatment of a holder of Common Shares, or of
a person treated as a holder of Common Shares for United States Federal income,
state, local or non-U.S. tax purposes, may vary depending on the holder's
particular tax situation. Legislative, judicial or administrative changes or
interpretations may be forthcoming that could be retroactive and could affect
the tax consequences to holders of Common Shares. PROSPECTIVE INVESTORS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL
AND NON-U.S. TAX CONSEQUENCES TO THEM OF OWNING THE COMMON SHARES.
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Chase Securities Inc. are acting as representatives (the "U.S.
Representatives") of each of the U.S. underwriters named below (the "U.S.
Underwriters"). Subject to the terms and conditions set forth in a U.S.
underwriting agreement (the "U.S. Underwriting Agreement") among the Company
and the U.S. Underwriters, the Company has agreed to sell to the U.S.
Underwriters, and each of the U.S. Underwriters has agreed
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<PAGE>
severally and not jointly 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...........................................
Chase Securities Inc............................................
---
Total.......................................................
===
</TABLE>
The Company also has entered into an international underwriting agreement
(the "International Underwriting Agreement") with certain underwriters outside
the United States and Canada (the "International Managers" and, together with
the U.S. Underwriters, the "Underwriters"). Merrill Lynch International is
acting as lead manager (the "Lead Manager") of the International Managers.
Subject to the terms and conditions set forth in the International Underwriting
Agreement, the Company has agreed to sell to the International Managers, and
the International Managers have agreed severally and not jointly to purchase
from the Company, an aggregate of Common Shares.
The U.S. Representatives have advised the Company 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 selected 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.
The initial public offering price per Common Share and the underwriting
discount per Common Share are identical under the U.S. Underwriting Agreement
and the International Underwriting Agreement.
The U.S. Underwriters have agreed, subject to the terms and conditions
set forth in the U.S. Underwriting Agreement, to purchase all of the Common
Shares being sold pursuant to the U.S. Underwriting Agreement if any of the
Common Shares being sold pursuant to the U.S. Underwriting Agreement are
purchased. Likewise, the International Managers have agreed, subject to the
terms and conditions set forth in the International Underwriting Agreement, to
purchase all of the Common Shares being sold pursuant to the International
Underwriting Agreement if any of the Common Shares being sold pursuant to the
International Underwriting Agreement are purchased. Under the U.S. Underwriting
Agreement and the International Underwriting Agreement, the commitments of non-
defaulting U.S. Underwriters or International Managers (as the case may be) may
be increased under certain circumstances.
The closings with respect to the sale of Common Shares to the U.S.
Underwriters and the International Managers are conditioned upon one another.
Likewise, the closing of the Offerings is conditioned upon the simultaneous
closing of the sales to the Strategic Investors of Common Shares and warrants
with an aggregate purchase price of at least $ million.
The Company has granted an option to the U.S. Underwriters, exercisable
for 30 days after the date of this prospectus, to purchase up to an aggregate
of additional Common Shares at the initial public offering price set
forth on the cover page of this prospectus, less the underwriting discount. 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 table below. The Company has also granted an option to the International
Managers, exercisable for 30 days after the date
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of this prospectus, to purchase up to an aggregate of additional Common
Shares to cover over-allotments, if any, on terms similar to those granted to
the U.S. Underwriters.
The following table shows the per share and total public offering price,
underwriting discount to be paid by the Company to the U.S. Underwriters and
the International Managers and the proceeds before expenses to the Company.
This information is presented assuming either no exercise or full exercise by
the U.S. Underwriters and the International Managers of their over-allotment
options.
<TABLE>
<CAPTION>
TOTAL TOTAL
PER WITHOUT WITH
SHARE OPTION OPTION
----- ------- ------
<S> <C> <C> <C>
Public Offering Price................................ $ $ $
Underwriting Discount................................ $ $ $
Proceeds, before expenses to the Company............. $ $ $
</TABLE>
The expenses of the Offerings (excluding the underwriting discount) are
estimated at $ and are payable by the Company.
The Common Shares are being 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 offer and to reject orders in whole or in part.
The Company, its officers and directors, the Strategic Investors and the
holders of the warrants 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, on
behalf of the Underwriters (or, in the case of the Strategic Investors, both
Merrill Lynch, on behalf of the Underwriters, and the Company), offer, sell,
offer to sell, contract to sell, assign, pledge, hypothecate, grant any option
to purchase, or otherwise transfer or dispose (or announce any offer, sale,
offer to sell, contract of sale, assignment, pledge, hypothecation, grant of
any option to purchase, or other transfer or disposition) of any Common Shares
or any 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. Such agreements do not prevent the Company from granting options
under the Incentive Plan so long as such options are not exercisable until one
year from the date of this prospectus. Merrill Lynch may in its discretion at
any time and without notice, release all or any portion of the securities
subject to such lock-up agreements (except that, in the case of the Strategic
Investors, Merrill Lynch must act jointly with the Company).
The Company has also agreed not to accelerate the exercisability of the
registration rights granted to the Strategic Investors and the holders of the
warrants and not to file any registration statement on Form S-8 with respect
to, or otherwise register for resale with the Securities and Exchange
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, on behalf of the Underwriters.
The U.S. Underwriters and the International Managers have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") which 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 shares will not offer
to sell or sell Common Shares to U.S. or Canadian persons
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<PAGE>
or to persons they believe intend to resell to U.S. 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 will be determined by the Company,
the U.S. Representatives and the Lead Manager 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 Company has applied to have the Common Shares approved for quotation
in The Nasdaq Stock Market's National Market (the "Nasdaq National Market")
under the symbol " ."
The Underwriters do not intend to confirm sales of the Common Shares
offered hereby to any accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities which may be incurred in connection with the Offerings, including
certain liabilities under the Securities Act, or to contribute to payments that
the Underwriters may be required to make in respect thereof.
Until the distribution of 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 and the Lead Manager are
permitted to engage in certain transactions that stabilize the price of the
Common Shares. Such transactions may 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 (that is, if they sell more Common Shares than
are set forth on the cover page of this prospectus), the U.S. Representatives
and the Lead Manager may reduce such short position by purchasing Common Shares
in the open market. The U.S. Representatives and the Lead Manager may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above.
The U.S. Representatives and the Lead Manager may also impose a penalty
bid on certain Underwriters and selling group members. This means that if the
U.S. Representatives or the Lead Manager 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 initially sold such 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 a security to the extent that it
were to discourage resales of that security.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that any
transaction 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 Manager will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
68
<PAGE>
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 Mayer, Brown & Platt, Chicago, Illinois. Mayer, Brown &
Platt, which serves as United States counsel to the Company, also served as
counsel to the Sponsor in connection with the establishment of the Company and
Gemini Re, has served as counsel to Union Spring in connection with the
Investment Management Agreement and represents Union Spring on an ongoing
basis. Certain matters as to United States law in connection with the Offerings
will be passed upon for the Underwriters by Simpson Thacher & Bartlett, New
York, New York.
EXPERTS
The balance sheet of the Company as of December 16, 1998, included in
this prospectus and in the Registration Statement has been audited by Ernst &
Young, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and is included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a registration statement on
Form S-1 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act with respect to the Common
Shares offered hereby. This prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement. Certain items are omitted as permitted by the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Shares, you should refer to the Registration Statement.
Statements contained in this prospectus as to the contents of any contract or
other document referred to in this prospectus are not necessarily complete.
With respect to each such contract or other document filed as an exhibit to the
Registration Statement, you should refer 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 consummation of the Offerings, the Company will be subject to the
informational reporting requirements of the Exchange Act and, in accordance
therewith, will file reports, proxy and information statements and other
information with the Commission. You can inspect and copy the Registration
Statement, the exhibits and schedules forming a part thereof, as well as such
reports, proxy and information statements and other information, at the
Commission's 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. You can obtain copies of such material from the public
reference section of the Commission at its Washington address at prescribed
rates. The Commission also maintains an Internet web site at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.
After giving effect to the Offerings, the Company will be treated as a
domestic corporation for purposes of certain requirements of the Exchange Act,
including the proxy rules. Pursuant to Rule 3b-4 under the Exchange Act, a
"foreign private issuer" is a non-United States issuer other than an issuer
that meets the following conditions: (1) more than 50% of the outstanding
voting securities of the issuer are held of record by residents of the United
States and (2) any of the following: (i) the majority of the executive officers
or directors of the issuer are United States citizens or residents, (ii) more
than 50% of the assets of the issuer are located in the United States or (iii)
the business of the issuer is administered principally in the United States. By
virtue of (1) and (2)(i), the Company does not expect that it will be a
"foreign private issuer," although there is no assurance of such. If the
Company were to be treated as a
69
<PAGE>
"foreign private issuer," it would be exempted from the proxy and short-swing
profit rules under Sections 14 and 16 of the Exchange Act and, for reporting
purposes under the Exchange Act, would be subject to rules applicable to
"foreign private issuers."
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.
70
<PAGE>
GLOSSARY OF SELECTED REINSURANCE AND INSURANCE TERMS
Alien insurer or reinsurer An insurer or reinsurer organized under the
laws of a non-United States jurisdiction.
Annuity A form of contract sold by an insurer that
guarantees a fixed or variable payment to
the annuitant over time. Annuity payments
can commence immediately or be deferred.
Annuity payouts An amount paid at regular intervals under
one of several plans typically available to
the annuity owner and/or any other payee.
This amount may be paid on a variable or
fixed basis or a combination of both.
Approved actuary A person approved by the Minister of
Finance of Bermuda that certifies whether
or not, in his opinion, the aggregate
amount of the long-term business
liabilities of an insurer in relation to
its long-term business assets at the end of
the relevant year exceeded the aggregate
amount of those liabilities as shown in the
insurer's statutory balance sheet.
Broker One who negotiates contracts of insurance
or reinsurance, receiving a commission for
placement and other services rendered,
between (i) a policyholder and a primary
insurer, on behalf of the insured party,
(ii) a primary insurer and reinsurer, on
behalf of the primary insurer, or (iii) a
reinsurer and a retrocessionaire, on behalf
of the reinsurer.
Capacity The measure of an insurer's financial
ability to issue contracts of insurance,
usually determined by the largest amount
acceptable on a given risk or, in certain
other situations, by the maximum volume of
business it is prepared to accept.
Cedent; Ceding company See "Reinsurance; Reinsurer."
Duration A measure, expressed in years, of the price
sensitivity of a financial instrument to
changes in interest rates.
Excess of loss A form of reinsurance that indemnifies the
ceding company for the portion of loss that
exceeds its own retention.
Facultative reinsurance A type of reinsurance whereby the reinsurer
is not obligated automatically to accept
all or a portion of each risk originally
insured by the ceding company. Facultative
risks are typically underwritten on a case-
by-case basis.
Fixed annuity An annuity which guarantees an annuitant
that a specific sum of money will be paid
in the future, either as a lump sum or as
periodic income. Assets supporting fixed
annuities are subject to claims of general
creditors of the issuer of the annuity and
are sometimes referred to as "general
account" annuities.
United States generally accepted
accounting principles ("GAAP")
United States accounting principles as set
forth in opinions of the Accounting
Principles Board of the American
71
<PAGE>
Institute of Certified Public Accountants
and/or statements of the Financial
Accounting Standards Board and/or their
respective successors and which are
applicable in the circumstances as of the
date in question.
Indemnity reinsurance An arrangement under which an insurance
company (the reinsurer) agrees to indemnify
another insurance company (the "ceding
company" or "cedent") for all or a portion
of the insurance risks underwritten by the
ceding company. Reinsurance written on an
indemnity basis does not legally discharge
the ceding insurer from its liability with
respect to its obligations to the insured.
Long term insurer Under Bermuda law, a long term insurer
means an insurer carrying on long-term
business, which includes effecting and
carrying out contracts of insurance on
human life or contracts to pay annuities on
human life.
Loss portfolio assumptions An arrangement under which an insurance
company (the reinsurer) agrees to assume
the obligations of another insurance
company (the "ceding company" or "cedent")
for all defined insurance risks
underwritten by the ceding company.
Assumption of loss reinsurance written
effectively transfers the ceding company's
obligations to the reinsurer and, in most
cases, eliminates the ceding company's
further liability to the insured.
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.
Reinsurance; Reinsurer An arrangement under which an insurance
company (the "reinsurer") agrees to
indemnify or assume the obligations of
another insurance company (the "ceding
company" or "cedent") for all or a portion
of the insurance risks underwritten by the
ceding company.
Reserves Liabilities established by insurers that
generally represent the estimated
discounted present value of the net cost of
claims, repayments or contract liabilities
and the related expenses that the insurer
will ultimately be required to pay in
respect of insurance it has written.
Retention The amount or portion of insurance risk
that a ceding company retains for its own
account. In quota share reinsurance, the
retention may be a percentage of the
original policy's limit. In excess of loss
business, the retention typically is a
dollar amount of loss, a loss ratio or a
percentage above a predetermined limit.
Retrocessional reinsurance;
Retrocessionaire
An arrangement under which a reinsurer
cedes to another reinsurer (the
"retrocessionaire") all or a portion of the
72
<PAGE>
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.
Statutory capital and surplus The sum of capital and surplus required by
statute or regulation.
Structured settlement contracts Contracts providing for periodic payments
to a person for a determinable number of
years or for life, typically in settlement
of an injury claim or a lottery award.
Surplus relief reinsurance;
Financial reinsurance A type of reinsurance which is primarily
designed to increase temporarily a ceding
company's statutory capital.
Term life insurance A form of life insurance which provides
mortality protection during a stated period
of time, but expires without policy cash
value in the event the policy owner
survives the stated period.
Underwriting The insurer's or reinsurer's process of
reviewing contracts submitted for insurance
or reinsurance coverage, deciding whether
to accept all or part of the coverage
requested and determining the applicable
premiums.
Underwriting capacity The maximum amount of insurance that an
insurance or reinsurance company can
underwrite, which is limited by its
existing capital and surplus. Reinsurance
serves to increase an insurer's
underwriting capacity by reducing its
exposure from particular risks and thereby
increasing available surplus.
Underwriting expenses The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.
Unearned premiums Premiums written but not yet earned, as
they are attributable to the unexpired
portion of the related insurance contract
term.
Universal life insurance A form of life insurance that combines term
insurance and a cash value savings
component. Premium payments and coverage
usually can vary at the option of the
policyholder. This coverage can be fixed or
variable. Premiums are credited to the
account as is interest on the underlying
assets. Specific charges are made against
the account for the cost of insurance
protection and for the insurer's expenses.
This form of life insurance allows
considerable flexibility as to the amount
and timing of premium payments and for the
level of death benefits provided.
Variable annuity An annuity which includes a provision for
benefit payments to vary according to the
investment experience of the separate
account in which the premiums paid for the
annuity are allocated.
Variable life insurance
An investment-oriented form of life
insurance that offers fixed premiums and a
minimum death benefit as well as
73
<PAGE>
providing a return linked to an underlying
portfolio of securities that may be in
either a separate or general account of the
insurer.
Whole life insurance A form of life insurance which provides
guaranteed death benefits and guaranteed
cash values to policyholders.
74
<PAGE>
INDEX TO BALANCE SHEET
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Balance sheet as of December 16, 1998....................................... F-3
Notes to the Balance sheet.................................................. F-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND STOCKHOLDER
GEMINI RE HOLDINGS LTD.
We have audited the accompanying balance sheet of Gemini Re Holdings Ltd.
as of December 16, 1998. This balance sheet is the responsibility of the
company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of Gemini Re Holdings Ltd. at
December 16, 1998, in conformity with accounting principles generally accepted
in the United States of America.
Ernst & Young
Hamilton, Bermuda
December 18, 1998
F-2
<PAGE>
GEMINI RE HOLDINGS LTD.
(INCORPORATED IN BERMUDA)
BALANCE SHEET
DECEMBER 16, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
<TABLE>
<S> <C>
Cash................................................................. $ 12,000
Deferred equity offering costs....................................... 380,000
--------
Total assets....................................................... $392,000
========
Accounts payable and accrued expenses................................ $380,000
--------
Common stock, $1.00 par value, 75,000,000 shares authorized, 12,000
issued and outstanding.............................................. $ 12,000
--------
Total liabilities and common stock................................. $392,000
========
</TABLE>
See accompanying notes
F-3
<PAGE>
GEMINI RE HOLDINGS LTD.
NOTES TO THE BALANCE SHEET
DECEMBER 16, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
1. ORGANIZATION
Gemini Re Holdings Ltd. (the "Company") was incorporated on December 16,
1998 under the laws of Bermuda to provide multi-line reinsurance and insurance
on a worldwide basis, including traditional life and annuity, workers'
compensation, medical malpractice and disability reinsurance and structured
settlements.
Codan Trust Company Limited, a Bermuda company, owns $12,000 common
shares, which constitutes all of the common shares currently outstanding. This
initial capitalization of $12,000, as reflected on the balance sheet, was
provided by Plimpton & Co. (the "Sponsor"), and is to be repaid upon
consummation of a planned initial public offering (see note 4).
The Company is in the process of forming a wholly-owned subsidiary
through which the Company expects to conduct substantially all of its
operations. This subsidiary will be incorporated in Bermuda and will apply for
both long-term and Class 3 insurance licenses.
The Company did not incur any income or expenses that are required to be
reported in a statement of income and comprehensive income or a statement of
cash flows under accounting principles generally accepted in the United States
of America. Therefore, statements of income and comprehensive income and cash
flows have not been presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying balance sheet of the Company is prepared in conformity
with accounting principles generally accepted in the United States of America,
which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statement. Actual results could
differ from those estimates. The following are the significant accounting and
reporting policies to be adopted by the Company:
(a) Investments
Investments in fixed maturity securities, equity securities and derivative
financial instruments designated as trading will be carried at fair value,
with related unrealized gains or losses reflected in earnings. Investments
in fixed maturity and equity securities designated as available for sale
will be carried at fair value, with related unrealized gains or losses
excluded from earnings and included in stockholder's equity as a component
of accumulated other comprehensive income. Fair value will generally be
based on listed market prices. If listed market prices are not available,
fair value will be determined based on other relevant factors, including
broker or dealer price quotations and valuation pricing models which take
into account time value and volatility factors underlying the financial
instruments. Realized gains and losses will be recognized using the
specific identification method.
Interest on fixed maturity securities will be recorded as investment income
when earned and will be adjusted for any amortization of premium or
discount. Dividends will be recorded as income on ex-dividend dates.
(b) Premium income and related expenses
Premiums from traditional life and annuity policies with life contingencies
will be recognized generally as revenue when due from policyholders.
Benefits and expenses will be
F-4
<PAGE>
GEMINI RE HOLDINGS LTD.
NOTES TO THE BALANCE SHEET--(CONTINUED)
DECEMBER 16, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
matched with such revenue so as to result in the recognition of profits
over the life of the contracts. This will be achieved by means of the
provision for liabilities for future policy benefits and deferral and
subsequent amortization of policy acquisition costs.
Premiums from universal life and investment-type contracts will be reported
as deposits to policyholders' account balances. Revenues from these
contracts will consist of amounts assessed during the period against
policyholders' account balances for mortality charges, policy
administration charges and surrender charges. Policy benefits and claims
that are charged to expense will include benefit claims incurred in the
period in excess of related policyholders' account balances.
Property and casualty premiums will be earned pro rata over the terms of
the related policies and will be recognized based upon the expected
ultimate experience under the agreements. Unearned premiums will represent
the portion of premiums written applicable to the unexpired terms of
policies in force.
(c) Deferred policy acquisition costs
For traditional life and annuity policies with life contingencies, costs
that vary with and are primarily related to the production of new business
will be deferred. Such deferred policy acquisition costs will be subject to
recoverability testing at the time of the policy issuance and loss
recognition testing at the end of each accounting period. Deferred policy
acquisition costs will be charged to expense using assumptions consistent
with those used in computing policy reserves. Assumptions as to anticipated
premiums will be estimated at the date of the policy issuance and will be
consistently applied during the life of the contracts. Deviations from
estimated experience will be reflected in earnings in the period such
deviations occur. For these contracts, the amortization periods generally
will be for the estimated life of the policy.
For universal life and investment-type products, deferred acquisition costs
will be amortized over the expected average life of the contracts as a
constant percentage of the present value of estimated gross profits arising
principally from investment results, mortality and expense margins and
surrender charges based on historical and anticipated future experience,
which is updated at the end of each accounting period. In computing
amortization, interest shall accrue to the unamortized balance of
capitalized acquisition costs at the rate used to discount expected gross
profit. The effect on the amortization of deferred policy acquisition costs
of revisions to estimated gross profits will be reflected in earnings in
the period such estimated gross profits are revised.
For property and casualty contracts, costs that vary with and are directly
related to the production of new and renewal business will be deferred by
major product groups and amortized over the period in which the related
premiums are earned. Such deferred policy acquisition costs will be
reviewed to determine that they do not exceed recoverable amounts, after
considering anticipated investment income.
(d) Policyholders' account balances and future policy benefits
The development of policy reserves for the Company's policies will require
management to make estimates and assumptions regarding mortality, lapse,
expense and investment experience. Actual results could differ materially
from those estimates.
Future benefit liabilities of traditional life and annuity contracts with
life contingencies will be estimated using actuarial assumptions as to
mortality, morbidity, terminations, investment yields and expenses
applicable at the time the insurance contracts are made.
F-5
<PAGE>
GEMINI RE HOLDINGS LTD.
NOTES TO THE BALANCE SHEET--(CONTINUED)
DECEMBER 16, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
When the liabilities for future policy benefits plus the present value of
expected future gross premiums for a policy are insufficient to provide for
expected future benefits and expenses for that policy, a premium deficiency
reserve will be established by a charge to income.
For universal life and insurance investment contracts, reserves will equal
the sum of the policy account balance and deferred revenue charges.
(e) Unpaid property and casualty claims
Liabilities for unpaid property and casualty claims will include the
accumulation of individual case estimates for claims reported and estimates
of unreported claims and claim settlement expenses. Estimates will be based
upon past claim experience and industry experience modified for current
trends as well as prevailing economic, legal and social conditions. Such
estimates will be continually reviewed and updated. Any resulting
adjustments will be reflected in earnings.
(f) Foreign currency transactions
The Company's functional currency is the United States dollar. Revenues and
expenses denominated in foreign currencies will be translated at the rate
of exchange at the transaction date. Assets and liabilities denominated in
foreign currencies will be translated at the rate of exchange at the end of
a reporting period. Gains or losses resulting from foreign currency
transactions will be included in earnings.
(g) Earnings per ordinary share
The Company will calculate earnings per ordinary share based upon the
guidance provided in Statement of Financial Accounting Standards No. 128
"Earnings per Share". This statement requires the presentation of two
amounts of earnings per share when the Company has a complex capital
structure. These amounts are earnings per ordinary share and earnings per
ordinary share assuming dilution.
Basic earnings per ordinary share will be calculated by dividing net income
attributable to holders of ordinary shares by the weighted average number
of ordinary shares outstanding during the period.
Diluted earnings per ordinary share will be calculated by dividing the net
income attributable to holders of ordinary shares by the weighted average
number of ordinary shares outstanding during the period, plus dilutive
potential ordinary shares. Options and warrants issued by the Company will
be considered dilutive potential ordinary shares and will be included in
the calculation using the treasury stock method.
(h) Deferred equity offering costs
Offering costs incurred in connection with a planned initial public
offering will be deferred and deducted from the gross proceeds of the
planned offering. Deferred offering costs incurred through December 16,
1998 amount to approximately $380,000 (see note 4).
F-6
<PAGE>
GEMINI RE HOLDINGS LTD.
NOTES TO THE BALANCE SHEET--(CONTINUED)
DECEMBER 16, 1998
(EXPRESSED IN UNITED STATES DOLLARS)
(i) New accounting standard
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 and hedging activities. This
statement requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The statement also sets forth the criteria for determining
whether a derivative may be specifically designated as a hedge of a
particular exposure. SFAS No. 133 requires adoption no later than fiscal
quarters of fiscal years beginning after June 15, 1999. The Company does
not believe that the adoption of this statement will have a material impact
on the Company's financial position, results of operations, comprehensive
income or cash flows.
3. INCOME TAXES
The Company is not required to pay any income or capital gains taxes in
Bermuda. The Company has received an assurance from the Minister of Finance of
Bermuda under The Exempted Undertakings Tax Protection Act of 1966 of Bermuda
that in the event of any such taxes being imposed, the Company will be exempted
until 2016. The Company intends to operate in a manner such that it will owe no
United States tax other than premium excise tax and withholding taxes on
certain investments.
4. AGREEMENTS WITH RELATED PARTIES
The Company will reimburse the Sponsor for expenses incurred in
connection with the planned initial public offering provided that such offering
is successfully consummated. The Sponsor has incurred approximately $327,000 of
such expenses on behalf of the Company. If such offering is not successfully
consummated, the Sponsor will not be entitled to reimbursement of any expenses.
5. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
The Company is in the process of forming a wholly-owned subsidiary whose
ability to pay dividends and make capital distributions will be subject to
certain regulatory restrictions. The subsidiary will apply to receive long-term
and Class 3 licenses under the Bermuda Insurance Act 1978, amendments thereto
and related regulations. The minimum amount of statutory capital and surplus
required by license as a long-term and Class 3 insurer is $1,250,000. In
addition, capital distributions greater than 15% of statutory capital require
regulatory approval. In this regard, distribution of the subsidiary's capital
and retained earnings will be limited to the extent that the above requirements
are met. In addition, a minimum statutory liquidity ratio must be maintained.
F-7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date
of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
GEMINI RE HOLDINGS LTD.
COMMON SHARES
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH & CO.
CHASE SECURITIES INC.
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
PROSPECTUS
SHARES
GEMINI RE HOLDINGS LTD.
COMMON SHARES
----------------
This is Gemini Re Holdings Ltd.'s initial public offering of Common
Shares. The international managers will offer shares outside the
United States and Canada and the U.S. underwriters will offer
shares in the United States and Canada. This is a firm commitment
underwriting.
We expect the public offering price to be $15.00 per share. Currently,
no public market exists for the shares. After pricing the offerings, we expect
that the Common Shares will trade on the Nasdaq National Market under the
symbol " ."
The Company is also offering by a separate prospectus up to
Common Shares directly to certain of its directors and officers at a price per
share equal to the initial public offering price, less the per share
underwriting discount. Those sales will be consummated simultaneously with the
public offerings.
INVESTING IN THE COMMON SHARES INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE OF THIS PROSPECTUS.
----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Public Offering Price.................................... $ $
Underwriting Discount.................................... $ $
Proceeds, before expenses, to the Company................ $ $
</TABLE>
The international managers may also purchase up to an additional
shares at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments. The
U.S. underwriters may similarly purchase up to an aggregate of an additional
shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We expect that the Common Shares will be ready for delivery in New York,
New York on or about , 1999.
----------------
MERRILL LYNCH INTERNATIONAL
CHASE MANHATTAN INTERNATIONAL LIMITED
The date of this prospectus is , 1999
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
UNDERWRITING
Merrill Lynch International is acting as lead manager (the "Lead
Manager") of each of the underwriters named below (the "International
Managers"). Subject to the terms and conditions set forth in an international
underwriting agreement (the "International Underwriting Agreement") among the
Company and the International Managers, the Company has agreed to sell to the
International Managers, and each of the International Managers has agreed
severally and not jointly to purchase from the Company, the number of Common
Shares set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL MANAGER OF SHARES
--------------------- -----------
<S> <C>
Merrill Lynch International...................................
Chase Manhattan International Limited.........................
-----------
Total.....................................................
===========
</TABLE>
The Company also has entered into a U.S. underwriting agreement (the
"U.S. Underwriting Agreement") with certain underwriters within the United
States and Canada (the "U.S. Underwriters" and, together with the International
Managers, the "Underwriters"). Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and Chase Securities Inc. are acting as
representatives (the "U.S. Representatives") of the U.S. Underwriters. Subject
to the terms and conditions set forth in the U.S. Underwriting Agreement, the
Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters
have agreed severally and not jointly to purchase from the Company, an
aggregate of Common Shares.
The Lead Manager has advised the Company 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 selected dealers at such price less a concession not in excess of
$ per Common Share. The International Managers 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.
The initial public offering price per Common Share and the underwriting
discount per Common Share are identical under the International Underwriting
Agreement and U.S. Underwriting Agreement.
The International Managers have agreed, subject to the terms and
conditions set forth in the International Underwriting Agreement, to purchase
all of the Common Shares being sold pursuant to the International Underwriting
Agreement if any of the Common Shares being sold pursuant to the International
Underwriting Agreement are purchased. Likewise, the U.S. Underwriters have
agreed, subject to the terms and conditions set forth in the U.S. Underwriting
Agreement, to purchase all of the Common Shares being sold pursuant to the U.S.
Underwriting Agreement if any of the Common Shares being sold pursuant to the
U.S. Underwriting Agreement are purchased. Under the International Underwriting
Agreement and the U.S. Underwriting Agreement, the commitments of non-
defaulting International Managers or U.S. Underwriters (as the case may be) may
be increased under certain circumstances.
The closings with respect to the sale of Common Shares to the
International Managers and the U.S. Underwriters are conditioned upon one
another. Likewise, the closing of the Offerings is conditioned upon the
simultaneous closing of the sales to the Strategic Investors of Common Shares
and warrants with an aggregate purchase price of at least $ million.
The Company has granted an option to the International Managers,
exercisable for 30 days after the date of this prospectus, to purchase up to an
aggregate of additional Common Shares at the initial
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
public offering price set forth on the cover page of this prospectus, less the
underwriting discount. The International Managers 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 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 table below. The
Company has also granted an option to the U.S. Underwriters, exercisable for 30
days after the date of this prospectus, to purchase up to an aggregate of
additional Common Shares to cover over-allotments, if any, on terms
similar to those granted to the International Managers.
The following table shows the per share and total public offering price,
underwriting discount to be paid by the Company to the International Managers
and the U.S. Underwriters and the proceeds before expenses to the Company. This
information is presented assuming either no exercise or full exercise by the
International Managers and the U.S. Underwriters of their over-allotment
options.
<TABLE>
<CAPTION>
TOTAL TOTAL
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- --------------
<S> <C> <C> <C>
Public Offering Price................. $ $ $
Underwriting Discount................. $ $ $
Proceeds, before expenses to the
Company.............................. $ $ $
</TABLE>
The expenses of the Offerings (excluding the underwriting discount) are
estimated at $ and are payable by the Company.
The Common Shares are being 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 offer and to reject orders in whole or in part.
The Company, its officers and directors, the Strategic Investors and the
holders of the warrants 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, on
behalf of the Underwriters (or, in the case of the Strategic Investors, both
Merrill Lynch, on behalf of the Underwriters, and the Company), offer, sell,
offer to sell, contract to sell, assign, pledge, hypothecate, grant any option
to purchase, or otherwise transfer or dispose (or announce any offer, sale,
offer to sell, contract of sale, assignment, pledge, hypothecation, grant of
any option to purchase, or other transfer or disposition) of any Common Shares
or any 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. Such agreements do not prevent the Company from granting options
under the Incentive Plan so long as such options are not exercisable until one
year from the date of this prospectus. Merrill Lynch may in its discretion, at
any time and without notice, release all or any portion of the securities
subject to such lock-up agreements (except that, in the case of the Strategic
Investors, Merrill Lynch must act jointly with the Company).
The Company has also agreed not to accelerate the exercisability of the
registration rights granted to the Strategic Investors and the holders of the
warrants and not to file any registration statement on Form S-8 with respect
to, or otherwise register for resale with the Securities and Exchange
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, on behalf of the Underwriters.
The International Managers and the U.S. Underwriters have entered into an
intersyndicate agreement (the "Intersyndicate Agreement") which 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
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
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 shares will not offer to sell or sell Common Shares to U.S. or
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 will be determined by the Company,
the Lead Manager 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 Company has applied to have the Common Shares approved for quotation
in The Nasdaq Stock Market's National Market (the "Nasdaq National Market")
under the symbol " ."
The Underwriters do not intend to confirm sales of the Common Shares
offered hereby to any accounts over which they exercise discretionary
authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities which may be incurred in connection with the Offerings, including
certain liabilities under the Securities Act, or to contribute to payments that
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 purpose 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 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 Lead Manager and the U.S. Representatives are
permitted to engage in certain transactions that stabilize the price of the
Common Shares. Such transactions may 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 (that is, if they sell more Common Shares than
are set forth on the cover page of this Prospectus), the Lead Manager and the
U.S. Representatives may reduce such short position by purchasing Common Shares
in the open market. The Lead Manager and the U.S. Representatives may also
elect to reduce any short position by exercising all or part of the over-
allotment option described above.
The Lead Manager and the U.S. Representatives may also impose a penalty
bid on certain Underwriters and selling group members. This means that if the
Lead Manager or the U.S. Representatives
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
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 initially sold such 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 a security to the extent that it
were to discourage resales of that security.
Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that any
transaction 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 Manager or the U.S. Representatives will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
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 initial offering price set forth on the
cover page of this Prospectus.
<PAGE>
[ALTERNATE PAGE FOR THE INTERNATIONAL PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date
of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
GEMINI RE HOLDINGS LTD.
COMMON SHARES
-----------------
PROSPECTUS
-----------------
MERRILL LYNCH INTERNATIONAL
CHASE MANHATTAN INTERNATIONAL LIMITED
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[ALTERNATE PAGE FOR THE DIRECTOR AND OFFICER PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED , 1999
PROSPECTUS
SHARES
GEMINI RE HOLDINGS LTD.
COMMON SHARES
----------------
Gemini Re Holdings Ltd. is offering up to Common Shares
directly to certain of its directors and officers in connection with its
initial public offering of Common Shares. These direct sales are to be
consummated simultaneously with the public offerings. In the public offerings,
the U.S. underwriters will offer shares in the United States and
Canada and the international managers will offer shares outside the
United States and Canada.
The price per share in this offering will be equal to the public offering
price, less the per share underwriting discounts and commissions. We expect the
public offering price to be $15.00 per share. Currently, no public market
exists for the shares. After pricing the offerings, we expect that the Common
Shares will trade on the Nasdaq National Market under the symbol " ."
INVESTING IN THE COMMON SHARES INVOLVES RISKS WHICH ARE DESCRIBED IN THE
"RISK FACTORS" SECTION BEGINNING ON PAGE OF THIS PROSPECTUS.
----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- ------
<S> <C> <C>
Direct Sales Offering Price............................... $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional
shares at the public offering price, less the underwriting discount, within 30
days from the date of this prospectus to cover over-allotments. The
international managers may similarly purchase up to an aggregate of an
additional shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
We expect that the Common Shares will be ready for delivery in New York,
New York on or about , 1999.
----------------
The date of this prospectus is , 1999
<PAGE>
[ALTERNATE PAGE FOR THE DIRECTOR AND OFFICER 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 discount. Such sales will be consummated simultaneously with the
Offerings.
<PAGE>
[ALTERNATE PAGE FOR THE DIRECTOR AND OFFICER PROSPECTUS]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Through and including , 1999 (the 25th day after the date
of this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
SHARES
GEMINI RE HOLDINGS LTD.
COMMON SHARES
-----------------
PROSPECTUS
-----------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Registrant in
connection with the issuance and distribution of the Common Shares being
registered hereby. All of such expenses are estimates, other than the filing
and quotation fees payable to the Securities and Exchange Commission, the
National Association of Securities Dealers, Inc. and The Nasdaq National
Market.
<TABLE>
<S> <C>
Filing Fee--Securities and Exchange Commission........................ $111,200
Filing Fee--National Association of Securities Dealers, Inc........... 30,500
Quotation Fees--The Nasdaq National Market............................ *
Fees and Expenses of Counsel.......................................... *
Printing Expenses..................................................... *
Advisory Fee to the Sponsor........................................... *
Reimbursement of other expenses to the Sponsor........................ *
Fees and Expenses of Accountants...................................... *
Blue Sky Fees and Expenses............................................ *
Miscellaneous Expenses................................................ *
--------
Total............................................................. *
========
</TABLE>
- --------
*To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 31 of the Registrant's Bye-Laws provides that: (a) the directors
and officers of the Registrant shall be indemnified from and against all
actions, costs, charges, losses, damages and expenses which they shall incur by
reason of any act done in connection with their duty as a director or officer
of the Registrant; (b) each director and officer of the Registrant shall be
indemnified out of the funds of the Registrant against all liabilities incurred
by him as such a director or officer of the Registrant in defending any
proceedings in which judgment is given in his favor or he is acquitted or
relieved from liability; and (c) funds shall be advanced to each director or
officer or the Registrant on his incurring liability prior to judgment provided
that should he be found guilty of a criminal or other offense for which he
cannot by law be indemnified he shall reimburse the Registrant for the funds
advanced.
Section 32 of the Registrant's Bye-Laws provides that each shareholder
agrees to waive any claim or right of action such shareholder might have
against any director or officer on account of any action taken by such director
or officer, or the failure of such director or officer to take any action in
the performance of his or her duties with or for the Registrant, provided that
such waiver does not extend to any matter in respect of any fraud or dishonesty
that may attach to such director or officer.
Reference is made to the form of U.S. Underwriting Agreement and
International Underwriting Agreement to be filed as Exhibits 1.1 and 1.2,
respectively, hereto for provisions providing that the Underwriters are
obligated, under certain circumstances, to indemnify the directors, certain
officers and the controlling persons of the Registrant against certain
liabilities under the Securities Act of 1933, as amended (the "Securities
Act").
Reference is made to the Registration Rights Agreements to be filed as
Exhibits 10.2 and 10.8 hereto for provisions providing that the Registrant and
certain holders of Common Shares and warrants are each obligated to indemnify
the other for certain actions.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its formation, the Registrant has issued the following securities
that were not registered under the Securities Act:
(a) On December 16, 1998, the Registrant sold 12,000 Common Shares to
the Gemini Re 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.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving a public offering. All of the foregoing securities are
deemed restricted securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement.
* 1.2 Form of International Underwriting Agreement.
3.1 Memorandum of Association.
3.2 Bye-Laws.
* 4.1 Specimen Common Share Certificate.
* 4.2 Form of Warrant.
* 5.1 Opinion of Conyers Dill & Pearman.
* 8.1 Opinion of Conyers Dill & Pearman (included in Exhibit 5.1).
* 8.2 Opinion of Mayer, Brown & Platt.
*10.1 Investment Management Agreement, dated as of , 1999,
between Union Spring and the Registrant and Gemini Re.
*10.2 Registration Rights Agreement, dated as of , 1999,
between the Registrant and Union Spring.
*10.4 Employment Agreement, dated as of , 1999, between David
A. Brown and the Registrant and Gemini Re.
*10.5 Employment Agreement, dated as of , 1999, between E. Grant
Gibbons and the Registrant and Gemini Re.
*10.6 Gemini Re 1998 Incentive Plan.
*10.7 Form of Securities Purchase Agreement to be entered into between the
Strategic Investors and the Registrant.
*10.8 Form of Registration Rights Agreement to be entered into between the
Strategic Investors and the Registrant.
*10.9 Agreement, dated as of , 1999, between the Sponsor and the
Registrant.
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
*23.2 Consent of Mayer, Brown & Platt (included in Exhibit 8.2).
23.3 Consent of Ernst & Young.
*99.1 Form F-N.
</TABLE>
- --------
*To be filed by amendment.
II-2
<PAGE>
(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-3
<PAGE>
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 NEW YORK, NEW YORK,
ON THE 6TH DAY OF JANUARY, 1999.
Gemini Re Holdings Ltd.
/s/ David A. Brown
By: _______________________________
Name: David A. Brown
Title: Chief Executive Officer
and President
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW CONSTITUTES AND APPOINTS DAVID
A. BROWN, CONRAD A. PLIMPTON AND JOHN C. PLIMPTON, OR ANY OF THEM, SUCH
PERSON'S TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO FILE THE
SAME, WITH ALL EXHIBITS THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH,
WITH THE SECURITIES AND EXCHANGE COMMISSION.
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 INDICATED ON THE 6TH DAY OF JANUARY, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ David A. Brown Chief Executive Officer and President
___________________________________________ (Principal Executive Officer)
David A. Brown
/s/ E. Grant Gibbons Chief Financial Officer and Treasurer
___________________________________________ (Principal Financial and Accounting
E. Grant Gibbons Officer)
/s/ Conrad A. Plimpton Chairman of the Board of Directors
___________________________________________
Conrad A. Plimpton
/s/ Philip L. Yang Deputy Chairman of the Board of
___________________________________________ Directors
Philip L. Yang
/s/ John C. Plimpton Director
___________________________________________
John C. Plimpton
/s/ John R. Zumbrunn Director
___________________________________________
John R. Zumbrunn
/s/ Conrad A. Plimpton Authorized Representative in the
___________________________________________ United States
Conrad A. Plimpton
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.1 Form of U.S. Underwriting Agreement.
* 1.2 Form of International Underwriting Agreement.
3.1 Memorandum of Association.
3.2 Bye-Laws.
* 4.1 Specimen Common Share Certificate.
* 4.2 Form of Warrant.
* 5.1 Opinion of Conyers Dill & Pearman.
* 8.1 Opinion of Conyers Dill & Pearman (included in Exhibit 5.1).
* 8.2 Opinion of Mayer, Brown & Platt.
*10.1 Investment Management Agreement, dated as of , 1999, between
Union Spring and the Registrant and Gemini Re.
*10.2 Registration Rights Agreement, dated as of , 1999, between the
Registrant and Union Spring.
*10.4 Employment Agreement, dated as of , 1999, between David A. Brown
and the Registrant and Gemini Re.
*10.5 Employment Agreement, dated as of , 1999, between E. Grant Gibbons
and the Registrant and Gemini Re.
*10.6 Gemini Re 1998 Incentive Plan.
*10.7 Form of Securities Purchase Agreement to be entered into between the
Strategic Investors and the Registrant.
*10.8 Form of Registration Rights Agreement to be entered into between the
Strategic Investors and the Registrant.
*10.9 Agreement, dated as of , 1999, between the Sponsor and the Registrant.
*21.1 Subsidiaries of the Registrant.
*23.1 Consent of Conyers Dill & Pearman (included in Exhibit 5.1).
*23.2 Consent of Mayer, Brown & Platt (included in Exhibit 8.2).
23.3 Consent of Ernst & Young.
*99.1 Form F-N.
</TABLE>
- --------
*To be filed by amendment.
II-5
<PAGE>
EXHIBIT 1.1
______________________________________________________________________________
______________________________________________________________________________
[ ] RE HOLDINGS LTD.
(a Bermuda corporation)
[ ] Common Shares
U.S. PURCHASE AGREEMENT
-----------------------
Dated: [ ], 1999
______________________________________________________________________________
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. Representations and Warranties.................................... 4
(a) Representations and Warranties by the Company....................... 4
(i) Compliance with Registration Requirements................. 4
(ii) Strategic Securities...................................... 5
(iii) Independent Accountants................................... 5
(iv) Financial Statements...................................... 5
(v) No Material Adverse Change in Business.................... 5
(vi) Good Standing of the Company.............................. 6
(vii) Good Standing of the Subsidiary.......................... 6
(viii) Capitalization............................................ 6
(ix) Absence of Outstanding Securities and Obligations......... 7
(x) Authorization of Agreement................................ 7
(xi) Authorization and Description of Securities............... 7
(xii) Absence of Defaults and Conflicts......................... 7
(xiii) Absence of Proceedings.................................... 8
(xiv) Accuracy of Exhibits...................................... 8
(xv) Absence of Further Requirements........................... 8
(xvi) Possession of Licenses and Permits........................ 9
(xvii) Title to Property......................................... 9
(xviii) Investment Company Act.................................... 9
(xix) Registration Rights....................................... 9
(xx) Consents and Approvals.................................... 10
(xxi) No Material Loss or Interference.......................... 10
(xxii) Absence of Price Stabilization............................ 10
(xxiii) No Material Liability or Change in Capital Stock.......... 10
(xxiv) Subsidiary Payments and Transfers......................... 11
(xxv) Internal Accounting Controls.............................. 11
(xxvi) No Distribution of Offering Material...................... 11
(xxvii) Forms of Certificate...................................... 11
(xxviii) No Currency Exchange Control Laws or Withholding Taxes.... 11
(xxix) Subsidiary Registration and Regulatory Compliance......... 11
(xxx) Compliance with Insurance Laws............................ 12
(xxxi) Not Engaged in Trade or Business in the United States..... 12
(xxxii) Absence of Certain Relationships.......................... 12
(xxxiii) Absence of Stamp Duty, Excise and Similar Taxes........... 12
(xxxiv) Absence of Insurance Law Changes.......................... 12
(xxxv) Taxation - Bermuda........................................ 12
(xxxvi) Service of Process........................................ 13
</TABLE>
i
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<TABLE>
<S> <C> <C>
(xxxvii) Nonresident and Exempt Company Status..................... 13
(b) Officer's Certificates.............................................. 13
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing................... 13
(a) Initial U.S. Securities............................................. 13
(b) U.S. Option Securities.............................................. 13
(c) Payment............................................................. 14
(d) Denominations; Registration......................................... 14
SECTION 3. Covenants of the Company.......................................... 15
(a) Compliance with Securities Regulations and Commission Requests...... 15
(b) Filing of Amendments................................................ 15
(c) Delivery of Registration Statements................................. 15
(d) Delivery of Prospectus.............................................. 16
(e) Continued Compliance with Securities Laws........................... 16
(f) Blue Sky Qualifications............................................. 16
(g) Rule 158............................................................ 17
(h) Use of Proceeds..................................................... 17
(i) Listing............................................................. 17
(j) Restriction on Sale of Securities................................... 17
(k) Absence of Price Stabilization and Payment for Solicitation......... 18
(l) Lock-up Agreements.................................................. 18
(m) Rumor, Publication or Event......................................... 18
(n) Reliance on Rule 462(b)............................................. 18
(o) Reporting Requirements.............................................. 18
(p) Compliance with Rule 463............................................ 19
SECTION 4. Payment of Expenses............................................... 19
(a) Expenses............................................................ 19
(b) Termination of Agreement............................................ 19
SECTION 5. Conditions of U.S. Underwriters' Obligations...................... 19
(a) Effectiveness of Registration Statement............................. 19
(b) Opinion of U.S. Counsel for Company................................. 20
(c) Opinion of Bermuda Counsel for Company.............................. 20
(d) Opinion of Counsel for U.S. Underwriters............................ 20
(e) Officers' Certificate............................................... 20
(f) Accountant's Comfort Letter......................................... 21
(g) Bring-down Comfort Letter........................................... 21
(h) Approval of Listing................................................. 21
(i) No Objection........................................................ 21
(j) Lock-up Agreements.................................................. 21
(k) Conditions to Purchase of Option Securities......................... 21
(i) Officers' Certificate...................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
(ii) Opinions of Counsel for Company......................... 21
(iii) Opinion of Counsel for Underwriters..................... 22
(iv) Bring-Down Comfort Letter............................... 22
(l) Certificates, Documents and Other Information....................... 22
(m) Strategic Investors' Purchase Price................................. 22
(n) Initial International Securities.................................... 22
(o) Additional Documents................................................ 22
(p) Termination of Agreement............................................ 22
SECTION 6. Indemnification................................................... 23
(a) Indemnification of U.S. Underwriters................................ 23
(b) Indemnification of Company, Directors and Officers.................. 24
(c) Actions against Parties; Notification............................... 24
(d) Settlement without Consent if Failure to Reimburse.................. 25
SECTION 7. Contribution...................................................... 25
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.... 26
SECTION 9. Termination of Agreement.......................................... 27
(a) Termination; General................................................ 27
(b) Liabilities......................................................... 27
SECTION 10. Default by One or More of the U.S. Underwriters.................. 27
SECTION 11. Notices.......................................................... 28
SECTION 12. Parties.......................................................... 28
SECTION 13. GOVERNING LAW AND TIME........................................... 29
SECTION 14. Effect of Headings............................................... 29
SECTION 15. Information Supplied by the U.S. Underwriters.................... 29
SECTION 16. Consent to Jurisdiction and Service of Process................... 29
SECTION 17. Counterparts..................................................... 29
SCHEDULES
Schedule A - List of Underwriters................................... Sch A-1
Schedule B - Pricing Information.................................... Sch B-1
Schedule C - List of Persons Subject to Lock-up..................... Sch C-1
</TABLE>
iii
<PAGE>
PAGE
----
<TABLE>
<S> <C> <C>
EXHIBITS
Exhibit A - Form of Opinion of Company's United States Counsel......... A-1
Exhibit B - Form of Opinion of Company's Bermuda Counsel............... B-1
Exhibit C - Form of Lock-up Letter..................................... E-1
</TABLE>
iv
<PAGE>
[ ] RE HOLDINGS LTD.
(a Bermuda corporation)
[ ] Common Shares
(Par Value $1.00 Per Share)
U.S. PURCHASE AGREEMENT
-----------------------
[ ], 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Chase Securities Inc.
as U.S. Representatives of the several U.S. Underwriters
C/O MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
[ ] Re Holdings Ltd., a Bermuda corporation (the "Company"),
confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch and Chase Securities Inc. are acting as
representatives (in such capacity, the "U.S. Representatives"), with respect to
the issue and sale by the Company and the purchase by the U.S. Underwriters,
acting severally and not jointly, of the respective numbers of common shares,
par value $1.00 per share, of the Company ("Common Shares") set forth in said
Schedule A, and with respect to the grant by the Company to the U.S.
Underwriters, acting severally and not jointly, of the option described in
Section 2(b) hereof to purchase all or any part of [ ] additional Common
Shares to cover over-allotments, if any. The aforesaid [ ] Common Shares
(the "Initial U.S. Securities") to be purchased by the U.S. Underwriters and all
or any part of the [ ] Shares subject to the option described in Section
2(b) hereof (the "U.S. Option Securities") are hereinafter called, collectively,
the "U.S. Securities".
1
<PAGE>
The Company understands that the U.S. Underwriters propose to make a public
offering of the U.S. Securities as soon as the U.S. Representatives deem
advisable after this Agreement has been executed and delivered.
It is understood that the Company is concurrently entering into an
agreement dated the date hereof (the "International Purchase Agreement")
providing for the offering by the Company of an aggregate of [ ] Shares (the
"Initial International Securities") through arrangements with certain
underwriters outside the United States and Canada (the "International Managers")
for which Merrill Lynch International and Chase Securities Inc. are acting as
lead managers (the "Lead Managers") of the International Managers and the grant
by the Company to the International Managers, acting severally and not jointly,
of an option to purchase all or any part of the International Managers' pro rata
portion of up to [ ] additional Common Shares solely to cover over-
allotments, if any (the "International Option Securities" and, collectively with
the U.S. Option Securities, the "Option Securities"). The Initial International
Securities and the International Option Securities are collectively referred to
herein as the "International Securities". It is understood that the Company is
not obligated to sell and the U.S. Underwriters are not obligated to purchase,
any Initial U.S. Securities unless all of the Initial International Securities
are contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are collectively
referred to herein as the "Underwriters", the Initial U.S. Securities and the
Initial International Securities are collectively referred to herein as the
"Initial Securities", and the U.S. Securities and the International Securities
are collectively referred to herein as the "Securities".
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and
Chase Securities Inc. (in such capacity, the "Global Coordinators").
It is understood that the Company has agreed, concurrently with the
issuance, offering and sale of the Securities to the Underwriters by the Company
pursuant to this Agreement and the International Purchase Agreement, to issue
and sell directly to [ ], [ ] and [ ] (collectively, the
"Strategic Investors") an aggregate of [ ] Common Shares (the
"Strategic Securities") and warrants to purchase an aggregate of [ ]
Common Shares (the "Warrants") and to offer directly to certain of its directors
and officers (the "Affiliated Purchasers") an aggregate of [ ] Common
Shares (the "Affiliated Securities" and, collectively with the Strategic
Securities, the "Direct Securities") as set forth in the Prospectus (as
hereinafter defined) or, if the Prospectus is not in existence, the most recent
preliminary prospectus (as hereinafter defined), under the caption "Direct
Sales".
Two forms of prospectus are to be used in connection with the offering and
sale of the Securities through the Underwriters: one relating to the U.S.
Securities (the "Form of U.S. Prospectus") and one relating to the International
Securities (the "Form of International Prospectus").
2
<PAGE>
The Form of International Prospectus is identical to the Form of U.S.
Prospectus, except for the front cover and back cover pages and the information
under the caption "Underwriting" and the inclusion in the Form of International
Prospectus of a section under the caption "Certain United States Tax
Considerations for Non-United States Holders." A third form of prospectus is to
be used in connection with the offering and sale of the Affiliated Securities
(the "Form of Direct Sales Prospectus"). The Form of Direct Sales Prospectus is
identical to the Form of U.S. Prospectus, except for the front cover and back
cover pages and except that the section under the caption "Underwriting" in the
Form of U.S. Prospectus is replaced by a section under the caption "Plan of
Distribution" in the Form of Direct Sales Prospectus.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-[ ]) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectuses. Promptly after
execution and delivery of this Agreement, the Company will either (i) prepare
and file a prospectus in accordance with the provisions of Rule 430A ("Rule
430A") of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the
1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434
("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term
Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
U.S. Underwriters for use in connection with the offering of the U.S. Securities
is herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary prospectus dated _____, 1999
together with the Term Sheet and all references in this Agreement to the date of
the Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
3
<PAGE>
SECTION Representations and Warranties.
------------------------------
(a) Representations and Warranties by the Company . The Company represents
and warrants to each of the several U.S. Underwriters as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each U.S.
Underwriter, as follows:
(i) Compliance with Registration Requirements. Each of the
-----------------------------------------
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted or are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
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
not misleading. Neither the Prospectus nor any amendments or supplements
thereto, at the time the Prospectus or any such amendment or supplement was
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. If Rule 434 is
used, the Company will comply with the requirements of Rule 434 and the
Prospectus shall not be "materially different", as such term is used in
Rule 434, from the prospectus included in the Registration Statement at the
time it became effective. The representations and warranties in this
subsection shall not apply to statements in or omissions from the
Registration Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in writing by any U.S.
Underwriter through the U.S. Representatives expressly for use in the
Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so
filed in all material respects with the 1933 Act Regulations and each
preliminary prospectus and the Prospectus delivered to the U.S.
Underwriters for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
4
<PAGE>
(ii) Strategic Securities. The issuance, offering and sale of the
--------------------
Strategic Securities and of the Warrants to the Strategic Investors by the
Company, and the issuance of the Common Shares issuable upon exercise of
the Warrants, in the manner described in the Registration Statement and the
Prospectus or, if the Prospectus is not in existence, the most recent
preliminary prospectus, were, are and will be exempt from the registration
and prospectus delivery requirements of the Act and any similar
requirements under any applicable securities, blue sky or insurance laws of
any applicable jurisdiction, subject to the accuracy of the representations
made by the purchasers thereof. Neither the Company nor any "affiliate" of
the Company within the meaning of Rule 501(b) under the Act or any person
acting on behalf of the Company or any such affiliate, directly or
indirectly, (i) has made or will make offers or sales of, or solicitations
of offers to buy, the Strategic Securities or the Warrants (or any
securities of the same or similar respective classes) to any prospective
purchaser under circumstances that would require registration of the
Strategic Securities or the Warrants or (ii) has engaged in any form of
"general solicitation" or" general advertising" within the meaning of Rule
502(c) under the Act with respect to the Strategic Securities or the
Warrants.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The financial statements included in the
--------------------
Registration Statement and the Prospectus, together with the related
schedules and notes, present fairly the financial position of the Company
and its subsidiary at the dates indicated and the shareholders' equity for
the periods specified; said financial statements have been prepared in
conformity with U.S. generally accepted accounting principles ("U.S. GAAP")
applied on a consistent basis throughout the periods involved. The
supporting schedules included in the Registration Statement present fairly
in accordance with U.S. GAAP the information required to be stated therein.
The pro forma financial statements and the related notes thereto included
in the Registration Statement and the Prospectus present fairly the
information shown therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly compiled on the bases described therein,
and the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
and circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectus, except as otherwise stated therein, (A) there has been no
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiary considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or its subsidiary, other
than those in the ordinary course of business, which are
5
<PAGE>
material with respect to the Company and its subsidiary considered as one
enterprise, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of Bermuda and has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the failure so
to qualify or to be in good standing would not result in a Material Adverse
Effect.
(vii) Good Standing of the Subsidiary. [ ] Re, Ltd., a
--------------------------------
Bermuda corporation (the "Subsidiary"), has been duly organized and is
validly existing as a corporation in good standing under the laws of
Bermuda, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and
the Subsidiary is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement, all of the
issued and outstanding capital stock of the Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly, free and clear of any security interest,
mortgage, pledge, lien, encumbrance, claim or equity; none of the
outstanding shares of capital stock the Subsidiary were issued in violation
of the preemptive or similar rights of any securityholder of the
Subsidiary. The Company has no subsidiaries other than the Subsidiary.
(viii) Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company is as set forth in the Prospectus in the column
entitled "Actual" under the caption "Capitalization" (except for subsequent
issuances, if any, pursuant to this Agreement, pursuant to reservations,
agreements or employee benefit plans referred to in the Prospectus or
pursuant to the exercise of convertible securities or options referred to
in the Prospectus). The shares of issued and outstanding capital stock of
the Company have been duly authorized and validly issued and are fully paid
and non-assessable; none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights
of any securityholder of the Company. The Initial Securities and the Option
Securities have been duly authorized and at the Closing Time or the related
Option Closing Time (as the case may be), after payment therefor in
accordance herewith and with the International Purchase Agreement, will be
validly issued, fully paid and nonassessable. The Strategic Securities and
the Affiliated Securities have been duly authorized and, after payment
therefor in accordance
6
<PAGE>
with the separate securities purchase agreements entered or anticipated to
be entered into by the Company with (i) each of the Strategic Investors or
(ii) each of the Affiliated Purchasers (such securities purchase
agreements, the "Direct Agreements"), will be validly issued, fully paid
and nonassessable. No holders of outstanding shares of capital stock of the
Company are entitled as such to any preemptive or other rights to subscribe
for any of the Securities or Direct Securities, and no holder of securities
of the Company has any right which has not been fully exercised or waived
to require the Company to register the offer or sale of any securities
owned by such holder under the Act in the public offering contemplated by
this agreement.
(ix) Absence of Outstanding Securities and Obligations. Except as
-------------------------------------------------
disclosed in the Prospectus or, if the Prospectus is not in existence, the
most recent preliminary prospectus, there are no outstanding (A) securities
or obligations of the Company or its Subsidiary convertible into or
exchangeable for any capital stock of the Company or its Subsidiary, (B)
warrants, rights or options to subscribe for or purchase from the Company
or its Subsidiary any such capital stock or any such convertible or
exchangeable securities or obligations, or (C) obligations of the Company
or its Subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any such
warrants, rights or options.
(x) Authorization of Agreement. This Agreement and the International
--------------------------
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(xi) Authorization and Description of Securities. The U.S.
-------------------------------------------
Securities have been duly authorized for issuance and sale to the U.S.
Underwriters pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement against payment of the consideration
set forth herein, will be validly issued and fully paid and non-assessable;
the Common Shares conform to all statements relating thereto contained in
the Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the U.S. Securities will be
subject to personal liability by reason of being such a holder; and the
issuance of the U.S. Securities is not subject to the preemptive or other
similar rights of any securityholder of the Company.
(xii) Absence of Defaults and Conflicts. Neither the Company nor its
---------------------------------
Subsidiary is in violation of its charter or by-laws or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or its Subsidiary is a party or by which it or its
Subsidiary may be bound, or to which any of the property or assets of the
Company or its Subsidiary is subject (collectively, "Agreements and
Instruments") except for such defaults that would not result in a Material
Adverse Effect; and the execution, delivery and performance of this
Agreement and the International Purchase Agreement and the consummation of
the transactions contemplated herein and therein and in the Registration
Statement (including the issuance
7
<PAGE>
and sale of the Securities and the use of the proceeds from the sale of the
Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by the Company with its obligations hereunder and
under the International Purchase Agreement have been duly authorized by all
necessary corporate action and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined below)
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or the Subsidiary
pursuant to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not
result in a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company or its
Subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over the Company or its
Subsidiary or any of their assets, properties or operations. As used
herein, a "Repayment Event" means any event or condition which gives the
holder of any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or its Subsidiary.
(xiii) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or its
Subsidiary, which is required to be disclosed in the Registration Statement
(other than as disclosed therein), or which might reasonably be expected to
result in a Material Adverse Effect, or which might reasonably be expected
to materially and adversely affect the properties or assets thereof or the
consummation of the transactions contemplated in this Agreement or the
International Purchase Agreement or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or its Subsidiary is a party
or of which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents
--------------------
which are required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits thereto which have not been so
described and filed as required.
(xv) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder or under the International Purchase Agreement, in
connection with the offering, issuance or sale of the Securities hereunder
or thereunder or the consummation of the transactions contemplated hereby
or thereby, except such as have been already obtained
8
<PAGE>
or as may be required under the 1933 Act or the 1933 Act Regulations or
state securities laws.
(xvi) Possession of Licenses and Permits. The Company and its
----------------------------------
Subsidiary possess such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") issued by the
appropriate Bermuda, U.S. federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by them;
the Company and its Subsidiary are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure so
to comply would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full force and
effect, except when the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect would
not have a Material Adverse Effect; and neither the Company nor its
Subsidiary has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in a Material Adverse Effect.
(xvii) Title to Property. The Company and its Subsidiary have good
-----------------
and marketable title to all real property owned by the Company and its
Subsidiary and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company or its
Subsidiary; and all of the leases and subleases material to the business of
the Company and its Subsidiary, considered as one enterprise, and under
which the Company or its Subsidiary holds properties described in the
Prospectus, are in full force and effect, and neither the Company nor its
Subsidiary has any notice of any material claim of any sort that has been
asserted by anyone adverse to the rights of the Company or its Subsidiary
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xviii) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as contemplated herein and in the
International Purchase Agreement and the application of the net proceeds
therefrom as described in the Prospectus will not be, an "investment
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xix) Registration Rights. There are no persons with registration
-------------------
rights or other similar rights to have any securities registered pursuant
to the Registration Statement or otherwise registered by the Company under
the 1933 Act.
9
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(xx) Consents and Approvals. The issuance, offering and sale of the
----------------------
Securities to the Underwriters by the Company pursuant to this Agreement
and the International Purchase Agreement and of the Direct Securities to
the Strategic Investors and the Affiliated Purchasers by the Company
pursuant to the Direct Agreements and the issuance of Common Shares
issuable upon the exercise of the Warrants, the compliance by the Company
with the other provisions of this Agreement, the International Purchase
Agreement, the Direct Agreements, the Warrants and the consummation of the
other transactions herein and therein contemplated do not require the
consent, approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained, such as may
be required under state securities or blue sky laws and, if the
registration statement filed with respect to the Securities (as amended) is
not effective under the Act as of the time of execution hereof, such as may
be required (and shall be obtained as provided in this Agreement and the
International Purchase Agreement) under the Act.
(xxi) No Material Loss or Interference. Subsequent to the
--------------------------------
respective dates as of which information is given in the Registration
Statement and the Prospectus or, if the Prospectus is not in existence, the
most recent preliminary prospectus, neither the Company nor its Subsidiary
has sustained any material loss or interference with their respective
businesses or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, except in each case as
described in or contemplated by the Prospectus or, if the Prospectus is not
in existence, the most recent preliminary prospectus.
(xxii) Absence of Price Stabilization. The Company has not,
------------------------------
directly or indirectly, (i) taken any action designed to cause or to result
in, or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security
of the Company to facilitate the sale or resale of the Securities or (ii)
since the filing of the Registration Statement (A) sold, bid for,
purchased, or paid anyone any compensation for soliciting purchases of, the
Securities or (B) paid or agreed to pay to any person any compensation for
soliciting another to purchase any other securities of the Company, except
as contemplated by this Agreement and the International Purchase Agreement.
(xxiii) No Material Liability or Change in Capital Stock.
------------------------------------------------
Subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus or, if the Prospectus is not in
existence, the most recent preliminary prospectus, (1) neither the Company
nor its Subsidiary has incurred any material liability or obligation,
direct or contingent, or entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; and (3) there
has not been any material change in the capital stock, short-term debt or
long-term debt of the Company or its Subsidiary, except in each case as
described in or contemplated by the Prospectus or, if the Prospectus is not
in existence, the most recent preliminary prospectus.
10
<PAGE>
(xxiv) Subsidiary Payments and Transfers. The Subsidiary is not
---------------------------------
currently prohibited, directly or indirectly, from paying any dividends to
the Company, from making any other distribution on its capital stock, from
repaying to the Company any loans or advances to it from the Company or
from transferring any of its property or assets to the Company, except as
described in or contemplated by the Prospectus or, if the Prospectus is not
in existence, the most recent preliminary prospectus.
(xxv) Internal Accounting Controls. The Company and its Subsidiary
----------------------------
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with U.S. GAAP and to maintain asset accountability; (3) access
to assets is permitted only in accordance with management's general or
specific authorization; and (4) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxvi) No Distribution of Offering Material. The Company has not
------------------------------------
distributed and, prior to the later of (i) the Closing Time or the Option
Closing Time and (ii) the completion of the distribution of the U.S.
Securities, will not distribute any offering material in connection with
the offering and sale of the U.S. Securities other than the Registration
Statement or any amendment thereto, any preliminary prospectus or the
Prospectus or any amendment or supplement thereto, or other materials, if
any, permitted by the Act.
(xxvii) Forms of Certificate. The forms of certificate for the
--------------------
Securities conform to the requirements of The Companies Act 1981 of Bermuda
and the Nasdaq Stock Market's National Market (the "Nasdaq National
Market"), and the Securities have been approved for quotation on the Nasdaq
National Market, subject to official notice of issuance.
(xxviii) No Currency Exchange Control Laws or Withholding Taxes. No
------------------------------------------------------
currency exchange control laws or withholding taxes of Bermuda or elsewhere
apply to the payment of dividends (i) on the Securities by the Company or
(ii) by the Subsidiary to the Company, except in each case as described in
or contemplated by the Prospectus or, if the Prospectus is not in
existence, the most recent preliminary prospectus.
(xxix) Subsidiary Registration and Regulatory Compliance. The
-------------------------------------------------
Subsidiary has been duly registered by the Bermuda Minister of Finance as a
Class 3 insurer under the Insurance Act 1978 of Bermuda (the "Insurance
Act") and is in compliance with the requirements of the Insurance Act and
any applicable rules and regulations thereunder and has filed all statutory
financial returns, reports, documents and other information required to be
filed thereunder, except where the failure to comply or to file would not
reasonably be expected to have a Material Adverse Effect. The Company is a
holding company and is not subject to Bermuda insurance regulations. The
Company and its Subsidiary are in compliance with all other insurance laws
and regulations of the jurisdictions that apply to them, including laws
that
11
<PAGE>
relate to companies that control insurance companies, except where the
failure to comply would not reasonably be expected to have a Material
Adverse Effect. Neither the Company nor its Subsidiary has received any
notification from any insurance authority, commission or other insurance
regulatory body in Bermuda or elsewhere to the effect that the Subsidiary
is not in compliance with any insurance law or regulation.
(xxx) Compliance with Insurance Laws. Neither the Company nor its
------------------------------
Subsidiary is required to be licensed or admitted as an insurer or an
insurance holding company, as applicable, in, or to otherwise comply with
the insurance laws and regulations of, any jurisdiction other than Bermuda
in order to conduct their respective businesses as described in the
Prospectus or, if the Prospectus is not in existence, the most recent
preliminary prospectus.
(xxxi) Not Engaged in Trade or Business in the United States. The
-----------------------------------------------------
Company and its Subsidiary are not, and will conduct their respective
businesses in a manner such that they will not be, engaged in a trade or
business in the United States within the meaning of the Internal Revenue
Code of 1986, as amended (the "Code").
(xxxii) Absence of Certain Relationships. No relationship, direct or
--------------------------------
indirect, exists between or among the Company or its Subsidiary on the one
hand, and the directors, officers, promoters, affiliates or shareholders of
the Company or its Subsidiary on the other hand, that is required to be
described in the Registration Statement or the Prospectus or, if the
Prospectus is not in existence, the most recent preliminary prospectus,
which is not so described.
(xxxiii) Absence of Stamp Duty, Excise and Similar Taxes. None of
-----------------------------------------------
the U.S. Underwriters or any subsequent purchasers of the U.S. Securities
(other than purchasers resident in Bermuda for Bermuda exchange control
purposes) will be subject to any stamp duty, excise or similar tax imposed
in Bermuda in connection with the offering, sale or purchase of the U.S.
Securities.
(xxxiv) Absence of Insurance Law Changes. To the knowledge of the
--------------------------------
Company and its Subsidiary, no change in any insurance law or regulation is
pending that would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, except as described in or
contemplated by the Prospectus or, if the Prospectus is not in existence,
the most recent preliminary prospectus.
(xxxv) Taxation - Bermuda. Each of the Company and its Subsidiary
------------------
has received from the Bermuda Minister of Finance an assurance under The
Exempted Undertakings Tax Protection Act 1966 of Bermuda to the effect set
forth in the Prospectus or, if the Prospectus is not in existence, the most
recent preliminary prospectus, under the caption "Certain Tax
Considerations--Taxation of the Company and its Subsidiaries--Bermuda."
12
<PAGE>
(xxxvi) Service of Process. The Company has duly and irrevocably
------------------
appointed CT Corporation System, 1633 Broadway, New York, New York as its
agent to receive service of process with respect to actions arising out of
or in connection with violations of United States federal securities laws
relating to offers and sales of the Securities.
(xxxvii) Nonresident and Exempt Company Status. The Bermuda Monetary
-------------------------------------
Authority has designated the Company and its Subsidiary as nonresident for
exchange control purposes and has granted permission for the issue and
transfer of the Securities. The Company and its Subsidiary are "exempt
companies" under Bermuda law and have not (i) acquired and do not hold any
land in Bermuda, other than that required for their business and held by
way of lease or tenancy for terms of not more than 21 years, without the
express authorization of the Bermuda legislature, (ii) taken mortgages on
land in Bermuda to secure an amount in excess of $50,000 without the
consent of the Bermuda Minister of Finance, (iii) acquired any bonds or
debentures secured by any land in Bermuda (other than certain types of
Bermuda government securities), or (iv) conducted their businesses in a
manner that is prohibited for "exempted companies" under Bermuda law.
Neither the Company nor its Subsidiary has received notification from the
Bermuda Monetary Authority or any other Bermuda governmental authority of
proceedings relating to the modification or revocation of its designation
as nonresident for exchange control purposes, its permission to issue and
transfer the Securities, or its status as an "exempted company".
(b) Officer's Certificates . Any certificate signed by any officer of the
Company or its Subsidiary delivered to the U.S. Representatives or to counsel
for the U.S. Underwriters shall be deemed a representation and warranty by the
Company to each U.S. Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing.
-----------------------------------------------
(a) Initial U.S. Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company agrees to sell to each of the U.S. Underwriters, severally
and not jointly, and each of the U.S. Underwriters, severally and not jointly,
agrees to purchase from the Company, at the price per share set forth in
Schedule B, the number of Initial U.S. Securities set forth in Schedule A
opposite the name of such U.S. Underwriter, plus any additional number of
Initial U.S. Securities which such U.S. Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof.
(b) U.S. Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional [ ]
Common Shares at the price per share set forth in Schedule B, less an amount per
share equal to any dividends or distributions declared by the Company and
payable on the Initial U.S. Securities but not payable on the U.S. Option
Securities. The option hereby granted will expire thirty (30) days after the
date hereof and may be exercised in whole or in part from time to time only for
the purpose of
13
<PAGE>
covering over-allotments which may be made in connection with the offering and
distribution of the Initial U.S. Securities upon notice by the U.S.
Representatives to the Company setting forth the number of U.S. Option
Securities as to which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for such U.S. Option
Securities. Any such time and date of delivery (a "Date of Delivery") shall be
determined by the U.S. Representatives, but shall not be later than seven (7)
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the U.S. Option Securities, each of the U.S. Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of U.S. Option Securities then being purchased which the number of
Initial U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter bears to the total number of Initial U.S. Securities, subject in
each case to such adjustments as the U.S. Representatives in their discretion
shall make to eliminate any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial U.S. Securities shall be made at the offices of
Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New York, or at such
other place as shall be agreed upon by the U.S. Representatives and the Company,
at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the U.S. Representatives and the Company (such time and date of payment
and delivery being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities are
purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
U.S. Representatives and the Company, on each Date of Delivery as specified in
the notice from the U.S. Representatives to the Company.
Payment shall be made to the Company by wire transfer of immediately
available funds to a bank account designated by the Company, against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the U.S. Securities to be purchased by them. It is understood
that each U.S. Underwriter has authorized the U.S. Representatives, for its
account, to accept delivery of, receipt for, and make payment of the purchase
price for, the Initial U.S. Securities and the U.S. Option Securities, if any,
which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S.
14
<PAGE>
Representatives may request in writing at least one full business day before the
Closing Time or the relevant Date of Delivery, as the case may be. The
certificates for the Initial U.S. Securities and the U.S. Option Securities, if
any, will be made available for examination and packaging by the U.S.
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each of
------------------------
the U.S. Underwriters as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify the
U.S. Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments from
the Commission, (iii) of any request by the Commission for any amendment to
the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, and (iv) of the issuance by the Commission
of any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of the
Securities for offering or sale in any jurisdiction, or of the initiation
or threatening of any proceedings for any of such purposes. The Company
will promptly effect the filings necessary pursuant to Rule 424(b) and will
take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received
for filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company will make every reasonable
effort to prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company will give the U.S. Representatives
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectus
included in the Registration Statement at the time it became effective or
to the Prospectus, will furnish the U.S. Representatives with copies of any
such documents a reasonable amount of time prior to such proposed filing or
use, as the case may be, and will not file or use any such document to
which the U.S. Representatives or counsel for the U.S. Underwriters shall
object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the U.S. Representatives and counsel for the U.S.
Underwriters, without charge, signed copies of the Registration Statement
as originally filed and of each amendment thereto (including exhibits filed
therewith or incorporated by reference therein) and signed copies of all
consents and certificates of experts, and will also deliver to the U.S.
Representatives, without charge, a conformed copy of the Registration
Statement as originally filed and of
15
<PAGE>
each amendment thereto (without exhibits) for each of the U.S.
Underwriters. The copies of the Registration Statement and each amendment
thereto furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) Delivery of Prospectus. The Company has delivered to each of the
U.S. Underwriters, without charge, as many copies of each preliminary
prospectus as such U.S. Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each U.S. Underwriter, without
charge, during the period when the Prospectus is required to be delivered
under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"),
such number of copies of the Prospectus (as amended or supplemented) as
such U.S. Underwriter may reasonably request. The Prospectus and any
amendments or supplements thereto furnished to each of the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will comply
with the 1933 Act and the 1933 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in this
Agreement, the International Purchase Agreement and in the Prospectus and
the international prospectus. If at any time when a prospectus is required
by the 1933 Act to be delivered in connection with sales of the U.S.
Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the U.S. Underwriters
or for the Company, to amend the Registration Statement or amend or
supplement the Prospectus in order that the Prospectus will not include any
untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at
any such time to amend the Registration Statement or amend or supplement
the Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Company will promptly prepare and file with
the Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such requirements, and
the Company will furnish to the U.S. Underwriters such number of copies of
such amendment or supplement as the U.S. Underwriters may reasonably
request.
(f) Blue Sky Qualifications. The Company will use its best efforts, in
cooperation with the U.S. Underwriters, to qualify the U.S. Securities for
offering and sale under the applicable securities laws of such states and
other jurisdictions as the U.S. Representatives may designate and to
maintain such qualifications in effect for a period of not less than one
year from the later of the effective date of the Registration Statement and
any Rule 462(b) Registration Statement; provided, however, that the Company
shall not be obligated to file any general consent to service of process or
to qualify as a foreign corporation or as a dealer
16
<PAGE>
in securities in any jurisdiction in which it is not so qualified or to
subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject. In each jurisdiction in which the
U.S. Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction
to continue such qualification in effect for a period of not less than one
year from the effective date of the Registration Statement and any Rule
462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to the
1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the
Prospectus under "Use of Proceeds". The Company and its Subsidiary will
comply with their respective operating, investment and underwriting
guidelines, as each are in effect from time to time.
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and
will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market of companies that have securities
that are traded in the over-the-counter market and quotations for which are
reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of one year from
the date of the Prospectus, the Company will not, without the prior written
consent of Merrill Lynch, on behalf of the U.S. Underwriters, and in the
case of the Strategic Investors, both Merrill Lynch, on behalf of the U.S.
Underwriters, and the Company, directly or indirectly, (i) 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 or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of the Common Shares, whether any
such swap or transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Shares or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Securities to
be sold hereunder and under the International Purchase Agreement, (B) any
Common Shares issued by the Company upon the exercise of an option or
warrant or the conversion of a security outstanding on the date hereof and
referred to in the Prospectus, (C) any Common Shares issued or options to
purchase Common Shares granted pursuant to the [ ] Re 1998 Long Term
Incentive Plan or (D) any Common Shares issued pursuant to any
17
<PAGE>
non-employee director stock plan or dividend reinvestment plan. The Company
will not accelerate the exercisability of the registration rights granted
to the Strategic Investors and will not file any registration statement on
Form S-8 with respect to, or otherwise register for resale with the
Commission, the Strategic Securities or the Common Shares underlying any
stock options or warrants, including, without limitation, the Warrants,
issued by the Company for a period of one year from the date hereof, in
each case, without the prior written consent of Merrill Lynch, on behalf of
the U.S. Underwriters.
(k) Absence of Price Stabilization and Payment for Solicitation. The
Company will not, directly or indirectly, (i) take any action designed to
cause or to result in, or which would reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or (ii) (A)
sell, bid for, purchase, or pay anyone any compensation for soliciting
purchases of, the Securities or (B) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company, except as contemplated by this Agreement and the International
Purchase Agreement.
(l) Lock-up Agreements. The Company will obtain the agreements described
in Section 5(j) hereof prior to the Closing Time.
(m) Rumor, Publication or Event. If at any time during the 25-day period
after the Registration Statement becomes effective or the period prior to
the Option Closing Time, any rumor, publication or event relating to or
affecting the Company or its Subsidiary shall occur as a result of which in
your reasonable opinion the market price of the Common Shares has been or
is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will, after notice from you advising the Company
to the effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to you, responding to or
commenting on such rumor, publication or event.
(n) Reliance on Rule 462(b). If the Company elects to rely on Rule
462(b), the Company shall both file a Rule 462(b) Registration Statement
with the Commission in compliance with Rule 462(b) and pay the applicable
fees in accordance with Rule 111 promulgated under the Act by the earlier
of (i) 10:00 P.M., Eastern time, on the date of this Agreement and (ii) the
time confirmations are sent or given, as specified by Rule 462(b)(2).
(o) Reporting Requirements. The Company, during the period when each
Prospectus is required to be delivered under the 1933 Act or the 1934 Act,
will file all documents required to be filed with the Commission pursuant
to the 1934 Act within the time periods required by the 1934 Act and the
rules and regulations of the Commission thereunder.
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(p) Compliance with Rule 463. The Company will file with the Commission
such reports on Form SR as may be required pursuant to Rule 463 of the 1933
Act Regulations.
SECTION 4. Payment of Expenses. Expenses. The Company will pay all
-------------------
costs and expenses incident to the performance of its obligations under this
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the preparation, printing
and delivery to the Underwriters of this Agreement, the International Purchase
Agreement and any Agreement among Underwriters and such other documents as may
be required in connection with the offering, purchase, sale, issuance or
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the U.S. Underwriters and the International Managers,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under state or foreign
insurance or securities laws in accordance with the provisions of Section 3(f)
hereof, including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheets and of the Prospectus and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Securities, (ix) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the NASD of the terms of the sale
of the Securities and (x) the fees and expenses incurred in connection with the
listing of the Securities on the Nasdaq National Market.
(b) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company shall reimburse the U.S. Underwriters for all of
their out-of-pocket expenses, including the reasonable fees and disbursements of
counsel for the U.S. Underwriters.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
--------------------------------------------
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company contained in
Section 1 hereof or in certificates of any officer of the Company or its
Subsidiary delivered pursuant to the provisions hereof, to the performance by
the Company of its covenants and other obligations hereunder, and to the
following further conditions:
(a) Effectiveness of Registration Statement. The Registration Statement,
including any Rule 462(b) Registration Statement, has become effective and
at Closing Time no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act or
proceedings therefor initiated or threatened by the Commission, and any
request on the part of the Commission for additional information shall have
been complied with to the reasonable satisfaction of counsel to the U.S.
Underwriters. A prospectus
19
<PAGE>
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective amendment
providing such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A) or, if the Company has
elected to rely upon Rule 434, a Term Sheet shall have been filed with the
Commission in accordance with Rule 424(b).
(b) Opinion of U.S. Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Mayer, Brown & Platt, United States counsel for the
Company, in form and substance satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters to the effect set forth in Exhibit A
hereto and to such further effect as counsel to the U.S. Underwriters may
reasonably request.
(c) Opinion of Bermuda Counsel for Company. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of the
Closing Time, of Conyers Dill & Pearman, Bermuda counsel for the Company,
in form and substance satisfactory to counsel for the U.S. Underwriters,
together with signed or reproduced copies of such letter for each of the
other U.S. Underwriters to the effect set forth in Exhibit B hereto and to
such further effect as counsel to the U.S. Underwriters may reasonably
request.
(d) Opinion of Counsel for U.S. Underwriters. At Closing Time, the U.S.
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Simpson Thacher & Bartlett, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters with respect to the matters set forth
in clauses ____________ of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York and the federal law of the
United States, upon the opinions of counsel satisfactory to the U.S.
Representatives. Such counsel may also state that, insofar as such opinion
involves factual matters, they have relied, to the extent they deem proper,
upon certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectus, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiary considered as one enterprise,
whether or not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the chief executive
officer of the Company and of the chief financial or chief accounting
officer of the Company, dated as of Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the representations
and warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time, (iii)
the Company has complied with all agreements and satisfied all conditions
on its part to be performed or satisfied at or prior to
20
<PAGE>
Closing Time, and (iv) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that purpose
have been instituted or are pending or are contemplated by the Commission.
(f) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from Ernst & Young
LLP a letter dated such date, in form and substance satisfactory to the
U.S. Representatives, together with signed or reproduced copies of such
letter for each of the other U.S. Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus.
(g) Bring-down Comfort Letter. At Closing Time, the U.S. Representatives
shall have received from Ernst & Young LLP a letter, dated as of Closing
Time, to the effect that they reaffirm the statements made in the letter
furnished pursuant to subsection (f) of this Section, except that the
specified date referred to shall be a date not more than three business
days prior to Closing Time.
(h) Approval of Listing. At Closing Time, the Securities shall have been
approved for inclusion in the Nasdaq National Market, subject only to
official notice of issuance.
(i) No Objection. The NASD has confirmed that it has not raised any
objection with respect to the fairness and reasonableness of the
underwriting terms and arrangements.
(j) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form
of Exhibit C hereto signed by the persons listed on Schedule C hereto.
(k) Conditions to Purchase of Option Securities. In the event that the
U.S. Underwriters exercise their option provided in Section 2(b) hereof to
purchase all or any portion of the U.S. Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or its Subsidiary
shall be true and correct as of each Date of Delivery and, at the relevant
Date of Delivery, the U.S. Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
---------------------
Delivery, of the chief executive officer of the Company and of the chief
financial or chief accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to Section 5(e)
hereof remains true and correct as of such Date of Delivery.
(ii) Opinions of Counsel for Company. The favorable opinion
-------------------------------
of Mayer, Brown & Platt, United States counsel for the Company, together
with the favorable opinion of Conyers, Dill & Pearman, Bermuda counsel
for the Company, each in form and
21
<PAGE>
substance satisfactory to counsel for the U.S. Underwriters, each dated
such Date of Delivery, relating to the U.S. Option Securities to be
purchased on such Date of Delivery and otherwise to the same effect as
the opinions required by Sections 5(b) and 5(c) hereof.
(iii) Opinion of Counsel for Underwriters. The favorable
-----------------------------------
opinion of Simpson Thacher & Bartlett, counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery and otherwise to the
same effect as the opinion required by Section 5(d) hereof.
(iv) Bring-down Comfort Letter. A letter from Ernst & Young
-------------------------
LLP, in form and substance satisfactory to the U.S. Representatives and
dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the U.S. Representatives pursuant
to Section 5(g) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(l) Certificates, Documents and Other Information. On or before the
Closing Time, the U.S. Representatives and counsel for the U.S. Underwriters
shall have received such further certificates, documents or other
information as they may have reasonably requested from the Company.
(m) Strategic Investors' Purchase Price. The Strategic Investors shall
have purchased Common Shares and Warrants pursuant to certain of the Direct
Agreements with an aggregate purchase price of at least $[ ] million.
(n) Initial International Securities. Contemporaneously with the
purchase by the U.S. Underwriters of the Initial U.S. Securities under this
Agreement, the International Managers shall have purchased the Initial
International Securities under the International Purchase Agreement.
(o) Additional Documents. At Closing Time and at each Date of Delivery,
counsel for the U.S. Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them
to pass upon the issuance and sale of the U.S. Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company in connection
with the issuance and sale of the U.S. Securities as herein contemplated
shall be satisfactory in form and substance to the U.S. Representatives and
counsel for the U.S. Underwriters.
(p) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of U.S.
Option Securities, on a Date of Delivery which is after the
22
<PAGE>
Closing Time, the obligations of the several U.S. Underwriters to purchase
the relevant U.S. Option Securities, may be terminated by the U.S.
Representatives by notice to the Company at any time at or prior to Closing
Time or such Date of Delivery, as the case may be, and such termination
shall be without liability of any party to any other party except as
provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive
any such termination and remain in full force and effect.
SECTION 6. Indemnification.
---------------
(a) Indemnification of U.S. Underwriters. The Company and its Subsidiary
agree to indemnify and hold harmless each U.S. Underwriter and each person, if
any, who controls any U.S. Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including the Rule 430A Information and the
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact included in any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of (A) the violation of any applicable
laws or regulations of jurisdictions where Affiliated Securities have been
offered and (B) any untrue statement or alleged untrue statement of a
material fact included in any prospectus, supplement or other material
distributed in connection with the offer and sale of the Affiliated
Securities to the Affiliated Purchasers or the omission or alleged omission
therefrom of a material fact necessary to make the statements therein, when
considered in conjunction with the Prospectus or preliminary prospectus,
not misleading;
(iii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission or in connection with any violation of
the nature referred to in Section 6(a)(ii)(A) hereof; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company; and
23
<PAGE>
(iv) against any and all expense whatsoever, as incurred (including the
fees and disbursements of counsel chosen by Merrill Lynch), reasonably
incurred in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or omission or
in connection with any violation of the nature referred to in Section
6(a)(ii)(A) hereof, to the extent that any such expense is not paid under
(i), (ii) or (iii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers. Each U.S.
Underwriter severally agrees to indemnify and hold harmless the Company, each of
its directors, each of its officers who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity contained in
subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any U.S. preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such U.S. Underwriter through the U.S. Representatives expressly for
use in the Registration Statement (or any amendment thereto) or such U.S.
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto).
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by the U.S.
Representatives, and, in the case of parties indemnified pursuant to Section
6(b) above, counsel to the indemnified parties shall be selected by the Company.
An indemnifying party may participate at its own expense in the defense of any
such action; provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to the
indemnified party. In no event shall the indemnifying parties be liable for fees
and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in
24
<PAGE>
the same jurisdiction arising out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(iii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the U.S. Underwriters on the other hand from the
offering of the U.S. Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company on the one
hand and of the U.S. Underwriters on the other hand in connection with the
statements or omissions, or in connection with any violation of the nature
referred to in Section 6(a)(ii)(A) hereof which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company on the one hand and the
U.S. Underwriters on the other hand in connection with the offering of the U.S.
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the U.S.
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
25
<PAGE>
The relative fault of the Company on the one hand and the U.S.
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission or any violation of the nature referred to in Section
6(a)(ii)(A) hereof.
The Company and the U.S. Underwriters agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the U.S. Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- ---------
Agreement or in certificates of officers of the Company or its subsidiary
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of any U.S. Underwriter or
controlling person, or by or on behalf of the Company, and shall survive
delivery of the U.S. Securities to the U.S. Underwriters.
26
<PAGE>
SECTION 9. Termination of Agreement.
------------------------
(a) Termination; General. The U.S. Representatives may terminate this
Agreement with respect to the Initial U.S. Securities or any U.S. Option
Securities, by notice to the Company, at any time at or prior to Closing Time
(i) if there has been, since the time of execution of this Agreement or since
the respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
subsidiary considered as one enterprise, whether or not arising in the ordinary
course of business, or (ii) if there has occurred any material adverse change in
the financial markets in the United States or the international financial
markets, any outbreak of hostilities or escalation thereof or other calamity or
crisis or any change or development involving a prospective change in national
or international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or materially limited by the Commission or the Nasdaq
National Market, or if trading generally on the American Stock Exchange or the
New York Stock Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by any of said exchanges or by
such system or by order of the Commission, the National Association of
Securities Dealers, Inc. or any other governmental authority, or (iv) if a
banking moratorium has been declared by Federal, New York or Bermuda
authorities, or (v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an outbreak or
escalation of any other insurrection or armed conflict involving the United
States or (C) any other calamity or crisis or material adverse change in general
economic, political or financial conditions having an effect on the U.S.
financial markets that, in the sole judgment of the U.S. Representatives, makes
it impractical or inadvisable to proceed with the public offering or the
delivery of the Securities as contemplated by the Registration Statement, as
amended as of the date hereof.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one or
-----------------------------------------------
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the U.S. Securities which it or they are obligated to purchase under
this Agreement (the "Defaulted Securities"), the U.S. Representatives shall have
the right, within 24 hours thereafter, to make arrangements for one or more of
the non-defaulting U.S. Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
27
<PAGE>
(a) if the number of Defaulted Securities does not exceed 10% of the
number of U.S. Securities to be purchased on such date, each of the non-
defaulting U.S. Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
U.S. Securities to be purchased on such date, this Agreement or, with
respect to any Date of Delivery which occurs after the Closing Time, the
obligation of the U.S. Underwriters to purchase and of the Company to sell
the U.S. Option Securities to be purchased and sold on such Date of
Delivery shall terminate without liability on the part of any non-
defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting U.S.
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement or, in the case of a Date of Delivery which is after the Closing
Time, which does not result in a termination of the obligation of the U.S.
Underwriters to purchase and the Company to sell the relevant U.S. Option
Securities, as the case may be, either the U.S. Representatives or the Company
shall have the right to postpone Closing Time or the relevant Date of Delivery,
as the case may be, for a period not exceeding seven (7) days in order to effect
any required changes in the Registration Statement or Prospectus or in any other
documents or arrangements. As used herein, the term "U.S. Underwriter" includes
any person substituted for a U.S. Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to Merrill Lynch, Pierce, Fenner & Smith
Incorporated at North Tower, 250 Vesey Street, World Financial Center, New York,
New York 10281-1201, attention of [ ], and Chase Securities Inc., 270 Park
Avenue, New York, New York 10017, attention of [ ]; and notices to the
Company shall be directed to it at Reid Hall, 3 Reid Street, Hamilton HM11
Bermuda, attention of [ ].
SECTION 12. Parties. This Agreement shall each inure to the benefit
-------
of and be binding upon the U.S. Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the U.S. Underwriters and the Company and their respective successors and
the controlling persons and officers and directors referred to in Sections 6 and
7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the U.S. Underwriters and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No
28
<PAGE>
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
----------------------
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
SECTION 15. Information Supplied by the U.S. Underwriters. The
---------------------------------------------
statements set forth in the last paragraph on the front cover page, the
stabilization legend on the inside cover page and under the heading
"Underwriting" (to the extent such statements related to the U.S. Underwriters)
in any U.S. preliminary prospectus or the U.S. Prospectus constitute the only
information furnished by any U.S. Underwriter through the U.S. Representatives
to the Company for the purposes of Sections (1(a)), (6) and (7) hereof. The U.S.
Underwriters confirm that such statements (to such extent) are correct.
SECTION 16. Consent to Jurisdiction and Service of Process. All
----------------------------------------------
judicial proceedings arising out of or relating to this Agreement may be brought
in any state or federal court of competent jurisdiction in the State of New
York, and by execution and delivery of this Agreement, the Company irrevocably
accepts for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts and
irrevocably waives any defense of forum non conveniens and irrevocably agrees to
be bound by any final judgment rendered thereby in connection with this
Agreement. The Company designates and appoints CT Corporation System, 1633
Broadway, New York, New York 10019, and such other persons as may hereafter be
selected by the Company irrevocably agreeing in writing to so serve, as its
agent to receive on its behalf service of all process in any such proceedings in
any such court, such service being hereby acknowledged by the Company to be
effective and binding service in every respect. A copy of any such process so
served shall be mailed by registered mail to the Company at its address provided
in Section (11) hereof; provided, however, that, unless otherwise provided by
-------- -------
applicable law, any failure to mail such copy shall not affect the validity of
service of such process. If any agent appointed by the Company refuses to accept
service, the Company hereby agrees that service of process sufficient for
personal jurisdiction in any action against the Company in the State of New York
may be made by registered or certified mail, return receipt requested, to the
Company at its address provided in Section 11 hereof, and the Company hereby
acknowledges that such service shall be effective and binding in every respect.
Nothing herein shall affect the right to service process in any other manner
permitted by law or shall limit the right of any U.S. Underwriter to bring
proceedings against the Company in the courts of any other jurisdiction.
SECTION 17. Counterparts. This Agreement may be executed in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
[ ] RE HOLDINGS LTD.
By___________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
CHASE SECURITIES INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By ______________________________
Name:
Title:
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto.
30
<PAGE>
SCHEDULE A
Number of Initial
U.S. Underwriter U.S. Securities to
- ---------------- be Purchased
------------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Chase Securities Inc....................................
______________
Total....................................... [ ]
===============
Sch-A-1
<PAGE>
SCHEDULE B
[ ] RE HOLDINGS LTD.
[ ] Common Shares
(Par Value $1.00 Per Share)
1. The initial public offering price per share for the U.S. Securities,
determined as provided in said Section 2, shall be $[ ].
2. The purchase price per share for the U.S. Securities to be paid by
the several U.S. Underwriters shall be $[ ], being an amount equal to the
initial public offering price set forth above less $[ ] per share;
provided that the purchase price per share for any U.S. Option Securities
purchased upon the exercise of the over-allotment option described in Section
2(b) shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial U.S.
Securities but not payable on the U.S. Option Securities.
Sch-B-1
<PAGE>
SCHEDULE C
[List of persons and entities
subject to lock-up]
Sch-C-1
<PAGE>
Exhibit A
FORM OF OPINION OF COMPANY'S UNITED STATES COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)
(i) The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
(ii) The Registration Statement, including any Rule 462(b) Registration
Statement, has been declared effective under the 1933 Act; any required filing
of the Prospectus or any Term Sheet pursuant to Rules 434 and 424(b) has been
made in the manner and within the time period required by Rules 434 and 424(b);
and, to the best of our knowledge, no stop order suspending the effectiveness of
the Registration Statement or any Rule 462(b) Registration Statement has been
issued under the 1933 Act and no proceedings for that purpose have been
instituted or are pending or threatened by the Commission.
(iii) The Registration Statement, including any Rule 462(b) Registration
Statement, the Rule 430A Information and the Rule 434 Information, as
applicable, the Prospectus and each amendment or supplement to the Registration
Statement and Prospectus as of their respective effective or issue dates (other
than the financial statements and supporting schedules included therein or
omitted therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
(iv) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the prospectus
included in the Registration Statement at the time it became effective.
(v) The form of certificate used to evidence the Common Shares complies
with the requirements of the Nasdaq National Market.
(vi) To the best of our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation to which the Company or
[ ] Re Ltd. is a party, or to which the property of the Company or [ ] Re
Ltd. is subject, before or brought by any court or governmental agency or body,
domestic or foreign, which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to materially and
adversely affect the properties or assets thereof or the consummation of the
transactions contemplated in the Purchase Agreements or the performance by the
Company of its obligations thereunder.
A-1
<PAGE>
(vii) The information in the Prospectus under "Description of
Capital Stock", "Business--Property", "Business--Regulation", "Business--Legal
Proceedings", "Certain Tax Considerations", "Risk Factors--Tax Risks", "Risk
Factors--Regulatory Risks" and "Indemnification of Directors and Officers" and
in the Registration Statement under Item 14, to the extent that it constitutes
matters of law, summaries of legal matters, the Company's charter and by-laws or
legal proceedings, or legal conclusions, has been reviewed by us and is correct
in all material respects; and the opinion of such firm set forth under "Certain
Tax Considerations" is confirmed.
(viii) To the best of our knowledge, there are no United States
federal or state statutes or regulations that are required to be described in
the Prospectus that are not described as required.
(ix) All descriptions in the Registration Statement of contracts and
other documents to which the Company or [ ] Re Ltd. is a party are accurate in
all material respects; to the best of our knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto,
and the descriptions thereof or references thereto are correct in all material
respects.
(x) To the best of our knowledge, neither the Company nor [ ] Re Ltd.
is in violation of its charter or by-laws and no default by the Company or [ ]
Re Ltd. exists in the due performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other agreement or instrument that is described
or referred to in the Registration Statement or the Prospectus or filed or
incorporated by reference as an exhibit to the Registration Statement.
(xi) No filing with, or authorization, approval, consent, license,
order, registration, qualification or decree of, any United States federal or
state court, governmental authority or agency (other than under the 1933 Act and
the 1933 Act Regulations, which have been obtained, or as may be required under
the securities or blue sky laws of the various states, as to which we need
express no opinion) is necessary or required in connection with the due
authorization, execution and delivery of the Purchase Agreements, the Direct
Agreements or the Warrants or for the offering, issuance or sale of the
Securities, the Direct Securities or the Warrants.
(xii) The execution, delivery and performance of the Purchase
Agreements, the Direct Agreements and the Warrants and the consummation of the
transactions contemplated therein and in the Registration Statement (including
the issuance and sale of the Securities, the Direct Securities and the Warrants
and the use of the proceeds from the sale of the Securities, the Direct
Securities and the Warrants as described in the Prospectus under the caption
"Use of Proceeds") and compliance by the Company with its obligations under the
Purchase
A-2
<PAGE>
Agreements, the Direct Securities and the Warrants do not and will not,
whether with or without the giving of notice or lapse of time or both, conflict
with or constitute a breach of, or default or Repayment Event (as defined in
Section 1(a)(ii) of the Purchase Agreements) under or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets of the
Company or [ ] Re Ltd. pursuant to any contract, indenture, mortgage, deed
of trust, loan or credit agreement, note, lease or any other agreement or
instrument known to us, to which the Company or [ ] Re Ltd. is a party or by
which it or [ ] Re Ltd. may be bound, or to which any of the property or
assets of the Company or [ ] Re Ltd. is subject (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not have a
Material Adverse Effect), nor will such action result in any violation of the
provisions of any applicable law, statute, rule, regulation, judgment, order,
writ or decree, known to us, of any United States federal or state government,
government instrumentality or court having jurisdiction over the Company or
[ ] Re Ltd. or any of their respective properties, assets or operations.
(xiii) To the best of our knowledge, there are no persons with
registration rights or other similar rights to have any securities registered
pursuant to the Registration Statement or otherwise registered by the Company
under the 1933 Act.
(xiv) No registration of the Strategic Securities or the Warrants
under the Act is required for the offer and sale of the Strategic Securities or
the Warrants to the Strategic Investors by the Company, in the manner described
in the Registration Statement and the Prospectus.
(xv) No authorization of, and no filing with or notice to, any
governmental or regulatory authority of the United States federal government, or
any self-regulatory organization or any court or other tribunal of the United
States federal government, is required by either the Company or [ ] Re Ltd. to
own, lease, license and operate its properties or to conduct its business as
described in the Prospectus.
(xvi) Each of the Company and [ ] Re Ltd. has validly and
irrevocably submitted to the jurisdiction of any federal or state court sitting
in the City of New York, has validly and irrevocably waived, to the fullest
extent permitted by law, any objections that it may now or hereafter have to the
laying of venue of any such suit, action or proceeding brought in any such court
based on or arising under this Agreement or any claims that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum, and has validly appointed CT Corporation System as its
authorized agent to receive service of process in any such suit, action or
proceeding; and the choice of the law of New York as the governing law of this
Agreement is a valid and effective choice of law;
(xvii) Neither the Company nor [ ] Re Ltd. is, nor will be
transactions contemplated by the Purchase Agreements, the Direct Agreements or
the Warrants cause either the Company or [ ] Re Ltd. to be, subject to
registration as an investment company under the 1940 Act or controlled by an
investment company subject to such registration, an investment
A-3
<PAGE>
adviser under the Advisers Act, or a broker-dealer under the Exchange Act; [ ]
Re Ltd. is a "foreign insurance company" within the meaning of Rule 3a-6 under
the 1940 Act, and the conduct of the respective businesses of the Company and [
] Re Ltd. as described in or contemplated by the Prospectus will qualify [ ] Re
Ltd. as a "foreign insurance company" within the meaning of such Rule; Form F-N
has been filed with the Commission, and such Form accurately sets forth all
information required to be included therein and complies as to form in all
material respects with the applicable requirements of the Act and the 1940 Act
and the respective rules and regulations of the Commission thereunder.
(xviii) To the best of our knowledge, no relationship, direct or
indirect, exists between or among the Company or [ ] Re Ltd. on the one
hand, and the directors, officers, promoters, affiliates or shareholders of the
Company or [ ] Re Ltd. on the other hand, that is required to be described
in the Registration Statement or the Prospectus which is not so described.
Nothing has come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule 430A
Information and Rule 434 Information (if applicable), (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we need make no statement), at the time such Registration
Statement or any such amendment became effective, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus or any amendment or supplement thereto (except for financial
statements and schedules and other financial data included therein or omitted
therefrom, as to which we make no statement), at the time the Prospectus was
issued, at the time any such amended or supplemented prospectus was issued or at
the Closing Time, included or includes an untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
Although there is no dispositive legal authority for our opinion set
forth in paragraph (xiv) and indirectly in paragraphs (xi) and (xii), that no
registration of the Strategic Securities or the Warrants under the Act is
required for the offer and sale by the Company of the Strategic Securities and
the Warrants to the Strategic Investors, in the manner described in the
Registration Statement and the Prospectus, such opinions are based on our
analysis of such judicial decisions and governmental rulings and interpretations
as we believe are relevant.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the laws of Bermuda, upon the opinion of Conyers,
Dill & Pearman, Bermuda counsel to the Company (which opinion shall be dated and
furnished to the U.S. Representatives at the Closing Time, shall be satisfactory
in form and substance to counsel for the U.S. Underwriters and shall expressly
state that the U.S. Underwriters may rely on such opinion as if it were
addressed to them), provided that Mayer, Brown & Platt shall state in their
opinion that they believe that they and the U.S. Underwriters are justified in
relying upon such opinion,
A-4
<PAGE>
and (B) as to matters of fact (but not as to legal conclusions), to the extent
they deem proper, on certificates of responsible officers of the Company and
public officials. Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written policy
or other document relating to legal opinions, including, without limitation, the
Legal Opinion Accord of the ABA Section of Business Law (1991).
A-5
<PAGE>
Exhibit B
FORM OF OPINION OF COMPANY'S BERMUDA COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) The Company and [ ] Re Ltd. have been duly incorporated, are
validly existing and in good standing (meaning that they have not failed to make
any filing with any Bermuda governmental authority or to pay any Bermuda
government fee or tax which might make them liable to be struck off the Register
of Companies and thereby cease to exist under the laws of Bermuda) under the
laws of Bermuda.
(ii) The Company has the necessary corporate power and authority,
pursuant to its Memorandum of Association to own and hold the issued shares in
[ ] Re Ltd.; [ ] Re Ltd. has the necessary corporate power and authority,
pursuant to its Memorandum of Association, to carry on insurance and reinsurance
business as described in the Prospectus, was registered as an insurer in terms
of the Insurance Act, effective as of ________, 1998, and is authorized to carry
on business in that capacity as described in the Prospectus, subject to the
provisions of the Insurance Act and the regulations promulgated thereunder and
to the conditions set out in Schedule I to the Certificate of Registration,
issued by the Bermuda Registrar of Companies to the subsidiaries, dated _______,
1998, a copy of which, together with the said Schedule I, shall be attached to
such counsel's opinion.
(iii) The authorized share capital of [ ] Re Ltd. established under its
Memorandum of Association is ____ common shares, par value U.S.$[1.00] per
share; based solely on the review of the Register of Members, [ ] Re Ltd. has
issued ____ common shares, par value U.S.$[1.00] per share, to the Company and
all such shares have been duly authorized and validly issued, are fully paid and
nonassessable (which term, when used herein shall mean that no further sums are
payable with respect to the holding of shares now or in the future) and are
registered in the name of the Company.
(iv) The authorized share capital of the Company established under its
Memorandum of Association is ____ common shares, par value U.S.$1.00 per share;
without giving effect to the Issuance of Common Shares contemplated by this
Agreement, the Direct Agreements and the Warrants and based solely on the review
of the Register of Members, prior to the date hereof the Company has issued
12,000 Common Shares, par value U.S.$1.00 per share, to The Golden Purpose
Trust, a Bermuda Trust, and all such Common Shares have been duly authorized and
validly issued, and are fully paid and nonassessable.
(v) The Company has the necessary corporate power and authority to enter
into and perform its obligations under the Purchase Agreements, the Direct
Agreements and the Warrants and to issue the Securities, the Direct Securities
and the Warrants; the execution and delivery of the Purchase Agreements, the
Direct Agreements and the Warrants
B-1
<PAGE>
by the Company, and the performance of its obligations thereunder, do not
violate, and are not subject to preemptive rights under, the Company's
Memorandum of Association or Bye-Laws or any applicable law, regulation, order
or decree in Bermuda.
(vi) The Company has taken all corporate action required to authorize
its execution, delivery and performance of the Purchase Agreements, the Direct
Agreements and the Warrants; the Purchase Agreements, the Direct Agreements and
the Warrants have been duly executed and delivered by or on behalf of the
Company and constitute the valid and binding obligations of the Company in
accordance with the terms thereof.
(vii) The Securities and Direct Securities have been duly authorized,
and upon payment for the Securities and Direct Securities in accordance with the
Purchase Agreements and the Direct Agreements, as applicable, and registration
in the Company's Register of Members, the Securities and Direct Securities will
be validly issued, fully paid and nonassessable; upon issuance and payment for
the Common Shares issued pursuant to the Warrants, such Common Shares will be
validly issued, fully paid and nonassessable. The holders of Common Shares are
not entitled to any pre-emptive or other rights to subscribe for shares in the
capital of the Company under the Memorandum of Association or the Bye-Laws of
the Company, the Purchase Agreements, the Direct Agreements or the Warrants or
any applicable law, regulation, order or decree in Bermuda.
(viii) No order, consent, approval, license, authorization or
validation of or exemption by any government or public body or authority of
Bermuda or any subdivision thereof is required to authorize or is required in
connection with the execution, delivery, performance and enforcement of the
Purchase Agreements, the Direct Agreements or the Warrants, except such as have
been duly obtained in accordance with Bermuda law.
(ix) It is not necessary or desirable to ensure the enforceability in
Bermuda of the Purchase Agreements, the Direct Agreements or the Warrants that
they be registered in any register kept by, or filed with, any governmental
authority or regulatory body in Bermuda.
(x) There are no Bermuda stamp, transfer or similar taxes payable in
respect of the issuance and delivery of the Securities, the Direct Securities or
Warrants to the Underwriters, the Strategic Investors or the Affiliated
Purchasers (assuming that each such Underwriter, Strategic Investor or
Affiliated Purchaser is not resident in Bermuda for exchange control purposes)
pursuant to the Purchase Agreements, the Direct Agreements and the Warrants, as
the case may be; the Purchase Agreements, the Direct Agreements and the Warrants
will not be subject to ad valorem stamp duty in Bermuda, and no registration,
documentary, recording, transfer or other similar tax, fee or charge by any
Bermuda Government authority is payable in connection with the execution,
delivery, filing, registration or performance of the Purchase Agreements, the
Direct Agreements and the Warrants.
B-2
<PAGE>
(xi) No currency exchange control laws or withholding taxes of Bermuda
or elsewhere apply to the payment of dividends (a) on the Securities by the
Company or (b) by [ ] Re Ltd. to the Company, except in each case as described
in or contemplated by the Prospectus; and [ ] Re Ltd. is not currently
prohibited by any Bermuda law or governmental authority, directly or indirectly,
from paying any dividends to the Company, from making any other distributions on
its capital stock, from repaying to the Company any loans or advances to it from
the Company or from transferring any of its property or assets to the Company,
except as described or contemplated in the Prospectus.
(xii) There is no Bermuda income, corporation or profits tax,
withholding tax, capital gains tax, capital transfer tax, estate duty or
inheritance tax payable by the Company or [ ] Re Ltd. or by any Underwriter,
Strategic Investor or Affiliated Purchaser, except where such Underwriter,
Strategic Investor or Affiliated Purchaser is ordinarily resident in Bermuda for
exchange control purposes; each of the Company and [ ] Re Ltd. has received,
pursuant to the Exempted Undertakings Tax Protection Act, 1966, an assurance
from the Minister of Finance of Bermuda that, in the event of there being
enacted in Bermuda any legislation imposing tax computed on profits or income,
or computed on any capital asset, gain or appreciation, or any tax in the nature
of estate duty or inheritance tax, such tax shall not be applicable to it or to
any of its operations or the shares, debentures or other obligations of it
except insofar as such tax applies to persons ordinarily resident in Bermuda
holding such shares, debentures or other obligations of it or any land leased or
let to it, which assurance shall be in effect and apply to it until [ ].
(xiii) Based solely on a search of the Register of Charges, maintained
by the Registrar of Companies pursuant to Section 55 of the Companies Act 1981,
conducted at _____ on ________, 1999, there are no registered charges registered
against the Company or [ ] Re Ltd..
(xiv) Based solely upon a search of the Cause Book of the Supreme Court
of Bermuda conducted at ______ on _______, 1999, there are no judgments, nor
legal or governmental proceedings pending in Bermuda to which the Company or [ ]
Re Ltd. is a party.
(xv) None of the Underwriters, Strategic Investors and Affiliated
Purchasers will be deemed to be resident, domiciled or carrying on business in
Bermuda by reason only of the execution, performance and enforcement of the
Purchase Agreements, the Direct Agreements and the Warrants.
(xvi) Each of the Underwriters, Strategic Investors and Affiliated
Purchasers has standing to bring an action or proceedings before the appropriate
courts in Bermuda for the enforcement of the Purchase Agreements, the Direct
Agreements and the Warrants, as applicable; it is not necessary or advisable in
order for any such Underwriter, Strategic Investor or Affiliated Purchaser to
enforce its rights under any such documents, including
B-3
<PAGE>
the exercise of remedies thereunder, that it be licensed, qualified or otherwise
entitled to carry on business in Bermuda.
(xvii) The statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company and the
Warrants provide a fair summary of such provisions, and the statements set forth
under the headings "Enforcement of Civil Liabilities Under United States Federal
Securities Laws", "Risk Factors - Dependence on Key Personnel", "Risk Factors -
Regulatory Risks", "Risk Factors - Bermuda Taxes", "Risk Factors - Limitations
on Transfers", "Risk Factors - Holding Company Structure", "Risk Factors -
Foreign Corporation, Service of Process and Enforcement of Judgments",
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations - Taxation", "Business - Regulation", "Description of Capital Stock",
"Certain Tax Considerations - Taxation the Company and Its Subsidiary - Bermuda"
and "Certain Tax Considerations - Taxation of Shareholders - Bermuda Taxation"
in the Prospectus, insofar as such statements constitute a summary of provisions
of Bermuda law or the Company's Memorandum of Association and Bye-Laws, provide
a fair summary of such legal matters or the Memorandum of Association and Bye-
Laws.
(xviii) Each of the Company and [ ] Re Ltd. has validly and
irrevocably submitted to the nonexclusive jurisdiction of any federal or state
court sitting in the City of New York, has validly and irrevocably waived, to
the fullest extent permitted by law, any objections that it may now or hereafter
have to the laying of venue of any such suit, action or proceeding brought in
any such court based on or arising under this Agreement or any claims that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum, and has validly appointed CT Corporation System as its
authorized agent to receive service of process in any such suit, action or
proceeding; and the choice of the law of New York as the governing law of this
Agreement is a valid and effective choice of law.
(xix) The courts of Bermuda would recognize as a valid judgment, a
final and conclusive judgment in personam obtained in any federal or state court
sitting in the State of New York against the Company based upon the Purchase
Agreements, the Direct Agreements or the Warrants under which a sum of money is
payable (other than a sum of money payable in respect of multiple damages, taxes
or other charges of a like nature or in respect of a fine or other penalty) and
would give a judgment based thereon provided that (a) such courts had proper
jurisdiction over the parties subject to such judgment, (b) such courts did not
contravene the rules of natural justice of Bermuda, (c) such judgment was not
obtained by fraud, (d) the enforcement of the judgment would not be contrary to
the public policy of Bermuda, (e) no new admissible evidence relevant to the
action is submitted prior to the rendering of the judgment by the courts of
Bermuda and (f) the due compliance with the correct procedures under the laws of
Bermuda.
B-4
<PAGE>
(xx) Pursuant to section 16 of the Companies Act 1981, the Bye-Laws of
the Company and [ ] Re Ltd. have been duly adopted by the directors and the
members of the Company and [ ] Re Ltd. and bind the Company and [ ] Re Ltd. and
the members thereof to the same extent as if the Bye-Laws had been signed and
sealed by each said member, and contained covenants on the part of each member
to observe all of the provisions of the Bye-Laws.
(xxi) The Company and [ ] Re Ltd. have been designated as non-resident
for the purposes of the Exchange Control Act, 1972 and as such are free to
acquire, hold and sell foreign currency and securities. No currency exchange
control laws or withholding taxes of Bermuda apply to the payment of dividends
(a) on the Common Shares by the Company or (b) by [ ] Re Ltd. to the Company,
except in each case as described in or contemplated by the Prospectus; and [ ]
Re Ltd. is not currently prohibited by any Bermuda law or governmental
authority, directly or indirectly, from paying any dividends to the Company,
from making any other distributions on its capital stock, from repaying to the
Company any loans or advances to it from the Company or from transferring any of
its property or assets to the Company, except as summarized in the Prospectus.
(xxii) The choice of the Foreign Laws to govern the Purchase Agreements,
the Direct Agreements and the Warrants is a valid choice of law and the
submission therein by the Company to the non-exclusive jurisdiction of the
Foreign Courts is valid and binding upon the Company and [ ] Re Ltd.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem proper, on certificates of responsible
officers of the Company and public officials.
References to the Registration Statement and the Prospectus in this
opinion shall include any amendment or supplement thereto at the date of such
opinion.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of the laws of the United States, upon the opinion
of Mayer, Brown & Platt, United States counsel to the Company (which opinion
shall be dated and furnished to the U.S. Representatives at the Closing Time,
shall be satisfactory in form and substance to counsel for the Underwriters
and shall expressly state that the Underwriters may rely on such opinion as
if it were addressed to them), provided that Conyers, Dill & Pearman shall
state in their opinion that they believe that they and the Underwriters are
justified in relying upon such opinion, and (B) as to matters of fact (but
not as to legal conclusions), to the extent they deem proper, on certificates
of responsible officers of the Company and public officials. Such opinion
shall not state that it is to be governed or qualified by, or that it is
otherwise subject to, any treatise, written policy or other document relating
to legal opinions, including, without limitation, the Legal Opinion Accord of
the ABA Section of Business Law (1991).
B-5
<PAGE>
Exhibit C
FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER SHAREHOLDERS PURSUANT TO
SECTION 5(l)
[ ], 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Chase Securities Inc.
as Representatives of the several U.S.
Underwriters to be named in the
within-mentioned Purchase Agreement
C/O MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by [ ] Re Holdings Ltd.
----------------------------------------------------
Dear Sirs:
The undersigned, a shareholder [and an officer and/or director] of [ ] Re
Holdings Ltd., a Bermuda corporation (the "Company"), understands that Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and Chase Securities Inc. propose to enter into a Purchase Agreement
(the "Purchase Agreement") with the Company providing for the public offering of
shares (the "Securities") of the Company's common shares, par value $[1.00] per
share (the "Common Shares"). In recognition of the benefit that such an
offering will confer upon the undersigned as a shareholder [and an officer
and/or director] of the Company, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the undersigned
agrees with each underwriter to be named in the Purchase Agreement that, during
a period of one (1) year from the date of the Purchase Agreement, the
undersigned will not, without the prior written consent of Merrill Lynch, and in
the case of the Strategic Investors, both Merrill Lynch, on behalf of the U.S.
Underwriters, and the Company, directly or indirectly, (i) 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
C-1
<PAGE>
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 or file any registration statement under the
Securities Act of 1933, as amended, with respect to any of the foregoing or (ii)
enter into any swap or any other agreement or any transaction that transfers, in
whole or in part, directly or indirectly, the economic consequence of ownership
of the Common Shares, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Shares or such other
securities, in cash or otherwise.
Very truly yours,
Signature:_______________________________
Print
Name:____________________________________
C-2
<PAGE>
FORM NO. 2 EXHIBIT 3.1
[LOGO]
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(Section 7(1) and (2))
MEMORANDUM OF ASSOCIATION
OF
Gemini Re Holdings 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,
<TABLE>
<CAPTION>
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARES
(Yes/No) SUBSCRIBED
<S> <C> <C> <C>
Lisa J. Marshall Clarendon House Yes British One
2 Church Street
Hamilton HM 11
Bermuda
David W.P. Cooke " Yes British One
James M. Macdonald " Yes British One
</TABLE>
do hereby respectively agree to take such number of shares of the Company as may
be allotted to us respectively by the provisional directors of the Company, not
exceeding the number of shares for which we have respectively subscribed, and to
satisfy such calls as may be made by the directors, provisional directors or
promoters of the Company in respect of the shares allotted to us respectively.
<PAGE>
3. The Company is to be an exempted Company as defined by the Companies Act
1981.
4. The Company, with the consent of the Minister of Finance, has power to hold
land situate 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$1.00 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 -
(i) packaging of goods of all kinds;
(ii) buying, selling and dealing in goods of all kinds;
(iii) designing and manufacturing of goods of all kinds;
(iv) mining and quarrying and exploration for metals, minerals, fossil
fuels and precious stones of all kinds and their preparation for
sale or use;
(v) exploring for, the drilling for, the moving, transporting and re-
fining petroleum and hydro carbon products including oil and oil
products;
(vi) scientific research including the improvement, discovery and
development of processes, inventions, patents and designs and the
construction, maintenance and operation of laboratories and research
centres;
(vii) land, sea and air undertakings including the land, ship and air
carriage of passengers, mails and goods of all kinds;
(viii) ships and aircraft owners, managers, operators, agents, builders and
repairers;
(ix) acquiring, owning, selling, chartering, repairing or dealing in
ships and aircraft;
(x) travel agents, freight contractors and forwarding agents;
(xi) dock owners, wharfingers, warehousemen;
(xii) ship chandlers and dealing in rope, canvas oil and ship stores of
all kinds;
(xiii) all forms of engineering;
(xiv) farmers, livestock breeders and keepers, graziers, butchers, tanners
and processors of and dealers in all kinds of live and dead stock,
wool, hides, tallow, grain, vegetables and other produce;
<PAGE>
(xv) acquiring by purchase or otherwise and holding as an investment
inventions, patents, trade marks, trade names, trade secrets,
designs and the like;
(xvi) buying, selling, hiring, letting and dealing in conveyances of any
sort;
(xvii) employing, providing, hiring out and acting as agent for artists,
actors, entertainers of all sorts, authors, composers, producers,
directors, engineers and experts or specialists of any kind;
(xviii) to acquire by purchase or otherwise hold, sell, dispose of and deal
in real property situated outside Bermuda and in personal property
of all kinds wheresoever situated;
(xix) to enter into any guarantee, contract of indemnity or suretyship and
to assure, support or secure with or without consideration or
benefit the performance of any obligations of any person or persons
and to guarantee the fidelity of individuals filling or about to
fill situations of trust or confidence; and
(xx) to provide and/or procure financing and financial investment,
management and advisory services and administrative services to all
or any of the following: (i) any subsidiary and affiliate (as such
expressions are understood in the Companies Act 1981) of the
Company, wherever incorporated; (ii) any entity controlled directly
or indirectly, by the Company; and (iii) any entity in which the
Company owns, directly or indirectly, an equity interest of not less
than twenty percent of the total equity issued and outstanding in
that entity; and, in connection with any of the foregoing, to
provide and or procure credit, financial accommodation, loans and or
advances with or without interest to any such subsidiary or
affiliate or entity and to lend to and or deposit with any financial
institution, fund and or trust, all or any property of the Company
and or any interest therein to provide collateral for loans or other
forms of financing provided to any such subsidiary or affiliate or
entity.
7. Powers of the Company
1. The Company shall, pursuant to the 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.
<PAGE>
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof
/s/ Lisa J. Marshall /s/ Karen O'Connor
- ----------------------------------- -----------------------------------
/s/ David W.P. Cooke /s/ Karen O'Connor
- ----------------------------------- -----------------------------------
/s/ J. M. Macdonald /s/ Karen O'Connor
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
(Subscribers) (Witnesses)
SUBSCRIBED this 30th day of November, 1998
<PAGE>
EXHIBIT 3.2
B Y E - L A W S
of
GEMINI RE HOLDINGS LTD.
<PAGE>
(i)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Bye-Law Page
<C> <S> <C>
1 Interpretation 1
2 Board of Directors 2
3 Management of the Company 3
4 Power to appoint managing director or chief executive officer 3
5 Power to appoint manager 3
6 Power to authorise specific actions 3
7 Power to appoint attorney 4
8 Power to delegate to a committee 4
9 Power to appoint and dismiss employees 4
10 Power to borrow and charge property 4
11 Exercise of power to purchase shares of or discontinue the Company 5
12 Election of Directors 5
13 Defects in appointment of Directors 5
14 Alternate Directors 6
15 Removal of Directors 6
16 Vacancies on the Board 7
17 Notice of meetings of the Board 7
18 Quorum at meetings of the Board 8
19 Meetings of the Board 8
20 Unanimous written resolutions 8
21 Contracts and disclosure of Directors' interests 9
22 Remuneration of Directors 9
23 Officers of the Company 9
24 Appointment of Officers 10
25 Remuneration of Officers 10
26 Duties of Officers 10
27 Chairman of meetings 10
28 Register of Directors and Officers 11
29 Obligations of Board to keep minutes 11
30 Indemnification of Directors and Officers of the Company 11
31 Waiver of claim by Member 12
32 Notice of annual general meeting 12
33 Notice of special general meeting 13
34 Accidental omission of notice of general meeting 13
35 Meeting called on requisition of members 13
36 Short notice 13
37 Postponement of meetings 14
</TABLE>
<PAGE>
(ii)
<TABLE>
<C> <S> <C>
38 Quorum for general meeting 14
39 Adjournment of meetings 14
40 Attendance at meetings 14
41 Written resolutions 15
42 Attendance of Directors 16
43 Voting at meetings 16
44 Voting on show of hands 16
45 Decision of chairman 16
46 Demand for a poll 17
47 Seniority of joint holders voting 18
48 Instrument of proxy 19
49 Representation of corporations at meetings 19
50 Rights of shares 19
51 Power to issue shares 20
52 Variation of rights, alteration of share capital and purchase of
shares of the Company 21
53 Registered holder of shares 22
54 Death of a joint holder 22
55 Share certificates 23
56 Calls on shares 23
57 Forfeiture of Shares 24
58 Contents of Register of Members 24
59 Inspection of Register of Members 25
60 Determination of record dates 25
61 Instrument of transfer 25
62 Restriction on Transfer 26
63 Transfers by joint holders 26
64 Representative of deceased Member 26
65 Registration on death or bankruptcy 27
66 Declaration of dividends by Board 27
67 Other distributions 27
68 Reserve fund 28
69 Deduction of amounts due to the Company 28
70 Issue of bonus shares 28
71 Records of account 28
72 Financial year end 29
73 Financial statements 29
74 Appointment of Auditor 29
75 Remuneration of Auditor 30
76 Vacation of office of Auditor 30
77 Access to books of the Company 30
</TABLE>
<PAGE>
(iii)
<TABLE>
<C> <S> <C>
78 Report of the Auditor 30
79 Notices to Members of the Company 31
80 Notices to joint Members 31
81 Service and delivery of notice 31
82 The seal 31
83 Manner in which seal is to be affixed 32
84 Winding-up/distribution by liquidator 32
85 Alteration of Bye-laws 32
Schedule - Form A (Bye-law 48) 33
Schedule - Form B (Bye-law 57) 34
Schedule - Form C (Bye-law 61) 35
Schedule - Form D (Bye-law 65) 36
</TABLE>
<PAGE>
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 as amended from time to time;
(b) "Alternate Director" means an alternate Director appointed in
accordance with these Bye-laws;
(c) "Auditor" includes any individual or partnership;
(d) "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;
(e) "Company" means the company for which these Bye-laws are approved
and confirmed;
(f) "Director" means a director of the Company and shall include an
Alternate Director;
(g) "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;
(h) "notice" means written notice as further defined in these Bye-
laws unless otherwise specifically stated;
(i) "Officer" means any person appointed by the Board to hold an
office in the Company;
(j) "Register of Directors and Officers" means the Register of
Directors and Officers referred to in these Bye-laws;
(k) "Register of Members" means the Register of Members referred to
in these Bye-laws; and
<PAGE>
-2-
(l) "Resident Representative" means any person appointed to act as
resident representative and includes any deputy or assistant
resident representative.
(m) "Secretary" means the person appointed to perform any or all
duties of secretary of the Company and includes any deputy or
assistant secretary.
(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.
<PAGE>
-3-
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 directions 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 all expenses incurred in
promoting and incorporating the Company.
4. Power to appoint managing director or chief executive officer
-------------------------------------------------------------
The Board may from time to time appoint one or more Directors to the office
of managing director or 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.
5. Power to appoint manager
------------------------
The Board may appoint a person to act as manager of the Company's day to
day business 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 authorise specific actions
-----------------------------------
The Board may from time to time and at any time authorise any company,
firm, 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.
<PAGE>
-4-
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 it may think fit and any such power of attorney may contain such provisions
for the protection and convenience of persons dealing with any such attorney as
the Board may think fit and may also authorise any such attorney to sub-delegate
all or any of the powers, authorities and discretions so vested in the attorney.
Such attorney may, if so authorised under the seal of the Company, execute any
deed or instrument under such attorney's personal seal with the same effect as
the affixation of the seal of the Company.
8. Power to delegate to a committee
--------------------------------
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.
9. Power to appoint and dismiss employees
--------------------------------------
The Board may appoint, suspend or remove any manager, secretary, clerk,
agent or employee of the Company and may fix their remuneration and determine
their duties.
10. 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.
<PAGE>
-5-
11. Exercise of power to purchase shares of or discontinue the Company
------------------------------------------------------------------
(1) The Board may exercise all the powers of the Company to purchase all
or any part of its own shares pursuant to Section 42A of the Act.
(2) The Board may exercise all the powers of the Company to discontinue
the Company to a named country or jurisdiction outside Bermuda pursuant to
Section 132G of the Act.
12. Election of Directors
---------------------
The Board shall consist of not less than two Directors or such number in
excess thereof as the Members may from time to time determine who shall be
elected or appointed in the first place at the statutory meeting of the Company
and thereafter, except in the case of casual vacancy, at the annual general
meeting or at any special general meeting called for the purpose and who shall
hold office for such term as the Members may determine or, in the absence of
such determination, until the next annual general meeting or until their
successors are elected or appointed or their office is otherwise vacated, and
any general meeting may authorise the Board to fill any vacancy in their number
left unfilled at a general meeting.
13. 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 such person had been duly appointed and
was qualified to be a Director.
14. Alternate Directors
-------------------
<PAGE>
-6-
(1) Any general meeting of the Company may elect a person or persons to act
as a Director in the alternative to any one or more of the Directors of the
Company or may authorise the Board to appoint such Alternate Directors. Unless
the Members otherwise resolve, any Director may appoint a person or persons to
act as a Director in the alternative to himself or herself by notice in writing
deposited with the Secretary. Any person so elected or appointed shall have all
the rights and powers of the Director or Directors for whom such person is
appointed in the alternative provided that such person shall not be counted more
than once in determining whether or not a quorum is present.
(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.
15. Removal of Directors
(1) Subject to any provision to the contrary in these Bye-laws, the Members
may, at any special general meeting convened and held in accordance with these
Bye-laws, remove a 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
<PAGE>
-7-
Director is removed and, in the absence of such election or appointment, the
Board may fill the vacancy.
16. 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
and to appoint an Alternate Director to any Director so appointed.
(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 as the
quorum necessary for the transaction of business at meetings of the Board, the
continuing Directors or Director may act 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.
17. Notice of meetings of the Board
(1) A Director may, and the Secretary on the requisition of a Director
shall, at any time summon a meeting of the Board.
<PAGE>
-8-
(2) Notice of a meeting of the Board shall be deemed to be duly given to a
Director if it is given to such Director verbally in person or by telephone or
otherwise communicated or sent to such Director by post, 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.
18. Quorum at meetings of the Board
The quorum necessary for the transaction of business at a meeting of the
Board shall be two Directors.
19. 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 meeting of the Board shall be carried
by the affirmative votes of a majority of the votes cast and in the case of an
equality of votes the Chairman of the Board shall have a second or casting vote.
20. 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.
<PAGE>
-9-
21. 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.
22. Remuneration of Directors
The remuneration (if any) of the Directors shall be determined by the
Company in general meeting 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.
OFFICERS
--------
23. Officers of the Company
The Officers of the Company shall consist of a President and a Vice
President or a Chairman and a Deputy Chairman, a Secretary and such additional
Officers as the Board may from time to
<PAGE>
-10-
time determine all of whom shall be deemed to be Officers for the purposes of
these Bye-laws.
24. Appointment of Officers
(1) The Board shall, as soon as possible after the statutory meeting of
Members and after each annual general meeting, appoint a President and a Vice
President or a Chairman and a Deputy Chairman who shall be Directors.
(2) The Secretary and additional Officers, if any, shall be appointed by the
Board from time to time.
25. Remuneration of Officers
The Officers shall receive such remuneration as the Board may from time to
time determine.
26. 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.
27. Chairman of meetings
Unless otherwise agreed by a majority of those attending and entitled to
attend and vote thereat, the Chairman, if there be one, and if not the President
shall act as chairman at all meetings of the Members and of the Board at which
such person is present. In their absence the Deputy Chairman or Vice President,
if present, shall act as chairman and in the absence of all of them a chairman
shall be appointed or elected by those present at the meeting and entitled to
vote.
28. Register of Directors and Officers
The Board shall cause to be kept in one or more books at the registered
office of the Company a Register of Directors and Officers and shall enter
therein the particulars required by the Act.
<PAGE>
-11-
MINUTES
-------
29. Obligations of Board to keep minutes
(1) 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.
(2) Minutes prepared in accordance with the Act and these Bye-laws shall be
kept by the Secretary at the registered office of the Company.
INDEMNITY
---------
30. Indemnification of Directors and Officers of the Company
The Directors, Secretary and other Officers (such term to include, for the
purposes of Bye-laws 30 and 31, any person appointed to any committee by the
Board) for the time being acting in relation to any of the affairs of the
Company and the liquidator or trustees (if any) for the time being acting in
relation to any of the affairs of the Company and every one of them, and their
heirs, executors and administrators, shall be indemnified and secured harmless
out of the assets of the Company from and against all actions, costs, charges,
losses, damages and expenses which they or any of them, their heirs, executors
or administrators, shall or may incur or sustain by or by reason of any act
done, concurred in or omitted in or about the execution of their duty, or
supposed duty, or in their respective offices or trusts, and none of them shall
be answerable for the acts, receipts, neglects or defaults of the others of them
or for joining in any receipts for the sake of conformity, or for any bankers or
other persons with whom any moneys or effects belonging to the Company
<PAGE>
-12-
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.
31. 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
--------
32. Notice of annual general meeting
The annual general meeting of the Company shall be held in each year other
than the year of incorporation at such time and place as the President or the
Chairman or any two Directors or any Director and the Secretary or the Board
shall appoint. At least five days 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.
33. Notice of special general meeting
The President or 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 five
days' notice which shall state the date, time, place and
<PAGE>
-13-
the general nature of the business to be considered at the meeting.
34. 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 meeting by, any person entitled to receive notice
shall not invalidate the proceedings at that meeting.
35. 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.
36. 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.
37. Postponement of meetings
The Secretary may postpone any general meeting called in accordance with the
provisions of these Bye-laws (other than a meeting requisitioned under these
Bye-laws) 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.
<PAGE>
-14-
38. Quorum for general meeting
At any general meeting of the Company two persons present in person and
representing in person or by proxy in excess of 50% of the total issued voting
shares in the Company 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 form a quorum
for the transaction of business at any general meeting of the Company held
during such time. 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 one week later, at the same time and place or to such other day, time or
place as the Secretary may determine.
39. Adjournment of meetings
The chairman of a general meeting may, with 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.
40. Attendance at meetings
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.
41. 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 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
<PAGE>
-15-
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.
42. 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.
<PAGE>
-16-
43. Voting at meetings
(1) Subject to the provisions of the Act and these Bye-laws, any question
proposed for the consideration of the Members at any general meeting 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.
(2) No Member shall be entitled to vote at any general meeting unless such
Member has paid all the calls on all shares held by such Member.
44. 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.
45. 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, and 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.
46. 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:-
<PAGE>
-17-
(a) the chairman of such meeting; or
(b) at least three 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 shares in the Company conferring the right to
vote at such meeting, being shares on which an aggregate sum
has been paid up equal to not less than one-tenth of the
total sum paid up on all such shares conferring such right.
(2) Where, in accordance with the provisions of subparagraph (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, 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 subparagraph (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 subparagraph (1) of
this Bye-law, for the purpose of electing a chairman of the meeting 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 (or acting 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.
<PAGE>
-18-
(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.
47. 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.
48. Instrument of proxy
The instrument appointing a proxy shall be in writing in the form, or as
near thereto as circumstances admit, of Form "A" in the Schedule hereto, under
the hand of the appointor or of the appointor's 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.
49. 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
<PAGE>
-19-
right of any person to attend and vote at general meetings on behalf of a
corporation which is a Member.
SHARE CAPITAL AND SHARES
------------------------
50. Rights of shares
Subject to any resolution of the Members to the contrary and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the share capital of the Company shall be
divided into shares of a single class the holders of which shall, subject to the
provisions of these Bye-laws:-
(a) be entitled to one vote per share;
(b) be entitled to such dividends as the Board may from time to time
declare;
(c) in the event of a 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 the
surplus assets of the Company; and
(d) generally be entitled to enjoy all of the rights attaching to
shares.
51. Power to issue shares
(1) Unless the Company in General Meeting stipulates otherwise and without
prejudice to any special rights previously conferred on the holders of any
existing shares or class of shares, the Board shall have power to issue any
unissued shares of the Company on such terms and conditions as it shall
determine and any shares or class of shares may be issued with such preferred,
deferred or special rights or such restrictions, whether in regard to dividend,
voting, return of capital or otherwise as the Board may from time to time
prescribe and may issue options and warrants for any class of shares and the
Board may generally exercise the powers set out in Sections 45(1)(b)(c)(d) and
(e) of the Act.
<PAGE>
-20-
(2) 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.
(3) 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 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 mentioned in Sections 39A, 39B and 39C of the Act.
(4) The Company may from time to time do any one or more of the following
things:
(a) make arrangements on the issue of shares for a difference
between the Members in the amounts and times of payments of
calls on their shares;
(b) accept from any Member the whole or a part of the amount
remaining unpaid on any shares held by him, although no part
of that amount has been called up;
(c) pay dividends in proportion to the amount paid up on each
share where a larger amount is paid up on some shares than on
others; and
(d) issue its shares in fractional denominations and deal with
such fractions to the same extent as its whole shares and
shares in fractional denominations shall have in proportion
to the respective fractions represented thereby all of the
rights of whole shares including (but without limiting the
generality of the foregoing) the right to vote, to receive
dividends and distributions and to participate in a winding
up.
52. Variation of rights, alteration of share capital and purchase of shares of
the Company
(1) Subject to the provisions of Sections 42 and 43 of the Act any
preference shares may be issued or converted into shares that, at a determinable
date or at the option of the Company, are liable to be redeemed on such terms
and in such manner as the Company before the issue or conversion may by
resolution of the Members determine.
<PAGE>
-21-
(2) If at any time 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 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.
(3) 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.
(4) The Company may from time to time purchase its own shares in accordance
with the provisions of Section 42A of the Act.
53. 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.
<PAGE>
-22-
(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.
54. 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.
55. 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 it
sees fit.
<PAGE>
-23-
56. Calls on shares
(1) 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 and, if a call is not paid on or before the day appointed for
payment thereof, the Member may at the discretion of the Board be liable to pay
the Company interest on the amount of such call at such rate as the Board may
determine, from the date when such call was payable up to the actual date of
payment. The joint holders of a share shall be jointly and severally liable to
pay all calls in respect thereof.
(2) The Board may, on the issue of shares, differentiate between the holders
as to the amount of calls to be paid and the times of payment of such calls.
57. Forfeiture of shares
(1) If any Member fails to pay, on the day appointed for payment thereof,
any call in respect of any share allotted to or held by such Member, the Board
may, at any time thereafter during such time as the call remains unpaid, direct
the Secretary to forward to such Member a notice in the form, or as near thereto
as circumstances admit, of Form "B" in the Schedule hereto.
(2) If the requirements of such notice are not complied with, any such share
may at any time thereafter before the payment of such call and the interest due
in respect thereof be forfeited by a resolution of the Board to that effect, and
such share shall thereupon become the property of the Company and may be
disposed of as the Board shall determine.
(3) A Member whose share or shares have been forfeited as aforesaid shall,
notwithstanding such forfeiture, be liable to pay to the Company all calls owing
on such share or shares at the time of the forfeiture and all interest due
thereon.
<PAGE>
-24-
REGISTER OF MEMBERS
-------------------
58. 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 particulars required by the Act.
59. 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.
60. Determination of record dates
Notwithstanding any other provision of these Bye-laws, the Board may fix any
date as the record date for:-
(a) determining the Members entitled to receive any dividend; and
(b) determining the Members entitled to receive notice of and to vote at
any general meeting of the Company.
TRANSFER OF SHARES
------------------
61. Instrument of transfer
(1) An instrument of transfer shall be in the form or as near thereto as
circumstances admit of Form "C" in the Schedule hereto or in such other common
form as the Board may accept. 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
<PAGE>
-25-
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.
62. Restriction on transfer
(1) The Board may in its absolute discretion and without assigning any
reason therefor refuse to register the transfer of a share. The Board shall
refuse to register a transfer unless all applicable consents, authorisations and
permissions of any governmental body or agency in Bermuda have been obtained.
(2) If the Board refuses to register a transfer of any share the Secretary
shall, within three months after the date on which the transfer was lodged with
the Company, send to the transferor and transferee notice of the refusal.
63. 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 to the executors or administrators of such deceased
Member.
TRANSMISSION OF SHARES
----------------------
64. Representative of deceased Member
In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives of
the deceased Member where the
<PAGE>
-26-
deceased Member was a sole holder, shall be the only persons recognised by the
Company as having any title to the deceased Member's interest in the shares.
Nothing herein contained shall release the estate of a deceased joint holder
from any liability in respect of any share which had been jointly held by such
deceased Member with other persons. Subject to the provisions of Section 52 of
the Act, for the purpose of this Bye-law, legal personal representative means
the executor or administrator of a deceased Member or such other person as the
Board may in its absolute discretion decide as being properly authorised to deal
with the shares of a deceased Member.
65. Registration on death or bankruptcy
Any person becoming entitled to a share in consequence of the death or
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 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 "D" in the Schedule hereto.
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 death or bankruptcy,
as the case may be.
DIVIDENDS AND OTHER DISTRIBUTIONS
---------------------------------
66. Declaration of dividends by the Board
The Board may, subject to these Bye-laws and 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.
67. Other distributions
<PAGE>
-27-
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.
68. 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 to be used to meet contingencies or for equalising dividends or for any
other special purpose.
69. 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.
CAPITALISATION
--------------
70. Issue of bonus shares
(1) 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.
(2) The Company may capitalise any sum standing to the credit of a reserve
account or sums otherwise available for dividend or distribution by applying
such amounts in paying up in full partly paid shares of those Members who would
have been entitled to such sums if they were distributed by way of dividend or
distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
---------------------------------
71. Records of account
<PAGE>
-28-
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.
72. 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.
73. 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
-----
74. 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.
<PAGE>
-29-
75. 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.
76. 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.
77. 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.
78. 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.
<PAGE>
-30-
(3) The generally accepted auditing standards referred to in subparagraph
(2) of this Bye-law may be those of a country or jurisdiction other than
Bermuda. If so, the financial statements and the report of the Auditor must
disclose this fact and name such country or jurisdiction.
NOTICES
-------
79. 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.
80. 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.
81. 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.
SEAL OF THE COMPANY
-------------------
<PAGE>
-31-
82. 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.
83. 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 any person appointed by the Board for the purpose, provided that any
Director, Officer or Resident Representative, may affix the seal of the Company
attested by such Director, Officer or Resident Representative's signature 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, Officer or Resident Representative.
WINDING-UP
----------
84. 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
----------------------
<PAGE>
-32-
85. 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.
******
***
*
<PAGE>
-33-
SCHEDULE - FORM A (Bye-law 48)
-----------------
..............................................
----------------------------------------------
P R O X Y
---------
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>
-34-
SCHEDULE - FORM B (Bye-law 57)
------------------------------
NOTICE OF LIABILITY TO FORFEITURE FOR NON PAYMENT OF CALL
---------------------------------------------------------
You have failed to pay the call of [amount of call] made on the ...... day
of ........, 19.. last, in respect of the [number] share(s) [numbers in
figures] standing in your name in the Register of Members of the Company,
on the ...... day of ........., 19.. last, the day appointed for payment
of such call. You are hereby notified that unless you pay such call
together with interest thereon at the rate of .......... per annum
computed from the said ....... day of ........., 19... last, on or before
the ....... day of ........., 19... next at the place of business of the
Company the share(s) will be liable to be forfeited.
Dated this ....... day of ........., 19...
[Signature of Secretary]
By order of the Board
<PAGE>
-35-
SCHEDULE - FORM C (Bye-law 61)
-----------------
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)
..............................
(Transferee)
In the presence of:
..............................
(Witness)
<PAGE>
-36-
SCHEDULE--FORM D (Bye-law 65)
-----------------------------
TRANSFER BY A PERSON BECOMING ENTITLED ON DEATH/BANKRUPTCY OF A MEMBER
- ----------------------------------------------------------------------
I/We having become entitled in consequence of the [death/bankruptcy] of
[name of the deceased Member] to [number] share(s) standing in the register
of members of [Company] in the name of the said [name of deceased Member]
instead of being registered myself/ourselves elect to have [name of
transferee] (the "Transferee") registered as a transferee of such share(s)
and I/we do hereby accordingly transfer the said share(s) to the Transferee
to hold the same unto the Transferee his or her executors administrators
and assigns subject to the conditions on which the same were held at the
time of the execution thereof; and the Transferee does hereby agree to take
the said share(s) subject to the same conditions.
WITNESS our hands this ........ day of ..........., 19...
Signed by the above-named )
[person or persons entitled] )
in the presence of: )
Signed by the above-named )
[transferee] )
in the presence of: )
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
of Gemini Re Holdings Ltd.
We consent to the reference of our firm under the caption "Experts" and to the
use of our report dated December 18, 1998, in the Registration Statement (Form
S-1 No. 333-00000) and related Prospectus of Gemini Re Holdings Ltd. dated
January 7, 1999.
ERNST & YOUNG
Hamilton, Bermuda
January 6, 1999.
